Small Business-Vital

Component of the Economy

Introduction

Micro enterprises are business

enterprises found in all sectors of
the Ethiopian economy with a paid-
up capital (fixed assets) of not more
than Birr 20,000,
Why are small businesses important to the
economy?

Most small scale industries

have a low capital intensity
and high potential for
employment generation.e
various segments of the
society.
The following points demonstrate the importance of small scale
industries:

1. Small is beautiful: Small is beautiful”,

maintains that man’s current pursuit of
profit and progress, which promotes
giant organizations and increased
working conditions
2. Innovative and productive: It is the small
units which are highly innovative though
they do not maintain their own research
and development.
The following points demonstrate the importance of small scale
industries:

3. Individual tastes, fashions, and

personalized services: Small firms seem
to have and edge in industries that call
for personalized service, attention in
detail and the flexibility to adapt quickly
to changes in the business or
technological environment.
4. Symbols of national identity:
5. Happier in work:
6. Winners of the game:
Advantages of small scale enterprise
Small enterprises have distinct advantages both economic
and social. Some of these are:
:
Some small scale industries do not require a
high level of technology.

Small scale industries as generally labor

intensive and do not require a large amount
of capital

Small scale industries projects can be undertaken in a

short period and hence can increase production both
in the short run and log run.
Advantages of small scale enterprise (Cont….
Small enterprises have distinct advantages both economic
and social. Some of these are:
:
Most developing countries are rich in certain agricultural,
forest and mineral resources; small scale enterprises can be
based on the processing of locally produced raw materials.

It is possible both to save and to earn foreign

exchange by producing and exporting goods
processed from local resources.

Small scale industrial enterprises are the

training ground for local entrepreneurs on
decision making.
Advantages of small scale enterprise (Cont….
Small enterprises have distinct advantages both economic
and social. Some of these are:
:
By creating opportunities for the small business, small
industrial enterprises can bring about a more equitable
distribution of income which is socially necessary and
desirable.

Small scale enterprises will make possible a

transfer of manufacturing activities from the
metropolitan and rural areas

Apart from the linkages between agricultural

of rural development and small scale
industrial enterprises
 Economic, social and political aspects of small
business enterprise

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2
3
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5
 What is Basic Business Idea?

In practical situation it is seen that an

entrepreneur finds it rather convenient to think
of product, keeping in view the immediate
future rather than the long term goals. Business
atmosphere being what it is with all its
intendants, uncertainties, it is more likely to
face a serious problem either when he wants to
expect or when the first product meets with a
failure.
It is logical, therefore to think of a goal for the
unit in the long run rather than to look for the
immediate tomorrow. This long term thinking is
called Basic Business Idea.
 Steps in setting a small scale unit

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6
 Chapter three

THE BUSINESS PLAN

 What is Business Plan?

business plan is the written document that

details the proposed venture. It must
describe current status, expected needs,
and projected results of the new business.
Every aspect of the venture needs to be
covered: the project, marketing, research
and development, manufacturing,
management, critical risks, financing, and
milestones or a timetable.
Benefits of a Business Plan

The time, effort, research, and discipline

needed to put together a formal business plan
force the entrepreneur to view the venture
critically and objectively.

The business plan quantifies objectives,

providing measurable benchmarks for
comparing forecasts with actual results.

The completed business plan provides the

entrepreneur with a communication tool for outside
financial sources
Benefits of a Business Plan (Cont…

Details of the market potential and plans for

securing a share of that market.

Identifies critical risks and crucial events with

a discussion of contingency plans.

A clear, concise document that contains the necessary

information for a thorough business and financial
evaluation.
 Users of business plan

Internal user of the business plan

Any activity without adequate preparation
tends to be disorganized. This is particularly
true of such a complex process as initiating a
new business. Although planning is a mental
process, it must go beyond the realm of
speculation. Internal users are, firms
management and employees of the venture.
 Users of business plan

External users of the business plan

By enhancing a firm‟s credibility, the
business plan can serve as an effective
selling tool to use with prospective
customers and suppliers, as well as
investors. Suppliers for example, extend
credit, which is often an important part of a
new firm‟s financial plan .
 When the business plans are produced?

1
of a new business .
2
chase:
view of progress 3

sions: 4
 Components of business plan (outline of a
business plan)

I. Introductory page
A. Name and address of the business
B. Name(s) and address(s) of principals
C. Nature of business
D. Statement of financing needed
E. Statement of confidentiality of report
 Components of business plan (outline of a
business plan) Cont….

II. Executive summary

III. Industry analysis
A. Future outlook and trends
B. Analysis of competitors
C. Market segmentation
D. Industry forecast
 Components of business plan (outline of a
business plan) Cont….

II. Executive summary

III. Industry analysis
A. Future outlook and trends
B. Analysis of competitors
C. Market segmentation
D. Industry forecast
 Components of business plan (outline of a
business plan) Cont….

IV. Description of venture

A. Product(s)
B. Service(S)
C. Size of business
D. Office equipments and personnel
E. Background of entrepreneur
 Components of business plan (outline of a
business plan) Cont….

V. Production plan
A. Manufacturing process (amounts sub
contracted)
B. Physical plant
C. Machinery and equipments
D. Names of supplier of raw material
 Components of business plan (outline of a
business plan) Cont….

VI. Marketing plan

A. Pricing
B. Distribution
C. Promotion
D. Production forecast
E. Controls
 Components of business plan (outline of a
business plan) Cont….

VII. Organizational plan

A. Form of owner ship
B. Identification of partners and principal
share holders
C. Authority of partners
D. Management team background
E. Roles and responsibility of members of
organization
 Components of business plan (outline of a
business plan) Cont….

VIII. Assessment of risks

A. Evaluation of weakness of business
B. New technologies
C. Contingencies plan
 Components of business plan (outline of a
business plan) Cont….

VIII. Assessment of risks

A. Evaluation of weakness of business
B. New technologies
C. Contingencies plan
 Components of business plan (outline of a
business plan) Cont….

IX. Financial plan

A. Pro forma income statement
B. Cash flow projections
C. Pro forma balance sheet
D. Break even analysis
E. Source and application of funds
 Components of business plan (outline of a
business plan) Cont….

X. Appendix
A. letters
B. market research data
C. leases and contracts
D. price lists from suppliers
• Assignment
• Assume that you want to start a business to
produce something or provide service;
prepare a business plan for your business in
the near future, be noted that you should
follow the outline of preparing the plan and
not more than 12 pages type written
business plan.(Maximum score is 30%).