Escolar Documentos
Profissional Documentos
Cultura Documentos
College of Technology
Mechanical Engineering Department
Contents
Part
Part
Part
Part
Part
Part
1
2
3
4
5
6
Introduction to
Entrepreneurship
Choosing The Legal Form Of an
Ownership
Setting a Business enterprise
Marketing in Business enterprises
Financing and accounting in
business
Risk and insurance of Business
enterprises
Chapter one
Entrepreneurship
Entrepreneur
Entrepreneurship
What is Entrepreneurship?
What Is An Entrepreneur
& Entrepreneurship ?
ENTREPRENEUR
ENTREPRENEURSHIP
The pursuit of opportunity through
innovation, creativity and hard work
without regard for
the resources currently controlled.
Owner Manager
They may or may not be entrepreneurs.
They own and manage a small enterprise, in a way,
imagination
2. Managerial jobs are transferable
Characteristics of Entrepreneurs
1. Need for Achievement:- vision
6. All-rounders
7. A need to seek refuge:- escape from environmental
factor
a. The Foreign Refugee
b. Corporate Refugee.
c. Other Refugees
I.Pull Influence
Some individuals are attracted towards small
Push Independence
Many people are pushed into founding a new
Outcomes of Entrepreneurship
Economic growth
New industry formation
Job creation
Weakness of entrepreneurship
a. Limited resource:- entrepreneurship mostly
starts from small investment or contribution of
owners are more than one individual
b. Lack of experience:- most of entrepreneurs have
no experience and this may lead to in efficiency
c. Disagreement between member: if the owner of
entrepreneur is more than one person,
disagreement between them can be created. This
disagreement can limit the operation of the
business.
d. Uncertainty of income:- opening and running a
business provide no guarantee that an
entrepreneur will earn enough money to survive
Elements involved in
Entrepreneur
1.RISK:- Simply stated risk is a
condition in which there is a
possibility of an adverse deviation
from a desired outcome that is
expected or hoped from applied to a
business risk translates in to the
possibility of losses associated with
the assets and the earning potential
of the firm.
2.Information
Information gives the following importance to the
businessmens
To know the position of their competitors that is
their strength and weaknesses, business strategy
they use and their long term plan.
To know threats and opportunity in doing business
Helps to design long term objectives and goals
indicate capital requirement (labor, capital and
machinery)
Helps to know market position locally and
internationally.
Sources of information
Information are obtained from two main
methods of data collection. That is primary data
collection and secondary data collection
1.Collection of primary data:
Observation method
Interview method
Through questioner
Other methods which includes warranty
local government
Various publications of foreign government
or international bodies and their subsidiary
organization.
Technical and trade journals
Books, magazines and newspapers
Reports
Public records and statistics, historical
documents.
Kinds of Entrepreneurship
1.Women Entrepreneurs.
2.Founders and other Entrepreneurs.
a. Founding Entrepreneurs /Founders/
b.General mangers and
c.Franchisees
Introduction
The innovative capacity of an entrepreneur and more
accurately, of companies operating in that field, is a
key determinant of its capability to enhance the
economic development and to upgrade the standard
of living of a country. It is widely accepted that one
of the indicators of this innovative capacity is the
rate of creation of New Technology-Based firms
(NTBF).
The nurturing of small firm formation and growth has
become increasingly important to the health of
developed economies in general, and to the creation
of new innovative industrial sectors in particular.
Contd
Technology incubators, which play a role in
accelerating the commercialization of R&D
outputs and the transfer of technology, have
contributed to startups of high technology-based
enterprises in the newly industrializing
economies of developing and developed
economies of the world.
Strengthening and promoting technology based
ventures through incubation programmes for new
technology based enterprises is necessary for
them to survive in a competitive society.
Government policies:
Credit programmes with State-subsidized rates
Share programmes by Government venture-capital companies
Grants by the Government, especially for creating jobs and for research
Security programmes by the Government for taking over part of the risk of
Other
support
activities
fordevelop
enterprises
with both public
and
How
to form
and
Technology
based
private
sector involvement, include:
ventures?
* Business consulting services: Assistance with
Contd
In The Beginning..
The World was round..
And Now.?
Companies worldwide are finding they must either convincingly justify their
prices or differentiate themselves with some kind of perceived recognizable
value.
Definition
Technopreneurshipis the Result of uniting
Technopreneurshipcan be
defined
as..
Definition Continues.
Application of the newest inventions
Bill Gates
Larry Page
Key Ideas
Discovering Gaps
Challenge?
Always Distinguish
opportunity for
Innovation
Opportunities Abound,
Naturally
Areas you can
Leverage in a
Synergy
Skills, Knowledge,
Proven Abilities
Audience
Assemble the
Audience and
Target the Share of
Mind
Create Top of
Mind Awareness
Models
Subscription
Advertising
Outright Sales
Sales and
Service
Final Thoughts
1) Sole proprietorship
in which
o An individual introduces his capital,
Advantages of Sole
proprietorships
a.
Ease and low cost of formation and dissolution:there are no restrictions on either starting or
terminating small business operations.
b. Direct motivation and personal care
c. Freedom and promptness of action
The sole proprietor can take his own decision and there is
none to question his authority. the sole proprietor can
take prompt/quick decisions especially when an
emergency arises.
d. Business confidentiality
e. Single Tax:-The proprietorship does not pay tax as a
business; the profits from the business are the
personal income of the owner and are declare on his
individual income tax return.
Disadvantages of sole
proprietorship
2. Partnership**
The association of two or more persons to
Kinds of Partners
1.A general partner
Assumes unlimited liability and is usually active in managing the business.
unknown to the public. i.e the general public does not know of this persons
partnership status.
5.Senior partners
Assume major roles in management because of the
long tenure (possession), amount of investment in the
partnership, or age. They normally receive large shares
of the partnerships profits.
6.Junior partners
Are generally younger partners in tenure, have only
small investment in the firm, and are not expected to
make major decision. They assume limited role in the
partnerships management and receive a smaller share
of the partnerships profits.
See others
Advantages of partnership
1. Ease of starting
2. Increased source of capital:-Partnership can offer creditors less
risk than a sole proprietorship; it is often an attractive investment.
3. Combined managerial skill
4. Definite legal status
Todays partner can be assured that a competent lawyer can answer
virtually
any questions he/she might have about this form of
ownership. i.e lawyers can provide a sound legal advice about
partnership issues.
6. Motivation of important employees
7. Reduced risk
Disadvantages of partnership
1.Unlimited liability
2. Risk of implied authority
The fault and miss judgment made by a single
partner binds the firm and the remaining partners.
Thus, they are liable for the debts made by the
partner.
3. Lack of harmonyagrmnt or synchronizatn
4. Lack of continuity/instability/
If any one of the general partners dies, withdraws
because of mentally or physically incapable (injured),
the partnership ends.
5. Investment withdrawals difficulty /frozeninvestment/
3. Corporation***
A corporation is an artificial person authorized and recognized
life.
Characteristics of Corporation
1. Separate legal entity
It can sue or be sued.
It has the right to manage its own affairs.
Shareholders cannot be liable for the acts of the corporation
2. Limited liability
Since the corporation has separate legal entity its debts are its
own. The assets and liabilities, rights and obligations incidental to
the companys activities are assets and liabilities, rights and
obligations respectively of the company and not of its members.
3.Transferiablity of shares
It is easy to transfer ownership in a corporation. A stockholder may
sell stock to another person and transfer the membership and
membership interest freely without consulting other stockholders .
4.Perpitual existence
Death, insanity, retirement and withdrawal of shareholders will not
affect the company.
5.Common seal
A corporation has a common seal with the name of the company
engraved on it, which is used as a substitute for its signature through
it acts through its agents.
6.Separation of ownership from management
7.Supervision
8.Written Constitution
On the creation of a company, the promoters must file certain
documents with the Registrar of Companies. These include the Article
of Association and the Memorandum of Association*.
Advantages of a
corporation
1. Financial
strength
2. Limited liability
3.Scope of expansion
Corporations
have greater
proprietorship or partnerships
potential
than
sole
4. Managerial efficiency
Corporations
enjoy
the
advantage
of
efficient
management by hiring specialists skilled persons to
become members of the board of directors to mange the
corporation
Disadvantages of a corporation
1. Difficulty of formation
It
is time consuming and cumbersome/not
managable to establish corporations unlike the
other forms of businesses.
2. Lack of owners/managers personal interest
These forms of organizations are managed by
directors, hired officials, and employees who may
not be expected to have such an interest in the
success of the business as the individual owner or
partner would have in his own business.
3. Delay in decision-making it needs official meeting of managers
or board
4.Corporatives(*)
It is an organization owned by members/customers
1. Sizeof Criteria
Examples
criteria used to measure size are:
1. Number of employees
2. Sales
volume
3. Asset size
4. Insurance
enforce
5. Volume of deposits
Although
business himself.
c)Personalized management:- Is the most characteristics
enterprise.
Unbalanced experience- do not have rounded experience in
the major activities of business production.
Lack of managerial experience. Do not know how to
manage production.
Lack of experience in the line- the owner has entered a
business field in which he or she has very little knowledge.
Neglect- the owner does not pay sufficient attention to the
enterprise.
Fraud- involves intentional misrepresentations or deception
(purchasing materials or goods for him/her self with the
companys money)
Disaster- refers to some unforeseen happening or act of God
(eg. Robberies and extended strikes.)
Strength
1. Independence
Most small business owners enjoy being their own
boss, they like the freedom to do things than way.
2. Financial opportunities
Many small business owners make more money
running their own company than they would be
working for someone else.
3. Community services
if the person has reason to believe the public will
pay for such output, he/she will start a company to
provide it.
4. Job security
when one owns a business, job security is
ensured.
5. Family employment (benefits)
create the employment in the family
higher moral and trust occur in family-run
business
is times of server economic downturn
6. Challenge.
They want to win or lose on their own abilities the
challenge gives them psychological satisfaction
Weaknesses
1. Sales fluctuations
in some months sales are very high, while in other they
drop off dramatically. The individual must balance cash
inflows with cash outflows.
2. Competition- Owning a business is the risk of
competition (eg. Restaurants)
3. Increased responsibilities- owner is often a
bookkeeper, accountant sales person, personnel manager.
4. Financial loses- when the owner makes all major
decisions
6. Risk of failure- the ultimate risk the small business
owner manger faces is failure.
Businessmen/businesswomen
should think of
long-term goal and the profit when they start a
business.
alternative
d.Select the best alternative in light of the specific
criteria set to the better fulfillment of the
objective.
be carefully studied.
c. The equipment required and their sources are
to be specified
d. Requirement of space.
e. The total cost of the project to be worked out,
the means for financing it identified
f. The economics of the entire scheme at
projected operating level is to be assessed.
feedback
6. The unit is then ready for commercial production.
a. Commercial production
his/her idea.
2.Although planning is a mental process, it must go
business:
Business purchase:
On going:
Major decisions:
I.Analysis
of OF
the
current
situation
(where
COMPONENTS
BUSINESS
PLAN
(OUT LINE
OF A
1. Identification
the business
we now?)
BUSINESS
PLAN)ofare
a. Introduction
- relevant history and background
- Proposed date for commencement of trading /beginning of a plan
b. Names
-name of the business and trading name
- name of the managers/owners
c. Legal identity
-company/partnership/sole-trade/cooperative
- details of share or capital structure
d. Location
-address-registered and operational
- brief details of premises.
e. Professional advisers, -Accountants, solicitors, bank
applications
-Key suppliers
-Planned developments of product or service
b. Market and customers
Definition of target market, classification of
customers
1. Management of resources
a) Operation:-premises, materials, equipment,
insurance, management information system.
b) People/Human resource/- employment practices,
recruitment, team management, training etc
THE MARKETING
PERSPECTIVE
Definition of Market:
Market is a group of potential customers
having needs to satisfy, ability to buy &
willingness to pay in order to satisfy these
needs.
OR
3. Place mix
(Physical
distribution mix):
Channels of
distribution
Transportation
Warehousing
4. Promotion mix:
Includes
Advertising
Personal selling
Sales promotion
Publicity
customer.
It is a bundle of tangible & intangible attributes, which satisfy the
2. Branding
Brand name: the part of a brand, which consists of word,
Importance of a brand
The brand makes it easier for the seller to process orders and track
down problems.
The sellers brand name and trademark provide legal protection of
of customers and helps to increase the control and share of the market.
Branding helps the seller to segment markets and expand the product
mix.
Good brand help to build the corporate image because it advertises the
characteristics
Suggest about the product qualities such as action or
use.
Be large enough to be applicable to new products
3.Packaging
Packaging is a marketing process concerned with
the design and production of the container or
wrapper for a product.
The container or wrapper or covering is called the
package.
Importance of packaging
1.Packaging serves several safety and utilitarian
purposes
2.Packaging
may
implement
a
companys
marketing program.
3.Well-packaged products may increase profit
possibilities in that it stimulates customers to pay
more just to get the special package.
4.Labeling
1.Brand label: simply the brand alone applied to
as based on cost.
METHODS OF PRICING
1.Cost plus pricing/ Mark Up pricing/
2. Skimming pricing
The following conditions should be satisfied
1.A sufficient number of buyers have a high
current demand.
2.The high initial prices do not attract more
competition to the market.
3.The high price communicates the image of a
superior product.
3.Penetration pricing: below market price
4. Premium pricing: with market
Direct channel
1.Door-to-door selling
2.Manufacturers sales branches
3.Direct mail
Indirect channel
1.Merchant Middlemen: Whole seller:- Eg. Petram PLC and East Africa Trading are
Channel levels
Zero-level
Manufact
urer
One-level
Manufact
urer
Two-level
Manufact
urer
Threelevel
Manufact
urer
Agent
Wholesa
ler
Consum
er
Wholesa
ler
Retaile
r
Retaile
r
Retaile
r
Consum
er
Consum
er
Consum
er
communication.
Means activities that communicate the
Ad and Reminder Ad
Personal selling Oral presentation in
MARKET SEGMENTATION
Market segment is a group of individuals or organizations within
segmentation.
Bases for market segmentation
1.Geographic segmentation:- Region Urban, Suburban, Rural,
Market density, Climate, Terrain (land, topography), City size, Country
size, State size
2.Demographic segmentation:- Age, Gender, Race, Ethnicity,
Income, Education, Occupation, Family size, Family life cycle,
Religion, Social class
3.Psycho graphic segmentation:- Personality, Attributes, Motives,
Lifestyles
4.Behavioral segmentation:- Volume usage, End use, Benefit,
Expectations,
Brand loyalty, Price sensitivity
MARKET RESEARCH
1.Marketing research is the systematic
recording and analysis of data about
problems relating to marketing.
AmericanMarketing Association
2.Marketing research is the application of
scientific method to the solution of
marketing problems.
Luck, Wales, Taylor
It is important for any business to conduct it before
established ,ongoing business and futurity.
inputs.
Proper financing of business is essential for
Financial
SOURCE OF FINANCE
3. Angels
These private investors (or angels) are wealthy
4.Partners:
Whenever an entrepreneur gives up equity in
his/her
business
(through
what
ever
mechanisms), he/she runs the risk of losing
control over it.
As
1.Commercial banks
In most cases commercial banks give
Short-term loan (repayable with in one year or
less) and
Medium term loan (maturing in above one year
is not requested.
That is the loan is granted against personal
(credit facility)?
How much do you need?
When do they need it?.
How long will you need it?
How will you repay the loan?
2.Trade credit
It is credit given by suppliers who sell goods on
account.
This credit is reflected on the entrepreneurs
3.Equipment suppliers
Most equipment vendors encourage business
by
6. Credit Unions:
7. Insurance Companies:
8. Bonds
9. Treasury bill
How to prepare financial statement n
accounting .read
If time c sm pts abt accounting.
DEFINITION OF RISK
Risk
RISK MANAGEMENT
The complexity of the business environment calls for
management.
below
Some of the factors, which increase the complexity of
environment, are:
Inflation
Growth of internal operation
More complex technology
Increasing government regulation
What
is
risk
management?
Risk
management is a systematic way of protecting
business resources and income against losses
so that the organizations aims are reached
without interruption, creating stability and
contributing to profit.
or relative frequency.
ii. Determination of the impact of losses upon
financial affairs.
iii.The ability to predict the losses that will
actually occur during the budget year.
2. Retention
Bearing all the risk by that person/organization.
Types of retention
i. Planned/conscious/ active risk retention
It is characterized by the recognition that the risk
exists, and tacit agreement to assume the losses
involved.
The decision to retain a risk actively is made
because there are no alternatives more attractive.
Self-insurance is a special case of active retention.
Self-insurance is not insurance, because there is no
transfer of the risk to an outsider.
o E.g. A firm may keep some money to retain the
risk.
ii.
Unplanned/Unconscious/
Retention
Passive
individual exposed to
recognize its existence.
the
risk
does
not
4. Separation /Diversification
Separation of the firms exposures to loss instead of
5. Transfer
It is also called as shifting method.
When a business organization cannot afford to
3.Customer risks
Customers are the source of profit for small business, but
premises injuries.
When a customer breaks an arm by slipping on icy steps
while entering or leaving a store;
Inadequate security, which may result in robbery, assault, or
other violent crimes; Customers who are victims often look to
the business to recover their losses.
Product liability:
A product liability suit may be
The end
5. Combination
Risks
Unlike
6. Neutralization
Neutralization, which is very closely related to
transfer.
It is the process of balancing a chance of loss
against a chance of gain.
Eg. An excellent example is the process of making
commitments on both sides of transaction in such
a way the risks compensate each other.
The following matrix can determine which risk
management be used.
BUSINESSTRANSACTIONANDACCOUNTI
NG EQUATION
A business transaction is the occurrence of an
equities.
The sum of assets is equal to that of the sum of equities.
Equities may be subdivided into two principal types:
o the rights of creditors and
o the rights of owners.
Rights of creditors represent debts of the business and
or owners capital
Assets
Assets: any physical thing (tangible) or right (intangible)
Liabilities:
Liabilities: are debts owned to outsiders (creditors) .
Owner equity
Owner equity: is the residual claim against the assets
partnership)
Capital stock: represents the investment of the
stockholders.
Retained earnings: represents the net income retained in
the business.
Drawings: represents the amount of withdrawals made by
Dividends:
represents
earnings to stockholders.
the
distribution
of
Preparation of financial
transactions
statements
has been determined, the essential information is
sheet.
The capital section of these enterprises indicates the name of
the owner, the name of the partners and the capital stock
(common stock) and/or the preferred stock in their respective
order.
Cash
10,000
Supplies
Land
Total asset
1,000
8,000
19,000
Liabilities
Accounts payable
2,500
Owners equity
Mr. X, capital
Total liabilities and capital
16,000
19,000
ABC trading
Statement of cash flows
For month ended December 31,2004
2,700
(8,000)
15,000
(500)
14,500
9,200
January Projections
1. ABC projects a beginning cash balance of $20,000.
2. Cash receipts. Product manufacturing will not be completed
until February, so there will be no sales. However, service
income of $4,000 is projected.
3. Interest on the $20,000 will amount to about $100 at current
rate.
4. There are no long-term assets to sell. Enter a zero.
5. Adding 1, 2, 3, and 4 the Total Cash Available will be $24,100.
6. Cash payments. Product will be available from manufacturer in
February and payment will not be due until pickup. However,
there will be prototype costs of $5,000.
7. Variable (selling) expenses. Estimated at $1,140.
8. Fixed (administrative) expenses. Estimated at $1,215.
9. Interest expense. No outstanding debts or loans. Enter zero.
10. Taxes. No profit previous quarter. No estimated taxes would
be due.
February Projections
1. February Beginning Cash Balance. January
Ending Cash Balance ($58,606).
2. Cash receipts. Still no sales, but service income
is $2,000.
3. Interest income. Projected at about $120.
4. Sale of long-term assets. None. Enter zero.
5. Total cash available. Add 1, 2, 3, and 4. The
result is $60,726.
6. Cash payments. $30,000 due to manufacturer,
$400 due on packaging design.
7. Continue as in January. Dont forget to include
payments on your loan.
The labels Cash and Net Worth are called accounts. Accounts
are used to classify similar transactions.
Payment
Profit = revenue-cost
Profit=(revenue)-(fixed cost (Cf) + variable cost)
Revenue =(selling price (P))* quantity sold (Q))
Variable cost = (quantity sold * variable cost per unit (Cv))
In break even point the profit is assumed to be zero
0= (P*Q)-(Cf + (Q*Cv))
(P*Q)-(Q*Cv)=Cf
Q(P-Cv)=Cf
Q=Cf/P-Cv
The basic equation for determining the break-even units
is=
Average Annual Fixed Cost
(Average Per Unit Sales Price - Average Per Unit Variable
Cost)
SOLUTION
Profit = TR TC
Option A: Current Equipment
BEP Sales in value (Rs.)
BEP Sales in Quantity (Units)
Option B: Adding New Equipment
BEP Sales in value (Rs.)
BEP Sales in Quantity (Units)
Profit = 50000 * (1.25 0.75) 12000 = Rs.13000.
Option B: Add equipment:
Profit = 70000 * (1.25 1.00) 17000 = Rs.500.
220
221
situation of an industry.
The competitive environment refers to the
number of competitors a firm must face, the
relative size of the competitors, and the degree of
interdependence within the industry.
Competition in an industry arises from
i. The power of buyers
ii. The power of suppliers
iii. The threat of new entrants
iv. The threat of substitutes
v. The intensity of rivalry
Types of Decision
Programmed decisions :-Are the decisions
the decision.
Develop Alternatives
Develop & list as many possible alternatives solutions to the
problem as you can.
Formulate
Goals
Evaluate &
Follow up
Evaluate
Decision
Situations
Implement
Decision
Analyze
Alternatives
Select
Alternatives
each alternative?