ENTREPRENUERSHIP EDUCATION

NOTES
Entrepreneurship refers to the taking of a risk (chance succeeding or
failing) to produce or sell products (goods and services) to meet the
customer’s needs in the hope of earning some profits.
It involves doing new things or doing things already being done but in a
better way.
Entrepreneurship is a process where people identify opportunities and
transform them into practical business activities.
Entrepreneurship education means developing personal qualities and
attitudes as well as formal knowledge and skills to start business and
become successful.
Personal qualities and attitudes are those that increase the probability of
a person seeing opportunities and doing something about them.
Formal knowledge and skills are what must be done to establish a new
enterprise. They teach to develop an idea into successful oriented people.
AN ENTREPRENUER.
This is a person who produces new or better good or services with a view
of selling them to customers and making a profit
The entrepreneur commits his/her resource, time, land, energy, etc. and
start with a hope of making a profit.
Entrepreneurship development means developing people’s knowledge,
skills and qualities to make them better entrepreneurs.
WHY DO WE STUDY ENTREPRENEURSHIP EDUCATION
1. To become job creators and not job seekers in future after
completing school
2. To appreciate business as a career
3. To appreciate self - employment instead of being a paid employee.

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 4. To understand the increasing needs of our society i.e.
Unemployment, poverty.
5. To acquire skills of starting and managing a business successfully.
6. To pass exams
WORK
Work is the use of bodily and mental efforts to perform (produce)
something beneficial to the person engaged in it.

TYPES OF WORK

There are 2 types of work i.e.

i). Professional work

ii). Non – professional work.

PROFESSIONAL WORK.

It is work which requires skills, knowledge and training to be

performed

PROFESSIONAL WORK PROFESSIONAL WORKER

Teaching Teacher / lecturer /
Tutor
Medical care Doctors / Nurses
Building Engineers
Book keeping Bursar / Cashier /
Auditor
Security Police man / solider
Building and construction Engineer / Plumber

NON PROFESSIONAL WORK

This is work where one is not required to possess prior knowledge

and skills before performing a task.

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 The person involved may acquire basic skills and knowledge
through repetitive execution of work.

Examples of such work include

- Digging
- Mixing mortar
- Making bricks manually
- Compound cleaning

DIFFERENCES BETWEEN PROFESSIONAL WORK AND NON

PROFESSIONAL WORK
1. In most cases, professional work is more paying than non-
professional work.
2. People who do professional work are more respected than those who
do non-professional work
3. Professional work doesn’t involve dirt while in professional work
involves a lot of dirt.

CHARACTERISTICS OF WORK.
This refers to the typical characteristics of any task. Work can be
grouped into physical or mental
PYSICAL TYPE OF WORK.
It involves mainly the use of the brain to perform a given task e.g driving,
teaching.
It may involve use of body muscles but mainly brains to perform a given
task.
NATURE OF DIFFERENT TYPES OF WORK COMMONLY DONE IN
OUR COMMUNITIES
People in the community do different types of work in order to earn
money. Examples of such work include;
1. Agriculture.

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This is growing of crops and rearing of animals, birds, fish with the
intention of earning income. Examples of agricultural activities include;
Cattle keeping, poultry, piggery, be keeping, aqua – culture etc.
2. Trading

This is buying and selling of goods and services with the aim of making
profits.
3. Manufacturing

This is work which involves the transformation of raw materials into

finished products such as making clothes from cotton, making cement
from limestone, shoes from leather, books from wood, etc.
4. Service rendering.

This is the use of knowledge, skills, attitudes and talents to perform a

task that is required and paid for by others. It involves the provision of
intangible items to satisfy wants.
TOPIC 1: DIGINITY OF WORK.
It refers to the respect and values of one attaches to work.
IMPORTANCES AND VALUES OF DOING WORK.
It is important and valuable to work because of the following reasons.
1. For social recognition

People who work are given social recognition and earn a lot of respect
from society members.
2. To increase one’s income.

Work helps one to increase his/her income

3. It implores one’s standards of living.
4. It helps people to use resources, talents, knowledge and skills
productively.
5. It makes people become useful and helpful to their communities in
general.

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 6. It helps people to meet their family requirements
7. It gives people independence and self-reliance
8. It creates a competitive spirit which enables people to acquire
property.
9. It helps people to save and prepare for their old age.

10. It helps one to be self – employed. Here a person starts doing work
because he / she is interested in becoming self –employed.
This promotes one’s independence and self-reliance.
11. People work to preserve culture. Some people may be shown through
singing and dancing

MYTHS AND BELIEFS ABOUT WORK AND BUSINESS

Myths refer to the false ideas that society has about doing certain things.
Examples of myths are;
 A carpenter or teacher will never become rich
 Building is an actively for men only
 Business is normally a last resort after one has failed to succeed
with studies
 Child care is work for women
 All people who work in breweries are drunkard
 Women do not catch fish
 Kitchen work is not meant for men
 Women should not ride bicycles or climb trees.
 Entrepreneurs are borne not made
 Entrepreneurs are rich because they cheat
 Business people apply charms to attract customers
 Business is all about gambling
 You cannot set up a business unless you have a lot of money
 Business is a risk and ends in failure

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  Mathematics is a subject for boys only
 Scientists cannot speak English fluently
 Engineers and mechanics are always dirty
 Government officials with big stomachs are corrupt.

NEGATIVE BELIEFS ABOUT BUSINESS

1. If you open your business on Sundays, you will get bad lack
2. If you sell salt at night, you will get bad luck
3. Business is for people who have failed to get paid employment
4. Business people are thieves and never tell the truth.
5. To succeed in business, one needs to practice witch craft
6. Room No 13 in a hotel has bad luck
7. Do not offer credit to the first customer in a business
8. To succeed in a business one should first sacrifice a goat or hen
9. To succeed in business, one has to go under water for blessings.

WAYS OF OVERCOMING NEGATIVE BELIEFS ABOUT WORK AND

BUSINESS.
1. Do work or business as long as it is legal, socially acceptable and
profitable
2. Train to acquire necessary knowledge and skills for work or
business
3. Develop self-confidence and apply one’s knowledge and skills
effectively
4. Work hard and succeed
5. Analyze your business failures objectively
6. Persevere in business.

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CAREER OPPORTUNITIES
A career refers to an undertaking that one gets involved in order to
survive and achieve one’s future goals.
It is what one wants to b e.g. Doctor, lawyer, teachers.
An individual who wants to employ him / herself can develop these
careers
FACTORS THAT PROMOTE STATUS IN SOCIETY.
Some of the factors that promote status in society include;
1. Values such as honesty, hard work, respect / unity, dependability,
compliance with law are to promote the status of an individual to
high level.
2. Diligently serving the customers all the time through exhibiting all
the customer care skills
3. Servicing selflessly
I.e. being empathetic about other people
4. Excellent performance.
This involves showing good results or quality in a given task.
5. Education status.
This is having high levels of academics attachment e.g. a PhD in
Medicine, Law, Education, etc.

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 6. Family back ground. Society respects people who come from royal
families e.g. Price, Princes, Queen, King or from the ruling families
e.g. president’s children.

7. Hereditary position.
These include the King’s family or those people who are attached to
the King’s family.
8. Political attachment or position e.g. MP, Mayor, council, District
Chairperson, etc.

FACTORS THAT INFLUENCE THE CHOICE OF A CAREER.

The factors considered when choosing / selecting a career are;
1. Personal interest of the student.
People normally choose careers which they like and admire
2. Family background.
Some families have a bias either in favour of against some careers.
In the end, they encourage or discourage their members from taking
up certain careers.
3. Academic preference and attainment.
People tend to choose careers basing on the level of academic
attainment achieved of a S. 4 certificate, a Master’s Degree,
Diploma etc.
4. Ability of the Person.
Some people have special talents and abilities that enable them to
do certain things with ease. Such people end or find themselves
doing jobs which they are talented in.
5. Government Policy towards employment.
Government can determine what choice of careers it wants most of
its citizens to be involved in e.g. encouraging student to do science
subjects at A ‘levels to become Scientists in future e.g. Doctors,
Engineers, etc.
6. Influence from friends, teachers, etc.
The friends you interact with regularly influence the careers and
choices individuals. Make people always tend to go in for career
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 which are praised by their friends e.g. teachers at school and ignore
those are despised.

7. Benefits associated with career.

People tend to choose careers which are highly paying and leave
careers which are poorly paying.
8. Job opportunity available for the career.
People choose careers that are marketable and can enable them to
get employment soon after completing studies. They leave those
careers are not marketable.
9. Religious influence.
People choose careers basing on their religion or in line with their
religion e.g. choosing to be a priest because you belong to a Roman
Catholic setting.
10. Peer influence.
The peers one interacts with, regularly influence the choice of
careers to undertake people go in for careers which are praised by
their peers and ignore careers which are despised by their peers.
11. Inspiration from role model.
Role models are people who are excellent in their activities. Most
people have role models and therefore tend to choose careers of
their position role models.

EXAMPLES OF POSSIBLE CAREER OPPORTUNITIES

SECTOR CAREER OPPORTUNITIES
Education Teachers, Lecturers, Tutors.
Health Dentist, Optician, Nurses,
Midwives, Surgeons, Psychosis,
Pathologist, Radiologist,
Cardiologist, Genealogist,
Neurosis, Orthopaedian,

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 Pedestrian, Virogist, Pharmacists
Security Forces Army men/women,
Policemen/women, Prison
officers and waders Askaris.
Law Advocates, Lawyers, Judges,
Magistrates, Prosecutors.
Hotel and Tourism Front desk officers, Tourist
guides, Park rangers, cashiers,
chefs, travel agents.
Commerce and manufacturing Managers, Accountants,
Secretaries, Banking officers,
Engineers, etc.
Media Newsreaders, journalists, news
reporter, TV
Cameraman/woman, printers
and Engineers, Editors, Sub-
editors, Designers
Construction Architects, Engineers, Survey,
Plumber, Electrical engineer,
Construction, workers contractor

UNEMPLOYMENT.
This is where a person is looking for and willing to take whatever is
offered to him as salary or wage but cannot find one. Many people in
Uganda in the working age bracket do not have jobs. Some have
temporary jobs while others work where they are not interested or do not
fully exploit their potential. All these are signs of unemployment.

CAUSES OF UNEMPLOYMENT IN UGANDA

1. High population growth rate.

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 Many children are born in the country every day and when they
reach the working age, some fail to get jobs even after studies. This
means that the speed at which jobs are created is slower than the
speed at which the population is growing.
2. Discrimination in the market in Uganda basing on sex, age, etc.
Some employers in Uganda only employ particular sex of workers
and this leaves the other sex with similar skills unemployed.
3. Rural – Urban migration (RUM).
Many people move from the rural areas to towns like Kampala
where they end up becoming unemployed.
4. Inappropriate education and training.
The education system in Uganda mainly trains job seekers instead
of job makers and such people may fail to get jobs.
5. Poor attitude towards work.
Some people such as those from rich families and those who are
lazy, etc. tend to undermine some jobs
6. Lack of information on available job opportunities.
Some people do not know where the jobs exist.
7. Political instability in some parts of Uganda.
Some people such as those in Northern Uganda have been driven
away from their job areas.
8. Changes in seasons in the Agricultural sector.
Farmers become unemployed particularly during the dry season.
9. Use of advanced technology.
Some workers in the country are laid off from their jobs and are
replaced by machines. Such as computers, automated teller
machines (ATM) etc.
10. Physical and mental disabilities.
Some people with disabilities like the same and the blind cannot
find jobs where they can be accepted.
11. The nature of land ownership.
Some landlords own rent large pieces ofland especially in the rural
areas, leaving other people without land where they can get
employed.

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 12. Changing jobs.
Some people become unemployed during the short timeof looking
for another job after leaving the previous job e.g. builders.

13. Shortage of capital.

Some people do not have funds with which to startbusiness of their
own.
SUGGESTIONS ON HOW TO REDUCE UNEMPLOYMENT IN
UGANDA
 Proving students with proper career guidance on their subject
combination leading to causes that provide skills needed in
Uganda’s current job market.
 Having a positive attitude towards science and technical subjects as
these enable a person to be a job maker rather than a job seeker.
 Use of family planning methods to reduce Uganda’s high population
growth rate.
 Proving credit facilities to local investors at favourable interest
rates.
 Ensuring political stability and security in all parts of the country
 Improving on the existing infrastructures such as roads, in order to
encourage entrepreneurs to set up enterprises.
 Privatizing the public enterprises so that they can be expanded and
efficiently and effectively be managed by private entrepreneurs
hence creating more jobs.
 Advertising the available jobs to the public through giving this
responsibility of collecting information on available jobs to the
employment bureaus.
 Carrying out rural electrification to enable rural people start small
scale industries.

COMPETENCES REQUIRED IN THE JOB MARKET.

SUPPORTIVE SKILLS NEEDED FOR DIFFERENT CAREER

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Employers are interested in employing people who have special and
particular abilities that enable them to perform tasks well.
These abilities are referred to as skills which result from training and
experience. These supportive skills include the following among others.

1. Communication skills.
This is the ability of a person to use good ways to interact with
other people both verbally and through writing. This skill helps a
worker to understand his employer and the employer to understand
his employees.
2. Adopting skills.
This is the ability of a person to easily learn or respond to changes
i.e. the ability to be flexible.
3. Decision making skills or Initiative.
This is the ability of a person to make appropriate decisions
whenever necessary. Entrepreneurs / employers may seek the
option of workers and those with good decision making skills will
easily be liked.
4. Interpersonal skills.
This is the ability of relate / work with others. This enhances
teamwork to effectively and harmoniously perform tasks for the
success of an enterprise.
5. Technical skills.
These refer to the various abilities of a person to understand and
fully participate in the production process of a business. Normally
employers want to recruit workers with the right technical skills
such as machine operators, Managers, etc.
6. Creativity and innovativeness.
This is the ability to develop new ideas, methods, etc. Employers
need workers with these abilities especially where the nature of
work needs problem solving ability.
7. Stamina.
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 This is a person’s ability to work hard or put in much effort for a
long period of time without getting quickly tired. Employers need
workers with stamina especially where mental or physical work is
required.
8. Cultural diversity.
This is the ability to work in an environment with people from
different cultures or background.

TYPES OF EMPLOYMENT
Employment opportunities can be sub-divided into two i.e.
i). Self-employment
ii). Paid employment
The two types if employment opportunities may be sub divided into two
other forms i.e.
a). White Collar jobs
b). Blue Collar jobs
White collar jobs are those jobs where a person is doing office work
basically e.g. secretaries
Blue collar jobs are those involving manual labour e.g. in factories,
digging toilets.
PAID EMPLOYMENT
It refers to a situation where one gets employed by another person,
business, government, non-governmental organization etc. and she / he
is paid a wage or salary on regular basis.
ADVANGES OF PAID EMPLOYMENT.
1. Steady income.
A paid employee is assured of his regular payment at the end a
specific period even if the business has suffered losses
2. Existence of fringe benefits.

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 In paid employee may be agree like transport, medical, housing,
Punch allowance and working leaves, etc. hence improving his / her
welfare.
3. Minimum risks involved.
An employee suffers minimum risks since the business is not his
therefore he is assured of his payments irrespective of the business
performance.

4. Fixed responsibilities performed.

Responsibilities of the employees are usually specified in the job
description. Therefore the worker knows exactly what he/she is
supposed to do and how to do it.
5. The worker may be assured of promotion and a certain future as
long as he is operating well.
6. Fixed and favourable hours of work.
The employee has favourable hours of work and he can be given
some holidays (leave).
7. The employee has a set and convenient spurn of control over the
activities of the business i.e. one has the responsibility in the area
where he specializes in.
8. The future is always certain.
The future is always more certain since the income is always
assured.

DISADVANTAGES OF PAID EMPLOYMENT

1. There is a fixed rate of pay.
Paid employment is attached to a fixed rate of pay and therefore
cannot be exceeded even if the profits of the business increases or
even if your efforts lead to increased production.
2. The employees follow strict orders and instruction.
The employee works under specific instructions of the employer.
He/she has to consult before he/she implements policies.
3. Limited and fixed responsibility.

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 A paid employee has limited and specific responsibilities and
doesn’t go beyond doing work that he/she is not meant to do.
This hinders creativity and imitativeness of new ideas by the
employee.
4. There is a set spern of control.
i.e. one has to consult before implementing his own ideas which
may be time consuming.
5. There is no job security.
The employer may decide to dismiss or terminate one’s services
leading to loss of the job.
6. There is lack of independence by the employee.
The employees follow strict orders and instructions given by the
boss.
7. Loss of confidence of the workers.
One is required to follow order.

SELF EMPLOYMENT
This is when an individual starts his / her own income generating
activity and gets employed in it for survival.
ADVANTAGES OF SELF EMPLOYMENT.
1. Self-employment promotes creativity as one can easily come up with
new business ideas and even implement them.
2. The income for a self-employment person is potentially unlimited
i.e. One can earn any amount of income depending on his effort and
the level of profits made.
3. There is job security. The entrepreneur has no fear of losing a job or
changing to another job.
4. He / she has maximum control over the business i.e. Whatever he
wants will be done the way he wants it to be.
5. There is independence. The person is independent and can do
things at his/her own pace depending on circumstances e.g. He
may not report to work if he is sick. He is a boss of himself.

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 6. He promotes job satisfaction resulting from creation of one’s
employment
7. It leads to improvement in standards of living due to high income
8. It leads to provision of goods and services to the society
9. It leads to creation of employment for the owners where he earns a
living
Self-employed people are admired and respected by society for their
positive contribution.
11. A self-employed person gives advice and guidance to others to
be successful in self-employment.

12 .It develops self confidence and self-esteem as the person develops

the attitude of managing activities.

DISADVANTAGES OF SELF EMPLOYMENT

1. Long and irregular hours of work.
A self-employed person works for long hours in order to succeed
2. Uncertainty of income to be earned.
A self-employed person is not sure of how his /her income will be
i.e. whether it will be high or low.
3. No fringe benefits.
A self-employed person doesn’t receive any fringe benefits from the
work he does.
4. Broad responsibilities.
Self – employed people take on many roles in their business and
they are personally responsible for every activity in the business.
5. Uncertain future.
A self-employed person is not sure of how his future will be i.e.
whether it will be good or bad.
6. High risks involved.
There is a problem of risk taking in business therefore the
entrepreneur may end up making losses e.g. unfavourable
government policy, competition, etc.

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 7. A self-employed person lives a low life style especially at the
beginning.
This is because most of the saving and incomes are used in the
business leaving very little money for personal expenditures.

HOW TO OVERCOME ENTREPRENUERIAL CHALLENGES.

 Entrepreneurs need to employ their entrepreneurial qualities e.g.
hard work will lead them to success and bigger rewards, high
incomes as well as public respect.
 Seek more information about your business
 Set specific, measurable, Achievable and realistic goals
 Link with other individuals, agencies and groups in order to
maintain business contacts at a high level
 Practice good business ethics

Qn. Explain the different four categories of business in Uganda for

employment.
 Service business
 Trading business
 Agribusiness
 Manufacturing business

PERSONAL ENTREPRENUERIAL CHARACTERISTICS. (PECS)

These are the desired qualities that entrepreneur posses in order to be
successful.
TYPES / FORMS OF PEC’s.
Successful entrepreneurs are found to have unique characteristics
grouped as
i). Planning cluster
ii). Achievement cluster
iii). Power cluster

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PLANNING CLUSTER.
The planning cluster is made up of
1. Goal setting.
This refers to the ability of an entrepreneur to set goals and
objectives which are specific.

2. Information seeking.
This is having the urge to look for the required information in order
to make an informed decision. It involves seeking and obtaining
information regarding customers, suppliers and competitors.
3. Systematic planning and monitoring.
This is the ability to develop plans that will be used in
implementing, monitoring and evaluating the progress of the
business.

CHARACTERISTICS OF AN ENTREPRENUER.
1. He sets moderately difficult goals where the chances of success are
greater than those of failure. The tasks are neither too easy nor too
hard and the entrepreneur works hard to achieve the goal.
2. They assume personal responsibility for the outcomes of his
undertaking whether he succeeds or fails, rather than blame
outside factors for unsuccessful results. He will not, for example,
blame other people’s faults, poor materials or unhealthy
competition for a failure.
3. The continuously explores his surrounding to improve profits for
his business.
4. He is guided by his performance in the past as well as his
knowledge and skills. He is also able to recall reasons for past
failure.
5. He is bored by routine and thus sets about revising his/her
business using creative and innovative ideas of achieving objectives.

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 6. The wants concrete feedback on his/her performance. He / her
interest in profits is mainly for the feedback that they give him /her.
7. Failure and difficulties do not easily discourage him /her but give
him /her more enthusiasm and self confidence
8. He hates unfinished work or task
9. He considers interpersonal relationships important in as much as
they can help him/her achieve her/his goals. However she /he
chooses experts over friends as work partner being a task oriented
person that help him /her.

RISKS IN BUSINESS
A risk is a situation where a person takes on an activity with uncertain
outcomes. The outcomes can be either good (profits or success) or bad
(loss / failure).
TYPES OF RISKS.
There are basically 3 types of risks i.e.
1. Low / minimal risks. These are risks that yield low profits/benefits
to the business
2. Moderate risks. These are risks that can be forecast, calculated and
managed by the entrepreneur.
3. High risks. These are risks whose chances of happenings are very
high and the entrepreneur has very little or no control over them.

Examples of risks in business are;

 Accidents during transportation of delicate products e.g eggs, pots,
glasses.
 Unexpected fail in prices of goods
 Failure to attract enough customers. For example a new school
failing to get enough students
 Change in customers tastes and preferences
 Wrong decision making that may cause loss to the business

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  Outbreak of fire that may destroy the business.
 Find out what one would like to achieve
 Become aware of one’s needs.

QUALITY CHARACTERISTICS OF AN ENTREPRENUER.

1. He / she is an opportunity seeker.
Willing and able to see opportunities in whatever situation
Confronted with.
2. Information seeking.
He/she always looks out for more information on opportunities

3. Persistence /determination.
He /she doesn’t give up easily when confronted with challenges
4. Commitment.
He is prepared to put in what it takes to succeed and dedicated to
performing well
5. Perseverance.
He/she is not prepared to give up on one’s aim even when one is
challenged.
6. Creative.
He/she is able to think and come up with new ways and ideas.
7. Initiative.
He/she takes a lead in solving problems and doing things.
8. Independence.
He/she has the ability to make decisions on his own not depending
on others for ideas, solutions and options.
9. Problem solving.
He/she has the ability to tackle challenges and solve problems
10.Task oriented.
He /she is prepared to complete an assignment asagreed.
10. Risk taking.
He/she is willing to take chances with a hope of
Succeeding and getting bigger rewards.

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 12. Concern for efficiency and quality.
He /she doesn’t let things take their own concern but stick to
agreed standards.
13. Goal setting.
He is being driven by the desire to achieve.
14. Systematic planning and monitoring.
He is able to follow a logical process and order in getting things
done.
15. Competitiveness.
He/she is eager to win.

16. Flexibility.
He has the ability to listen and take other people’s views and advice.
17. Time consciousness.
He/she keeps time and meets agreed deadlines.
18. Energy and mobility (high energy level).
He/she is willing to work with one’s brains, body and energy.
19. Self-confidence and determination.
He is sure of oneself.
20. Persuasiveness.
He has ability to convince others to see and agree
withyour ideas.
21. Network ability.
He/she has ability to get others to work with you in pursuit of your
aims.
ACHIEVEMENT CLUSTER.
This involves the following.

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 1. Opportunity seeking.
This is where an entrepreneur sees and acts on new business
opportunities even where other people see nothing but problems.
2. Commitment to work contract.
Customer’s expert entrepreneurs to honour their commitments e.g.
a taxi driver has to take his passengers to the final destination.
3. Persistence.
This is where the entrepreneur is determined to have a job done at
all costs. He continues to operate until he achieves his goal.

4. Risk taking.
Entrepreneurs are people who love taking manageable risks. Before
they commit their resource, they assess the risks that are
associated with a business opportunity.
5. Efficiency and quality.
This is what enables an entrepreneur to do things that meet or
surpass existing standards or improve on performance. They strive
to produce goods or services faster and more cheaply by using
better technology e.g. a farmer using a tractor instead of a hand
hoe.

POWER CLUSTER
This is involves the following.
1. Persuasion.
This is the ability to make the public awareness of goods and
services produced. This helps to expand the market for the goods
and services this increase profits.
2. Networking.
This is the ability to link, convince and influence other individuals
and agencies in order to maintain business contacts at a high level.
3. Self-confidence.

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 This refers to having a strong belief in oneself and the ability to
complete a difficult task to overcome a challenge.
4. Entrepreneurial self-awareness.
This aims at enabling a person to become aware of one’s strengths
and weaknesses, achievements, motivation, Orientation, and
aspirations. This can be done by completing an entrepreneurial self-
assessment tool. This helps one to;
- Become aware of one’s strengths and weaknesses in an far as
entrepreneurship is concerned
- Review the reasons behind one’s failure and success
- Discover one’s mistakes and learn what and how to minimize
failure by learning how to act effectively.
- Breakdown in the supply of raw materials
- Unexpected harsh climatic changes for farmers
- Theft of cash /property
- Bad debts
- Theft and burglary of property.

ASSESSING RISKS.
This involves determining the potential success or potential loss of the
business. The greater the possible loss, the greater the risks involved.
Risks can be assessed basing on the following factors.
1. Experience and abilities of the person or persons involved in the
business. This looks at the person involved in promoting and
managing the business whether he/she possesses the required
knowledge, experiences and abilities.
2. Viability of the business

BUSINESS IDEAS.
A business idea is any thought that an entrepreneur may come up with
for the purpose of developing it into a business.
A business idea is a starting point in the journey of starting a business

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A business idea is the response of a person or an organization towards
solving an identified problem in the environment

SOURCES OF BUSINESS IDEAS.

An entrepreneur may develop or generate business ideas through;
1. Technical skills and experience that they exposes
2. Personal contacts with different people
3. Studying government policies and development plan
4. Hobbies / interest
5. Observations of the development and changes taking place in and
around them
6. Through the press i.e. Newspapers and Magazines
7. Conducting survey to find out what is happening
8. Having discuss with other entrepreneurs
9. Trade shows and exhibition
10. Brainstorming
11. Vocational training and experience
12. Customers’ complaints
13. Using a creative minds and innovative skills
14. Market research
15. Role models
16. Changes in society
17. Creative thinking
CREATIVITY
This is the ability which enables entrepreneurs to come up with exciting
business ideas in situation that may look hopeless.

INNOVATION
This is the creation of new ideas, products devices for the purpose of
production.
VIABLE BUSINESS

25
It is one which can be done given the available resources and turns out
to be successful i.e. It is one which is profitable.
INDICATORS OF A VIABLE BUSINESS.
1. Availability of ready market.
A market are the willing people and have the ability to buy the
available products
2. High returns on investments.
These are expected profits from a business.
3. Availability of efficient resources
Resources are endowments that exist in a locality or an area e.g.
area labour, R/M, etc.
4. Availability of technical skills that are available and affordable are
also indicators of a viable business
5. Ability to motivate the workers’ appropriate
6. Accessibility to appropriate technology
7. Accessibility in the community
8. Favourable government policy
9. Ease and compatible with society social roots
10. Accessibility to a well-developed social and economic
infrastructure
DECISION MAKING IN BUSINESS.
Decision making is a choice between two or more alternatives.
It is the process of making the best choice between 2 or more alternatives
in order to achieve business goals and objectives.
FACTORS THAT INFLUENCE DECISION MAKING.
1. Nature of the situation
Some situation an entrepreneur to take urgent decision e.g. if a
machine breaks down during production, an entrepreneur may
decide to hire other machines to complete a given task.
2. Availability of ready resources.

26
 Decision making is normally based on the availability of resources.
If resources are available, the process of decision making is always
easy and faster.
3. Environmental factor.
The environment in which the business is operating will affect any
decisions to be made. E.g. a decision on whether to manufacture
soap will have to be taken after taking into consideration the effects
it will have on the natural environment.
4. Possible benefits and challenges to self and others.
The gains to be obtained from the outcome of the decision are
seriously looked at. The decision will be made passing on how it will
improve the market and profits has many people will benefit and
whether it will address the objectives of the business
5. Costs involved
The decision to be taken must be in line with the available financial
resources. It is useless take a decision which can’t be implemented
due to its costs being too high to fit into the available financial
resources.

6. Time pressure.
Some decisions require urgency and have to be taken faster within
a short time.
STEPS TO TAKE IN DECISION MAKING.
The steps involved in decision making are;
1. Problem identification and getting acquainted with the problem in
general.
2. Determining the most important facts of the problems
3. Identifying and putting aside major and minor problems
4. Looking for real causes of the problems
5. Considering possible solutions

INCOMES AND ITS USES

Income is the financial proceeds that one gets after participating in
a legal gainful activity. No business can survive without earning
income.
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 TYPES OF INCOMES

1. Salary and wages.

Salary is a fixed and regular payment that is received for work
done by a permanent worker.
2. Profits.
A profit is an income which is earned by a business in form of
excess of selling price over buying price
3. Interest.
It is income that is earned by someone for allowing another
person to use his/her money
4. Bonus.
It is income received for satisfactorily or extra work done.
5. Fees.
It is income earned for providing a service.
6. Commission.
This is income received by an agent who sells goods and services
on behalf of another person.
7. Rent.
It is income earned by the owner of a place to live in or the use of
equipment for specific period of time.
8. Fares.
It is a transport charged imposed on passengers when they travel
from one place to another.
SOURCES OF INCOME.
There are different sources that an individual or business can earn
income from. These include;
1. Farming activities.
This involves growing of crops rearing animals or poultry and
selling their products etc. when products from these farming
activities are sold farmers get income.

28
 2. Trading
Trading refers to the process of buying and selling of goods with an
aim of making profits. When traders sell their goods and revenues
exceeds the cost value plus other administrative expenses incurred
in the business then trader for entrepreneurs.
3. Manufacturing.
Some entrepreneurs earn income from manufacturers and selling
goods. This may be weaving basket mats producing house hold
consumers etc. when the products are sold at prices higher than
their cost of production, entrepreneurs earn profits which is an
income to them.

4. Rendering services.
People get income through providing services which other –people
need and are willing to pay for e.g. Teaching, driving, hair, dressing,
etc.

5. Paid employment
People in paid employment earn income commonly known as wages
or salaries (depending on the nature of the job being done). People
like lawyers, doctors etc. who render private service to their clients
earn income called fees. People who act on behalf of others in some
transactions such as selling of their goods and services earn income
known as commission.

6. Talent.
Exploiting and developing one’s talent like playing football, singing,
etc can earn one’s income.

7. Education.
Highly educated people are paid more than semi-skilled person.

Ways of using income.

There are four main ways of using income which includes.

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 i) Consumption.
It’s the use of one’s income to satisfy his or her wants e.g.buying
household income commodities paying children’s fees clothing,
food, and drink entertainment,buying family residential houses etc.

Saving.
Saving is reserving one’s earning for future use solving requires one
to reduce on his or her current consupti0on to reduce balance that
can be future saved income can be is part of income earned which
is not spent on consumption

Investment.
Investment refers to using one’s income to start up an income
generating activity investment could be in form of buying proactive
resources e.g. land buying shares in other business, depositing
money in bank on fixed deposit account to earn internet.

Meeting precautionary needs.

Income earners at time save their money to meet some anticipate
future needs like old age, sickness and accidents.

Qn). Differentiate between voluntary savings and involuntary

savings.
Voluntary saving is where one saves by himself while Involuntary
saving is where one is compelled to save by law e.g. NSSF

SAVINGS AND INVESTMENT

SAVING.
WAYS OF INCREASING SAVINGS AND INVESTIMENTS.
For investments to take place, people and business must have saved
some of their income.

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Savings and investments can be increased through;
1). Reduction of consumption.
If you consume more income, savings will be below but if consumption
is low, savings increase.
2). Provision of banking facilities.
Presence of banking facilities encourages people save through banks.
3). Improvement of environment factors.
Savings and investment can be and increased if the lives of savers are
secure. This will give them confidence about the future and encourage
them to save more.
4). Creation of investment opportunities.
When some business are established in an area, they create further
investment opportunities for other services such as Metal fabrications,
food processing, refrigeration services, etc.
5). Development of saving attitude.
If investment is to be increased, then people need to develop a savings
culture. This could be done through intensive sensitization through
media, workshops or training programmes among others.
6). Budgeting
It is important to use realistic expenditure budget which must be less
than income.
FORMS / WAYS OF SAVINGS
There are different ways of saving which are include
I. Opening of a bank account either a saving or a fixed deposit
account
II. Buying shares in a company or investing in a business
III. Buying property such as land, houses, shares in other business,
etc.
IV. Borrowing for investments

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V. Buying currencies
PURPOSE / IMPORTANCE OF SAVING
1. Savings help to finance future consumption especially at old age.
2. To meet specific needs
3. To store current value or surplus
4. To meet future investment plans e.g. starting a business
5. To meet legal requirements of the government e.g. taxes
6. To create self -employment
7. To realize funds that can be used to meet the firms operational
budget
8. To facilitate the exploitation of idle resources
9. To accumulate letters / security for acquiring bank locus

PURPOSE / IMPORTANCE OF INVESTMENT IN AN ECONOMY.

1. Investment facilitate the exploitation of idle resources e.g. land.
2. It enables entrepreneurs to create self- employment and become self
–reliant
3. It helps to create employment opportunities for other people thus
reducing unemployment
4. It enables an entrepreneur to create more wealth / riches
5. It increases income of individuals for the purpose of saving
6. It enables entrepreneurs to produce goods and services needed by
the society and this improves the standards of living of the people
7. It boosts economic activities and fair distribution of income in a
country through investing in various parts of the country.
IMPORTANCE OF SAVINGS AND INVESTMENTS
The reasons for making savings and investments are;
1. As a precaution for the future needs.
People save income to provide for unforeseen problems that may
arise in the future that will require one to suddenly spend money.
The future needs illness, accidents, unemployment, etc.

2. For transactions.

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 Income is saved in order to have cash to meet transactions of
personal and business nature.
3. Self -employment.
Once an individual invests his / her savings, he/she will create
employment opportunities for him/herself. This will enables
him/her to become self-reliant.
4. Exploitation of idle resources.
Investing in business enables entrepreneurs to use resources that
may be idle. These can be converted into goods and services to meet
people’s needs.
5. Employment of others.
If investments being made are to use more labour than capital, then
a number of people will be employed. This will reduce
unemployment problem in the country. This will further lead to
people raising their standards of living.
6. Utilization of resources.
By establishing enterprises whether small or large. It will help in
tapping idle resources for instance human resources, land, water,
plants and animals. It also helps to produce goods and services for
exports, local consumption or investments. This will lead to
economic growth of the area and the country at large.
7. The quality argument.
Investment helps in the creation of wealth by producing more goods
and services as well as income for both the investors and
employees. Investment therefore helps to bring more people into
economic activities and in a way helps in the distribution of income.
This particularly helps if investment is deliberately spread all over
the country.
8. Savings.
Investment helps people and other business to increase their
incomes. This makes it’s possible for people who previously did not
have any significant income to get it and therefore be able to start
saving.

9. Exploiting opportunities.

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 One can easily exploit opportunities that it arise in the course of
running business.

CHARACTERISTICS OF PEOPLE WHO PREFER TO CONSUME

MOST OF THEIR INCOME (CONSUMPTION ORIENTED PEOPLE.
1. They are very extravagant.
They spend all the income that comes their way on things they may not
need immediately.
3. They live a luxurious way of life by purchases.
Luxurious and expensive goods and services that they comes
across. Some of these may not even be necessary but they just want
to show off.
3. They have a low desire to save such people rarely save and invest their
incomes.
4. They have got no investment plans for the future.
This is because their income is always spent as soon as they get it.
5. Their incomes normally tends to be used for paying debts that were
incurred prior to earning the income.
6. Whenever they earn some income, they become unstable all the time
waiting to go out and spend it. They only become stable after the money
has been exhausted.
CHARACTERISTICS OF PEOPLE WHO PREFERS TO SAVE
(SAVING ORIENTED PEOPLE)
1. They are very careful in their spending.
Every expenditure has to be justified.
2. They normally tend to live a simple life.
They do not engage in spending their income on luxury goods and
services.
3. They have high motivation to save and invest.
They tend to give priority to saving most of their earned income.

34
 4. They tend to look at and take up every opportunity that is available
for them to save.
5. They tend to forego a lot of things at the beginning (at times even
necessities of preferring to save for increased future consumption.
CHARACHERISTICS OF PEOPLE WHO PREFER TO INVEST.
(INVESTMENT ORIENTED PEOPLE)
1. They are always on the lookout for available investment
opportunities.
2. They tend to give priority to investment and much of their income is
reserved and used for investment.
3. The normally tend to live a simple life as they spend most of their
income on capital goods and services that will lead to further
investment.
4. Such people work hard and for longer hours to earn more income
so that they can increase their savings and subsequently invest.
5. They are always willing to take up calculated risks
6. They are always patient because results of investment can only be
realized after some time.
7. Security services protect properly against thefty and burglary.
8. Advertising services help to promote goods and services by
informing the public about them, their purpose and why they are
necessary for the consumer’s goods.
9. Repairing services help to restore the productive capacity of
machines and equipment.
10. Water is a very important utility because in some business, it
acts as a raw materials and it is also used for cleaning purposes.
QUALITY MANAGEMENT
Quality of a product is its ability to meet the customer’s expectation /
requirements.
CUSTOMERS’ PERCEPTION OF QUALITY.
1. The price.
It is assumed that the higher the price, the higher the quantity.
2. Brand name.

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 This gives a product reputation, good or bad. One may say that
radios and TVs branded SONY are of better quantity than
PANASONIC
3. Origin of products.
There is a perception that quality cars are from Japan and German.
4. Consumer’s point of view.
Consumers have different point of view and therefore perceive
quality of products differently.
5. Expiry date.
The date when the product expires may also show its quality.
6. Good packaging.
Consumers belief that well packaged product are of high quality
7. Conformance to weights and measurement.
It is assumed that product of net weights of high quality.
FACTORS THAT INFLUENCE THE GENERAL QUALITY
STANDARDS OF AN ENTERPRISE.
1. Cleanliness of the environment.
A clean environment under which a product is developed or service
rendered will have a bearing on its quantity 21600 +63600
2. Packaging of the commodity.
The way / methods of packaging a product may off its quantity i.e.
poor packaging may lead to contamination and good packaging
reduces contamination.
3. Technical specifications regarding quantity and quality in a soap
industry, if there is any alteration in the mixing of chemicals and
size of the product, it will greatly affect its quality and quantity.
WAYS OF ENSURING PRODUCTION OF QUANTITY GOODS AND
SERVICES
- Purchasing and using quality raw materials in production
producers
- Use if advanced technology, machines and equipment
- Employing skilled and experienced workers
- Ensuring proper packaging to protect products from damages

36
 - Putting in place proper ware houses and storage facilities for safe
handling and protection of products for damages.
- Choosing proper channel of distribution to ensure that the products
are handled well and don’t get spoilt on the way.
- Giving workers detailed instructions on what to do.
- Putting in place favourable working conditions for workers in terms
of equipment, tools and welfare services
- Observing cleanliness of the workplace during production
- Carrying out market research regularly to meet quality standards of
customs
- Observing technical specifications regarding quality
- Ensuring proper monitoring and supervision of the production
process
- Observing regulatory standards and laws as set by UNBS
- Ensuring standardization to create a good production image.

SAVINGS AND INVESTMENT PLANS

Making plans for savings and investment requires one to forecast

how, when and how much income he/she will receive during a
given period. The next step is to develop a budget and in so doing,
priorities his/her needs.
This involves doing the following.

- Identification of needs
- Setting saving targets
- Prioritizing the needs
- Finding out the differences between the total cost of the needs and
income, and establishing whether the balance meets saving targets.
- Carrying out a review of prioritizing needs, their costs and saving
targets to ensure that they can all be accommodated within the
income packages
- Choosing how the savings of income can be done
- Making the saving
- Spending part of the income on the priority list items that have
been provided with the budget.

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SUCCESS IN BUSINESS.
Success is the realization of a worthy intention. This means that one
becomes successful in time he / she takes a step towards a achieving a
predetermined goal, objective or target.
INDICATORS OF SUCCESS IN BUSINESS.
1. Increase in Assets
2. Increased profits
3. Expansion of business in terms of
i. Market share
ii. Production lines e.g. No of products being produced.
iii. Quantity of products
iv. No of employees
v. More branches opened
vi. Recognition in the community
vii. Reduced operational costs
viii. Contribution of business to the social consumers
ix. Improvement in staff morals / behaviours.etc.

FACTORS LEADING TO SUCCESSFUL BUSINESS

Several factors lead to success of the business namely;
1. Personal and entrepreneurial qualities of the owners and senior
management. The owner and senior management staff must
possess entrepreneurial qualities. These qualities help to provide
the business with goods, efficient and effective leadership and
management which will enable the business to succeed.
2. Clear objectives. It is necessary to have clear and definite objectives.
Once set, the entrepreneur should ensure that the business
operation and management guidelines set to achieve the objectives
are closely followed.

38
 3. Effective and efficient business planning. Planning enables a loss to
set its targets, methods of achieving them and resources to use in
the process.
4. Proper location and plant layout. Appointment location helps a
business in securing the required inputs e.g. Materials, labour,
power, etc. at minimum costs. It also helps to secure and access
markets at low costs.
5. Availability of business support service such as financial services,
loss information, transport, communication, water, power, etc. A
business that requires credit will do well if there are banks that can
lend it money for explanation.
6. Availability of market. Production of goods and services is
meaningless. If there are no customers to buy them prices that will
yield profits to the business. Enterprises produce their goods and
services to meet the needs of their customers.
7. Conducive government policy. Business thrive and succeed if
government policies are friendly such as fair taxation, controlled
inflation, a well fundraising financial systems, good security and
political stability as well as the banning of importation of cheap but
fake goods.

BENEFITS OF A SUCCESSFUL BUSINESS TO AN ENTREPRENUER.

By running a successful business, an entrepreneur gets the following
benefits.
1. It promotes self-reliance and fulfillment of basic needs by the
entrepreneur.
2. It leads to increased income and further investments.
3. It leads to recognition in the community. This helps to attract more
customers to the business.
4. It leads to improved standards of living of the entrepreneur and his
family.

39
 5. It creates a permanent address for the entrepreneur and the
workers.
COMMON MANAGEMENT MISTAKES THAT CAUSE BUSINESS
FAILURES
Many business have failed because they have been poorly managed. The
common management mistakes that cause business failure are;

1. Mistaking cash for profit.

Some entrepreneurs tend to mistake that the cash received from
the sale of goods / services to be profits. They end up misusing
business funds for other purposes not in line with business
activities.
2. Uncontrolled credit given to customers.
If friends and relatives are allowed to take goods at will with only a
promise to pay in the future, the business will soon run out of cash
needed to replenish its stock and meet its operating expenses.
3. Lack of record keeping.
Without records, it is difficult for an entrepreneur to tell if a
business is in trouble or not. In such circumstances, he / she will
know who owes his/her what, how much money is in his/her
business, how much profits he/she is making, etc.
4. Poor customer care.
If customers are not well handled, they will go to other business
where they are treated better. As a result, the business loses its
market, its products do not get bought while expenses continue
being incurred, customers run and goods get spoilt, the business
runs out cash and with time, the business collapsed.
5. Neglect.
Some business fails due to little attention given to them by their
owners. This may result to loss of personal interest poor time and
self-management such as over drinking, smoking extra
Marital affairs, change of priorities.
6. Incompetence.

40
 This is the inability of the business owner and employees to manage
the business operations effectively and efficiently.
7. Theft of business funds, stock, asset etc.
The business may suffer from loss of its assets (cast stocks, etc.)
through from outside.
8. Interference of the family members in the running of the
business.
An example of family interference is withdrawing business funds,
taking credit, workers, not pay and chasing away workers, not
being accountable to business.
9. Death of the business owner.
If the enterprise owner dies and there is no one competent to take
over the managements of the business or where the business is
subjected to family wrangles.

INDICATORS OF ABUSSINESSTHAT IS NOT DOING WELL

There are number of signs that cannot show that business is not
doing well e.g.in case of a shop the following are the indicators.
1. Empty shop shelves.
This means that business do not have cash to buy fresh stock or
replace the ones sold.
2. Expired /obsolete goods.
This means that the business has lost market and can’t sell the
goods.

3. Low sales.
This is assign that the business has lost market either because its
products do not meet the customers or it has poor customers
relationship.
4. Low profits.
This could be that the operating lost are low very high or the price
have gone down and the business can’t do anything about it
5. High expenses incurred.

41
 These expenses reduce the profits of the business and increase the
selling price.
This makes the products uncompetitive and loses market.

GOAL IN BUSSSINESS

A goal is the aim of achieving something within a given time frame.

(definite time frame)
A business goal is what the entrepreneur expect to achieve over a
given business.

Types of goals
There are two types of goals i.e.
Specific goals.
Long term goals

Specific goals.
These are tangible outputs or target that are to be realized in a
short period of time e.g. a year.
Increase in business gross sales by 25%
Increase in business gross sales by 25%
Increase in profits by 15%
Opening of a new store.Producing more brands (types of goods).

Long term goals.

These are target aims or output s that are to be realized over a

relatively longer period e.g. 3-5 years.
Example of such goals include;

Achieving profits that areincreasing gradually

Business achieving good will and respect from the community.
Becoming a market leader.

%
Increase in business gross sales by 25%

42
 Increase in profits by 15%
Opening of a new store.Producing more brands (types of goods).

Long term goals.

These are target aims or output s that are to be realized over a

relatively longer period e.g. 3-5 years.
Example of such goals include;

Achieving profits that are increasing gradually

Business achieving goodwill and respect from the community.
Becoming a market leader.

CHARACTERISTICS OF A GOAL.
Goals have characteristics which are summarized following letters
(SMART)

Specific.
A good goal should be clear in terms of what is of what is be
achieved,when,and how it will be achieved .

Measurable.
A good goal should have indicators to prove or show whether it is
being achieved or not and if achieved, how much of it is being
realized.

Attainable /achievable.
This means having what it takes to achieve the set goal e.g. capital,
labour skills, and experience.

Realistic.
A good goal should be achievable given the above resource, capacity
of the entrepreneur and the workers, legal regulationetc.

43
 Time bound.
A good goal should have a target time frame within which it should
be achieved

Written /documented
A good goal should be seen and referred to simple to understand
and not too much for one to fear and give up.

IMPORTANCE OF SETTING GOALS IN BUSINESS

1. Goals setting helps in proving targets that are to be achieved

2. It leads to maximum utilization of resources. Normally, goals are set
basing on available resources.
3. It helps in decision making since in setting a goal, the entrepreneur
considers the problem first then, it can help him to make the right
decision.
4. It helps in evaluation of performance. This helps to find out the
extent to which the business has been successful in achieving its
goals.
5. Goals help an entrepreneur to plan effectively for his business.
6. Goal setting encourages an entrepreneur to work hard
7. They help in revision of goals periodically so as to progress.
SWOT ANALYSIS
SWOT analysis is the process of identifying the strength, weaknesses,
opportunities and threats of an Organization or business.

SWOT CHART
1. STRENGTHS are;
- Ability of the products to meet customer’s task
- Efficiency and effectiveness in serving customers
- Ability and attract customers’
- Having good business location
- Having good and trained marketing staff
- Having high and effective entrepreneurial spirit

44
 - High quality products
- Setting Prices which are customer friendly but profitable
- Strengths are the things, features and qualities that put the
entrepreneur’s business products at an advantage when compared
to the competition.

2. WEAKNESSES.
These are the constraints that the business products may face in
the market e.g.
- Being new in the market and having a weak market image
- Weak distribution image
- Marketing skills that are below average
- Higher overall unit costs relative to key competitors
- Inability to finance needed marketing changes
- Too narrow a product line
- Location not being close or easily accessible to customer’s etc.

3. OPPORTUNITIES
These are external or chances that may happen and benefit the
business. The business has no control over such happenings and
they may or may not happen. Such possibilities may include the
following
- Possibility of landing big orders, say from the government arising
out of policy changes.
- Sudden shift in tastes and fashions of customers in favour of the
entrepreneur’s products.
- Change in the market trend due to new developments e.g. a new
school being opened up in the neighborhood, a large business being
established in the area, etc.
- Removal of trade barriers in attractive foreign markets e.g. United
States of America’s, Africa’s Growth Opportunity Act (AGOA). Which
removed import duties on selected goods manufactured in Africa
and enabled African countries to exploit to America.
- Faster market growth
- Complacency among rival enterprises

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 4. THREATS.
These are undesirable happenings that may occur in the market to
the disadvantage of the business.
- Entry of lower costs foreign companies
- Rising sales of substitute goods
- Adverse shifts in foreign exchange rates and trade policies
- Costly regulatory requirements
- Growing bargaining power of customer / suppliers
- Changing buyer needs and tastes
- Sudden negative changes in the government policies
- New business being started
- Competitors reducing their prices.

RELATIONSHIP BETWEEN BUSINESS SOCIETY AND NATURAL

ENVIRONMENT.
Natural environment means both the things we can see and those that
we cannot see around our business.
These are God “given things that surround us;
COMPONENTS OF NATURAL ENVIRONMENT.
These include;
1. Air
2. Water and things that live in it
3. Land or soil
4. Plants
5. Animals

DIFFERENCY OF BUSINESS ON THE NATURAL ENVIRONMENT

How the natural environment supports business;
1. Land provides space on which business premises are built
2. Air enables chemical and biological processes to take place
3. Water is used for both domestic and industrial use

46
 4. Plants provide food, raw materials, oxygen and carbon dioxide
5. Animals and insects provide food and raw materials.

REQUIREMENTS OF THE BUSINESS THAT AFFECTS THE NATURAL

ENVIRONMENT.
These vary depending on the nature type and size of the business.
However most of the size of business that affects the nature
requirements of the environment and need to be planned for includes.
i). Business premises for its operations, storage and extraction of raw
Materials require land.
ii). Machinery and equipment used in productive operations which
pollute
the environment.
iii). Resources such as raw materials or stocks for sale whose production
affect the natural environment e.g. charcoal, firewood, mining minerals.
iv). Packaging materials like polythene bags which affect drainage
systems, soil texture.etc.
v). Rubbish or waste materials produced through consumption and
productive operations which require disposal grounds e.g. garbage.
vi). Human resources for labour to manage business which use the
environment to construct residences and disposal facilities.

BENEFITS OF BUSINESS TO SOCIETY

There are several ways in which business benefits society.

HOW DOES SOCIETY BENEFIT FROM BUSINESS

1. Business produce goods and provide services needed by the society

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 2. They provide employment opportunities to the members of the
society
3. They contribute to community development programs.
4. They pay taxes to the local and central government which in turn
provides to the society
5. They clean the environment
6. They provide market to the society e.g. Agro businesses, used as
study centers’ i.e. for research and disposal grounds.
7. Business act as entertainment centres to the society e.g. clubs,
bars, theatres, hotels, etc.
8. They provide training programmes to members of the society
9. They lead to increased development activity e.g. more buildings,
more shelters, etc.
HOW DOES BUSINESS BENEFIT FROM THE SOCIETY?
1. Society provides market for business goods and services
2. Society provides labour to the business
3. Society is a source of capital to a business in that when they pay
cash for the goods and services, they provide working capital
4. Society provides security to the business
5. Society is a source of raw materials to the business
6. Business can use society to carry out research
7. Society gives advice to the business
8. Attitudes, society provides land to the business
EFFECTS OF BUSINESS ON THE NATURAL ENVIRONMENT
POSITIVE EFFECTS.
1. They provide employment opportunities to the people
2. They contribute to the community development programmes
3. They are a source of revenue to the government through payment of
taxes
4. They provide social services to the people e.g. roads, health, etc.
5. They provide market to society’s produce
6. They provide a variety of goods and services to the society
7. Some act as centres for developing and training manpower
8. They help students to carry out research and study activities

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 9. They clean the environment

NEGATIVE EFFECTS OF BUSINESS ON THE NATURAL

ENVIRONMENT.
1. They cause land degradation i.e. spoiling of soil fertility, soil
nutrients composition and soil structure arising from different land
use.
2. They cause deforestation i.e. cutting down of trees for timber
3. They cause Air and water pollution i.e. pollute water by using it as a
dumping ground for their wastes and effluents such as use
chemicals, residues, etc.
4. They lead to displacement of people i.e. through construction of
roads, dams, etc.
5. They cause Noise pollution i.e. Manufacturing business produce a
lot of noise which results into a noisy and polluted environment
6. They cause swamps reclamation
7. They cause vibration as a result of heavy moving vehicles on the
roads
8. They lead to loss of natural beauty of the environment
9. Overfishing leads to loss of different species of fish left in lakes
10. They lead to over exhaustion of resources
11. They cause water logging.
MEASURES TO SOLVE THE HARMFUL EFFECTS OF BUSINESS ON
THE NATURAL ENVIRONMENT.
1. Using and selecting raw materials and inputs that have less or no
degradation effects on the environment
2. Treating waste products before disposal and selecting a proper
disposal ground
3. Choosing proper packaging materials such as paper bags instead of
polythene bags.
4. Putting appropriate warming labels and sign posts on business
operation sites to warm people about the danger zones
5. Re-forestation to reduce effects of deforestation and loss of soil
fertility, water catchments and change of climate.

49
 6. Conserving wetlands to reduce on climate changes
7. Operating environmentally friendly business that do not pollute the
environment
8. Planting grass and covers to protect loss of soil.
9. Reducing bi-products for better use.
10. Educating the public about the importance of conserving the
environment.
11.Strengthening government environmental bodies e.g. UWA, NEMA,
NWSC, etc to prosecute those who destroy the environment.
10. Use of noise silencing machines to reduce noise pollution
11. Adopting better farming methods e.g. terracing
12. Ensuring strict monitoring and supervisors of business
activities
13. Conserving wetlands to reduce on climate change
14. Using other forms of energy instead of wood fuel usage
15. Overtaxing business of negative impact on nature
EFFECTS OF A DEGRADED NATURAL ENVIRONMENT.
A degraded environment is an environment whose quality has been
destroyed.
An environment is usually degraded through;
1. Cutting down of trees
2. Stone quarrying
3. Drainage of swamps
4. Rapid population increase
5. Over cultivation of land
6. Over grazing

EFFECTS OF A DEGRADED NATURAL ENVIRONMENT.

1. It leads to change in climate due to swamp reclamation,
overgrazing, etc.
2. It can lead to breakdown of malaria which affects people’s health
3. It may result into drought and famine
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 4. It may result into shortage of raw materials
5. It may result into reduction in soil fertility
6. It may lead to production of poor quality goods due to scarcity of
quality raw materials
7. It leads to extinction of some species e.g. insects, birds may die or
migrate.

BUSINESS IN UGANDA
Business is any legal economic activity carried out by a person for the
purpose of making profits.
FACTORS TO CONSIDER IN DETERMINE SIZE OF THE BUSINESS.
These include:
i. Amount of capital invested
ii. Number of employees
iii. Legal procedures in starting a business
iv. Volume of sales
v. Level of technology used
vi. Source of energy
vii. Size of the market
Businesses in Uganda are of varying sizes which include
i. Micro business
ii. Small scale business
iii. Medium business
iv. Large scale business

MICRO BUSINESSES
Micro businesses are usually very small e.g. Kiosks, hawking, grocery,
garage. They are usually run by their owners who may be assisted by
family members.
They are characterized by;

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 1. They require very simple technology to operate
2. They usually employ the services to their owners who may be
assisted by one or 2 persons usually family members.
3. Their sales volume are usually very low
4. They do not need fixed premises to operate
5. They do not have to be registered before they operate.
SMALL BUSINESS
These are relatively bigger than micro – business. They operate from well-
established premises that may be permanent or semi-permanent. They
tend to employ family members or relative but the no of workers usually
may not exceed 20 people.
They have the following characteristics.
1. They require simple small technology in their operation
2. They use small technology in their operation
3. They employ up to around 20 people most of who are family
members
4. They require small capital outlay to start
5. Their periodic sales are higher than those of micro business
6. They are easy to start and may not require formal registration
7. Normally, they are operated from fixed premises that are of
permanent nature
8. They use energy in most cases for lighting, freezing, etc.
MEDIUM SIZED BUSINESS.
These are well established businesses which operate in permanent
premises. They have the following characteristics.
1. They require large capital to be operated
2. They employ a big number of worker up to 100 workers
3. Their periodic sales are higher than those of small scale businesses
4. Profits realized are higher than those of small scale business
5. They use advanced technology to produce on a relatively large scale
6. They must be registered by the registrar of companies before they
are started

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 7. They produce for the local market but can also export their
products.

LARGE SIZE BUSINESS

These are much bigger than the medium sized businesses. They have the
following characteristics.
1. They require much capital to be operated
2. They employ more than 100 people
3. Their sales volumes are very high
4. They operate from well - established and premises
5. They are required by law to register before they commerce their
operations
6. Most of them produce for both the local and foreign market
7. They produce much because of using high technology
8. They have a very high profit margin
1a). What are the characteristics of small scale retail business?
b). What are the advantages and disadvantage of large scale busineses
(10 marks)
c). Give 5 disadvantages of small scale retail business. (10 marks)
Solutions.
1a). See note
bi).
- The cost of production is spread over large quantity production
- Specialists can be employed
- They can easily borrow money from the bank
- Specialization is possible
- Lead to reduction in prices of commodities due to large scale
production
- They purchase raw materials at low prices because of bulk
purchases
- They are high chances of expansion

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 - They can afford modern techniques of production
- They can easily bi- products easily
- They can afford advertising and research
- They can easily venture into staff training programmes
ii). Disadvantages of large scale firm
- Management may be different
- They are not flexible
- In case of natural disaster, they are greatly affected
- Resource wastages increases costs of production
- Modern machinery used is very expensive
- Employing large no of people results into labour disputes.
c).
- They employ few people and leave others unemployed
- They earn low profits because they operate on a small scale
- In most cases, they are not recognized by the society because they
are not registered
- They have a low production capacity because of using simple
technology
- They have a low scales volume because they produce less
- They cannot easily access loans from financial institutions due to
having a small or no collateral; security
- They have fewer chances of expansion due to having little capital
TYPES OF BUSINESS
1. Finding businesses.
These are economic activities that deal selling of goods and services
for those wholesalers and retailers.

2. Manufacturing businesses.
These are business that process raw materials produce different
products
3. Service businesses.

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 These provide services to their customers by using the specialized
knowledge and skills of the owners and employees. E.g. Transport,
medical, legal, security, banking, entertainment, education.
4. Agri- businesses.
These process or sell agricultural products or inputs for profits.

BUSINESS ASSOCIATIONS IN UGANDA

These are formed by business community which voluntarily come
together to achieve their common objective.

Examples of Business Associations in Uganda include;

1. Uganda National Farmers’ Association (UNFA)
2. Uganda Private Midwives Association (UPMA)
3. Uganda Taxi Operators and Drivers’ Association (UTODA)
4. Kampala City Traders’ Association (KACITA)
5. Uganda National Teachers’ Union (UNATU)

TRADING BUSINESSS
These are businesses whose operations mainly involve buying and selling
of physical goods or services e.g. wholesalers and retailers such as
shops, supermarkets as well as departmental and chain stores.

CHANNELS OF DISTRIBUTION IN TRADING BUSINESS

PRODUCERS

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WHOLE SALERS
PRODUCERS’ OWN SMALL SCALE RETAIL LARGE SCALE
RETAIL OUTLET RETAILERS

FINAL CONSUMERS

TYPES OF TRADING BUSINESS

There are two main types i.e.
(a) Retail trading businesses
(b)Wholesaling

Retail trading businesses are businesses which sell their goods to final
consumers in small quantities. They stock very many types of goods that
are commonly needed by their customers.

Wholesale trading businesses are business which sell their products in

large quantities. They normally specialize in few produces and their
customers are mainly retail traders.
BENEFITS OF TRADING BUSINESSES

(A) TO THE OWNERS AND THEIR FAMILIES

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  It is a source of income to them.
 It is a source of employment to family members.
 It improves the owner and his/her family’s standard of living.
 They provide market to the products of other businesses.

(B) TO THE CUSTOMERS

 They bring goods nearer to the customers.
 They stock a variety of goods which enables customers to make a
choice.
 They sell goods to customers in affordable quantities.
 They store goods and enable customers to collect them anytime.
 They advise some customers on how some goods are used and
handled.
 They offer discounts to regular customers in form of reduced prices
 Customers get after sale services e.g. wrapping of goods, packaging,
etc.
 Customers are assisted in choice selection especially or far as colors
and designs are concerned
 They make consumers aware of the goods that are on the market
through publicity and advertising.
(C) TO THE GOVERNMENT / LOCAL COMMUNITY
 They provide government with revenue through payment of taxes
imposed on traders during registration and acquiring license.
 They provide employment to the local people.
 Areas where they are located develop rapidly.

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  They improve people’s standards of living through provision of
quality goods and services requires by people.
 They bring about improvement in infrastructure where they are
located e.g. A well development transport network.
 They provide on-job training hence equip skills in people in an area.

CHALLENGES OF TRADING BUSINESSES IN UGANDA

Most businesses in Uganda almost face the same challenges are among
them include the following;
 Undeveloped transport and communication facilities
 Under unfavourable government policy e.g. high taxes imposed on
them.
 Shortage of skilled labour
 Limited competition
 Bad debts
 Ever changing tastes and preferences
 Limited capital
 Price fluctuation
 High cost of production
 Political instability and insecurity in some parts of the country
 Limited access to credit facilities

EXPLORING THE ENVIRONMENT FOR BUSINESS OPPORTUNITIES

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A business environment refers to the social and economic activities
surrounding a business which enable it to survive and carry out its
functions successfully.

ELEMENTS / COMPONENTS OF A BUSINESS ENVIRONMENT

These include;
1. The population of the area
2. Other businesses operating in the area (competitors)
3. The government
4. The infrastructure (roads, electricity, water and buildings)

BUSINESS OPPORTUNITIES
A business opportunity is an identified situation or chance that can be
turned into real and a profitable business.

It is an attractive investment idea that provides the possibility of a

monetary return for the person taking the risk.

CHARACTERISTICS OF A GOOD BUSINESS OPPORTUNITY

1. Reasonable return on investment / profitable / viable. It should
yield reasonable amount of profits to the entrepreneurs.
2. Reasonable ease of entry into the market. There should be no entry
barriers or limitation to penetrate into the market.
3. Good income potential: it should give sufficient income to support
oneself in a reasonable lifestyle.

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 4. Low or modest start-up costs. It should require low capital
investment when starting it.
5. Good growth potential: It should be able to survive for a long time
where generating sufficient income for the owners.
6. Sizeable market gap / sufficient demand. The people should be in
need, able and willing to buy the products of the business.
7. Related to one’s skills and experiences e.g. A teacher should set up
a school while a Doctor should set up a clinic.
8. Property timed: It should be properly times (timely) to capture a
wider market.

QUALITIES OF A GOOD / AN ATTRACTIVE BUSINESS OPPORTUNITY

Not all business opportunities can be turned into businesses. Some are
viable and others are not. For a business opportunity to be viable it
should possess the following qualities.

1. Sufficient demand:
The products and services should have sufficient demand to enable the
entrepreneur maximize production.
2. Affordability:
The products and services should be affordable i.e. the customers should
be in position to buy them.
3. Competitiveness
The business should be in position to compete favourably with the
existing ones in terms of price, quality, quality, etc.

60
 4. Profitability:
The business should generate maximum returns on investment i.e.
yielding high profits.
5. Availability of resources
The raw materials, capital, equipment, labour, land, etc should be ready
available to start the business.
6. Entrepreneurial skills
The entrepreneur should have an understanding of the running of the
business and the necessary skills and attitude to manage it.
7. Legality
A good business opportunity should be legally acceptable.
8. Socially acceptable
A good business opportunity should be accepted by the community in
which it is to be set up.

MARKET SURVEY
This is the process of collecting and analyzing marketing opportunities
and identifying possible problems in order to make decisions whether or
not to start or expand a business enterprise.

A market survey involves spotting a good business opportunity and

assessing its strengths, weakness, opportunities and threats.

A market is where sellers and buyers come into contact either directly or
indirectly for the purpose of ………. and services.

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REASONS FOR CONDUCTING A MARKET SURVEY / MARKET
RESEARCH
1. To know whether there are enough customers willing to buy the
products on regular basis.
2. To establish the location of the target customers.
3. To forecast the level of customer’s demand in future.
4. To establish the income levels of the target customers.
5. To determine the market gap of the unsatisfied customers.
6. To establish the suitable distribution channel for the business.
7. To determine the strengths and weaknesses of the existing
competitors.
8. To determine the effective marketing strategies for the business
9. To find out what the customers’ needs are.
10. To find out where and when the customers need the goods and
services
11. To establish the best way of pricing the products
12. To determine the market share of the entrepreneur
13. to establish who the business competitors are, their strengths and
weakness
14. To ensure production of quality goods and services that satisfy the
customers’ needs.
PREPARATION FOR CONDUCTING A MARKET SURVEY
Before conducting a market survey, you need to find out the following
information.
1. The source of information i.e. where to obtain the information
required.

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 2. The amount of time required for the survey
3. The amount of money required
4. The methods you will use to gather the information
5. The tools required to gather the information
6. How you will interpret the acquired information

METHODS OF COLLECTING INFORMATION IN AMARKET SURVEY.

1. Interview
Interviewing is like a conversation with people where you ask them for
information or their opinion
2. Observation
You can collect information by watching, listening and studying how
things work in the areas you are interested in. as you observe, you write
down your findings for careful study.
3. Questionnaires
A questionnaire is a document with a list of questions where you ask
people to complete with or without your assistance.
4. Personal contacts
You can conduct an informal survey by talking to your family and
friends.
5. Brainstorming
It is a technique used to solve a problem by generating as many business
ideas as possible.
6. Writing for information

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You can collect information by writing to different organizations and
businesses requesting for particular information related to your
business.
7. Through experimental method (sampling)
8. Through telephone survey
9. Through internet surfing
10. Through SWOT analysis
11. Through reading past records

SOURCES OF MARKET INFORMATION

Market information can be got from the following sources.
1. Trade associations like UMA, UWEA, etc
2. Uganda National Chamber of Commerce and Industry
3. District Commercial Officer
4. Government agencies like Export Promotion Board, UIA, Ministry of
Trade, Tourism and Industry, UBOS.
5. Publications such as Magazines, Newspapers, Books, etc
6. The community including friends, likely customers, suppliers,
competitors, etc.
7. Regional private sector development centre.

STEPS TAKEN IN CONDUCTING MARKET SURVEY

1. Identifying the problem i.e. identifying the specific information you
need.
2. Planning the investigation
3. Collecting data

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 4. Organizing the data
5. Analysing the data and interpreting it
6. Drawing conclusions and giving recommendation

CHALLENGES / PROBLEMS ENCOUNTERED IN CARRYING OUT

MARKET SURVEY
1. Limited market data
2. Unpredictability of consumers’ tastes and preferences
3. Every changing economic trends e.g. inflation
4. Inadequate transport and communication facilities
5. Undeveloped infrastructure
6. Insufficient funds
7. Limited skilled and trained labour force
8. Difficulty in getting correct information from some respondents.
9. Bad weather i.e. too much sunshine / heavy rainfall
10. Language differences
11. Stiff competition
12. Insecurity
13. Inaccurate data

CONTENTS OF A MARKET SURVEY GUIDE

- Name of customer
- Age of customer
- Income levels of customers
- Product offered

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 - Unique features of production
- Strength weaknes of competitor
- Prices charged in market
- Prices offered by customer
- Promotional strategies
- Opportunities offered in the market
- Level of competition
- Marketing activities
- Market trends

POTENTIAL MARKET
It refers to all buyers who are in need and are able to buy, but not yet
willing to buy business products.

GOOD / REAL MARKET

It refers to a market where there are many people who need, able and
willing to buy the products of the business.

FACTORS FOR ASSESSING MARKET POTENTIAL OF A BUSINESS

1. Demand for the product
This is the amount of the business products that the people are willing to
buy at any given price. The higher the demand, the higher the potential
market and the lower the demand the smaller the potential market.
2. Competition
The higher the level of competition, the lower the potential market.
However the lesser the competition, the higher the potential market.

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 3. Prices of products
The more expensive products are, the lower the potential market and the
lower the prices of products, the higher or large the potential market.
4. Substitutes
Absence of substitute goods lead to higher potential market. However
presence of many substitute goods leads to a small potential market of
products.
5. Income levels of customers
The higher the income levels of customers, the higher the potential
market and the smaller the income levels of customers, the smaller the
potential market.
6. The location of the business
A business which is strategically located near its target customer has
high potential market. However a business which is located far away
from customers has a low potential market.
7. Number of people, businesses and institutions operating from the
target area.
The larger the number of business and institutions operating from the
target area, the higher the potential market. The smaller the number of
institution, the lower the potential market.
8. Government policies
The more favourable the government policies such as favourable hours of
business, the higher the potential market. However for unfavourabe
government policies, the potential market is low.

MARKET ASSESSMENT

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It is the process of collecting and using market information in order to
determine the market for the products of business.

It is the process through which an entrepreneur finds out how much

market his/her products will have when they come into the market.

FACTORS TO BE CONSIDERED WHEN CONDUCTING A MARKET

ASSESSMENT
1. The target market for the products.
This refers to people, businesses or institutions the business intends to
serve. When looking at the target group, the entrepreneur may wish to
look at their age, income levels, education, etc.
2. The nature of the products to be produced and what the market
wants.
The entrepreneur looks at the product variety, quality, design, features,
brand name, packaging range of sizes, services, warranties and returns.
3. The competition and substitutes business’ products will face and
how this affects their marked. High competition implies that few
products shall be sold. Low competition implies that many products
shall be sold.
4. The target market trends and their implications
Here the entrepreneur may wish to know how the market he intends to
join has been behaving in the recent past.
5. The income levels of the target market.
This looks at whether the people the entrepreneur intends to serve are
low income earners or high income earners.
6. Demand for the product
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This looks at when the demand for the product is high or low.
7. The number of people, business and institutions operating from the
target area.
This looks at whether there are many institutions in that area or there
are few.
8. Government policies
This looks at whether the government policy in that area is favourable for
business operations or unfavourable.

BUSINESS START-UP PROCESS

Before starting any business, you must first generate different business
ideas before selecting and implementing the best option.

The business startup process may involve the following steps.

1. Generating a business idea.
2. Spotting and selecting a business opportunity
3. Conducting a market survey
4. Selecting a legal form of business
5. Preparing a business plan
6. Sourcing of business funds
7. Selecting technology and machinery
8. Locating of business
9. Registering and licensing a business
10. Putting infrastructure for business in place
11. Commencing business operations

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LEGAL FORM OF BUSINESS OWNERSHIP
A legal form of business is one which is acceptable by law.
There are four legal forms of business ownership from which you can
choose from i.e.
(i) Sole proprietorship
(ii) Partnership
(iii) Joint stock companies
(iv) Co-operatives

SOLE PROPRIETORSHIP
It is legal form of business that is owned and managed by one person. He
owns the business alone provides the capital needed to start the
business and runs the business along although may be assured by
family members and takes all the business profits and suffers losses
alone.

CHARACTERISTICS OF SOLE PROPRIETORSHIP

1. It is owned by one person who provides the initial capital.
2. The business and the owner are inseparable (no legal separation)
3. The owner suffers unlimited liability
4. The owner enjoys profits and suffers losses alone.
5. The owner is the sole decision maker i.e. discussions are easy to
make.

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 6. It is easy to start since it requires little capital.
7. Management is easy
8. It is suited for micro and small businesses
9. The entrepreneur mostly employs family members.
10. Capital is contributed by one person.

ADVANTAGES OF SOLE PROPRIETORSHIP

1. It is easy to form. The owner needs little capital to start the
business and very few processes to get started.
2. It is also easy to dissolve. If the owner feels he/she no longer needs
to continue in business, he simply closes or changes it.
3. The owner enjoys all the profits alone
4. The sole proprietor is in full command of the business and is solely
responsible for all business decisions and most of the work.
5. The sole proprietor enjoys top secrecy. The secrets of the business
can be kept from the public and other competitors
6. The business is flexible i.e. he can change it from one line of
business to another.
7. Decision making and implementation is easy and faster. This is
because the owner has no one to consult.
8. The sole trader is in direct contact with his customers therefore he
gives them personal attention and caters for their personal
complaints.
9. It is easy to manage since it does not require many skills like
financial management skills.

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 10. There is close supervision i.e. A sole trader supervises his
business closely and has direct contact with all employees.
11. This type of business can be set up anywhere even in remote
areas.

LIMITATIONS / DISADVANTAGES OF SOLE PROPRIETORSHIP

1. The sole trader has a problem of limited finance / resources /
capital. This is because he/she depends on his own resources to
finance the business.
2. The sole trader depends on himself to run the business but he may
have limited technical expertise.
3. A sole proprietor suffers unlimited liability. This means that the
losses of the business will have to be paid from his private property.
4. There is lack of business continuity. When the owner dies, the
business closes down.
5. The business may not be in position to carry out research due to
lack of enough capital.
6. The business owner may be overworked since he is alone and
incase of sickness, the business may stall.
7. He suffers losses alone since he s alone.
8. He may not easily borrow or access credit facilities from financial
institutions due to small size of collateral security.
9. Decision made by the sole trader alone may lead to mistakes due to
lack of consultations.

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 The business does not enjoy advantages of large scale production e.g.
quantity discounts since it operates on a very small scale.
BUSINESS ASSOCIATIONS IN UGANDA
These are formed by business community which voluntarily come
together to achieve their common objective.

Examples of Business Associations in Uganda include;

1. Uganda National Farmers’ Association (UNFA)
2. Uganda Private Midwives Association (UPMA)
3. Uganda Taxi Operators and Drivers’ Association (UTODA)
4. Kampala City Traders’ Association (KACITA)
5. Uganda National Teachers’ Union (UNATU)

OBJECTIVES OF BUSINESS ASSOCIATIONS

The objectives vary from association to association.
However, the common ones include;
1. To secure or access local and foreign market for their member’s
produce.
2. To get raw materials for their members’ business at low prices.
3. To access and provide training facilities for their members.
4. To assist their members to get better production technology.
5. To assist member to get financial and technical support from banks
and other business support institutions and government.
6. To support individual members in times of need e.g. Death,
sickness, marriage.

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 7. To develop and spread improved and better production and
management system among members.
8. To speak to the government on behalf of their members for a better
environment that is conducive for a business operation e.g. fair tax
policies.

SERVICES RENDERED BY BUSINESS ASSOCIATIONS

1. They provide information on market opportunities and trends.
2. They secure and negotiate local or foreign market for the members’
produce.
3. They look for cheaper raw materials for the members’ businesses.
4. They identify appropriate and better production technology for their
businesses.
5. They provide training programmes for members of staff.
6. They assist members to get financial and technical support services
from financial institutions and other bodies.
7. They speak to the government on behalf of their members for a
conducive environment suitable for business operations.

AGRIBUSINESS IN UGANDA
Uganda is an Agricultural country with almost 85% of the population
earning their living directly or indirectly through Agriculture.

Agribusinesses are those businesses whose operations involve

production and selling of Agricultural products for a profit.

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COMMON TYPES OF AGRI-BUSINESSES IN UGANDA
These include;
1. CROP PRODUCTION
These are engaged in the production and selling of crops like bananas,
coffee, cotton, etc. the business may be carried out on a large scale like
tea and sugarcane and then growing and selling of crops on a small
scale.

2. LIVESTOCK PRODUCTION
These businesses are engaged in the rearing and selling of different
animals for meat, beef, or their products like milk, hides and skins, etc.
The common animals kept in Uganda are cattle, sheep, goats, pigs,
rabbits, etc.
3. POULTRY KEEPING
Here, the business rears and sells different types of birds for their meat,
feathers, eggs, etc. The common birds kept in Uganda include chicken,
ducks, turkeys, pigeons, guinea, fowls, etc.

4. APICULTURE
This involves keeping of bees for wax and honey.
5. AQUACULTURE
This involves keeping for fish, crocodiles, etc
6. FLORICULTURE
This involves growing of flowers.
7. HORTICULTURE
This involves growing of vegetables.

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 8. ORCHARD FARMING
This involves the growing of fruits.

IMPORTANCES OF AGRI-BUSINESSES
1. They provide food which is needed for the people’s survival.
2. They provide employment opportunities to very many people.
3. They pay taxes to the government which increased government
revenue.
4. They contribute to community development by making voluntary
contribution or services.
5. They act as a market to the products of other businesses e.g.
hoes,pangas, etc.
6. They make use of some wastes e.g. coffee husks, rubbish which
would otherwise pollute the environment.
7. They provide raw materials to Agro-based industries e.g. NYTIL.

CHALLENGES FACED BY AGRIBUSINESSES

- Natural hazards like unreliable rainfalls.
- Pests and diseases which attach crops and animals respectively.
- Limited market for agricultural products
- Low prices for Agricultural products
- Infertile soils hence poor yields.
- Poor land tenure system.
- The business is seasonal hence leaves many farmers out of the
business for some time

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 - Inadequate storage facilities
- Stiff competition
- Political instability and insecurity in some parts of the country.
- Undeveloped transport network.
- Limited capital hence making it difficult.
- Limited access to credit facilities
- Inadequate skilled manpower
- High population growth hence no land for agriculture
- Unfavourable government policies e.g. High taxes on Agriculture
inputs and products

Qn:
1a. Explain the challenges to Agribusiness in your country.
b. Outline 5 requirements of Agribusinesses.

POSSIBLE MEASURES TO OVERCOME THE CHALLENGES IN AGRI-

BUSINESSES
1. By carrying out market survey to ensure that the products have a
market at profitable prices.
2. By employing modern farming methods that help them improve and
increase output, maintain soil fertility and control pests and
diseases.
3. By studying weather patterns and acting according e.g. harvest
during dry season and plant during rainy season.

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 4. By employing agricultural extension services to give up to date
information e.g. Advice on control of pests and diseases.
5. By getting information on market changes and trends to make sure
that they produce products on demand i.e. those that are desired by
people at a particular time.
6. By carrying out irrigation or planting fast maturing crop varieties
which don’t require a lot of water to grow and mature before the
rains run out.
7. By keeping good relationship with farm input suppliers, workers
and financiers to make sure that the businesses are not interrupted
unnecessarily.
8. By being an active member of any of the business association like
UNFA in order to get support whenever necessary.
9. By understanding what your competitors are doing and learn from
their experiences in order to outcompete them.
10. By setting up agricultural cooperatives for farmers to bargain
for increased prices.
11. By providing loans to farmers at low interest rates.
12. By organizing workshops and seminars for farmers to enable
them acquire skills needed for farming.

MANUFACTURING BUSINESSES
These are businesses which transform raw materials to make finished
products which are significantly different from inputs (raw materials).
They do this by changing the form of inputs or adding value to them. E.g.
using clay to produce pots.

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TYPES OF MANUFACTURING BUSINESSES
The common types are;
1. Agro-processing industries
These are industries which use agricultural products to make different
products.
2. Beverage manufacturing businesses
These concentrate on the manufacturing of drinks such as soft drinks,
alcoholic drinks etc.
3. Metal fabrication businesses
These use different types of metals to make products like windows,
doors, tables, etc. Examples include Uganda Baati, Roofings Uganda Ltd,
GM Tumpeco, Tembo steel Mills – Lugazi.
4. Chemical Manufacturing business
These produce various products from a mixture of chemicals e.g. Uganda
Oxygen Ltd.

5. Plastic Manufacturing business

These produce plastic products such as plastic cups, cans e.g. Nice
House of Plastics.
6. Textile Manufacturing business
These produce clothes out of silk, cotton, etc. NYTIL at Jinja, Tri-Star (U)
Ltd.
7. Extractive Manufacturing business.
These are businesses which extract different raw materials to produce
items e.g. The defunct Kilembe Mines Ltd at Kasese.

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 8. Carpentry and joinery which involve making of furniture for sale
and construction work.

IMPORTANCES / BENEFITS OF MANUFACTURING BUSINESS

1. They produce goods to the people at affordable prices compared to
imported goods.
2. They add value to local raw materials and products e.g. cotton
which is turned into cloth.
3. Some recycle products in order to produce other products e.g scrap
metals.
4. Some manufacturing businesses produce for export. This helps a
country to earn foreign exchange.
5. They provide market for local produce and raw materials e.g.
Simsim, Vanilla, Cotton etc.
6. They contribute to community development programmes by making
donations, building roads, health centres, etc.
7. They pay taxes to government which is used to provide social
services to the people.
8. They are a source of income tot their owners hence increased
standards of living.
9. They provide employment opportunities to the community where
they are located.

CHALLENGES FACED BY MANUFACTURING BUSINESSES

- Limited financial resources / funds.
- Inappropriate technology used in production

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 - Existence of a small / narrow market
- High rates of competition from imported products
- Unpredictability of consumer’s behaviours (tastes and preferences)
- Shortage of land for expansion due to over population.
- Unfair tax system
- Production of poor quality products
- Managing risks e.g. fire outbreak, theft
- Inadequate storage facilities
- Undeveloped infrastructure e.g. poor state of roads.
- Inadequate and unreliable sources of raw materials.
- Price fluctuations
- Limited access to credit facilities.

MEASURES THAT SHOULD BE UNDERTAKEN TO OVERCOME THE

CHALLENGES ABOVE.

- By seeking for bank loans from financial institutions

- By carrying out intensive advertisement
- By ensuring production of quality products
- By recruiting skilled and experienced workers to guarantee quality
output.
- By constructing more and improving on the existing infrastructure
- By acquiring firefighting equipment such as fire extinguishers.

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 - By carrying out market survey to know what customers what, when
and at how much.
- By joining the UMA and various entrepreneurial organizations in
order to get support whenever necessary.
- By taking insurance cover against possible risks like fire, theft,
accidents in transit.
- By requesting government for tax incentives / holiday
- By acquiring and using high quality machines to produce high
quality output.
- By getting involved in Agriculture i.e. growing their own raw
materials to overcome shortage of raw materials.
- By putting in place proper storage facilities and inventory
management.
- By looking for market abroad. This is done by exporting some
products.
- By ensuring efficient staff motivation
- By training of staff to equip workers with the required skills.

Ex:
Why are there few manufacturing businesses in your country?

services, etc
4. Entertainment
Entrepreneurs provide entertainment services like discos, theatres,
cinemas, sports, swimming and dance.

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5. Foods and drinks
In this area, entrepreneurs establish restaurants, bars, hotels, etc.

6. Tourism
Here entrepreneurs set up tours and travel at camping sites, beaches,
hotels, lodgets, etc.

7. Utilities
Entrepreneurs provide telephone services, insurance, water and
sewerage services, electricity, etc.

8. Financial services
In this field, entrepreneurs set up banks like microfinance institutions.

9. Beautification
In this type, entrepreneurs set uo saloons, barber shops, bridal agencies,
etc.

10. Technical services

In this field, entrepreneurs establish motor garage, electrical service
repair centres, and TV repair service centres, etc.

11. Security services

Because of privatization, many private security organizations were
established in Uganda.

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BENEFITS / IMPORTANCES OF SERVICE BUSINESSES
 They provide employment to their neighbours, families hence
improving their standards of living.
 They support the operations of other businesses which help to
improve their productivity by providing them with communication
facilities, transport, etc.
 Service businesses like transport and communication help to open
up and develop different parts of the country. By doing so, other
businesses can be established in those areas.
 Service businesses provide services that satisfy the needs of other
customers e.g. haircuts.
 They help in communication e.g. telephone, radios and TVs. By
doing this, information is passed from one person to another
quickly.
 Service businesses like financial institutions provide financial
services which are vital for operation of other business e.g. By
providing them safe custody of their money, deposit service, trade
facilities, money transfer.
 Healthy services keep people healthy which increase their
productivity and life expectancy.
 Security services enable businesses to operate in a conducive and
secure atmosphere.
 Tourism service businesses make it possible for tourists to visit
Uganda hence helping her to earn foreign exchange.

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  Service businesses pay taxes to government which it uses to finance
its development programmes like building schools, hospitals, roads
that benefit the people.
 Service businesses make contributions towards the community
development programmes e.g. sports and games, health services,
etc.
 Education services impart knowledge and skills and help produce
skilled and more productive manpower for other businesses.

CHALLENGES OF SERVICE BUSINESSES

Service businesses also face the same challenges just like those of
Agribusinesses and Manufacturing businesses. These include
1. They face a challenge of maintaining high quality services.
2. They face a challenge on Motivation inputs and this reduces the
profitability of the business.
3. They face a challenge of retaining staff which at times depends on
motivation.
4. They face a problem of bad debts since some customers take credit
and fail to pay.
5. Competition from other service businesses and this reduces the
market size.
6. Insufficient / inadequate finance.
7. Unskilled labour
8. Undeveloped infrastructure
9. High takes

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HOW TO OVERCOME THESE CHALLENGES
1. By not giving credit facilities to untrustworthy customers or
minimizing credit services.
2. By motivating the workers to ensure that they render high quality
services.
3. By employing trustworthy workers to work in the businesses thus
avoiding misuse of business funds.
4. By treating the workers well e.g. paying them promptly, assuring
them of job security, involving them in decision making. This will
keep the workers satisfied.
5. By avoiding the use of expensive inputs in the business hence
maintaining business profits.
6. By providing the workers with good working conditions so that they
can render high quality services e.g. meals at the work place, giving
them uniforms and other necessary equipments.
7. By conducting thorough market survey before they start their
businesses.
8. By treating their staff very well e.g. paying them well.
9. By providing staff with good working conditions or an enabling
environment.
PARTNERSHIP
It is a legal form of business which exists between 2 or more persons who
pool their resources and abilities in order to do a business jointly with
the aim of making profits.

CHARACTERISITICS OF PARTNERSHIP

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 1. It is characterized by two or more persons who come together to do
business.
2. One or more partners may take an active part in the winning of the
business and the other partners can take a dormant part in the
running of the business.
3. The partnership deed must spell out how the partners have agreed
to relate in course of doing business
4. It results from mutual agreement among partners
5. Each member is an agent of the firm
6. Each member has unlimited liability except in a limited
partnership.
7. A partnership firm has no separate legal existence.
8. Major decisions are made by majority consent
9. Responsibilities, profits and losses are shared on agreed basis.
ADVANAGES OF PARTNERSHIP BUSINESS
1. More capital is raised than in sole trade due to the pooled resources
from many members.
2. Specialization is possible as each member takes up tasks for which
he is best suited.
3. There is even distribution of work among the members hence less
fatigue.
4. The absence of a partner may not affect the business unlike in sole
proprietorship.
5. The burden of losses and liabilities are shared among partners
unlike a sole trader who suffers alone.

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 6. Formation is fairly simple because there are fewer legal formalities
unlike liability companies.
7. There is better combination of talents because of people with
different skills which are pooled.
8. Issues are discussed by many people and decisions made are
expected to be good.
9. New partners may be admitted for the expansion of the business.
10. There is limited liability in case of limited partnership.
11. Business accounts can be kept secret unlike public liability
companies.
12. It is easier to borrow from financial institutions than for sole
proprietorship of the large collateral security.

LMITATIONS / DISADVANTAGES OF PARTNERSHIP BUSINESS

1. There is unlimited liability in case of ordinary partners.
2. Decision making is slow because partners have to consult each
other before passing a resolution.
3. Profits are shared which reduces the amount received by each
member. Also problems of how to split the profits arises.
4. Death, insanity, bankruptcy or withdrawal of a key partner may
lead to dissolution of a partnership.
5. Disagreements / misunderstandings are coming and this may slow
down the progress of the business.
6. A misconduct / mistake made by one partner affects the entire
business.

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 7. Chances of expansion are limited since members are restricted to
twenty and fifty for professional firms.
8. Profits generated by hardworking partners are shared by all which
discourages hard work.
9. Partnerships are not legal entities
10. They have no separate existence.

PARTNERSHIP DEED
It is a written agreement among partners which spells out the terms and
conditions under which the partnership business should be conducted.

CONTENTS / ELEMENTS OF A PARTNERSHIP DEED

1. Name of the firm
2. Name, address and occupation of each partner
3. Status of each partner e.g. Active, Quash, General.
4. Purpose for which the firm is established.
5. Capital to be contributed by each partner
6. Rights of each partner e.g. interest on capital, drawing salary
7. Duties allocated to each partner
8. Profits and loss sharing ratios
9. Procedures to adopt at the dissolution of partnership
10. Duration of the partnership
11. Methods of calculating goodwill at the time of retirement,
death or admission of a new partner.
12. The manner in which books of accounts should be kept.
13. Conditions under which the partnership shall be dissolved.

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CONDITIONS / CIRCUMSTANCES UNDER WHICH PARTNERSHIP
MAY BE DISSOLVED / TERMINATED.

Dissolution / termination of partnership means to bring a partnership

business to an end.
1. In case the partnership is temporary
2. If a partner becomes insane, bankrupt or dies
3. In case the intended objectives have been achieved
4. In case of a notice, where a partner gives his intension or express
his intension others to dissolve the partnership
5. If the partnership is illegal i.e. declared unlawful by the state
6. In case of expiry of the agreed period
7. In case of voluntary dissolution i.e. consent of all partners.
8. In case the partnership business is not making profits
9. In case there are misunderstandings or disagreements among the
partners
10. In case of dissolution by courts of law due to persistent
misconduct and violation of the partnership deed by a partner and
where in the opinion of the court

JOINT STOCK COMPANIES (LIMITED COMPANIES)

It is a voluntary association of persons incorporated for the purpose of
carrying out business together under the Companies Act.

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Owners (shareholders). This business is run by directors who are
appointed by the shareholders and act as agents of the business.

This can be private limited company or public limited company.

It can be limited by shares or by guarantee.

A company limited by shares is one whose liability of its members is

limited to the amount on the shares held by them.

A company limited by guarantee is where the company has no share

capital but members guarantee to pay a fixed sum of money towards the
liabilities of the company in the event of being wound up.

CHARACTERISTICS OF LIMITED COMPANIES

- Voluntary association of persons who agree to combine resources.
- The business becomes an artificial person (legal entity)
- The business uses a common seal to transact its operations
- The business has a separate legal entity from the owners.
- Shares can be transferred from one shareholder to another.
- There is business continuity even if any of the shareholder dies,
becomes insane or bankrupt
- The business has limited liability.
a) Private limited company is a business enterprise formed by 2-50
people who subscribe to its share capital thereby becoming its owners.

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b) Public limited company is a business enterprise formed by 7-
unlimited number of people who subscribe to its share capital thereby
becoming its owners.

DIFFERENCES BETWEEN PRIVATE LIMITED COMPANY AND PUBLIC

LIMITED COMPANY
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
1. Membership is between 1. Membership is from 7 to
2-50 persons unlimited (no maximum)
2. Shares are only sold to 2. They invite the public to buy
members shares from the company
3. Shares are transferable 3. Shares are freely transferable at
after the consent of all the stock exchange market
the other members 4. Can only start after receiving
4. Can start as soon as it certificate of incorporation
acquires certificate of 5. Publish audited accounts /
incorporation financial matters to the public
5. Does not publish audited 6. Owners have no control over the
financial accounts affairs of the company i.e.
6. Owners share direct shareholders are less active in
control of the affairs of management
the company i.e. 7. Must have at least 2 directors
shareholders as who must retire at the age of 70
Managers 8. Government owns shares
7. Requires a minimum 9. Company never end with publich
number of 1 director Ltd company

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 8. Government does not 10. Much capital is raised since
own shares shares are not limited.
9. Company name ends
with Limited
10. Limited capital is
raised since shares are
limited

ADVANTAGES OF PUBLIC LIMITED COMPANIES OVER PRIVATE

LIMITED COMPANES
1. Large capital can be raised for future expansion because
membership is not limited.
2. Loan capital can be raised through the use of debentures to the
public.
3. No restrictions on the transfer of shares
4. The public has confidence in public limited companies because they
publish their books of accounts
5. Shareholders are safeguarded against fraud since public limited
companies have to audit their books of accounts as a statutory
requirement.
6. Public limited companies are normally larger than the private
limited companies. They therefore enjoy benefits of large scale
operation (economies of scale)

MAIN FEATURES OF JOIN STOCK / LIMITED COMPANIES

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 1. Shareholders have limited liability i.e. the private property of the
shareholders are not liable for the debts incurred by the company.
2. There is perpetual succession i.e. Business is not affected by death,
insanity, bankruptcy of a company shareholder.
3. Has share capital which is divided into transferable shares except
for private limited companies.
4. Business is a separate legal entity i.e a company can sue and can
be sued.
5. Management control rests in a Board of Directors elected and
answerable to the shareholders.
6. The business uses a common seal which is a signature of the
company for signing documents in its operations.
7. Shareholders (members) cannot bind a company by their acts.

ADVANTAGES OF LIMITED LIABILITY COMPANIES

1. Members enjoy limited liability. This means that losses do not affect
the private property of the shareholders.
2. They have a large capital / financial base through the sale of shares
to many people.
3. This business form has large scale operations which increases the
prospects of making profits.
4. Shares are freely transferable from one shareholder to another. The
person who wants to leave can sell his shares to another
shareholder in case of public limited company.
5. There is assured business continuity even in case of death or
inability of the shareholders

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 6. This form of business can hire skilled management to run the
business on behalf of shareholders who opt to supervise it through
the Board of Directors.
7. There is employment of specialists due to large capital. Also large
sums of capital enable large scale production which results into
economies of scale.
8. Employees may be allowed and encouraged to buy shares in the
company giving them added incentives to work harder.
9. This form of business has greater chances of improving or
expanding their capital through selling shares, debentures and
borrowing from financial institution.

LIMITATIONS / DISADVANTAGES OF LIMITED LIABILITY

COMPANIES
1. Formation is difficult and costly. It requires expansion procedures
such as Registration with the Registrar of Companies which
requires several documents.
2. Decision making can be delayed (slow) due to many levels of
management
3. There is lack of personal touch on the business by shareholders
because they depend on hired labour and the Board of Directors.
4. This form of business is subjected to government regulation e.g.
limited liability companies can only do the business they were set
out to do, as is stated in the Memorandum and Articles of
Association hence lack of flexibility.

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 5. The Directors may have their own interests that may conflict with
the interests of the company especially those with shares who
influence decisions.
6. There is minimal personal contact with customers yet personal
relationship is very important for commercial purposes.
7. At times, public limited companies may over expand due to large
scale operation hence suffer from diseconomies of scale.
8. Lack of secrecy or confidentiality due to publicity of certain
documents including Annual accounts by the public limited liability
companies.
9. Companies have to pay corporation taxes which reduces net profits
and annual dividends to be shared by shareholders. This leads to
double taxation.

FORMATION OF A COMPANY
Formation of a company involves several documents i.e.
1. Memorandum of Association
This is a document that defines the powers and limitations of the
company.

Contents of the Memorandum of Association are;

- Name clause, states the name of the company
- Objective / Aim clause outlines purpose of which company is
formed.
- Situation clauses, shows the registered office and address to which
documents can be sent for contact.

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 - Capital clause shows the share capital the company wishes to raise.
- Liability clause, states that the liability of shareholders shall be
limited to their capital
- Declaration clause, state the desires of the promoters to form
themselves into a company

2. Articles of Association
Is a document that lays down the internal rules and regulation for
management and organization of the company.

Contents of the Articles of Association are;

- The rights of shareholders and powers and duties of Director
- Method of calling and conducting General Meetings
- Rules governing appointment of Directors and Auditors, their
qualification and payment
- Whether shares are transferrable and how
- The publishing and auditing of the books of accounts of the
company
- How and when dividends are to be distributed
- How calls are to be made on shares
- How and when shares are to be forfeited (cancelled)
- Methods of dealing with any alterations of capital
- How and when dividends are to distributed

3. Statement of Normal capital of the company

4. A list of Directors

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 5. A statement signed by Directors stating that they agree to act as
Directors and to pay for qualification shares if any.
6. A statutory declaration by a solicitor or chartered Accountant that
the necessary requirements of Registration have been duly complied
with. This declaration may be signed by the proposed company
secretary or by one of the directors or promoters of the Company.

CERTIFICATE OF TRADING
Is a document that gives a company legal existence but it does not allow
it to commence business operations.

CERTIFICATE OF INCORPORATION
It is a document that brings the company into existence as a separate
legal entity and allows it to legally offer its shares to the public for sale.

PROSPECTUS
Is an invitation or advertisement offering to the public for subscription or
purchase of any shares.
It is a notice, circular or advertisement inviting the public to purchase
the shares of the company.

CONTENTS OF THE PROSPECTUS

- Number of shares fixed by Memorandum of Association.
- Name and Address of Directors and Managers.
- Minimum, subscription on which director can proceed to allotment
of shares.

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 - Number of shares the company wants to issue
- The company’s financial needs
- Voting and dividend rights of each class of shares

CO-OPERATIVES
A co-operative society is a body of people who have agreed to work and
co-operate with each other to attain a common objective.

CHARACTERISTICS OF CO-OPERATIVES
1. Cooperatives have open and voluntary membership.
2. Members through selling and purchase of shares contribute capital
3. Shares are not freely transferable and are not quoted on a stock
exchange.
4. They have a democratic administration with one vote regardless of
the number of shares held.
5. Surplus is shared among the members according to their individual
capital contribution amount sold or bought.
6. Education relevant to the needs of the members is provided.
7. Co-operatives are expected to be politically ….. with the religious
beliefs.

PRICIPLES OF CO-OPERATIVES
1. Open and voluntary membership. Membership is open to all people
of adult age irrespective of their social, political, tribal, racial or
religious differences.

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 2. Democratic Administration: Members elect the management
democratically i.e. one man one vote.
3. Payment of dividends: The payment of dividends depends on the
members participation towards the activities of the society e.g.
According to the amount of sales a member makes with the society.
4. Limited interest on share capital: Interest is fixed at a rate laid
down by the society’s constitution. However return on investment is
not usually given priority.
5. Co-operation with other co-operative societies at local, national and
international levels.
6. Service Motto: Their concern is to improve the quality of life of the
people of the community by rendering quality service.
7. Support for Education activities to members on co-operative affairs
and successful business techniques.

TYPES OF CO-OPERATIVES
1. Consumer co-operative societies:
These are associations of buyers who have the same consumer needs.
They are set up to help members to get certain goods / services at
reasonable prices compared to the market price.
2. Producer co-operative societies
These are associations of people who produce and market the same type
of products. They are set up by producers to produce and market their
goods and services at competitive prices.
3. Transport co-operative societies

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These are formed to provide transport services to the public and
members at reasonable prices.

4. Saving and Credit co-operative societies

These are formed to enable members to save their money and access
financial services e.g. loans at reasonable interest rates so as to improve
their welfare.
5. Housing co-operative societies
These are formed by persons whose purpose is to buy houses / homes.
6. Trade and craft co-operative societies
These are co-operative societies organized by people who are engaged in
hand craft activities such as wood and stone carving and weaving.

ADVANTAGES OF CO-OPERATIVES

1. It is easy to raise a relatively large sum of money start since

membership is voluntary.
2. They enjoy limited liability i.e. personal property is not sold in case
of debts.
3. The owners benefit through profits that are earned by the business.
This enables them to live better standards.
4. The business is free to employ manager with relevant experience
and qualification.
5. Members acquire goods / services at low prices / costs.
6. Members are protected and safeguarded from the exploitation of
dishonest middlemen.

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 7. There is shared control in the business i.e. members can be
allocated tasks to undertake in the business.
8. It encourages savings because members enjoy or acquire products
at reduced prices.
9. Members acquire credit facilities at low interest rates which
increased / raised their standards of living.

LIMITATION / FACTORS THAT MAY LIMIT THE CO-OPERATIVE

DEVELOPMENT IN UGANDA

1. Lack of skilled leaders i.e. some of these members have limited

managerial / leadership skills. Since they are not full time
employees of the company. They give limited time to the
administration of cooperatives.
2. Inadequate funds because of low incomes from members which in
most cases are small and inadequate.
3. Inadequate management skills where members are not trained to
act a small business managers.
4. Undeveloped transport and communication in most areas make
their operations difficult.
5. Inadequate storage facilities for stock of their goods is a serious
challenge.
6. Limited supply and range of goods and services offered to members.
7. Low commitment on the part of the members to the activities of the
co-operation.

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 8. Ignorance by the majority of the members about running of the co-
operative affects the conduct of the co-operative business.
9. Political interference and sabotage from some people in Authority
hinders the smooth operation of co-operatives.
10. Insecurity in some parts of the country where the environment is
un conducive for the smooth running of co-operative societies.
11. Fraud and embezzlement of funds by some people in top positions
within the co-operative societies limits the chances of their success.

REGISTERING A BUSINESS

It is a legal requirement for all businesses to register or be registered

before starting business operations.

NEED / REASONS FOR REGISTERING A BUSINESS

1. For business identity as a legal entity

2. For fulfillment of the legal requirement of running business
3. To be recognized and win government tenders.
4. To compete favourable with other business
5. To raise revenue for the government through license fees payments.
6. To access banking facilities since banks will have confidence with
registered business.
7. To enable data collection is government possible in order to make
informed decisions.
8. For planning purposes on the side of the government.

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REQUIREMENTS FOR REGISTERING A BUSINESS

1. Having a business name i.e. with physical, postal address and

telephone number.
2. Payment of licensing and registration fees
3. Filling of application forms
4. Starting up a legal business

PROCEDURES / STEPS IN REGISTERING A BUSINESS

1. The applicant, intending to register personally travels to the register

of companies and presents all the relevant documents.
2. Payment of registration fees after filling application form is done.
3. Depositing of filled application forms to the records assistance /
officer.
4. A search is conducted to confirm that there are no similar names of
registered companies with other existing names.
5. The forms are placed to the register of companies for endorsement
and approval.
6. If all documents are in order, the registrar of companies issues a
certificate of incorporation which shows that the company has been
registered.

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SOURCES OF BUSINESS FUNDS.
These include:
1. Equity funds
This is the money the owner invests in a business on his/her own.
2. Debt / credit fund
These are funds that are borrowed or a contribution of a business by an
outsider who does not have ownership in the business.
3. Bank overdraft
This is a short term credit facility used to finance seasonal peaks or
when there are low cash flows in the business. The business owner is
allowed to overdraw his account at the bank up to an agreed limit.
4. Leasing
A banking or finance company buys an asset and makes it available to
the business for a specific period in exchange for fixed regular rental or
lease payment. The asset remains the property of the bank or finance
company.
5. Personal sources
A person can raise capital from his/her own savings or from the sale of
personal property.
6. Borrowing or loans
This involves obtaining money on credit from friends and financial
institution for an agreed period of time and agreed interest rate.
7. Trade credit / suppliers’ credit

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This is where the entrepreneur receives goods on credit from a supplier
and makes payments for them later usually after selling.

8. Gifts and offers from family members

The family can help to contribute towards the entrepreneurs’ business
capital in terms of money, fixed assets like land, buildings, vehicles, etc.
9. Selling of shares
This is where the business like companies offer shares to the public who
buy them. The money received by the company is then used as capital
for the business.
10. Fundraising grants and donations
An entrepreneur may carry out fundraising activities so that his/her
well-wishers can give him/her money or contributions in kind to start
the business.
11. Retained profits
These are profits earned by a business but maintained in the business as
working capital.
12. Through merging of firms which are almost at the same level of
production.

BUSINESS LOCATION AND PREMISES

Business location refers to the setting up of a particular business
industry in a particular area.

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FACTORS THAT AFFECT LOCATION OF A BUSINESS AND ITS
PREMISES (FACTORS INFLUENCING LOCATION)
The factors to consider when choosing business location and premises
are;
1. Nearness to market
It is important to be near to the market to save on transporting finished
goods.
2. Source / Availability of raw materials
Businesses should be located near sources of raw materials to reduce on
the transport costs and the risks of raw materials that are perishable
from getting spoilt.
3. Accessibility to transport and communicate network
Business should be located along the roads to facilitate free movement of
raw materials, products and customers all the time.
4. Availability of premises to be purchased / leased
Business should be located next to affordable premises in terms of rent,
purchasing or leasing.
5. Availability of labour
Business should be located in an area with required skilled labour and
where labour is cheap to reduce on labour costs.
6. Government policy on location
Any business to be located in an area should ensure that it does so in
line with the government policy. This may be done for reasons such as

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providing employment, balanced industrial growth in the country or
protection of the natural environment.

7. Availability of reliable power.

Business should be located in areas with reliable power supply for its
operations to run the machines and for lighting.
8. Availability of water supply.
Water plays an important role as a component and as a raw material in
the production of some goods like soft drinks, beers, textiles, brick
making, etc. such business should therefore be allocated near
permanent sources of water.
9. Security of the area
Many people prefer to locate their businesses in areas that are safe to life
and property e.g. banks.
10. Availability of business support services (Ancillary services)
Business support services such as banks, health centres, refreshments,
sports are very important for any industry they make the smooth
operation of the entire business process.
11. Room for expansion
The site acquired should be large enough to allow expansion if desired at
a later stage.
12. Cost of land
Business should be located in rural areas as they are cheaper other than
major towns (urban centres) which are expensive.

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STARTING BUSINESS OPERATIONS
Once the entrepreneur has completed the above business start up
processes, he/she is now ready to start his/her business. He/she may
commence operations as follows;

1. Mobilizing and lining up the necessary funds

2. Securing and cleaning the business premises
3. Procuring the necessary stock of goods to be sold
4. Stocking the shop and opening for business
5. Acquiring bank accounts and arranging the books of accounts.

BUSINESS PLAN PREPARATION

A business plan is a written document that summarizes the operational
and financial details of the proposed business.

It is a document which shows an entrepreneur what to do, how to do it

and when to do it as drawn by the entrepreneur.

It is a management tool, which focuses on the nature of the business in a

logical and organized manner.

STEPS INVOLVED IN PREPARING A BUSINESS PLAN

These steps include
1. Selecting a business opportunity
2. Conducting market survey
3. Collecting data from the field

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 4. Analyzing the data collected from the survey
5. Drafting a business plan
6. Discussing the draft plan with experienced entrepreneurs
7. Finalizing the plan
8. Writing the plan
9. Implementing the plan by use of the Action Plan

COMPONENTS OF A BUSINESS PLAN

There are basically seven (7) elements of a business plan which include;

1. General description of the business

2. Statement of missions, goals and objectives
3. Production plan
4. Marketing plan
5. Financial plan
6. Organization / management / administrative / human resource
plan.
7. Action plan
1. GENERAL DESCRIPTION OF THE BUSINESS
This is a summary statement of;
- The type of business being planned
- Which needs of the market it will seek to fulfill
- What makes the business to be different from other businesses
- The SWOT analysis of the proposed business
2. STATEMENT OF MISSIONS, GOALS AND OBJECTIVES

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(i) A Mission statement is a brief statement which indicates the
purpose of the business.
To improve the income of the people by giving them loans at low interest
rates.
To provide high quality products to our esteemed customers at friendly
and affordable prices.
(ii) Goals are medium and long term aspirations that the entrepreneur
wants the business to achieve based on his/her mission statement.
Example of a goal statement “To maximize profits”
Examples of goals in business are;
- To increase sales by 20% per month
- To increase profits by 10% of sales within 6 months
- To minimize / reduce operations costs by 50% within 6 months.
- To increase market share by 70% within 4 months
(iii) Objectives; these are specific targets that an entrepreneur sets,
which will move him/her into the direction of achieving his/her goals.
Examples of objectives are;
- To increase sales by 20% per annum in 5years period.
- To improve plant productivity by 20% in one year.
- To increase profits by 15% in 2 years.
- To reduce operational costs by 10% in 3 years period.
- To open up retail outlets in different parts of the country in 2 years
period.
- To train people in entrepreneurial skills in 2 years period.
3. MARKETING PLAN

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This is an analysis of the possible position and opportunities of the
business being planned in the present market situation.

ELEMENTS / COMPONENTS / ASPECTS OF A MARKETING PLAN

It covers the following areas;
 The target market. This looks at the customers whom the business
intends to sell its products to.
 Products / services offered. This looks at what the business sells,
its uniqueness and physical attributes.
 Position of competitors. These are major rival businesses engaged in
the same line of operations, their strength and weaknesses.
 Pricing strategy; this looks at the process of calculating your costs,
estimating the benefits to consumers and comparing your products,
services and prices to other products that are similar.
 Sales and distribution plan; This looks at how the product is going
to be distributed e.g. from manufacturers to consumer or
Manufacturers to wholesaler to Retailer then to the final consumer.
 Means of promotion and Advertising: This looks at how you are
going to send messages to your targeted audience and how you are
going to increase sales volume e.g. Radio, Tv or free samples,
coupons, display etc.
 Projected marketing expenses: This looks at the company to be
incurred during the marketing process e.g. erecting signposts,
brochures, business cards, fliers, banners, adverts, etc.

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  Market size; This looks at the number of targeted customers the
business expects to capture and serve.
 Projected sales volume: This is an estimate of the quantity of
goods / services to be sold off to targeted customers.
 Plan for recruiting and motivating sales / marketing staff in order to
achieve the sales target. This looks at how sales persons are going
to be recruited and how they shall be encouraged to achieve targets
through proper motivation.

4. PRODUCTION PLAN
It is an analysis of the projected needs for producing / manufacturing of
the proposed goods and services.

COMPONENTS / ELEMENTS / FACTORS / ASPECTS OF A

PRODUCTION PLAN
These are;
 Business site and location. This is the place where production of
goods and services is to take place.
 Production / Manufacturing process on how the business intends
to produce or procure.
 Quantities estimates or volume of goods or services to be produced,
purchased and for sale of customers.
 Plant capacities required in the short and long term to meet the
market demand
 Choice of machinery and equipment to be used. This involves a
group of machines and tools to be used in the production process.

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  Choice of labour to be used. This looks at skilled, unskilled and
semi-skilled labour force to be used.
 Choice of raw materials to be used. This looks the inputs used to
produce goods and services.
 Choice of packaging materials to be used. This looks at materials
like paper bags, polythene bags, boxes plastics, bales crates to be
used to wrap and compress products to avoid spoilage, damage,
contamination, etc.
 Transport facilities and means to be used. This looks at means of
carriage to be used in the transportation of raw materials and
finished goods.
 Power and utilities to be used. This looks at hydroelectric power,
biogas, telephones or water to be used.
 Waste disposal management. This looks at measures to handle
wastes from the production process such as polythene and how
they can be properly disposed.
 Production overhead expenses to be incurred during production of
purchase of raw materials, etc.
 Production standards and quality standards to be maintained so as
to improve quality.
 Inventory control management. This involves establishing lead time,
work in progress, finished products. It also looks at stock taking,
stock valuation, stock counting and stock reconciliation.

5. FINANCIAL PLAN

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This is an analysis of the financial requirements of the proposed
business.

COMPONENTS / ASPECTS / ELEMENTS OF A FIANNCIAL PLAN

These include;
(i) Fixed capital
This is the sum of all the fixed assets of the business.
(ii) Working capital
This is the excess of total currents assets over total current liabilities.
(iii) Overhead expenses
These are costs incurred in the business startup process.
(iv) Sources of finance
These are avenues where the business it to get its incomes.
(v) Income statement
This is a financial statement prepared to establish and determine net
profit or net loss of a business in a given period of time.
(vi) Balance sheet
This is a financial statement prepared to determine the financial position
of a business as at a given date.
(vii) Cash flow statement
This is a monitoring tool used by an entrepreneur to establish how much
and what sources the business is to derive its cash and how much is to
be spent in a given period of time.
(viii) Breakeven analysis

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This is a point where a business’ total costs (TC) equals its Total Revenue
(TR). At this point, the business does not make profits neither does it
incur losses.
(ix) Sensitivity analysis

FORMAT OF A FINANCIAL PLAN

KAMIRA CLASSIC FURNITURE

P.O BOX 24130
SEETA – MUKONO
TEL: 0772 604 020
“Quality is Our Motto”
FINANCIAL PLAN
PARTICULARS QUANTI UNIT TOTAL COSTS
TY COST (SHS)
(SHS)
FIXED CAPITAL REQUIREMENT
Acquisition of land 1 acre 6,000,000
Construction of buildings 1 9,000,000
Purchase of machinery / 10 8,000,000 29,000,000
equipment 1 6,000,000
Purchase of motor vehicle
WORKING CAPITAL REQUIREMENT
Raw materials 3,000,000
Labour costs 2,000,000

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 Fuel 500,000
Utilities 100,000 5,600,000
START UP EXPERIECES
Rent 500,000
Trade license 200,000
Market survey 150,000
Signposts 150,000 1,000,000
SOURCES OF FUNDS
Own savings 1,000,000
Loans 2,000,000
Grants 500,000 3,500,000
TOTAL 39,100,000

6. ORGANISATION / MANAGEMENT / HUMAN RESOURCE /

ADMINISTRATIVE PLAN
This is the frame around which the people, the machines, the equipment
and other physical parts of the plan are put together to have an
operating business.

ELEMENTS / COMPONENTS / ASPECTS OF AN ORGANISATION

PLAN
These include;
1. The organizational chart / structure of the organization
2. The people working in the organization
3. Their positions / title of each worker
4. The skills and knowledge (qualification of each worker)

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 5. The duties and responsibilities of each worker
6. The basic salary or pay for each worker
7. The fringe benefits to be given to each worker
Qn: Explain the elements / components of an organization plan.

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 ORGANISATIONAL CHART / STRUCTURE FOR

KAMPALA BAKERY LTD

P.O BOX 250,
SEETA – MUKONO
TEL: 0772 604020

SHAREHOLDERS

BOARD OF DIRECTORS

MANAGING DIRECTOR

GENERAL MANAGER

PROD FINANCE PURCHASING SALES AND HUMAN TRANSPORT &

UCTION MANAGER AND SUPPLIES MARKETING RESOURCE DISTRIBUTION
MANAGER MANAGER MANAGER MANAGER MANAGER

DRIVER OFFICE SECURITY COOKS

ASSISTANT GUARDS

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7. ACTION PLAN

It is a sequence of activities that acts as timetable / guide for the

implementation of the planned business activities in order to achieve
business goals and objectives.

It is a management tool that involves laying out a series of sequenced

steps that enable an entrepreneur to implement planned activities of the
business in a sequenced way so as to meet set goals.

ASPECTS TO ADDRESS IN BUSINESS IMPLIMENTATION PLANNING

The components / elements of an Action plan are;

1. Activities to be done
2. Time frame
3. Business needed to carry out the activities
4. Person in charge of those activities
5. Indicators of success
6. Remarks / comments
USES OF AN ACTION PLAN

1. It is used as a guide to help entrepreneurs remain focused when

implementing business activities.
2. It is used as a time table for implementing the business activities.
3. It is used to get information on the progress towards the enterprise
establishment.
4. It is used to locate sources of information and resources needed.
5. It helps to detect business barriers in advance so that appropriate
steps can be taken to remove them.
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 6. It helps an entrepreneur to identify the SWOT of his business and
compare them with those of his competitors.
FORMAT OF AN ACTION PLAN

KAMIRA CLASSIC BAKERY

P.O BOX 231488
Seeta-Mukono
Tel: 0772 604060
“Where quality is our Motto”

ACTION PLAN
ACTIVITY TO TIME RESOURCE PERSON IN INDICATORS REMARKS
BE DONE FRAME NEEDED CHARGE OF SUCCESS
Formalizing 2 weeks 100,000 General Certificates got -
formation of Manager
the business
Carrying out 3 weeks 250,000 G/m Survey guide -
preliminary filled
survey of the
product
Carrying out 3 weeks 400,000 Marketing Survey guide -
market Manager filled
research and
finalization of
the business
plan
Sourcing of 1 week 10,000,000 Finance Loan -
business fund manager repayment

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 schedule got
Selection of 4 days 100,000 G/M Land title got -
business site
Securing 3 weeks 2,000,000 Purchasing Receipts got -
machinery manager
and tools
Installation of 4 weeks 2,000,000 Engineer - -
tools and
machinery
Recruiting of 3 weeks 500,000 Human Interviews -
staff resource M. done
Application of 4 weeks 1,500,000 Production Electricity and -
utilities Officer H20 installed
Purchase of 2 weeks 1,000,000 Purchasing Receipts got -
raw materials officer
and other
inputs
Publicity 1 day 500,000 Publicity Customers -
office present
Setting up 1 day - - - -
and getting
ready to start
the business

PROBLEMS FACED BY ENTREPRENUERS WHEN PREPARING

BUSINESS PLANS
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These include:
- Inadequate finances for plan preparation
- Inadequate entrepreneurial skills in designing of the business plan
- Inadequate market information about the market trends
- Inadequate market research about the business plan
- Inadequate facilities like computers for use in preparation of the
business plan
- Difficulty in getting the relevant work force
- Limited skilled labour to executive the business planning
- Ever changing market trends such as population size, income
levels, etc.
- Opposition / resistance from some individuals and regulatory
bodies like NEMA who may block the implementation process.
- Problem / challenge in choosing business location and site
- Failure to involve all stakeholders in the business planning process
such as the local community
- Undeveloped infrastructure e.g. poor state of the roads, etc

FACTORS THAT MAY HINDER THE SUCCESSFUL IMPLIMENTATION

OF THE BUSINESS PLAN
These include;

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 1. Lack of completeness of the plan i.e. Missing out of some elements
like financing plan or the marketing plan or production plan or
Action plan.
2. Inconsistence in the business plan i.e. different components not
being related for instance the financial budgets failing to match
with the production and marketing activities hence cause scarcity
of funds for implementation of planned activities.
3. Failure to involve business stakeholders like shareholders, workers,
the community, etc. This causes resistance to the implementation
of the planned activities hence failure.
4. Inadequate resources necessary for planning such as capital and
labour. This leads to failure to carry out planned activities.
5. Underdeveloped infrastructures such as poor lands, power supply
systems and financial institutions among other infrastructural
problems. This increases costs of planned activities hence failure to
carry them out.
6. Unrealistic action plan in terms of little time and resources
allocated to various activities.
7. Person weaknesses of the entrepreneur on the part of monitoring
the implementation of the business plan.
8. Threats like competition. This makes the business lose focus hence
failing to carry out planned activities as it reacts to competitors.
9. Natural calamities such as drought can hinder supply of required
materials or inputs.
10. Failure to adequately carry out market research leads to
inaccurate data being used.

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MANAGING A SMALL BUSINESS ENTREPRISE
Management refers to the art of getting things done through people and
proper utilization of business’ resources like capital, raw materials ad
time. This enables the business to achieve its goals and objectives.

ROLE OF AN ENTREPRENUER IN THE MANAGEMENT OF A SMALL

ENTREPRISE
a. Decision Making
Decision making is the process of making the best choice among other
alternatives in order to achieve business goals and objectives.

Role of an entrepreneur in decision making

i. Initiating and identifying business opportunities
ii. Accessing and availing resources necessary for the identified
opportunities like capital, human labour, etc.
iii. Transporting and converting the business opportunities into an
enterprise to produce goods and services to meet customer’s
needs.
iv. Looking for new ideas for improving products to meet the
changing needs, tastes and preferences of your customer.
v. Arranging for fresh financial and other resources to expand or
improve the business products
vi. Holding meetings with project managers, research and
development personnel.

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 - The entrepreneur also resolves conflicts among employees and
solves differences with other businesses.
- He also makes decisions when allocating the business resources
- He also negotiates contracts with clients, suppliers

b. Information processing
- He constantly monitors and controls his environment.
- He studies and collects information concerning the enterprise such
as changes in customer’s tastes and preference as well as
competitors behaviors and practices. This is usually done through
personal contacts with customers, suppliers, competitors and
financers. Information can also be obtained from the media e.g.
Newspapers, magazines, radios and television.

c. Interpersonal relationships
He maintains good interpersonal relationship by playing a role of a
leader, network officer and figurehead.
(i) Leadership role
He should lead by example and should guide and direct others with
respect, be committed and dedicated to the work.

(ii) Role as a Network officer

He has to maintain a network of outside contacts through regular
communication and co-operation. This helps to assess the competitors of
the business, social changes as well as changes in government rules and

126
regulations. This can be achieved through occasional attendance of
meetings, professional conferences, reading journals and reports, surfing
the internet, etc.
(iii) Figure head roles
This involves attending to visitors and clients, signing legal documents,
representing the enterprise at different for a, etc on behalf of the
enterprise.
NB:
Internally, an entrepreneur as a figurehead has to attend to workers’
gatherings like graduations, weddings, introduction ceremonies, funeral
rites, etc. This leads to unity and commitment among the workers and it
creates a good image of the entrepreneur to the outside world.

IMPORTANCE OF MANAGEMENT IN A SMALL ENTERPRISE

1. Good management enables the entrepreneur to make maximum use
of business resources so as to earn profits.
2. It enables the business to produce quality goods and services that
can meet customers’ needs and enables the business to make
profits.
3. A small business that is well managed is in position to borrow
funds from individuals and financial institutions.
4. It enables an entrepreneur to assign employees the right jobs as per
their knowledge, experience, attitudes and interests.
5. It enables an entrepreneur to communicate to employees the
business policies, procedures and objectives and strategies to be
used to achieve the objectives.

127
6. Good management ensures that the working conditions of
employees are conducive in terms of cleanliness, light, heat,
ventilation, safety, space, furniture, etc.
7. It provides social support services to boost the employee’s morale
and dedication to service.
8. It provides psychological counseling to reduce stress and tension of
employees at work as well as personal problems.
9. It provides fringe benefits in addition to salary such as Medical
insurance, sick leaves, maternity leave, retirement and pension
benefits and free education for workers.
10. It enables employees to participate in business affairs like how to
improve the business performance. This builds commitment and
dedication among employees to work hard.
11. Good management enables the business to treat the customer as
the KING/QUEEN and is always right and is the boss of the
business.
12. It ensures correct advertising which does not mislead the
customers.
13. Good management helps to maintain inter business relationship
through fair trade practices like fair prices, good quality products,
proper quantity if the product, good method of payment, quality
services, etc.
14. It ensures that the business operates within the provision of the law
and regulations of the state.
15. It ensures that environmental laws are respected through
minimizing air pollution, noise pollution, etc.

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16. It ensures proper and timely payment of taxes
17. It ensures provision of employment to its citizens
18. Good management ensures that the business contributes funds for
public activities such as repairing hospitals, roads, schools, etc
19. It ensures provision of products and services needed by the
community.
20. Good management provides business opportunities to the
community members e.g. selling their products to the business or
becoming agents, dealers or distributors of the business products.

MANAGEMENT TASKS
A management task refers to activities organized in units for particular
purposes. In a small enterprise, the management tasks include:
i. Production management
ii. Marketing management
iii. Personnel management
iv. Financial management

BUSINESS MANAGEMENT TASKS

TOP MANAGEMENT

PRODUCTION MARKETING PERSONAL FINANCIAL

MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT

129
 Planning & budgeting
Transformation Recruiting Record keeping
Setting prices
Inputs Training Financial … and
Customer needs
Outputs Promoting analysis
Availing the product
Quality control Demoting
Promoting the product
Transferring

A. PRODUCTION MANAGEMENT
This deals with planning and controlling production activities so as to
meet the business’ market plans.

Production activities include;

(i) Acquiring inputs (land, capital, raw materials, human resource
and information)
(ii) Transforming inputs into outputs. Outputs are the products that
have been processed from raw materials into finished or semi-
finished goods.
(iii) Production activities this begin from acquisition of inputs (factors
of production) which have to be transformed, processed and
converted into outputs (goods and services)

B. MARKETING MANAGEMENT
Marketing management concentrates on meeting the customers’ needs
and drives the production function to ensure that it provides the
required products in the desired quantities and quality.
The marketing functions include;
1. Providing the goods / services customers need

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 2. Setting prices that customers are willing to pay but are profitable to
the business.
3. Getting business goods or services within the customer’s reach
4. Informing and persuading customers to buy the products
5. Find out the customer’s needs, products, their quantities, prices
and delivery schedules and guiding the production department to
produce them.
C. PERSONNEL / HUMAN RESOURCE MANAGEMENT
It is the managing of people, and getting them to do all activities
requested in an enterprise. Human resource / personnel management is
the most significant because it is people that provide the brains that
drive the business.
Personnel management mainly deals with;
(i) Determining the need for additional staff.
(ii) Recruitment of people in terms of numbers and types of skills
required for better business performance
(iii) Focusing business efforts on most likely sources of supply to
reduce the total costs of hiring and training personnel
(iv) Provision or replacement of employees from either inside or
outside the enterprise whenever need arises either on a
temporary or permanent basis. This therefore facilitates business
activities to be carried out throughout.
(v) Motivating staff.
(vi) Carrying out staff appraisal for appropriate action
(vii) Terminating the services of staff that are no longer needed, in
form of retiring.

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D. FINANCIAL MANAGEMENT
It involves the routine activities, which are performed within the
enterprise to ensure availability and efficient use of funds.
Examples of routine functions of financial management include;
(i) Supervising daily cash receipts and expenditures
(ii) Baking of surplus cash balance.
(iii) Setting debts of suppliers of goods / services on time
(iv) Record keeping
(v) Budgeting
MANAGEMENT FUNCTIONS

In a small enterprise, management also carries out special activities

designed as functions. The basic management functions in a small
enterprise are;
1. Planning
This is a management task which involves the establishment of goals and
objectives of a business. It also determines the ways in which the goals
and objectives will be achieved.

Importance of planning
- It gives an entrepreneur direction and course of action.
- It enables him to allocate time frame for different activities.
- It enables the entrepreneur to make maximum utilization of
resources
- It helps the entrepreneur to set and achieve goals

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 - It assists the entrepreneur to evaluate alternatives and choose the
best alternative to benefit the business.
2. Organizing
It refers to identification of what activities are to be done, grouping those
activities into sections / departments and designing or delegating the
…………… (Page 80)
3. Staffing
This involves the process of recruiting, training, developing,
compensating and evaluating employees who do the identified tasks.
4. Leading
This involves motivating and guiding employees about the procedures
and methods of work in the organization. An entrepreneur should lead
through open communication, should lead by example and should
motivate through staff appreciation of what is done by word of mouth.
5. Controlling
This deals with monitoring goods purchased and sold, money received
and paid out, stock and other property of the business.
6. Communication
It is the process of passing information from one person to another.
Through communication, an entrepreneur transmits and shares ideas,
opinions, facts and information to his/her suppliers, workers and
customers for successful performance.
7. Motivation
It is the process of encouraging people to give their best towards
achievement of desired goals of an enterprise. It is a psychological

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process through which entrepreneurs get employees to willingly pursue
business objectives.
8. Budgeting
A budget is a document showing expected income and expenditure of an
enterprise.
It is a detailed plan expressed in financial terms. The process of
preparing a budget is referred to as Budgeting.
A budget may be made up of a;
i. Sales budget
ii. Direct material budget
iii. Production / Manufacturing overheads budget
iv. Direct labour budget
v. Cash budget
vi. Administrative expenses, etc.
vii. Production budget
viii. Production cost budget

BENEFITS OF BUDGETING
- It provides managers with a way to cost their plans and see their
financial implication
- It provides specific goals and objectives that serve a yardstick for
evaluating performance
- It reveals the potential problems before they occur
- It co-ordinates the activities of the entire business by integrating
the plans and objectives of various department

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 - It ensures that cash is available for efficient running of the
business.
- It acts as a yardstick for comparison of performance.
- It provides clear objectives for managers and supervisors
- It motivates executives / employees to attain given goals
- It acts as a method of communication
- It increases production efficiency, eliminates wastes and minimizes
costs.
- It coordinates the Activities of various department
- It compel manager to think ahead
- Show excess / surplus cash balance so that the excess is re-
invested.
- It establishes a sound base for credit
- It shows whether capital expenditure may be financed internally.
- It establishes a sound base for control over cash position.
- It assists in delegation of Authority.

PRODUCTION MANAGEMENT

PRODUCTION PROCESS

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It refers to the steps involved in producing a good or service and these
include acquiring inputs and transforming (processing) them into
outputs.

PRODUCTION PROCESS FLOW DIAGRAM

Environmental forces

Input TRANSFORMATIO Output

N PROCESS

Feedback

a. INPUTS
these are factors of production i.e. things which must be there in order
for production to take place. They include; land, capital, human resource
and entrepreneurship.
(i) Land; Refers to the source of raw materials e.g. fish, oil, timber,
Agricultural produce.
(ii) Capital; Refers to already produced goods used in production of
other goods or services e.g. machines, tools, equipment.
(iii) Human resource; Refers to human effort used in the production
process. Human resource is valued in terms of number of people
and skills needed for production purposes.

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 (iv) Information refers to feedback about the input, transformation
process and output to ensure quality products and cost
effectiveness at all stages for competitive advantage in the
market.
(v) Time frame; Any given job requires time within which it can be
done. The duty of an entrepreneur is to ensure that time frames
for the jobs are adequate and are observed.

b. TRANSFORMATION PROCESS
This refers to processing the materials to produce goods and services
that are more valuable than the inputs e.g. processing cotton into cloth,
timber into furniture, etc.
c. FEEDBACK
This refers to information the business gets about its production process
e.g. quality of output, flexibility of production process, reliability in terms
of ……. and costs. (page 82)

d. ENVIRONMENTAL FORCES
These are external factors that affect the business decisions in its
production process and include;
(i) Competitors; These are businesses producing similar goods and
services for the same customers.
(ii) Financial services; Availability of financial services means that
the business has the opportunity to borrow funds while lack of
financial services implies that it is difficult to borrow funds for
the business.

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 (iii) Change of customer tastes and preferences
When customer’s tastes and preferences change, the business too must
change in order to produce goods and services needed by customers.

REASONS WHY AN ENTREPRENEUR SHOULD KNOW THE PROCESS

OF PRODUCTION
- To make profits
- To satisfy the customers
IMPORTANCE OF OBSERVING THE PRODUCTION PROCESS STEPS
- It helps to ensure the quality of business product.
- It helps to control costs of production by focusing on the raw
materials, machinery and equipments, labour etc. to ensure that
they are within the set targets.
- It controls the production capacity to ensure that what is produced
meets the demands of the customers.
Under product management, an entrepreneur performs the following
major role;
(A) PRODUCTION PLANNING
This involve;
- Identifying required materials.
- Identifying sources of raw materials
- Examining feasibility of transporting them to the production site.
- Availability of continuous supply
- How they will be produced
- How long it will take to receive them after purchase or order

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(B) SCHEDULING WORK
This looks at how the production work will be done and it involves;
- It helps to organize the production process so that they are
arranged very well to minimize time and resource wastage.
- It helps to minimize effect of breakdown in total production.
- It enables continuous monitoring of the production like to ensure
that the set production targets are met.
- It facilitates flexibility to accommodate some changes in the product
itself.
- It enables to accommodate specific products made to order
- It allocates adequate work to employees to maximize usage of their
time and machines.

(C) MAINTENANCE
Machines, tools and equipment are very expensive and are at the same
time central to the successful operations of the business.

INVENTORY CONTROL
Inventory refers to the stock of goods help in a business at a given period
of time.
TYPES OF INVENTORIES

1. Raw materials
These are inputs / goods used in the production of other goods.
2. Work in Progress / Unfinished goods

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These are goods which are still in the production process but not yet
completed.
3. Finished goods
These are goods which have gone through and completed production
process awaiting sale to customers.
4. Merchandise
These are goods bought for resale but have not been sold.
5. Goods under Repair
These are goods that are damaged during the production or distribution
and need repair.
6. Office supplies
These are materials which are used to support the production process
e.g. stationary, soap, stapling machines, cello-tape, etc.

INVENTORY CONTROL / MANAGEMENT

It refers to the system which ensures that the right quantity and quality
of inventory required is supplied at the required time without
unnecessary investment in inventory.

IMPORTANCE / ADVANTAGES OF INVENTORY CONTROL /

MANAGEMENT
- It enables an entrepreneur to know whether the materials are ready
available for production or reselling.
- It helps an entrepreneur examine the possibility of taking quantity
discounts through large, orders.

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 - It ensures timely delivery and avoidance of shortages and
interruptions in business operations
- It helps in stabilizing product supplies and prices.
- It enables an entrepreneur to avoid having a lot of financial
investment in incentives.
- It helps to reduce stock losses through thefts and expiry of
products.
- It helps to minimize storage cost.
- It helps to ensure timely replacement of raw materials for
production or goods for sale.
- It helps to ensure efficient use of raw materials
- It helps to minimize over stocking and under stocking
- It helps to have up to date stock records.
- It helps to get rid of slow moving items (Fifo)
- It helps to avoid wasteful holding of surplus stock that may deny
taking money to other viable venture.

LEAD TIME
It is the time between orderly and receipt of goods
Lead time = Reorder Point
Usage rate

Lead time = XY days.

USAGE RATE
This refers to how fast inventories are being used up or resold.

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i.e. Usage rate = Reorder Point
Lead time
RE-ORDER POINT
This is the point at which a new order for inventories should be placed in
order to receive it before the inventories at hand are finished.

Re-order Point = Usage Rate x Lead time

STOCK CONTROL
Stock control means receiving stock, recording stock, storing stock,
arranging your stock, checking your stock and re-ordering your stocks.

PURCHASING
Purchasing is keeping production, supplied with the required goods and
services at the right time and at the right place.

PRINCIPLES OF PURCHASING
i. Right quality
ii. Right quantity
iii. Right time
iv. Right price
v. Right source / place

WAYS OF ACHIEVING GOOD PURCHASING

- Developing good purchaser – supplier relationship.
- Having detailed specifications for the purchase.

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 - Having an insight into the market price and price fluctuation.
- Having correct assessment of inventory.
- Having the ability to manage financial needs.
- Having good will and credit worthiness.
- Knowing alternative sources of supplies.
- Avoiding a tendency to buy from only one supplier.
- Sticking to some basic standards on the quality of purchases.

SELECTION OF MACHINERY, EQUIPMENT AND TOOLS

(a) Machinery
It refers to a group of machines in general that gets work done.
A machine is a device in which each part works together with the other
to perform some function e.g. sewing machine.
(b) Equipment
Equipments are things needed to do some works e.g. computers,
typewriters, calculator.
(c) Tools
A tool is any investment or apparatus which is held in the hands for
doing some work e.g. Axe, Hammer, Spade, etc.

FACTORS CONSIDERED WHEN SELECTING MACHINERY, TOOLS

AND EQUIPMENTS.

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 1. Initial cost of the equipment and machinery. Those whose cost is
relatively low and affordable are purchased more than those which
are expensive.
2. Capacity of machine (how many units or items it can produce
within a given time) vis-à-vis. The demand that has got to be met.
Machinery with higher production capacity that enable the
entrepreneur to meet his/her demand will normally be selected.
3. Ease in maintenance and repair. Machinery that has spare parts
and repair services available are more selected than those whose
spare parts and maintenance services are scarce and expensive.
4. Flexibility for adjustment in relation to customers’ changing tastes
and preference. An entrepreneur usually selects machinery that can
easily be adjusted to the changing needs of customers.
5. Availability of other equipments required to operate the machinery
or equipment especially the complementary machines. If machinery
has other complementary machines which are available, an
entrepreneur can select it for consistence and continuous
production.
6. Productivity and efficiency of machinery and equipment and the
quality of the products. More efficient machinery is easily selected
compared to inefficient machinery.
7. Complexity of the task to be done. If the producer is to do a
complicated piece of work such as constructing a tarmac road in a
mountainous area, then he will ….. (Page 85) machines which can
do the task.

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 8. Life span of machinery and equipment. Machinery which is more
long-lasting (durable) should be selected to reduce on unnecessary
costs of buying or replacing other machinery.
9. Guarantee given by the manufacturer in terms of efficiency,
durability, maintenance and safety devices encourages businesses
to select that kind of machinery compared to those without
guarantee.
10. Sources of machinery and equipment. If the source from which
the machinery is purchased is reliable, an entrepreneur will be
more likely to buy from it then the less reliable sources i.e. the
reputation of the producer of the machinery e.g. SONY products.
11. Ease and simplicity to use. Machinery, equipment and tools
which are easy and simple to use are more likely to be selected
compared to those, which are difficult and complex.
LABOUR REQUIREMENT / EMPLOYEES
An employee is a person who works for the business in return for a wage
or salary. An employee provides skilled or semiskilled or unskilled labour
for the business’ activities or operations.
FACTORS TO COSNIDER WHEN DECIDING ON THE NUMBER AND
TYPE OF EMPLOYEES TO WORK IN ABUSINESS
1. Type of skills required for some particular business and work they
do in relation to the production process e.g. carpentry skills for
carpentry business, Negotiation and communication for marketing,
etc.
2. Number of jobs available. This may vary with the size of the
business such that the smaller the size of the business, the less the

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 jobs available and the larger the size of the business, the more the
jobs. On the other hand, the more the jobs that are available, the
higher the number of employees that will ne needed.
3. Family members supporting the business. If the family members
can support the business, then few employees will have to be
recruited.
4. Costs of hiring labour in relation to the business output and profits.
If the costs involved are high, profits of the business are reduced
and consequently few people are employed.
5. The level of demand for the products. If the products have a high
demand, entrepreneurs will employ many workers and if the
demand is low, few workers will be employed.
6. The level of technology used in business. If high technology is used,
fewer workers will be employed than when the technology used is
low.
After analyzing the above factors, an entrepreneur should decide on the
number of employees to recruit considering the following;
(i) Qualifications of the employees.
(ii) Working experience of the employees
(iii) Age of the employee
(iv) Source of employees e.g. University / College
(v) Use of interpersonal relations i.e. how the employee interacts
with other.
FACTORS TO CONSIDER WHEN RECRUITNG EMPLOYEES

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 1. Type of skills required from the employee to do the job. The
recruited person should possess the required skills to achieve set
goals and objectives of the organization.
2. Employee working experience. Employees with enough experience
perform efficiently so an organization should look out for an
experienced person.
3. Employee remuneration expectation. Wages or salaries demanded
by an employee should be considered. An organization should
recruit a person whose costs can be met.
4. Age of the employee. Most firms today need energetic people who
are flexible and can adapt to the changing situation of the market
so young people should highly be considered.
5. Number of workers required. This should be considered in
accordance with the need. If there is little need for workers, then it
would be dangerous to recruit many people as this would affect the
profitability of the business.
6. Health condition of the employee. Most firms today don’t want to
employ people with a lot of health problems e.g. those with
chronical diseases.
7. Level of education of employee
8. Urgency on the job
9. Employee’s physical ability
10. Tribe of employee
11. Marital status of employee
12. Sex of employee
13. Language spoken by employee

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SELECTION OF RAW MATERIALS
Raw materials refer to basic materials from which products are made
through a transformation process. Raw materials may be natural or
artificial. Examples of natural raw materials include; cotton for cloth,
timber for furniture, clay for bricks, etc
Artificial raw materials include; plastics, Nylon, etc

FACTORS TO BE CONSIDERED WHEN SELECTING RAW MATERIALS

FOR A MANUFACTURING FIRM.

1. Sources of raw materials. Where the materials for the production

process can be acquired. Raw materials that are nearer the
business are preferred to those from far.
2. Cost of raw materials. Cheap raw material which are affordable are
preferred to the to the expensive ones.
3. Quality of raw materials. Manufacturers usually select good quality
raw materials in order to produce high quality products needed by
customers.
4. Terms of purchase i.e. whether the supplier’s terms of sale are on
credit or cash basis. Most manufacturers select raw materials from
suppliers who offer favourable terms of purchase e.g. discounts
credit facilities.
5. Lead time i.e. how long it takes for the supplier to deliver the raw
materials demanded. Manufacturers tend to select raw materials

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 from suppliers who are reliable and can deliver within the shortest
time possible.
6. Amounts of units of raw materials used per production cycle. The
amount of raw materials to be selected normally correspond with
the amount of goods to be produced per product cycle. Business
prefer using raw materials that yield more output than the inputs
used.
7. Amount of raw materials to be maintained in inventory. This
depends on the business and the rate at which goods produced are
bought. If goods produced are sold off immediately, an entrepreneur
may store more raw materials for continuous production to meet
customer’s demands. However, if the rate of sales for goods
produced is low, then less raw materials may be maintained in
stock.
8. Availability and reliability. An entrepreneur must check to ensure
that the raw materials to be selected are available whenever he/she
needs them.
9. Rick of damage. Business usually prefer using raw materials that
have fewer damages to those with heavy damages.
10. Amount of waste. Businesses prefer to use raw materials that
produce fewer wastes to those that produce many wastes.

PACKAGING
Packaging refers to wrapping, crafting, filling or compressing of goods to
protect them or handle, transport, use and preserve them more easily.

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TYPES / FORMS OF PACKAGING
The common types of packaging include;
i. Bottling and canning
ii. Bagging (putting in bags)
iii. Putting in plastic containers
iv. Baling (tying in bales)
v. Tinning (putting in tins)
vi. Putting in boxes or cartons

TYPES OF MATERIALS USED FOR PACKAGING

These include;
i. Metals – aluminium, tinplate and steel.
ii. Plastic – polythene papers, jerry cans, bottles, etc.
iii. Wood – cartons, packing cases, etc.
iv. Paper – paper board, corrugated board, etc.
v. Glass – bottles
vi. Laminates – aluminum foils, plastic films
vii. Polyesters
viii. Hessian / jute for bags, etc.

IMPORTANCE OF PACKAGING
Packaging is important in the following ways;
1. Protection

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Good packaging materials are usually strong enough to protect the
contents from rough handling and external conditions.
2. Portability
Well packed goods are easy to handle and transport up to the consumers
especially liquids, cereals and flour e.g. putting bottles of soda in a crate.
3. Provides relevant information
Packaging provides important information to the public which is useful
to the customers e.g. manufacturing dates and expiry dates, etc.
4. Provides name of the producer
Packaging provides the name of the producer which helps to make
producers more responsible when producing goods. In case of any
problem, the producers can be sued.
5. Preservation
Packaging helps in preserving the contents. Goods especially food
products and chemicals are protected against atmospheric germs and
contamination.
6. Promotion
Goods packed well and attractively create a good product image. This
facilitates the selling of the product because the customer can easily
identify the product through its appearance and then purchase it.

7. Portioning

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The products may be packaged in relatively small sizes according to
weights, length, volume, common usage, etc. This makes it easy to
handle, use and better still, price for example children, adults, etc.
8. Distribution
Packed goods can easily be delivered to customers e.g. by mail order
services.
9. Easy of selling
Some packaged goods can easily be sold to customers by automatic
machines.
10. Self-service; is also possible and easy with packaged goods.
11. Instruction labels, on packaged goods serve as a guide to educate the
customers about the content and usage of the product.
12. Product differentiation. Packaging helps to make their goods look
different from those of his competitors.

FACTORS TO CONSIDER WHEN CHOOSING THE TYPE OF

PACKAGING TO BE USED FOR A PRODUCT.

1. Sources of packaging materials and supplies. A nearby source is

better so as to reduce transport costs and time wastage.
2. Availability of the packaging materials in the required amount.
3. Unit cost of packaging materials required per production cycle and
inventory levels to be maintained.
4. Cost of packaging in relation to the value of the good being
packaged.
5. Type of goods to be packed e.g. liquids, solids or gas.

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 6. Purpose of packaging
7. Means of transport to be used.
8. Nature of the product (durable / perishable)

UTILITIES AND SERVICES

These are goods and services which are needed to support the productive
and business operations.
Utilities include; electricity, transport, communication, financial services,
insurance, water, security, etc.

IMPORTANCES OF UTILITIES AND SERVICES IN A BUSINESS

1. Communication services help entrepreneurs convey information to
their workers, customers, suppliers, etc. through letters,
telephones, e-mail faxes, radios, TVs, etc. They are also able to get
feedback for monitoring and control purposes.
2. Banking services assist the public with financial services such as
lending money, saving deposits, payments by cheques or transfers,
secure custody of people’s money, etc.
3. Insurance services protect the business from the effects of the
insured risks if they are to materialize. They undertake to
compensate the businesses, which may suffer losses from risks
insured.
4. Transport services move people and goods from one place to
another.
5. Electricity provides power to run machinery and other processes
used in production of goods and services, distribution, storage, etc.

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 6. Warehouse services help in storing and protecting raw materials
and finished goods against atmospheric conditions and theft. They
also enable a business to keep enough of the required stocks.

PRODUCT LIFECYCLE
Product cycle is the period of time over which a product is brought and
introduced on the market and when it is eventually removed from the
market. For a product to be introduced on the market, it follows the
following stages;
i. Market research
ii. Production design and development
iii. Purchasing of raw materials
iv. Production of the product
v. Packaging and storage of the product
vi. Sales and distribution of the product
vii. Installation if any assistance
viii. Technical assistance and servicing.

TERMS COMMONLY USED IN THE QUALITY SYSTEM

1. Quality policy: It refers to the overall intensions and direction of an
organization with regard to quality as formally expressed by top
management.
2. Quality planning: is what an entrepreneur plans to do to achieve
quality.
3. Quality control: are the operational techniques and activities that
are used to fulfill requirements for quality.

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 4. Quality assurance: refers to all the planned activities which are
implemented in an organized manner in the quality system. It is
also intended to provide confidence that an enterprise will fulfill
their conditions for quality.
5. Quality system: refers to the organizational structure, procedures,
processes and resources needed to implement quality
management.

Qn: Explain the importance of ensuring quality control in the production

process. (10mks)

WAYS OF MINIMISING / REDUCING COSTS OF PRODUCTION IN A

BUSINESS
- By ensuring close monitoring and supervision production process.
- Employing part time workers who are paid a low wage.
- Using advanced technology and machines to simplify work.
- Motivating workers though proper and timely payment.
- Employing skilled and experienced workers.
- Carrying out market research on better production method.
- Using cheap but quality raw materials in production process.
- Putting in place proper storage facilities to minimize wastes and
theft.
- Specifying duties and responsibilities for each worker to minimize
time wastage.
- Establishing proper lead time for suppliers of raw materials.
- Paying labour a low wage to minimize labour costs.

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 - Making labour to work for longer hours.
- Reducing fringe benefits for labour.
- Employing few workers i.e. laying off redundant workers
- Avoiding unnecessary costs.
- Encouraging specialization and division of labour
- Awarding tenders for supply of raw materials to competent and
reliable suppliers.
- Disposing off idle and non-performing assets e.g. old motor vehicles.

Value addition
Is the act of adding extra input to the production process.

TRANSPORT IN BUSINESS PLANNING

Transport refers to the physical movement of people on goods from one
place to another.

TYPES / MODES OF TRANSPORT USED BY DIFFERENT BUSINESS

(a) Road transport

It consists of Lorries, pickups, cars, wheelbarrows (carts), buses,
motorcycles, bicycles, etc that move on roads.
(b) Railway transport
It involves the use of a train and basically carries bulky goods.

(c) Water transport

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It deals with the movement of goods over water bodies like rivers, lakes
and oceans. Water vessels include; canoes, boats, ships, oil tanks,
ferries, etc. Water transport is mainly used to transport bulky goods
between continents as well as in countries that have large inland water
bodies and rivers.
(d) Air transport
It involves the use of air crafts to carry passengers from one place to
another. It is a fast, convenient and comfortable mode of transport. This
mode of transport is very expensive and is normally used for transporting
goods of high value, those that are light and perishables and also
urgently needed goods like drugs, flowers, newspapers, etc.
(e) Pipeline transport
Pipelines are used to carry liquid and gaseous. Products like fuel, water
and gas from one place to another.

FACTORS TO CONSIDER WHEN CHOOSING A MODE OF TRANSPORT

1. Availability and safety of the mode.
An entrepreneur should choose a mode of transport that is easily
available, to be used whenever need arises. The mode chosen should also
be safe for transporting the goods.
2. Cost of transport
The cost of transport should be relatively cheap compared to the value of
goods to be carried to avoid the goods becoming too expensive.

3. Nature of goods

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Perishable and urgently needed goods require a fast means of transport.
In such cases, a faster means of transport e.g. road or air would be
preferable.
4. Size of load
Bulky goods may be transported by rail and lorries. If the goods are
crossing continents and oceans, water transport would be used. If the
goods are light, they could be transported by Air or road.
5. Distance to cover
Long distances can easily be covered by rail or air while roads would be
preferable for short distances.
6. Value of goods
Valuable goods like precious minerals (gold, diamond and mercury),
computers, watches, televisions, etc. may be transported easily by Air.
7. Flexibility
If the goods are to be sold en-route, road transport would be the most
preferable means because it is entirely controllable by the entrepreneur
e.g. bakeries, milk dealers, matooke, etc.
8. Speed and urgency
When goods are required urgently, a fast mode like air transport is
preferable.

IMPORTANCE OF TRANSPORT IN PLANNING A BUSINESS

1. Transport bridges the gap between a producer and a customer. It
brings goods produced to customers.

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 2. It facilitates the movement of raw materials from their sources to
manufacturing firms for processing into finished or semi-finished
goods with an added value.
3. It helps to transport employees to their place of work in time.
4. It helps in moving goods from areas of plenty to areas of scarcity
thereby eliminating “black markets” and overcharging by ensuring
that goods needed by customers are available.
5. Transport links entrepreneurs to markets wherever they may be.
6. Movement of goods from various places avails customers with a
choice and variety. This can create customer loyalty due to ability to
purchase all he/she needs at one-stopping / shop.
7. With good transport system, entrepreneurs are able to get rid of
surplus stocks of areas with high demand for it.
8. Transport also encourages development of enterprises anywhere
since entrepreneurs are motivated to locate their ventures in areas
with good transport system.
9. It makes it easy to exploit new and distant resources.
10. It facilities communication e.g. movement of letters.

MARKETING IN A SMALL BUSINESS ENTERPRISE

Marketing refers to a series of activities an entrepreneur does to find out
who his/her customers are and what they want/need.
The major aim of marketing is to ensure that the customer’s needs or
wants are satisfied while the entrepreneur also makes profits.

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MARKETING ACTIVITIES
These include;
i. Finding out who the customers are.
ii. Finding out what customers need or want.
iii. Developing and providing the goods or services that meet the
customers’ identified needs/wants.
iv. Setting prices that customers can afford and are willing to pay.
This enables the entrepreneur to make profits.
v. Making the products available at places where the customers can
access them.
vi. Promoting the products by informing and attracting customers to
buy them and once they have started buying, to retain their
interest in buying from your business.

SELLING
Selling is a two-way communication between the buyer and the seller.

THE CREATIVE SELLING PROCESS (SALESMANSHIP)

The personal selling/creative selling process includes the following
logical steps / process.
1. Prospecting
This means locating the customers. Prospects are people and firms that
are likely to buy the products.

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2. Pre-approach
In this step, the entrepreneur gathers information about his/her
products and the products of his competitors and the prospective
customers.
3. Approach
This is the first minute or two of attempting to make a sale. This is the
first face to face meeting with the customer and the first 10 words used
are very important.
4. Sales presentation
This is to attract and retain the buyer’s attention. The entrepreneurs’
position should be to create interest in the customer’s mind.
5. Handing objections
Objections arise when a buyer says “No” to the price or design of the
product. This is the beginning of selling and it means that the buyer has
interest in the product.

Ways of handling customers’ objections

- Listen to the buyer and do not interrupt him/her
- Use a Yes Method (tell the customer that the price is too high but
you will save in the long run because my product is durable.
- Ask the customer what he/she does not like about the product and
give alternative to meet his need.
- Turn the buyer’s attention from objection to another benefit of more
appeal.

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6. Closing a sale
Finding a way of making a customer act or buy the product requires an
entrepreneur to use either of the following methods.
- Shall I reserve one for you?
- If you place an order now, you get a 2% discount.
- What colour do you prefer?
- Would you like it delivered to you or you will collect it?
7. Follow up
This is the support an entrepreneur gives his/her customer after the sale
or purchase of his/her goods or service. This builds up good will and
generates repeat purchases.

WAYS OF ACHIVEMENT CREATIVE SELLING

This can be achieved through
i. Making a strong point about a produce right from the beginning
of the presentation.
ii. Mentioning more of the benefits of the product e.g. this shoe is
comfortable and durable.
iii. Giving the customer complete attention.
iv. Involving the buyer in the discussion/ conversation.
v. Listening to the customer to make him/her feel important and to
understand his/her needs.

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HOW TO BECOME A SUCESSFUL SALESPERSON
(a) Improve the skills of selling
A salesperson needs to know his/her customers and their needs by doing
the following.
i. Finding out what the customer needs are by listening and asking
questions.
ii. Satisfying the customer’s needs by giving advice and offering
suitable goods and services.
(b) Know how to treat the customers
Customers are the most important parties for a business. The following
ways are helpful in improving customer’s treatment.
i. Greet the customers and where possible, call them by their
names.
ii. When already serving a customer and other come, greet the
waiting customers and tell them that you ill attend to them soon.
iii. Be polite and friendly. This makes the customers feel welcome
and enjoy visiting the business. Smiling cost nothing but earn a
lot.
iv. Look tidy and clean and appealing or someone that can be
trusted.
v. Listen carefully to what the customers say and ask questions to
find out what they need.
vi. Be patient. Give customers time to ask questions and decide
what they want to buy. Do not bombard and confuse them with
things or language they may not understand.
vii. Be honest and trustworthy.

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 viii. Do not argue with customers. Allow them to say no if they do not
want the product and ask them what else they would like to
have.
Qn. What are the qualities of a good salesperson? (10mks)
ix. Thank the customers for coming to the business even when
they have not bought your products.
x. Know the products and how to sell them. The customers may
ask many questions about how the products work or can be
used.
DIFFERENCES BETWEEN MARKETING AND SELLING

MARKETING
1. Focuses on the customers’
needs.
2. Customer enjoy supreme
importance
3. Aims at product planning
and development to match
products with the
customer’s needs
4. There is an integrated
approach to achieve long
term goals.
5. Converts customers’ needs
into a product.
6. Profuits are realized through
SELLING
1. Focuses on buyers’ need
2. Products enjoy supreme
importance
3. High pressure of selling
goods already produced.
4. There is a fragmented
approach to achieve
immediate goals.
5. Converts products into
cash.
6. Profits are realized through

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 customer satisfaction.
7. Aims at growing the market
i.e. getting more customers
(external market orientation)
8. Works on the law of caveat
venditor (let the seller be
aware)
sales volume.
7. There is internal business
orientation.
8. Works on the law of caveat
emptor let the buyer be
aware)

MARKET RESEARCH
Mr. is a collection of information from existing and potential customers
that can be used in the entrepreneur business decisions.
It helps the entrepreneur to find out the needs of his customers, the
activities of his competitors and the gaps to be filled, etc.

TARGET MARKET
It refers to where and to whom an entrepreneur hopes to sell his
products i.e. it is where the likely buyers of one’s product will be secured.

FACTORS THAT DETERMINE A TARGET MARKET POPULATION

1. Income levels
The higher the income levels of consumers, the bigger the target market
population. However the smaller the income levels of consumers, the
smaller he target market population.

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2. Consumption habits
This is the behaviours of consumers in consuming different products e.g.
smokers, Alcoholics.
3. Market share
The bigger the fraction of customers, the bigger the target market
population. However the smaller the fraction of customer, the smaller the
target market population.
4. Competition
The stiffer the level of competition, the smaller the target market
population. However the lower the competition, the bigger the target
market population.
5. Age and sex
Different age groups and sex groups need different products e.g. jeans,
trousers and skirts are preferred by the youths yet kanzus and gomesi
are preferred by the elderly.
6. Changing trends
These include population shifts, income levels, lifestyle, economic
situation. Favourable trends lead to a bigger target market population.
However unfavourable changing trends lead to a decrease in the target
market population.

MARKETING MIX
This refers to a range of activities used by an entrepreneur to serve his
customers. These include product, price, place, promotion and
positioning referred to as the 5P’s.

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1. PRICE
A product is anything offered by a business to satisfy the customer’s
need.

FACTORS TO CONSIDER WHEN DEVELOPING A PRODUCT.

- The needs of the customer i.e. develop a product in response to the
customer’s need.
- Availability of raw materials, determine the availability of raw
materials for making the product.
- Government policy, aware of government policy by making the
product that meets the standards set by the Uganda National
Bureau of Standards.
- Decision on shape, colour, package, brand name, quantity and
quality of what the customers want.
- Decision on whether to make your product similar to others or
unique and better than those of other businesses.

2. PRICE
Price is the monetary value of a product.

FACTORS TO CONSIDER WHEN DETERMINING PRICE

1. The cost of the product; the higher the costs incurred during
production, the higher the price and the lower the costs of
production, the lower the price.

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 2. The quantity in which people buy and how much they are willing to
pay. Customers who buy in bulk pay less because of discounts than
those who buy in small quantities
3. The prices of competitors. Businesses offering similar products and
their prices are lower, then the prices set will also be low or equal.
4. The need to make the prices more attractive to customers e.g.
making special offers and price discounts.
5. The profit margin that the entrepreneur would like to have.
6. Seasonal products like rain coats, Christmas cards, etc are not
seasonal like salt, sugar etc.
7. Durability of the product; products that are very durable are sold at
higher price than those which are perishable.
8. The segment of customers to be served since rich customers attach
price to value; so the price of them should be higher.
9. Quality of the product; the higher the quality of the product, the
higher the price and the lower the quality, the lower the price.
10. Government policy; at times, government fixes maximum and
minimum prices for certain products that are essential e.g diesel,
petrol and kerosene (paraffin)

COMMON METHODS OF PRICING PRODUCTS

These include;
1. Cost-oriented pricing; Here the price is based on the cost of
production incurred.
2. Demand oriented pricing; Here, prices are determined according to
the marked demand.

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 3. Competition-oriented pricing; Here prices are determined basing on
the level of competition in the marked.
4. Cost pricing; this method assumes that the fixed cost has already
been incurred anyway and so the entrepreneur sets a price to
enable him recover the products.
5. Marginal / pricing; this is a method used where prices charged
covers the direct costs of the product plus a margin that goes
towards recovering the fixed costs. Others are;
6. Auctioning; where the highest bidder takes the product.
7. Reseal price maintenance; where prices are determined by the
manufacturer e.g. Airtime, Newspapers.
8. Price discrimination i.e. charging different prices for the same
product to different customers.
9. Supply oriented pricing; this is where prices are determined basing
on the of supply.
10. Haggling / bargaining
11. Target profit pricing
12. Value oriented pricing
13. Uniform / postage stamp pricing
14. Sales by treaty (Agreement)

3. Place.
This involves the various methods of making products available to
customers.

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FACTORS TO CONSIDER WHEN CHOOSING A PLACE
These include;
i. Transport network
ii. Storage facilities
iii. Security
iv. Place to sell the product from i.e. where customers.
v. Delivery of the product i.e to reduce delivery cost
vi. Promotion; means informing and attracting customers to buy
products either for the first time or buy more of them.
4. PROMOTION
It involves any activity which influences people to buy products and the
quantities they will buy.

WAYS OF PROMOTING PRODUCTS

1. Use of intensive advertising to inform and make the customers
more aware of and interested in buying the products. Some ways
of advertising include signposts, posters, billboards, business
cards, radios, price lists, special letters, photographs, newspaper.
2. Window display i.e. putting the products outside the shop.
3. Arranging the products inside the shop in an attractive manner.
4. Giving free gifts and samples.
5. Use of signboards and neon signs.
6. Door to door advertising.
7. Using music or banners to attract customers.
8. Packaging the product beautifully
9. Use of personal selling (salesmanship)

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 10. Trade shows, trade fares and exhibitions
11. Use of attractive lighting
12. Offering discounts
13. Offering after sales services
14. Selling goods on credit to trustworthy customers.
5. POSITIONING
Positioning means targeting a key segment of customers for whom an
entrepreneur aims to sell him/her product.
Qn. Describe the steps, involved in planning promotional programme.
(5mks)
MARKET ASSESSMENT
It is the process of collecting and using market information in order to
determine the market for the products of a business and also identify the
real or potential problems.
Qn. Explain the factors to be considered when conducting market
assessment. (12mks)
- Refer to topic 9
BENEFITS / IMPORTANCES OF CONDUCTING MARKET
ASSESSMENT.
1. Market assessment helps an entrepreneur to find out who his
customers are.
2. It helps an entrepreneur to make decision as to whether or not to
set up or expand a business.
3. It helps an entrepreneur to identify the gaps that exist in the
market that he/she is trying to penetrate.

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 4. It enables an entrepreneur to get information about the potential
customers e.g. income levels, age, sex.
5. It helps an entrepreneur to get information about his competitors
so as to find out ways of outcompeting them.
6. It helps an entrepreneur to determine the size of the market they
want to capture.
7. It helps entrepreneurs to identify the customer’s needs / wants.
8. It helps an entrepreneur to determine the profitability of the
business.

CHANNELS OF DISTRIBUTION
These are the ways in which products are made available to the
customers.
FORMS OF CHANNELS OF DISTRIBUTION
a. Direct distribution (short distribution) channel
This is where an entrepreneur sells his/her products direct to the final
consumers who use or consume the product.
b. Retail distribution channel
This involves the entrepreneur selling his products to retailers who is
turn sell to customers as final user of the product.
c. Wholesale distribution channel
This channel of distribution involves an entrepreneur selling his
products in large quantities to wholesalers who in turn sell them in
smaller quantities to retailers who finally sell the goods to the final
consumer.

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 d. Marketing and selling agents
These are agents who sell products on behalf of the entrepreneurs and
are paid a commission based on the value of the amounts sold.

FACTORS TO CONSIDER WHEN CHOOSING A CHANNEL OF

DISTRIBUTION OF GOODS AND SERVICES.

1. Nature of the product; perishable products such as milk, fruits, etc

and expensive items like cars, computers require short or direct
distribution channel.
2. Reliability of the channel and its image. A reliable channel is able to
provide and avail goods and services to customers whenever need
arises. This encourages customers to make repeat purchases.
3. Cost effectiveness; the aim of a business is to minimize the
operating costs and maximize profits. An entrepreneur should
therefore choose a channel that is less costly or is likely to reduce
his operating costs in order to maximize his/her profits.
4. Location of target customers; if customers are near and within the
reach of your business, direct or short distribution channels should
be used. But if customers are far and dispersed, then other
channels of distribution may be used.
5. Availability of storage facilities; storage facilities ensure the safety
and stocking adequate quantities of the product. It the producer,
wholesaler and retailer have good storage facilities, the customers
can buy from any depending on their convenience there fore a long
channel is preferred.

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 6. Size / bulkiness of the product; for heavy goods, a short channel is
used to minimize costs and for lighter goods, then a long channel is
preferred.
7. Level of competition; it competition is too high in the market,
entrepreneurs use a direct distribution channels. If competition is
low, then a long distribution channel is preferred.
8. Size of the market; it customers are very many to be served, a long
distribution channel is used. However if customers are few, them a
short channel is used.
9. Availability of middlemen; when middlemen are many and present,
a long distribution channel is used. However absence of middlemen
in the market calls for a direct distribution.
10. Distribution policy of the business; different businesses have
different policies so it is better for a person involved in the selling
and distribution of goods to follow and abide by the distribution
policy of the business.

SALES PROMOTION
Sales promotion refers to the ways / techniques / tools / strategies /
activities than an entrepreneur use to influence consumers to buy more
of his products.

METHODS OF SALES PROMOTION

- Through window display.
- Selling goods on credit to trustworthy customers.
- Offering cash discounts (price off offer)

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 - Organizing competitions or games
- Packaging i.e. attractive packages
- Giving free samples
- Giving premium or bonus offer e.g. tooth paste / tooth brush
- Giving free coupons
- Organizing trade fairs and exhibition
- Use of trading stamps
- Use of scratch and win offer e.g. in sodas
- Money back offer i.e. giving back money to customers
- Exchange schemes i.e. where an old production exchange for a new
one at lesser price than the original price of the product.
- Through personal selling.
- Through offering after sale services e.g. free repair, free transport,
free cleaning, free technical advice, free testing, etc.

WAYS OF ADVERTISING FOR A SMALL BUSINESS

i. Print media;
This includes advertising in newspapers, magazines, direct mail and
posters.
ii. Broadcast media;
This is a form of advertisement on television and in radios.
iii. Out of home media;
This form of advertisement uses billboards, signposts, neon signs,
handouts, banners, etc.
iv. Other advertisement media;

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These include brochures, directories, price lists, exhibitions and trade
fairs, business cards, photographs, etc.
v. Direct marketing activities
This can be done through telephones and direct contact of sellers and
buyers.

FACTORS TO CONSIDER WHEN CHOOSING THE MEDIUM OF

ADVERTISING IN SMALL ENTERPRISES.
1. Cost of media;
The medium should be relatively cheap and affordable. It should not be
more expensive than the cost of the goods.
2. Target customers;
When the gods being advertised are targeted to the rich people, an
entrepreneur may use TVs and magazines to advertise them. If they are
for ordinary people, an entrepreneur may use radio, signposts, posters,
banners or local newspapers. If they are intended to rural people, an
entrepreneur may use signposts.
3. Age of customers;
If the customers are teenagers and youths, videos and magazines and
TVs can appeal to them much more while the radios and newspapers can
do well for adults.
4. Speed and urgency of information;
If an entrepreneur wants to sell his goods very fast, an urgent and
speedy medium like radios, TV and daily newspapers would be more
appropriate to appeal and reach the targeted audience.

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 5. Geographical area to be covered;
Depending on the area an entrepreneur wants to cover, he/she should
use an appropriate medium e.g. if the target is a regional area, then a
regional media may be used e.g. a regional radio or newspaper.
6. Media used by competitor
An entrepreneur should use a better medium that his/her competitors
for a competitive advantage. One should therefore first study what
his/her competitors are doing and then aim at beating them.
7. Availability of the medium;
An entrepreneur should use a medium which is available and reliable to
the intended user.
8. Channel of distribution;
An entrepreneur should choose a media that is in line with and in favour
of the channels being used for distribution of the products e.g. the media
should be able to mention the entrepreneurs wholesalers, retailers,
agents etc.

Qn.(a). Differentiate between commodity credit and hire purchase

agreement.
b. Describe the various forms of advertising that may be used
by……….. (pg100)
IMPORTANCES / BENEFITS / ADVANTAGES OF ADVETISING TO A
BUSINESS
1. It helps to increase sales of the business due to increased demand.
2. It helps to create awareness to the public about the available goods
and services.

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 3. It helps to increase the business profits through increased sales.
4. It helps an entrepreneur to introduce new products to the market
for sale.
5. It persuades customers to buy the business products hence
increasing sales.
6. It helps to bridge the gap between the manufacturer and consumers
(direct contact)
7. It encourages competition thus leafing to better quality products at
reasonable prices e.g. MTN and Airtel.
8. It helps producers to retain market (old customers)
9. It helps in explanation purposes through providing necessary
products.
10. It helps consumers to know the technical use of products and
their application.
11. It helps an entrepreneur to stabilize business sales.
12. It helps the business to become popular and acquire goodwill
(public reputation)
13. It helps to reduce on consumer exploitation by dishonest
Middlemen who are after profits
14. It helps to minimize costs and time wastage in moving from one
place to another.

BUSINESS COMMUNICATION SKILLS

Communication refers to giving and receiving information and receiving
feedback. It is a two way process used to exchange information and
ideas, pass on knowledge and share thoughts and feelings.

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IMPORTANCE OF COMMUNICATION TO AN ENTERPRENEUR.
1. It helps an entrepreneur to pass on relevant information all the time
to his/her staff, the customers, government and the public in
general.
2. It helps the entrepreneur to recruit and select workers for his/her
business. By publishing the advertisement, interested people can
send in their application letters, after which the entrepreneur can
shortlist, invite and conduct interviews for the selected persons,
appoint, induct and deploy staff.
3. It helps the entrepreneur to implement his/her policies by giving
instructions to subordinates and their supervisors.
4. Communication helps the entrepreneur to negotiate with customers
so as to get the best bargain in its dealings.
5. Communication helps in keeping good relationships with old
customers and creating new ones.
6. Communications helps the entrepreneur to make decisions from an
informed position.
7. Communication helps in creating a good understanding between
the entrepreneur and his/her employees.
8. Communication helps the entrepreneur to co-ordinate operations of
his/her business that are executed by different departments.
9. Communication helps the general public to get information about
the business. This improves the image of the business organization
within the public.

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 10. Communication helps the government and other regulatory
organizations to monitor, guide or direct business operations.

COMMUNICATION FLOW
Communication flows in different direction depending on who is sending
it.
a. Downward communication flows from top to bottom, which is from
managers down to the subordinates.
b. Upward communication flows from bottom to top, which is from
subordinates to superiors.
c. Horizontal and diagonal communication takes place between
different functional departments of the organisations.

FLOW OF COMMUNICATION LEVELS

MANAGING DIRECTOR

GENERAL MANAGER
Downward
communication
Upward
PRODUCTION MANAGER communication

WORKERS

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COMMUNICATION PROCESS
Communication process refers to the various steps followed to convey a
message between different parties.

SENDER MESSAGE ENCONDING MEDIUM

FEED BACK DECODING RECIPIENT

The description of the process of communication is;

i. Sender planning what to communicate, how, why and to whom
to communicate.
ii. Sender encoding the message i.e critically analysing the impact
of the message.
iii. Sender choosing a suitable channel / medium of communication
i.e. verbal / non verbal.
iv. Sender conveying / sending the message clearly and timely to the
right audience.
v. Receiver receiving the message.
vi. Receiver decoding the message i.e. analyzing, interpreting and
understanding the message.
vii. Receiver replying the message (giving feedback)

EFFECTIVE COMMUNICATION IN BUSINESS

Effective communication takes place when the message is understood by
the receiver in the same way the sender intended and is received in time.

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ESSENTIALS / ELEMENTS OF EFFECTIVE COMMUNICATION IN
BUSINESS
These include;
1. Complete
The message should include all facts the receiver needs to know about
the subject matter on which is being communicated.
2. Concise
The sender should give the message in the fewest words possible that
enhance its completeness. A message should not be too wordy otherwise
it will confuse the receiver.
3. Courteous
The sender should be as sincere as possible when giving the message
and should avoid hurting the receiving party but should not depart or
shy from addressing the issues under concern.
4. Correctness
The message given should be as correct as possible.
5. Considerate
The sender should have the receiver in mind when sending a message.
Positive words are better than using negative words.
6. Concrete
The message should be concrete by being specific and not vague or too
general.
7. Clear
The message should be as clear as possible. The sender should choose
words and language that is familiar with the receiver.

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 8. Timing
The message should be conveyed or communicated at a time when the
receiver is able to listen to receive it.
9. Environment
The environment within which the communication is being made should
be good to facilitate the intended target receive the message.
10. Media
The sender must use a media that the target recipient uses e.g. if
communicating to the villager, then use a radio and not newspapers
(since most villagers do not know how to read).

FACTORS WHICH INFLUENCE THE CHOICE / MEDIUM OF

COMMUNICATION
1. Speed and urgency. Urgency and speed of the message determines
the choice of media to be used e.g. for long distances, telephones
are better.
2. Distance involved. For long distances, letters and telephones are the
best compared to short distances where face to face is more
suitable.
3. Confidentiality and secrecy of the message. Confidential messages
are better to be sent through letters because they provide record of
reference unlike telephone.
4. Record of reference. For reference purposes, written messages are
better than face to face or telephone calls which have no reference.
5. Costs involved. Cheaper means may be more considered than
expensive means to reduce operational costs.

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 6. Immediate feedback. Messages requiring immediate feedback
should be sent using face to face or telephone.
7. Languages to be used in the message. The message should be made
in a language which the receiver uses and can easily understand
otherwise the information intended to be conveyed will not be
understood by the receiver.
8. Message performance. Messages through radios, Tvs and
telephones last for few seconds while letters, newspapers last longer
and can be referred to.
9. Nature of the message to be communicated. For messages that
require giving detailed information, letters are more effective. For
brief messages they can be sent through faxes, emails and
telegram.
10. Availability of the medium. The communicator should use a
media that is more readily available than those that are non
existing.
11. Age group of the recipient. Information to teenagers and
youths should be communicated through internet, magazines, TVs
and videos as these mostly appeal to this age group. Old people
prefer radios and newspapers.
12. Personality of the recipient. Communication to people with
hearing abilities is normally done through the use of sign language,
gestures, facial expressions, eye movements and other forms of
body language and visual communication.

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BARRIERS TO EFFECTIVE COMMUNICATION
A barrier to communication is any hindrance that stops the receive from
getting the message the way it was send by the sender.
The barriers to effective communication are;
- Unclear message i.e. one missing the addressee’s name, time, venue
and purpose.
- Inappropriate channel of communication used e.g. using a
newspaper to communicate to villagers who are illiterate.
- Lack of interest by the receiver concerning the subject matter.
- Inappropriate environment i.e. a noisy environment and where
communication is verbal (mouth type)
- Unattractive message i.e. one that is not packaged.
- Use of faulty communication gadgets / equipments
- Un favourable appearance of the sender of the message.
- Emotional blocks, having anger towards the sender because of
being proud of himself.
- Poor timing of the message ie. Communicating at unusual time.
- poor listening skills of the receiver.
- Language difference between the receiver and the sender.
- Poor message preparations / planning which is characterized with
so many errors and using spellings.
- Poor network and signals.

FORMS / METHODS OF COMMUNICATION IN BUSINESS

This refers to the methods or manner by which the entrepreneur can
communicate his/her message.

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 i. Oral communication / verbal communication
ii. Written communication
iii. Visual communication
iv. Gesture communication / non verbal communication
a. ORAL COMMUNICATION
This involves word of mouth either face to face or by telephone. It is often
used when bargaining, training, during interviews, meetings, public
speaking, etc.

b. WRITTEN COMMUNICATION
This involves communicating by sending written messages. It involves
writing business letters, Memorandums, Circulars, reports, notices,
bulletins, business manual, business journal, minutes, etc
 A business letter is written correspondence from one organization to
another.
 A memo is written communication from one office to another within
the same organization or branch office.
 The entrepreneur uses circular when he/she wishes to give the
same information to different persons. One document is prepared
and the duplicated (photocopied)
 Action / circulation slips may be used by an entrepreneur to give
the information for actions or for noting by an officer who may also
pass it on to other persons named in the slip.
 Reports can be used by an entrepreneur to give conclusions and
recommendations based on investigated facts.

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NB: A report must be accurate, clear, complete, concise and logically
arranged.
 Notices can be used by an entrepreneur to give short messages to
concerned persons.
 Bulletins, business manuals and house journals can be used by
entrepreneurs to give information on its operations, products or
results of its operations both to internal and external customers.
 Minutes are used by entrepreneurs to keep brief records of
resolutions of a meeting. Keeping records is important for future
reference. Minutes should be organised and written immediately
after the meeting when the subject of discussion and conclusions
reached are still fresh in the writer’s mind.

c. VISUAL COMMUNICATION
This involves communicating by presenting information by use of
diagrams and pictures without necessarily using words. E.g.
Organizational charts, photographs, posters, graphs, pie-charts, etc.

- Organizational charts can be used to show the organization

structure of a business. It shows different sections or departments
in the business organization.
- Photographs can be used to illustrate the other information given so
as to improve the appreciation and understanding by the reader.
- Films or documentaries can be used by an entrepreneur to give
information about his/her business operations.

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 - Posters and wall charts can be used to represent or illustrate
certain information in the business and serve as an important
method of advertising and informing target groups.
- Graphs can be used by an entrepreneur to present information
about the business performance e.g. line graphs, bar charts, pie
charts, etc.

d. GESTURE / NON VERBAL COMMUNICATION

This involves the use of signs e.g.
- Laughing to mean happiness
- Crying to mean sadness
- Nodding the head to mean consent

TECHNIQUES OF COMMUNICATING WITH CUSTOMERS

a. HOW TO PRESENT A PRODUC

 Consider customer’s privacy, convenience, ability to use the
product, etc.
 Consider the target customer’s needs
 Consider giving samples, guarantee, etc to back up the product
 Consider presentation aids like photographs, catalogues and charts
to back up product.

b. HOW TO BARGAIN WITH CUSTOMERS

In bargaining with customers, the entrepreneur should be a good
communicator. He / she should avoid dominating the customer. He/she

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should try to convenience the customer as to why the product is being
sold at the offer price, give counter offers like reduction in price, offer in
delivery services, etc.

c. HOW TO GIVE PERSONAL ATTENTION TO CUSTOMERS

In order to give personal attention, the entrepreneur should understand
customer’s needs and wants to be at the right prices, in their right
quantity and quality. The products need to be at the right prices, in their
right quantity and quality, should be given the right promotion and in
the right place at the right time in order to meet the customers’ needs
and wants as identified by the entrepreneur.

d. HOW TO FOLLOW UP ORDERS FROM SUPPLIERS

In order to make follow up from suppliers, the entrepreneur should make
sure that he/she has their physical and postal addresses, the telephone
numbers as well as a means of contacting them. Make physical check or
use other methods of contact as you follow up your order e.g. writing a
reminder letter, making a telephone call, sending an email / fax, etc.

e. HOW TO COLLECT OVER DUE ACCOUNTS

The entrepreneur should;
 Send polite reminders to customers with overdue accounts
suggesting the date for settling the debt
 If no response is received within the specified time, a more strongly
worded reminder should be sent.

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  If recovery is not affected, employ courts of law for stubborn
debtors.
f. HOW TO HANDLE DIFFICULT CUSTOMERS
The entrepreneur should;
 Acknowledge and evaluate customer objections
 Listen carefully to the words being used and feelings being
expressed by the customer
 Get the customer to open up so that you can understand the basis
for his/her being difficult
 Buy time by suggesting that you will look at the issue / subject
matter later.
 When you try to convince the customer from your view point, hold
your arguments until the customer is ready for them
 Compensate customers by price reductions or refund or
replacement of goods in case the previous purchases have had a
problem.

WRITING BUSINESS LETTERS AND MEMOS.

a. BUSINESS LETTER
A business letter is used to send information from the business
organization to an individual or another business. Organization on
specific areas of interest between the business and the addressee.

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CONTENTS OF A BUSINESS LETTER
A business letter should be clear, complete, and timely and be able to
promote the image of the business organization. A business letter usually
contains the following;

1. The letterhead
This shows its business name, addresses, telephone number, email,
vision, mission, etc.
2. Reference
This is used to assist in identification of the subject matter and to whom
the letter is being written e.g. Ls/PMSS/4/6/2016
3. Date
All letters should have a date. The date can be written as 22 February
2002, or February 22, 2008.
4. Inside Address
This shows the name and address of the person / organization the letter
is being addressed to.
5. Salutation
This is a general greeting used to commence the letter e.g. Dear Sir, Dear
Madam(s), Dear Sir/Madam, Dear James.
6. Subject heading
A subject heading gives a brief indication of the content of the letter.
Capital letters or bold print is used.
7. Body of the letter.
The body of the letter gives the information to the addressee (receiver).
Paragraphs are used to show different ideas in the letter.

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 8. Complimentary close
This is a general closing to the letter. It is common to end as; Yours
faithfully (if Dear Sir or Madam has been used) or Yours sincerely, (if
Dear and name of receiver have been used).
9. Signature
All business letters should be signed.
10. Name of the sender and Title
This is the person who has written the letter. It should be given at the
bottom of the letter.
11. Enclosures
If the letter has any document endorsed, it should be stated by using the
abbreviation “Enc”
12. Carbon copy (cc)
A copy should be kept for the file to distribute to different officers who
may need to know about the information communicated.

b. MEMORANDUM (MEMO)
This is an internal communication. It is a written message used within
the same organization. It is commonly abbreviated as MEMO.

COMPONENTS OF A MEMO
(a) FROM: It shows where the MEMO is coming from.
(b)TO: It shows to whom the MEMO is addressed.
(c) DATE: It shows the date on which the MEMO was written.
(d)REFERENCE: It is used to give it a reference.

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 (e) SUBJECT HEADING: It is used to show the main idea in the
MEMO.
(f) THE BODY: It is used to show the details of the content of the
MEMO in a graph.
BUSINESS ETHICS
Business ethics are the acceptable behaviours exhibited by or ways in
which businesses should conduct themselves towards the customers,
employees, society, government and other businesses.

PARTIES TO BUSINESS ETHICS

These include;
(i) Customers; who deal with the business in terms of buying the
business products or supplying it with products.
(ii) Employees; who are employed by the business and the business
day-to-day operations
(iii) Government of the country or authority in which the business
activities take place.
(iv) Business, which compete with the entrepreneur’s business
(v) The society within which the business is located and operates.

BUSINESS ETHICS TOWARDSS CUSTOMERS

These include;
1. Honesty; The entrepreneur should be honest to his customers in
terms of price, quality and quantity.

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 2. Courtesy; This is being polite, patient and sincere when dealing
with customers. E.g. An entrepreneur should not sell underweight
or expired goods to his customers.
3. Geniality; This means that the entrepreneur should be kind,
cheerful and try to balance his/her temper when dealing with
customers. Never bark or shout or abuse customers.
4. Responsibility; This means that the entrepreneur should try to meet
his obligations as agreed on. E.g. He should fulfill his contractual
obligations on agreed on time, deliver on time, and fulfill his/her
part of the deal / bargain.

BUSINESS ETHICS TO EMPLOYEES

- Giving the employees a fair pay and time
- Provision of clear and fair pay and on time.
- Provision of good working conditions.
- Provision of job security
- Being polite to them
- Respecting them
- Allowing open communication i.e. flow of information
- Avoiding discrimination / segregation

BUSINESS ETHICS TOWARDS SOCIETY

These include;
- Conserving the environment e.g. not releasing emissions or
effluents which pollute or destroy the society’s natural environment.

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 - Not endangering the people’s health and lives through its operations
e.g. Emitting poisonous gases, loud noises or explosions, etc.
- Upholding the social and ethical norms / value of society e.g. not
selling pork and alcohol in a Muslim community.
- Getting involved and contributing to society’s need e.g. health
services, construction of roads and bridges.
- Sharing in societies’ needs e.g. helping the poor, sick, disabled or
displaced persons.
- Providing employment opportunities to the members of the
community before foreigners.
- Being in position to respond to society’s call in case of emergency
situations.

BUSINESS ETHICS TOWARDS GOVERNMENT.

- Complying with the business laws e.g. registration, licensing,
labour, occupational hygiene, etc.
- Observing and setting the tax obligations as required by law.
- Meeting production standards in terms of quality and weight as set
by UNBS.

BUSINESS ETHICS TOWARDS SHAREHOLDERS /

ENTREPRENEURS / OWNERS
- Protecting the interests of shareholders for business survival.

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 - Safeguarding the capital of shareholders
- Guarding and controlling the property of business organizing
- Ensuring that the business public image is uplifted so that the
entrepreneur enjoys self-esteem and recognition.
- Ensuring that the business can earn profits.

BENEFITS OF BUSINESS ETHICS TO AN ENTREPRENEUR

1. They enable the business to expand its market by maintaining its
customers and attracting new ones.
2. They enable the business to increase its total sales and eventually
profits
3. They enable the entrepreneur to acquire skilled labour to work for
him from the society
4. They enable the entrepreneur to access and acquire quality raw
materials from the society
5. They enable the business to earn a good reputation from the society
6. They enable the entrepreneur to have committed and very
hardworking employees in his business.
7. They enable the business to run its operations / activities freely
without fear of being prosecuted or closed down by the government
8. They enable the entrepreneur attract government sympathy and
support in times of need e.g. tax holidays / rebates
9. They enable the business to outcompete other businesses which are
unethical
10. They enable the business to have good co-operation and unity
with other businesses.

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 BUSINESS LAWS, CONTRACTS AND TAXES
The most common purpose of business laws is to regulate operations of
business. E.g. the laws protect the consumers, the community, the
environment and the businesses themselves. Business laws presently
applicable in Uganda include;
1. Company law
This is the law which governs the formation, registration, conduct and
operations of businesses in Uganda.
2. Public Health law
This is implemented by the Ministry of Health to check standards of
hygiene for instance in bars, restaurants, hotels, clinics, etc.
3. Food and Drug law
Under this law, the Ministry of Health further controls the business by
ensuring that expired drugs and bad foods are not sold to the consumer.
4. Consumer Protection law
Under this law, the government protects consumers from exploitation by
ensuring that the goods sold to consumers are of acceptable quality,
quantity and price.
5. Weights and Measures law. This law ensures that entrepreneurs
use approved weighing scales and measurement when selling goods to
consumers to ensure that consumers are not cheated.
5. Land Act.
This is an act that provides on tenure ownership and management of
land. It was established in 1998 and spells out 4 categories of land
ownership i.e.

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 i. Freehold
ii. Leasehold
iii. customary
Environmental law
Under this law, which is implemented by NEMA, government ensures
that entrepreneurs’ activities do not lead to environmental degradation.
IMPORTANCE OF BUSINESS LAWS
1. The Land Act helps entrepreneurs to avoid land conflicts and also
facilitate land transfer.
2. Food and Drug law protects consumers from taking expired foods and
drugs. This protects the people from infections that would come due to
poor hygiene and expired drugs.
3. Public Health Law ensures that there is proper hygiene in public
places e.g. toilets, schools, etc. this protects people from infections that
would come due to poor hygiene.
4. Consumer protection law protects and safeguards consumers from
being exploited by dishonest businessmen in terms of price, quality,
weights, quantity, etc. the environment law protects the environment
from the harmful effects that result from operation of businesses on the
environment e.g. deforestation.

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BUSINESS CONTRACTS
A contract is an understanding between two or more persons to perform
an agreed transaction basing on agreed terms and conditions e.g. price,
quantities, time of performance, place of delivery, etc.

A contract is a legally binding agreement between two or more persons to

perform an agreed transaction basing on agreed terms and conditions.

TYPES OF CONTRACTS
a. Oral contracts
These are contracts where parties agree to deal with each other without
writing down anything.
b. Written contracts
These are contracts that are written and signed by both parties and
witnessed by a third party e.g. Appointment letter, sales agreement, etc.
NB:
 Offer. are the terms and conditions set by one party to the contract
to the other as being his/her dealing position.
 Acceptance. is the agreeing to the terms and conditions set by the
other part to which the offer was made.
 Price. is the consideration agreed upon by the parties to the
contract e.g. interest, profit etc. price is the monetary value at
which the parties agree to deal with each other.

ELEMENTS / ESSENTIALS OF A VALID CONTRACT

These include;

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1. Agreement
Is when one party accepts the offer of another.
2. Consideration
The parties must show that their agreement is part of the bargaining.
Each side must give something to the other. Therefore the element of
exchange is referred to as consideration.
3. Legality
The purpose of the agreement must be within the law i.e. it should not be
illegal.
4. Capacity
A contract must be made between parties of the registered business or
between persons above 18 years.
5. Witness
Contracts are valid if they are witnessed by an independent party i.e. the
witness should have no interest in what is being agreed upon.
6. Genuineness of the contract
The contract must have been entered into freely and involves the meeting
of minds. The agreement may be invalidated by a number of factors.
7. Possibility of performance
The parties must be able to react to expectations. Each party must be
able to perform its duties.

DISCHARGE OF A CONTRACT
A contract may be discharged / terminated / brought to an end through;
1. Performance

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If the contract is fulfilled as per the agreed terms and conditions i.e. a
contract is discharged when one party has not performed to the full
satisfaction of the other in accordance with the agreed terms and
conditions.
2. Agreement
A contract may be discharged when the two parties agree to discharge it.
This comes when the two parties agreed in their original contract.

3. Frustration
If one of the parties fail to meet his obligations, the contract is
discharged due to frustration e.g. in case of death, incapacity of one of
the parties.
4. Breach
If there is failure to perform one’s obligations before the performance is
due, or disabling one’s self from performing his promise.
NB: Partial breach means that only part of the agreement has been
fulfilled.
Total breach means no part of the agreement has been fulfilled.
5. Operation of the law
If there is lapse of time, death, substitution or bankruptcy of one or both
of the concerned parties.

TERMS AND CONDITIONS THAT ARE INCLUDED UNDER A

CONTRACT.
These include;
i. The prices at which the transaction is to take place.

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 ii. The quantities of goods and services to be dealt with during the
transaction.
iii. The time of delivery of goods and services.
iv. The place of delivery and all supporting documents that are
required e.g delivery notes.
v. The description of goods and services involved in the
transactions.
vi. The mode of payment by either parties e.g. spot cash.
vii. Provisions / instances for terminating the contract
viii. Means of setting any disagreement by either parties.
ix. The quality of goods and services to be offered
x. Witnesses involved in the contract

IMPORTANCE OF CONTRACTS TO AN ENTREPRENEUR

1. They help an entrepreneur to assess and manage risks in order for
them to succeed in their business.
2. They help an entrepreneur to achieve desired goals and objectives
3. They instill discipline among entrepreneurs and bring order in
business transactions
4. They help an entrepreneur to promote a good relationship with the
other parties.
5. They help an entrepreneur to promote hard work in the business.
6. They help an enterprise to have steady supply of goods and services
7. They help to ensure reliable market for business products

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THE CONCEPT OF TAXATION
A tax is a compulsory charge / levy imposed by the government or other
competent authority or persons / businesses in order to finance
government activities.
Taxation is the process through which government obtain money from
eligible persons by application of the law.
Taxes are collected by URA on behalf of the central government and local
administrations for local government revenue.

Tax base
This refers to any item or economic activity that is subject to tax.
He tax base may include;
i. Income earned from economic activities like Manufacturing and
trade.
ii. Income earned from employment e.g wages, salaries, fees,
commissions, etc.
iii. Property or Assets like houses, land and other investment.
iv. Consumption of goods which are a subject of taxation.

PRINCIPLES / CANON OF TAXATION

These are traits / characteristics which a good tax system should
possess. They include;
1. Simplicity
The type of tax and the method of assessment and collection must be
simple enough to be understood by both the tax payers and collectors.
2. Equity / fairness

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This means that tax should be levied fairly so that the distribution of tax
burden is equitable. There are 2 types of equity;
a. Horizontal equity: Is where persons who earn equal income or
have same wealth should pay the same tax.
b. Vertical equity: Is where persons who are in different positions in
terms of wealth or income levels are treated differently.
3. Convenience
This means that the place, period and season in which tax dues are
collected should be convenient to the taxpayer. For example tax is
deducted from an employee’s employment income by the employer at the
time of paying the salary.
4. Certainty
Tax should be certain, in terms of time, place, manner of payment and
the amount to be paid. Unpredictable tax discourages investment and
reduces work effort.
5. Economical
The cost of collection and administration of tax must be much lower than
the total tax collected. Usually, the collection cost should not exceed 5%
of the yield of the tax.
6. Ability to pay
The taxpayer should be able to pay the tax assessed on them without
much difficulty.
7. Elasticity
A tax should change directly with the change in the income. If the
income increases, the tax imposed on that income should also increase.
8. Flexibility

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The tax system should be able to accommodate changes in the socio-
economic environment in a country.

CLASSIFICATION OF TAXES
Classification of taxes refers to how taxes …. the tax (pge 112) payer.
Taxes are categorized into three;
(a) Proportional tax
It is one where the tax rate is constant regardless of the different levels of
income e.g at 30% for corporation tax currently.

(b)Progressive tax
It is one where the tax rate increases as the income increases.
(c) Regressive tax
A regressive tax is one where the rate of tax decreases as person’s income
increases.

NON-TAX SOURCES OF REVENUE

These include;
i. Gifts and grants from within and outside Uganda
ii. Gambling e.g betting
iii. Profits from government undertakings
iv. Sale of government properties e.g. land

TYPES OF TAXES
There are two (2) broad categories of taxes.
i. Direct taxes

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 ii. Indirect taxes

1. DIRECT TAXES
These are taxes imposed on the income and property of individuals and
business entities.
The common types of direct taxes include;

a) Income tax
This is a tax levied on income earned by an individual. It takes 2 forms
i.e.
i. Personal income tax
ii. Corporation tax
Personal income tax
It is tax charged on income of an individual.
Corporation tax
It is a tax charged on net income of a company.
b) Wealth tax
This is tax on accumulated wealth, capital or savings of an individual or
business entity.
c) Capital gains tax
It is tax on profits received from the sale of fixed assets.
d) Death duty
This is a duty imposed on the estate of the deceased person.
e) Inheritance duty
This is a tax paid by a beneficiary from the estate of the deceased.
f) Gift tax

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This is a tax on gifts acquired property.
NB: It covers assets given by living person to another living person.
2. INDIRECT TAXES
These are taxes imposed on consumption of goods and services. The tax
payer doesn’t directly feel the burden of the tax.

(a) Customs duty

This is a duty imposed on goods that cross national border points either
as imports into the country or exports duty.
(b) Excise duty
This is a tax levied on all locally produced goods whether meant for
domestic consumption or export.
(c) Sales tax
This is a tax imposed as a percentage on goods or services sold.
(d) Value Added Tax (VAT)
It is a tax on consumption of goods and services. It is imposed on valued
added at every stage in the chain of production or distribution of goods
and services.

THE UGANDA REVENUE AUTHORITY (URA)

The URA and the Local government Administration are two Tax
Administration in Uganda i.e.
- The URA which is responsible for the central government revenue
- The local government administration which is responsible for
collection of local government revenue

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 - URA was formed by the government on 5th September 1991 to;
 Modernize the process of tax administration
 Reduce the revenue leakage and corruption in the tax
administration

ROLES OF URA
- To assess and collect taxes
- To account for all revenue collected to Ministry of Finance.
- To facilitate trade and investment
- To advise government on matters of policy related to tax and
revenue administration

TAXES COLLECTED BY URA

1. International Trade Taxes
These are collected on goods entering or leaving the country. In Uganda,
this role is performed by customs and Excise.
They include the following;
- Import duty
- Export duty
- Value Added Tax
- Withholding tax
- Excise duty
- Environmental levy
2. Domestic taxes

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These are collected by URA under the Domestic Taxes Department
They include;
- Income tax
- Value Added Tax
- Excise duty

TAXES COLLECTED BY LOCAL AUTHORITIES

These include all local government administration authorities which are
responsible for collecting of local government revenue. They include the
districts, town councils, city councils and municipalities. These local
authorities collect revenue such as;
- Signpost fees
- Property tax in cities and towns
- Fees of licenses
- Market dues
- Park fees
- Street parking fees, etc.

ROLES OF TAXES IN UGANDA

The reasons why government levies and collects taxes from business are;
1. Taxes enable the government to raise revenue which it uses to
provide social services to the public.
2. Taxes can be used to reduce income inequalities in society
especially where the rich are taxed while the poor are subsidized.

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 3. Taxes on imports can be used to protect domestic industries form
competition of cheap commodities from other countries.
4. Taxes can be used to restrict the consumption of certain
commodities to substantial amounts e.g. taxes on alcoholic drinks,
cigarettes, etc.
5. Taxes provide a method through which the society charges those
who use its facilities like roads, toilets, police, etc
6. Taxation can be used to check on inflation by reducing the money
available to people for consumption.
7. Taxes can e used to recover the community wealth which
individuals have obtained not as a result of their efforts but as a
result of efforts of other persons or the community i.e. Death duty is
charged for this purpose.
8. Taxation can be used to redistribute income and wealth.
9. Taxation is used to reduce dumping in a country.

PROBLEMS FACED BY TAX AUTHORITIES IN UGANDA

These include;
- Ignorance of the population about the benefits of paying taxes
- High degree of tax evasion and tax avoidance
- Weak accounting system and inappropriate book keeping
- Existence of a large informal sector which URA cannot track
- High tax administration costs
- Political sabotage, from opposition politicians who discourage
people from paying taxes
- Political instability and insecurity in some parts of the country

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 - Too much corruption within the tax system i.e. soliciting of bribes
- Underdeveloped infrastructure e.g. poor state of roads
- Inadequate trained and skilled personnel
- Excessive poverty among the tax payers because of low incomes
- Inadequate facilities like vehicles, computers, etc

TAX COMPLIANCE
This is the degree to which the tax paying community meets the tax
obligations as required by law.
Tax payers who are not compliant either evade or avoid taxes.
Tax evasion is the deliberate refusal by a tax paying unit to pay taxes
imposed on it.

FORMS / EXAMPLES OF TAX EVASION

(i) Dishonest tax reporting by under declaring income or over
stating expenses
(ii) Engaging in smuggling
(iii) Falsification of declarations
(iv) Tax evasion is illegal and constitutes a criminal offence
(v) Giving lower value of goods / services imported / exported
(vi) Under declaration of income
(vii) Overstating expenses
(viii) Refusal of the business to register for VAT
(ix) Capitalization of tax so as to pay less profits

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CONSEQUENCES OF TAX EVASION
- There is a penalty for nonpayment of tax
- There is forceful payment of arrears
- There could be temporary or permanent closure of the business
- It leads to a bad public image exhibited
- It leads to denial of public tenders by government i.e. being
blacklisted
- It could lead to denial of government where tax compliance is
considered a pre-requisite (condition)

TAX AVOIDANCE
This refers to taking advantages of the loopholes in the tax law to reduce
on one’s tax liability (amount of tax imposed)

LEVELS OF TAX COMPLIANCE

The level of tax compliance depends on the tax payer’s attitude and
knowledge and there are principally four levels i.e.
1. Taxpayers who are fully compliant and are willing to fulfill their
obligations voluntarily
2. Taxpayers who reluctantly feel obliged to be compliant. These are
tax payers who know that non-compliance would be expensive and
accordingly comply.
3. Taxpayers who show slight resistance to compliance and this more
often arises from lack of knowledge. When such tax payers are
advised and some pressure exerted on them, they simply comply.

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 4. Taxpayers who are non-compliant and exhibit outright resistance to
meeting their tax obligations. This category includes some
taxpayers who take pride in failing the tax Authority.

FACTORS INFLUENCING TAX COMPLIANCE

1. The extent to which the tax system is equitable. An equitable tax
system encourages tax compliance. However, an inequitable tax
system discourages tax compliance.
2. The extent to which the tax laws and tax regulatory framework is
simple and easy to understand. Simple tax laws encourage tax
compliance. However complicated / difficult tax laws discourage tax
fairness in appreciation of tax laws and rules.
3. Consistent and fair tax laws encourage tax compliance. However
inconsistent tax laws discourage tax compliance.
4. The extent to which the tax burden is spread to all potential
taxpayers. If taxpayers don’t feel that the burden is proportionally
distributed, tax compliance will be low and if the burden is
distributed proportionally, tax compliance will be high.
5. Rate / levels of tax rates. Low tax rates encourage tax compliance.
However high tax rates discourage tax compliance.
6. Quality of tax administration. Tax collector who exhibit
professionalism, integrity and customer care encourage compliance.
However absence of professionalism, integrity and customer care
among the tax collectors discourage tax compliance.
7. Popularity of the ruling government and quality of governance
including honesty and accountability for public revenue. A corrupt

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 and unpopular government discourages tax compliance. However a
popular and incorrupt government encourages tax compliance.
8. The quality of business management by the taxpayers through
record keeping and exhibit business ethics. Unethical discourages
tax compliance. However business managers who keep proper
records and are ethical encourage tax compliance.
9. Availability of funds; firms with financial problems have low tax
compliance. However business managers who keep proper records
and are ethical encourage tax compliance.

FINANCIAL PLANNING IN A BUSINESS

CAPITAL: Is the initial amount of money or any other contribution made
in kind to finance a business and other factors of production.

TYPES OF CAPITAL

a. WORKING CAPITAL;
It is that part of the total capital of a business that is used to finance the
day-to-day running of the business. Working capital of the business
includes raw materials, fuel, stock of finished goods, work in progress,
finished goods and spares, cash at hand, cast at bank, …..(pg 117)

Working capital = current assets – current liabilities.

 Current assets are the possessions of an enterprise that stay
in a business for a short time e.g. cash in hand, cash at bank,
stock, debtors, bills receivable, etc.

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  Current liabilities refer to short term debts of a business
which it has not yet paid to those who supplied it with goods
or services e.g. Trade creditors, bills payable, bank overdrafts,
short term loan, etc.

KAMIRA CARPENTRY WORKSHOP

P.O BOX 250,
Seeta – Mukono
Tel: 0772 604087

ESTIMATED WORKING CAPITAL REQUIREMENTS FOR ONE MONTH.

ITEM EXPENSES AMOUNT (SHS)
Cost of timber 500,000
Money for wages of machinery 150,000
and joinery staff.
Glue, vanish, nails, sand paper 100,000
Salary for staff 150,000
Stationery and postage 10,000
Transport 40,000
Miscellaneous expenses 50,000
TOTAL 1,000,000
Less: Cost of timber less (50% of 250,000
the total cost of timber)
WORKING CAPITAL 750,000

b. FIXED CAPITAL

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Is the total amount of resources that an entrepreneur requires to buy the
fixed assets the business needs for its operations. Examples of fixed
capital include; buildings, land, vehicles, machinery, equipment,
furniture, etc.

FACTORS INFLUENCING FIXED CAPITAL REQUIREMENTS

1. Size of the business. Fixed capital requirements of large business
will be more than fixed capital requirements of a small business.
2. Nature of the business. A large manufacturing business requires
more fixed capital than a trading and service organization.
3. The cost of fixed assets. The costs of fixed assets sunder hire
purchase agreement may be fixed higher than the cost of fixed
assets under cash basis.
4. Entrepreneur’s ability to meet fixed requirements. An entrepreneur
who has access to large amounts of money can afford expensive
fixed assets than an entrepreneur with limited resources.
5. Method of technology. Use of high technology requires more fixed
capital than technology which is simple that requires low fixed
capital.
6. Method of sale. Business which distributes products to final assets
require more fixed capital than businesses that produce and leave
the distribution to the dealers.

ESTIMATING TOTAL CAPITAL REQUIREMENTS OF A GIVEN

BUSINESS

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The total capital requirements of a business is the sum of its working
capital and fixed capital.
Total capital requirement = fixed capital + working capital (capital
employed)
:. Capital employed = Fixed capital requirements + working capital
requirements

Sources of capital to abusiness

These include;
- Person sources
- Borrowing or loans
- Trade credit / suppliers’ credit revision (already covered)
- Gifts and offers from family member
- Selling of shares
- Fundraising, grants and donations

COSTS OF A BUSINESS
A cost is an expense that an entrepreneur incurs on production, buying
goods and services for his/her business or running business operations.

TYPES OF COSTS IN BUSINESS

(a)Direct / prime costs
These are expenses incurred by a business that match directly with the
level or volume of goods or services produced e.g. costs on raw materials,
direct labour, etc. it is a cost incurred directly on a specific product.

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 (b)Direct material costs
These are costs of raw materials used in the production process.

(c)Direct labour costs

These are costs in form of wages or salaries paid to workers who are
directly involved in the production of a product.

(d)Direct expenses
These are expenses that are directly related to the production of a
particular product but are neither raw materials nor direct labour.

(e)Indirect costs (overhead expenses / works overhead)

These are expenses incurred by a business but cannot be traced to any
particular product produced.

(f) Indirect material costs

These are expenses on materials that cannot be easily traced to a
particular unit of a product manufactured.

(g)Indirect labour costs

These are expenses incurred on workers not directly involved in the
actual production process but help in the running of the business e.g.
receptionists, secretaries, tea girls.
(h) Indirect expenses
These are costs incurred but cannot be traced to the product
manufactured e.g. electricity, telephones.

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Other costs
1. Selling and distribution overhead or expenses.
- Advertising expenses
- Sales staff salaries and commission
- Delivery expenses
- Costs of samples given to potential buyer
- Free gifts
- Printing and stationary
- Packing material expenses
- Depreciation and maintenance of deliver vans
- Insurance for warehouse, delivery van, etc
2. Administration overheads or expenses
These are total expenses or indirect costs incurred in the overall running
of the affairs of a business. E.g.
- Office rent
- Printing and stationary for Administration
- General administration expenses
- Postage and stationary
- Telephone expenses
- Depreciation of office equipment
3. Fixed costs
These are costs which do not vary with the level of output e.g. rent of
buildings, salary of workers, etc.
4. Variable costs

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These are costs which change with the level of output e.g. electricity,
fuel, stationary.

PERSONNEL MANAGEMENT AND ADMINISTRATIVE EXPENSES IN A

SMALL BUSINESS ENTERPRISE
Personnel management involves the effective control and use of workers
to do all the activities required in an enterprise.

ROLE OF THE ENTREPRENEURS AS THE MANAGERS

a. Recruitment
This refers to the process of locating and identifying suitable candidates
for the job. It can be internal or external.
b. Selection
This is the process an entrepreneur follows so as to pick out the most
suitable candidate for a particular job.
c. Induction training
This is the process where the entrepreneur assigns tasks to the selected
worker and then introduces him or her to the activities of the business
so as to make him/her aware, get acclimatized and then build confidence
and sense of cooperation.
d. Communication
An entrepreneur needs to continuously interact with the workers of the
business in order to ensure its proper and smooth running.
e. Work organization
The entrepreneur should organize work in such a way that it is enjoyable
in order to ensure that it efficiently and effectively done. It involves giving

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assignment to workers, further training, close supervision and
mentoring.
f. Plan and supervise training
The entrepreneur should find out and decide which courses are relevant
in developing the skills and performance of the workers as they try to
move with changes in the work environment, habits and demands.
g. Deal with disciplinary problems
An entrepreneur should be able to handle any conflict that arises
between the workers or between the workers are well as between the
workers and their supervisors by finding out what the problem is.
h. Classify jobs and prepare salary and wage scales.
An entrepreneur should set wage and salary levels which match the
employees’ work and performance.
i. Provide periodic appraisals / evaluation and reviews for each
workers’ performance.
An entrepreneur should evaluate and review the performance of each
worker to determine his/her strengths and need for further development.
j. Manage benefit programmes.
Where possible, an entrepreneur should provide benefit facilities such as
insurance, transport and health facilities, etc. for workers. This helps to
motivate them to work better for the good of the business.
k. Hiring other personnel
The entrepreneur may be forced to employ workers in the fields like;
(i) Production personnel: These are workers who will help the
entrepreneur run the business production process

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(ii) Transport management personnel: these workers handle transport
requirements for the business.
(iii) Finance personnel: These keep the financial records of the business,
manage the funds and prepare budget and financial reports.
(iv) Security personnel: These provide security to workers and safeguard
business property.
l. Motivation
It is the process of encouraging people to give their best towards
achievement of desired goals of an enterprise.

Ways of motivating employees

- Through provision of favourable job contents e.g. job security, good
salary, fringe benefits, sick leave, etc.
- Promoting workers fairly and objectively
- Provision of adequate and timely recommendation where necessary
- Involving women partially fully in decision making
- Conducting performance appraisals fairly and objectively.
- Ensuring pleasant working conditions for the workers
- Provision of fringe benefits to employees e.g. sick leave and holidays

Methods used when paying workers

- Salary and wage
- Time rate
- Piece rate
- Contract payment
- Profit sharing scheme

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 - Overtime / bonus pay
- Joint pay
- Cost of living pay
- Performance related pay

Level of payment
This depends on
- Financial / ability of the business
- Wage levels prevailing in the industry
- Performance
- Equitable pay structure

FAMILY INVOLVEMENT IN BUSINESS

The entrepreneur’s family can support the business performing the
following roles;
i. Giving financial support in form of capital to the business
ii. Assisting in the management of the business by helping in
execution of some of the business management tasks.
iii. Allowing the entrepreneur to use the assets of the family e.g.
land, buildings, furniture
iv. Providing security
v. Providing market since they also buy.
vi. Carrying out market research on behalf of the business

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CHALLENGES OF USING FAMILY MEMBERS IN MANAGING A
BUSINESS
- Laziness
- Theft and misuse of business funds and stocks
- Withdrawing of goods from the business
- Taking the business for granted
- Misunderstanding / conflicts
- Lack of managerial skills
- Poor customer care by family members
- Difficulty in making decision.

EXPENSES IN BUSINESS

1. PRE-OPERATING BUSINESS EXPENSES

These are costs / expenses incurred by a business before it starts its
operation.
Examples are;
- Business license and name registration expenses
- Expenses on installation of machinery and equipment
- Technical training expenses
- Expenses on construction or hiring of a building
- Expenses on utilities
- Market research expenses
- Advertising expenses
- Other pre-operating expenses, consultation fees, furniture, etc

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2. ADMINISTRATION EXPENSES IN BUSINESS
These are costs / expenses incurred by a business on routine basis in
order to support the production and marketing activities. Examples
include;
- Stationary costs like pens, envelopes
- Transport expenses for goods purchased
- Rent expenses / costs of hiring building
- Communication expenses
- Staff meals and welfare expenses
- Electricity expenses
- Cleaning expenses like brooms, brushes
- Security expenses e.g. hiring watchmen

FINANCIAL INSTITUTIONS IN UGANDA

Financial institutions are businesses that specialize in providing the
client / customers with financial services.
Examples of financial institutions in Uganda include BOU, Stanbic Bank,
Standard Chartered Bank, Bank of Baroda, CERUDEB, FINCA (U) Ltd,
Orient Bank, Crane Bank, Post Bank.

TYPES OF FINANCIAL INSTITUTIONS

These include;
i. The central Bank
ii. Commercial Banks
iii. Development Banks
iv. Merchant banks

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 v. Microfinance Deposit Taking Institutions (MDIs)
vi. Microfinance Institution
vii. Credit Only Finance Institution
viii. Saving and Credit Cooperative Societies (SACCO)

THE CENTRAL BANK

This is a government bank established to supervise, guide and assist
commercial banks in the country. It also provide banking services and
financial advice to government and commercial. The Central Bank of
Uganda is BANK OF UGANDA. It operates currency centres in other
regional towns e.g. Jinja, Mbale, Fortportal, Mbarara, Masaka, Arua,
Gulu, etc

FUNCTIONS OF THE CENTRAL BANK

1. It issues currency in the country in form of bank notes, coins. It
also replaces all worn out bank notes.
2. It acts as a bank to the government
3. It acts as a bank to all commercial banks and other financial
institutions
4. It advises government on monetary policies and economic matters
to guide the economy.
5. It licenses and acts as a supervisor of all bank activities of
commercial banks

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 6. It lends to commercial banks as lender of last resort. When
commercial banks fall short of money, they borrow from the central
bank after other alternatives have all failed.
7. It controls supply in the country by using interest rates, open
market operations, selective controls, variable reserve requirements
and other tools of monetary control.
8. Bank to international bodies like INF and World Bank.
9. Helping the government in raising short term finance by selling
government securities e.g treasury bills, bonds, etc
10. Manage foreign exchange reserves by regulating the activities
of forex bureaus in Uganda.

TOOLS OF MONETARY POLICY

These are methods / means used by the central bank to control and
regulate money supply in the country. They include;
1. Bank / interest rate
This is the rate at which commercial banks borrow from the commercial
bank. When the central bank increases the bank rates, also commercial
bank increases the interest rates on loan which reduces the demand for
the loans.
2. Open Market Operations (OMO)
Central bank usually sells treasury bills to the public at an interest rate.
By selling treasury bills, the central bank withdraws money from the
public thus reducing money in circulation.
3. Selective credit control

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Here, the central bank gives instructions to commercial banks to lend
only to priority areas or sectors and not to lend to non-priority areas
while at the same time increasing it for the favoured sectors.
4. Variable reserve requirement
The central bank requires commercial banks to deposit a percentage of
their customers’ deposits with it. If the central bank wises to reduce the
money in circulation, it increases this requirement. If it intends to
increase the money in circulation, it will decrease the reserve.
5. Moral suasion
This is when the central bank persuades the commercial banks and the
public to follow certain guidelines e.g. if it wants to increase money
supply, it convinces them to get loans.
6. Cash ration
This is the fraction of the total deposits that must be retained in cash
form by the central bank.
7. Special deposits
Commercial banks may be called upon to make special deposits with the
central bank.
COMMERCIAL BANKS
These banks provide financial services to the public by accepting
deposits from their clients, providing loans and overdraft facilities to
them and safeguarding the money deposited by customers i.e. they are
profit making financial institutions.

FUNCTIONS / SERVICES RENDERED BY COMMERCIAL BANKS TO

THEIR CUSTOMERS

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 - Accepting saving deposits from customers and safeguarding the
money deposited.
- Assisting in making payments and settlements by using cheques,
payment orders. Etc
- Assisting the transferring money by using bank drafts, standing
orders, traveler’s cheques, credit transfers, etc
- Providing finance to customers in form of loans and overdraft.
- Buying and selling foreign currency on behalf of their customers.
- Assisting customers in international trade by selling traveler
cheques, bank drafts, letter of credit, etc.
- Providing night safe custody services to their customers.
- Assisting customers to access their money any time they want it
through Automatic Teller Machines (ATM)
- They keep important documents of their customers e.g. land titles,
wills, etc.
- They provide financial advice to their customers.
- They act as guarantors and referees to their clients in case of
information regarding their financial position
- It lends out part of the customers’ money (fixed deposit account
holders) and earn profits in form of interest to the customer. This is
called credit creation.

PROBLEMS FACED BY COMMERCIAL BANKS IN UGANDA

1. Majority of the customers are illiterate. They don’t keep books of
accounts and prefer consuming to saving.
2. Insecurity in some parts of the country.

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 3. Limited funds limit their chances of expansion
4. Insufficient skilled manpower or unskilled managers.
5. Low customer savings due to poverty therefore they prefer
consumption
6. Inflation discourages lending
7. High interest rates by banks scare borrowers
8. Most banks are urban centred so they compete for customers yet
majority of the population are rural based.
9. Most customers lack collateral security therefore cannot access
loans / credit
10. Bad debts from some untrustworthy customers who default
11. Harsh formalities to open up accounts
12. Corruption and mismanagement of bank funds by dishonest
bank official
13. Poor supervision by the central bank hence closure of some
banks e.g. international credit bank, Greenland, etc
14. Discrimination in the lending and bureaucratic practices
15. Limited investment opportunities thus few loans are borrowed.

3. DEVELOPMENT BANKS
These banks specialize in providing long term development loans to their
clients. They are different from commercial banks because they give long
term project funding. They do not take saving deposits from their clients.
Examples of development banks in Uganda include UDB, EADB, ADB,
etc.
4. MERCHANT BANKS

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These banks specialize in financing and facilitating trading businesses
mainly in export and import business, guaranteeing customer payments,
using letters of credit, etc. they also facilitate in discounting the trade
bills for merchants. Examples of Merchant banks in Uganda is
CITIBANK.

5. MICROFINANCE DEPOSIT TAKING INSTITUTIONS (MDIs)

These are financial institutions that provide microfinance services to
their customers. Their services are generally offered to the low income
earners. Examples of MDIs include FINCA (U) Ltd, PRIDE (U) Ltd, etc

6. CREDIT ONLY FINANCIAL INSTITUTIONS

These are financial institutions that are licensed and supervised by Bank
of Uganda and they provide credit services only to their customers.
Examples are Capital financial services, Crane financial services.

7. MICROFINANCE INSTITUTIONS
These are financial institutions which provide credit services to their
customers and the amount given to their clients is usually very small
without collateral security. Examples of MFI in Uganda are FAULU,
UGAFODE, Pearl Micro financers.

8. SAVINGS AND CREDIT COOPERATIVE SOCIETIES (SACCO)

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These are small financial services institutions started by people on their
own using a cooperative model. People sharing a common need for
affordable and easily accessible financial services on sustainable basis
agree to start a SACCO through which they can pool their financial
resources and then extend credit to each other. The members of a
SACCO democratically govern it.

DIFFERENCES BETWEEN A COMMERCIAL BANK AND A

DEVELOPMENT BANK

COMMERCIAL BANK DEVELOPMENT BANK

1. Accept saving deposits Don’t accept saving
deposits.
2. Normally give short term loans Specialize in giving long
term loans
3. Charge high interest rates on loans Charge low interest
rates on loans
4. Normally lend to public individual Normally lend to
government only.

TYPES OF ACCOUNTS AT FINANCIAL INSTITUTIONS

An account is a relationship or record of dealing between a customer and
a financial institution. A customer can operate a savings account,
current account, fixed account, collection account or joint account.
A. SAVING ACCOUNT

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This is an account which is ideal for small savers who wish to save their
little money at a time.

Characteristics / features of a savings account

i. A minimum initial deposit is required at the time of opening it
e.g. shs. 10,000
ii. An account holder is expected to maintain a required minimum
balance on the account all the time.
iii. Money can be deposited on this account any time.
iv. Withdrawing may be limited to the agreed terms and conditions
e.g. amount that can be withdrawn at a time, the frequency of
withdrawal, etc.
v. A passbook is issued to record deposits and withdrawals.
vi. Interest is paid to account holder based on the balance on
account at the end of a given period, which could be a month,
quarter, half a year or a year.

B. CURRENT ACCOUNT
This type of account is ideal for persons and businesses with large sums
of money wishing to make large and frequent deposits and withdrawals.

Features / characteristics of a current account

i. A minimum initial deposit is required at the time of opening it.
ii. Ideally, no minimum balance should be required, but some
commercial banks in Uganda require a minimum balance below
which a customer is charged / penalized.

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 iii. Any amount of money can be deposited or withdrawn any time a
customer wants
iv. Cheque payment and settlement facility is offered to customers.
v. Bank statement is normally given at the end of the month or
specified time preferred by the client
vi. No interest is paid on deposits kept on current account.
vii. A ledger fee is charged for maintaining an account, which
additional fees are charged for issuing a cheque book, collecting
upcountry cheques etc.
viii. Overdrafts are allowed on current account on special
arrangement with the bank.
C. FIXED ACCOUNT
This type of account is used for a customer who has large sums of money
at his / her disposal and does not need to use it over a specified period.

Features / Characteristics of a fixed account

i. A minimum amount is required for a specific period
ii. No further deposit or withdrawals are to be made on the fixed
account until the expiry of the agreed time
iii. Higher interest is paid to the account holder in comparison to
other types of account
iv. A receipt is issued to the fixed account holder at the time of
placing the deposit
v. When the account holder withdraws his/her money before expiry
of the fixed deposit period, he/she forfeits the interest expected
on the account.

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D. COLLECTION ACCOUNT
This is an account which is opened by a client in a financial institution
so that he/she can receive payments through it from other parties e.g.
URA has collection account, schools have collection accounts, etc.

TRANSACTIONS OF FINANCIAL INSTITUTIONS

A number of transactions can take place between customers and the
financial institutions. These include;
1. OPENING AN ACCOUNT
A customer requires the following to open up an account;
i. Minimum amount for the initial deposit
ii. Passport size photographs
iii. Depending on the bank, two to three referees who must be
customers / account holders in that bank or bank employees.
iv. Proof of identity for example ID or LC1 introduction letter.
v. Filling and signing application forms giving details about self and
having it endorsed by a referee who has an account at the
financial institution.
vi. If acceptable, the applicant is given an account number
vii. Applicant then makes initial cash deposit
viii. A passbook / card, cheque book or receipt is given to account
holder depending on type of account opened
2. DEPOSITING MONEY ON THE ACCOUNT
To deposit money on the savings account or current account, a client fills
a deposit form in duplicate which is presented with a passbook / card for

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depositing cash, the cashier counts money that is being deposited,
checks the information on the deposit form e.g. date, amount in words,
amount in figures, account name and number, etc. if found to be in
order, the receiving cashier stamps, endorses, returns a copy of the
deposit slip to the customer.

3. WITHDRAWING MONEY FROM A BANK ACCOUNT

Depositors are normally free to withdraw money from their accounts as
long as they have some terms and conditions. While they may be free to
withdraw their money any time the banks are open, holders of saving
accounts may be restricted as to the amounts they can withdraw at any
one time and the number of times they can make withdrawals in a week.
i. To withdraw money from a saving account, a withdrawal form is
filled and handed to the bank official together with the account
holder’s passbook and identification paper.
ii. To withdraw money from a current account, the account holder
has to write out a cheque and presents it together with his/her
identification papers to the bank teller or cashier for payment.
A CHEQUE
A cheque is a written order by a current account holder to his/her bank
instructing it to pay a specified sum of money to the person to whom it is
written.

SPECIMEN OF A CHEQUE
E
A
B

236
 STANBIC BANK STANBIC BANK MUKONO BRANCH
MUKONO Date: 3/01/2016
Date: 03/01/2016 Pay: Kato Peter
Payee: Kato Peter Amount in figures: Shs 5,000,000
Shs: 5,00,000 Amount in words: Five million
Amount in words: Five shillings only.
million shillings only. Drawer: KimeraHardson
Cheque No: 111234 Sign: kimera
A/c: 014253188901 Cheque No. 11234 A/c
0140531883901
F
PARTIES TO A CHEQUE
1. DRAWER
This is the account holder who writes and signs a cheque for purpose of
making payment
2. PAYEE
This is the person to whom thecheque is written for payment.
3. DRAWEE
This is the bank to which the cheque is written.
DETAILS ON THE CHEQUE (FEATURES / CONTENT)
i. Date i.e. the day when the cheque was written
ii. Name of drawee / bank
iii. Name of the payee except in bearer cheque
iv. Name of the bank and branch from where it is issued
v. Amount to be paid in figures and in words
vi. Account number of drawer

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 vii. Signature of drawer
viii. Appropriate revenue stamp
ix. Counterfoil / cheque stab
CONDITIONS UNDER WHICH A CHEQUE IS CONSIDERED VALID FOR
PAYMENT BY THE BANK
 When it is written and signed by the account holder
 When it has a date on which is was written
 When it bears the account number of the drawer
 When the amounts in words are similar to amounts in figures
 When the drawer has enough money on the account compared to
what is written on the cheque
 When there are no alternations or cancellations or if they have been
countersigned
 When it does not exceed six (6) months after it was written.

CONDITIONS / REASONS FOR DISHONOURING A CHEQUE.

1. When the drawer does not have sufficient funds in his account with
the bank i.e. (1/f = R/D)
2. When drawer is dead or has become insane or bankrupt and the
bank is aware
3. If the cheque has been stolen and the bank has been informed by
drawer
4. If the cheque has many errors / cancellation and are not
countersigned.
5. It the cheque is post datedi.e presented before date on it
6. If the drawer has closed his account with the drawee bank

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 7. If the signature on it is different from the specimen signature held
by the bank or if the cheque is not signed by the drawer
8. When the bank suspects forgery of the cheque
9. If the cheque is stale i.e presented six (6) months after date on it.

REQUIREMENTS AND PROCEDURES FOR APPLYING / GETTING

LOANS FROM FINANCIAL INSTITUTION
1. The loan applicant must be having a functioning account at the
financial institution
2. The applicant fills a loan application form; giving details of the
amount of the loan required, purpose for which the loan is required,
security available for the loan, etc
3. If there are checked and found satisfactory and the bank agrees to
give the customer a loan, then the applicant will be made to sign a
loan agreement with the financial institution.
4. A loan will then be disbursed by crediting it to the borrowers’
account. He/she can now withdraw the money as and when he/she
wishes.
5. Whenever a loan is due for repayment or has been repaid, the
amount due is deducted from the savings account and put on the
loan account.
6. An overdraft on the other hand allows the current account holder to
withdraw more money than what he/she has (overdraw) on his/her
account after negotiating with his/her financial institution to do so.
Qn: Explain the requirements considered by a bank before giving a loan
to an entrepreneur.

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 - Being an account holder
- Having a valid ID or National ID
- Having a guarantor who is a bank customer
- Presenting bank statement
- Filling an application form for the loan
- Presenting passport photos
- Presenting collateral security of his/her value than the loan needed

Qn; Define the term “Run on banks”

It is a situation where majority of bank customers withdraw all money
from their bank account and p……..(pg 127)

Qn. Outline the factors considered by a bank before granting a loan to

an entrepreneur.
- Collateral security presented and its value
- Purpose of the loan
- Weather he/she is a customer of the bank
- Credit worthiness of the borrower
- Economic situation in the country e.g. inflation
- Health of an individual
- Interest to be paid
- Size of the loan
- Profitability of the business for which the loan is required.

MONEY TRANSFER
Money can be transferred form one person to another through;

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1. Standing orders
This is an instruction to a bank to pay a specified sum of money to a
specified person / organization that has been named at specific regular
intervals until the arrangement is cancelled.

2. Credit Transfer
Is when a bank customer writes out one cheque to pay a number of
individuals / persons.

3. Bank Draft (Banker’s cheque)

This is a cheque drawn by a bank to another bank.

4. Traveller’s Cheque
This is a cheque issued by a commercial bank to a person who travels to
distant places.

5. Credit cards
These are issued by banks to customers and give the holder…… (pg 127)
designated by the organization for amounts up to agreed maximum.
INSURANCE IN BUSINESS
Insurance is a pool into which many people pay money to protect
themselves out of which only those who actually suffer the risk insured
are compensated.

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Pooling of risks is when a risk occurs and compensation is made from
contributions of all those who take insurance policies then the loss is
spread to all of them.

Examples of insurance companies in Uganda include NIC, Excel Ico,

Jubilee Insurance, Golden Insurance Co, UAP I/co, PAX In/co, PWICO,
SWICO, ICEA, American Insurance Group, etc.

COMMON TERMS USED IN INSURANCE

1. Insured
This is the person / organization who seeks to be covered against a risk
or protected in the event of the insured risk happening or any
emergency.
2. Insurer
This is the insurance company that accepts to manage the pool and
compensate the insured in case of loss.
3. Premium
This is the amount of money paid by the insured to the insurance
company (insurer) that is put into an insurance pool out of which
compensation can be paid if a loss occurs due to risk insured against.
4. Sum insured
This is the money value of the property insured as stated by the owner at
the time of applying for insurance.
5. Surrender value

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This is the money paid to the insured by the insurer when he decides to
cancel the insurance policy or agreement before a specified period of
time.
6. Insurance policy
This is an insurance contract between the insured and the insurer.
7. Re-Insurance
This is when an insurer also insures a property which it has insured
with another insurer.
8. Co-Insurance (Double insurance)
This is when an insured insures the same property with more than one
insurer on the same risk.
9. Over insurance
This is when an insured overstates the value of the property being
insured.
10. Under insurance
This is when the insured understates the value of the property being
insured.
11. Contribution
This is when a risk insured against with the insurers occurs and
compensation is made.
12. Claim form
This is a document provided by the insurance company to be filled by the
insured when asking for compensation in the event that the risk which
was insured occurs.
13. Cover Note

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This is a document issued by the insurance company to a person insured
to prove that a contract exists between the insurer and the insured.

RISKS IN INSURANCE
A risk is a possibility of undesirable events occurring e.g. machinery
breakdown, theft, fire, death, burglary, looting, storms, floods, loss of
profits, bad debts, accidents, etc.
Risks are of two categories i.e.
(a) Insurable risks
These are risks that can be legally insured e.g. death, machinery
breakdown, theft, losses, accidents. NB: death cannot be controlled.
(b)Non Insurable risks
These are uncommon risks whose possibility of occurrence is difficult to
determine and therefore cannot be legally insured and in the event of
their occurrence, the insurance company cannot be legally compelled to
compensate e.g. Acts of war (political turmoil), floods, lightening,
earthquakes, famine, drought, etc.

PRINCIPLES / CANONS / DOCTRINES OF INSURANCE

1. Principle of utmost good faith.
It states that a person applying for insurance should disclose all relevant
true and material facts about the property being insured.
2. Principle of indemnity

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It states that insurance does not benefit a person but only restores one
to his/her original position that he/she was in before the loss occurred.
3. Principle of proximate cause
It states that there must be a fairly close connection between the cause
of a loss and the actual risks insured against to enable the insured to
seek compensation.

4. Principle of insurable interest

It states that a person should have financial interest in the property
being insured so as to seek compensation in the event of loss.
5. Principle of subrogation
It states that in the event of total loss and after full compensation, the
insurer acquires the right that the insured had in the property destroyed.

TYPES OF INSURANCEE IN BUSINESS

The difference insurance policies businesses cover themselves against
are that can be undertaken by an entrepreneur are;
1. Personal / life insurance
An entrepreneur insures his/her life against death by paying monthly
premiums to the insurance company.
2. Fire insurance
An entrepreneur takes out fire insurance policy to protect his/her
business against loss resulting from a fire burning property of the
business.
3. Theft and burglary

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An entrepreneur insures against loss resulting from theft or burglary of
the business merchandise, property, etc.
4. Loss of profits (fidelity guarantee)
An entrepreneur insured against making operational losses (loss of
profits)

5. Motor insurance
An entrepreneur insures against loss of his/her veniches by taking out a
comprehensive motor insurance. This would cover his/her car against
fire, theft, accidents, etc.
Third party insurance, which is compulsory in Uganda will compensate
any other person who may be hurt by the insured vehicle e.g. If Mr.
Kamira’s vehicle knocked Ms. Akello, it will be Ms. Akello to benefit from
Third Party insurance and not Mr. Kamira.
6. Money at Premises / in Transit
An entrepreneur insured against theft of money while the business is in
operation or while money is in transit.
7. Employers’ Liability (Workmen’s compensation)
An entrepreneur insures against injuries suffered by workers while they
are at the place of work.
8. Machinery Breakdown and Consequential loss.
An entrepreneur insures against loss resulting from machinery
breakdown and the consequential loss e.g. loss of production hence low
sales, low profits and loss of customers.
9. Marine Insurance

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An entrepreneur who deals in goods transported on water can take out
marine cargo insurance. This covers goods transported by water vessels.
Marine hull insurance covers the ship owner against loss or damage to
the vessels and other legal liabilities towards Third Party and passengers.
10. Aviation insurance
This is taken against loss resulting from personal accidents and cargo
damages due to aircraft crashes.
IMPORTANCE / BENEFITS OF INSURANCE TO BUSINESS
1. It allows individuals and business people to save money that can be
used to cover the unexpected emergencies thus promoting a saving
culture.
2. It provides money to individuals and business people that can be
used during a difficult period. The money provided can be used to
pay debts caused by unexpected emergencies.
3. It provides individuals and business people with loan since cover
notes act as collateral security for acquiring loan facility.
4. Insurance companies provide employment opportunities to people
e.g Actuaries, Accessory, Insurance agents and brokers, etc
5. It helps to compensate business in case of loss.
6. Insurance helps to promote trade since businessmen are compelled
to carry out their operations freely without fear of loss.
7. Workmen’s compensation / employer’s liability policy helps an
entrepreneur to reduce operation costs in case of injuries to
employees at the work place.
8. Insurance gives businesses confidence to undertake risky projects
since they are assured of business continuity.

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 9. It contributes to the country’s invisible trade when the insurance
services are provided to other countries. This enables the country to
earn foreign exchange.
10. Insurance companies pay taxes to the government which it
uses to develop social economic infrastructure like roads.

Qn. Explain the challenges faced by insurance company in Uganda.

(10mks)

STEPS / PROCEDURES IN TAKING OUT AN INSURANCE POLICY

These include;
1. Identification of a reputable insurance company to insure with and
also the insurance policy.
2. Filling of the proposal form.
3. Calculation of premium and payment of first premium.
4. Receiving of the cover note
5. Issuing of an insurance policy
6. In case the risk insured against occurs, filling the claim form is
done.
7. Termination of policy i.e End of Insurance contract.

CAPITAL MARKETS IN UGANDA

Capital Market is a market that trades in long financial products known
as securities (shares, etc)
These financial products are traded on a stock exchange i.e. in Uganda,
it is called Uganda security Exchange.

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TYPES OF INSTRUMENTS USED IN UGANDA CAPITAL MARKETS.
These include;
1. Bonds
A bond is an agreement between a borrower and a lender acknowledging
that the borrower received money from the lender and will pay back at a
certain time at a stated rate of interest.
2. Shares
A share is a unit of ownership in a company.
3. Debentures
A debenture is a unit of loan to a company.
4. Commercial paper
It is an arrangement that enables a company to borrow money for a short
period of time.
5. Collective investment schemes.
This is a type of investment scheme that involves collecting money from
different investors and then combining all the money and investing in
various products.
6. Treasury bills
It is a short term government issued regularly to borrow money from the
public with a maturity period of one year or less.

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 7. Blue chips. These are shares in a company of high repute and
sound financial history.
8. Gilt edged securities. This is a security that is absolutely safe in
respect of both the capital redemption and payment of interest.
9. Bearer securities. These are securities that can be transferred by
merely delivery without a transfer form being made by the issuing
company.
10. Portfolio securities. This is a collection of various securities
held by one investor / institution.

MAJOR KEY PLAYERS IN CAPITAL MARKET INDUSTRY

1. BROKERS / DEALERS
These are licensed financial professionals authorized to buy and sell
shares on behalf of their clients.
2. INVESTMENT ADVISORS
These are licensed persons who advise the clients about whether it is
advisable to invest, purchase or sell securities.
3 REGISTRAR
This is the person in charge of keeping records in respect of stocks and
shares of a floated company. A floated company is one which goes public
by issuing its shares to the general public.
4. SHAREHOLDERS
These are individuals or companies that purchase shares in a company
or business and own part of that company.
5. CAPITAL MARKET AUTHORITY (CMA)

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This is a government established body which ensures the regulation and
development of the capital markets industry.

6. FUND MANAGERS
These are companies who under a contract of management with a client,
undertake the management of a portfolio of investment.
7. CUSTODIANS
These are institutions / companies that perform the actual role of
holding or safekeeping the assets on behalf of the owners (investors)
8. UGANDA SECURITIES EXCHANGE
This is the market place in Uganda where securities ate treated.
STOCK EXCHANGE
These are markets in which existing stocks and bonds (securities) are
traded / sold.
PROSPECTUS
It is a legal document that gives the general and materials information on
the company’s history and operations that wishes to offer shares to the
public.

SHARE CERTIFICATE
Is a document that is evidence of ownership in a company.

TYPES OF INVESTORS
1. Private individuals / investors
These are people who hold shares for their own benefits.

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2. Corporate investors
These are companies that hold shares in other companies.
3. Institutional investors
These are investors who invest money on behalf of others.

Qn. Differentiate between a security and stock (2mks)

A security is any document that gives its holder a right to money or other
property not actually in possession while stock is a block of shares.

THE ROLE OF CAPITAL MARKETS IN BUSINESS

1. They help in raising funds through sale of shares on the capital
markets.
2. They help in provision of market where to sell and buy shares by
investors.
3. They help in promotion of inflow of international capital through
foreign exchange brought by investors
4. They lead to better standards of living since people who save can
buy shares and earn dividends and capital gains.
5. It leads to creation of employment to persons like brokers, agents
and others engaged in it.
6. They enable control of money in circulation through buying and
selling of securities by the central bank.
7. They help in determining company performance by looking at the
price of their shares in the market.
8. They are a source of income through capital gains and dividends.

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 9. Capital markets provide individuals with a change to won business
though shareholding in enterprises

BENEFITS OF SHAREHOLDERS / BEING A SHAREHOLDER IN A

CAPITAL MARKET
1. Shareholder’s income increases due to increased profits in the
business.
2. Capital gains increase in value of share especially due to good
company performance.
3. Share certificates can be used as collateral security by shareholders
to acquire bank loans.
4. Shareholders have voting rights therefore have opportunity to
participate in the company decision making process
5. The liability of shareholders is limited either to authorized capital or
by guarantee.
6. Shareholders may enjoy goods and services of the company at a
much lower price or at zero price which raises and improves his
standards of living.
7. Shareholders just wait for dividends at the end of the year therefore
this gives him ample time to do other activities of his own.

CHALLENGES / DISADVANTAGES OF BEING A SHAREHOLDER.

1. There is depreciation of investment in case of decline in business
performance.

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 2. There is role of the majority when making decision i.e. those with
majority shareholding influence decisions to be made.
3. Transfer of shares is difficult if they were bought in a private limited
company.
4. Fluctuations in share capital value since share values keep on
changing.
5. Shareholders have little control of the business i.e. Mat is in the
hands of managers.

CORPORATE GOVERNANCE
Corporate governance is a system by which organizations are directed
and controlled by senior officers.

It relates to the selection and conduct of the leaders and senior officers of
the organization in the course of directing its business operations.

It is also concerned with their relationship with the owners, employees

and other stakeholders of the organization.

PRINCIPLES OF CORPORATE GOVERNANCE

1. Transparency
This is where stakeholders are able to know what transpires or takes
place in the organizations or various departments of the organization.

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2. Accountability
This means that the responsible employees will be expected / answerable
to account for the outcomes, positive or negative for the portion of work
directly under their control.

3. Respect for the rights of all stakeholders

Good corporate governance should respect the rights of stakeholders.
Stakeholders are those people or groups of people who have interest in
the organization. Their rights include;
i. Shareholders have a voting right and to access financial reports
and a right to receive dividends.
ii. The government has a right through its agencies like URA to
monitor economic performance of companies for appropriate tax
assessment.
iii. The employees have a right to be paid salaries and other fringe
benefits.
iv. The auditors have a right to inspect books of accounts. External
auditors also have a right to attend the Annual General Meeting
(AGM) of a company.
4. Fairness
Everyone should be properly and equally treated. A balance in
departments should be done when accessing company resources.

5. Independence

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Every department should be independent with their own decision no one
should interfere to avoid conflicts in the organization and to ensure
compliance with the code of governance.

6. Social responsibility
The company should give back to the society, it should provide quality
goods, care about the environment in which they work so that they can
core exist.
7. Good management
Good management in business means setting best practice guidelines.
8. Integrity and ethical behaviours with employees, customers, etc.
9. Right and equal treatment of shareholders.

FEATURES OF POOR CORPORATE GOVERNANCE

These include;
i. Domination by a single member / individual
ii. Lack of involvement of the board
iii. Lack of adequate control function
iv. Lack of supervision
v. Lack of independence
vi. Lack of contact with shareholders
vii. Short term profitability emphasis
viii. Misleading accounts and information

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STAKEHOLDERS/PLAYERS/PARTIES IN/TO CORPORATE
GOVERNANCE
Major parties in corporate governance include;
1. OWNERS: these are the ordinary shareholders who contribute capital
to the company.
2. BAORD; these are elected directors by the shareholders from amongst
themselves but at times they may elect them from outside because of
their technical expertise.
3. MANAGEMENT STAFF; these include managers and departmental
heads.
4. OTHER SHAREHOLDERS; these include Government, customers,
suppliers, employees, external auditors and the community, etc.

DUTIES AND RESPONSIBILITIES OF THE MAJOR PLAYERS IN

CORPORATE GOVERNACE
A. OWNERS
These are the ordinary shareholders who contribute capital by buying
ordinary shares.
- The shareholders elect Board members / directors
- They recommend for any change in business activities
- They carry out voting at the Annual General Meeting.
- They monitor the performance of the business
- They buy ordinary shares
B. BOARD

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Board members are elected by shareholders at the AGM to do the
following;
- They design financial plans, policies and draw objectives of the
company
- They appoint managers and senior employees
- They handle meetings
- They mobilize funds
C. MANAGEMENT STAFF
These engage in the management operations of the company e.g.
- They carry out day to day running of the company.
- They design operational procedures, strategies, rules and
regulations for the company.
- They implement the board policies
- The prepare plans, budgets and implement them after they have
been approved
- They evaluate their operational procedures, strategies in line with
objectives of the business.

D. OTHER STAKEHOLDERS
These include;
i. Government: it is responsible for preserving law and orders for
the smooth running of the business.
ii. Customers: they buy the products of the company.
iii. Suppliers: they supply inputs of the organization like raw
materials.

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 iv. Employees: they carry out various activities in the company.
Companies need employees who are both educated and skilled
in handling the company’s business operations.
v. External Auditors: these are required to audit the financial
books and statements made by the accountants e.g. Balance
sheet, income statement, etc.

IMPORTANCE OF GOOD GOVERNANCE

1. It adds value to the organization. This is in form of increased
incomes and profits to shareholders. Shareholders receive
dividends, employees receive salaries and wages government
receives taxes, the public receives social services.
2. It helps in division and separation of powers ion the organization
e.g the top management supervises, selects and recruits employees,
the chairman board is the most senior officer in the organization
but without day to day operation and the CEO, is the most senior
manager with the responsibility for day to day operations.
3. It improves performance in an organization. This is done through
having a good organization structure that will organize, plan,
coordinate all company activities to have better performance.
4. It improves access to capital through emerging markets. Good
governed companies receive higher market valuation and get access
to debts, bonds, dividends, public securities that bring in capital to
run the business well.
5. It enables businesses to operate without fear of being prosecuted.

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 6. It makes organization to have access to the best human resource
because everyone wants to work in a good organization.
7. It improves company image and reputation.
8. It attracts government support due to honesty portrayed in the
business.
9. It leads to development of public and private capital market.

TOOLS FOR GOOD CORPORATE GOVERNANCE

There are basically 3 tools for good corporate governance i.e
i. Company vision, mission, goal and objectives
ii. Strategic business plans, annual reports and budgets
iii. Operating, financial management, management information
systems, human resource development policies, procedures and
guidelines.

A. COMPANY VISION, MISSION, GOALS AND OBJECTIVES

(i) Vision: It is what the company would like to be in the very long run
period.
(ii) Mission: This shows the direction that should be followed in pursuit
of the vision of the company.
(iii) Goals: These are milestones that must be achieved in pursuit of the
company’s mission and vision.
(iv) Objectives: Objectives take the generalities of the Mission statement
and turn them into more specific commitments and achievements.

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B. STRATEGIC BUSINESS PLANS, ANNUAL PLANS AND BUDGETS
Planning is looking ahead into the future and making decisions like
targets, activities and budgets that will enable the organization achieve
its goals.
i. Business plan: Management should plan ahead for the firm, so
that future opportunities are identified and taken advantage of.
They take 3-5 years.
ii. Annual Plans: These are made to be achieved within a period of
one year.
iii. Business Issues: These are extra shares issued to ordinary
shareholders in proportion to their holdings.

BOOK KEEPING AND ACCOUNTING

Book keeping is the art or process of recording, classifying and
summarizing business transactions in terms of money in the books of
accounts.
It can also be defined as the process of recording financial transactions
in an accurate and systematic way.

It involves writing down in monetary terms of all transactions that have

taken place in a business.

STAGES OF ACCOUNTING
- Recording business transactions
- Classifying business transaction
- Summarizing and reporting business transaction

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 - Interpreting and finalizing the financial reports

IMPORTANCE OF BOOK KEEPING

1. Book keeping helps the business in calculating the profits or loss
made during a given period.
2. Book keeping helps provide information on credit transactions. The
business is able to keep track and follow up all its creditors and
also keep proper records of its creditors for accurate payments.
3. It acts as a tool for control. Book keeping allows a business to keep
accurate date concerning all resources, and also proper information
on its expenses and incomes for proper decision making.
4. The book keeping records guide on tax assessment. The tax
authorities are able to calculate the exact amount of tax to be paid
by an entrepreneur. This helps to minimize over or under taxation.
5. The records kept help in the planning process. A business
enterprise can formulate its plans basing on the present and past
accounting records.
6. Book keeping records are used by the owner in deciding whether to
apply for a bank loan or not. Banks usually look at the records of a
business to determine whether to provide a loan to the business or
not.
7. The records also help in determining the financial position of a
business through the use of a balance sheet.
8. Book keeping helps the public or new investors who may want to
invest in the business to get information on the business and

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 therefore take an appropriate decision whether to buy shares in the
business or not.
9. Book keeping helps in a business to keep track of its transaction
and know what transpired in the business operations.

USERS OF BOOK KEEPING / ACCOUNTING RECORDS

- Owners / management of the business
- Government bodies like tax authorities
- Banks and other money lenders
- Workers / employees
- Prospective co-investors
- Customers of the business
- Auditors
- Competitors
- Researchers and students
- Trade creditors

BUSINESS TRANSACTIONS
A business transaction is any dealing between 2 or more parties that
involves the exchange of goods or services for a consideration usually in
terms of money or other goods and services.

CASH TRANSACTION
Is any dealing between 2 or more parties that involves the exchange of
goods and services for immediate payment of cash during the exchange.

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CREDIT TRANSACION
Is any dealing between 2 or more parties that involves exchange of goods
or services where payment for goods / services is made at an agreed
future date.

METHODS OF BOOK KEEPING

There are two methods of book keeping that can be used by business i.e.

1. SINGLE ENTRY SYSTEM

This is a method of book keeping where only one aspect of a transaction
is recorded.
2. DOUBLE ENTRY SYSTEM
This is a system of book keeping that involves recording two effects of
each transaction.

The double entry principle states that “for every debit entry, there must
be a corresponding credit entry and for every credit entry, there must be
a corresponding debit entry”.

SOURCE DOCUMENTS
Source documents are documents that provide evidence that the
business transaction took place.

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A source document is an original record containing the details of a cash
and credit transaction.

FEATURES / COMPONENTS OF A SOURCE DOCUMENT

A complete and correct source document must have;
i. Attractive and pleasing name of the business
ii. Business logo
iii. Business address and location
iv. Business contact i.e. telephone or e-mail
v. Source document title e.g. receipts.
vi. Source document number e.g. receipt No. 145
vii. Name and Address of the recipient / receiver
viii. Particulars of items / goods and their respective values
ix. Name and signatures of the Authorities
x. Frame which encloses it.
Examples of source documents include the following.
1. Receipts:
There are documents issued by a seller to buyers when payments are
received for goods or services sold. They acknowledge that a stated
amount of money has been received.
2. Cash sale slips:
These are documents issued by a seller to the buyers who immediately
pay for the goods or services on the spot. It serves the same purpose as a
receipt.
3. An invoice:

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This is a document issued by the seller to the buyer when goods /
services have been sold on credit.
4. Credit Note:
This is a document issued by the seller to the buyer to correct an
overcharge in the original invoice.
5. Debit note:
This is a document issued or sent by the seller to the buyer to correct an
undercharge in the original invoice.
6. Cheque:
It is a written order by a current account holder to his/her bank
instructing it to pay a stated sum of money to the named person on its
face.
7. Cheque counterfoil
This sis the part of the cheque which remains in the cheque book where
a summary of information written on the cheque leaf is recorded.
8. Bank deposit slop / Bank paying in slip:
This is a document issued mainly by a commercial bank and filled in by
the account holder to confirm that cash or cheque has been deposited on
the bank account.
9. Bank statement:
This is a document prepared and issued by a bank to an account holder
that shows all the transactions between the bank and the account holder
during a given period of time. It is a copy of the customer’s bank account
in the books of the bank. It contains cash deposits, cash withdrawals,
interest earned, bank charges, ledger fees charged, bank at the bank,
etc.

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 10. Payment voucher:
This is a document which shows the amount of money that has been
paid by the firm or business on a given date, the purpose for the
payment and who authorized the payment.

BOOKS OF ORIGINAL ENTRY

These are first books of accounts where transactions are recorded in
chronological order before being posted to the ledger. They are also
known as;
- Subsidiary books
- Books of prime entry
- Book of first entry
These books include;
1. THE CASH BOOK
It is a subsidiary book in which cash and cheque receipts and payments
are recorded.
2. THE PETTY CASH BOOK
It is a book of original entry with analysis columns that are used to
record small or petty cash payments made by the business.
3. PURCHASE JOURNAL / DAY BOOK
It is a book of original entry in which all credit purchases are recorded.
4. PURCHASES RETURNS JOURNAL (ROW JOURNAL)

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It is a book of original entry in which the details and values of goods
returned to suppliers or creditors are recorded.
5. SALES JOURNAL / DAY BOOK
It is a book of original entry in which all credit sales are recorded. It
records the names of debtors, value of credit sales and total credit sales
for the month.
6. SALES RETURNS JOURNAL (RIW JOURNAL)
It is a book of original entry in which the details and values of goods
returned to the business by customers are recorded.

7. GENERAL JOURNAL (JOURNAL PROPER)

It is a book of original entry used to record transactions that cannot be
recorded in other books of original entry.

ADVANTAGES OF USING SUBSIDIARY BOOKS

- They help to reduce the number of entries / transactions recorded
in the ledger thereby reducing crowding of the ledger.
- They minimize the chances of fraud especially in large
organizations.
- They are used for future reference since they contain detailed
information.
- They encourage division of work / labour and this improves
efficiency in the activities of a business.

TYPES OF CASHBOOKS
There are 4 different types of cashbooks i.e.

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 1. Single column cashbook
2. Two column / Double column cashbook
3. Three column cashbook
4. The petty cashbook

ADVANTAGES OF USING CASHBOOKS IN BUSINESS

1. The cashbook reduces the number of entries made in the ledger
thus avoiding overcrowding the ledger.
2. Different workers can be employed to maintain different cashbooks
which helps to promote efficiency in the business.
3. It is easier to make reference in the cash book where both can and
bank accounts appear in the same book or page.
4. It reduces the chances of fraud in the business especially when
different workers are employed to maintain different cashbooks.
5. It helps a business to keep proper and accurate record of all cash
inflows and cash outflows.

CONTRA ENTRIES IN THE CASHBOOK

It is a transaction in the cashbook which has double entry completed in
the same cashbook.
BANK LOAN
This is a large amount of money lent by a financial institution to its
customer at a certain interest rate for an agreed time period.
BANK OVERDRAFT
This is where a current account holder is allowed to withdraw more
money than on his/her bank account.

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ADVANTAGES OF USING THE PETTY CASH BOOK BASED ON
IMPREST SYSTEM.
Imprest system is a method where the petty cashier always starts a new
period with a fixed sum of money as of the previous period. This fixed
sum of money is called FLOAT / IMPREST / PETTY CASH FUND.
The advantages of using the PCB based on imprest system are;
1. The petty cashbook saves the main cashbook………
2. …. Checking of the work…… cashier by the main………. The
imprest amount is………. Held for a short time. (pge 144)
3. The petty cashbook reduces the risk of …. Since each payment
made form petty cash can be supported by a petty cash voucher
stating reasons for expenditures and signed by the person receiving
cash and the one who approves it.
4. Using the petty cashbook reduces the work of the main cashier,
since the petty cashier handles the small payments in the business.
5. The petty cash book encourages the petty cashier to show
responsibility and proper accountability for all the payments made
out of the petty cash.
6. The use of the petty cashbook helps a business to reduce
unnecessary movements to the bank since reasonable amount of
cash is kept in the business to help in the normal running of the
business for a given period of time.
7. The use of the imprest system can help a business to adjust the
imprest amount by increasing or decreasing it so as to adequately

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 meet the small cash needs of the business since the petty payments
are regularly monitored by the main cashier.

ADVANTAGES OF CREDIT PURCHASES

1. The goods and services bought on credit may be of higher prices
than those bought on cash basis. This increases payment costs on
the side of the buyer.
2. It may lead to buying of low quality goods and services due to low
bargaining power.
3. It reduces the entrepreneur’s choice of suppliers due to the desire to
benefit from the credit facility.
4. The debtor / entrepreneur may face legal action when he or she
fails to complete prompt payment for the goods or services obtained
on credit.

CREDIT TERMS AND CONDITIONS

a. Credit period
This is the length of time allowed within which the debtor should fully
repay the amount owed.
b. Cash discount
This is a reduction in the amount due given by the seller to the buyer to
encourage them to pay promptly.
c. Trade discount
This is the reduction in price given by the seller to the buyer due to
buying goods in large quantities.

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REASONS WHY GOODS MAY BE RETURNED
These include;
i. Damaged or spoilt goods
ii. Expired / defective goods
iii. Wrong order of goods supplied e.gcolour quality
iv. Excess goods received
v. Highly charged products which is not originally agreed upon

ADVANTAGES OF SELLING PRODUCTS ON CREDIT

1. It enables customers to acquire expensive or high priced goods that
they would not be able to buy on cash basis.
2. It enables an entrepreneur to increase the volume of sales and
hence increased revenue. When customers are allowed to buy on
credit, they tend to buy more and this benefits the seller.
3. It enables customers to continue buying the goods repeatedly. This
helps to keep the entrepreneur in business.
4. It helps to expand the market of the entrepreneur business because
it attracts new customers who want to benefit from the credit
facility.
5. An entrepreneur can sell on credit as a way of beating off other rival
businesses and this may in the end increase the number of
customers and volume of sales.
6. It promotes good relationship between the entrepreneur and the
customers especially if they are creditworthy.

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 7. It enables the entrepreneur to get rid of stock that is about to
expire. This would save the business from incurring losses resulting
from expiry of goods.
8. It reduces storage costs of the entrepreneur.
9. It is a source of funding to the credit policy because goods sold on
credit yield much income to the entrepreneur.

DISADVANTAGES OF SELLING PRODUCTS ON CREDIT

1. Selling on credit reduces the working capital of business because
the capital is tied up in debts.
2. The business may incur losses in form of bad debts when some
customers fail to pay their debts.
3. Collection of payments from debtors is a time wasting process and
it is also expensive because it increases the administrative expenses
of a business e.g employing services of debtor collector or lawyers.
4. Selling on credit during periods of inflation causes a business to
incur losses. By the time the debts are repaid, the money would
have lost its value.
5. In case of death of a customer who had bought on credit, it is
difficult for the business to recover the debts from the executors of
the deceased estate.
6. Buyers may take poor quality goods because credit customers have
a low bargaining power.
7. It spoils the relationship between the buyer and the seller in case
the buyer fails to pay.

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 8. It comes along with strict conditions attached e.g. signing
Agreements, presenting collateral security.
9. It makes planning in the business difficult.

CIRCUMSTANCES / CONDITIONS UNDER WHICH GOODS /

SERVICES MAY BE SOLD / PURCHASED ON CREDIT.
1. When the customer is well known to the seller and that he has
capacity to pay.
2. When the entrepreneur knows the creditworthiness of the
customer.
3. In case the entrepreneur has got sufficient working capital to
finance the credit sales.
4. If the entrepreneur has got a lot of goods getting off fashion soon
5. If the entrepreneur’s products are about to / getting expired.
6. If there are strong and effective laws that protect the entrepreneurs
and the recovery can be enforced.
7. If the entrepreneur also buys / purchases on credit from
manufacturers
8. If there is political instability at one time.
9. If the seller has intension of outcompeting rival firms.
10. If the buyer has got a collateral security that can cover up the
goods to be sold, then he can sell goods on credit.
11. If the entrepreneur’s goods are season e.g. Christmas cards,
Umbrellas, etc.

WAYS OF MANAGING CREDIT SALE

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The following management measures should be put in place before
selling goods on credit.
1. The person authorized to approve credit sales and the maximum
amount of credit that can be given should be stated clearly and also
known to all the business staff.
2. Credit sales should be clearly recorded and document to prove the
sale or evidence.
3. At the end of a specified period, credit sales should be totaled and
posted to the ledger.
4. All debtors must be followed up at an appropriate time to ensure
that they pay the entire amount owed to the business on time.
5. Cash receipts should be recorded immediately on the day it is paid
or collected. Also the debtors’ accounts should be adjusted to reflect
the amount paid to avoid the possibility of billing again debt already
paid.
6. The credit period should be clearly stated in the invoices issued so
as to enable debtors know the time limit within which to pay their
debts.
7. A system should be put in place to encourage debtors to pay their
debts promptly (quickly) e.g. cash discount terms should be clearly
stated on the invoice.
8. Information about the creditworthiness of the customer should be
obtained before selling goods on credit.

OBGLIGATIONS OF A DEBTOR

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 - He/she should pay the debt within the agreed time as stated in the
agreed terms and conditions of the sale.
- He/she should maintain a good relationship with the supplier at all
times during the credit period.

OBGLIGATIONS OF A CREDITOR
- The creditor should allow realistic terms and conditions to his/her
customers (debtors) e.g. price, discounts, etc.
- The creditor should always send polite but firm reminders to his
customers to pay all the amounts due.
- The creditor should show patience and understanding of his or her
customer e.g if goods get lost while in transit, an amicable solution
should be worked out on when to pay.

ADVANTAGES OF USING THE GENERAL JOURNAL

1. The general journal reduces the risk of omitting one or both entries
required for every transaction since both debit and credit entries
must be recorded.
2. The use of the general proper / general journal makes it easy for an
entrepreneur to detect any fraud by the book keeper.
3. The general proper can be used to provide future references
because the simple explanation written provides more detailed
information for each transaction.
4. Just like all subsidiary books, the general proper reduces crowding
of the ledger.

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USES OF THE GENERAL JOURNAL
1. It is used for recording opening entries.
2. It is used for recording sale of fixed assets on credit.
3. It is used for recording purchase of fixed assts on credit.
4. It is used for recording the depreciation of fixed assets
5. It is used for recording any other year end adjustments
6. It is used for record issue of shares.
7. It is used for recording any other transactions that cannot be
recorded in the other subsidiary books e.g. when a debtor settles a
debt in kind, etc.
BUYING AND SELING OF SHARES
BUYING OF SHARES
The steps to follow when buying shares are;
1. Finding a stock broker; A person who buys and sells shares on
behalf of another.
2. Deciding on which shares to buy.
3. Deciding on the price and number of shares to buy
4. Paying for the shares
5. Share Allotment; Allotment refers to the formal acceptance of
payments and the allocation of specific shares to the subscribing
investor.
6. Receiving a purchase contract note; A purchase contract note is a
legal document that acts as proof of ownership until the share
certificate arrives, therefore it must be kept safely.
7. Registering and receiving share certificates; A share certificate is a
legal document confirming ownership of shares in a company.

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WAYS OF BUYING SHARES
Shares can be bought either through;

1. BUYING NEW SHARES

Here new shares are sold on the primary market.
A primary market is where a company makes its first contact with the
public at large in search of capital.
A primary market refers to the first purchase of a new share or
debenture by the public directly from the issuing company.
2. BUYING EXISTING SHARES
This takes place in a secondary market. Here already existing shares are
bought and sold on the stock exchange through a stock broker.

A secondary market is where the purchase of shares is from already

existing shareholder.
A primary market is where a company offers its shares to the members of
the public for sale for the first time.

HOW SHARES ARE BOUGHT

The client may issue several types of order to the broker / dealer e.g.
a. Market order
These are simple buy or sell orders that are to be executed immediately
at current and best market prices at the stock exchange.

b. Limit order

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Here the client specifies the price at which he/she is willing to buy or sell
his/her shares.

COST OF BUYING SHARES

These include;
1. Commission
This is the amount of money paid to the broker / dealer for his/her
services. This brokerage must be stated on every contract between the
broker and the client.

2. Stamp duty
This is the fee that is payable for setting the transaction as indicated on
the contract note.

STEPS IN SELLING SHARES

1. Establishing how much shares are selling at the stock exchange
through a broker / dealer.
2. Contracting the stock broker / dealer and placing an order to sell
the shares at market price stipulated.

DISADVANTAGES OF STOCK EXCHANGE

1. The limited liquidity in the country due to poverty limits savings
and investments in securities.
2. Absence of countrywide education and capital markets since
majority of people have not been sensitized about the importance of
stock exchange and the need to invest in securities.

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 3. Limited awareness of which the brokers are hence difficulty to place
orders through the stock brokers.
4. Loss / lack of confidence among the public to invest their savings
with some companies in form of shares due to fear of incompetent
and corrupt managers.
5. Slow growth in the securities exchange market. There are few public
companies in the country and very few have been listed so far.
6. Political instability in the country and the poor economic
performance of the country scare away investors.
7. Low interest rates offered on securities discourage people to buy
securities. The people instead prefer to invest in real estates e.g.
land, buildings, cattle, etc.

PROBLEMS FACED BY CAPITAL MARKET AUTHORITY (CMA)

1. Understanding capital and money market to transact the sale and
buying of financial products.
2. Fear of risks by players e.g. fluctuations in the value of share
capital.
3. Inflation affect the value of shares.
4. Inadequate information by the public about the role of capital
markets and how they operate due to ignorance.
5. Unfriendly government policy i.e. high taxes imposed for buying
financial products.
6. Undeveloped financial institutions to lend funds for buying
products.

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 - A problem of high level of target players who aim at profit
maximization.
- Uncertainty of income in form of dividends since a business may
make profits and instead incur / suffer loss.
- Unstable economic climate in Uganda that scares away investors
who would invest in capital market products.
- Political instability / insecurity in some parts of the country also
interfere with their operations.
- Undeveloped financial sectors ie. Poor banking facilities so as to
access bank loan facilities
- Low levels of economic activities due to high levels of unemployment
especially among the youths.
- Uneven distribution of capital markets in Uganda since most capital
markets are mostly urban centred and have few customers.

BASIC STEPS FOR LISTINGON A UGANDA STOCK EXCHANGE

Companies wishing to have their shares traded on the stock exchange
should follow the steps below;
i. Fill a listing application form for each particular class of shares.
ii. Publish its prospectus as approved by CMA
iii. Submit a list of names of shareholders and their respective share
holdings to CMA
iv. New companies must provide audited account.
v. It may also provide its forecast performance in the coming year.

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NB: A prospectus is a document that involves the public to subscribe for
shares in a company.

LISTING COSTS
The costs for listing a company on the stock exchange include;
1. Initial listing fees
This is the amount of money paid by a company to the stock exchange
on application for listing.
2. Additional listing fees
This is the amount of money paid by a company to the stock exchange
when applying for additional listing.
3. Annual listing fees
This is the amount of money paid by a listed company to the stock
exchange every year.
4. Transaction / advisors fees
This is paid by a company to professionals like accountants, lawyers and
brokers who give financial advice to the company as it prepares to be
listed on the stock exchange.

5. Prospectus approval fees

These are feeds paid by a company to CMA for approval of the
enterprises prospectus.

ADVANTAGES OF STOCK EXCHANGE

- It provides ready market for those who want to buy and sell shares
through licensed brokers.

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 - It sets prices for every security that is to be traded on the stock
exchange.
- It promotes savings for long term investments.
- It offers investors an opportunity to sell shares when they find a
more attractive security to buy.
- It publishes useful information on various companies which guide
both investors and companies.
- Stock exchange index serve as a barometer of the economy’s
progress or indicators of economic progress.
- It helps in regulating of traded securities by keeping an eye on the
financial affairs of every company.
- It makes transfer of shares possible so that investors can easily
shift their shares from one company to another.
- It assists companies in need of funds to raise long term capital
through issuing shares rather acquiring loans from the bank at
high interest rates.
- It facilitates public harrowing by the government through the sale of
government securities like bonds to raise finance for its operation.

Qn: Why are there few people in Uganda who participate in the Stock
Exchange by buying shares? (10mks)

LISTING ON THE UGANDA STOCK EXCHANGE

 Issue:
This is the offering of shares or stocks by a company to the public for
subscribing and raising share capital.

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  Share capital is the capital of a company.
 A share is a unit of capital in a company.
 A debenture is a document that evidences that a company has
borrowed a specified sum of money from the person named on its
face.

(a)At par
This is when shares and debentures are issued at their nominal value.
The par, face or Nominal value of a share is the value written on its face.

(b)At a Premium
When shares are issued at a premium, then the shareholders and
debenture holders are required to pay more than the nominal value of
the shares or debenture. A company may issue its shares at a premium
ie. At a higher price than the face value.

(c)At a discount
This is when shares and debentures are issued at prices below their
nominal value.

LISTING
Listing refers to the inclusion of a company on the stock exchange list.
Companies on the stock exchange list are known as Quoted companies.

A list application must include the following.

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 i. Evidence of the Capital Market Authority (CMA) approval of the
company prospects, allotment procedures, etc.
ii. Copies of audited balance sheet and profit and loss account
statement for each of the last 2-3 years.
iii. If the company is new and has no audited accounts as required,
it must provide projected accounts by an auditing form for 3
years.
iv. Forecasts of profit and cash flow for the issuing year.
v. Specimen share certificate of class of shares to be listed.
vi. List of names of shareholders and their respective shareholding.

REASONS FOR LISTING

1. To have its shares and stocks bought through the stock exchange.
2. To improve its public image.
3. To raise capital for expansion purposes.
4. To offload or sell off excess shares owned by the majority
shareholders.

QUALIFICATION FOR LISTING

1. A company must be duly incorporated.
2. It must have the Memorandum and Articles of Association.
3. The shares must be duly paid up and freely transferable.
4. It must be a public company.
5. The company must be financially sound.

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RESPONSIBILITIES OF A LISTED COMPANY
i. Publish its financial statements for the public’s information.
ii. Hold AGMs of all stakeholders regularly.
iii. Follow corporate governance code and guidelines

3. Receiving a sale contract note from the broker / dealer which shows
the net sale proceeds payable / to be paid to the seller.

The contract notes contains the following information / details

i. The date of transaction
ii. The number of shares sold
iii. The price at which hares have been sold
iv. The total amount of consideration
v. The rate of commission
vi. Any stamp duties that may be payable.

4. Following the company’s shares trading on the stock exchange.

The broker shall then advise the investor on when to collect his cheque
but this should be within 24 hours after the exchange stipulated
settlement day.

LEGAL DOCUMENTS TO BE EXECUTED

The legal documents to be involved with the buying and selling of shares
are;

1. SHARE CERITIFICATE

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A share is a unit of capital / ownership of a company.
A share certificate is a legal document that shows that one has invested
money in a company.

The share certificate shows the following;

i. Name of the company
ii. The name and Address of the shareholders
iii. The number of shares held and par value
iv. The total amount of money
v. The certificate number
vi. The signature of the chairman / secretary of the company
vii. The company seal.

2. SALE CONTRACT
This is a legal document sent to the client by his/her broker stating the
details of the transaction.
A sale contract shows and contains the following;
i. The number of shares sold
ii. The price of each share and total amount
iii. Any deductions in form of registration fee, commission, contract
stamp, etc
iv. Net amount payable.
v. Signature of broker and customer

3. PAYMENT ARRANGEMENT

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This involves completing the exchange by transferring the payment to the
seller’s broker. The respective broker will then promptly deliver the
transfer form to the client. At that point, the transaction will have been
completed.

CENTRAL DEPOSITORY SETTLEMENT SYSTEM AND AUTOMATED

TRADING
 The CDSS can be compared to a bank. It holds shares of
shareholders in book entry form. It acts like a bank of shares.
 The CDSS enables electronic transfer of share certificate between
the seller and buyer without physical contact.

4. Shares
These are units of capital (ownership) of a limited company.
5. Debentures / Long term loans
Debentures are loan certificates each representing a certain sum of
money advanced or lent to a company and to be repaid with interest after
a specified time. The company can also raise funds by selling debentures
to investors.

SOURCES OF LONG TERM FINANCE FOR BUSINESS

These include;

1. Share capital
These may consist of

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 1. Ordinary share capital
2. Preference share capital
Ordinary share capital / Equity is contributed by real owners of a limited
company, carry voting rights and have no fixed rate of dividends.
Preference share capital is contributed by preference shareholders who
do not have voting rights but have a fixed rate of dividends.
Debentures / Long term loans
A debenture is a written acknowledgement of a debt incurred by a
company.
A debenture is a unit of loan of a company.

Retained Earnings and Provisions

Part of profits which belong to ordinary shareholders may not be paid out
to them as dividends in the period they are earned. These undistributed
profits are called “Retained earnings”.

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REVISION QUESTIONS
ENTREPRENEURSHIP EDUCATION 845/2
2018
1a. What is the importance of transport to a business? (10mks)
b. Explain the factors to consider when choosing a mode of transport.
(10mks)

2a. Describe the activities carried out by an entrepreneur when

marketing product.
b. What are the qualities of a good sales person? (10mks)

3a. Distinguish between a Limited liability company and Partnership.

(04mks)
c. Explain the advantages and disadvantages of a Partnership.
(16mks)
4a. Describe the different business laws used in your country. (08mks)
b. Explain the importance of business laws in your country. (12mks)

5.a Explain the essentials of a valid contract. (10mks)

b. Under what circumstances may a contract be terminated? (10mks)

2009
1a. Outline the various pre-operating expenses of a manufacturing
business. (10mks)
b. How can a business minimize its pre-operating expenses? (10mks)
2a Explain the various principles of insurance. (10mks)

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b Describe the procedure of taking out an insurance policy. (10mks)

3a Describe the different laws governing businesses in Uganda.

(12mks)
c. Describe the various forms of advertisement that may be used by
an entrepreneur. (8mks)

5a. In what ways have businesses damaged the natural environment in

your country? (10mks)
b. Suggest measures that should be taken to minimize the damage
caused by business to the natural environment. (10mks)

2010
1a. Outline the factors that an entrepreneur should consider when
choosing packaging material for a product. (08mks)
b. Explain the importance of packaging products. (12mks)
2a. Explain the benefits of a business plan to an entrepreneur. (10mks)
c. What problems do entrepreneurs face when preparing a business
plan? (10mks)
3a. Explain the various types of business taxes in your country.
(10mks)
b. Why is it important for the government to tax businesses. (10mks)
4a. Explain the factors that should be considered when conducting
market assessment for a product. (14mks)
b. Outline the benefits of conducting market assessment for a
product. (6mks)

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5a. Outline the advantages and disadvantages of selling goods on
credit. (10mks)
b. Describe the various ways of managing credit sales in a business.
(10mks)
2011
1a. Describe the source documents used in business. (10mks)
b. Explain the importance of book keeping to an entrepreneur.
(10mks)
2a. Distinguish between the following;
(i) Bank draft and bank statement. (2mks)
(ii) Standing order and credit transfer. (2mks)
b. Explain the functions of commercial banks in your country.
(16mks)
3a. Explain the importance of packaging a product. (6mks)
b. What factors should be considered when choosing the type of
packaging materials for a product. (14mks)
4a. Distinguish between a sole proprietorship business and a
partnership business. (4mks)
b. Explain the
(i) advantages (8mks)
(ii) disadvantages of a sole proprietorship business. (8mks)
5a. What are the elements / components of a business plan? (8mks)
b. Explain the importance of a business plan to entrepreneur. (12mks)
2012
1a. Describe the requirements for starting an Agri-business. (8mks)
b. Explain the challenges faced by Agri-business in your country.

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 (12mks)
2a. What are the elements of a marketing mix? (8mks)
b. Explain the factors that should be considered when choosing a
channel of distribution for a product. (12mks)

3a. Describe the insurance policies undertaken by business in your

country. (10mks)
b. Explain the benefits of insuring a business. (10mks)
4a. Distinguish between a sole proprietorship and a Limited liability.
(4mks)
b. Explain the
(i) advantages (08mks)
(ii) disadvantages of a limited liability. (8mks)
5a. What are the elements / components of a business plan? (8mks)
b. Explain the importance of a business plan to an entrepreneur.
(12mks)
2013
1a. Explain the importance of packaging products. (12mks)
b. Outline the factors that should be considered when choosing the
type of packaging materials. (8mks)

2a. Explain the advantages of using a cheque as a means of payment.

(8mks)
b. Under what circumstances may a cheque be dishonoured by a
payment. (12mks)
3a. What are the benefits of establishing manufacturing businesses in

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your county. (10mks)
b. Explain the challenges faced by manufacturing business in your
country. (10mks)
4a. Describe the characteristics of a sole proprietorship business.
(8mks)
b. Explain the advantages of a sole proprietorship business. (12mks)
5a. Explain the importance of a business plan to an entrepreneur.
(10mks)
b. Describe the steps taken when preparing a business plan. (10mks)
2014
1a. Explain five effects of a degraded natural environment to the
existing businesses in Uganda. (10mks)
b. Suggest five measures that should be taken to reduce harmful
effects of businesses on the natural environment. (10mks)
2a. Describe the steps followed when buying shares in a capital market.
(10mks)
b. Explain five benefits of a capital market to an entrepreneur as a
shareholder. (10mks)
3a. Describe any five subsidiary books of accounts used by large scale
businesses in Uganda. (10mks)

b. Give five reasons why an entrepreneur should keep proper business

records. (10mks)
4a. Other than loans, explain six services offered by financial
institutions to entrepreneurs in Uganda. (12mks)
b. State four requirements considered by financial institutions before

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giving a loan to an entrepreneur. (8mks)
5a. Describe the characteristics of a good tax system. (10mks)
b. Explain five factors which influence tax compliance in Uganda.
(10mks)
2015
1a. List any four types of Agro-processing business in Uganda. (4mks)
b. Explain eight benefits of Agro-processing business to the
government of Uganda. (16mks)
2a. Give six advantages of personal selling as a form of sales promotion.
(6 mks)
b. Describe the steps that should be followed by an entrepreneur for
effective personal selling. (14mks)
3a. Give five reasons why an entrepreneur should carry out market
survey. (10mks)
b. Describe any five contents of a market survey guide. (10mks)
4a. Explain any four principles of good corporate governance. (8mks)
b. Describe six tools used for good corporate governance. (12mks)
5. Advise entrepreneurs in your community on any;
a. Four business ethics that they should observe towards government.
(8mks)

b. Six benefits of practicing business ethics towards all stakeholders.

(12mks)

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