ZAMBIA INSTITUTE OF ADVANCES LEGAL EDUCATION

OPEN, DISTANCE AND FLEXIBLE LEARNING

CERTIFICATE IN PARALEGAL STUDIES IN ZAMBIA FOR LEVEL I

PARALEGALS

ZQF LEVEL 4 CERTIFICATE

MODULE 5
STUDY MODULE: ENTREPRENUERSHIP

Module Code: 362-05-A

First Edition
2020
Property of ZIALE
 Copyright
All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise without prior written permission of the copyright owner.

The Zambia Institute of Advanced Legal Education

P.O. Box 30690, Lusaka
Email: info@[Link]
Web: [Link]

© ZIALE, 2020

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ACRONYMS
CSO: Chief Security Officer
HC: High Court
IRC: Industrial Relations Court
ISA: Intestate Succession Act
MCA: Matrimonial Causes Act
SC: Supreme Court
ZAWA: Zambia Wildlife Authority

iii
ACKNOWLEDGEMENTS
This manual has been developed by ZIALE in line with the Certificate in Paralegal Studies
for Level II Paralegals, as approved by the Technical Education, Vocational and
Entrepreneurship Training Authority (TEVETA) for the training of paralegals in Zambia.
Great appreciation goes to the European Union and the Federal Republic of Germany for
their financial support and technical assistance from the Deutsche Gesellschaft für
Internationale Zusammenarbeit (GIZ) and the Danish Institute for Human Rights (DIHR).
Lastly, but the least, many thanks go to Cavendish University Zambia management, the
faculty of Law and the enduring efforts and tireless contributions by the following
individuals towards the successful development of the ODFL training module in Civil Law
for paralegal studies in Zambia.

No. Name Position Qualification

1. Mrs Pondo Lecturer BSc

2. Mr Collins Sikajila Lecturer BA

iv
MODULE OVERVIEW
Welcome to the Entrepreneurship module for Paralegals studies. In this study, you will
get basic information you need to effectively manage your Procedural Enterprise and
value to shape your capability in the business management skills provided in this module
based on Entrepreneurial concepts, Building a positive attitude towards entrepreneurship,
Demonstrating Personal Entrepreneurial Competences, Establishing and Managing
enterprise, Growing an enterprise Establishing business networks and how to Exit a
business in order to enhance business performance and productivity.

MODULE PURPOSE
Study has consistently demonstrated that when clear goals are linked with learning, it
occurs more easily and rapidly. By the end of this study, participants will be able to equip
trainees with knowledge, skills and appropriate attitudes to own and manage a viable
Business Enterprise.

MODULE LEARNING OUTCOMES

On completion of this module, you will:
Use entrepreneurial concepts
Build a positive attitude towards entrepreneurship
Demonstrate personal entrepreneurial competences
Establish an enterprise
Manage an enterprise
Grow an enterprise
Establish business networks
Exit a business

LEARNING TIPS AND STUDY SKILLS

As an Open Distance and Flexible learner (ODFL) student your
approach to learning will be different to that from the full time
students: you will on your own indicate what you need to study, you
will require personal motivation for doing so and you will need to
schedule your study activities around other professional or
domestic responsibilities.
Key to note is that you will be required to take control of your learning environment.
Further as a concern, you will need to reflect on performance related issues like; Time
Management, Goal Setting and Stress Management etc.

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In addition, you will also need to fine-tune yourself in areas such as assignment paper
planning, preparing for module exams, the use of ICT and the web as a learning
resource. Your important considerations will be time and space management, the time
you dedicate to your learning and the environment in which you engage in that learning.
We recommend that you take time now—before starting your self-study to familiarise
yourself with the following suggested web resources and links: [Link]
[Link]/;[Link]
[Link]
furthermore you can look up to [Link] and type “self-study basics”, “self-study
tips”, “self-study skills” or similar links.

MINIMUM MODULE DURATION

In this module, you are expected to spend a minimum of eighty (80) notional learning
hours spread across the full 9 months’ period.

ASSESSMENTS AND PROGRESSION REQUIREMENTS

In this module you will be assessed firstly on Module content understanding through
exercises and short quiz questions. Secondly assessed through assignment activities using
experiential learning through;

Simulation Exercises: you will be expected to exercise on important situations

(such as typical business problems) with certain simulated guidelines (rules) under
which to act.
Field Visits/Trips: you will be invited at some point to conduct a field visit (it be a
market studies, enterprise or institutional visits) to gain first-hand impressions.
Learning by Doing (Practical Skills): you will be subjected at some point to
conducting a practical exercise to backed-up with video-based feed-back.
Brainstorming: you will be required at times to forward every conceivable idea
regarding a given topic, thus, you will generate a number of ideas that are practical
solution ideas with the help of screening criteria. You are therefore, expected to
attempt a test, one assignment on each of the eight (8) units for your final
Assessment worthy examination out of 100 marks

ATTENDANCE OF RESIDENTIAL SCHOOL

This module is intended to be studied in three (3) terms. Under which you are expected
to attend all your residential schools and not less than 90% of your scheduled classes.

CERTIFICATION BOARD
This module is part of the requirements to be passed for you to be awarded the Trade
Certificate in Paralegal Studies Level II upon successful completion of the TEVETA exams.

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UNIT 1 USING ENTREPRENEURSHIP CONCEPTS

Introduction
This unit will help you understand the concept of entrepreneurship; the different types of
entrepreneurs and forms of businesses discuss the background to the emergence of
entrepreneurship and finally discuss the benefits of entrepreneurship.

Unit Learning Outcomes

On completion of this Unit you will;

Explain concepts of entrepreneurship
Describe different types of entrepreneurs
Discuss the background to emergence of entrepreneurship
Explain the benefits of entrepreneurship

1.1 CONCEPT OF ENTREPRENEURSHIP

This session will introduce you to the generic explanation of concepts of entrepreneurship
and its related concepts

Session Learning Outcomes

At the end of this session, you will be able to;

1. Understand the historical background of entrepreneurship

2. Explain the concept of entrepreneurship
3. Explain entrepreneurship related concepts such as; Enterprise and Entrepreneur
4. Differentiate between an Entrepreneur and an Intrapreneur

Historical Background of Entrepreneurship

Since long, entrepreneurship has been recognized as an essential ingredient of economic
development. The manner in which it has been exploited in the western societies has varied
from time-to-time to suit the changing ethos of socio-economic reality. From early centuries
(16th to 19th) the definition of entrepreneurship has changed from time-to-time. In France,
the term entrepreneur was used in the early days for army leaders. Later, architects and
builders of roads and bridges were called entrepreneurs. In the 19th it was applied to
businessmen/traders who bought and sold goods at a profit. |It was in the 20th century that
an entrepreneur was identified as the person who identifies and opportunity, takes risk,
consolidates resources and sets up an enterprise. Such responses can take place
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in any field – business, industry, agriculture, education, and the like. Doing new things or
doing things that are already being done in new ways is, therefore, a simple definition of
entrepreneurship

Entrepreneurs by and large have been found to be people with a high drive
and higher activity level, constantly struggling to achieve something which
they could call as their own accomplishment. They like to be different from
others and strive to accomplish goals which are not otherwise very easy to achieve. At
the same time, they do not strive to achieve something which is practically impossible.
Constantly goaded by their goals, they work very hard. It has been found that some of
the highly motivated entrepreneurs have developed awareness of their worn strengths
and weaknesses and also about the resources and constraints in the environment while
striving to reach their goals.

1.1.0 CONCEPTS OF ENTREPRENEURSHIP

Understanding Entrepreneurship

Entrepreneurship is one of the four mainstream economic factors: land, labour, capital,
and entrepreneurship. The word itself, derived from 17th-century French entreprendre -
refers to individuals who were “undertakers”, meaning those who “undertook” the risk of
new enterprise. In a more comprehensive understanding, entrepreneurship is a way of
life and process of creating new value through a new business in an environment of risk
to earn a profit and growth through mobilising resources to exploit opportunities.
Entrepreneurship has also been defined as the process of creating something different
with value by devoting the necessary time and effort, assuming the accompanying
financial, psychological, environmental and social risks and receiving the resulting rewards
of monetary and personal satisfaction and independence
Entrepreneurship is the dynamic process of creating incremental wealth. This wealth
created by individuals who assume the major risks in terms of equity, time, and/or career
commitment of providing value for some product or service. The product / service may or
may not be new or unique but value must be infused by the entrepreneur by securing
and allocating the necessary skills and resources. Process as involving all the functions,
activities, and actions associated with the perceiving of opportunities and the creation of
organizations to pursue them

Concepts related to entrepreneurship

1. Intrapreneurship
Intrapreneurship is the organizational culture of a business that allows employees to be
creative and innovative in solving problem and exploiting opportunities within the limits of
the available resources.
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2. The Entrepreneur

A business founder. Someone who has turned a normal community activity into business.
Anyone who creates and introduces value to customers through a product or service and
expect to get a financial reward. The entrepreneur is the individual (or team) that
identifies the opportunity, gathers the necessary resources, creates and is ultimately
responsible for the performance. of the organization.

3. The Enterprise

An enterprise is a business undertaking that is created to offer goods and services to the
satisfaction of the target customers whilst offering its initiators (owners) a livelihood
(employment) and profits for growth and sustainability. Enterprises may take one or more
of the following forms:

Manufacturing/Production
Manufacturing/production refers to the combination of various raw materials
and/or inputs to come up with an end product or service.
Construction
Another form of enterprises is construction where a firm’s business may involve
construction of houses, bridges, roads, factories, schools, hospitals, power
stations, rail lines, etc.
Service Operations
Service operations involve businesses that produce an intangible product called a
service. Usually a service is consumed as it is produced.
Retail or Wholesale Operations (Trading)
This form if enterprise involves basically buying and selling that which has already
been produced elsewhere. As the sub heading suggests, trading may refer to retail
wholesale operations.
Mining
This involves mining for mineral and quarrying activities for items like stone, lime,
etc.
Agriculture
This involves enterprising activities like dairy farming, crop farming, beef farming,
horticulture and poultry.

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Difference between an Entrepreneur and an Intrapreneur

Activity 1
Exercise
Define entrepreneurship and intrapreneurship
Outline the benefits of entrepreneurship to the individual and to the nation

Entrepreneurial businesses

The two most important categories of businesses to consider when discussing

entrepreneurship are small businesses and micro enterprises. Though these two
categories do not capture all entrepreneurial enterprises, they comprise the lion’s share of
businesses that fit within the definition discussed above.

Creating Creating
an Entrepreneurship an
Entrepreneur Enterprise

Different Stages of Enterprise Building

Realisation of when an entrepreneur scans the

Opportunity environment and selects the product

Consolidation of an entrepreneur consolidates resources,

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Services (finance, land, buildings etc)

Implementation and resources are put together and

entrepreneur
Creation of venture starts an enterprise

Activity 2 Exercises

Differentiate between an Entrepreneur and a Businessman

Differentiate between Entrepreneurship and Intrapreneurship

Summary of Unit
This unit has discussed the concepts of Entrepreneurship and
described it as a creative and innovative response to the environment.
The emphasize was on you to understanding the person involved in
running a business activity where product/service are sold for a profit
known as an entrepreneur. This may include manufacturing, trading,
or service oriented business

Assignment

Identify the various types of entrepreneurs in your community.

Outline their enterprise profile
Outline their success and their failures

Reference materials

Women Entrepreneurship Development Manual (ICECD) 1993

Change and Entrepreneurship, Jenks L. H, Harvard Univ. Press 1949

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1.2 TYPES OF ENTREPRENEURS

This session will introduce you to the various types and forms of entrepreneurs with a
view to widen up your understanding of various types of entrepreneurs.
Session Learning Outcomes
At the end of this session, you will be able to;
describe types of entrepreneurs
describe the difference between an entrepreneur and the intrapreneur

Who is an Entrepreneur?
In the previous topic, we defined an entrepreneur as an individual (or team) that identifies
the opportunity, gathers the necessary resources, creates and is ultimately responsible for the
performance of the organization. An entrepreneur could be one of the following;
A business founder
Someone who has turned a normal community activity into business
Anyone who creates and introduces value to customers through a product or service
and expect to get a financial reward

Categories of Entrepreneurs
Entrepreneurs are categorized into different types based on different arrangements as
mentioned below:
[Link] on the type of business
[Link] on the use of technology
[Link] on ownership
[Link] on Gender
[Link] on the size of the enterprise

Types of Entrepreneurs
Entrepreneurship experts contend that there are basically two types of entrepreneurs in
the world: pulled entrepreneurs and pushed entrepreneurs.

i) Pulled entrepreneurs
These are entrepreneurs who are attracted into business ventures because they have
either associated with successful entrepreneurs or have admired certain entrepreneurial
role models and attempted to emulate them. Examples of pulled entrepreneurs may be
offspring’s who start business because of their parents’ entrepreneurial nature or college
graduates who decide to venture into business because they have seen an older fellow
graduate running a successful business venture.
Pulled entrepreneurs are generally said to prepare adequately before launching their
enterprises and have therefore, a higher rate of success

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ii) Pushed Entrepreneurs
Pushed entrepreneurs are those that find themselves venturing in business due to
circumstances that may be described as beyond their control. Examples of pushed
entrepreneurs may be people who suddenly find themselves retrenched, retired, declared
redundant or dismissed and switch to doing business as their only survival means.
Pushed entrepreneurs respond to unplanned circumstances and normally start business
through trial-and-error. They, therefore, exhibit lower rates of success.

Success in entrepreneurship calls for a lot of planning and preparations. Entrepreneurs

are both male and female and can be either indigenous or immigrants. Most Zambians of
Asian origin who are successful entrepreneurs had their great grant parents originally
coming into Zambia as immigrants from the Far East. Zambia has also seen a number
successful indigenous entrepreneurs such as the Tom Mtines, Enoch Kavindeles,
Emmanuel Kasondes and many others.

The two types of entrepreneurs, pulled and pushed entrepreneurs, can manifest
themselves in the following types of entrepreneurs:
i. Inventors
ii. Innovators
iii. Agents of change
iv. Curious people
v. Women entrepreneurs
vi. Indigenous entrepreneurs
vii. Immigrant entrepreneurs
viii. Family business
ix. Hobby entrepreneurs
x. Lifestyle entrepreneurs
xi. Social entrepreneurs

Entrepreneurial Traits Assessed in a Behaviour Test

The need to achieve: This is evident in an individual’s desire to achieve some standard to
excellence and success in performance
Risk taking: entrepreneurs have an inclination to take calculated, moderate and,
intelligent risks but avoiding both excessive high as well as low risks
Positive self-control: This includes self-confidence as well as self-efficacy and, a
positive image of ones’ abilities and achievements
Initiative and independence: Such people not only show initiative but also exhibit a
great deal of independence in their day to day behaviour
Problem solving: They have the tendency to approach problems with a view to solve
them

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 Hopeful about the future: Even in a situation where there a lot of disappointment and
frustration, they don’t loss hope
In constant search: Always scanning the environment for opportunities
Time conscious: They set goals for themselves and try to accomplish them within the
set time framework

Activity 3 Exercises

Differentiate the pulled entrepreneur and the pushed entrepreneur

What are the four (4) personal attributes and talents that can help an
entrepreneur
To succeed in business
Explain why interpersonal skills are important to entrepreneurial success.

Assignment

Outline the types of entrepreneurs

During observational work activities in understanding this unit,
you will
need to discover who an entrepreneur is by;
Selecting a successful entrepreneur in your area or community
and this
could include but not limited to doing the following: administering
the
questionnaire and conducting interviews with Entrepreneur, writing a report
on the successful entrepreneur by including, but not limited to the
following:
Profile of entrepreneur
Enterprise type
Experiences
Benefits
Successes and failures
Attributes
Lessons learnt

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 Reference materials

Women Entrepreneurship Development Manual (ICECD) 1993

Change and Entrepreneurship, Jenks L. H, Harvard Univ. Press 1949

1.3 THE BACK GROUND TO EMERGENCE OF ENTREPRENEURSHIP

This session will expose you to the the background to emergence of entrepreneurship
Session Learning Outcomes
In this session, you should outline:
the origin of entrepreneurship, the motive of entrepreneurship and importance of
entrepreneurship to national development in Zambia
establish various economic and social factors that have been at play in the
shaping of entrepreneurship in Zambia since independency

1.2.0 Historical background to the Zambia Economy

Introduction
The post-independence economic history of Zambia has been characterized by the
dominance of copper mining and exports. The performance of the national economy has
thus been closely linked to that of the mining sector. While the 1960s were characterized
by high mineral output levels and high world metal prices, the oil crisis of the early 1970s
adversely affected the world price of copper.

Zambia has a relatively stable macro-economic environment. The inflation rate dropped to
single digit levels in 2007 for the first time in decades and the Kwacha has remained
strong and relatively stable over the last few years. Growth has been positive since the
turn of this century. A further important economic development is that in 2005 Zambia
was among the countries that reached the Highly Indebted Poor Countries (HIPC)
completion point, subsequently being selected to benefit from the multi-lateral debt relief
initiative that resulted in a significant reduction of the country’s external debt from $7.1
billion to $500 million. This trend has been summarised below:

Zambianization: A strategy adopted by the government soon after independence in

1964 the objective of this strategy was to empower Zambian by offering them senior
positions that were held by the European colonial masters

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Nationalisation: This was a state programme that saw the takeover of key companies
by the government
Import Substitution Industrialisation Strategy: A deliberate policy to start
manufacturing locally goods that were being imported into the country. Examples;
Livingstone Motor Assembly, Rover Zambia in Ndola
Mono-culture Economy: Zambia is highly dependent on only one economic resource,
copper. This is at the expense of other sectors like agriculture, manufacturing, tourism.
This state of affairs did not promote the growth of other sectors nor later on encourage
entrepreneurial activities
Urbanisation: Zambia is one of the most urbanised countries in Sub-Sahara Africa.
About 60% of the Zambian population live in urban areas particularly along the line of
rail. One Party State: A political situation in which there is only one political party in the
country. This was a situation in Zambia from 1973 to 1991, United National
Independence Part was the only party in the country
Multi Partysim: A political situation where there are more than one party in the country.
This was the case from 1964 to 1973 and 1991 to date
Population growth rate: The average population growth rate for Zambia has been 3.6%.
This is considered to be too high for a country like Zambia

Social-political Trends

1960’s The first ten years of independence was marked by an outpouring optimism.
There were hug investments in infrastructure and human resource. Huge sums
of money were put into ministries, schools, hospitals, factories and roads. At
this time, most of the economic activities were still concentrated in a few white
settlers. New measures were put in place to create jobs and self-employment
particularly for the indigenous Zambians. For example, the cooperative
movement, establishment of at least a factory in major districts (Kari Glass,
Kawambwa Tea and Kafue Nitrogen Chemicals etc.)

1970’s The country started experiencing economic slowdown, global market price for
copper started becoming weaker. Prices of imports were getting higher and
higher thus making operations of most the enterprises in the country difficult as
these were highly dependent on foreign inputs

Financial support from overseas was nowhere near enough to resolve the
rapidly growing balance of payment position

1980’s The country adopted the IMF supported economic reforms programme.
However, these reforms put the country into even more stress. The strength of

5
 the local currency weakened significantly, inflation sky-rocketed, generally
making the development of enterprises in the country unattainable

Due to the lopsided development between the rural and urban areas, the
county started experiencing huge drift of rural dwellers into towns particularly
along the line of rail. This trend had social consequences like high crime rates
in urban areas. Not everyone was able to be absorbed into formal employment.
Social amenities were not enough to go round

1990 The era saw the end of the one-party-system and the reintroduction of the
multi-partism. This was followed by almost full liberalization of the economy.
These changes were accompanied by the change of government as well.

2000 The country started experiencing positive growth. The mining sector which was
at the verge of collapse has picked up with the introduction of new ones. The
era was also marked with elections and the new government that was formed
pledged to stump out corruption.

The country is still certainly facing a number of challenges like HIV/AIDS which
has taken a toll on the productive sector of the society. Employment levels are
still low and poverty levels are high

Manufacturing
In the early 1990s manufacturing employed less than one-sixth of the labour force, but
accounted for more than one-third of the gross domestic product (GDP). Principal activities
were the smelting and refining of copper and other metals, vehicle assembly, petroleum
refining, food processing, and the production of fertilizers, explosives, and textiles.

Foreign Trade
Imports—such as machinery and transport equipment, mineral fuels and lubricants,
chemicals, food, and basic manufactured goods constitute the biggest chunk of total
imports. Exports—chiefly copper, cobalt, and zinc. Principal partners for exports are
Japan, France, Thailand, India, Belgium and Luxembourg (which constitute a single
trading entity), and Saudi Arabia; principal partners for imports are members of the South
African Customs Union (Botswana, Lesotho, Swaziland, and South Africa), Great Britain,
Germany, and the United States.

Transportation and Communications

Zambia has about 2164 km (about 1345 miles) of railroads. A railroad from Zimbabwe runs
through Livingstone, Lusaka, and Ndola, connecting with the DRC system, and then to
Benguela on the Atlantic coast of Angola. The Tanzania-Zambia Railroad (Tazara) connects
6
Lusaka with the port of Dar es Salaam in Tanzania. About 13,500 km (about 8400 miles)
of all-weather roads connect the main towns of Zambia. Lusaka is served by an
international airport

Activity 4 Exercise

Discuss the Historical background to the Zambia Economy

Discuss the “Social Political Trend in Zambia”
Give a summary of the session and you can acquaint yourself with
the five-year national development plans

Assignment

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Discuss the results obtained during the socialist economic policies of the
1960 s and the liberalized free market economic policies after 1991.

Reference materials

Zambia National Development Plans I, II, III, IV

Informal Sector Business Activities in Lusaka Urban Districts, Tolosi S
& Nawiko M 1997
Emergence, Growth and Characteristics of the Informal Sector in
Zambia, 1991

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UNIT 4: THE BENEFITS OF ENTREPRENEURSHIP

This session will expose you to the benefits of entrepreneurship

Session Learning Outcomes
In this session, you will be able to:
Explain the benefits of entrepreneurship
Explain employment and self-employment and Benefits of enterprise development
differences between an employee and an entrepreneur.

Identify self-employment as a viable option

Explain the benefits of being self-employed
Explain the challenges of being self-employed

Benefits of Entrepreneurship
Most countries in Africa, Zambia included face a serious shortage of employment. There
are not nearly enough jobs for everyone. Most of the young people with good
qualifications have grate difficulties to find employment. The difficulties are usually
greater in rural area where there is far much less development.
What can be done to improve the situation? Certainly, the answer does not lay in the
government or indeed anybody else creating jobs for the many unemployed. The answer
is in individuals creating business for themselves and earns a leaving out of it.

The following are the benefits of entrepreneurship;

Self-employed

Self-employed are those workers who earn a living by running their own business.
Examples include plumbers, gardeners and freelance photographer etc. Many people start
their business adventure dreaming of riches and freedom. And while both are certainly
possible, the first thing to understand is that there are trade-offs in being self-employed.
Difficulty bosses, annoying co-workers, peculiar policies, demand upon your time and
limits on how much money you can make are traded for independence, creativity,
opportunities, and power. But by the same token, you also swap a regular pay-cheque
and benefits for no paycheque and no benefits. A life of security, comfort, and regularity
is traded for one of uncertainty.

There are definitely pros and cons to be self-employed. These include:

Control – Even if you like your boss and your job, possibilities remain that you can be
laid off any time; the company can go bankrupt. But if you are self-employed, you
are in control of you work and career.

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 Money – Many people chose to be self-employed because they think they are more
money worth than they are making on a job or they want to provide a better life
for their families. There is a limit to what amount of money one can make when
employed. There are far fewer limits when you are an entrepreneur.
Creativity and independence – Self-employment provides for grate creativity and
independence. Running your own business may require you to be marketing
wizard, salesman, bookkeeper, secretary and manager all rolled into one.
Freedom – Working at your own business gives you the flexibility to decide when and
where you will work. You decide your hours and place of business.

But there are downsides to being self-employed:

Uncertainty – The life of an entrepreneur is not necessary an easy one. It is fun. It

is challenging, exciting, spontaneous. The hardest part of being in business for
your self is that there is no steady source of income; paycheque does not come
every 30 days.
Risk – Not all entrepreneur ventures are successful. The willingness to take a smart,
calculated risk is the hallmark of smart entrepreneurs.
Lack of structure – Many people like the structure for working for someone’s. They
know what is expected of them and what they need to accomplish each day. This
is not true when you work for yourself. The work is very unpredictable.

There is need to consider both risks and rewards of entrepreneurship before deciding to
jump in. It is easy to become infatuated with the idea of owning a business. But if one
was to do it right, and be successful, then there is need to take emotions out of the
equation. One has to begin thinking like a businessman, consider risks, and make
informed, intelligent, calculated decisions.

1.4.2. Different Kinds of Employment

There are several ways in which people can be employed:

Wage employment: This means working for weekly or monthly payment called
wage or salary. The work is done in a shot, factory, office or other places of
business. An important thing to remember about wage employment is that it is
usually obtained in competition with other people who want some job.
Sheltered employment: Though not that common in Zambia, in this kind of
employment people also get a wage or salary, but their work is done in a special
condition where they do not have to compete with others who want a job. An
example of sheltered employment is the special workshop which are sometimes
established for persons with disabilities.

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 Cooperatives: Sometimes workers join together to share the running of a
business. Instead of paying in wage, each worker gets a share of the
profits. These are common in agriculture industry
Self-employment: This is a situation where an individual establishes their own
business and pay themselves out of the profits.

4.3 Difference between an Employee and an Entrepreneur

Being an entrepreneurial does not only mean having a business.
Entrepreneurial attributes could still be found even in an employee.

The major difference includes:

Ownership: When you an entrepreneur, you are your own boss and are not
answerable to anyone but yourself because you own the enterprise whereas when
you are an employee, you are answerable to your employer.
Independence in decision making: An entrepreneur is usually independent of any
outside interference in the running of his business affairs. On the other hand, an
employee is dependent on instructions and thinking of his boss.
Uncertainties: An entrepreneur is a person who controls all his resources and makes
his own decisions. He, therefore, determines his destiny and is more certain of the
future whereas an employee may not have full control of the resources or
participate in the decision making process of his employer’ business and is not
certain of his future
Income: An entrepreneur owns all the income and profits that his enterprise may
make whereas an employee may only get his salary and perhaps a small bonus
each time his employer’s business makes a profit.
Income: In entrepreneurship anyone whether male or female can start any
enterprise of their choice whereas in employment, certain are specifically designed
for specific gender
Age Discrimination: An entrepreneur can be of any age whilst an employee should
be of a specific age

Difference between an Employee and Self-employment

A woman running a small business establishment by working on one or two machines and
looking after her business all alone is said to be self-employed. When a woman starts a
small business venture and employs a few people to keep it running, but manages the
show herself, she is an entrepreneur.
Thus, we can say that all entrepreneurs are self-employed but all self-employed are not
entrepreneurs. The entrepreneur is one who initiates and established an economic activity
or enterprise. (This could be a self-employment unit or an enterprise with others.)

11
 Activity
Exercises
Outline any five (5) differences between an employee and an entrepreneur.
Identify and explain six (6) causes of failure in entrepreneurship.

1.4.5 ECONOMIC BENEFITS OF ENTREPRENEURSHIP

Enterprises whether, micro, small, medium or large scale play a major role in the
economic growth and development of any nation

There are various roles and benefits that an enterprise plays in contributing towards
economic growth and development. The major ones include the following: -
Creation of employment
The private sector in Zambia is said to have created an estimated 80% of all the jobs in
the country. It is therefore, clear that the enterprises operating in the private sector have
contributed a great deal to the creation of employment in the country. Even a micro
enterprise with only two (2) or three (3) jobs plays a very big role in contributing towards
economic growth and development because one thousand micro enterprises with three
(3) jobs each, on aggregate create a total of three thousand jobs

Contribution to the national treasury through various taxes, levies, rates

and licensing fees
Another role that enterprises play in economic growth and development is that of
contributing to the national treasury through the various taxes levied by both central
and local government. These include Direct Income Taxes, Value Added Tax (VAT),
market levies, licensing fees, etc

Earning foreign exchange

Enterprises that export their products and services contribute to economic growth and
development through the Foreign Exchange that they earn for the country.

Provision of goods and services

The general populace in any country depends on enterprises (the business community)
for the provision of various goods and services that man needs for his livelihood.

12
Technology transfer
It is through the initiative and operations of enterprises that technology is transferred
from one place to another, in any nation. In Zambia, we have witnessed the transfer
of various forms of technology from one place to another due to the enterprising
activities of the business community. For example, even the remotest parts of Zambia
have some form of technology through machinery/equipment like hammer-mills,
carpentry tools, sewing machines, etc.

Supplementing government effort

A lot of enterprises contribute to economic growth and development by
supplementing government's efforts through the provision of facilities like medical
centers, private schools, waste management, etc.

Inculcating a culture of entrepreneurship

It is through existing enterprises that potential and future entrepreneurs sometimes
get their inspiration and role models. This tendency tends to spread the culture of
entrepreneurship thereby resulting in increased economic growth and development.

Utilization of local raw materials

Most enterprises also contribute to economic growth and development by adding
value to the abundant locally available raw materials and this may have a positive
import substitution effect on the country.

Activity 6
Exercise

Identify and discuss the difference between and employee and an

entrepreneur.
Identify and discuss “Advantages and disadvantages of being an entrepreneur.
Identify and discuss “Advantages and disadvantages of being an employee”.

13
 Assignment

Explain at least five (5) major strides that government has made in the
recent past to encourage entrepreneurship in Zambia.
Discus the pros and cons of self-employment

Unit Summary
This unit has discussed employment, self-employment and the benefits of
entrepreneurship in contributing towards economic growth and development. The
emphasize was on you to understand the benefits of self- employment and
entrepreneurship as Contribution to the national treasury, Creation of employment,
Earning foreign exchange, Provision of goods and services Technology transfer in the
national economic development

Reference materials
Zambia National Development Plans I, II, III, IV
Informal Sector Business Activities in Lusaka Urban Districts, Tolosi S & Nawiko
M 1997 Zambia National Development Plans I, II, III, IV
Informal Sector Business Activities in Lusaka Urban Districts, Tolosi S & Nawiko
M 1997
Emergence, Growth and Characteristics of the Informal Sector in Zambia, 1991
Emergence, Growth and Characteristics of the Informal Sector in Zambia,
1991 Women
Small Business Management II, Unit 8, “Open Learning Programme for Entrepreneurs”,
EDI, FNST
Handbook of New Entrepreneurs. P. C Jain, Oxford University Press, 1998

14
 END OF UNIT TEST
MULTIPLE-CHOICE QUESTIONS
Choose the correct option for each of the following. Write only the question number and your
chosen answer. For instance, if you think that the correct answer for number 1 is (a),
then write it as 1. (a).
An Entrepreneur refer to:
Initiator
Motivator
Visualizer
All the above
People who own, operate, and take risk of the business venture:
Aptitude
Employee
Entrepreneurs
Entrepreneurship
Which one is NOT a disadvantage of Entrepreneurship?
Risky
Uncertain Income
You are the boss
Working Hours
Which one is NOT an advantage of Entrepreneurship?
Can choose a business of interest
You can be creative
Make a lot of money
You will make decisions alone
What makes technologic transfer possible?
Business Agreements
Technical meetings
Information dissemination
All the above
From the following which one is a quality of an Entrepreneur?
Information seeker
Motivator
Initiator
All the above
Entrepreneurial behavior include:
Problem solving
Taking initiatives
Taking responsibility
All the above
[7]
MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the statements in Column A. Write down the answers only, for
example 1. (a).

Column A Column B
1. Types of Entrepreneurs (a) Copper
2. Zambia’s main economic driver (b) Technological Transfer

15
3. Merit of Entrepreneurship (c) Innovator

16
17
UNIT 2: BUILDING POSITIVE ATTITUDE TOWARDS ENTREPRENEURSHIP
Introduction
This unit will help you understand on what you think about somehow can transform itself
into the physical reality. If you expect to fail, you will fail and if you expect to succeed
you will succeed. If you as an individual has positive thoughts and attitude towards
success in business the mind will set you up in a position to succeed.

UNIT LEARNING OUTCOMES

On completion of this Unit you will able to;

Develop positive thinking
Develop positive ambition, constructive ambition and discuss positive outlook

2.1 DEVELOPING POSITIVE THINKING

This session will introduce you to the positive outlook that emerges from
positive thinking. You will therefore be introduced to the process of positive
thinking to entrepreneurial success.

Positive Thinking
In entrepreneurship success depends on having a positive outlook. A positive outlook
emerges from positive thinking. One’s success is determined by one’s limitations. In
entrepreneurship career there are many challenges and risks, if one has a negative mind
success will be hard to achieve.

If you expect to win you will win and conversely if you expect to lose you will lose. It is a
matter of your attitude. What is an attitude? It is a mental make-up, usual frame of mind.
Attitudes are part of the abilities. The ability to interact socially requires certain attitudes.
All of our feelings, beliefs and knowledge are based on our internal thoughts, both
conscious and subconscious. You are in control, whether you know it or not. We can be
positive or negative, enthusiastic or dull, active or passive.

Positive Thinking Process

The mind has tremendous power that can be used to make your life better. You mind can
be conditioned to think positively to bring desirable changes to your life. You as a human
being you are created with enough resources to be successful in the field of your choice.
Entrepreneurship is a fight that not many can endure and maintaining that entrepreneurial
spirit is something every MSME struggles with throughout the lifetime of their business.
However, the mind is the mental power that enables you. As an entrepreneur, mindset is
critical to overcoming the challenges that come with entrepreneurship. Study these three
important mindsets that all entrepreneurs should be alert of:
The Positive vs. Negative Mindset

18
 The Growth vs. Fixed Mindset
Developing Your Mindset

Note
For further reading click the link below;
How a Positive Mindset Can Help You Succeed in Business | Business Collective

Transforming Thoughts into Reality

The mind can change thoughts into reality. You remember that one of the functions of the
conscious mind is to enable you make decisions and the main function of the subconscious
mind is to automatically reproduce any action repeated over time. The decision making and
reproduction of repeated action combined transform thought into reality. If you think that you
will fail you will indeed fail but if you think that you will succeed you will.

Attributes of Positive thinking

The following the attributes of positive thinking required by entrepreneurs
The Mind Does not make Judgments
The subconscious mind works only after you have given it instructions through your
decisions and thinking. Before the subconscious mind turns thoughts into reality it first
has to receive instructions from your thinking. However, it does not judge your thoughts
to be bad or good. It is neutral. If you were worried about something so much have you
noticed that that which you were worried about does really happen. So, instead of you
spending time worrying use it to create solutions.

The Mind sees No Difference between Real and Unreal

The subconscious mind does not tell the difference between reality and imagination. You
must have observed that some people are frightened of the lion whether they see it right
there or they are told of the story.

iii) The Mind Understands Only Positive Instructions

The mind only recognizes positive language. When a positive message in thoughts is sent
to the subconscious mind it is carried out as it is. However, when a negative instructions
of thoughts is sent to the mind it changes it into a positive message. If you say, “I want
to be a business person”, the mind you carry out even when you do not have money. It
will show you how to source for funds. How does the mind change the negative message
to a positive one? A negative message like, “I don’t want to be a loafer” will be turned
into, “I want to be a loafer”. The removed word is “Don’t”.

19
iv) The Mind needs to know that your Goal is Possible
You must convince you subconscious mind that your goal is achievable. If you have
convinced and committed to the goal, your mind will know that it is possible and will
guide your actions, behaviors and decisions towards your goal.

The Mind Will Attract Everything to Meet Your Goals

The mind will gather everything to fulfill your goal whether constructive or destructive. Once
you are focused on your goal your mind will attract to you every resource you need to meet
your goal. If you want to win you will - you will think consistently on how you will achieve the
goal, you belief you will achieve, and you expect to win. For the reasons above you will
collect information needed and attract people who can help achieve your goals. However if
you expect to lose you will attract al factors that will ensure that you fail.

vi) The Mind will answer All Your Questions

The mind has the ability of answer all questions you may ask. If you ask a negative
questions the answer will be negative, if your question is positive the answer will be
positive.

Entrepreneurial Success and Process of Positive Thinking

As an entrepreneur you must think positively and positive thinking is communicable.
People you will meet and those near you pick your mental moods and are affected
accordingly. On your mind play around with thoughts of happiness, good health and
success, and you will cause people to like you and want to help you, because they enjoy
the positive vibrations that your positive mind send out?

To harvest good results from positive thinking yield, you should do some inner work in
the mind. Developing a positive attitude toward life will result in a successful outcome of
whatever you do in business. Positive attitude will also make you take any necessary
actions to ensure your entrepreneurial success.

If you want to reap from positive thinking it is not enough to sparingly say few positive
words and spent much of your time crowding your mind with negative thoughts. To
successfully apply positive thinking; your entrepreneurial goal has to be your main mental
attitude.

In entrepreneurship, there are benefits and their challenges too. As a person intending to
start your own business you have a choice to flood your mind with positive or negative
thoughts. However, if you really want to succeed in business few words of advice are
handy:
Cover your inner dialogue with thoughts and feelings of happiness, strength and
success

20
 Avoid negative thoughts of losses in business and swap them with constructive happy
thoughts.
In discussions with employees, suppliers, customers and advisors use words
that suggest scenes of strength, happiness and success in their minds.
Visualise with concentration and belief the pleasant outcome of your plan or
action before you prepare or start;
Disasters in the world wee there and will always be there. If you have no power to do
anything constructive do not kill yourself with worries;
Show confidence and self-belief in your dealings with other people
Engage in physical exercise it helps in developing a positive attitude.

2.2 DEVELOPING POSITIVE AMBITION AND MAINTAING POSITIVE

OUTLOOK

In entrepreneurship success depends on having a positive outlook. A positive outlook

emerges from positive thinking. One’s success is determined by one’s limitations. In
entrepreneurship career there are many challenges and risks, if one has a negative mind
success will be hard to achieve.

Achieving positive & constructive ambition and maintain a positive outlook

To succeed in business one needs firstly to discover who he/she is. "There is a gold mine
in each one of us which should be discovered and mined by us." To succeed in business,
one firstly, ought to be positively and constructively ambitious mixed with perseverance.
Positively ambitious: Personal conviction that you can make it with the right
attitude and psychological preparedness
Constructively ambitious - Setting very realistic and achievable targets
Perseverance - The art of looking at problems and difficulties as challenges and
seeking to find solutions to those challenges "We rejoice in our suffering because we
know suffering produces perseverance, hope and hope never disappoints us." You
can only discover yourself if you try, try again and again until some of your failures
make you know which alternative way to take.

Exercise21
Outline the differences between the positively and constructively ambitious?
Explain how can positively and constructively ambitious help you create a
 Summary
This unit has discussed how the mind can to be positively ambitious, constructively
ambitious and maintain a positive outlook. The emphasize was on you to apply the
process of positively and constructively ambitious to entrepreneurial success

Reference materials

Hill Napoleon; “Positive Action Plan – How to Make Every Day a Success”, Piatkus,
London, 1996;
Mathew Sartwell, Napoleon Hill’s Keys to Success; Piatkus, London

22
 END OF UNIT 2 TEST
MULTIPLE-CHOICE QUESTIONS
Choose the correct option for each of the following. Write only the question number and your
chosen answer. For instance, if you think that the correct answer for number 1 is (a),
then write it as 1. (a).
Which is a MERIT of positive thinking?
Enhanced health and longevity
Team building
Business Success
All the above
Which one of the following is NOT a characteristics of the Conscious Mind?
Use numbers in calculation
Imagination
Control muscle and movements
Makes decisions
Which one of the following is NOT an example of a Subconscious Mind?
Imagination
Decision making
Reaction to emotion stimulus
All of the above.
The mind is divided into …….. parts of activities
Three parts
Two parts
Three parts
None of the above
Which one of the following is an ingredient of success in business?
Positive thinking
Constructive ambition
Perseverance
All the above
Which of the following precisely describe positive attitude?
Mind that envisions and expect favourable results.
Setting realistic targets.
Transforming energy into reality.
(d) All the above [6]

23
MATCHING-STATEMENT QUESTIONS
Match the statements in Column B to the statements in Column A. Write down the answers only, for
example 1. (a).

Column A Column B
1. Transforming energy into reality (a) Mindset
2. Making positive thinking a habit (b) Constructive ambition
3. Motivation to work and chase goals (c) Positive thinking
4. Setting realistic achievable targets (d) Positive ambition

24
UNIT 3: DEMONSTRATING PERSONAL ENTREPRENEURIAL
COMPETENCES

Introduction
This unit will help you understand entrepreneurial competencies is a concept of a
collective set of abilities or skills, sufficient to organize, manage, and assume the risk of a
business or enterprise profitably

Unit learning outcomes

On completion of this Unit you will:

Identify Personal Entrepreneurial Competences (PECs) relating to achievement
cluster
Assess Personal Entrepreneurial Competences relating to planning cluster
Apply Personal Entrepreneurial Competences relating to achievement to power
cluster

3.1 PERSONAL ENTREPRENEURIAL COMPETENCES (PECS) RELATING TO

ACHIEVEMENT CLUSTER

Identified and introduced to you are behavioural patterns inherent and consistent to
successful entrepreneurs worldwide. These were subsequently identified as
entrepreneurial competencies, which were also based on Professor Donald McClelland is a
psychologist at Harvard University who has done extensive research work on
entrepreneurship since the late 1950s. Furthermore, it was found that these PECs, which
are explained below, characterized entrepreneurs across culture, country and continent.

PECs relating to achievement cluster

Personal entrepreneurial competences relating to achievement cluster include the
following:
Opportunity Seeking and Initiative
Does things before asked or forced to by events
Acts to extend the business into new areas, products or services
Seizes unusual opportunities to start a new business, obtain financing,
equipment, land, work space or assistance
Risk Taking
Deliberately calculates risks and evaluates alternatives
Takes action to reduce risks or control outcomes
Places self in situations involving a challenge or moderate risk
25
 Demand for Efficiency and Quality
Finds ways to do things better, faster, or cheaper
Acts to do things that meet or exceed standards of excellence
Develops or uses procedures to ensure work is completed on time or that work
meets agreed upon standards of quality
Persistence
Takes action in the face of a significant obstacle
Takes repeated actions or switches to an alternative strategy to meet a
challenge or overcome an obstacle
Takes personal responsibility for the performance necessary to achieve goals
and objectives
Commitment to the Work Contract
Makes a personal sacrifice or an extraordinary effort to complete a job
Pitches in with workers or in their place to get a job done
Strives to keep customers satisfied and places long term goodwill over short
term gain

3.2 PERSONAL ENTREPRENEURIAL COMPETENCES (PECS) RELATING TO

PLANNING CLUSTER

This session will expose you to entrepreneurial competencies relating to Planning cluster
that applied by successful entrepreneurs that you need to possess

PECs relating to Planning cluster

Personal Entrepreneurship Competences relating to planning cluster include:

Information Seeking
Personally seeks information from clients, suppliers or competitors
Does personal research on how to provide a product or service
Consults experts for business or technical advice
Goal setting
Sets goals and objectives that are personally meaningful and challenging
Articulates clear and specific long range goals
Sets measurable short term objectives
Systematic Planning and Monitoring
Plans by breaking large tasks down into time-constrained sub-tasks
Revises plans in light of feedback on performance or changing circumstances
Keeps financial records and uses them to make business decisions

26
3.3 PERSONAL ENTREPRENEURIAL COMPETENCES (PECS) RELATING TO
POWER CLUSTER

This session will expose you to entrepreneurial competencies relating to Power Cluster
that applied by successful entrepreneurs that you need to possess

PECs relating to Power Cluster

Personal Entrepreneurship Competences relating to power clusterinclude:
Persuasion and Networking
Uses deliberate strategies to influence or persuade others
Uses key people as agents to accomplish own objectives
Acts to develop and maintain business contracts
Independence and self-confidence
Seeks autonomy from the rules or control of others
Sticks with own judgment in the face of opposition or early lack of success
Expresses confidence in own ability to complete a difficult task or meet a challenge

3.4 PERSONAL ENTREPRENEURIAL COMPETENCES (PECS) APPLIED AND

RELATED
An entrepreneur has to have certain cultivated and inherent qualities in him or her in
order to apply and achieve success of his or her venture. Not any persons can be
successful entrepreneurs. Hard work and determination to win have made many
successful entrepreneurs to reach their aspired goals.

In the late 1960s by David McClelland, psychologist at Harvard University, Empretec’s

unique methodology, rooted in researches conducted is based on the assumption that

Everyone has an inner motivation to improve. This “motive for action” is divided into
three motivational categories: achievement, affiliation, and power

Note:
For further reading click the link below
Methodology – Empretec

Attitudinal competency attributes

An attitude is a hypothetical construct that represents an individual’s degree of like or dislike
for something. Attitudes are generally positive or negative views of a person, place, thing, or
event. Attitudes are judgments of an individual. `Attitudinal Competency` is the ability
27
to select, maintain or adapt one’s best attitudes for the present. Behaviour in a given
situation can be viewed as a function of the individual’s attitude towards the situation.

i) Self Confidence
Self-confidence is an essential trait in an entrepreneur because he is regularly called upon
to perform tasks and make decisions that require great amounts of faith in himself. He
needs to have a strong but realistic belief in himself and his ability to achieve the
predetermined goals.

ii) Self Esteem

Self-esteem of an entrepreneur represents his ability to develop healthy confidence and
respect for himself. He feels confident for being capable for life, able and worth or to feel
right to achieve happiness. An entrepreneur respects himself and defends his own
interest and needs.

iii) Dealing with Failures

Entrepreneurship is about getting up whenever the business fails, and learning from that
failure. An entrepreneur believes that failure is part of the entrepreneurial process, and often
without it, success would not be possible. Further he is able to make mistakes, learn from
them, and quickly recovers and changes his direction and moves into the future.

iv) Tolerance for Ambiguity

In the entrepreneurial process tolerance for ambiguity refers to the ability of an
entrepreneur to perceive ambiguous situation as desirable, challenging, and interesting
and neither denies nor distorts their complexity of incongruity.

v) Performance
A successful entrepreneur perceives that his performance is different from others. He
believes that it is his high performance which ultimately differentiates him from low
performers.

vi) Concern for high quality

An entrepreneur perceives concern for high quality of his products and services to meet
or surpass existing standards of excellence in a faster, better and cheaply. By doing this
an entrepreneur remains ahead of others in the market place.

vii) Locus of Control (LOC)

Locus of control is the system of belief of an individual who perceives the outcome of an
event as being either within or beyond his personal control. Entrepreneurs tend to believe
in their own ability to control the outcomes to their efforts by influencing the existing
environment, rather than leave everything to luck. They strongly believe that they can
shape their own destiny.

28
Behavioral competency attributes explained further
Behavioral competency of an entrepreneur refers to the underlying characteristics having
casual relationship with effective or superior performances in the process of carrying on
his business activities. The following attributes are tested in order to assesses and find
out the nature of behavioral competency among the respondents.

Initiatives
Initiative of an entrepreneur refers to his behavior with a preference for taking action on
different responsibilities or assignments. It further denotes that he is able and willing to
do more than what is required or expected of him in a job.

ii) Sees and Acting on Opportunities

Sees and acting on opportunities refers to the unique entrepreneurial behavior which
helps him to be alert to information and ability to process it in order to identify and
recognize the potential business opportunities even before his competitor.

iii) Persistence
Persistence of an entrepreneur denotes the ability which keeps him constantly motivated
even when he is confronted by obstacles that seem insurmountable and willing to keep
trying when things go wrong, and accepts that, ultimately, it is he who has to make his
dream come true. Entrepreneurs seldom give up when things are not going well.

iv) Assertiveness
Assertiveness of an entrepreneur is about his behavioral aspect that affirms his rights or
point of view without either aggressively threatening the rights of others (assuming a
position of dominance) or submissively permitting others to ignore. Successful
entrepreneurs for the most part are assertive.

v) Need for achievement

Successful entrepreneurs are characterized by a need for achievement which motivates
them to take up responsibilities for finding solutions to problems. Further this quality
helps them to set challenging goals for themselves, assume personal responsibility for the
goal accomplishment and they are highly persistent in the pursuit of these goals.

vi) Need for autonomy

The need for autonomy of an entrepreneur is characterized by a drive to control and
influence others, a need to win arguments, a need to persuade and prevail. Research
studies had asserted that strong need for autonomy/ power/ control/ influence usually
will let the enterprises in to trouble because doctorial, adversarial, and domineering styles
make it very difficult to attract and keep people who thrived on achievement,
responsibility and results. Therefore, successful entrepreneurs have high need for
achievement while low need for power.
29
vii) Risk-taking
Entrepreneurs are essentially persons who take decisions under uncertainty and therefore
they are willing to bear risk. Entrepreneurs are usually moderate risk takers. However,
successful entrepreneurs will always prefer to take on those risks that they can manage.

Drive and energy

Entrepreneurs are driven to succeed and expand their business. They are always on the
move, full of energy and highly motivated. They are driven to succeed and have an
abundance of self- motivation.

ix) Innovation
Innovation refers to the behavior pattern of an individual who has interest and desire to
seek changes in techniques and ready to introduce such changes into his operations
when practical and feasible.

x) Creativity
An entrepreneur is said to be creative when he is able to identify a gap in the market and
think up a product or service to meet that gap. Creativity of an entrepreneur also implies
the ability to do old thinks in a new way or able to give new solutions.

Managerial competency attributes

Managerial Competency of an entrepreneur is the ability to direct his staff and define the
expected outcomes clearly and finally to get the things done at the best and cheapest ways
and means. Managerial competency is an approach to managing others and to ensure optimal
use of available resources in meeting organizational objectives on a sustained basis.
Activity 9

Exercise

Are you a self-starter?

How motivated are you to achieve things?
How do you feel about other people?
Can you take responsibility?

Unit Summary
This unit has discussed the entrepreneurial30 competencies relating to Achievement,
Planning and Power clusters for entrepreneurial success. The emphasize was on
concept of a collective set of abilities or skills, sufficient to organize, manage, and
 Reference materials
Pryor, A.K.& Shays, E.M. (1993). Growing the business whithintrepreneurs.
Business Quartely, London.
Shabana, M.A. (2010). Focusing on intrapreneurship: an employee-centered
approach. Advances in Man-agement, Kolhapur, 3(12), pp. 32-37.
Snell, R., & Lau, A. (1994). Exploring local competences salient for expanding
small business. Journal of Management Development, 13(4), pp. 4-15. doi:
[Link]

31
 END OF UNIT 3 TEST
MULTIPLE-CHOICE QUESTIONS
Choose the correct option for each of the following. Write only the question number and your
chosen answer. For instance, if you think that the correct answer for number 1 is (a),
then write it as 1. (a).
What is PEC's?
Personal entrepreneurial competencies
Professional entrepreneurial competencies
Personal entrepreneur competition
Professional entrepreneurial commodities.
What must entrepreneurs and leaders learn in order to have a successful organization?
How to control people and manipulate organizational systems.
How to think strategically, influence people, and develop organizational systems.
How to manage technical details and use current business jargon.
How to read balance sheets and income statements.

The future that you desire to create is known as a

Mission statement.
Goal.
Prediction.
Vision

What one of the following is not a key management skill in planning?

Conceptual skills
Analytical skills
IT and computing skills
Communication skills

Which of the following is not a personal characteristic often found in an entrepreneur?

Self-confident.
Independent-minded.
Perceptive.
Follower.

MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the statements in Column A. Write down the answers only, for
example 1. (a).

Column A Column B
1. PECs (a) get the things done at best
2. Innovation (b) healthy confidence
3. Self-esteem (c) Personal Skills
4. Managerial Competency (d) changes in techniques

32
33
UNIT 4 ESTABLISHING AN ENTERPRISE

This unit will help you understand how an idea can be a new, creative approach to
specifically address a perceived business need, want, problem or challenge of customers
through a profit generation activity.

UNIT LEARNING OUTCOMES

On completion of this Unit you will able to;

Explain Forms of Business
Identify / generate a business idea
Select the most viable business idea
Develop a business opportunity
Establish an enterprise

4.1 EXPLAINIG FORMS OF BUSINESS

This session will expose you to forms of businesses, Business ideas as they relate to
being the seed or the origin of the enterprise development.
Session Learning Outcome
At the end of the session, you should be able to identify and explain the various forms of
business and relate the legal requirement to their formation.

Forms of business
A business organisation in contrast to a public service organisation or a charity, exist to
provide goods and services at a profit. Making a profit may not necessary be the sole aim
of the business, but it is certainly what distinguishes it from a non-business organisation.
The business organisation we are concerned with here range from one-man business to a
large public company with thousands of staff in a variety of locations.

There are basically four form of business and these are;

The sole trader
The partnership
Limited company
Cooperatives

Sole Trader
This is a business owned by only one person who provides all the capital needed to set up
and manage the organization and takes profit as his/her reward. The owner uses his/her

34
labour assisted sometimes by one or two workers and/ or family members. This is
normally a small business in size though it is not always small.
This type of business may involve retail trade, builders, hairdressing, radio and TV
repairs, farming, fishing, consultancies, bar, restaurant, hotels, travel agencies, law firm,
home finders, estate agencies, etc. All such business activities are owned and managed
by the sole proprietor.
The sources of finance for the sole proprietor may be through selling of Personal assets
such as land, buildings, cattle or shares held in a company. Other sources could be
through borrowing from a friend, family member or the bank.

Features of the Sole Proprietor

The main features of Sole Proprietorship are as follows:
It is a business owned by only one person who provides all the capital needed to set
up and manage it and takes all the profit as his reward.
It is the simplest and most common type of business enterprise.
The owner uses his/her labour, assisted perhaps by one or two workers or family
members.
The business tends to be small in size although it is not always so.
This type of business enterprise is not confined to the retail trade.

Advantages of a Sole Trade

When you own and manage the business as a sole proprietor there are several
advantages, and these include the following:
The business is easy to set up, control and manage.
It requires a small amount of capital to set up; as a result, many people are able to
run this type of business.
The owner makes independent and quick decisions on how the business is to be run.
The owner has personal contact with his/her workers as well as customers and is
likely to be familiar with all the aspects of the business.
The owner tries to provide his/her customers with personalised service. This is one of
the main reasons for the continued survival of the sole proprietors.
The owner takes all the profits made by the business and this gives him/her
encouragement to work hard.
Business affairs are kept private except when completing tax returns. The law
provides that the sole proprietor shall pay tax.
The owner will be familiar with all aspects of the business with timely solutions to
problems if any.
The sole proprietor is self-employed and gets a sense of satisfaction for working for
him/herself.

Disadvantages of a Sole Trader

35
There are a number of disadvantages of running a sole proprietorship and the common
ones include the following:
The personal assets are at risk because the business has unlimited liability. In an
event that the sole trader borrows money from any institution or individual,
he/she must pay back the whole of it otherwise her/his personal assets would be
attached and auctioned to raise the money to repay the debt.
The business cannot do without the owner. The business may close down when the
owner dies, as the owner is everything to the business. There is no sharing of
workload.
It is more difficult for the sole trader to borrow money than in other forms of
business, making expansion difficult. The sole trader may not borrow money, as
the sole trader does not provide financial collateral as security.
The size of the business is rather too small. Thus, it is unable to benefit from the
economies of scale making it more expensive to run than larger organizations.
There may not be any division of labour.
The sole proprietor is self-employed. This means he/she does not have such benefits
as state social security or retirement benefits, which are enjoyed by those
employed by other companies or government departments.
Shortage of capital prevents the sole proprietor from providing modern equipment, for
example the use of computerized stock control. He/she cannot afford to provide
services such as credit, delivery, and other amenities to his/her customers
thereby making such businesses unattractive to customers.
The risks of failure are as high as there is severe competition from especially large-
scale businesses.
Division of labour may be difficult to organize because of the small size of the
business, thus there is little sharing of workload and therefore always
overloaded. This affects his/her efficiency and productivity.

2. Partnerships
Partnerships may be established for purposes of pooling of skills, experiences, knowledge,
contacts, finances, assets or a combination of any two or more factors. At individual
levels, people may realize that they did not have adequate skills, knowledge or finance to
run a business on their own, but as a team, they could achieve more.

Between two and twenty people can come together and form a partnership by drawing
up a legal document called partnership deed. This document gives details of the way the
firm will be organized and managed.

The details in the partnership deed include the following:

The objectives of a partnership,
The financial contribution of each partner,
The sharing of profits and losses,
36
 The rights and obligations of each partner,
The amount of money to be paid as salary to each partner,
The name of the partnership and
The treatment of capital invested.

Features of a Partnership
Can be formed by between two and twenty people but professional partnerships like that
of lawyers, doctors, engineers, etc. can be formed by more than twenty people.
The capital of the partnership is raised by contribution of each partner and does not
need to be equal. Partners can lend capital to a partnership with interest payment
depending on the provisions in the partnership deed.
In a partnership, ownership and control are not separated, thus partners own and
control the partnership.
A partnership has no separate legal entity. Thus the liability of partners is just like in a
sole proprietorship.
Each and every partner is entitled to be involved in the running of a business. A
decision of any one partner binds the partnership.
Partnerships are common among professions such as estate agents, insurance
brokers, lawyers, doctors, accountants.

Advantages of Partnerships
Forming partnerships has several advantages that include the following:
A Partnership is easy to set up, as it does not involve long costly procedures.
Division of labour is possible, as there are many people involved with various
skills and experiences.
More people are involved in the business so more capital can be raised.
Expenses and management of the business are shared.
The individuality of each partner is not totally lost, as partners maintain many
of the personal advantages of the sole proprietorship.
There is greater continuity in a partnership than in sole proprietorship. In case
of death or resignation, the remaining partners can form a new partnership.
Decision-making is consultative leading to improved quality of decisions.
A partnership is not required to publish its accounts annually so there is secrecy.

Disadvantages of Partnerships
Partnerships have several disadvantages as given below.
Decisions may be delayed by disagreements among partners.
Partners have unlimited liability and are therefore personally liable for the
debts of the partnership. Personal assets are at risk.
Lack of capital may limit expansion as it depends on partners for raising capital.
When one partner dies or leaves, a new partnership is required, which may be
awkward to the remaining members.
37
 Membership in a partnership is limited to twenty except for professional
partnerships. This restricts the ability of the partnership to raise capital.
One partner’s decision can be binding on all the other partners even if it is a
wrong decision. This makes the partnership a risky affair.
A partnership is a delicate business and can break at any time. This is
particularly the case in many auditing and legal firms/partnerships.

3. Private Limited Company

According to the Company’s Act of Zambia, the two documents namely the Memorandum
of Understanding and Articles of Association have been combined to create the Articles of
Association. The promoters of the company should submit the articles of association to
the Registrar of Companies. The Registrar of Companies shall issue a certificate of
incorporation once the application complies with the Company’s Act.
The Articles of Association
The articles of association shall include the following information:
Name of the company with the last word being limited.
Objectives of the Company.
The statement of limited liability for its shareholders.
The authorized capital thus the amount of capital to be raised by the shareholders.
The number of shares issued to each Director.
The rights, obligations and powers of the directors.
The procedure for calling annual general meetings.
viii. The rights and power of each type of shareholder.
The procedure for electing directors.
The issue, transfer and forfeiture of shares.
Procedure for dealing with any alterations in the amount of capital.
Procedure for distributing profits and carrying out auditing.

A limited liability company is controlled and governed by a board of directors, which is

elected by the shareholders at annual general meetings.

Characteristics of a Private Limited Liability Company

The main features of a private limited liability company include the following:
A private limited company is a separate legal entity meaning the company has its own
legal existence separate from that of its shareholders.
A private limited company is not allowed to sell its shares to the general public unless
by approaching people individually.
Shares of a private limited company are not transferable without the agreement of the
other shareholders.
Shareholders in a private limited company have control over the company.
A private limited company is not required by law to publicise its accounts annually.
The liability of shareholders is limited to capital invested.
38
 At least two people and not more than fifty can form a private limited company.
A private limited company is usually a small family business, though it is not always
so.
The capital and ownership of a private limited company is divided into shares.
Profits earned are usually shared in proportion to the number and value of shares
held.

Advantages of a private limited company

Forming a private limited company is probably the most secure way of owning a business.
The benefits of this kind of business include the following:
It is a legally separate entity or personality from the owners.
The liability of shareholders is limited, so their personal assets are not at risk.
It can easily raise more capital by selling shares though not publicly.
The company has sure continuity, as it does not depend on one person.
Shareholders have direct control over the company's affairs. They present their views
at the annual general meeting.
The founders can retain control over the company by holding the majority of its
shares.
Disadvantages of private limited company
Some of the disadvantages of a private limited company are as given below.
There are too many legal formalities to comply with.
Lack of capital can restrict the growth of a private limited company.
The shares are not freely transferable, as the existing shareholders should approve
such
Accounts should be audited annually, hence the need to engage services of an
Auditors.
The company is less flexible when compared to a sole proprietorship.
It is a costly exercise to form a limited liability than that of a sole Proprietorship
Not easy for such a company to borrow money from the banks, etc.

4. Public Limited Companies

A public limited company is a corporate association of at least two persons, which is
registered with the Registrar of companies and owned by the shareholders who have
limited liabilities. Public Limited companies are generally quoted at the Lusaka Stock
Exchange where members of the public can freely trade in shares for such companies.
Public limited companies use the prospectus as an invitation to members of the public to
buy shares in the company. The prospectus gives information on the number of shares
being sold and at what price.

Characteristics of a Public Limited Companies

A public limited company may be characterised by the following attributes:

39
 It is a company formed by at least two persons without a maximum number.
It is a separate legal entity and is registered with the Registrar of Companies.
The Board of Directors are elected by the shareholders controlling it.
Shares of the public company are freely bought and sold on the stock exchange.
There are no restrictions on the transfer of shares to third parties.
The liability of shareholders is limited to the capital they have invested or agreed to
invest in the company.
The day to day running of the business is in the hands of the Managing Director. The
Board of Directors deal with the Managing Director on policy issues.

Advantages of Public Limited Companies

The advantages of the Public Limited Company include the following:
The company is a separate legal entity and as such the liability of shareholders is
limited to the amount of shares they hold in the company.
Its shares are freely transferable on the Lusaka Stock Exchange.
It has assured continuity.
It can raise more capital by the sale of shares and debentures to the public through
the Lusaka Stock Exchange.
It can easily borrow money from banks and other financial institutions.
It can employ specialists in such fields as marketing, accounting and human resource
management, which is more efficient.
Its sheer size makes it possible for the company to buy modern equipment and
technology
It buys in bulk and therefore enjoys economies of scale and possible discounts.

Disadvantages of Public Limited Company

When you form a public limited company, there are some disadvantages you may find as
follows:
It is difficult and expensive to form.
It has to comply with many regulations set to protect employer, employee and other
stakeholders.
Raising capital tends to be very expensive
It may grow and become too large and difficult to manage.
Original owners usually lose control over it as it has become too big.
There is little secrecy, as its accounts must be published annually. This is a legal
requirement.
Decisions tend to be delayed because of the amount of administration or bureaucracy
involved such as those that require board approval.
The risk of takeover bids by other companies because shares of a public limited
company can easily be bought on the stock exchange.

40
5. Cooperatives
Cooperative societies are businesses established and managed by a group of customers
on a cooperative principle of ownership, operation and distribution. The cooperative
societies are owned and financed by their members who buy from the stores.
Membership is open to anyone who buys a share in the society. Cooperative societies are
democratically controlled with each member having one vote. Generally, cooperative
societies pursue social objectives in addition to profit. In Zambia, the most common
cooperative societies have tended to be agricultural cooperative societies at both district
and provincial levels. Because of difficulties faced by provincial agricultural cooperative
societies, the focus has shifted to primary cooperative societies at the village level.

Characteristics of Cooperative societies

The following are features of cooperative societies particularly those for trading activities:
The members or owners are people who have bought shares in the society and
are also the main customers.
A maximum amount of shares is set as an individual's shareholding. Thus, the number
of shares that one can buy in a society is restricted to prevent rich people from
taking over the control of the society.
Members have one vote irrespective of the number of shares one holds at any
particular time.
Profits or surpluses are divided as dividends to members in relation to the amount of
goods traded from the business.
In the case of retail business, a committee elected by members manage the business.
The societies may offer special benefits such as scholarships, funeral benefits and
other social amenities to the society members.

Advantages of cooperative societies include the following

The customers especially members enjoy lower prices since they are given
dividend stamps each time they purchase goods from the store.
Such cooperative society businesses are convenient as they are near to the
customers.
Anybody can do business with the cooperative society and is not restricted to
members only.
They are democratically controlled in the interest of customers and each member has
a right to be heard.
Another major problem is that capital raised through the sale of shares is limited
given the restriction of the number of shares an individual can buy, making it
difficult to expand.
Disadvantages of the Cooperative societies include the following:
The stores are inefficient as the issuing of divided stamps is a slow process.
41
 It involves a lot of paperwork.
Over time, cooperative societies tend to amalgamate in order to withstand stiff
competition.
Many members do not attend meetings as a result; a few members dominate
societies.
Lack of qualified management team retards the progress of the societies. Poor
management, poor planning and poor financial control plagued many cooperative
societies. This has forced many cooperative societies to close down.
Another major problem is that of capital, as capital raised through the sale of shares is
limited given the restriction given on the number of shares an individual can buy·
making it difficult to expand.

Legal Requirements for Business types

Sole Trader
The legal requirements for setting up such business are minimum.
All profits made by sole trade are subjected to income

Partnership
Few formalities required for starting up
No obligation to publish accounts
Sharing of profits or losses

Limited company
In registering a limited company, the following are the legal requirements:
The company’s name
The location of the registered office
The objectives/purposes of the company
A statement that the liability of members is limited
The amount of share capital

Activity 10

1. What is the significance of limited liability to:

(a) Shareholder? (b) Creditors? (c) Banker?
For what overall purpose are companies obliged to make public their constitution
and activities?
What is the principle distinction between a private limited company and public
limited company? 42
4. Why do some people prefer to establish a registered cooperative rather say a
private limited company?
4.2 GENERATE A BUSINESS IDEA

How can one identify and generate a business idea?

Business ideas are the seed of the enterprise development. An entrepreneur’s initial task
is to scan the environment and create new business ideas. It is from the created ideas
that bring about opportunity identification.

Description of Business Ideas

You want to start a business; you need a business idea. It is a result of your specific
thought or concept that arises in your mind. Business ideas come from various sources.
The commonest source is the need of the members of the community that is not yet
satisfied. Your business idea in any of the three types of business namely: retail,
manufacturing and services.
Sometimes the list of types of business covers farming and mining. Selling goods to other
people is retail business. Making some things to sell to your customers is manufacturing.
When you sell your time, skills and knowledge, then you are in the service business. Growing
crops and keeping livestock for sale is a farming business. Digging, collecting and processing
minerals is mining. There are also businesses that require harvesting natural resources in
water and on land such as fish, timber and non-timber forest products.

The Process of Generating Business Ideas

The process of generating ideas involves two steps namely: scanning the surrounding
(environment) and idea generation. Scanning the environment assist you to see what is
going on, changing and the needs of people. By having a keen interest in what is going
on you will be able to see the needs of people emerging.
Scanning the environment involves collecting information from various sources. These
sources are:

No. Category of Information Sources

Sources
1 Personal and Informal Family member, Friends, Employees,
Customers, Sales Persons, Bankers,
Investment Centre, Consultants, Researchers,
Councils, Business Associations, Business
Registration Office, Commercial
2 Personal and Formal Exhibitions, Industry and Trade Contacts

43
 3 Written Magazines, Newspapers, Newsletters, Books,
Catalogues, Journals, Bill Boards, Posters
4 Oral Trade Shows, Seminars, Suppliers/Agents,
Professional Organizations
Table 4.1: Sources of Information

Generation of Business Ideas

Once you start thinking you will be generating hundreds of ideas. The tradition of keeping
all the ideas in your head is not useful. Buy a note book. Write all the ideas that come
into you mind in the notebook. At this stage, do not worry about how good or silly the
idea is: you will be surprised how good the idea was in later days or years.
Before you go to the marketplace, research institution or business associations to look for
business ideas, start with yourself. You should look at your strengths and weaknesses
which will show the areas suitable for business ideas, the size and type of the business.
Every person has strong points and weak ones. You should build on your strengths and
work on your weaknesses. The business idea you choose will be influenced by your
strengths, weakness, likes and dislikes. Selecting a business idea is not a matter of
wishful thinking or simple fantasising. It will be helpful to you if you select a business idea
in the area you are familiar with and have knowledge and skills that will either find
immediate application or balance the skills of the others in the business. A look at the
environment will also suggest to you whether the business idea is good or not.
Make every day an exciting creative day. You may be lying on bed, washing, in class,
working, at a social gathering, or travelling, or any other activity you may be doing. Let
your mind zero in on the business possibilities are your senses bring in all the
information. Write down quickly as the business idea come to you mind. Within a few
hours or days, you should produce an encouraging list of business ideas.

The Techniques for Business Idea Generation

There a number of ways you can generate ideas. There a number of methods you can
use to generate business ideas.
No. Technique Explanation
1 Draw on Your Skills Covert your skills into a business
2 Make Use of Your You have been able to do something from a long time.
Experience Can you advise others in the same field at a fee?
3 Use You Hobby Do you like music? Set up a music store.
4 Improve services Offer a better service of the current services you pay for
Improve its appearance, function, colour, packaging and so
5 Improve a product
on

44
 Modify an existing
Make it look luxurious, make it simpler, or make it smaller,
6 product into a new
change the shape.
one
Come back with something you saw or used not available in
7 Travel
your area
8 Listen to complaints Crate a solution to a complaint
9 Research Find out special needs of certain groups of customers
10 Reproduce the idea Apply a successful idea to new settings
Create new value
11 Use taxi vehicle for advertising
for a product
Somebody’s waste
12 is another person’s Turn waste into something useful for someone.
Treasure
Generate as many ideas as possible without checking the
13 Brainstorm
usefulness one may turn out to be a gold mine
Commercialize
research
14 Turn research ideas from research institutions into business
recommendations
and inventions
Combine uses into
15 Create a pen with functions of a musical instrument
one product
16 Visualization Create a picture of a business in your mind
Add or subtract a few features to the product or service to
Adding or
17 make it suitable in terms of use or price. Selling cooking oil
Subtracting
from a pump
18 Time framing Offer the same service in a short time
Technological developments these days are so fast and
Technology
19 abundant that one can come up with so many ideas of
application
unique applications
If a product is small make it big, if it is long make it short,
Creation of
20 if it is slow make it fast, if it is for very one make it for one
opposites
person, if it is tall make it short advice versa.
Table 4.2: List of Methods of Generating ideas

45
4.3 SELECTION OF THE MOST VIABLE BUSINESS IDEA

This session will prepare you to a reasonable list of ideas and allow you to examine each
business idea so that you end up with a short list of business ideas with the highest
chance of success.
At the end of the session, you should be able to apply the scoring Method for Business
Ideas using the scoring Business Idea Assessment Form.

Selection of viable Business Ideas

It is promising that you have a list of the business ideas. Where do you go from there?
Having prepared a reasonable list of ideas you must examine each business idea so that
you end up with a short list of business ideas with the highest chance of success. You can
use the scoring suggested below.

Simple Scoring Method for Business Ideas

Score: Yes = 1 and No = 0; Allocate scores to each question. If the answers to all the
questions is YES the total score is 12 and 0 if all your answers were No. You may select a
business idea if it scores above 5 and review it or reject it if it scores

After the business ideas identification, listing and assessment you are now ready to go
further to develop this business idea into business opportunities through spending time
assessing, researching, developing and planning

Activity 11
Exercise
What is a business idea?
What is environmental scanning?
Outline three methods for generating business ideas?
Describe how you can select a business idea from long list of other ideas?

46
4.4 DEVELOP A BUSINESS OPPORTUNITY

This session will prepare you to have a searching mind for viable business avenues for
investment opportunity. At the end of the session, you should be able to list various
sources of business ideas and identify viable opportunities

Identifying business opportunities

The secret of identifying business opportunities is to have a searching mind for viable
opportunities in various sources of business ideas.

Sources of Business Ideas

Businesses come from an idea from somewhere and the sources of these ideas are as
varied as the businesses themselves. In fact, some sources are so stranger that people
without entrepreneur minds fail to identify them. A business idea is a concept or a
response to a particular problem, which if properly worked on and planned for, can
translate into an enterprise.

No. Category of Sources

Information Sources
1. Personal and Informal Family member, Friends, Employees, Customers, Sales
Persons,
2. Personal and Formal Bankers, Investment Centre, Consultants, Researchers,
Councils, Business Associations, Business Registration
Office, Commercial Exhibitions, Industry and Trade
Contacts
3. Written Magazines, Newspapers, Newsletters, Books, Catalogues,
Journals, Bill Boards, Posters
4. Oral Trade Shows, Seminars, Suppliers/Agents, Professional
Organisations
Table 4.4.1: Sources of Information

The Techniques for Business Idea Generation

There a number of ways you can generate ideas. There a number of methods you can
use to generate business ideas.

No. Technique Explanation

1. Draw on Your Covert your skills into a business
Skills

47
2. Make Use of Your You have been able to do something fro a long time. Can you
Experience advise others in the same field at a fee?
3. Use You Hobby Do you like music? Set up a music store.
4. Improve services Offer a better service of the current services you pay for
5. Improve a Improve its appearance, function, colour, packaging and so on
product
6. Modify an existing Make it look luxurious, make it simpler, or make it smaller,
product into a change the shape.
new one
7. Travel Come back with something you saw or used not available in your
area
8. Listen to Crate a solution to a complaint
complaints
9. Research Find out special needs of certain groups of customers
10 Reproduce the Apply a successful idea to new settings
idea
11 Create new value Use taxi vehicle for advertising
for a product
12 Somebody’s Turn waste into something useful for someone.
waste is another
person’s Treasure
13 Brainstorm Generate as many ideas as possible without checking the
usefulness one may turn out to be a gold mine
14 Commercialise Turn research ideas from research institutions into business
research
recommendations
and inventions
15 Combine uses Create a pen with functions of a musical instrument
into one product
16 Visualisation Create a picture of a business in your mind
17 Adding or Add or subtract a few features to the product or service to make
Subtracting it suitable in terms of use or price. Selling cooking oil from a
pump
18 Time framing Offer the same service in a short time
19 Technology Technological developments these days are so fast and abundant
application that one can come up with so many ideas of unique applications
20 Creation of If a product is small make it big, if it is long make it short, if it is
opposites slow make it fast, if it is for very one make it for one person, if it
is tall make it short n advice versa.

48
 Table 4.4.3: Techniques for business idea generation

The list of methods of generating ideas does not end there. You will be able to come up
with other methods are you listen, see, touch and smell. The list will be determined by
how much you use your imagination.

Reference materials
Burn Paul, Entrepreneurship and Small Business Mathew, Palgrave Macmillan, New York,
2001;
Entrepreneurship Development Institute, International Training Programme for the New
Enterprise Creation - Reading Materials Module – 6, 7, 8 and 9 India, Oct. 01 – Nov.
09, 2001
Thomas W. Zimmerer and Norman M. Scarborough, Essentials of Entrepreneurship, and
Small Business Management, Pearson International New Jearsey, 2005,
Birley Sue and Muzyka Daniel, Mastering Enterprise, Pearson Professional, London, 1997

49
UNIT 4 ESTABLISHING AN ENTERPRISE

This unit will help you understand how an idea can be a new, creative approach to
specifically address a perceived business need, want, problem or challenge of customers
through a profit generation activity.

UNIT SPECIFIC LEARNING OUTCOMES

On completion of this Unit you will able to;

Explain Forms of Business
Identify / generate a business idea
Select the most viable business idea
Develop a business opportunity
Establish an enterprise

4.2 EXPLAIN FORMS OF BUSINESS

This session will expose you to forms of businesses, Business ideas as they relate to
being the seed or the origin of the enterprise development.
Session Learning Outcome
At the end of the session, you should be able to identify and explain the various forms of
business and relate the legal requirement to their formation.

4.1.1 FORMS OF BUSINESS

Introduction
A business organisation in contrast to a public service organisation or a charity, exist to
provide goods and services at a profit. Making a profit may not necessary be the sole aim
of the business, but it is certainly what distinguishes it from a non-business organisation.
The business organisation we are concerned with here range from one-man business to a
large public company with thousands of staff in a variety of locations.

There are basically four form of business

The sole trader
The partnership
Limited company
Cooperatives

Sole Trader
Definition

50
This is a business owned by only one person who provides all the capital needed to set
up and manage the organization and takes profit as his/her reward. The owner uses
his/her labour assisted sometimes by one or two workers and/ or family members. This is
normally a small business in size though it is not always small.

This type of business may involve retail trade, builders, hairdressing, radio and TV
repairs, farming, fishing, consultancies, bar, restaurant, hotels, travel agencies, law firm,
home finders, estate agencies, etc. All such business activities are owned and managed
by the sole proprietor.

The sources of finance for the sole proprietor may be through selling of Personal assets
such as land, buildings, cattle or shares held in a company. Other sources could be
through borrowing from a friend, family member or the bank.

Features of the Sole Proprietor

The main features of Sole Proprietorship are as follows:

It is a business owned by only one person who provides all the capital needed to set
up and manage it and takes all the profit as his reward.
It is the simplest and most common type of business enterprise.
The owner uses his/her labour, assisted perhaps by one or two workers or family
members.
The business tends to be small in size although it is not always so.
This type of business enterprise is not confined to the retail trade.

Advantages of a Sole Trade

When you own and manage the business as a sole proprietor there are several
advantages, and these include the following:

The business is easy to set up, control and manage.

It requires a small amount of capital to set up; as a result, many people are
able to run this type of business.
The owner makes independent and quick decisions on how the business is to
be run.
The owner has personal contact with his/her workers as well as customers and
is likely to be familiar with all the aspects of the business.
The owner tries to provide his/her customers with personalised service. This is
one of the main reasons for the continued survival of the sole proprietors.
The owner takes all the profits made by the business and this gives him/her
encouragement to work hard.
Business affairs are kept private except when completing tax returns. The law
provides that the sole proprietor shall pay tax.
51
 The owner will be familiar with all aspects of the business with timely solutions
to problems if any.
The sole proprietor is self-employed and gets a sense of satisfaction for
working for him/herself.

Disadvantages of a Sole Trader

There are a number of disadvantages of running a sole proprietorship and the common
ones include the following:

The personal assets are at risk because the business has unlimited liability. In
an event that the sole trader borrows money from any institution or individual,
he/she must pay back the whole of it otherwise her/his personal assets would
be attached and auctioned to raise the money to repay the debt.
The business cannot do without the owner. The business may close down
when the owner dies, as the owner is everything to the business. There is no
sharing of workload.
It is more difficult for the sole trader to borrow money than in other forms of
business, making expansion difficult. The sole trader may not borrow money,
as the sole trader does not provide financial collateral as security.
The size of the business is rather too small. Thus, it is unable to benefit from
the economies of scale making it more expensive to run than larger
organizations. There may not be any division of labour.
The sole proprietor is self-employed. This means he/she does not have such
benefits as state social security or retirement benefits, which are enjoyed by
those employed by other companies or government departments.
Shortage of capital prevents the sole proprietor from providing modern
equipment, for example the use of computerized stock control. He/she cannot
afford to provide services such as credit, delivery, and other amenities to
his/her customers thereby making such businesses unattractive to customers.
The risks of failure are as high as there is severe competition from especially
large-scale businesses.
Division of labour may be difficult to organize because of the small size of the
business, thus there is little sharing of workload and therefore always
overloaded. This affects his/her efficiency and productivity.

Partnerships
Definition

52
Partnerships may be established for purposes of pooling of skills, experiences, knowledge,
contacts, finances, assets or a combination of any two or more factors. At individual
levels, people may realize that they did not have adequate skills, knowledge or finance to
run a business on their own, but as a team, they could achieve more.

Between two and twenty people can come together and form a partnership by drawing
up a legal document called partnership deed. This document gives details of the way the
firm will be organized and managed.

The details in the partnership deed include the following:

The objectives of a partnership,

The financial contribution of each partner,
The sharing of profits and losses,
The rights and obligations of each partner,
The amount of money to be paid as salary to each partner,
The name of the partnership and
The treatment of capital invested.

Features of a Partnership

Can be formed by between two and twenty people but professional

partnerships like that of lawyers, doctors, engineers, etc. can be formed by
more than twenty people.
The capital of the partnership is raised by contribution of each partner and does
not need to be equal. Partners can lend capital to a partnership with interest
payment depending on the provisions in the partnership deed.
In a partnership, ownership and control are not separated, thus partners own
and control the partnership.
A partnership has no separate legal entity. Thus the liability of partners is just
like in a sole proprietorship.
Each and every partner is entitled to be involved in the running of a business.
A decision of any one partner binds the partnership.
Partnerships are common among professions such as estate agents, insurance
brokers, lawyers, doctors, accountants.

Advantages of Partnerships
Forming partnerships has several advantages that include the following:

A Partnership is easy to set up, as it does not involve long costly procedures.
Division of labour is possible, as there are many people involved with various
skills and experiences.
53
 More people are involved in the business so more capital can be raised.
Expenses and management of the business are shared.
The individuality of each partner is not totally lost, as partners maintain many
of the personal advantages of the sole proprietorship.
There is greater continuity in a partnership than in sole proprietorship. In case
of death or resignation, the remaining partners can form a new partnership.
Decision-making is consultative leading to improved quality of decisions.
A partnership is not required to publish its accounts annually so there is secrecy.

Disadvantages of Partnerships
Partnerships have several disadvantages as given below.

Decisions may be delayed by disagreements among partners.

Partners have unlimited liability and are therefore personally liable for the
debts of the partnership. Personal assets are at risk.
Lack of capital may limit expansion as it depends on partners for raising capital.
When one partner dies or leaves, a new partnership is required, which may be
awkward to the remaining members.
Membership in a partnership is limited to twenty except for professional
partnerships. This restricts the ability of the partnership to raise capital.
One partner’s decision can be binding on all the other partners even if it is a
wrong decision. This makes the partnership a risky affair.
A partnership is a delicate business and can break at any time. This is
particularly the case in many auditing and legal firms/partnerships.

Private Limited Company

According to the Company’s Act of Zambia, the two documents namely the Memorandum
of Understanding and Articles of Association have been combined to create the Articles of
Association. The promoters of the company should submit the articles of association to
the Registrar of Companies. The Registrar of Companies shall issue a certificate of
incorporation once the application complies with the Company’s Act.

The Articles of Association

The articles of association shall include the following information:

Name of the company with the last word being limited.

Objectives of the Company.
The statement of limited liability for its shareholders.
The authorized capital thus the amount of capital to be raised by the
shareholders.
The number of shares issued to each Director.
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 The rights, obligations and powers of the directors.
The procedure for calling annual general meetings.
The rights and power of each type of shareholder.
The procedure for electing directors.
The issue, transfer and forfeiture of shares.
Procedure for dealing with any alterations in the amount of capital.
Procedure for distributing profits and carrying out auditing.

A limited liability company is controlled and governed by a board of directors, which is

elected by the shareholders at annual general meetings.

Characteristics of a Private Limited Liability Company

The main features of a private limited liability company include the following:

A private limited company is a separate legal entity meaning the company has its own
legal existence separate from that of its shareholders.
A private limited company is not allowed to sell its shares to the general public unless
by approaching people individually.
Shares of a private limited company are not transferable without the agreement of the
other shareholders.
Shareholders in a private limited company have control over the company.
A private limited company is not required by law to publicise its accounts annually.
The liability of shareholders is limited to capital invested.
At least two people and not more than fifty can form a private limited company.
A private limited company is usually a small family business, though it is not always
so.
The capital and ownership of a private limited company is divided into shares.
Profits earned are usually shared in proportion to the number and value of shares
held.

Advantages of a private limited company

Forming a private limited company is probably the most secure way of owning a business.
The benefits of this kind of business include the following:
It is a legally separate entity or personality from the owners.
The liability of shareholders is limited, so their personal assets are not at risk.
It can easily raise more capital by selling shares though not publicly.
The company has sure continuity, as it does not depend on one person.
Shareholders have direct control over the company's affairs. They present their views
at the annual general meeting.
The founders can retain control over the company by holding the majority of its
shares.
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Disadvantages of private limited company
Some of the disadvantages of a private limited company are as given below.

There are too many legal formalities to comply with.

Lack of capital can restrict the growth of a private limited company.
The shares are not freely transferable, as the existing shareholders should
approve such
Accounts should be audited annually, hence the need to engage services of an
Auditors.
The company is less flexible when compared to a sole proprietorship.
It is a costly exercise to form a limited liability than that of a sole Proprietorship
Not easy for such a company to borrow money from the banks, etc.
Public Limited Companies
Definition
A public limited company is a corporate association of at least two persons, which is
registered with the Registrar of companies and owned by the shareholders who have
limited liabilities. Public Limited companies are generally quoted at the Lusaka Stock
Exchange where members of the public can freely trade in shares for such companies.
Public limited companies use the prospectus as an invitation to members of the public to
buy shares in the company. The prospectus gives information on the number of shares
being sold and at what price.

Characteristics of a Public Limited Companies

A public limited company may be characterised by the following attributes:
It is a company formed by at least two persons without a maximum number.
It is a separate legal entity and is registered with the Registrar of Companies.
The Board of Directors are elected by the shareholders controlling it.
Shares of the public company are freely bought and sold on the stock
exchange. There are no restrictions on the transfer of shares to third parties.
The liability of shareholders is limited to the capital they have invested or
agreed to invest in the company.
The day to day running of the business is in the hands of the Managing
Director. The Board of Directors deal with the Managing Director on policy
issues.

Advantages of Public Limited Companies

The advantages of the Public Limited Company include the following:
The company is a separate legal entity and as such the liability of
shareholders is limited to the amount of shares they hold in the company.
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 Its shares are freely transferable on the Lusaka Stock Exchange.
It has assured continuity.
It can raise more capital by the sale of shares and debentures to the public
through the Lusaka Stock Exchange.
It can easily borrow money from banks and other financial institutions.
It can employ specialists in such fields as marketing, accounting and human
resource management, which is more efficient.
Its sheer size makes it possible for the company to buy modern equipment
and technology
It buys in bulk and therefore enjoys economies of scale and possible
discounts.

Disadvantages of Public Limited Company

When you form a public limited company, there are some disadvantages you may find as
follows:
It is difficult and expensive to form.
It has to comply with many regulations set to protect employer, employee
and other stakeholders.
Raising capital tends to be very expensive
It may grow and become too large and difficult to manage.
Original owners usually lose control over it as it has become too big.
There is little secrecy, as its accounts must be published annually. This is a
legal requirement.
Decisions tend to be delayed because of the amount of administration or
bureaucracy involved such as those that require board approval.
The risk of takeover bids by other companies because shares of a public
limited company can easily be bought on the stock exchange.

4.1.4 Cooperatives
Definition
Cooperative societies are businesses established and managed by a group of customers
on a cooperative principle of ownership, operation and distribution. The cooperative
societies are owned and financed by their members who buy from the stores.
Membership is open to anyone who buys a share in the society. Cooperative societies are
democratically controlled with each member having one vote. Generally, cooperative
societies pursue social objectives in addition to profit. In Zambia, the most common
cooperative societies have tended to be agricultural cooperative societies at both district
and provincial levels. Because of difficulties faced by provincial agricultural cooperative
societies, the focus has shifted to primary cooperative societies at the village level.

Characteristics of Cooperative societies

57
The following are features of cooperative societies particularly those for trading activities:
The members or owners are people who have bought shares in the society and are
also the main customers.
A maximum amount of shares is set as an individual's shareholding. Thus, the number
of shares that one can buy in a society is restricted to prevent rich people from
taking over the control of the society.
Members have one vote irrespective of the number of shares one holds at any
particular time.
Profits or surpluses are divided as dividends to members in relation to the
amount of goods traded from the business.
In the case of retail business, a committee elected by members manage the
business.
The societies may offer special benefits such as scholarships, funeral benefits and
other social amenities to the society members.

Advantages of cooperative societies include the following

The customers especially members enjoy lower prices since they are given dividend
stamps each time they purchase goods from the store.
Such cooperative society businesses are convenient as they are near to the customers.
Anybody can do business with the cooperative society and is not restricted to members
only.
They are democratically controlled in the interest of customers and each member has a
right to be heard.
Another major problem is that capital raised through the sale of shares is limited given
the restriction of the number of shares an individual can buy, making it difficult
to expand.
Disadvantages of the Cooperative societies include the following:
The stores are inefficient as the issuing of divided stamps is a slow process.
It involves a lot of paperwork.
Over time, cooperative societies tend to amalgamate in order to withstand stiff
competition.
Many members do not attend meetings as a result; a few members dominate societies.
Lack of qualified management team retards the progress of the societies. Poor
management, poor planning and poor financial control plagued many cooperative
societies. This has forced many cooperative societies to close down.
Another major problem is that of capital, as capital raised through the sale of shares is
limited given the restriction given on the number of shares an individual can buy·
making it difficult to expand.

58
4.1.5 Legal Requirements
Sole Trader
The legal requirements for setting up such business are minimum.
All profits made by sole trade are subjected to income

Partnership
Few formalities required for starting up
No obligation to publish accounts
Sharing of profits or losses

Limited company
In registering a limited company, the following are the legal requirements:
The company’s name
The location of the registered office
The objectives/purposes of the company
A statement that the liability of members is limited
The amount of share capital

Activity 10

5. What is the significance of limited liability to:

(a) Shareholder? (b) Creditors? (c) Banker?
For what overall purpose are companies obliged to make public their constitution
and activities?
What is the principle distinction between a private limited company and public
limited company?
Why do some people prefer to establish a registered cooperative rather say a
private limited company?

Recommended Readings
Management Theory and Practice by G. A Cole (2005)
Business Law - Sixth Edition by Keenan and Riches (2002)

59
4.5 GENERATE A BUSINESS IDEA

Business ideas are the seed of the enterprise development. An entrepreneur’s initial task
is to scan the environment and create new business ideas. It is from the created ideas
that bring about opportunity identification.

4.2.1 Description of Business Ideas

You want to start a business; you need a business idea. It is a result of your specific
thought or concept that arises in your mind. Business ideas come from various sources.
The commonest source is the need of the members of the community that is not yet
satisfied. Your business idea in any of the three types of business namely: retail,
manufacturing and services.
Sometimes the list of types of business covers farming and mining. Selling goods to other
people is retail business. Making some things to sell to your customers is manufacturing.
When you sell your time, skills and knowledge, then you are in the service business. Growing
crops and keeping livestock for sale is a farming business. Digging, collecting and processing
minerals is mining. There are also businesses that require harvesting natural resources in
water and on land such as fish, timber and non-timber forest products.

4.2.2 The Process of Generating Business Ideas

The process of generating ideas involves two steps namely: scanning the surrounding
(environment) and idea generation. Scanning the environment assist you to see what is
going on, changing and the needs of people. By having a keen interest in what is going
on you will be able to see the needs of people emerging.
Scanning the environment involves collecting information from various sources. These
sources are:

No. Category of Information Sources

Sources
1 Personal and Informal Family member, Friends, Employees, Customers,
Sales Persons, Bankers, Investment Centre,
Consultants, Researchers, Councils, Business
Associations, Business Registration Office,
Commercial
2 Personal and Formal Exhibitions, Industry and Trade Contacts
3 Written Magazines, Newspapers, Newsletters, Books,
Catalogues, Journals, Bill Boards, Posters
4 Oral TradeShows,Seminars,Suppliers/Agents,
Professional Organizations

60
 Table [Link]: Sources of information
4.2.3 Generation of Business Ideas
Once you start thinking you will be generating hundreds of ideas. The tradition of keeping
all the ideas in your head is not useful. Buy a note book. Write all the ideas that come
into you mind in the notebook. At this stage, do not worry about how good or silly the
idea is: you will be surprised how good the idea was in later days or years.
Before you go to the marketplace, research institution or business associations to look for
business ideas, start with yourself. You should look at your strengths and weaknesses
which will show the areas suitable for business ideas, the size and type of the business.
Every person has strong points and weak ones. You should build on your strengths and
work on your weaknesses. The business idea you choose will be influenced by your
strengths, weakness, likes and dislikes. Selecting a business idea is not a matter of
wishful thinking or simple fantasising. It will be helpful to you if you select a business idea
in the area you are familiar with and have knowledge and skills that will either find
immediate application or balance the skills of the others in the business. A look at the
environment will also suggest to you whether the business idea is good or not.
Make every day an exciting creative day. You may be lying on bed, washing, in class,
working, at a social gathering, or travelling, or any other activity you may be doing. Let
your mind zero in on the business possibilities are your senses bring in all the
information. Write down quickly as the business idea come to you mind. Within a few
hours or days, you should produce an encouraging list of business ideas.

4.2.4 The Techniques for Business Idea Generation

There a number of ways you can generate ideas. There a number of methods you can
use to generate business ideas.
No. Technique Explanation
1 Draw on Your Skills Covert your skills into a business
2 Make Use of Your You have been able to do something from a long time.
Experience Can you advise others in the same field at a fee?
3 Use You Hobby Do you like music? Set up a music store.
4 Improve services Offer a better service of the current services you pay for
Improve its appearance, function, colour, packaging and so
5 Improve a product
on
Modify an existing
Make it look luxurious, make it simpler, or make it smaller,
6 product into a new
change the shape.
one
Come back with something you saw or used not available in
7 Travel
your area
8 Listen to complaints Crate a solution to a complaint
61
 9 Research Find out special needs of certain groups of customers
10 Reproduce the idea Apply a successful idea to new settings
Create new value
11 Use taxi vehicle for advertising
for a product
Somebody’s waste
12 is another person’s Turn waste into something useful for someone.
Treasure
Generate as many ideas as possible without checking the
13 Brainstorm
usefulness one may turn out to be a gold mine
Commercialize
research
14 Turn research ideas from research institutions into business
recommendations
and inventions
Combine uses into
15 Create a pen with functions of a musical instrument
one product
16 Visualization Create a picture of a business in your mind
Add or subtract a few features to the product or service to
Adding or
17 make it suitable in terms of use or price. Selling cooking oil
Subtracting
from a pump
18 Time framing Offer the same service in a short time
Technological developments these days are so fast and
Technology
19 abundant that one can come up with so many ideas of
application
unique applications
If a product is small make it big, if it is long make it short,
Creation of
20 if it is slow make it fast, if it is for very one make it for one
opposites
person, if it is tall make it short advice versa.

Table [Link]: list of methods of generating ideas

The list of methods of generating ideas does not end there. You will be able to come up
with other methods are you listen, see, touch and smell. The list will be determined by
how much you use your imagination.

4.6 SELECTION OF THE MOST VIABLE BUSINESS IDEA

This session will prepare you to a reasonable list of ideas and allow you to examine each
business idea so that you end up with a short list of business ideas with the highest
chance of success.
Session Learning Objectives

62
At the end of the session, you should be able to apply the scoring Method for Business
Ideas using the scoring Business Idea Assessment Form.
Learners Outcome
At the end of the session, you should be able to generate a list of the viable business ideas.

4.3.1 Selection of viable Business Ideas

It is promising that you have a list of the business ideas. Where do you go from there?
Having prepared a reasonable list of ideas you must examine each business idea so that
you end up with a short list of business ideas with the highest chance of success. You can
use the scoring suggested below.

[Link] Simple Scoring Method for Business Ideas

Score: Yes = 1 and No = 0; Allocate scores to each question. If the answers to all the
questions is YES the total score is 12 and 0 if all your answers were No. You may select a
business idea if it scores above 5 and review it or reject it if it scores

After the business ideas identification, listing and assessment you are now ready to go
further to develop this business idea into business opportunities through spending time
assessing, researching, developing and planning

Activity 11
Exercise
What is a business idea?
What is environmental scanning?
Outline three methods for generating business ideas?
Describe how you can select a business idea from long list of other ideas?

Reference materials
Burn Paul, Entrepreneurship and Small Business Mathew, Palgrave Macmillan, New York,
2001;
Entrepreneurship Development Institute, International Training Programme for the New
Enterprise Creation - Reading Materials Module – 6, 7, 8 and 9 India, Oct. 01 – Nov.
09, 2001
Thomas W. Zimmerer and Norman M. Scarborough, Essentials of Entrepreneurship,
and Small Business Management, Pearson International New Jearsey, 2005,
63
Birley Sue and Muzyka Daniel, Mastering Enterprise, Pearson Professional, London,
1997

64
4.7 DEVELOP A BUSINESS OPPORTUNITY

This session will prepare you to have a searching mind for viable business avenues for
investment opportunity.
Session Learning Objectives
At the end of the session, you should be able to list various sources of business ideas and
identify viable opportunities
Learners Outcome
At the end of the session, you should be able to identify viable business avenues for
investment opportunity

4.4.1 Identifying business opportunities

The secret of identifying business opportunities is to have a searching mind for viable
opportunities in various sources of business ideas.

4.4.2 Sources of Business Ideas

Businesses come from an idea from somewhere and the sources of these ideas are as
varied as the businesses themselves. In fact, some sources are so stranger that people
without entrepreneur minds fail to identify them. A business idea is a concept or a
response to a particular problem, which if properly worked on and planned for, can
translate into an enterprise.

65
 No. Category of Sources
Information Sources
5. Personal and Informal Family member, Friends, Employees, Customers, Sales
Persons,
6. Personal and Formal Bankers, Investment Centre, Consultants, Researchers,
Councils, Business Associations, Business Registration
Office, Commercial Exhibitions, Industry and Trade
Contacts
7. Written Magazines, Newspapers, Newsletters, Books, Catalogues,
Journals, Bill Boards, Posters
8. Oral Trade Shows, Seminars, Suppliers/Agents, Professional
Organisations

Table [Link]: Sources and categories of information

4.4.3 The Techniques for Business Idea Generation

There a number of ways you can generate ideas. There a number of methods you can
use to generate business ideas.
No. Technique Explanation
21 Draw on Your Covert your skills into a business
Skills
22 Make Use of Your You have been able to do something fro a long time. Can you advise
Experience others in the same field at a fee?
23 Use You Hobby Do you like music? Set up a music store.
24 Improve services Offer a better service of the current services you pay for
25 Improve a Improve its appearance, function, colour, packaging and so on
product
26 Modify an existing Make it look luxurious, make it simpler, or make it smaller, change the
product into a shape.
new one
27 Travel Come back with something you saw or used not available in your area
28 Listen to Crate a solution to a complaint
complaints
29 Research Find out special needs of certain groups of customers
30 Reproduce the Apply a successful idea to new settings
idea
31 Create new value Use taxi vehicle for advertising
for a product

66
 32 Somebody’s Turn waste into something useful for someone.
waste is another
person’s Treasure
33 Brainstorm Generate as many ideas as possible without checking the usefulness
one may turn out to be a gold mine
34 Commercialise Turn research ideas from research institutions into business
research
recommendations
and inventions
35 Combine uses Create a pen with functions of a musical instrument
into one product
36 Visualisation Create a picture of a business in your mind
37 Adding or Add or subtract a few features to the product or service to make it
Subtracting suitable in terms of use or price. Selling cooking oil from a pump
38 Time framing Offer the same service in a short time
39 Technology Technological developments these days are so fast and abundant that
application one can come up with so many ideas of unique applications
40 Creation of If a product is small make it big, if it is long make it short, if it is slow
opposites make it fast, if it is for very one make it for one person, if it is tall make
it short n advice versa.
Table [Link]: techniques / methods for business idea generation

The list of methods of generating ideas does not end there. You will be able to come up with other
methods are you listen, see, touch and smell. The list will be determined by how much you use your
imagination.

Activity 12

Exercise

What are business opportunities?

Describe various sources of business ideas that relate to your environment?

67
4.8 ESTABLISHING AN ENTERPRISE

This session will prepare you to identify and generate a business idea, select the most
viable business ideas, develop a business opportunity and finally be able to establish an
enterprise.
Session Learning Objectives
At the end of the session, you should be able to understanding the complex environment
of business, economic, technological, social and political influences
Learners Outcome
At the end of the session, you should be able to identify viable business avenues for
investment opportunity and establish an enterprise

4.5.1 Establishing an enterprise

The secret of identifying business opportunities is to have a searching mind for viable
opportunities in various sources of business ideas.

4.5.2 Environmental scanning

All businesses operate in an environment. There are people, natural resources and
organisations in the environment. Understanding the environment will reduce the
uncertainties and provides evidence for opportunities.
One of the traits you have learned of an entrepreneur is information seeking. Scanning
enables the entrepreneur get hold of information to understand the situation very well
and systematically reach a decision.
When you complete this section you will be able to describe the concept of environmental
scanning, discuss the importance environmental scanning and explain the techniques of
environmental scanning, outline the process of OF environmental scanning and conclusion
carry out an environmental scan about:

Information Collection
Information Organization
Acquiring Required/Vocational Skills
Financial Requirements
Market Assessment
Provision for Crisis or risks

For further reading click

68
Setting up of a Small Business Enterprise (Six Steps)

[Link] Description of Environmental Scanning

Now that you have identified one business idea you want to develop you must
understand that your business will operate in an environment. The business you want to
start will operate in a complex environment of business, economic, technological, social
and political influences. The other term for the environment is surroundings. Scanning is
checking or examining. Understanding the surroundings will reduce the uncertainties.

External Influences of the Environment

Government
Industry

Customers

Labou
r

Your
Supplier busines
s
Technolog
Competitor y
s

Private National Credito

individuals Bodies rs

Figure [Link]: External forces of the environment

69
[Link] The Importance of Environmental Scanning;
Environmental scanning is important because:
Spot important economic, social, cultural, environmental, health, technological, and
political trends, situations, and events in the country and outside that may have an
effect on your business
Identify the potential opportunities and threats for the business arising from these
trends, situations, and events
Achieve an accurate understanding of your business’s strengths and weaknesses
Present a support for study of future opportunities

Techniques of Environmental Scanning

There are a number of techniques you can use to carry out an environmental
assessment using the following techniques and fully explained in
BPEST Analysis;
Porters Five Force Model;
SWOT analysis;
Value Chain Analysis

[Link] Process of Environmental Scanning;

Steps to conducting the environmental scanning:
Clearly state the purpose of collecting information
Decide on how the information will be collected desk or field study or both;
Identify who is responsible for the process.
Decide who will collect information;
Identify the sources of information;
Identify methods of collecting information;
Assemble existing information on issues and needs;
Reflect on the strengths and limitations of that information including;
Select data gathering techniques to fill in information or audience gaps, detect
emerging issues, and verify existing information
Collect scanning information from other organizations.
Assemble the information;
Analyse and translate the information into actionable

[Link] Carrying Out an Environmental Scan

Carrying out the environmental assessment will assist you identify a number of issues in
the natural environment, the business scene, target market and competition, human
resources, legal frame work, technologies and social issues.
Feasibility study

70
Feasibility study is the assessment of the market, technical, and financial situation of the
proposed business to ascertain its viability and practicability. The tendency of sensing a
business opportunity and immediately pour resources into it to start an enterprise without
thorough investigation results in disastrous results and great waste. An entrepreneur is a
risk taker. Feasibility study enables entrepreneurs reduce uncertainties and build
confidence in the business opportunity. When you have complete this section you will be
able to give an understanding of feasibility studies, outline the process of feasibility study
and apply the knowledge by carrying out a feasibility study yourself.
Conducting a Feasibility Study
You have in your hands a business idea that you like. Casual observations, discussing
with other people indicate that it is a good business idea. You have good further by
reading more about it but can it work?
Market Assessment
Find out the following:
o What is the total size of your market?
o What percent share of the market will you have?
o Current demand in target market.
o Trends in target market—growth trends, trends in consumer preferences, and trends in
product development.
o Growth potential and opportunity for a business of your size.
o What barriers to entry do you face in entering this market with your new company?
Some typical barriers are:

• High capital costs • Training and skills

• High production costs • Unique technology and patents
• High marketing costs • Unions
• Consumer acceptance and brand recognition• Transport costs
How will you overcome the barriers?
How could the following affect your company?
o Change in technology o Change in the economy
o Change in government regulations o Change in your industry
Product
What are the most important features? What is special about it?
What are the benefits? That is, what will the product do for the customer?
Customers
Who are your targeted customers, their characteristics, and their geographic locations,
otherwise known as their demographics?
o Age o Income level
o Gender o Social class and occupation
o Location o Education

71
o Other (specific to your industry) o Other (specific to your industry)
For business customers, the demographic factors might be:
Industry
Location Other (specific to your industry)
Size of firm o Other (specific to your industry)
Quality, technology, and
price preferences
Competition
What products and companies will compete with you?
Will they compete with you across the board, or just for certain products, certain
customers, or in certain locations?
Will you have important indirect competitors?
How will your products or services compare with the competition?
Production Assessment
How and where are your products or services produced?
What are the methods of:
o Production techniques and costs o Inventory control
o Quality control o Product development
Customer service
Location Assessment
What qualities do you need in a location?
Is the location you need available?
What are the physical requirements:
Is the amount old amount of space needed available?
Is the type of building you need available at a reasonable cost?
Is power and other utilities like water available?
Legal Environment Assessment
Are you able to meet the conditions for the following:
o Licensing o Zoning or building code requirements
o Permits o Insurance coverage
o Health, workplace, or o Trademarks, copyrights, or patents
environmental regulations (pending, existing, or purchased)
Special regulations covering
your industry or profession
Human Resource Assessment
Will you be able to engage the number of employees needed?
Are the skilled staff and professional you need available?
Do you know where and how will you find the right employees?
Will you be able to meet the pay structure?
Have you developed a human resource development plan?
Do you have schedules and written procedures prepared?
72
 Have you drafted job descriptions for employees?
Suppliers Assessment
Have you identified key suppliers?

Do you plan to sell on credit?

What terms will you offer your customers; that is, how much credit and when is
payment due?
Will you offer prompt payment discounts?

Who will manage the business on a day-to-day basis?

What experience does that person bring to the business?
What special or distinctive competencies do the individuals need to have?
Is there a plan for continuation of the business if this person is lost or incapacitated?
If you’ll have more than 10 employees, have you created an organizational chart
showing the management hierarchy and who is responsible for key functions.

Do you intend to have the following in enterprise?

o Board of directors o Insurance agent
o Management advisory board o Banker
o Attorney o Consultant or consultants
o Accountant o Mentors and key advisors

Payment Period
The number of years required to recover the original cash outlay invested in a business
project. If a business generates constant annual cash inflows, the payback period can be
computed dividing cash outlay by the annual cash inflow.
Net Present Value
The method is a process of calculating the present value of cash inflows and outflows of
an investment proposal using the cost of capital as the suitable discounting rate and
finding the net present value by subtracting the present value of cash outflow from the
present value of cash inflows.

73
 Activity 13
Exercise
Describe feasibility study
Mention one area that is useful to assess market, technical, financial and managerial
feasibility
Describe the financial feasibility study methods
Discuss the following tools used in environmental scanning:
SWOT analysis
BPEST analysis
Value chain analysis
Porter’s five forces model

Unit Summary
This unit has discussed the forms of business and business ideas in order to
creative new approach to specifically address a perceived need, want, problem
or challenge. the process of generating business ideas that it involves two
steps namely: scanning the surrounding (environment) and idea generation. It
has discussed the searching mind for viable business avenues for investment
opportunity. it has discussed the Environmental scan, and the tools that can
help us understand if the environment we want to venture our business into is
viable or not. These tools included SWOT, BPEST, Value chain analysis and
Porter’s five forces model, the Feasibility study

Recommended Reading

Burn Paul, Entrepreneurship and Small Business Mathew, Palgrave Macmillan, New York,
2001;
Cole G A, Strategic Management, Letts Educational, London, 1997.

74
 END OF UNIT 4 TEST MULTIPLE-
CHOICE QUESTIONS Choose the All of the following are characteristics shared
correct option for each of the by successful entrepreneurs EXCEPT:
following. Write only the question Passion.
number and your chosen answer. For instance, if Risk averse.
you think that the correct answer for number 1 is Product/customer focus.
(a), then write it as 1. (a). Tenacity despite failure.

Why should an entrepreneur do a feasibility Which could provide an individual with the
study before starting a new venture? motivation to start a new business venture?
To identify possible sources of funds The financial rewards.
To see if there are possible barriers to A desire to be independent.
success Risk taking
To estimate the expected sales All the above
To explore potential customers Which of the following statements concerning
the NPV is not true?
What are the primary reasons that startups The NPV technique takes account of the
need funding? time value of money.
Cash flow challenges, capital investments, The NPV of a project is the sum of all the
and lengthy product development cycles discounted cash flows associated with a
Business research, cash flow challenges, project.
and costs associated with building a brand The NPV technique takes account of all the
Bonuses for members of the new venture cash flows associated with a project.
team, legal fees, and lengthy product If two competing projects are being
development cycles considered, the one expected to yield the
Attorney fees, capital investments, and lowest NPV should be selected.
marketing research [6]

MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the statements in Column A. Write down the
answers only, for example 1. (a).

Column A Column B
1. Business idea (a) cash inflows and outflows
2. Environmental Scanning (b) market, technical, and financial
situation
3. Feasibility study (c) type of business
4. NPV (d) assessment

[4]

[10
]
75
UNIT 5 MANAGING AN ENTERPRISE

Introduction
This unit will help you understand how to manage the process, major functions often
performed simultaneously or as part of continuum in an enterprise

UNIT SPECIFIC LEARNING OUTCOMES

On completion of this Unit you will able to;

Apply principles of human resource management
Apply principles of financial management
Apply principles of marketing management
Adhere to business ethics and values
Fulfil statutory obligations
Undertake strategic planning
Manage credits

5.1 PRINCIPLES OF HUMAN RESOURCE MANAGEMENT

This session will you will be expose to how to manage Human resources who make up the
employees engaged by an enterprise.
Session Learning Objectives
At the end of the session, you able to state the functions that are concerned with
managing the employees in an enterprise
Learners Outcome
At the end of the session, you should be able to apply duties and functions function
performed in an enterprise that facilitates the most effective use of people (employees) to
achieve organizational and individual goals

5.1.1 Human Resource Management in an

enterprise Introduction
Human Resources can be defined as people who can be employed or engaged in some
activities to do something. Enterprises are formed for a purpose. In trying to achieve this
purpose, an enterprise uses or engages a combination of Human and non-Human
Resources. Human resources make up the personnel or employees engaged by an
enterprise. Non-human resources refer to all other resources such as materials, financial,
etc.

[Link] Human Resources Management

76
Human Resource Management describes the functions that are concerned with people;
the employees. Human Resource Management is the function performed in an enterprise
that facilitates the four C’s of The Human Resource Management, “Commitment,
Competence, Cost-Effectiveness, and Congruence.

[Link] Human Resource Practice in an Enterprise

The Human Resource practice in an enterprise will normally begin with Human Resource
planning. This is the process of matching long-term demand and supply of labour. The
essence of human resource planning is to have the right people in the right numbers with
the right skills and experience at any particular time.
Human resource planning process can be looked at as involving three
stages. Stage one
At this stage you start with compiling the talent inventory in an enterprise. This involves
looking inside an enterprise for the various types of skills, abilities, potentials, etc. of the
current employees. Then you look at the activities within the enterprise, which need to be
performed. The talent inventory and the activities needed to be performed, in an
enterprise are often compared in order to ascertain the gaps that exist in terms of surplus
or deficit of labour.
Stage Two
Stage two calls for predicting or forecasting future human resources skills requirements.
This involves carrying out the needs assessment for each unit or section of an enterprise.
At this stage one asks questions such as, downsize or hire more labour?” This however is
done in relation to the long-term business plan of an enterprise.
Stage Three

Stage three looks at the human resource functions to take care of the outcomes from
either stage one or stage two. The functions performed will include among others the
following: -
Staff recruitment and selection
Employee training and development
Performance management which would result in actions such as transfers,
promotion and discharge. Compensation, which includes the motivation
and remunerations of employees.

5.1.2 Industrial and Employment Relations

The industrial and employment relations relate to how the stakeholders interact with
each other. The stakeholders comprise the employees (union), employers and the
government. This referred to as the tripartite relationship or arrangement. To be able to
handle industrial and employment relations, one needs to familiarize with the Industrial
Labour Relations and the Employment Acts.
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Industrial Labour Relations Act Cap 269 of 1995 amended in 1997 No. 30 This
Act deals with organizational structures of industrial labour relations, that is, the tripartite
arrangement comprising employees (union), employers and the government. It explains
how unions are financed, formation of joint councils, the way collective agreement
proceeds and settlement of disputes. It also looks into the consultative labour councils,
and the role of industrial courts.
Employment Act CAP 268 No. 15 of 1997
This deals with appointments and duties of labour officers. It is concerned with oral and
written contracts, breaches, and disputes of contracts. At the same time looks at
administration of salaries, housing and staff welfare. It also considers the power of
courts and offences that can be taken to court.
5.1.3 Elements in the Conditions of Service
The conditions of service document should always be outlined as it gives the boundaries
of the employment contract entered into between the employees and the employers. The
main elements in the conditions of service are outlined below:
Authority and interpretations Loans and Advances
Definitions Death or injury on duty
Applications Retirement, Retrenchment and
Appointment and probations Redundancy
Housing Employees’ obligations
Allowances Disciplinary code and grievance
Human Resource Development and procedure
Training Industrial and labour relations

Activity 14
Exercise
State the Employment Act CAP 268 No. 15 of 1997?
Mention the usefulness of essence of human resource
planning?

78
5.2 PRINCIPLES OF FINANCIAL MANAGEMENT

This session will you will be expose to a business financial management occupation that
deals with the managing of business finances in an enterprise.
Session Learning Objectives
At the end of the session, you able to gain the skill of managing finance and the art of
how you can make a good earning in Returns on Investments
Learners Outcome
At the end of the session, you should be able to apply all forms of financial application
and techniques to coordinate the business enterprise are controlled in order to meet its
set financial goals.

5.2 0 Finance

Finance is the “art of managing or administering money” and it is simply the way by
which transactions in an enterprise are expressed and measured.
Therefore, every entrepreneur who wants to make a good earning in returns on
investments needs to have the skill of managing finances

5.2.1 Financial Management

Financial management is a business management occupation that deals with the

Organizing, Understanding Risks, Spending Less and Limiting Debt managing of business
finances. This function issues that all forms of financial application and techniques to
coordinate the business enterprise are controlled in order to meet its goals
Financial management always goes with proper financial record keeping and the
field that deals with is financial accounting

However, the term ‘financial accounting’ should not scare the small or medium
entrepreneur because it is simply the proper financial record keeping and
creation, analysing and interpretation of financial statements

In managing finances there is need to ensure that: -

Financial objectives are set

Financial analysis, planning and control measure is set
Acquisition and application of funds is managed
5.2.2 The role of finance in an enterprise

Finances are critical in an enterprise, required for many roles such as:
Procurement of inputs
Procurement of raw materials
Payment of operational expenses
79
 Payments of capital investment
Payment for human resources

5.2.3 Importance of good financial management

Efficiency and effective good financial management is evident from how an entrepreneur
achieves the set goals and growing from one level to another. The achievement of these
goals in a highly competitive economic environment will depend on how the entrepreneur
has strategically rightly decided to earn a good return on the business investment e.g.

Maximising and use of financial resources

Evaluating new business opportunities
Measure the objective factors that affect the performance of a business
Utilizing financial information to make sound business decisions

5.2.4 Sources of Finance

Some sources of finance may include:
Individuals
Joint ventures
Commercial Banks
Leasing company
Floating shares etc.

5.2.5 Financial Statements

Financial statements are pieces of paper with numbers written on them used for
accounting information.

Financial statements are a summary of transactions in a business they reflect:

-

Financial position of the company e.g. what the company own, how much it owe,
and how healthy it is
Financial performance of the company, is the company profitable and growing?
Cash flow of the company, does the company generate enough cash to finance its
operations and growth

[Link] The profit and loss statement

This is very important statement that summarizes the flow of income and expenses for
a business for a period of time; it might be annually, quarterly etc.

The profit and loss statement can be used for: -

80
 Measuring profits and losses in order to assess the business with reference to
past performance
Planning for the future
Calculating gross margins that are sales minus the cost of goods etc.

Sales profit and loss statement sample Annex 4

[Link] The Balance sheet

Balance sheet measures the financial strength of a company at a specific date

The measure will determine: -

Financial strength of the business i.e. whether the company owes more than it is own
Whether the business has more assets than liabilities and has equity. Equity is the left
over after all debts are paid (Assets – Liabilities = equity)

[Link] Cash flow statement

This is a statement that reflects the source and application of all funds in a business

The cash flow statement will clearly outline how the cash is generating in the
normal business operations

5.2.6 Budgeting

This is a financial plan that shows how funds will be raised and an overall
expenditure allowed for a specific period or occasion

Budgeting is important in a business for: -

Planning and checking progress
A systematic view and follow up on future plans
Borrowing money from lenders
For early warning if performance deviates from budget

[Link] Types of budgets

The two main budgets are: - Capital budgets – the process by which an
Operating budget – this takes care of all enterprise make decisions on their capital
day to day activities, sales plan and projects for the growth of a business
functional plans for various department in
an enterprise

81
 Basic Principles of Capital Budgeting |
CFA Level 1 - AnalystPrep
For further reading click
Basic Operational Budgeting Concepts
in Financial Analysis | UniversalClass

[Link] How to prepare a budgets

Establish planning parameters and these should include; expected conditions at

the time of planning, the goals and the structure established in the strategic plan
Prepare separate segment budget for various units of the business
Combine and coordinate the individual segments of the budget and check for
feasibility an whether they are well integrated

5.2.7 Financial records

All business transactions concerned with the movement money in a business are
recorded in documents called Business records

[Link] Types of Financial records

Business records can be divided into two: Source documents and Original entry books

Source documents

Receipt book – all the money coming in the business is recorded in this book
Invoice book – this is a book reflecting all requests for payment hence, an invoice is
given whenever goods and services are sold on credit or whenever one buys goods on
credit
Quotation book – is a book reflecting all prospective buyers therefore, a quotation acts
as a statement of prices of required items to be bought by a potential buyer
Payment voucher – this is book used for paying out money and it is signed by three
persons, the one preparing payment, authorising payment and the final payee
NB: The above are just a few of the many source documents for a

Business [Link] Original entry books

Cashbook – this book is used for recorded all in money coming in and going out of
the business.
However, it is important to ensure that all the monies received are banked
before spending

82
 Maintain a cashbook for each bank account for easy bank reconciliation at the end of
each

month.

Petty cashbook – this is used for imprest recording spent on payments such as
transport, postage, and other administrative issues within a week
Debtors Day book – this where the business records individuals owe the enterprise
money for the goods and services provided on credit. The information is from the
invoices
Creditors day – this is where an enterprise record person that the business owes
money for goods supplied

Ledger books

These are books where revenues, expenses assets and liabilities are recorded
and these are the General ledger and the Debtors or Sales ledger

General ledger – is the book is maintained for all impersonal accounts. The
information is drawn from its summary, financial statements are produced

Sales ledger – this is where individual accounts for creditors in double entry

5.2.8 Uses of business records

To measure business performance

To track money that the enterprise owes and is owed
As evidence to financiers when there is need to borrow
To obtain credit from suppliers
To meet tax and other legal requirements
Means for communication to lenders, suppliers, shareholders, Government and others

5.2.9 Stock Control

Stock referred to here can be define as the supply of goods, materials or equipment for
sale
Stock control on the other side can be defined as the process of: -
Identifying what stock to order
Quantifying what to order
Receiving the stock ordered
Recording the stock ordered
Storing the stock ordered and
83
 Deciding when to re-order
Type Stock for a particular business will vary from the other, in terms of what to
record as stock

[Link] Importance of stock control in an enterprise

Stock control ensures that an enterprise: -

Readily available stocks at the right time

Right amount of stock all the time
Stores its stock in an orderly and durable manner
Avoids unnecessary stock thefts, damage and loss

[Link] Buying and Stocking

Buying creates stock in an enterprise. Therefore, a good buying system creates a

good stock control system for, buying depends what has depleted.

A good stock control system enables the enterprise know: -

What to buy
When to buy
How much to buy them and
Where to buy
[Link] Stock control techniques and procedures

Keep the right amount of stock

Stock fast moving goods
Skillfully display the goods
Regular stock check
Keep stock records
[Link] Stock taking steps

Arrange stock well

Prepare stock list
Count stock and record
Copy information from stock card to your stock taking list
Compare your stock cards with the stock taking list
Write the correct quantities on your stock cards

Activity 15
Exercise84
Outline the importance budgeting in an?
State the difference between Finance and Financial management?
 Reference materials

Burn Paul, Entrepreneurship and Small Business Mathew, Palgrave Macmillan, New York,
2001; Cole G A, Strategic Management, Letts Educational, London, 1997

5.3 BUSINESS ETHICS AND VALUES

This session will expose you to Business Ethics, a term that refers to the code of behaviour
considered correct by a particular group, profession or individuals in an enterprise.
Session Learning Objectives
At the end of the session, you able to gain the skill of understanding business ethics as
they apply to managing in an enterprise
Learners Outcome
At the end of the session, you should be able to apply all forms of business ethics in an
enterprise.

5.3.1 Ethics
Ethics has to do with an individual’s judgment and their morals and Values are attitudes
towards things like truths, justice, honesty etc.”( Nieuwenhuizen, Oosthuizen & Drotskie
2012:95)
The Managers usually face a lot of situations that require ethical judgements and, the
question of what criteria these judgements will be based on is one that requires attention,
particularly so that there are no universally agreed code of behaviour. However, these
could be some of the considerations:
Decisions should be evaluated according to their practical consequences in bring about
the greatest good for the greatest number of people
People have basic rights, such as the freedom of speech and the right to a fair trail
Decision makers should be guided by the principle of fairness and equity, as well as
impartiality
85
5.3.2 Values
Suppose that you have deputed your marketing manager to a foreign country for scouting
business for your firm. He contacts a customer who wants to place an order with your
firm, provided you supply him sub-standard goods at low prices. The sub-standard goods
are likely to harm the health of the population in that country even though the value of
order and the profit margin offered may be high. What is your marketing manager likely
to do? He could do two things: ask you for guidance in the matter or may straight away
tell the party that it will not be possible to accept an order for sub-standard goods even if
the volume of sales is high and the profit margin is good. Your marketing manager, may
also emphasise that to your firm the health and welfare of people is of prime concern and
therefore it would not even dream of doing anything that could affect the health of
people anywhere in the world

Note:
For further reading on values and ethics , click
The Importance of Ethics and Values in Business... | 123 Help Me

When he asks for your guidance in the matter, it means that your firm does not have clear
idea of the values that it cherishes. If he rejects the offer for an order without talking to you
first, that would mean that not only your company has a clear idea of the values, but that you
have taken care to convey these values to all the persons in the company. Thus, basic values
of a company are like lighthouses on sea shores. These lighthouses with their powerful
revolving search lights help ships to sea and find their way towards the shore even in
darkness. Similarly, values give direction to a company’s personnel and help them to take
decisions that maintain and increase the company’s reputation in the marketplace.
Values touch every aspect of business
Though we have given an example of marketing decisions based on values, you must
remember that values of a company encourage all vital aspects of a company’s functions. For
instance, let us talk about relations with people within the company. Some companies treat
people as disposable assets who can be hired and fired at will. Other companies look at
people as valuable resource, a storehouse of ideas, generators of innovations and treat them
accordingly. Similarly, a company could have a set of values when dealing with the
government, with competitors, with customers, with non-government organizations, etc.
Use the Self-Assessment Instrument for Values Annex 5

86
Activity 16
Exercise
1. Differentiate between Ethics and Values?
 Summary of session
This unit has discussed apply all forms of business ethics in an enterprise. The
emphasis was on you to understanding refers to the code of behaviour considered
correct by a particular group, profession or individuals in an enterprise.

Reference materials

Burn Paul, Entrepreneurship and Small Business Mathew, Palgrave

Macmillan, New York, 2001; Cole G A, Strategic Management, Letts
Educational, London, 1997

5.4 MARKETING

This session will help you to be exposed to Marketing and help you to discover what your
customers need and want and how you can outline ways to profitably satisfy them in an enterprise.
Session Learning Objectives
At the end of the session, you able to gain the skill of understanding how to ssatisfy
customers whilst making a profit using the 5 Ps in an enterprise
Learners Outcome
At the end of the session, you should be able to provide market information about your
business in an enterprise.
5.4.1 Marketing
Marketing is discovery what your customers need and want and then outlining ways
to profitably satisfy them
Satisfying customers whilst making a profit requires the 5 Ps
Products: providing the selection of products/services needed

87
 Prices: setting the prices customers are willing to pay
Place: locating where you can reach customers
Promotion: informing and attracting customers
Procurement: buying or producing the products/services at prices that can make a
profit

5.4.2 Importance of marketing in an enterprise

Customers are the core element of the very existence of any business hence the
most important people for your business
In every business unless you provide what your customers want, at prices affordable to
pay and respected them, they will buy from your competitors
Without customers – no sales hence, the business will have to close down eventually.
But, satisfied customers will always come back and buy more from a business and
develop some attachment with business and without knowing become ambassadors for
your good products/services; your good prices, your good customer care and
reception, etc.

The word market can mean two things:

A PLACE where people meet to sell and buy vegetables and related merchandize or
In Marketing it means CUSTOMERS, PEOPLE OR OTHER BUSINESSES, which
want your products and are willing to pay for them

5.4.3 Selling

How to increase customer sales?

Sell the solution the product provides to the customer, not just the product
Sell the benefits of the product to the customer not just the features it has
Build relationships with the customers not just a sales transaction

What an entrepreneur ought to know about a customer

A customer is the most important person in any business
A customer is not dependent on an entrepreneur, but the entrepreneur on the
customer
A customer is not an interruption of the entrepreneur's work. A customer is
the purpose of an entrepreneur's work
A customer does an entrepreneur a favour by calling. An entrepreneur does not do
a customer a favour by serving
A customer is part of an entrepreneur's business not an outsider

88
 A customer is a human being like an entrepreneur, with the same feelings and
emotions but it is the entrepreneur who must exercise the highest form of tact,
diplomacy and courtesy because he needs to sell
A customer is not someone to argue or match wits with
A customer takes his wants and needs to an entrepreneur, and it is an entrepreneur's
job to fulfil those wants and needs
A customer is always deserving of the most courteous and attentive treatment
an entrepreneur can give
A customer is the person who makes it possible for an entrepreneur and his workers to
earn their salaries. He keeps the entrepreneur and his workers in employment

5.4.4 Marketing Aspects

[Link] Market Scan

Before you can even consider putting your business idea into a business pan, you need to
scan the market to establish whether the products/services you will transact in have a
market. Producing product or services without an identified market can result in the
collapse of the enterprise because no one will be willing to buy and as a result working
capital will be tied down in unsold goods.

[Link] Market research

Conduct a market research;

Market research I s finding out the customer needs. Many businesses and individuals
starting enterprises assume that they know how their customers look at their products
and services. Many times their ideas about what the customer wants are simply guess
work. In a market research there are many questions asking about the customers’
characteristics, product specifications, other suppliers, communication, pricing,
distribution, and other marketing issues.

Conduct a simple market research by following these steps:

Define the market problem
Analyse the market situation
Collect data that is specific to the problem through reading documents and going to
the field to ask individuals and organizations familiar with the target market
Analyse and interpreting the data to get the meaning of the target market
Propose solutions to the market problem;
Design a marketing plan

89
Marketing plan
A Marketing Plan is a written document that outlines the actions necessary to achieve a
specified marketing objective, purpose and goal. It can be developed for a product or
service. It can prepared for a year or for five years. A marketing plan may be component
of your business plan.

You may use this guide to develop the marketing plan:

Assess the Market Situation
Type of Industry; Level and type of competition;
Target market; Type of competitors;
Customer Profile; Market Trends;

Marketing Strategies
Marketing Goal;
Marketing Purpose;
Marketing Objectives;
o Product (Characteristics and benefits);
o Place (Distribution and places);
o Promotion (Advertising, Selling, Sales promotion and publicity);
o Price (Level, flexibility, discounts)

Market Assessment
Find out the following:
What is the total size of your market?
What percent share of the market will you have?
Current demand in target market.
Trends in target market—growth trends, trends in consumer preferences, and trends
in product development.
Growth potential and opportunity for a business of your size.
What barriers to entry do you face in entering this market with your new company?

o High capital costs o Training and skills

o High production costs o Unique technology and patents
o High marketing costs o Unions
o Consumer acceptance and brand o Transport costs
recognition
How will you overcome the barriers?
How could the following affect your company?
o Change in technology o Change in the economy
o Change in government regulations o Change in your industry

90
Product
What are the most important features? What is special about it?
What are the benefits? That is, what will the product do for the customer?
Customers
Who are your targeted customers, their characteristics, and their geographic locations,
otherwise known as their demographics?
o Age o Social class and occupation
o Gender o Education
o Location o Other (specific to your industry)
o Income level o Other (specific to your industry)
For business customers, the demographic factors might be:
Industry
Location Other (specific to your industry)
Size of firm o Other (specific to your industry)
Quality, technology, and price
preferences
Competition
What products and companies will compete with you?
Will they compete with you across the board, or just for certain products, certain
customers, or in certain locations?
Will you have important indirect competitors?
How will your products or services compare with the competition?

Activity 17
Exercise
What is the importance of marketing in an enterprise?
Describe how to conduct a simple market research?

5.5 STATUTORY OBLIGATION

This session will help you to be exposed to Policy Instruments Supporting Enterprise
Development in an enterprise.
Session Learning Objectives
At the end of the session, you will be able to gain the skill of understanding and relate to
business Policy Instruments Supporting Enterprise Development
Learners Outcome
At the end of the session, you should be able to relate policy instruments to enterprise
development.

91
5.5.1 Statutory obligation relating to enterprise development
The application of statutory obligations to enterprise development includes;
Pay As You Earn
NAPSA
Workers Compensation
Labour laws
Licensing and permits

5.5.2 Policy Instruments Supporting Enterprise Development

Small Enterprise Development Act 1996
As the means towards the Government of Zambia’s support of small scale enterprise, the
Small Enterprise Development Act was enacted in 1996.
This act led to the creation of the Small Enterprise Development Board. The function of this
Board included:
To promote and facilitate the development of micro and small enterprise o
To create a conducive environment for attaining of the purpose
Specifically that Board was to:
o Formulate, coordinate and implement policies and programmes to promote the
development of micro and small enterprises
o Monitor the efficiency and performance of micro and small enterprises having regard
for the purpose for which they are established
o Establish a data base for facilities and sources of finance, technology, raw materials,
machinery, equipment and supplies
o Provide marketing support services to the micro and small enterprises
o Register, collect, research and disseminate information relating to micro and small
enterprises
o Monitor and coordinate activities and programed of promotional agencies engaged in
micro and small scale enterprise development
Assist in the development and upgrading of appropriate technologies for micro and
small enterprises
Initiate and develop industrial estates and common facilities for use by micro and
small enterprises
Establish training and processing centres to provide machinery and equipment
Develop the Zambian entrepreneurship
Arrange for independent training, management and consultancy services for micro
and small enterprises
Provide the financial services
Make recommendations to the Ministry on any legislative reforms which may be
required for the development of the micro and small enterprises

92
 Activity 18

Exercise

Outline the Government of Zambia policy on enterprise development

Discuss how these policies could lead to the promotion of
enterprise development in the country. Suggestion, if any
additional policy guideline that should be included

5.6 STRATEGIC PLANNING

This session will you will be expose to strategic planning in an enterprise.

Session Learning Objectives
At the end of the session, you able to gain the skill of design and complete urgent tasks,
meet day-to-day objectives, and overcome short-term problems in an enterprise
Learners Outcome
At the end of the session, you should be able to relate policy instruments to enterprise
development.

5.6.1 Strategic Planning

Today business environment puts pressure on entrepreneurs operational or short-term
planning is required – and it often tends to take precedence over long term planning –
which is what strategic planning is all about. At the end of the session, trainees will be
able to defining strategic planning, outline steps in strategic planning and Carry out a
strategic plan.

[Link] Strategic Planning Process

For further
reading click

What is the Strategic Planning

Process?

Figure [Link]: The Strategic Planning process

93
[Link] The Importance of Strategic Planning
Strategy concerns itself with what is ahead, looking at where the organization is going,
and how to get there. Even if the organization already knows which products or service is
taking to which market, there is still need for a strategy to make it happen
Having a strategy enable an organization to ensure that day-today decisions fit in with
long-term interest of an organization. Without a strategy, decision made could have a
negative impact on future results. A strategy also encourages everyone to work together
to achieve common aims. Most organizations have strategic plans at highest levels but
some do not communicate it all the way down. A strategy is important whether you serve
external customers (those outside your organization) or internal customers (those in
departments or sections within the organization)
An effective strategy should consist of the following: -
Must be consistent with the organization’s skills and capabilities
Must exploit external trends and influences
Must be flexible enough to respond to rapid changes in the environment
Must incorporate carefully developed objectives
Must be based on care on carefully evaluated policies and plans

Activity 19
Exercise
Outline the strategic planning process
Discuss the importance of strategic plan to an enterprise

94
5.7 MANAGE CREDIT

This session will assist you describe how to manage customer’s credit risk in building a
long-term, trusted relationship in an enterprise.
Session Learning Objectives
At the end of the session, you able to gain the skill of gauging the customer’s attitudes to
credit, and clearly understand what you expect of them in an enterprise
Learners Outcome
At the end of the session, you should be able to apply basics methods to lower the risk of
not getting your money from your enterprise.

5.7.1 Credit Management

The business environment further puts pressure on entrepreneur’s operations and their
ability to handle the customer’s access credit. Credit management is how the risk to
access of the enterprise resources builds and managed over a time from trusted
relationship and this can obviously take years to fully achieve.

The necessity of an enterprise is even more effective in credit management when we look
more closely at the tasks. These tasks include:
to formulate a credit and collection policy
to introduce credit facilities and programmes to the market
to assess the creditworthiness of credit applicants
5.7.2 Basic Methods for reducing risk
to make decisions about granting credit - to control all the debtors’ accounts and - to
collect debtors

For further reading click

[Link]
Here are seven basic methods to lower the risk of not getting your money.
Check a new customer’s credit record thoroughly.
Finding corporate information can be tricky, especially for emerging markets. Local
consulting firms may be able to help.
Building the customer relationship use that first sale to start.
Start laying the groundwork by discussing your credit terms with a new customer
before you extend credit. This will help you gauge the customer’s attitudes to credit,
and ensure that they clearly understand what you expect of them. Also consider using
a “master sales agreement” with a new customer, rather than relying on purchase
orders to set out credit terms.
Establish credit limits.
95
 To set a credit limit for a new customer, you can use tools such as: Credit-agency
reports, which can provide comprehensive information about a company’s financial
history. Bank reports, which should give details of the bank’s relationship with the
company, the company’s borrowing capacity and its level of debt. Audited financial
statements, which can provide a good view of the business’s liquidity, profitability and
cash flow
4. Make sure the credit terms of your sales agreements are clear.
A sales agreement that includes well-worded, comprehensive terms of credit will
minimize the risk of disputes and improve your chances of getting paid in full and on
time.
5. Use factoring.
To do this, you sell your receivable to a factoring company for its cash value, minus a
discount. This gives you your money immediately because you don’t have to wait for
payment—the customer will pay the factoring company instead of you. But make sure
the factoring is on a “non-recourse” basis, which means you’re not liable if the
customer defaults.
Develop a standard process for handling overdue accounts.
Your chances of collecting on a delinquent account are highest in the first 90 days
after the due date. If you have an established routine for dealing with late accounts,
start collection process when you sense a problem.

Activity 20

Exercise
What is Credit Management?
Outline the basic methods to lower the risk of not getting the
entrepreneur’s money?

Summary of Unit
This unit has discussed good financial management an enterprise. The
emphasis was on you to understanding business management
including financial management, records and stock as an occupation
that deals with the managing of business finances in an enterprise.
This unit has discussed how to manage human resources and
customer’s credit risk The emphasis was on you to understanding how
to build a long-term, trusted relationship in an enterprise

96
 END OF UNIT 5 TEST
MULTIPLE-CHOICE QUESTIONS
Choose the correct option for each of
the following. Write only the question A legal requirement that must be met before the
number and your chosen answer. For instance, if business can operate:
you think that the correct answer for number 1 is the testing of products
(a), then write it as 1. (a). registration with the Receiver of Revenue
The right to 'own' your idea so that no one else registration of the business' name
can legally copy it is called: All of the above.
copyright. The following is NOT a fixed cost:
a slogan. material
a patent. rent of factory
a logo. owner's salary
When employees are dismissed, resign or take depreciation of equipment
maternity leave, they are assured of an income Total costs refer to:
for a few months because of: direct material costs.
registration with the Unemployment indirect costs.
Insurance Fund. variable costs plus fixed costs.
registration with the Regional Services direct labour costs and indirect costs.
Council. Profit is the difference between:
registration with SARS. net profit and expenses.
registration with the Workmen's total income and total expenses.
Compensation Fund. fixed and variable costs.
(l) opening and closing stock. [6]
MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the statements in Column A. Write down the
answers only, for example 1. (a).

Column A Column B
1. sole proprietor (a) 1-10 members
2. close corporation (b) 2-20 members
3. private company (c) 1 member
4. partnership (d) 1-50 members

97
UNIT 6 GROWING AN ENTERPRISE

Unit Introduction

This unit will help you understand how to manage the enterprise growth process and the
major functions often performed simultaneously or as part of continuum in an enterprise

UNIT SPECIFIC LEARNING OUTCOMES

On completion of this Unit you will able to;

Identify possible growth avenues
Explain the Life Cycle of the Enterprise
Mobilise finance for growth

6.1 POSSIBLE GROWTH AVENUES

This session will help you be exposed to growth avenues engaged by an enterprise.
Session Learning Objectives
At the end of the session, you able to illustrate and state the life cycle of an enterprise
and outline enterprise growth strategies
Learners Outcome
At the end of the session, you should be able to apply duties and functions function
performed in an enterprise that facilitates an enterprise’s growth
6.1.1 Enterprise growth
For an enterprise to embark on a growth path, the entrepreneur must first clarify the long
vision of the enterprise and be able to mobilise necessary resources. The Enterprise
requires a clear strategy of how the vision will be achieved. At this stage, what is critical
to the success of the enterprise is:-
The owner’s goals for the business
The owner/manager’s strategic planning, and execution abilities
The operating systems that are in place

6.1.2 Indicators of Business growth

Growth in an enterprise can come in many Workforce
forms and there are many indicators of Market Share
enterprise growth. They include.
Demand
Profit
Revenue
Sales

98
 Sales volume as an indicator of enterprise growth

A growing customer base that results in increased sales volume can be a very good
indicates of the performance of an enterprise. Generally, consistent growth in sales
volume is an indication that the business is growing.

Profitability as an indicator of business growth

An enterprise can compare its profits over a period of time to determine if the
enterprise is growing stagnant or decline profits can be an indication that the business
is not growing.

Capital levels

The amount of capital available to an enterprise will determine to certain extent the level
of operation that an enterprise can undertake. Therefore, if the capital level in a business
in growing, it could be an indication that the business in growing, hence the need for
increased capital injection.

6.1.3 Strategies for enterprise growth

There are many growth strategies that an entrepreneur can embark on in order to grow the
business. It is up to the owner/manager of the business to assess the business
circumstances and decide on which growth path best suits the enterprise and a particular
point in time. Below are some of the strategies that an enterprise can use to grow:-

Growth through subcontracting

A growth strategy through subcontracting entails giving out extra business to outsiders
when an enterprise’s capacities accommodate it. For instance, a carpenter is requested to
supply one thousand (1,000) desks and his capacity can only supply five hundred (500)
desks; such a carpenter can subcontract another carpenter to produce the extra 500
desks.

Growth through mergers and acquisitions

A merger means two different enterprises, A and B coming together to form enterprise
C. While an acquisition is where a Company A, acquires company B and maintains the
name Company A and meanwhile Company B ceases to exist forthwith. The objective in
both cases to increase operating capacity, efficiency, and enterprise competitiveness.

Growth Strategies through Joint ventures

99
Sometimes growth may be achieved through a Joint Venture strategy, where Company
A and Company B go into a joint venture arrangement where Company C is created but
both Companies A and B continue existing in their own right.

For any strategy to be successful there must be a fit between the objectives of an
enterprise and the opportunity in the business environment. Strategies for growth should
therefore be crafted based on the growth areas identified as critical to the success of the
enterprise.

6.2 LIFE CYCLE OF THE ENTERPRISE

6.2.1 The Life Cycle of the Enterprise

An enterprise, like a human being or a product, has a life cycle. A human being ordinarily
is born and then he goes through various growth stages such as childhood, teenage,
adolescence, adulthood, and finally death. A product is introduced on the market, and
then it goes through the growth stage, then the maturity stage and finally the decline
stage where it eventually phases out. In the same way, an enterprise goes through a life
cycle, which involves the following five (5) stages:

For further reading click

Business Life Cycle - Understanding the
5 Different Stages

Figure 6.2.1: Life cycle of an Enterprise

Some tips on the Enterprise Life Cycle

100
The critical things to take note of during the different stages of an enterprise are the
issues that have been discussed through out this training manual. At every stage of an
enterprise’s life cycle, there is need for systematic, efficient and effective planning and
execution in order to lengthen the life span of that enterprise.

Just like a vehicle’s life span can be lengthened through appropriate repairs, maintenance
services and use of appropriate and recommended spares, an enterprise’s life span can
be lengthened through the use of appropriate and recommended entrepreneurial and
business management skills. An enterprise’s life cycle is in the hands of the entrepreneur
who owns it.

Different stages of an enterprise’s Life Cycle present different challenges and difficulties
to the managers of those enterprises. These stages are as follows: -

Launch stage is associated with slow sales, low or no profits and low consumer
acceptability. Demonstrate that this is a period of heavy expenses incurred with enterprise
development and introduction. Marketing activities in this stage are focussed on
persuading early adopters to buy, promotional pricing, limited distribution channels, and
promotions aimed at educating potential customers about the new enterprise.

Growth Stage is a period of rapid market acceptance and substantial profit

improvement. Demonstrate to trainees that in this stage, consumers accept the
enterprise and its products/services and begin to adopt it in greater numbers. The
enterprise activities revolve around building sales and market share, increasing
distribution channels and heavy promotion.

Maturity Stage is a period of a slow down in sales growth coupled with increased
competition. The enterprise activities largely involve luring the customers from
competitors, adding other product ranges, lowering prices and promotion focusing on
product differentiation and heavy sales promotion.

Decline Stage is a period where customers are looking for new products particularly
from new enterprises. Sales at this stage show a downward drift and profits begin to
erode. Activities in the enterprise at this stage mainly involve limiting as much as
possible, costs and seeking ways to make the enterprise much more appealing again.

Exit Stage is a period where it makes more economic sense to exit from the business
than to continue operating. At this stage it may be advisable to either relocate, sale
the business or close the enterprise all together

6.2.2 Strategies for Growth

From Enterprise establishment to survival

At the time of establishment and some time thereafter, an enterprise is preoccupied with
finding customers, delivering products/services. The organisational structure of the
business is simple and planning is usually minimal. At this stage, the entrepreneur who is
usually the owner manager is actively involved in every aspect of the business.

Business Maturity

At this stage, the business aims to establish sufficient customer base and a reputable
product/service portfolio to ensure viable business operations. Control of revenues and
expenses is critical at this stage in order to maintain a positive cash flow. This is the make
or break stage of the business.

However, once the enterprise has established itself with sufficient customer base and
has employed people in critical areas such as marketing, accounting and technical
operations, then the enterprise is set to embark on a growth park should the
entrepreneur so desire.

Activity 21

Exercise

[Link] are growth avenues?

[Link] barriers to enterprise growth
3. Outline the basic steps in an enterprise’s Life Cycle?

6.3 MOBILISATION OF FINANCE FOR GROWTH

This session will help you be exposed to understand how financial management takes a high
priority and how financial planning and monitoring systems are often tools used to mobilise
required finances for operations in a changing and competitive world in an enterprise.
Session Learning Objectives
At the end of the session, you be able to identify and discuss the mobilisation of finance
for growth in an enterprise
Learners Outcome
At the end of the session, you should be able to apply duties and functions performed in
an enterprise that facilitates the most effective way of mobilising finances for growth in
an enterprise
6.3.1 Mobilisation of Finance in an enterprise

Enterprises need to survive in this continuous changing global environment; entrepreneurs

need to develop necessary understanding and confidence to make full use of resource
mobilisation information, analyse and map source of finance for the enterprise.

6.3.2 Finance in an enterprise

Financing is the process of providing funds for business activities, making purchases or
investing. Financial institutions such as banks are in the business of providing capital to
businesses, consumers, and investors to help them achieve their goals. The use of
financing is vital in any economic system, as it allows companies to purchase products out
of their immediate reach.

[Link] What is of Role of Finance in an enterprise?

Finance is critical in just about every business decision, from planning and budgeting and
cash flow management to the capital structure and how you control risks and costs. You
wouldn't load the family in a car and head out for a vacation without having a map to
your destination, would you? It's the same with your business. You define where you
want the business to go, determine the objectives and then ask your financial people how
much it will cost to get there. These plans form the basis for hiring employees, capital
spending, raising capital, marketing campaigns and bonuses for management.

6.3.3 Financial Management

This is;
Finance is part of management as a whole.
Financial management involves: planning, organising, financing, controlling and
reporting on organisation’s resources to achieve set goals.
Financial management is the lifeblood of an enterprise.
When lifeblood has the correct mix of nutrients it nourishes and sustains the various
parts of the body providing energy to achieve its mission
In some way, sound financial management enriches the operation of an enterprise
and helps run efficiently and effectively
Financial management is about good use of resources available to an enterprise.
In practice it involves managing risks, both internal and external, in an organised and
considered way by establishing systems and procedures to bring about financial control

The following indicates the importance of Financial management in an

enterprise:

It assist in efficient management of resources such as cash, equipment, human and

time
It contributes to efficient allocation of resources
 It enhances accountability and transparency of enterprises’ affaires
It guides entrepreneurs (mangers) to achieve objectives

6.3.4 Financial key concepts

[Link] Financial control

At the heart of financial management is the concept of financial control. This is defined as
“a state of affairs which ensures that finances of an enterprise are being properly
handled”. To achieve this, policies and procedure have to be introduced. Without proper
financial control an enterprise is at risk of

Loss through theft, fraud or incompetence

Deviation from objectives
Waste of resources
Under-utilisation of resources

[Link] Accounting Records

Every organisation must keep accurate record of all financial transactions that take place
so that, as a minimum, it can show how funds have been used. Accounting records can
also provide valuable information about how the organisation is being managed

[Link] Financial Planning

The budget forms the basis for an organisations’ financial plan – a summary of all
expected income and expenditure for a stated purpose and time frame

[Link] Financial Monitoring

Providing the organisation has set a budget and as kept and reconciled its accounting
records in a clear and timely manner, it is then a simple matter to produce financial
reports which allows manager to access the progress of the organisation

[Link] Internal Controls

Controls, checks and balances – collectively reefed to internal controls are put in place to
safeguard the organisations’ assets. Their purpose is to deter opportunistic theft or fraud,
and to deter errors and omissions in the accounting records, to aid accuracy

6.3.5 Financial Needs for an Enterprise

Start – up capital. These are funds required to start up a business
Capital for expansion. This is required particularly for the purpose of acquiring fixed
asset such as buildings, machinery, equipment and land
 Working Capital. This is for purchase of row materials, financing of credit sales, paying
wages and meeting unexpected emergencies. Working capital may include cash in
hand or at the bank

6.3.6 Sources of finance

You need to know that sources of finance and assessing formal sources of finance will
determine the success of the Enterprise.

[Link] Traditional Sources of Finance

Personal savings. Most of the time this is not adequate
Loans from friends and relatives. This ranks second in importance as a sour of
finance. Usually no interest is paid on these finances
organised capital markets such as discount houses, leasing companies, saving
institutions such as insurance companies and commercial banks
Trade credits. These are usually offered by the suppliers of inventory which in the
case of small enterprises manufacturing units means row materials. Trade credit is a
form of working capital and is short term in nature
Unorganised capital. These are money lenders, sometimes referred to as local
capitalists (Kaloba)
Retained earnings. If the business is doing fine, part of the finance generated by the
business can be ploughed back

6.3.7 Conditions for accessing formal finances

Need for collateral and securities
prohibitive interest rates
stringent pay back periods
stringent process with a lot of decimations
At times loans can only be given to a group as opposed to an individual
6.3.8 Financial Statements
In business language, the accounts imply a set of reports or financial statements which
show the financial standing of an enterprise. Specifically, three are three major reports:
income and expenditure account (or profit and loss account)
balance sheet
cash flow statement

[Link] Income and Expenditure Account

It is produced from either the trail balance or on receipts and payment accounts. It
records as a summary
All categories of income and expenditure which belong to that year;
All income not yet received but belong to that financial year
All payments not yet paid but belong to that financial year
[Link] The balance Sheet
This is the listing of all the assets and 3 liabilities on one particular date and provides a
“snap short” of the financial position or net worth of an enterprise. It is prepared on the
fundamental relationship in accounting, that is, every addition to an organisation’s asset
is financed by either outside parties or by the owners

[Link] The Cash Flow Statement

The Cash Flow Statement explains where the funds came from and how they were
applied during the reporting period. This report is of much greater relevance to a profit
motivated enterprise where cash flows and investments are crucial to the enterprise’s
performance and survival

6.3.9 Accuracy of Financial Statements

The financial statement s of a company is examined by various parties, including
shareholders, bondholders, banks, government agencies, employees, suppliers, and
financial analysts. These parties are concerned that the statements present a fair and
accurate picture of a company’s financial position (i.e. assets, liabilities, earnings and cash
flows). Most companies hire external independent auditors to attest that the financial
statements reflect the financial position of the company

Activity 22

Exercise

Outline at least six (6) traditional sources of finance?

What are the risks of not having financial controls in an enterprise?

Summary of Unit
This unit has discussed how to make strategies for growth The
emphasis was on you to understanding how to craft growth areas
identified as critical to the success of the enterprise . we have also
discussed on how to mobilise finance for growth of an enterprise. The
emphasis was on you to understanding and how financial planning and
monitoring systems are tools used mobilise required finances
Reference materials

Contemporary Financial Management, Moyer R.C, Krettowe W.J 1996

Financial Accounting, Basley, Nikoli & Gowe
Informal Sector Business Activities in Lusaka Urban District, Tolosi M.S
& Nawiko M, 1997
Financial Assistance to Small Scale Industries, Kani F 1985
 END OF UNIT 5 TEST
MULTIPLE-CHOICE QUESTIONS
Choose the correct option for each of
the following. Write only the question
number and your chosen answer. For instance, if
you think that the correct answer for number 1 is
(a), then write it as 1. (a).
The right to 'own' your idea so that no one else
can legally copy it is called:
copyright.
a slogan.
a patent.
a logo.
When employees are dismissed, resign or take
maternity leave, they are assured of an income
for a few months because of:
registration with the Unemployment
Insurance Fund.
registration with the Regional Services
Council.
registration with SARS.
registration with the Workmen's
Compensation Fund.

A legal requirement that must be met before

the business can operate:
the testing of products
registration with the Receiver of Revenue
registration of the business' name
All of the above.
The following is NOT a fixed cost:
material
rent of factory
owner's salary
depreciation of equipment
Total costs refer to:
direct material costs.
indirect costs.
variable costs plus fixed costs.
direct labour costs and indirect costs.
Profit is the difference between:
net profit and expenses.
total income and total expenses.
fixed and variable costs.
(t) opening and closing stock. [6]
MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the statements in Column A. Write down the answers only, for
example 1. (a).

Column A Column B
1. sole proprietor (a) 1-10 members
2. close corporation (b) 2-20 members
3. private company (c) 1 member
4. partnership (d) 1-50 members
UNIT 7 ESTABLISHING BUSINESS NETWORKS
Unit Introduction
This unit will help you understand how to manage the process of networking and it is a
skill to seek and provide resources to a grouping with similar [Link] an enterprise

UNIT SPECIFIC LEARNING OUTCOMES

On completion of this Unit you will able to;

Identify networking agenda
Identify business networks
Join business networks
Attend business forums
Evaluate and control business networks

6.1 NETWORKING AGENDA

This session will help you to explain the establishments of business networks and their
importance

Session Learning Objectives

At the end of the session, you able to state the functions and importance of networks and
networking in enterprise development
Learners Outcome
At the end of the session, you should be able to develop business networks to support
your enterprise in various areas as such market information, production techniques and
management tips

What is networking agenda and business networks?

Networking is when a group of entrepreneurs come together with a common agenda and
a determined script to provide to each support for the sake of their business. A network is
a group of entrepreneurs sharing information and supporting each to develop their
businesses. If you spend a bit of time checking in your community you may find a
network relevant for your needs
Networking is a must have skill for a business person most especially for entrepreneurs. It
is very profitable to establish contacts with individuals whose help you will need in future.
Simply networking is meeting people who can be of help to you and being a help to them.

Importance of networks and networking in enterprise development

Networks are important for the following reasons:

Networks help you market yourself and your business at the least cost;
Every person you meet has other people who also know others who can assist you
A link to a network is connection to a resource base at a low cost
Creates good well and trust in the business circles
It provides you with potential opportunities
The role of networks and networking in a business environment

The role of networking in networks is mainly business development. Business

networking serves many purposes including the following:

Sales promotion,
General marketing,
Recruiting,
Knowledge exchange, and
Business development
Principles of networking

To successfully network you must apply the following norms:

Giving and receiving – as much as you want to receive you must also be ready to give;
Contributing and accept support – you expected to contribute support to others as well
as being ready to accept support;
Offering and requesting – you will be offering on regular information and you should
also request for information;
Promoting others needs and yours – you may have received information that someone
in the network needs some support and it is your responsibility to inform others of that
need. You must, when needs arise, mention the needs to members of the network.
Trust and persistence – in a network you must develop trust because mistrust can create
conflict.
Establishing networks
To establish a network start with people you know already. The starting point is to
develop network map. The first thing you need to do is to write a list of people you know
what they do and where. Write down useful details of people you will meet on a daily
basis.
Network Map: The Entrepreneur = a SPIDER in his environment

Socio-cultural
Environment Family
Suppliers

Real
Community estate

Figure 7.1.1: Entrepreneur’s network

Steps to establishing a network

Start with your family and friends;

Attend social gatherings;
To be prepared to communicate quick, brief and focused information about you;
Get to know yourself well;
Prepare informative business cards;
Carry with you your business cards to all gatherings, meetings and travels,
Present your skills not your job;
Develop a tracking systems of contacts;
Create relationships with the business cards;
Listen more and talk less;
Develop and use your ability to ask questions;
Conduct follow up actions decisively, timely and consistently;
Do not make empty promises;
Look for unique opportunities;
Establish long term business contacts and referrals;
Develop a data bank;
Conduct follow ups on contacts;
Ask for who, places, how to do it, steps, recommendations, connections, contacts and
timings,
Socialise at gatherings and be visible,
Listen, learn, persist, and maintain contact
Identifying Business Networks

When we talk about networking or collaboration of knowledge sharing, we often assume

that this refers to what is occurring within the enterprise. The fact is that there are two
types of collaboration: internal and external networks

Internal Network

Internal networking is a process of reaching out to and connecting with colleagues within
your organization, even if your job doesn’t require you to do so.

An internal networking initiative will look different from one organization to another,
depending on your goals, budget, tools, and needs. Regardless, the most important piece
is making resources available to help employees connect.
Benefits of Internal Network

Improve job satisfaction

When employees are connected, the work atmosphere get more enjoyable. Being
connected with coworkers helps employees make strong connections. Internal networking
among employees from different department help employees understand the business
better and increase their job satisfaction.
Improve internal communication

This one is obvious. When your employees are connected, internal communication within
the organization is much better and more productive. Having internal networks help
employees communicate more often, get to the answers faster and collaborate more
efficiently on solving problems. Poor employee communications cause poor company
culture and it negatively effects employee motivation.
Increase employee motivation

Employee networking increase employee motivation. Being connected with coworkers and
have the ability to collaborate easily, makes employees more motivated to achieve their
goals and eliminate challenges.
Increase employee productivity

Better internal communication can make your workplace more productive. Internal
networks help an easy information flow which allows employees to find relevant
information faster. Consequently, employee doesn’t have to waste time to find
information important for them to do their jobs more efficiently.
Increase employee engagement

According to research about employee engagement, 90% of leaders understand how

important employee engagement is. However, only 50% of them know how to address
this issue. Here, internal networks play a crucial role. It has been proven that companies
with better employee connections have much higher rates of employee engagement.
Encourage employee advocacy

Employee advocacy is a benefit many companies are trying to encourage. The ability to reach
employees’ external connections can have a big impact on the company’s visibility, brand
awareness and productivity. In order to achieve employee advocacy, employers have
to be ready to work on creating efficient internal networks. They need to keep employees
in the loop and share important content them.
Improve employee retention

High employee turnover is one of the biggest problems companies face today. The cost of
an employee leaving is significant. Therefore, many employees try to avoid that expense.
Employee retention can be improved in many ways, and internal networks are one of the
best solutions. Employees who are not connected to other employees feel frustrated and
isolated. As a result, they feel insecure and often consider new job opportunities.

Encourage knowledge sharing

A knowledge sharing culture helps companies manage and curate information and thus
protect employees from information overload. Internal networks and knowledge sharing
systems create real value for companies by accelerating learning processes, innovation
and creative processes.
Encourage more innovations

When employees are networked and communicate daily, exchange of ideas is much
easier and faster. Therefore, having internal networks can really help your kick start
innovations at your company.
Employee empowerment

Millennials and generation Z want to be involved in many aspects of a business. They want to
have a certain level of decision-making power. This is called employee empowerment. It
means giving employees responsibility and autonomy to manage their own work and make
decisions to achieve their own goals. In order to empower your employees, you need to have
internal networks that help employees connect and communicate more easily.
External Networks

External networks are professional relationships and contacts developed outside the
workplace. By external networking, we mean networking from the perspective of business
development as well as the expansion of your own exposure and your companies
business through word of mouth referrals.
Benefits of external Networking
Shared knowledge with new professionals

One of the greatest benefits of a networking group is speaking with professionals from
different industries who can reveal new tips you can translate into growth and sales. After
all, it’s the differing points of view within a networking group that makes it so effective for
growth and change. Likewise, you can share lessons you’ve learned with other
professionals. Doing so can help others and help you avoid making mistakes in the future.

Uncover opportunities

Networking groups almost always generate opportunities. Common opportunities include

partnerships, service requests, or traditional leads. And, because many groups limit members
by trade, you will reap the full benefits of any leads that come through the group.
Build connections

Growing a business can be an inherently lonely venture. Networking groups buffer this
issue by connecting you with like-minded professionals in your local area. Having a go-to
group to turn to for advice and expertise is beneficial both personally and professionally
for all aspects of business.
Increase confidence

Most professionals view networking as a way to obtain more business. However,

networking is about increasing confidence as well.
Networking groups force you to talk to people you don’t know and build relationships,
which is challenging for many people. By doing so successfully and building meaningful
relationships, you can increase your confidence and improve personal skills that translate
well for business.
Increase visibility

Visibility is an overlooked benefit of networking. After all, most businesses don’t think
about how visible they are in the community. However, this can be an important factor
for any company’s success.
For example, Kingdom Business Forum members regularly volunteer in the community. Doing
so means you will be recognisable and notable to more than just the other members of the
Forum as well. At a more basic level, building relationships with other local
professionals boost your personal and professional prestige, giving your company greater
notoriety and making you an expert in your industry
Business forum

A forum is a place, situation, or group in which people exchange ideas and discuss issues,
especially important public issues.
From the above definition it can easily be deduced that a forum is a place of meeting of
people of the same interest, to discuss issues as it may concern them, usually a public or
general issues. A forum can be a club forum, a legal forum, professional forum or even a
social forum. Hence, a business forum could be defined as a Public medium (such as a
newspaper column) or place used for business related debates in which anyone can
participate in General business discussion, advice and assistance and the following are
the different types of Entrepreneur Forums: Annex 5
Benefits of Business Forums
Business forums can benefit business in a number of ways. The following are some of the
ways businesses can benefit:
Business Referrals

One of the greatest benefits of joining a business forum is new business opportunities.
Members often seek other members out for particular trades, and the conversion rate of
a pitch for new custom between members of a business forum is often much higher than
when pitching normally. In addition, there are often opportunities to collaborate with
members of the network who work in similar fields to yourself, which in turn generates
more business.

Promotion

As well as gaining more business from within the forum itself, there are often opportunities to
gain promotion for your brand. For example, members' businesses are often displayed on the
forum's website, and promoted on their social media. Members are often advertised as
'recommended businesses', signaling to a mark of trust for those who come across the
website seeking a particular trade. Sometimes there can also be other promotional
opportunities such as advertising on local radio, or in promotional material, for example.

Exchange of Ideas

Another key benefit is the opportunity to exchange ideas with other members. Whether
you're actively looking for advice on a particular subject from someone in a specialist trade,
or whether ideas are sparked by conversation with likeminded peers, you'll gain valuable
insights into your own business which you may never have thought about otherwise.
Similarly, there are often opportunities for more formal development and training
sessions, too.

Socializing

Socializing is a surprisingly important part of any business and shouldn't be

underestimated. If you work alone, you may well benefit from the social aspect of joining
a business forum, even if only online, as you'll be exchanging ideas with like-minded
business people. If you work as part of a team, it's still often a good chance to converse
with other professionals who are at similar points with their own business.
Evaluating and controlling business Networks
Business networking is an effective low-cost marketing method for developing sales
opportunities and contacts, based on referrals and introductions - either face-to-face at
meetings and gatherings, or by other contact methods such as phone, email, and
increasingly social and business networking websites.

Sustaining business networks

Pay attention to people.
Check in with people when you need to. This may take only a few minutes a week, but
those few minutes can make the difference in helping your friend or co-worker remember
the importance of the work you are doing together.

Communicate openly
People need to communicate. It's a good idea to set aside some time just to talk about
the way things are going. When people don't have a chance to talk about important
issues, misunderstandings can occur and tensions often build up. Communication is a
discipline that has to be practiced regularly; it's like taking vitamins or doing push-ups.

Appreciate each other

Everyone needs to be appreciated in order to keep relationships going. If you notice that
someone did a stellar job of collecting the necessary data for the committee, say so. If
you enjoy working with someone, let them know. We are all human beings and
appreciation helps us thrive.
Extend yourself. Go a little out of your way, at least once in a while. If your co-worker
needs to spend some extra time with his daughter, you might tell him go home early and
you'll finish up the grant proposal.

Challenge each other to do better

We all need a buddy to help us stretch ourselves beyond what we think we can do. We
can also build stronger relationships by challenging our work partners to take on bigger
challenges.

Back each other when things get tough

Loyalty is essential to keeping relationships healthy. We may not agree with a co-worker
or friend, but we can stand by him or her when they are in a jam.
 Summary of Unit
This unit has discussed how to establish business networks for an
enterprise. The emphasis was on you to understanding Networks and
Exercise
the importance for linkages in supporting business and how to develop
1. Discuss a profitable network map for an enterprise

the importance of networking as an entrepreneur. (5marks)

Identify the different types of business forums with examples. (5 marks)
Explain how you can sustain business networks? (5 marks)
Reference materials

Financial Assistance to Small Scale Industries, Kani F 1985

Mathew Sartwell and Napoleon Hill (1995), Keys to Success, Piatkus,

London
Starkey Paul (1997), Networking for Development, IFRTD, New
Premier House, London,
Warner Jon (2000), Networking Management Pocketbooks, Hants
 Compensation Fund.
END OF UNIT 5 TEST
A legal requirement that must be met before
MULTIPLE-CHOICE QUESTIONS the business can operate:
Choose the correct option for each of the following. the testing of products
Write only the question number and your chosen registration with the Receiver of Revenue
answer. For instance, if you think that the correct registration of the business' name
answer for number 1 is (a), then write it as 1. (a). All of the above.
The following is NOT a fixed cost:
material
The right to 'own' your idea so that no one else
rent of factory
can legally copy it is called:
owner's salary
Copyright. depreciation of equipment
A slogan.
A patent. Total costs refer to:
A logo. Direct material costs.
Indirect costs.
When employees are dismissed, resign or take Variable costs plus fixed costs.
maternity leave, they are assured of an income Direct labour costs and indirect costs.
for a few months because of:
Registration with the Unemployment Profit is the difference between:
Insurance Fund. Net profit and expenses.
Registration with the Regional Services Total income and total expenses.
Council. Fixed and variable costs.
Registration with SARS. Opening and closing stock.[6]
Registration with the Workmen's
.

MATCHING-STATEMENT QUESTIONS
Match the statements in Column B to the statements in Column A. Write down the answers only, for
example 1. (a)

Column A Column B
1. sole proprietor (a) 1-10 members
2. close corporation (b) 2-20 members
3. private company (c) 1 member
4. partnership (d) 1-50 members
[4]
[10
]

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UNIT 8 EXITING A BUSINESS
UNIT INTRODUCTION
This unit will help you understand how to strategically plan to sell your ownership in a
company to investors or another company

UNIT SPECIFIC LEARNING OUTCOMES

On completion of this Unit you will able to;
Design exit strategies
Design a succession plan
Explain estate management

8.1 DESIGNING BUSINESS EXIT STRATEGIES

This session will expose you to understanding how to design an Exit strategy when
managing a business in order to minimize loses, closing the business which would enable
you to limit losses for your enterprise.
Session Learning Objectives
At the end of the session, you able to reduce or liquidate your stake in a business and, if
your business is successful make a substantial profit by selling it
Learners Outcome
At the end of the session, you should be able to apply different exit strategies to achieve
organizational and individual goals
Business Exit strategies in an enterprise

A business exit strategy is an entrepreneur's strategic plan to sell his or her ownership in
a company to investors or another company. An exit strategy gives a business owner a
way to reduce or liquidate his stake in a business and, if the business is successful, make
a substantial profit. If the business is not successful, an exit strategy (or "exit plan")
enables the entrepreneur to limit losses. An exit strategy may also be used by an investor
such as a venture capitalist in order to plan for a cash out of an investment

Exit strategies
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The following are the different exit strategies discussed in this module Business
Exit Strategy
Mergers
A merger is an agreement that unites two existing companies into one new company. It is
a strategy adopted by the company to maximise company’s growth by expanding its
production and marketing operations, that results in synergy, increased customer base,
reduced competition, introduction to a new market/product segment, etc. There are
several types of mergers and also several reasons why companies’ complete mergers.
Types of mergers

Horizontal Merger:

The merger is said to be horizontal when the companies that are combined operate in the
same industry or deal in similar lines of business. The market share of the newly formed
company is greater than the individual entities. It is aimed at reducing competition,
increasing market share, economies of scale and research and development.
Vertical Merger:

Vertical merger takes place when companies are having ‘buyer-seller relationship’, join to
create a new company. It is an integration of two companies that are working in the
same industry, though at a different stage of production and distribution. It can be
upstream or downstream, i.e. where the business takes over its suppliers, then it is an
upstream merger while if the company extend to its distribution entities, the merger is
termed as downstream.
Conglomerate Merger:

A type of business integration, in which the merging companies are not related to each
other, i.e. neither horizontally nor vertically. In a conglomerate merger, two or more
companies operating in different business lines combine under one flagship company.
This is further divided into, managerial conglomerate, financial conglomerate and
concentric conglomerate.

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Co-generic Merger:

Co-generic merger is when the companies undergoing merger operate in the same or
related industry. However, their product lines are different, as in they do not offer same
products but related one. The acquired and target company share similar distribution
channels.
Reverse Merger:

A merger wherein a publicly listed company is taken over by a privately held company
and provides an opportunity, to the private company to go public, without going through
the complex and lengthy process of getting listed on the stock exchange. In this type of
amalgamation, the unlisted company acquires majority shares in the listed company.
The main benefit of mergers to the public are:

1. Economies of scale.

This occurs when a larger firm with increased output can reduce average costs. Lower
average costs enable lower prices for consumers.
2. International competition.

Mergers can help firms deal with the threat of multinationals and compete on an
international scale. This is increasingly important in an era of global markets.
3. Mergers may allow greater investment in R&D

This is because the new firm will have more profit which can be used to finance risky
investment. This can lead to a better quality of goods for consumers. This is important for
industries such as pharmaceuticals which require a lot of investment. It is estimated 90%
of research by drug companies never comes to the market. There is a high chance of
failure. A merger, creating a bigger firm, gives more scope to tolerate failure,
encouraging more innovation.
4. Greater efficiency.

Redundancies can be merited if they can be employed more efficiently. It may lead to
temporary job losses, but overall productivity should rise.
5. Protect an industry from closing.

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Mergers may be beneficial in a declining industry where firms are struggling to stay
afloat. For example, the UK government allowed a merger between Lloyds TSB and HBOS
when the banking industry was in crisis.
6. Diversification.

In a conglomerate merger, two firms in different industries merge. Here the benefit could
be sharing knowledge which might be applicable to the different industry. For example,
AOL and Time-Warner merger hoped to gain benefit from both the new internet industry
and an old media firm.
Acquisitions

An acquisition is defined as a corporate transaction where one company purchases a portion

or all of another company’s shares or assets. Acquisitions are typically made in order to take
control of, and build on, the target company’s strengths and capture synergies. There are
several types of business combinations: acquisitions (both companies survive), mergers (one
company survives), and amalgamations (neither company survives).
Benefits of Acquisitions

Acquisitions offer the following advantages for the acquiring party:

1. Reduced entry barriers

With M&A, a company is able to enter into new markets and product lines instantaneously
with a brand that is already recognized, with a good reputation and an existing client
base. An acquisition can help to overcome market entry barriers that were previously
challenging. Market entry can be a costly scheme for small businesses due to expenses in
market research, development of a new product, and the time needed to build a
substantial client base.
2. Market power

An acquisition can help to increase the market share of your company quickly. Even though
competition can be challenging, growth through acquisition can be helpful in gaining a
competitive edge in the marketplace. The process helps achieves market synergies.
3. New competencies and resources

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A company can choose to take over other businesses to gain competencies and resources
it does not hold currently. Doing so can provide many benefits, such as rapid growth in
revenues or an improvement in the long-term financial position of the company, which
makes raising capital for growth strategies easier. Expansion and diversity can also help a
company to withstand an economic slump.
4. Access to experts

When small businesses join with larger businesses, they are able to access specialists
such as financial, legal or human resource specialists.
5. Access to capital

After an acquisition, access to capital as a larger company is improved. Small business

owners are usually forced to invest their own money in business growth, due to their
inability to access large loan funds. However, with an acquisition, there is an availability
of a greater level of capital, enabling business owners to acquire funds needed without
the need to dip into their own pockets.
6. Fresh ideas and perspective

M&A often helps put together a new team of experts with fresh perspectives and ideas
and who are passionate about helping the business reach its goals.
Acquisition vs. Merger

Mergers and Acquisitions (M&A) are similar transactions, however, they are significantly
different legal constructs.
In an acquisition, both companies continue to exist as separate legal entities. One of

the companies becomes the parent company of the other.

In a merger, both entities combine and only one continues to survive while the other

company ceases to exist.

Debentures

A debenture is an instrument used by a lender, such as a bank, when providing capital to

companies and individuals. It enables the lender to secure loan repayments against the
borrower’s assets – even if they default on the payment.

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A debenture can grant a fixed charge or a floating charge. A fixed charge is normally taken
out against a tangible asset such as property. It enables the lender to take ownership of the
borrower’s assets and sell them off in the event of a payment default. With a fixed charge,
the borrower would not be able to sell the asset without the lender’s consent.
A floating charge – which is usually attached to assets such as shares, raw materials and

intellectual property – implies that the assets may change over time, and the borrower can

sell them without the lender’s intervention. However, floating charges may become fixed if

the borrower defaults.

Management buyout

In its simplest form, a management buyout (MBO) involves the management team of a
company combining resources to acquire all or part of the company they manage. Most of
the time, the management team takes full control and ownership, using their expertise to
grow the company and drive it forward.
Advantages of a Management Buyout

Management Buyouts are simple and easy to arrange

Rather than having to invest significant amounts of time and energy (not to mention
money) into marketing your business in the hopes of finding a suitable third party buyer,
with a MBO your buyers are already on your doorstep. This means that MBO’s are usually
quicker, cheaper and easier. The contracts and sales process itself for MBO’s are also
usually much simpler as the buyers already have intimate knowledge of the company and
so minimal due diligence is required.
Confidentiality can be maintained

As you are selling to internal buyers, confidentiality surrounding the sale can be much
more easily maintained. Not only can this ensure the continuation of confidence in the
business by clients, suppliers and staff, it also means that potentially sensitive company
details do not have to be divulged to external parties, which always carries an element of
risk, even if they have signed a Non-Disclosure Agreement.
High Chance of Success

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In general, companies purchased through a MBO have a higher chance of ongoing
success and profit, than those that have been bought by an external buyer. This is
normally attributed to the fact that the new owners already have an in-depth knowledge
of the business and so are able to hit the ground running and often swiftly implement
organisational and procedural changes that they have identified the need for and planned
for several years prior to the MBO. It is also easier to maintain relationships with key
clients and suppliers that can be vital to the success of the business.

Disadvantages of a Management

Buyout Difficulties of Raising Funding

In many cases the current management team are not able to raise enough capital to fund
an MBO themselves. This is generally due to lack of personal wealth and/or the business
experience required to raise high enough levels of personal funding. In these cases,
funding is often sourced from banks or private equity firms. However, this can result in
large amounts of debt being amassed at the very beginning of the ownership which can
increase pressure on the business to perform. Also, especially in the case of private
equity firms, this can change the dynamics of the ownership team with there being an
extra external party at the table meaning that the new owners could still end up being
answerable to someone after all.
Lack of Business Ownership Experience

In many cases the incumbent management team may be highly experienced in running a
business, but less so in the very different field of owning one. It is often difficult to quantify
exactly what qualities are required to be a successful business owner, however it tends to
become quickly apparent if the new ownership team is not in possession of them.
Insider Trading Risks

There have been some instances of the incumbent management team taking steps to
reduce a company’s profitability in the run up to a Management Buyout, in hopes of
reducing the purchasing price. Therefore, the departing owner must still ensure that they
are keeping a very close eye on both the business and the sale before their departure.
Managing the Current Owner’s Departure

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Striking the right balance between letting the new owners take the reins and ensuring that
vital company information and contacts are not lost with the departure of the current owner
can often be difficult, especially if the current owner is maintaining an equity stake. It is often
prudent to engage the services of an external professional to draw up to terms of any
handover period to ensure that this can be managed smoothly and effectively.

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8.2 SUCCESSION PLAN
This session will expose you to understand how to design a Succession plan when
managing a business in order to help you to smoothly transition out of your management
roles for your enterprise.
Session Learning Objectives
At the end of the session, you able to reduce or liquidate your stake in a business and, if
your business is successful make a substantial profit by selling it
Learners Outcome
At the end of the session, you should be able to apply different succession plans and
strategies to achieve organizational and individual goals
Succession plan
At some stage you will decide to leave your business; perhaps you have decided to sell,
retire or do something else. Regardless of the reason, having a succession (or exit) plan
in place will help you to smoothly transition out of your business. The process of planning
for the day a business owner decides to step down from their leadership role. No one
goes through the work, risk, and sacrifice of starting a business without hoping it will
last. Building value that endures is the dream that motivates entrepreneurs. Yet in many
businesses, too little of that work goes into determining who will take over when the
founders leave the stage.

For further reading click

Succession Planning Definition

The need for planning Succession planning is a multidisciplinary process. When you engage in
succession planning, you’re not just focusing on the future, because it’s impossible to plan for
the future without a deep understanding of the present. Leaders have to know the current
reality of their businesses - how they operate, where the value lies, what their needs are,
who their most vital customers are and why. In order to prepare for new leadership and new
structures that can provide continuity in the ways that matter.

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There are many benefits for companies and owners who plan properly and strategically
for an orderly transition of management and ownership. The following are some of the
benefits:
Survival and growth of the business or its assets — under the current structure or
after sale or restructuring
Preservation of harmony when the business is family owned
Reduction or elimination of estate and income taxes
Facilitation of retirement for the current leadership generation
Ability to retain control of the process instead of having someone else make decisions
Here are some steps to take for succession planning.
Find Successor
If you are passing the business to a family member, you may consider transferring
ownership through your estate planning process. Often, however, new management
comes from your pool of existing employees. If you have a larger business such as a
corporation, succession planning involves preparing people for management and
leadership roles in order to replace you or other managers when the time arises.
Finding your replacement is difficult so plan ahead, it is best to start early. Leaders are
not always easy to find and it takes time to mentor someone into a management role.
You will need to identify potential successors in your family or among employees. You can
hire from outside the company, but it’s helpful to groom someone already in your
business, over a period of time, so the transition to new leadership will be smooth.
Train Successor / Mentor Successor
Once you have successors identified, deliberately create a training plan to ensure that
everyone involved has time to learn the skills, gather the information, and practice the
leadership roles critical to the future success of the business.
Whether you are transferring a business to a family member or you are promoting
employees into leadership roles, you need to plan ahead. A succession plan takes into
consideration the development of future leaders’ skills and abilities. The plan should
deliver a return on your business’s training investment by providing for your successors’
advancement while simultaneously ensuring your successors don’t leave your business.
Even if someone leaves, a current employee should be ready to step into the vacated role.

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As the need arises, with good succession planning, employees or family members are
ready for new leadership roles.
Importance of Mentorship

Mentoring means taking personal interest in seeing that a mentee develops the talent and
knowledge needed to succeed, to have a successful career and contribute as much as
possible to the company and society. Mentorship is such an important part of personal
and professional growth that a lot of corporate companies have established mentorship
programmes. Here’s why we need mentors in the workplace:
Important skills and knowledge are passed on from mentor to mentee.
Mentors help you cross that bridge between knowing and doing by passing on their skills
and knowledge that they have acquired throughout the years. Although there might be
generation gaps, background differences or diversity, this is exactly what mentors are
supposed to bring to the table to give mentees insights into various situations and
scenarios. Mentors pass on what they have learned and in turn mentees can learn from
their mistakes and experiences.
Supportive relationships are formed.
A mentor gives a mentee access to a supportive relationship. A mentor becomes the
mentee’s ‘go-to person’ which is someone where he/she can get advice from and
assistance into how to deal with situations and how to respond or react.
Mentors give objective advice and constructive criticism.
Mentors are authentic and objective people. They will tell you straight up if you need to
change your attitude or how to deal with situations. With mentors, there are no guessing
games or feelings spared, but the criticism and advice are still constructive, tactful and
supportive.
Mentors help with setting reasonable and reachable goals,
Creating necessary boundaries and practicing the right disciplines to align your
professional and personal growth.
Mentors become the mentee’s cheerleader and confidence-booster.
They motivate and inspire mentees to go all the way. To never stop trying, and through
this, they motivate each of them to focus on developing endurance.

134
The mentorship becomes mutually beneficial and personally rewarding for
both parties.
Mentors are proud to be part of the mentees journey and in turn, mentees feel honoured
and invested in. When you are a mentor it doesn’t mean that there is nothing to be learned
from the experience. Mentors also learn from their mentees.
Mentors are usually well connected within the arena they operate in.

This opens up a lot of networking opportunities for mentees. Mentors usually introduce
their mentees and try to assist them in climbing the ladder to success. After all, mentors
want to see their mentees succeed.
SWOT Analysis

SWOT analysis is a planning methodology that helps organizations build a strategic plan
to meet goals, improve operations and keep the business relevant. During SWOT
analysis, organizations identify strengths, weaknesses, opportunities and threats (the
four factors SWOT stands for) pertaining to organizational growth, products and services,
business objectives and market competition.

8.3 ESTATE MANAGEMENT

This session will expose you to design a Successful Estate management plan when
managing a business in order to help you to smoothly transition out of your management
roles for your enterprise.
Session Learning Objectives
At the end of the session, you able to develop a successful estate management plan for
your business and, if your business is successful make a substantial profit by selling it
Learners Outcome
At the end of the session, you should be able to develop an estate management plan to
help achieve an individual’s interest in managing their properties and achieve optimum
returns.
Estate Management?
Estate Management can be defined simply as the management of urban and rural buildings to
make money for the owner. Estate management can also be defined as an art of science

135
of directing and supervising of one’s interest in land or landed property in other to
achieve some optimum returns which may not only be financial but political, social
statute, prestige and other returns.

For further reading click

Introduction to Estate Management

Factors that affect estate management

Economic factors that affect estate management can be as a result of demand and
supply of resources within the country. The economic status of the country can affect
estate management. Nevertheless, cost of land inputs also affects estates economically.
Labour and capital been the land inputs in estate management can posse a treat to
estate management profession.
Technological factors and increase in scientific innovations can affect estate
management especially if a manager or property owner doesn’t update himself with the
recent technologies because poor housing design will lead to low or decreased demand
for such property and the financial returns of that property would be affected.
Social factors like the norms and customs of places can affect the use of land in an area.
The social life and culture of a locality can affect estate management.
Legal factors like the civil and legal laws of a place can affect the practice of estate
management in any place. Laws like the land laws, taxation laws and other property laws
can affect estate management simultaneously.

Aims and objectives of estate management

As property owners are everywhere, so are the aims and objectives of estate
management are. Nevertheless, there are some vital aims and objectives of estate
management in a given place. These include:

136
 To satisfy economic need of an individual which can either be accommodation or
otherwise.
Estate management is aimed at providing profit to prospective estate owners
especially in the private sectors whose aim is to get financial returns from their real
estate or investment as the case may be.
For independence as we can see, estate management is aimed at providing individuals
with opportunities of been independent from others by providing various investment
opportunities for these individuals.
Estate management aims at providing individuals with social status and prestige which
implies that property owners need not to be interested in acquiring financial returns
but to maintain a hierarchy in the society by the properties they have.
For political status means that it provides prospective political aspirants the
opportunity to meet up to their expectations.
Estate management makes it possible for one to get social benefit in form of
government of a state developing parks and roads and hospital and other social
infrastructures that will aid public services.

Summary of Unit
This unit has discussed how to design an exit strategy based on many
factors, to continue to run in the same way or able to change it way
forward for a paid a fair price for the ownership share. Design a
succession plan and estate management plan that helps you to
maximize your profits. The emphasis was to develop an exit strategy in
Exercise the initial business plan before actually going into business
1. Discuss the importance of SWOT analysis in setting goals. (5marks)
Discuss the challenges business is likely to face at its point of exiting.
(5 marks)
What is the importance of estate management in Zambia? (5 marks)

Reference materials

CHIDDICK D. and MILLINGTON A. (1983): Land Management: New Directions, E. & F. N.

Spon. London.

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 END OF UNIT 5 TEST
MULTIPLE-CHOICE QUESTIONS
Choose the correct option for each of the following.
Write only the question number and your chosen
answer. For instance, if you think that the correct
answer for number 1 is (a), then write it as 1. (a).
Mentors pass on what they have:
Imagined.
Learned.
Corrected.
Seen.
Properly and strategically for an orderly transition
of management and ownership:
Strategic planning.
Investment planning.
Succession planning.
Business planning.

A merger is an agreement that unites:

two existing companies into two new
companies
One existing company into two new
companies
two existing companies into one new
company
One existing company into one new
rebranded company
The following is a SWOT analysis representation:
Strength
Smart rent of factory
Strength salary
Strategic of equipment
One of disadvantage of a Management Buyout is:
Direct material costs.
Raising Funding.
Human resource.
Stake holders.
Estate Management is the basic meant to:
Make money for the owner.
Make pay to total expenses.
Make recovery on operational variables.
Make records and account for infrastructure
[6]

138
MATCHING-STATEMENT QUESTIONS

Match the statements in Column B to the statements in Column A. Write down the answers only, for
example 1. (a).

Column A Column B
1. Reduce or liquidate your stake (a) Planning methodology
in a business
2. A corporate transaction where (b) reduce stake in a business
one company purchases a
portion
3. Exit strategy (c) profit by selling it
4. SWOT analysis is a (d) Acquisition
[4]
[10]

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