ESTABLISHING A BUSINESS

NB. Read the related chapter(s) of textbook(s) for additional context.

1. ENTREPRENEUR
▪ An entrepreneur is someone who shows vision and creativity, taking the financial risk of
starting and managing a new business
▪ Entrepreneurship is showing enterprise skills of vision and creativity when taking risk to
set up a new business venture

2. FUNCTIONS/ROLES OF THE ENTREPRENEUR

Conceptualizing

● This is where the entrepreneur comes up with a new idea. It may be a new product,
service or improvement to existing ones or ways to fill a need rather than trying to find an
existing business

Planning

▪ The entrepreneur should plan for the formation and operation of the business by stating
his objectives, targets and goals and ways of accomplishing them

Accessing Funds

▪ The entrepreneur will find ways to finance the business, he may have to use his own
savings, obtain loans from banks, obtain government grants and other investors

Organizing

▪ This is the ability of the entrepreneur to bring people together, material and equipment in
such a way that he gets the work done. This involves deciding what needs to be done and
deploying workers where their skills are needed most

Operating and Evaluating the Performance of a Business

▪ The entrepreneur must ensure that the day to day activities are carried as well as assess
how the business is performing and whether or not it is achieving its objectives. The
information gathered can be used as a foundation for future planning and adjustments

Risk Bearing

▪ The entrepreneur must accept the possible risk of success as well accept the possible risk
of failure. If profits are made the entrepreneur is entitled to it, but will bear the loss if the
business fails.

3. CHARACTERISTICS OF AN ENTREPRENEUR
▪ Creative- the ability to develop new ideas, or new ways of doing things and satisfying
needs, it involves being open minded, resourceful and knowledgeable

▪ Innovative- developing a new idea or making changes to an existing one, this might be a
change in the way it is delivered or a new feature

▪ Flexible and multi-skilled- the ability to react quickly to changes such as economic
changes, be able to get on with people, good at handling money and keeping accounts

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▪ Goal-oriented- the entrepreneur has a high need for achievement, accomplishing a
specific task or goal

▪ Persistent and persevering – determined not easily deterred from the target, confident
and optimistic, believing they will make things work in spite of the risk

▪ A risk taker- having a propensity to take calculated risks, likes challenges, confident that
they can be successful

▪ Other characteristics include: humility, honest, highly motivated, self- sacrificing,

sociable (networking)

4. ROLES OF THE ENTREPRENEUR IN DECISION MAKING (is the same as

functions of entrepreneur)

5. ROLES OF THE ENTREPRENEUR IN ECONOMIC DEVELOPMENT

▪ Providing goods and services - to satisfy the needs of customers

▪ Creating jobs - individuals can earn an income and improve their standard of living

▪ Contributing to nation building- by exporting goods thus earning foreign exchange that
will be used to buy more capital goods needed for further production

▪ Collaborating- in building partnerships with communities by contributing towards

community projects, this will help members of the community to improve their well-
being

6. REASONS FOR WANTING TO START A BUSINESS

▪ Desire for Financial Independence – the entrepreneur prefers to make his own decisions
in order create their own wealth, not having to depend on another for limited resources

▪ Self - fulfilment – the belief that he/she will get more rewards i.e. more than if they were
working for someone else

▪ Self-actualization- that is the ultimate satisfaction of the need to fulfil one’s potential and
to become the best in the industry

▪ Increased income: an individual can start a business to earn more money

▪ Increased control of working life – that is, to become your own boss in making all the
decisions without consulting anyone

7. STEPS FOR ESTABLISHING A BUSINESS

(i) Conceptualising

▪ Identifying a possible business idea based on skills or hobbies or previous

employment

(ii)Research

▪ The entrepreneur will have to probe the market to find customer’s wants, who are its
competitors. Competition is always a problem for new businesses so an entrepreneur
may have to offer better customer service to attract the customers

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(iii) Identification of Resources

The entrepreneur has to identify his financial, human and material resources.

▪ Financial resources -the entrepreneur using his savings or borrowing money from
friends/relatives or the bank to finance his business
▪ Human resource -the entrepreneur and his workers need the necessary skills that will
make the business successful
▪ Material resources- you will need good quality raw materials and the necessary
supplies if you are providing a service

(iv)Creation of a Business Plan

▪ This is a detailed document that provides information on the purpose, the resources
and the main activities of the business. A business plan is important when you have to
submit it to a lending institution or a prospective investor

(v) Acquisition of Funds

▪ Obtaining finance can be problem as many entrepreneurs lack sufficient savings or

lack knowledge of financial support / grants available and many suffer from poor
business plans

(vi)Operation of the Business

▪ Once all the resources and finance are in place, the business can start trading. This
means meeting and selling to customers, ordering fresh supplies etc.

8. REASONS FOR PREPARING A BUSINESS PLAN

A BUSINESS PLAN
▪ A business plan is a written document that describes the rational for starting a business
and the steps involved in starting and operating it successfully

Reasons for Preparing a Business Plan

▪ to ensure that careful research is conducted into the feasibility of the business;

▪ to attract potential investors– for example persons who wish to purchase shares in the
company

▪ to source financing – when applying for loan from a bank or any financial institution

▪ to guide the operations of the business when making decisions -it gives clear objectives
of what the business hopes to achieve
▪ Outlines resources needed e.g. machinery, labour, premises

9. Elements of the Business Plan

i. The executive summary - is a summary that gives a clear picture of the main points of the
business. It contains: the type of business, its main objectives, its owners, brief
description of the product, nature of the business, government regulations

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ii. Operational plan: The business and its objectives, name, address, legal structure, aims
and objectives, personnel, suppliers, equipment necessary

iii. The business opportunity: a description of the product or service

iv. The Marketing plan - contains the organization of the marketing department, market
research, product strategies, pricing strategy, distribution strategy, promotional strategy

v. The Financial plan – contains the purpose for which finance is needed, production cost,
collateral, cash flow, profit and loss forecasts

10. SOURCES OF INFORMATION FOR CONDUCTING RESEARCH

▪ Market research is important to the success of any business. Market research is the
collection and analysis of data about consumers’ preferences.

▪ There are two main types of market research, these include primary and secondary
research

(a)Primary Research
▪ Primary / Field research - refers to first- hand information that does not already exist.
Primary research involves the use of:

✔ Questionnaires – given to shoppers to complete and hand back or internet users to fill out
on line
✔ Interviews – can be street based or telephoned based
✔ Observation- observe consumer behaviour example by identifying which shop displays
make them shop and buy
✔ Product tests- ask consumers to try a product or service offered by the business
and fill in a report card on their experience

(b) Secondary Research

▪ Secondary /Desk research- refers to the use of secondary data, that is, information that
already exists. Secondary research involves the use of:

✔ Internet searches – e.g. search web for information on market size of competitor
✔ Government publications – import/export data for industries
✔ Brochures -Information from competitors

[Read text book for advantages and disadvantages of each source]

11. FEASIBILITY STUDY

▪ A feasibility study is a report that investigates whether a new business idea is worthwhile,
will the idea work or is it likely to be profitable.

When Is It Done

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▪ It is done before a business plan – to determine if a business or project is worthwhile going
ahead
▪ It is done on ventures that are newly starting – to determine if the idea will work, will it be
profitable
▪ It is done on a current business that is expanding- to determine the likely cost
▪ It is done on a new aspect of a current business- to determine if it is likely to be profitable

12. THE NEED FOR PLANNING IN A OPERATING A BUSINESS

▪ Planning is a decision- making process by which an organization decides what it wants to
achieve and how it intends to achieve it and it what manner

Importance of Planning
▪ Planning gives direction-provides a guide line
▪ Planning forces managers to look ahead and anticipate possible changes
▪ Planning helps to avoid mistakes

Consequences of Not Planning

▪ Little chances of success or survival of the business
▪ Firm would not have resources to deal with expansion or its competitors
▪ Workers not being able to deal with different events e.g. new machines

Short Term Planning

▪ Preparing the business for day to day activities, these may be for each day, week, 12-
24months

Medium Term Planning

▪ Preparing business for events that could occur within the next 3years
▪ E.g. decisions to use a particular sales promotion to keep up with competitor

Long Term Planning

▪ Preparing the business for events that may occur several years – up to 10 years in the
future. E.g. decisions to introduce a new product, or to undergo major expansion

13. LOCAL, REGIONAL AND GLOBAL RULES FOR CONDUCTING BUSINESS

▪ All businesses must observe laws or rules that govern their activities at all levels. Below
is a list of laws that are practiced locally / globally and their impact on businesses.

Government Regulations and its Impact on the Business

Payment of Taxes
▪ All taxes must be paid over to the state, if taxes are paid there would be no chance of
legal actions being taken against the business leading to heavy fines or imprisonment

Operating in Commercial Zones

▪ All business should operate in commercial zones, factories should not be located in
residential areas in order to prevent pollution and health hazard to members of the
community

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Registration of the Business
▪ All businesses should be registered so that the government can monitor it activities and
provide guidance, if a business is registered there would be no chance of heavy fines
being imposed or imprisonment

Food Handlers Permit

▪ Anyone handling food or preparing material must be possess a food handler’s permit ,
this will reduce the risk of food poisoning and ensure a hygienic working environment

Inspection of Business Place

▪ Business places should be inspected by safety and health officials this will prevent
infestation of animals carrying dangerous diseases

Adherence to Copy Right and Patent Laws

▪ This should be practiced to avoid legal actions being taken against the business for breach
of the copyrights laws

Workers Redundant/ Redundancy Pay

▪ Entrepreneurs should avoid making workers redundant without no explanation, this will
motivate the employees to work hard as they feel the business is addressing their issues
such as working conditions and wage

Registration of trade persons

▪ Skilled persons such as electricians need to obtain a licence to ensure that they are
qualified for the job
▪ Certain products such as medicines and defence equipment cannot be sold without license

14. FACTORS AFFECTING LOCATION

● Choosing a site for a new business or relocating of an existing business are some of the
most important decisions made by management. The best site should maximise long
term profits. The following factors should be considered when choosing the location of a
business:

Geographical
● A business must be accessible and well positioned, this will have potential for high sales
● A business that is cheap to purchase but is located far from towns may have problems
recruiting staff or attracting suppliers

Availability of Raw Material

● Nearness of the raw material can reduce production cost, as there will be no need for high
transport cost in getting materials

Infrastructure
● Up-to date communication system – an increase in online shopping may lead to less
opening of street stores and more ‘warehouse’ operations to supply consumers

Power
● A business need reliable low- cost suppliers of power to operate efficiently

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Water
● Fresh clean water supplies are needed for healthy living and countries with poor water
supply find it difficult to attract investors

Health Facility
● A business should be located where there are good health facilities to keep work force
healthy and capable of effective work

Transport Cost
● A business should locate near to the supplier of their material e.g. service industries such
as hotels and retailing need to be located near to their customers so that transport cost will
be less

Labour Supply
● A business should employ the appropriate labour skills where needed, a shortage of the
skill labour may result in the labourer demanding high wages.

Government Legislation
● The government may provide grants and tax incentives to attract businesses to locate in
certain areas
● The government may also provide financial assistance so that firms provide jobs in areas
of high unemployment. E.g. the government may grant an investor duty- free
concessions on raw materials if they are willing to locate their business in rural areas

15. COLLATERAL

▪ Collateral is an asset pledged as payment for a loan if the borrower fails to make regular
payments.
▪ Collateral is a security required by a lending institution to act as a safe guard in case the
loan is not repaid.

Different Types of Collateral

✔ Property – e.g. land, building
✔ Trucks, drilling rigs, computers, motor vehicle
✔ Natural resources e.g. gas oil
✔ Stock such as shares in a company
✔ Money

Valuation of Collateral
▪ The lender puts a value on an asset being used as collateral to help decide how much can
be lent
▪ The borrower will try to suggest that the value of the collateral is high in order to get a
higher loan
▪ The collateral is valued based on expert advice or past price trends