ENTREPRENEURSHIP EDUCATION

INTRODUCTON
This module unit is intended to equip the trainee with necessary knowledge, skills, values and
attitudes that will enable him/her to plan, start, operate and manage a personal, group, private or
public enterprise effectively. It is also intended to instil in the trainee the drive necessary to
venture into profit making activities.

GENERAL OBJECTIVES
By the end of this module unit, the trainee should be able to;-
a) Appreciate the importance of entrepreneurship.
b) Acquire entrepreneurial competencies necessary for planning, starting and managing a
business
c) Demonstrate positive attitude towards self employment.
d) Portray a desire to venture into business
e) Identify viable business opportunities
f) Demonstrate entrepreneurial behaviour in planning, starting and managing a business
enterprise.
g) Demonstrate creativity and innovation in their day to day business activities
h) Appreciate the role of business planning
i) Appreciate the emerging issues and trends related to the business environment.

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COURSE UNIT SUMMARY AND TIME ALLOCATION

CODE SUB-MODULE UNIT SUB-TOPIC TOTAL

TIME(HRS) TIME
THEORY PRACTICAL ( HRS)
1 INTRODUCTION TO • Definition of terms 1 1 2
ENTREPRENEURSHIP • Differences between self and
salaried employment
• Contribution of
entrepreneurship towards
national development

2 EVOLUTION OF • History of entrepreneurship 2 2 4

ENTREPRENEURSHIP • Economical political and
social factors affecting
entrepreneurial development

3 ENTREPRENEURIAL • The entrepreneurial culture 2 2 4

CULTURE • Cultural factors that promote
entrepreneurial development
• Cultural factors that inhibit
entrepreneurial development
• Ways of managing factors
that
4 THE ENTREPRENEUR • Myths associated with 4 2 6
entrepreneurship
• Types of entrepreneur
• Characteristics /traits of an
entrepreneur
• Roles of an entrepreneur in an
enterprise

5 ENTREPRENEURIAL • business ideas 3 1 4

OPPORTUNITIES • business idea generation
• sources of business ideas
• identification and evaluation
of business opportunities
• matching competences with
business opportunities.

6 STARTING A SMALL • forms of business ownership 4 2 6

BUSINESS • factors to be considered when
starting a small enterprise

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• procedure of starting a small
enterprise
• business life cycle
• challenges faced when
starting a small enterprise
• Resources for a business
7 ENTERPRISE • Definition of terms 2 2 4
MANAGEMENT • managing enterprise resources
• managing the business
finances
• business records
• business support services
• marketing activities in a small
enterprise
8 ENTERPRISE SOCIAL • Meaning of enterprise social
RESPONSIBILITY responsibility
• importance of enterprise
social responsibility
• social concerns of an
enterprise
9 BUSINESS PLAN • The business plan 3 3 6
• components of a business plan
10 INFORMATION • benefits of ICT to a small 2 2 4
COMMUNICATION enterprise
TECHNOLOGY • use of computer application
software in a small business
112 EMERGING TRENDS • emerging trends in enterprise 2 2 4
IN management
ENTREPRENUERSHIP • challenges posed by emerging
trends in entrepreneurship
• management of challenges
posed by emerging trends and
issues In Entrepreneurship
TOTAL 26 40 66

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TOPIC 1 INTRODUCTION TO ENTREPRENEURSHIP
Introduction
Small scale enterprises play a major role in the development of a country’ economy. Small
enterprises create many jobs, provide a variety of goods and services, contribute a lot of
revenue and promote the use of locally available resources.

This sub-module unit introduces the concept of entrepreneurship and its importance in the
promotion of the national development of a country.

Specific Objectives
By the end of the sub-module unit, the trainee should be able to:
• Define various terms used in entrepreneurship.
• Explain the differences between self and salaried employment
• Explain the contribution of employment towards national development

Content

Terms used in entrepreneurship

i) Entrepreneurship
It is the process of scanning the environment in order to identify a business opportunity,
gathering resources with the aim of establishing a profit making enterprise, under conditions
of risk. According to (Hisrich, 2008). It is the process of creating something new with value
by devoting the necessary time and effort, assuming the personal or company, financial,
psychic, and social risks, and receiving the resulting rewards of monetary and personal
satisfaction and independence.

ii) Entrepreneur
This is a person who is able to identify a business opportunity within an environment, gather
the necessary resources and take reasonable risk to start a successful business enterprise.
An entrepreneur is also defined as an individual who establishes and manages a business for
the principal purpose of growth and development. The entrepreneur is characterized
principally by innovative behavior and will employ strategic management practices in a
business

iii) Enterprise
It is a business organisation that provides goods and services. It is a business concern whose
purpose is profit and has growth potential.

iv) Business
It refers to any activity under taken by an individual or organisation for the purpose of
production and/or provision of goods and services to make profit.
v) Creativity
Creativity is the ability to bring something new into existence, often through imaginative
skills. It can also be defined as originality or progressiveness.
vi) Innovation

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It is the process of doing things in a new way. Having a new use for old things is also
innovation.
To some people innovation refers to “an end product, idea, practice or product perceived as
new by the individual” (Rogers and Shoemaker, 1971)

Difference between self-employment and salaried employment

Self-employment

Self-employment is a situation in which a person starts and operates a business enterprise.

Since entrepreneurial skills drive people into self-employment, entrepreneurship training is
therefore expected to prepare trainees for starting and operating their enterprises effectively.

Self-employment does not only improve the standard of living of an entrepreneur, but also
enables him/her to become an active contributor to the social and economic activities a
nation.

Self-employment is a situation in which individuals create and run/operate their own income
generating activities.

Characteristics
i. Own your own business
ii. Are exposed to financial risk
iii. Can subcontract the work
iv. No mutuality of obligation
v. Supply necessary equipment for the job
vi. Cost and agree a price for the job
vii. Not entitled to paid leave
viii. Provide your own insurance cover
ix. Control your own hours in fulfilling job
x. You are registered for Self-Assessment and are required to file your own returns

Advantages of entrepreneurs in self employment

There are several benefits an entrepreneur may derive from self employment. These include
the following:
i) Personal satisfaction
Personal satisfaction is the feeling of accomplishment that one derives from self-employment

ii) Independence:
This means freedom from the control of others. One is able to use one’s knowledge, skills
and abilities. There are no external pressures, interference and orders, which one must follow.
Self-employed people have more freedom of action compared to employed people.
iii) Job security
This is the assurance of continued employment and income. It does not have the mechanism
of separation such as lying off, firing or retiring.
iv) Status:
This is a person’s social rank or position in society. One earns recognition from members of
the society.
v) Being self-employed means that you're your own boss. Being your own boss means that

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you'll be in control of all of the decisions affecting your working life. You'll decide
on your business plan, your quality assurance procedures, your pricing and marketing
strategies-everything. You'll have job security; you can't be fired for doing things
your way. As you perform a variety of tasks related to your work, you'll learn new
skills and broaden your abilities.

vi) If you're working for yourself, chances are you'll be doing work that you enjoy. You'll get
to pick who you'll work for or with, and in most cases, you'll work with your customers or
clients directly--no go-betweens muddying the waters. As a result, you may have days
when it hardly feels as if you're working at all. Such harmony between your working life
and the rest of your life is what attracted you to self-employment in the first place.
vii) You'll even have the flexibility to decide your own hours of operation, working
conditions, and business location. If you're working out of your home, your start-up costs
may be reduced. You'll also experience lower operating costs; after all, you'll be paying
for the rent and utilities anyway. If the location of your work isn't important (perhaps
you're a freelance writer or a consultant), you can live wherever you want. At any rate, if
you work at home, you'll greatly reduce your daily commuting time and expense.
viii) If all goes well and you're making money, chances are you can make more than you
did working for someone else. And since you're working for yourself, you may not have
to share the proceeds with anyone else. The fruits of your labour will be all yours,
because you own the vineyard.
ix) You get to decide when to spend money to help your business grow. vi. You can
distribute income to family members by hiring them as employees.
x) Job satisfaction because one engages in a form of business that suits him or her.
xi) Leads to improved living standards of the individual and those who depend on him or her.

Disadvantages
i) Possible loss of invested capital.
Invested capital refers to the entrepreneurs’ money used in starting and operating the
enterprise. If a business succeeds the profits are high, if it fails, the invested capital is lost.
ii) Uncertain income
Earnings from the business are unpredictable therefore there is no guaranteed amount of
income from the business.
iii) Long working hours
Entrepreneurs shoulder all the responsibilities of the business thus spending most of their
time attending to the business requirements.
iv) Competition
Entrepreneurs commonly operate small scale businesses that are unable to compete
favourably with large enterprises.
v) Lack of skilled personnel
Small businesses are unable to employ and retain qualified personnel due to their limited
income.

xii) You must be willing to make sacrifices for the sake of the job.
xiii) If the cash flow becomes a trickle, you're going to be the last one to get paid.
xiv) Remember that you're not making any money if you're not working. You don't have
any employer benefit package, which means that it's going to be hard for you to:
• go on vacation
• take a day off

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• Or even stay home sick without losing income.

SALARIED EMPLOYMENT
Salaried employment is a process in which an individual is hired for a period of time, which
may range from a few months to a few years, and is paid a given amount of money as salary
or wages for the work done.

The merits and demerits of salaried employment are varied and largely depend on a person’s
qualification, experience and specialisation area. The merits and demerits are also determined
by the magnitude of growth, investment ability, and profit and government support of a given
organisation.

Defined working hours, guaranteed income, delegation of duties and specialisation are some
of the main advantages of being in salaried employment. However, salaried employment is
affected largely by organisational elements such as change of management, especially where
new management introduces new policies, rules, conditions of employment and other
statutory requirements to the organisation. Job security is not guaranteed and personal
satisfaction and motivation is not wholly experienced.

CHARACTERISTICS
i. Under control of another person (employer)
ii. Supply your labour only
iii. Cannot sub-contract the work
iv. Mutuality of obligation to offer work and perform work
v. Do not supply equipment/materials for the job
vi. Receive fixed hourly/weekly/monthly wages
vii. Entitled to sick pay/holiday pay etc.
viii. Employer provides insurance cover
ix. Work set number of hours per week
x. Employer deducts tax from wages under PAYE

Advantages
i. Job Security
ii. Income stability
iii. Predictable work life .
iv. Enjoys certain allowances e.g. house, medical and commuter allowances.
v. Provides room for socialization among employees
vi. Room for growth through promotions
vii. Some organizations provide training facilities to their employees through seminars and
workshops.
viii. Sponsorship opportunities to those who wish to further their studies

Disadvantages

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i. You are only paid for your efforts and unlike the entrepreneur; your brilliant ideas only
receive commendation and little or no real monetary rewards.
ii. You will simply be helping another man create wealth for himself while you make do with
your wages which might be less
iii. Think of it as a case of not having your cake and eating it. iv. Paid employment is like
Financial Bankruptcy. v. It cages your mind from soaring to the sky financially.
iv. No opportunity to make money to supplement current earning
v. The organization may not adequately recognize one’s ability
vi. One may not get an opportunity to involve in leisure
vii. No independence-follows orders from the boss
viii. One’s idea may not be easily be implemented by the organization
ix. One may not be accorded adequate and challenging responsibilities that add to their

Importance of entrepreneurship in national development

Entrepreneurship contributes greatly to the economy of the country by providing an impetus
for economic growth. The following are some of the key contributions of entrepreneurship to
national development.

i) Creation of employment: An entrepreneur does not only create employment for

himself but also for others. Most jobs in many economies come from the
entrepreneurial activities.
ii) Utilisation of resources; These include proper and adequate utilisation of local labour
iii) Improvement of standard of living. Entrepreneurship raises the standards of living of
the people of a nation by providing goods and services. Similarly, it helps in provision
of the basic needs of society in areas which large firms cannot reach.
iv) Generation of government revenue – This is revenue for the government in form of
licence fees, taxes and through promotion of national productivity by contributing to
the gross domestic product (GDP). They do this by selling products and services thus
reducing the expenditure for imports.
v) Innovation of technological development – This is done through utilisation of
technology which is locally available.
vi) Conservation of foreign exchange: The use of foreign exchange can be minimised by
offering goods produced locally in place of imported goods.
vii) Rural development which in effect
viii) Facilitating community development through
• Establishment of small businesses
• Participation in community dev. Projects
Others
✓ Improvement of standard of living
✓ Development of infrastructure by the government in where there are productive
businesses
✓ Increased consumer choice because a variety of goods and services are provided
✓ Stability of prices
✓ Reduced domination of certain sectors by foreigners

Suggested learning activities

i) Present various ways in which entrepreneurship contributes towards national

development

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ii) Demonstrate various ways in which the employer and the employee benefit from
entrepreneurship development.

iii) Identify different entrepreneurial activities within your locality and explain their benefits
to the community

TOPIC 2 EVOLUTION OF ENTREPRENEURSHIP

History of entrepreneurship in Kenya
Entrepreneur is a French word meaning “between – taker” or “go-between”, or “under taker”.
The evolution of entrepreneurship is discussed in several stages:
Earliest period
Earliest definition was by Marco polo, he attempted to establish trade routes to the Far East.
As a go- between, Marco polo would sign a contract with a money person to sell his goods.
While the capitalist was a passive risk bearer, the merchant adventurer took the active role in
trading, bearing all the physical and emotional risks. The profit would be divided between the
two of them with the capitalist taking 75% while the merchant – adventurer settled for the
remaining 25%
Middle ages
As time went by the term entrepreneur changed to describe both an actor and a person who
managed large production projects. This individual did not take any risks but merely
managed the project using the resources provided, usually by the government of the country.
A typical entrepreneur in the middle ages was the person in charge of great architectural
works.
17th century
The person associated with this period is Richard Cantillion an economist. He development
the early theories of entrepreneurship and is regarded as the one who developed the term risk
taker.
The emergent connection of risk with entrepreneurship developed in this century with an
entrepreneur being a person who entered into a contractual arrangement with the government
to perform a service or to supply stipulated products. Since the contract price was fixed, any
resulting profits or losses were the entrepreneurs.
18th century
This is the period in which an entrepreneur was distinguished from the capital provider. One
reason for this differentiation was the industrialisation occurring throughout the world. Most
inventions developed during this time were reactions to the changing world.
19th and 20th century
In this era entrepreneurs were viewed as managers and mainly from an economic perspective.
An entrepreneur was seen as one who organises and operates an enterprise for personal gain.
He contributes his own initiative, skills, and ingenuity in planning, organising and
administering the enterprise. He also assumes the chance of loss and gain consequent to
unforeseen and uncontrollable circumstances.

In the 20th century, the understanding of entrepreneurship owes much to the work of the
economist Joseph Schumpeter .Schumpeter defines an entrepreneur as a person who is
willing and able to convert a new idea or invention into a successful innovation.
Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to

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replace in whole or in part inferior innovations across markets and industries, simultaneously
creating new products including new business models.

In this era entrepreneurs were viewed as managers and mainly from an economic perspective.
An entrepreneur was seen as one who organises and operates an enterprise for personal gain.

For Schumpeter, entrepreneurship resulted not only to new industries but also to new
combinations of currently existing inputs. Schumpeter's initial example of this was the
combination of a steam engine and then current wagon making technologies to produce the
horseless carriage. In this case, the car innovation was transformational, but did not require
the development of a new technology. Different scholars have described entrepreneurs as,
among other things, baring risk. For Schumpeter, the entrepreneur did not bare risk: the
capitalist did.
To him an entrepreneur is more of an innovator.

The ability to innovate can be observed throughout history from Egyptians who designed and
built great pyramids out of stone blocks, to laser surgery then wireless communication.
Although the tools have changed with advances in technology, the ability to innovate has
been present in every civilisation.

Economic, Social and Political Factors Affecting Entrepreneurial

Development
a) High taxation levels. For business and personal incomes. Which in effect reduce profits earned
making it un attractive to engage in business. Taxation of raw materials and other inputs raise
production costs.
b) Corruption and official harassment. Occurs where entrepreneurs are forced to bribe officials in
various government departments to allow operation or start up. Raids under one pretext or
another which tends to be very harassing.
c) Unregulated competition from the outside world due. Liberalization which opened importation
competing locally produced goods.
d) Declining personal incomes of people due to Over-increasing cost of living, Arise in
unemployment
e) The high cost of finance. The cost of borrowing is high. Business collapses because they lack
ability to repay loans
f) Lack of necessary skills and knowledge due to lack of training opportunities and high
education costs
g) Poor transport and communication network
✓ Making business difficult
✓ Inconveniencing consumers
✓ High energy costs
✓ Lack of entrepreneurial culture

Entrepreneurial Cultural Practices in Kenya south Africa and india

i) The cultural practices of entrepreneurs varies from country depending on the
✓ The material resources
✓ The industrial climate
✓ The social & political systems

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ii) The undeveloped regions especially Kenya due to the policing of funds lacks
✓ Skilled labour
✓ Existence of minimum social and economic overheads to curb emergencies of innovative
entrepreneurs.
✓ Entrepreneurship does not emerge out of industrial background with developed
institutions to support and encourage it.
✓ Kenya has imitator’s entrepreneurs lacking enough innovators unlike other countries like
South Africa.

Iii) However Kenya has established institutions that provide assistance to aspiring entrepreneurs
in terms of
✓ Establishing a fund to disburse loans to especially youths in the hope of promoting
entrepreneurship
✓ Some of the entrepreneurial activities that have emerged in our country

TOPIC 3; THE ENTREPRENEURIAL CULTURE

Culture Definition
Culture is defined as asset of values; perceptions wants and behaviour learned by a member of a
society from family and other institutions
Culture is a tool of leaned behaviour patterns of living. It is a powerful human tool for survival
constantly changing and easily lost.
Weber argues that “Protestantism encourages a culture which emphasizes individualism,
achievement motivation, legislation of entrepreneurial vocations, rationality and self – reliance.
Hosted – defines culture as a collective programming of the mind which distinguishes the
member of one group or category of people from another.

Entrepreneurial Culture
Refers to the way of embracing the concept of finding new opportunities in business and
gathering the necessary resources to fill the opportunity.
Many governments around the world want to promote entrepreneurship because they have
recognized the importance of entrepreneur
In other words, entrepreneurial culture is a way of people embracing life by participating in
activities that enable them create new business enterprises.
A country can develop the entrepreneurial culture by forming policies that constitute the
following;
✓ Integration of entrepreneurship training in the overall education system to tap on youths.
✓ Exposure of entrepreneurship those look potential to actual business practices and
activities through the networks and business contacts of rule models.
✓ Creation of a conducive and enabling that permits new business to immerge and flourish.
The creation of entrepreneurial culture has to come from deep social convictions based on
strong values and systems of the locals’
It should be created in a way that it welcomes entrepreneurship and respects the investor and also
reflecting the core values.

What Constitutes Entrepreneurial Culture?

➢ Growth in concentration of firm’s networks and linkages

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➢ Growth in intermediary organizations to which some tasks are delegated and it different
form of entrepreneurship
➢ High levels of education skills and learning

The cultural habits that promote entrepreneurial development

a) Money orientation. Money oriented people know the value of money and has the intention of
making it. The money-oriented people use the need of money as a motivating factor pushing then
to being entrepreneurs.

b) Future orientation. A society that has foresight to know about the future business
environment is likely to have more entrepreneurs. This is because they are likely to visualize key
changes that are likely to create opportunity.

c) Time consciousness. Knowledge that time exists and its importance. Knowing the right time
to start an entrepreneurial activity. Utilization of time. The correct timing of the market
conditions

d) Trust and honesty. Through trust consumer demand is gained on the products and services
available. Entrepreneurs should reciprocate this by ensuring honesty by providing the expected
standards.

e) Hard work i.e., Willingness to work hard distinguishes between successful and unsuccessful
persons.

The cultural factors inhibiting entrepreneurial development.

a) Religion – religious believes may deter entrepreneurial investments in items such as night
clubs and pubs.

b) Language – establishing businesses in areas where language barrier may allow poor
communication or fear of invasion.

c) Personal relationship – Married people may avoid getting involved in business activities
since no time is spared for the family.

d) Attitude towards innovation. Especially in cultures which oppose innovation due to fear of
change
e) Networks – poor networking and ability to meet people limit new
i) Opportunities
ii) New knowledge
iii) New information.

f) Technology – lack of technical skills and knowledge may slow growth and dev. Of
entrepreneurial and Lock one out of being competitive.

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Ways of managing Factors which Inhibits Development of Entrepreneurial
Culture.

1. Working in related business to gather the necessary skills required before one starts his own
business.

2. Setting policies that ensure that entrepreneurship training is established in the school syllabus.

3. Your people to be encouraged to read articles from newspaper, watch television and business
contacts to enable them choose products in demand with a bright future.

4. Young youths as well as aspiring adults entrepreneurs should be encouraged to get better and
faster access to
a. Knowledge
b. Information or business
c. Competition
d. Internet etc.
4. Aspiring entrepreneurs to seek guidance in selection of machines and other facilities.

TOPIC 4: THE ENTREPRENEUR

Myths associated with entrepreneurship

a) Entrepreneurs don’t have a personal life. Most people think that entrepreneurs work
throughout and this means that you will not have time for your family, friends and leisure
activities. Since entrepreneurs are their own bosses, they can schedule their own hours and
sticks to that time because a good entrepreneur manages his time well.
b) Entrepreneurs take lots of risks. Entrepreneurs take some risks and they are not gamblers,
they take calculated risks.
c) Entrepreneurs are only motivated by money. Financial gain is not the only motivation to
small business owners but achieving a lifelong dream is the main motivation for
entrepreneurs.
d) Entrepreneurs raise money from venture capitalist. This is not true because not all
entrepreneurs raise money from venture capitalists but instead personal loans, friends and
family are other sources that outweigh venture capitalist.
e) Entrepreneurs have great ideas. This makes some people not to attempt to start their own
business because they do not have a unique idea. You don’t need a new idea to be an
entrepreneur because you can use an existing idea to start a business.
f) Anyone can be an entrepreneur. This is not true because not everyone has the personality
or resources to do this either.
g) Entrepreneurs have formal training and education. One does not need to study business
or entrepreneurship to have a successful start up company. Though education helps, it’s not
completely necessary.
h) Entrepreneurs are young. This is not true because entrepreneurship has no limited age.
i) Entrepreneurs don’t quit until they succeed. It’s not easy to start and run your own
business. Therefore, entrepreneurs should accept failure as a potential reality.

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j) Entrepreneurship is genetic. No one is born an entrepreneur

Types of entrepreneurs
i. Craft Entrepreneurs
Craft entrepreneurs are those who may start a business using their learnt or acquired skills.
They may exhibit the following characteristics:
a. They are of blue collar origin i.e they come from the informal sector of
employment.
b. Their education or training background is focused on the current business activity.
c. They may have low or high technology experience.
d. They have a reputation in a specific industry e.g masonry, teaching, engineering.
e. They are marginal people and were mostly associated with fellow workers. i.e
they do not identify with unions.
f. They have limited cultural background and social induction with
entrepreneurship.
g. They are not interested in growing their business ie they are not ambitious. E.g
mechanics who have worked in motor factories, leave to start their own simple
garages.
h. They insist that for things to be done right, they must be done by themselves
i. They tend to hire people they have known for a long time.
j. They gain their customers through prior relations or personal contacts.
k. They do not hold the lowest post nor are they at the management level in the
organization they worked for.

ii. Opportunistic Entrepreneurs

Opportunistic entrepreneurs are those entrepreneurs who may scan the environment in search of a
viable business opportunity that may exist. They are creative and very hardworking and venture
in businesses they do not necessarily have skills or training in.
These types of entrepreneurs exhibit the following characteristics:
a. They are of middle class origin
b. Their education involved many different kinds of courses
c. They have a variety of work experiences and they have been through various
educational courses.
d. They have a reputation across the industry.
e. They are more aggressive/ambitious.
f. They have been in senior profile levels in employment.
g. They are previously associated with managers and business owners.
h. They believe that those holding the lower posts in an organization should
handle operations.
i. Their customers are neither gained through prior relations nor personal
contacts.

iii. Egoistic Entrepreneurs

Egoistic entrepreneurs venture into business not only because there exists a business opening but
because they would also like to satisfy their ego. They are highly motivated. These types of
entrepreneurs are:
a. They are very eager to experiment upon new ideas.
b. They can acquire material and financial resources to experiment upon new ideas
c. Their economic system is well developed enough to bear the costs of venturing into a
business.
d. They are well networked are able to find new markets and customers with ease.

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c) Co-operative Entrepreneur

A Co-operative Entrepreneur collaborates with other co-operative entrepreneurs to start and

complete projects where each co-operative entrepreneur brings different skills and talents to the
collaboration.
d) Creative Entrepreneur

A Creative Entrepreneur is a creative artist who values their product above all else and puts
Intellectual Property (IP) first. Creative Entrepreneurs are dedicated to the artistic and creative
expression that is unique to them.
e) Lifestyle Entrepreneur

A Lifestyle Entrepreneur values their lifestyle first and builds their businesses so that they have a
rewarding and sustainable lifestyle founded on and driven by their personal interests and talents.
f) Social Entrepreneur

A Social Entrepreneur values social change first and is driven to improve and transform their
society, their environment, and economic conditions.
A rapidly growing and vibrant sector, social entrepreneurs play an important role in providing
products and services with the overall intention of creating social good, operating from a triple
bottom line perspective of people, planet, and profit. Profit is often reinvested into the enterprise
rather than being distributed to shareholders. "Social entrepreneurs are people who recognize
social problems, decide to roll up their sleeves and get into action using entrepreneurial principles
to organize, create, and manage a venture to implement social change that is sustainable, good for
the planet and for the highest good of humanity."

h) Innovative Entrepreneurs:

An innovative entrepreneur in one, who introduces new goods, inaugurates new method of
production, discovers new market and recognizes the enterprise. It is important to note that such
entrepreneurs can work only when a certain level of development is already achieved and people look
forward to change and improvement.

i) Imitative Entrepreneurs:

These types of entrepreneurs creatively imitate the innovative technical achievement made by another
firm. Imitative entrepreneurs are suitable for underdeveloped countries as it is hard for them to bear
the high cost of innovation.

j) Fabian Entrepreneurs

Fabian entrepreneurs are characterized by very great caution and skepticism to experiment any change
in their enterprises. They usually do not take any new challenge. They imitate only when it becomes
perfectly clear that failure to do not so would result in a loss of the relative position in the enterprise.

CHARACTERISTICS/TRAITS OF AN ENTREPRENEUR
Entrepreneurs portray certain characteristics and patterns of behavior which can be all learnt and/or
acquired. Every entrepreneur may not possess all of the qualities useful to make him/her successful.
The following are the various qualities an entrepreneur may have:

a) Risk taking

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An entrepreneur is open to risk in his business. They have to make decisions and implement plans,
the success of which cannot be fully guaranteed. He risks financial, material and human resources at
his disposal in the venture that he undertakes.

b) Autonomy/independence
An entrepreneur by his/her own nature likes to be his own boss and does not want to follow the
instruction of another person without thinking further. This, however, does not mean that they rejects
counseling from others. They wants to try his own ideas and while making decisions, they has to form
his own opinion and a set of course of action. They is ready to carry the burden of the consequences
of the decisions they makes. Independence of thought is important.

c) Creativity and innovativeness

entrepreneurs must have an aptitude for searching out new ways and means of doing things. They
must be innovative in their approach to carrying out business activities. To remain competitive, they
must experiment to find out new techniques of production, kinds of materials, types or variety of
products. They attempt to modify the method of manufacture to accommodate technological
developments, discover marketing opportunities, identify sources of supply and develop sound
organizations to meet requirements of the environment.

d) Internal locus of control

Entrepreneurs possess a high internal locus of control. They believe that achievement of goals is
dependent on their behavior or individual characteristics.
NB: A person with external locus of control believes that achievement of goals is a result of luck or
other people’s action. Such a person is not an entrepreneur.

e) Need for achievement

Entrepreneurs believe in achieving the set goals. The need to achieve may be satisfied by acquiring
higher status, succeeding in business, inventing and popularizing a product, targeting new markets
and attracting a greater number of customers. It is the achievement motive which makes an
entrepreneur diversify, expand and innovate.

f) Keenness to learn
Entrepreneurs analyze the results and try to learn from them. They constantly watch the path they
take. They draw inferences from feedback, information and have alternative plans.

g) Ability to marshall resources

Entrepreneurs have to bring together all the required resources in the right quantities at the right time.
To achieve this, entrepreneurs must have patience, ability to convince others and a strong conviction
that their job is going to be successful.

h) time-consciousness
Entrepreneurs are interested in timely delivery of results. In order to achieve this they must
complete their activities within a given time.

i) Organizational skills
Entrepreneurs have the ability to organize activities and utilize manpower in order to put them to
productive use.

For effective utilization of resources, the entrepreneur has to build a suitable organization structure
and with it, appropriate manpower.

j) Hardworking
Starting a business is hard work. An entrepreneur has to cope with the
demanding work of starting a business. Success comes very slowly for those

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who are not willing to work hard

k) Integrity

Integrity plays an important role in the advancement of any corporation and the lack of it poses risks
of loss of confidence, faith and commitment of employees, clients and colleagues. Companies can
promote integrity by establishing the moral standards expected of its employees and implementing
systems to reinforce these standards. This will entail the provision of model roles, developing codes of
ethical conduct and providing information channels to report questionable actions. Companies should
also include integrity in their evaluations and consider ethical aspects when formulating long-range
plans.

l) Persistence
Successful entrepreneurs are persistent and hardworking. They master self-discipline to such extent
that if a work is important and related to their goals, they will, eventually, complete it.

Getting things done is the vital link between motivations and their outcome. At times, entrepreneurs
force themselves to choose work over fun, a boring job against a pleasant one, working on tax papers
rather than reading a glamour magazine. This requires a self-control that many people simply fail to
develop in them.

Successful entrepreneurs persist. They understand that it takes time to make it really BIG!!! They are
prepared to go the extra mile and do that little bit extra for which they do not get paid.

m) Self Confidence
Self-confidence is a key entrepreneurial skill for success. It is easy to become demoralized, frustrated
and resentful if you lack self-confidence.

Self-confidence is concerned with how a person feels about his ability. A successful entrepreneur
believes in his abilities. He is not scared to explore, take risk and take difficult decisions.

Entrepreneurs are highly motivated to achieve. They tend to be very competitive.

Information seeking
Opportunity seeking
Honesty
Goal oriented

ROLE OF AN ENTREPRENEUR
Entrepreneurs play different roles in an enterprise. These include:

a. Initiator
The entrepreneur as the prime mover of the business. He/she is the director of the
enterprise and comes up with ideas which he convinces the members of the organization
to follow. He/she is therefore the promoter of the business.

b. Director

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The entrepreneur as a person who engages the participation of others. They knows that
they cannot run the enterprise single handedly. To effectively manage the enterprise, he
requires the knowledge and skills from diverse persons. The entrepreneur incorporates
shareholders incase;
i. The enterprise is too large for him/her to purchase.
ii. They is not able to purchase the enterprise alone.
iv. They does not want to commit his/her time wholly in the business.

c. Manager
The entrepreneur as the person in charge of coming up with the organizational structure.
The entrepreneur is in charge of developing an effective organizational structure showing
the distribution of the employees’ posts and responsibilities. The organizational structure
is important for effective control and monitoring operation in the firm and facilitates
communication with workers.
- The entrepreneur as the person in charge of developing an organizational design. He
has the role of establishing an effective organizational design reflecting the daily
activities of the organization in relation to time, beliefs and philosophies and how the
business relates with the external environment.

e. Financier
he is the controller of all the enterprise activities. He mobilizes resources needed to
start and run a business i.e., finances, raw materials, human effort among others.

.
F Searching for business opportunities through environmental scans.

G Mobilization of resources needed to start and run a business e.g. from

a) Personal savings
b) Friends & relatives
c) Financial institutions etc.
H Provide the necessary leadership for the business and those working in it

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TOPIC 5: ENTREPRENUERIAL OPPORTUNITIES
Business ideas

What is a Business Idea

• An opportunity in the environment which, can be translated into a business activity.

• The existence of a situation in the environment which, can be advantageously turned
into a business activity.

For an entrepreneur, the first step in starting a business begins with an idea (business idea).
Business ideas are all about thoughts on possible businesses an entrepreneur can start or
improve. It indicates among other things;

a) The products to produce/sell

b) Who the business will sell to (market)
c) Where the business will be located
d) How the will be run (management)
e) Why the business is needed (objectives)

Means of Generating a Business Idea

a) Identifying a need
b) Brainstorming
c) Building on ones skill, hobbies or interests
d) Spotting a market niche
e) Listening to what people say
f) Attribute listening
g) Gaining from waste
h) Look to see and listen to hear
i) Research
j) Importing an idea
k) Day dreaming

1. Identifying a Need
A need can be an opportunity and indeed a consumer buys to satisfy need.
Social needs
people usually have many unsatisfied needs. By carrying out a market survey on the location
where you need to establish your business and talking to the potential customer may reveal
gaps in that market.

2. Brain Storming
this involves sitting in a group and trying to think of as many possible businesses as possible
using the ‘freewheel ’policy. take time and digest all the suggested ideas as a basis for
making the final decision on the one most suitable for you.

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4. Sporting a Market Niche
Entrepreneurs usually look for gaps in the growing markets, identifying market sections
which are not being utilized.
5. Listening to what People say.
Listening to complaints of customers so that you improve an existing business.
6 Creativity
By looking at things in a new way and combining two or more ideas in a new way, such as,
one stop shopping spots for customers e.g., a restaurant and a salon combination.
7 Market research
Conduct a market survey and try to identify business opportunities existing in the market.
People may be requiring new product/services or the ones existing could be having several
weaknesses. These are good opportunities for you.

Sources of Business Ideas

i. Newspapers-Local newspapers like the Daily Nation, East African etc. especially in
the business and advertising sections have a lot of information about commercial
opportunities as well as personal services.
ii. ii. Shows and exhibition-Visiting shows and exhibitions organized by manufactures
and distributors and asking questions from the sales persons. Entrepreneurs can also
get business ideas from products displayed in such shows.

iii. Magazines and journals-Reading magazines and journals with business information
may equip an entrepreneur with new business ideas.
iv. Hobbies –These are activities pursued for pleasure but they can also serve as a source
of business ideas e.g. photography.
v. Vocational training and experience-A business idea may be developed from one’s
own area of training or experience e.g. a teacher may use ideas from his/her training
to start a private school.
vi. Surveys and market research-This involves conducting an investigation to gather
information from consumers on what products they require.
vii. Recycling/using waste products-Some waste products could be converted into useful
products e.g. scrap metal for making jikos,old tyres for making sandals etc.
viii. Listening to what people say-By listening keenly to what people say, one can
identify unsatisfied needs e.g. complaints about goods and services in the market.
These complaints may form a basis of a business idea for an entrepreneur.
ix. xii. Copying/improving an existing business-This involves identifying the
weaknesses of a business and trying to come up with solutions.
x. Hobbies/personal interests

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xi. Personal skills/experience
xii. Franchises – An agreement where manufacturers or sole traders of a trade mark,
product/service gives exclusive rights for local distribution to independent retailers in
return for their payment of loyalties and their willingness to conform to standardized
operating procedures. Common type of franchise are those that offer name, image and
method of doing business and operating procedure.
Characteristics of a Good Business idea.
i) Easy to manage and involve minimal risk.
ii) Does not require excessive capital investments
iii) Offers a good returns on capital
iv) The idea has scope for growth, expansion and diversification
v) Comparative with owner’s goal and interest
vi) Not against expectation of the society
vii) Has a short gestation period
viii) Has a readily available market
ix) Easy to exit when necessary.

Identification and evaluation of business opportunities

Business Opportunity
A good business plan is not necessarily a business opportunity. A business idea becomes a
business opportunity if it is viable i.e. it can be developed into a successful/profitable
business enterprise
A business opportunity is a favourable chance that an entrepreneur accepts for investment. It
exists where there is a gap to be filled in the needs of the market. Examples of such gaps
include:
a) In availability of products-This is where goods and services needed by the consumers are
not available at all in the market.
b) Poor quality products-A business opportunity exists if one offers better quality goods
and services than those of the existing businesses.
c) Insufficient Quantities-This is where the goods supplied are not enough to meet the
demand/need of the consumers.
d) Unaffordable prices-A business opportunity exists where one would charge affordable
prices.
e) Poor services-A business opportunity exists where customers are not served well.

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Evaluating a business opportunity
This means assessing whether the identified opportunity is viable or not. This helps in
arriving at the best decision concerning the business idea to implement
Evaluation should be done carefully, systematically and without emotions. Evaluation is
necessary even where there is only one business idea. This will help in avoiding starting a
business that cannot succeed.
Factors to consider when evaluating a business opportunity
The following are the factors to consider when evaluating a business opportunity.
i. Personal consideration-These are the abilities and expectations of an entrepreneur.
They include the following;
➢ Objectives-The entrepreneur should evaluate the business idea to find out
whether it is in line with his/her objectives.
➢ Skills-Where a business requires certain specialized skills and those skills are
lacking the idea may be dropped.
➢ Commitments-Where the business is likely to interfere with the entrepreneurs
other commitments it may fail.
➢ Interest-It is necessary to check whether the intended business will interest the
entrepreneur or not. If the entrepreneur will not enjoy running the business, the
idea should be dropped.
ii. Business consideration-These are external factors that are likely to affect the
operations of the business and they include;
➢ Availability of market for the product-An entrepreneur should assess the
availability of customers before starting a business. Customers exist where there
is a gap/nich in the market.
➢ Technology-The business should be evaluated in terms of whether there is an
appropriate technology that can be used in production. Factors to be looked into
include;
o Appropriateness of the technology
o The cost of the technology
o The possibility of the business suffering in case the technology
becomes outdated/obsolete.

iii. Availability of raw materials and other resources-The raw materials and resources
required should be within the reach and affordable to the entrepreneur.
iv. Government policy-An entrepreneur should consider the requirements of the
government before starting a business e.g., the government may require certain
businesses to be located in certain areas only.
v. Amount of capital required-The capital required to run and maintain the business
should be considered i.e. the source of capital.
vi. Profitability of the business-Within a certain duration of time.
vii. The break-even period-How long the business can take to support itself
viii. Possibility of expansion i.e., the potential for growth of the business.

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ix. Impact of the business operations on the environments; some businesses lead to
environmental degradation and should be located in appropriate places/effect on
community and environmental health.
x. Security-Availability of security should be considered.
xi. Level of competition-This will help determine whether the business will survive or
not.
xii. The risks that the business will face.

CHARACTERISTICS OF A GOOD BUSINESS OPPORTUNITY

a. Less costly; a good business opportunity should be less expensive may it be an
original idea or a franchise.
b. Reduced risks of failure; a good business opportunity should have well executed
research into the risks involved, personal strengths and any weaknesses the
entrepreneur may deal with.
c. Ready market; the market needs to be prepared for the product yet to be established
d. High level of competence; a lot of time may be required to gather the necessary
knowledge to prosper in any given business opportunity.
e. Better financing options; a business opportunity may require stable cash flows and
thus need to identify secure source of finance form investors.
f. Professional advertising and promotion of the products to ensure there is
competitive advantage.
Others
❖ Returns on investment – i.e., the business should be sufficiently profitable.
❖ Availability of raw materials
❖ Enough skilled people

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TOPIC 6. STARTING A SMALL BUSINESS
STARTING A SMALL BUSINESS

What is a business?

A business entity is referred to as a venture, an enterprise, a firm, an organization or a business

enterprise. Small businesses are the backbone of some economies and have remained the vital link
between various levels of economic activity in some countries. Many of the flourishing and growing
businesses started in a small way.

➢ Small business is an organization with less than fifty employees.

➢ Micro business is business with less than ten employees
➢ Medium business has between fifty and one hundred employees
➢ A large enterprise is a business with more than one hundred employees.
6.2 THE ROLE OF SMALL BUSINESS IN DEVELOPMENT

1. Most businesses start as small. Small firms provide an opportunity for large businesses to rise.
2. Small firms is a stepping stone in organic business growth in that small firms act as a training
ground for entrepreneur as they experiment with ideas and techniques.
3. They offer the entrepreneur the opportunity to take moderate risk while getting to know the
product and market factor.
4. They contribute to entrepreneurial activity due to the fact that they are associated with
increase in competition first by their numbers in a given market and also by the intensity of
their activity.
5. They contribute to the national output through linkages with high volumes to large firms in
subcontracting activities.
6. They contribute to job creation.
7. In developing countries the shortage of capital and labour surplus have meant that small
businesses are more feasible since they require lower levels of capital input.
8. They act as incubators for innovative ideas and the wide spread diffusion of technology within
a society.
9. They reduce the dependence of developing countries on aid from developed countries.
FORMS OF BUSINESS OWNERSHIP

SOLE PROPRIETOR/SOLE TRADER

In a proprietorship, the enterprise is owned and controlled by one person. He is the master of his
show. He sows, reaps and harvests and the output of this effect. He manages the business on his own.
If necessary, he may take the help of family members, relatives and employ some employees.

It is the simplest and easier to form. It does not require legal recognition and attendant formalities.

Main features for a sole trader

a) One man ownership- only the man is the owner of the enterprise

b) No separate business entity- the business and the proprietor are one and the same

c) No separation between ownership and management: The proprietor is the owner and the manager.

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d) Unlimited liabilities- this means that the proprietor incurs all the liabilities on his own and in case
the business suffers a loss that it cannot pay its debts, then the proprietor will have to pay form his
private sources.

e) Less formalities- a sole proprietor can be started without completing all the legal formalities

f) All the profits or losses are to the proprietor. Being the sole owner, the proprietor enjoys all the
profits and suffers all the losses.

ADVANTAGES OF A SOLE PROPRIETOR

1. They are easier and simpler to start and to dissolve
2. Decision making is fast because the sole trader makes the decision alone
3. The sole trader enjoys all the profits own his won
4. The sole trader is in a better position to keep the secrets related to his business than any other
form of business.
5. The sole trader is in a direct contact with customers’ and employees leading to better
relationships.
DISADVANTAGES
1. In case the business is in a loss and the assets of the business cannot pay the business debts
the sole trader pays from his own private means. This is called unlimited liability. He bears all
the losses on his own.
2. Sole trader is always unable to raise sufficient capital funds- they have to rely on their own
ability to raise money for their business.
3. Limited ability: A sole trader may be an expert in one area or two areas but not in all areas
like production, finance, marketing etc.
4. Limited life of enterprise: - the life of the sole proprietor enterprise depends on the sole trader
and in case the sole trader dies, then the enterprise also collapses.
PARTNERSHIP
A partnership is a relationship between two or more people jointly carrying out a business with the
objective of making profit. Each of the persons is called a partner and the business is referred to as a
firm. A partnership is a relationship and does not therefore mean the firm. In a partnership a number
of people work together and there is no separate identity of the partnership form the individual
partners.

Main features
a) More persons: There should be at least two persons subject to a maximum of ten persons for
banking business and twenty for non banking business to form a partnership firm.

b) Profit and loss sharing: The partners share all the profits earned and losses incurred in partnership
business.

c) Contractual relationship: partnership is formed by a partnership agreement oral or written among

the partners.

d) Existence of lawful business: partnership is formed to carry on some lawful business and share its
profits or losses. If the purpose is to carry some charitable work, for example it is not regarded as
partnership

e) Utmost good faith and honesty: A partnership business solely rests on utmost good faith and trust
among the partners.

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f) Unlimited liability: This means that if the assets of the partnership firm fall short to meet the firm’s
obligation then, the partners’ private assets will also be used for the purpose.

g) Restriction on transfer of share: No partner can transfer his share to any outside person without
seeking the consent of all other partners.

TYPES OF PARTNERS
a) General partners: The general partner has unlimited liability for the firms debts.

b) Limited partners: A limited partner has limited liability in the partnership.

c) Active partner: This is a partner in normal partnership practice, sharing in every way the capital
contribution, management and profit and liabilities of the business. He may be given a fixed area of
responsibility e.g. sales. He is disclosed to the public as being a partner.

d) Silent partner: This refers to a limited pattern that does not participate actively in the management
of the organization. He is disclosed to the public as being a partner

e) Nominal partner: He is not one of the owners or actual partners of the firm but allows his name to
be identified with the business. He does not contribute any capital nor take any part in the
management of the firm. He however becomes liable for the firm’s obligations in an unlimited basis.
The nominal partner lends his name to be used by the business for a fee. The business benefits
because it uses the partners name for the promotional purpose. Such a partner must, there, be well
known person who can enhance the firm’s prestige and reputation.

f) Quasi partner: This is one who is presented to the public as a partner although he contributes no
capital and does not participate in the management of the firm. He may share the profit and liabilities
of the firm.

g) Minor partners: This is a person serving as a partner while he is under the statutory majority age of
eighteen years. Since he is a minor, his liability is limited to his capital but the moment he reaches the
statutory majority age, he will rank as an active partner with unlimited.

THE PARTNERSHIP DEED

The partnership deed is a written agreement between partners, which indicates their agreement of
form a partnership. The partnership agreement/deed must be duly signed by the partners, stamped
and registered. Any alteration in the partnership deed can be made with the initial consent of all the
partners. The partnership deed generally contains the following:

1. Name and address of the business

2. Nature of the business
3. Names of partners, their addresses and occupation
4. Location of the business and commencing date
5. Amount of capital to be contributed by each partner.
6. Profit sharing ratio between the partners
7. Drawing allowable each year
8. Loans and advances from the partner and the rate of interest thereon
9. Amount of salary and commission, if any, payable to the partners
10. Duties, powers and obligations of partners
11. Maintenance of accounts and arrangement of audit.
12. Admission, withdrawal and expulsion of partners
13. Settlement of accounts in the case of dissolution of the firm
14. Arbitration in case of disputes among the partners

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15. Arrangements in case a partner become insolvent.
ADVANTAGES OF PARTNERSHIP
1. Easy formation: A partnership is free from complicated legal requires. Essentially what is
needed is the partnership agreement between the partners
2. More capital available: Partners can sometimes raise more capital than a sole trader, since
ownership rests in a group of two or more people who can contribute capital.
3. Broader management base: Each partner may have expertise in different functions of the firm
such as finance and sales. The partners can therefore, be called upon to be responsible for
those functions in which they are specialized. They may lead to increased performance and
profitability.
4. Ease of expansion: increasing the size of the partnership can assist in expansion very easily,
including addition of specialists’ skills.
5. Sharing of losses and liabilities: Liabilities are spread between to a number of persons thus
reducing the burden on any one person.
6. Duration: - Partnership have longer duration than sole partnership because death or
retirement of one partner cannot interrupt the operation of the firm

DISADVANTAGES
1. Unlimited liability: The liability of general partners is unlimited. This means that if the asset of
the partnership is not sufficient to pay its debs the partners are obliged to pay the debts from
their own person resources.
2. Difficulty in making decisions: Delays may occur when reaching decisions because all the
partners have to be consulted.
3. Lack of continuity: A partnership has a limited and uncertain life. A partnership can be
terminated very easily especially if the partners disagree or if one partner dies or is
incapacitated.
4. Frozen investments: It is often difficult for a partner to withdraw his investment. The buying
out of partner may be difficult unless specifically arranged for in the written agreement.
5. Limited access to capital: Partners have difficulties in obtaining large sums of capital especially
long term financing. This is serious problem especially if the firm intends to finance major
development projects.
COMPANIES
A joint stock company is defined as a corporate association of a number of people for some common
objective(s). The members of a joint stock company contribute capital to form a common stock to
carry on a business usually for profit.

A joint stock company usually is a corporate body that is created under the law and has an entity of
its own, quite separate from its own.

MEAN FEATURES
1. Artificial legal person: a company is an artificial person created by law. Though it has no body,
no conscience, still it exists as a person. It can enter in contracts in its own name and likewise
may sue or be sue in its own name.
2. Separate legal entity: A company has a distinct entity separate from its members or
shareholders. Therefore a shareholder of the company can enter into contract with the
company. He/she can sue the company or can be sued by the company.
3. Common seal: being an artificial person, a company cannot sign the documents hence it uses
a common seal on which its name is engraved.

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4. Perpetual existence: unlike partnership the existence of a company is not affected by the
death, lunacy, insolvency or retirement of its member or directors. This is because the
company enjoys a separate legal existence from that of its members.
5. Limited liability: the liability of the members of a company is normally limed to the amount of
shares held or guarantee given by them
6. Transferability of shares: the member of a public limited company can sell his shares to others
without the consent of other shareholders, although he has to follow laid down procedures in
the Companies Act for transferring shares
7. Separation of ownership from management: the shareholders i.e. owner being scattered all
over country give right to the directors to manage the affairs of the company. The directors
are the representatives of the shareholders. Thus ownership is separate from management.
8. Number of members: in case of a public limited company the minimum number is seven and
there is no maximum limit. But for a private company, the minimum of members is two and
the maximum if fifty.
TYPES OF COMPANIES
Companies can be grouped into two categories:

1. Statutory companies: they are created by an Act of parliament. The powers and functions of
these companies are defined by the Act that creates them. Parastatal organizations fall in this
category. For example, Agricultural Finance Corporation (AFC), Kenya National Trading
Corporation Ltd (KNTC).
2. Registered companies: these are those that are formed, registered and operate under the
companies act. In Kenya they operate under the company’s act 1962, cap 486 laws of Kenya.
Registered companies may further be classified into public, private, limited or unlimited
companies.

1. LIMITED AND UNLIMITED COMPANIES

In a limited company the liability of the members is limited to a stated amount, usually to the face
value of shares a member holds in the company. The liability of unlimited company is unlimited
like those of sole traders and general partners. There are however no unlimited companies in
Kenya.

2. PUBLIC COMPANIES
These companies must have a minimum membership of seven but there is no maximum number.
Their shares are freely transferable usually through the Nairobi stock exchange. Shares and
debentures are open for public subscription. Certificate of trading and annual audit of accounts
are compulsory. The minimum number of directors is two. They may have limited or unlimited
liability.

3. PRIVATE COMPANIES
The minimum membership is two and the maximum is fifty excluding past and present employees.
Their shares are not freely transferable. They cannot offer shares and debentures to the public for
subscription. They must at least have one director. They commence business on receipt of
certificate of incorporation form the registrar of companies. Presentation of prospectus and
audited accounts is not compulsory for private companies.

ADVANTAGES OF A COMPANY

1. Limited liability: this means that even if the company is unable to pay its debts, the
shareholders cannot in accordance with the law lose more than the value of their investment
in the company.
2. Transferability of shares: ownership in a company can be transferred very easily.

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3. Continuous existence: the legal existence of any company is not affected by the death of any
shareholder unlike the sole proprietorship and partnership.
4. Greater ease of raising capital: companies can raise more capital by inviting the public to buy
shares or by borrowing large sums of many at low interest rates.
5. Specialized management: because of its size and scope of operation, a company can afford to
hire well-qualified employees who can manage the company efficiently.
6. Board of directors’ management: the board of directors consists of persons of different
expertise. Decisions of these experts are normally better than one person’s decision.
7. Economies of scale: large sums of capital enable large scale operations which result in reduced
costs per unit produced and consequently higher profit.
DISADVANTAGES OF COMPANIES

1. Legal restrictions: a company can only operate in accordance with its memorandum and
articles of association. This claims considerable time and effort.
2. Complications of formation: forming a company is more costly, complicated and time
consuming.
3. Impersonality and lack of security: - unlike the sole proprietor and partnership, the dispersed
ownership of the company leads to impersonality and consequent avoidance of personal
interests and responsibility.
4. Slow and expensive decision making: - in companies all decision making are normally taken by
the directors and the more important decision by the shareholders. This process is slow and
often expensive.
5. Direct control of owners is not possible: - the owners (shareholders) do not control the
company directly. Their control is of very indirect character because direct control is vested in
the board of directors.
6. Taxation: the company is a taxable entity for income tax purpose. It pays taxes separately from
their owners.
COOPERATIVE

A cooperative organization can be defined as an organization of members who come together to carry
out economic activities and to share proceeds equitably on the basis of cooperative principles. The
principles must adhere to the cooperative principles. These principles are formulated by the
international cooperative alliance (ICA), which is a worldwide confederation of all cooperative
organizations. These principles are:

A. Open membership: Cooperate organization is a voluntary association of personal desirous of

pursuing a common objective.

B. Democratic administration: Management and administration of a cooperative organized is vested

in the hands of the managing committee elected by the members on the basis of “one member – one
vote: irrespective of the number of shares held by any member.

C. Interest on capital: - A member can subscribe subject to a maximum of 10% of the total share
capital. Shares cannot be transferred but surrendered to the organization. The rate of dividends paid
to the members/ shareholders is restricted to 9% as per the cooperative societies Act.

D. Disposal of surplus: After giving dividends to the members, the surplus of profits if any is distributed
among the members in the proportion of business they have done with the cooperative society.

E. Cooperation with other cooperatives.

ADVANTAGES

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a) Easy formation: Formation is easy. Any ten adult persons can voluntarily form themselves into
a cooperative society. Also, it does not involve long and complicated legal formalities.
b) Limited liability: The liability of members is limited to the extent of their capital in the
cooperative society.
c) Continual existence: The cooperative society has a separate legal entity. Hence the death,
insolvency, retirement etc. of the members do not affect the existence of cooperative society.
d) Social service: The basis philosophy of co-operative is self-help and mutual help. Hence co-
operatives foster fellow feeling among their members and inculcate more values in them for
a better living.
e) Tax advantage: A cooperative society is exempted from income tax and surcharge on it’s
earning up to a certain limit. Besides, it is also exempted from stamp duty and registration
fee.
f) Open membership: The membership of cooperatives is open to all irrespective of colour, tribe,
and racial, social and economic status. There is no limit on maximum membership.
g) State assistance: The government offers a number of grants, loans and financial assistance to
cooperative societies to make their functioning more effective.
h) Democratic management: The management in cooperatives is democratic.
DISADVANTAGES

a) Lack of secrecy: A cooperative society has to submit its annual reports and accounts with the
registrar of cooperative societies. Hence secrets relating to the business cannot be kept.
b) Lack of business acumen: The members of cooperative societies generally lack of business
acumen. When such members become the members of the board of directors, the affairs of
the society are expectedly not conducted efficiently.
c) Lack of interest: The paid office bearers of cooperatives do not take interest in the functioning
of society due to the absence of profit motive.
d) Corruption: In a way, lack of profit, motive breeds fraud and corruption in management. The
officers for their personal gains can reflect this in disapprobation of funds.
e) Lack of mutual interest: The success of cooperatives depends upon the members utmost trust
to each other. However all members are not found imbued with a spirit of cooperation.
Absence of such spirits breeds mutual rivalries among the members.

FACTORS TO CONSIDER WHEN STARTING A BUSINESS

1. Capital: Entrepreneur has to invest in certain amounts of personal money for the start of their
business. He should know the sources of his capital.

2. Business opportunity: An entrepreneur should not start a business similar to existing ones without
determining whether the market can accommodate all of them.

3. Entrepreneurial skills and knowledge: An entrepreneur should know his competencies, attitudes
and skills that will benefit his business. Managerial skills are important since they will enable him to:

a) Implement the business policies

b) Identify and deal with problems that can interfere with his business

c) Conduct business appraisal and compile the necessary report

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d) Ensure and control quality in performance for productivity in business.

4. The competitors: A person wishing to start a small business should know his/her competitors and
the quality of products, so that he can make his products even better.

5. Economic environment: When the economy is declining progressively then the demand for goods
and services also tends to decline. The entrepreneur needs to study the economic environment before
venturing into business.

6. Legal requirements: an entrepreneur should know the legal requirements of starting his enterprise.
The legal requirement may prohibit or restrict the consumption of a certain commodity. The
entrepreneur has therefore to choose wisely the business to engage in.

7. Political environment: The political environment scene changes. An entrepreneur should consider
whether the business will be able to operate within the changing political environment e.g. increased
corruption and official harassment may force his business enterprise to close own once established.

8. Machinery and equipment: This will be determined with the nature of the business activity. If the
entrepreneur engage in a production business the knowledge on how to use the equipment is
necessary.

9. Business premises: the location of the business is a key factor to consider. The following are the
factors one should bear in mid when selecting a business site.

(a) Transport facilities

(b) Availability of energy or power
(c) Nearness to raw materials
(d) Expansion of ability in future
(e) Availability of auxiliary services i.e. banking
PROCEDURE OF STARTING A SMALL ENTERPRISE

a) Idea generation This is an attempt by the entrepreneur to state the business idea and the
context within which it will be developed. It will involve describing the intended business
objective and its environment.
b) Market survey research: This is an attempt to find out whether the idea has a potential
clientele. It allows the proposer to modify the business idea according to the potential market.
Many busies people ignore this procedure assuming that having a good innovative idea is
enough for a business success. Many times they find out that the potential market is not as
large as first though, or their interpretation of customer’s needs is a little faulty.
c) Selection of location: Take time to get the most appropriate business location as per the
business type. Is it a service or product?
d) Resource Mobilization: Mobilize the both physical and human resources required for the
venture.
e) Business registration: acquire the relevant business permit from the respective authorities
f) Licensing the venture with the local authority

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Business life cycle
The Small Business Life Cycle: The 7 Stages of the Business Life Cycle
Stage 1: Seed
This is the stage when your business is just a thought or an idea. It refers to the conception or
birth of a new business idea. At this stage the company will have to overcome the challenge
of market acceptance. The main focus is on matching the business opportunity with your
skills, experience and passions. Other focal points include: deciding on a business ownership
structure, finding professional advisors, and business planning.
Early in the business life cycle with no proven market or customers the business will rely on
cash from owners, friends and family. Other potential sources include suppliers, customers,
government grants and banks.

Stage 2: Start-Up
At this stage the business is born and exists legally. Products or services are in production
and you have your first customers. In the start-up life cycle stage, it is likely you have
overestimated money needs and the time to market. Start-ups require establishing a customer
base and market presence along with tracking and conserving cash flow. Money Sources:
Owner, friends, family, suppliers, customers, grants, and banks.
Stage 3 : Growth
At this stage revenues and customers are increasing with many new opportunities and issues.
Profits are strong, but competition is surfacing. The biggest challenge growth companies face
is dealing with the constant range of issues bidding for more time and money. Effective
management is required and a possible new business plan. The main focus is on running the
business to deal with the increased sales and customers. Better accounting and management
systems should be set-up. New employees will have to be hired to deal with the influx of
business. Money Sources: Banks, profits, partnerships, grants and leasing options.
Stage 4: Established
At this stage the business has now matured into a thriving company with a place in the
market and loyal customers. Sales growth is not explosive but manageable. The main focus is
on improvement and productivity. Money Sources: Profits, banks, investors and government.
Stage 5: Expansion
The expansion stage is characterized by a new period of growth into new markets and
distribution channels. This stage is often the choice of the business owner to gain a larger
market share and find new revenue and profit channels.

Moving into new markets requires the planning and research of a seed or start-up stage
business. Focus should be on businesses that complement your existing experience and
capabilities. Add new products or services to existing markets or expand existing business
into new markets and customer types.
Money Sources: Joint ventures, banks, licensing, new investors and partners.
Stage 6: Mature
Businesses in the mature stage of the life cycle will be challenged with dropping sales,
profits, and negative cash flow. Search for new opportunities and business ventures. Cutting
costs and finding ways to sustain cash flow are vital for the mature stage.
Money Sources: Suppliers, customers, owners, and banks.
Stage 7: Exit

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This is the big opportunity for your business to cash out on all the effort and years of hard
work. Or it can mean shutting down the business.
Selling a business requires your realistic valuation. It may have been years of hard work to
build the company, but what is its real value in the current market place. If you decide to
close your business, the challenge is to deal with the financial and psychological aspects of a
business loss.
Get a proper valuation on your company. Look at your business operations, management and
competitive barriers to make the company worth more to the buyer.
Money Sources: Find a business valuation partner. Consult with your accountant and
financial advisors for the best tax strategy to sell or close-out down business.

Challenges faced when starting a small business

i. Poor infrastructure facilities including power is a challenge.
ii. Deficiency in managerial and technical skills needed for the operation of the business.
iii. Financial challenges/shortages because it’s difficult or are limited to access external
sources of funds.
iv. In a male dominated society, women entrepreneurs find it difficult to cope up with
pressure and tensions of managing an enterprise.
v. Lack of planning -an entrepreneur should have a well-developed plan with clear
objectives prior to starting any venture.
vi. Government limitations-the government tends to back the larger business enterprise
making the small enterprise less attractive especially when it comes to bank lending.
vii. Environmental changes-the economic, political, social and technical environment all are a
challenge to the entrepreneur.
viii. Legal requirements like licenses is also a challenge to operate certain businesses
ix. Lack of necessary entrepreneurial skills, knowledge and traits.

x. High level of completion.

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Resources for a business
A resource refers to anything that can be used to achieve an objective. These resources include;
a. Human resource-Human resource (personnel) refers to the employees working in an
organization. Employees will only be useful if they have the necessary knowledge and skills to
successfully carry out the assigned tasks. It is therefore necessary for the management to match
the correct people with the correct Job activities; this will ensure success for the business.
b. Financial resource-Money is required in order to start and operate a business. A business with
adequate finances that are property allocated to various activities and also monitored is likely to
do better than the one lacking such aspects.
c. Physical resources-These include tangible facilities which belong to the business such as
buildings, machinery, furniture and stock. Availability of such facilities enables the business to
operate.
d. Technology-This refers to skills and methods used in production. Use of modern technology
enhances production of goods and services.

Sources of finance for a business

Businesses can acquire finances from various sources. These include;
Owner's Capital
This is often the only source of capital available for the sole trader starting in business. The same
often applies with partnerships, but in this case there are more people involved, so there should be
more capital available. This type of capital though, when invested is often quickly turned into
long term, fixed assets, which cannot be readily converted into cash. If there is a shortfall on a
Cash Flow Forecast, the business owners could invest more money in the business. For many
small businesses the owner may already have all his or her capital invested, or may not be willing
to risk further investment, so this may not be the most likely source of funding for cash flow
problems.
Ploughed back profits
Firms make profit by selling a product for more than it costs to produce. This is the most basic
source of funds for any company and hopefully the method that brings in the most money.
Borrowings
Like individuals, companies can borrow money. This can be done privately through bank loans,
or it can be done publicly through a debt issue. The drawback of borrowing money is the interest
that must be paid to the lender.
Issue of Shares
A company can generate money by selling part of itself in the form of shares to investors, which
is known as equity funding. The benefit of this is that investors do not require interest payments
like bondholders do. The drawback is that further profits are divided among all the shareholders
Overdraft
This is a form of loan from a bank. A business becomes overdrawn when it withdraws more
money out of its account than there is in it. This leaves a negative balance on the account. This is
often a cheap way of borrowing money as once an overdraft has been agreed with the bank the
business can use as much as it needs at any time, up to the agreed overdraft limit. But, the bank
will of course, charge interest on the amount overdrawn, and will only allow an overdraft if they
believe the business is credit worthy i.e. is very likely to pay the money back. A bank can demand
the repayment of an overdraft at any time. Many businesses have been forced to cease trading
because of the withdrawal of overdraft facilities by a bank. Even so for short term borrowing, an
overdraft is often the ideal solution, and many businesses often have a rolling (on going)
overdraft agreement with the bank. This then is often the ideal solution for overcoming short term

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cash flow problems, e.g. funding purchase of raw materials, whilst waiting payment on goods
produced.
Bank Loan
This is lending by a bank to a business. A fixed amount is lent e.g. Kshs.10,000 for a fixed period
of time, e.g. 3 years. The bank will charge interest on this, and the interest plus part of the capital,
(the amount borrowed), will have to be paid back each month. Again the bank will only lend if
the business is credit worthy, and it may require security. If security is required, this means the
loan is secured against an asset of the borrower, e.g. his house if a Sole Trader, or an assesst of
the business. If the loan is not repaid, then the bank can take possession of the asset and sell the
asset to get its money back. Loans are normally made for capital investment, so they are unlikely
to be used to solve short-term cash flow problems. But if a loan is obtained, then this frees up
other capital held by the business, which can then be used for other purposes.
Leasing
With leasing a business has the use of an asset, but pays a monthly fee for its use and will never
own it. Think, of, someone setting up business as a Parcel Delivery Service, he could lease the
van he needs from a leasing company. He will have to pay a monthly leasing fee, say
Kshs.50,000, which is very useful if he does not wish to spend Ksh.800,000 on buying a van.
This
will free up capital, which can now be used for other purposes. A business looking to purchase
equipment may decide to lease if it wishes to improve its immediate cash flow. In the example
above, if the van had been purchased, the flow of cash out of the business would have been Ksh
800,000, but by leasing the flow out of the business over the first year would be Ksh 600,000,
leaving a possible Ksh 200,000 for other assets and investment in the business. Leasing also
allows equipment to be updated on a regular basis, but it does cost more than outright purchase in
the long run
In an ideal world, a company would bring in all of its cash simply by selling goods and services
for a profit. At some point the company may need to invest in big investment that will yield
returns in the near future. For this reason, a time will eventually come when the company will
need to acquire funds from any of the above mentioned.

RVIST BCE DEPARTMENT Ms. Bowen

Topic 7 BUSINESS ENTERPRISE MANAGEMENT
8.1 Definitions
Enterprise: This is a business organization that concerns itself with buying and selling of goods,
manufacturing goods or providing services in order to earn profit.

Management: Management unlike other subjects such as economics, philosophy or political science
is of a recent origin and hence a relatively new subject. There is no certified view on what management
is precisely. Different scholars define management differently.

Henry Fayol, says that to manage is “to forecast, to plan, to organize, to command, to
coordinate and to control.
Fredrick Taylor defines management as “knowing exactly what you want men to do”.

Mary Parker defines management as the art of getting things done through people.

Enterprise management: This is the art of utilizing the resources; both human and material in a
business organization in order to achieve the desired business objective.

8.2. CHARACTERISTICS OF MANAGEMENT

1. Management is a purposeful activity

2. It is getting things done in a desired way

3. It concerns with the efforts of people working in the enterprise

4. It relate to decision making

5. It is a process. It consists of various functions like planning, organizing controlling and leading.

6. It is both a science and an art. it is a science because it has developed certain principles and laws. It
is an art because it is concerned with the application of knowledge of the solutions of the organizations
problems.

7. It is a fast developing profession

8. It deals with direction and control of the business

9. It is a dynamic concept, which adapts itself to changing business conditions.

A manager: A manager is the person who achieves the objectives of the business by directing the
efforts of the workers. The task of the manager is to establish a working atmosphere, which enables
the people working under him or her to perform efficiently and effectively. To do this, a manager
needs the following qualities:

i. Ability to think logically and clearly

ii. Ability to express oneself clearly: This is the art of communication. A manager should know
who to express himself or herself clearly to avoid misunderstandings.
iii. Technical competence: This is the knowledge in area of specialization. These increase his
credibility and acceptability by those under him.

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iv. Ability to perceive the broader issues: A manager should be able to see the overall picture of
issues to that he or she can understand them and know the effect of each one of them on his
actions
v. Salesmanship: This is the art of making the workers agree with his ideas. It aims at making the
others not only know but also accept and agree with the idea.
vi. Moral integrity: As a manager your actions, conduct and pronouncement should be beyond
reproach. This is in order for the subordinates to have confidence in the manager.
vii. Emotional stability: A manager should be able to keep his or her personal feelings out of the
business problems, so that he/she can be able to look at issues objectively.
viii. Skill in human relations: This is the ability to understand human nature and behavior. This
enables the manager to develop a good and cordial relationship with the worker and other
people that he may get in touch with.
Similarities & Differences between Managers & Leaders
Managers Leaders
➢ Spent time mastering basic routine - Use vision & judgment to create and
& deciding how to do things do right things.

➢ Explore new ideas, methods, - Communicates their visions to

Products & services their employees

➢ Develop creative solutions to - Use power wisely to make ideas a

old problems reality

➢ Challenge employees to give -They do not think about failure

their best

➢ Seek long-term success for their - Reward employees

organizations, employees and

themselves

8.3. FUNCTIONS OF MANAGEMENT

1. Planning

Planning is the determination of which path among many an organization intends to follow in order
to achieve its goals effectively and efficiently. It is the process of determining what to do, how to do
it, when to do it and who to do it. Every function starts with planning. A plan therefore is a pre-
determined course of action to take. The plans provide a basis of reference for decision by individuals
in an organization.

The planning process

Planning viewed, as a process comprises the following steps:

(i) Setting of goals: here a manager sets the goals of the organization or department.

(ii) Search for opportunities (forecasting – the purpose of this is to discover in the environment any
opportunity for the activities of the organization. in this case the manager is involved in forecasting
probable events in the future so as to come up with appropriate course of action.

(iii) Making of plans: at this stage, the opportunities that are discovered through the achievement of
goals.

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(iv) Target setting: here the specific details for the plans are made. this involves determining the
qualities and time guidelines required.

(v) Follow up plan: - this involves carrying out continual checks to determine whether the plan actually
results in performance that is consistent with the original previous thinking.

2. Organizing

After having planned for the activities of the enterprise, a manager then decides on how best the
resources available for the achievement of the planned goals and objectives can be utilized. This is
what is called organizing. It involves; dividing works into different departments, assigning such
positions to the manager and delegating the authority to each manager to accomplish the tasks in a
planned manager. The manager also needs to ensure the recourses are not wasted or underutilized.

Principles Organising
In deciding how best to utilize the available resources, there are certain principles, which could guide
the manager;

(i) The span of control: this refers to the number of workers an individual manager
or supervisor can supervise effectively. If the workers are too few, the time of the
supervisor will not be utilized effectively. If they are too many, he will not be able
to supervise all of them effectively.
(ii) Unity of command: this is the principle, which maintains that each worker should
be responsible to and receive direction and instruction from one boss. This helps
to reduce confusion and conflict among workers. It also helps to minimize
incidences of lack of action.
(iii) Scalar principle: which maintains that authority in an organization flows in clearly
defined and identifiable line top to bottom? This helps to define who has
authority over whom in an organization.
(iv) Delegation of authority: this is the process through which the manager assigns
art of his duties to subordinates. This helps to define who has authority over
whom in an organization
(v) Delegation authority: this is the process through which their manager assigns part
of his duties to subordinates. This is done by first assigning responsibility to the
subordinates to do something. Second, the manager must also grant the authority
necessary to carry the task. Third, the manager creates accountability in the part
of the subordinate. Delegation helps in fostering vertical coordination within the
organization.
(vi) Specialization: this is the concentration of workers efforts in a particular job or
area of work. The more one concentrates on the performance of a particular job,
the better he/she becomes in performing the job. This is also referred to as
division of labour.

3. Staffing
Staffing involves manpower planning and manpower management. Staffing functions include;
preparing inventory of personnel available, recruiting of personnel, selection of the personnel,
remuneration, training and development of personnel and periodic appraisal of the personnel working
in the enterprise. Every manager of the enterprise performs staffing function. Of course personnel
department facilitates managers in the staffing function by proving for example appraisal forms.

4. Directing

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The directing the manger is expected to lead guide, motivate and supervise the workers. The functions
like planning, organizing and staffing are merely preparation of doing the work the directing function
actually start the work. It therefore refers to the personal function or aspect of management, whereby
workers are made to understand and contribute effectively to the achievements of the goals of the
en enterprise.

5. Controlling

Controlling as a management function can be defined as the process of checking or following up

performance of activities undertaken in a business organization, to find our whether or not such
performed activities conform to the required standards or certain targets. Monitoring of a business
enterprise is a continuous process. The control of mechanisms established in business can assist a
manager to detect deviation from the set standards or targets. In case the performance certain
business activities or transactions do not meet the required standards or target, then corrective
measures needs to be taken.

OVERCOMING PRESSURE ON THE MANAGEMENT OF EMPLOYEES

Participative style of management. The manager involves others in decision-making process

Establish team spirit
Communicate with employees
Provide feedback
Delegate some responsibility to others

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TOPIC 8; ENTERPRISE SOCIAL RESPONSIBILITIES

Meaning of enterprise social responsibility

Social responsibility consists of those obligations a business has to society. The small
business has certain social obligations, responsibilities and responsiveness to society. This
regards the intensity or to what extent the small business should be involved to society issues.

Social responsibility in enterprise development may be viewed as a contribution that the

community gets from the established enterprise. This includes areas relative to society’s
goodwill towards the enterprise, waste management within the environment and
government’s effort in supporting development.

However, an enterprise also has social concerns that should be recognised. These include:
protection of the environment to avoid creating health hazards to the people, provision of
goods and services coupled with equitable distribution of resources, gender sensitivity issues,
and coverage of ethical business practices to promote economic development of a country.

Some businesses simply react to social issues through obedience of the laws, others make a
more active response, taking, and accepting responsibility for various programmes. Others
are more proactive and are even willing to be evaluated by the public for various activities.

Every business has a social responsibility to contribute to the development of the society in which it
operates. This social responsibility can be carried out in various ways such as
a) Supporting and contributing towards environmental conservation programmes
b) Ensuring that the goods and services produced and sold to the people are safe for human
consumption
c) Ensuring that workplace is safe and secure for workers
d) Ensuring that the activities of the business do not cause environmental pollution or harmful
effects to the surrounding community.
e) Supporting and contributing towards social welfare programmes such as contributing towards
the care of orphans. , HIV/AIDs victims and flood victims.

Businesses have a duty to obey the laws of the countries in which they operate and also to fulfil
their contracts. Businesses are also a part of society and therefore they have a responsibility to
maintain healthy and safe surrounding.
This is done by;
i) reducing air and water pollution by applying appropriate waste disposal methods
ii) packaging goods in environmentally friendly materials e.g. the polythene bags used for carrying
goods from the supermarkets or the shops do not decompose. They therefore make the environment
very untidy and unhealthy especially in towns.
i) Keeping the business premises and work place clean at all times.
ii) Preserving the surrounding natural vegetation as much as possible

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iii) Producing goods and services that are safe to use. These may be sold to consumers when safe
especially when handling and using.
In conclusion therefore, Enterprise Social Responsibility is the implied obligation of the business acting
in its official capacity to serve or protect the interests of community other than itself only.

Ethical business practices

Ethics is a major factor in the social responsibility of business. Ethical philosophy is a branch of
philosophy that is concerned with the judgments of the rightness or wrongness of an act. The aim of
professional or business ethics is the protection of professionalism, human rights, integrity of
character and good service. In general, the issues considered in such code of ethics consist of.
MANAGEMENT ETHICS refers to the accepted standard of behaviour by those in managerial positions.
Respect for and compliance with the laws is concerned ideally to govern our mode of conduct for the
good and benefit of all. The business should uphold the following:

a) Honesty: In this respect, it is necessary that facts are presented fairly and accurately.
Claims made about products or services, even in the advertisement should be
accurate, true and accord the due respect to the dignity of the human person.
b) Fairness: Every one whom you deal with should be given appropriate consideration.
This includes workers, customers, suppliers and others with whom the organization
interacts.
c) Loyalty: This is in terms of loyalty to other stakeholders i.e. customers, workers,
suppliers etc.
d) Confidentiality: This is especially important for service industries such as banks. It is
important that transactions with customers are respected and protected so that they
are not disclosed to third parties.
e) Trust: There should be a mutual trust there the owners of a business should also have
enough trust in the organization without trust, no meaningful and lasting relationship
can develop.
f) Courage: This refers to the need to treat others with respect; be incorruptible in
business operations even it means losing the business.

8.3.3 TYPES OF ENTERPRISE SOCIAL RESPONSIBILITIES

Social responsibility can be put into three main categories.
a) social obligation
b) social reaction
c) social responsiveness
a) social obligation
Based on the fact that society supports a business by allowing it to exist, the business has a duty to
supply the society with quality goods and services.
-It should carry out its activities and make profit `within the limits of the law.
b) social reaction
A business can sometimes be under pressure from society to do certain things. As such, the response of
business gives/shows is referred to as a social reaction because the business is reacting to social
pressure. This social reaction is not a voluntary action on the part of the business.
-It is a behaviour demanded by a group or groups of people who have a direct interest in the
organisations actions. E.g. a business could be forced to withdraw offensive advertisements by the
public through social pressure.
c) social responsiveness

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This refers to actions taken by a business voluntarily. These actions may be due to the anticipation of
future needs of a society which the business tries to satisfy.
-A business that responds to the social needs will actively seek ways to solve social problems e.g. a
business operating in a given locality may decide to employ some of the local people in order to reduce
unemployment in the area.
-A business should be socially responsible

PARTIES IN THE SOCIETY THAT AN ENTERPRISE HAS RESPONSIBILITY TO

1. Shareholders/owners

Business has the following major responsibilities to the shareholders earnings:

❖ Safeguarding shareholder’s interests e.g. by protecting shareholders’ property

from fraud.
❖ Improvements of all disclosure and other areas of business dealings and economic
activities.
❖ Increase of shareholding earnings
2. Employees

Business should be socially responsible to the employees in ways such as the following:

a) Rewarding employees equitably

ii) Safeguarding employees health and safety

iii) Giving employee equal opportunities in promotions and training

iv) Proper personal administration and industrial relations practices

v) Promoting employees’ welfare through provision of such things as housing, educational,

recreational and credit and facilities.

vi) Child day-care facilities for working parents

vii) Employee physical fitness and stress management programs

vii) Remedial education programs for disadvantaged employees

3. Consumers

Business should be socially responsible to the consumers in the following ways:-

(i) Reasonable price levels

(ii) Giving consumers safe products
(iii) Avoiding misleading adverts
(iv) Educating consumers about products and their use
(v) Supply of products to the consumers
(vi) Making the after sale services that may be required by consumers available and affordable
(vii) Proper labeling, packaging and presentation of products in a manner that the quality,
quantity, hazards of use and limitations of use are clearly indicated.
(viii) Responding to consumer compliant and adhering to ill-stated or implied warranties.
(ix) Conducting research before introducing a product to the market.
4. The supplier

The major business responsibilities to supplier are:-

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a) Payment to supplier in good time
b) Fair terms of supply
c) Fairness in allocation of tenders to suppliers
d) Relevant information
5. The creditors

Here business should be socially responsible in areas such as-

1. Not defaulting in payments

2. Paying fair and reasonable rates of interests
3. Paying on time
6. The government

Business should be socially responsible to the government in:

a) Complying with the government laws and regulations

b) Paying proper taxes
c) Supporting the government in welfare and development programs
7. The community

(i) Business could be socially responsible to the community by doing the following:

b. Maintaining clean environment

c. Prevention of pollution
d. Creating employment opportunities
e. Participation in community activities
f. Participation in disaster management i.e. drought
g. Development of charitable goods and services.
h. Proper utilization or resources
i. Meeting the needs of the disadvantages
8. Products

a) Enhancement of product safety

b) Sponsorship of product safety education programme
c) Reduction of polluting potential products
d) Improvement of nutritional value of products
e) Improvement in packaging and labeling
9. Energy

a) Conservation of energy in production and marketing operation

b) Efforts to increase the energy efficiency of products
Other energy-saving programs (e.g. company sponsored car pools)

Importance of Enterprise Social Responsibility

1. Enhance business relations with the society. Just as a society depends on business
organization for goods and services, so business depended on society. When business
participates in social responsibility it creates acceptance by the society as a whole and as such,
it will create a good working conditions that will enable them to work for the benefits of their
organization.
2. Recognition of the society’s goodwill. By engaging in social responsibility, the business
organization is appreciating the fact that it is the society as a whole that has enabled their
continual existence.

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3. Supplement governments effort in development organization also has a relationship with the
government at the local, state and federal levels. By participant in socially responsible
activities that relates to national development such as building of schools or proving training
activities to members of a society, the business organizations are helping in the government’s
efforts in development.
4. Means of waste management: Business organizations also act as means of waste management
because they ensure that they participate in a clean environment. They ensure that they keep
the environment safe for all in the society hence they act as a means of waste management.
They also help in waste management by recycling waste products.
5. A marketing tool
6. Conducive atmosphere for the success of the business
7. Environmental conservation programmes
8. Ensures security for workers
9. Social welfare programmes

Benefits of Social Responsibility

• It leads to creation of a better social environment both for the society and the business
• It improves the value of the business shares on the stock exchange
• It improves the image of the business to the public
• It makes the business follow government regulations
• It makes business live up to the social expectations
• Such social actions are profitable to the business in the future
• The business can develop new measures from which the society benefits

TOPIC 9: BUSINESS PLAN

BUSINESS PLAN
This is a written document that highlights the objectives of the business and steps to be followed
in order to achieve these objectives. It indicates where the business is, where it wants to move to,
how and when.

Need for the business plan

i. A business plan is necessary to an entrepreneur for the following reasons:
ii. Avoiding mistakes-in the process of drawing a plan; mistakes that would take place in the
business are identified and corrected in the plan. This helps in avoiding the occurrence of such
mistakes in the business.
iii. Identifying strength and weaknesses-A business plan helps in identifying strengths or
weaknesses and where weaknesses are detected, remedial actions may be taken early enough.

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iv. Requirement by financiers-Financial institutions such as banks may require a business plan
before they can accept to finance the activities of the business.
v. Allocation of resources-It helps to determine the resources required and plan on how and
where to use them. This ensures that resources are neither underutilized nor used for the wrong
purpose.
vi. Facilitates business evaluation-A business plan helps an entrepreneur to assess the progress of
the business and any deviation (difference) from the intended plan can be corrected in good time.
vii. It helps an entrepreneur outline competition-It helps the entrepreneur to be fully aware of the
market she or he plans to operate in, understand important trends and know who her/his
competitors are and their strengths and weaknesses. This information aids the entrepreneur to
develop products that are better than those of the competitors.
viii. A motivating factor-A business plan is communicated to all employees in the business. This
makes them aware of the direction to be taken by the business. This motivates them to work
towards that direction.
ix. Adaptability-Normally, not all events occur as predicted in the business plan. However, a well
drawn business plan should give room to accommodate any changes that might occur in the
future.
x. Tool for control-Planning involves setting of standards against which performances can be
assessed. In case of deviation corrective measures can be taken.

Components of the business plan

A business plan should be comprehensive enough to give any potential user a complete
picture and understanding of the venture and will help the entrepreneur clarify his or her
thinking about the business.
Although there is no generally accepted format of a business plan. A typical format would
possess the following:
i) Cover page:
It contains the name of the business, its owner(s), nature of the business, and the
organization to which the business plan is to be presented.
ii) Executive summary:
Contains a brief summary of the main contents of the business plan. It is prepared
after the entire plan is written. It summarizes every chapter of the page.
iii) Business description:
Contains a comprehensive description of the business and what it intends to
accomplish
Example of information contained includes:-
▪ Name of the business and its contact
▪ Vision and mission of the business.
▪ Location.
▪ Form of ownership.
▪ Major activity of the business.
▪ Major customers.
▪ Justification statements/viability
▪ The goals of the business
iv) Marketing plan:
The marketing plan outlines the specific action the entrepreneur intends to carry out to
attract potential customers. The marketing segment is divided into two major parts:
➢ Research and Analysis: describes the target market i.e. who the customers are,
the size and its trends, the existing and possible competition.

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➢ Marketing strategy: This part describes the methods that will be used to
market the product, price the product, make sales, advertise and promote the
product and also the distribution channels that will be used.

iv) Organization/ management plan.

This is the section that describes the key management personnel required, their
qualifications, duties, salaries and incentives. The organization structure is also
defined
- It also identifies other employees needed, their duties, pay, training needs.
- Other support services required are highlighted in this section e.g. banking
services, legal services, management consultancy Etc.
- Any licenses, permits or regulations affecting the business are discussed here.

v) Operational plan/Production plan.

This section describes the processes, activities, and requirements involved in realizing
the operational goals of the business and required raw materials.

vi) Financial plan

This section outlines the financial needs of the business and sources of raising the
finances and also gives the projections of income and expenditure through such key
statements as:
- Cash flow statement
- Income statements (trading, profit and loss account statements) among others.

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TOPIC 10: ICT IN ENTREPRENUERSHIP
Information is a product of data which has been given a structure and put into a context.

Communication is the art of sending and receiving messages or information from one person to
another via a channel.

Technology is the generation of knowledge and processes to develop systems that solve problems
and extend human capabilities.

Benefits of ICT to a small business

1. Improved accuracy, internally and externally
2. Services to customers that are more comprehensive that before
3. Faster processing, leading to prompter responses to customers
4. Information for management, not previously available, or available too late to be useful
and tighter financial control.
5. New customer services previously not possible.
6. New sources of information to allow improved product design and marketing
7. Reduced cost arising from the greater productivity of staff who are supported and
assisted by appropriate computer services.
8. A more attractive, cleaner working environment in some cases, helping recruitment
and retention of staff.
9. Increased profits,
10. Improved time management,
11. Increase in cost-effectiveness,
12. Increase in sales,
13. Higher market exposure
14. Reduced work force among others

How ICT can help a small business enterprise

ICT helps in the following activities;

Information processing tasks. This tasks range from computing and printing payroll checks, to
creating presentations, to setting up websites from which customers can order products.

Decision making tasks. Involves the use of online analytical processing to manipulate
information to support decision making. This ranges from performing simple queries on a
database to determine which customers have overdue accounts to employ sophisticated artificial
intelligence tools such as neutral networks and genetic algorithms to solve a problem.
Shared information through decentralized computing
Decentralized computing is an environment in which an enterprise splits computing power and
locates its functional business areas as well as on the desktop of knowledge workers. This is
possible because of the proliferation of less expensive, more powerful and smaller systems
including desktop computers, laptops and minicomputers. Shared information is an environment
in which an organization information is organized in one central location allowing anyone to
access and use it as they need to.
Innovation. Is something new. It can be a new device, process or idea. Cellular telephones
combined with computer technology may be considered innovative device. Using satellite to help
navigate automobiles is an innovative process.

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Uses of ICT equipment
The following are some of the benefits associated with the various ICT tools :

i) The Phone
The phone is used to communicate verbally with customers and suppliers. This includes both
the fixed line and mobile phones Other than verbal communication, the mobile phone is also
used for sending and receiving messages, sending and receiving money e.g. MPesa.
Benefits of a mobile phone
- It is affordable
- It is easy to use and any one can understand its functions
- It is portable and therefore can be used anywhere at any time
- It is efficient because feedback is immediate
- It can be used in extreme remote areas as long as the network coverage is available

ii) Radio
- This is a very effective way to advertise a business
- It is quite inexpensive and can reach a wide audience
- Some communities have local radio service stations and the small business may use
this service to advertise its products or services where the entrepreneur may be
interviewed during a programme. Examples of such radio service stations are;
Inooro FM, Murembe FM and Ramogi FM.
iii) Television
A small business may use the television as a tool for sourcing technological
information, new products/services, market trends and general information that will
assist the entrepreneur to run his business.
iv) Print Media
Examples of such are; newspapers, advertising papers/magazines and business
directories.
Newspapers e.g. the local dailies(The Nation) which the business enterprise can use
to ;
- Advertise their products/services
- Get information on market trends
- Access information on new technology, new products/services
- Access information on political and economic trends in the country

Advertising Magazines/Papers/Journals/Business directories

These are useful tools for advertising products/services/ location of the business
enterprise

v) The Fax machine

This is short of “facsimile machine”. This is a machine that allows transferring a
copy of a document through the telephone line. Both the person sending and
receiving it must have a fax machine.

Benefits of the fax machine to small business

- The message sent is received instantly
- If one is dealing with people far away, the fax can be a less expensive means
of communication
- The sent copy is like the original copy

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- A message sent through a fax machine confirms in writing anything that has
been previously agreed on verbally
-
-
vi) The Computer
This is one of the modern ways of communicating and advertising in use. It can be
used in the following ways;
- Word processing – writing letters or receipts
- Storing information – financial data, customers addresses, suppliers addresses
- Keeping track of records – purchases and sales
- Reminder messages – products or service delivery dates
- Generating advertising leaflets, posters or flyers
- Generating financial statements
- E-business – this is publicizing the business through the Internet

USES OF COMPUTERS AND OTHER TECHNOLOGIES IN BUSINESS

Computers have several specific uses in business:

They can be used in both manufacturing and services sectors in business. In inventory
accounting, computers can be applied periodic batch processing and immediate processing.
They may be used for processes in up dating inventory records. However, most inventory
application which use computers are more complex than normal inventory file updating. They
include forecast of wage of items, calculations of safety stock requirement, calculation of
economic order quantities and an analysis of stock movement.
Computers are also useful in accounting. Computers can be programmed to (process
customer billing, taxes, reports and financial statements for both internal and external use. in
cost accounting; computers can be used to analyze production costs and perform outline costs
accounting tasks.
Processing payroll is another task that can make use of computers. Computers can read
payroll records, calculate earnings, deductions and print out pay cheques. This could be done
on periodic or continuous basis.
Personnel management computers are applicable. A computer can be used to analyze the
composition of a firm’s personnel and print all information on job classifications personnel
capabilities. This is useful in manpower planning.
Computers are useful in providing customers with better service. In airline conservation
systems, a computer maintains records for scheduled flight for several weeks in the future. A
computer can also give information and update the records of the seats in flight.
In the banking industry, money is now transferred electronically through what is referred to
as Electronic funds Transfer. A computer can process deposits, withdrawals, loans and
customer records. Input/output devices are set up at each branch of a bank so that every
transaction involving deposits, withdrawal, payments and so on, is recorded at the time of
occurrence thus updating customer balances at all branches at all times.

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Emerging issues and trends
i) Mobile phone money transfer: mobile phone payment service is used not only as a
means of sending and receiving money but also for selling goods/services, paying
bills (electricity, water, creditors), and also as a means of safe deposit/ banking.
ii) Marketing: the mobile phone can be used as a tool of advertising a business
product/service.

Topic 11 EMERGING ISSUES AND TRENDS IN ENTREPRENEURSHIP

Introduction

Due to the dynamic nature of the business environment, the user of this manual is advised to
scan the environment for any emerging issues and trends in every sub-module unit and include
it in the learning process. New marketing methods and technologies for example, may emerge
thus creating the need to be captured in the learning process.
11.2 Specific Objectives
By the end of this sub- module, the trainee should be able to:-

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a) Define of terms.
b) Identify the emerging issues and trends in entrepreneurship
11.3.2 Emerging issues and trends in entrepreneurship
Trends refer to long term movements in a certain direction. In society a trend describes a
direction in the tastes and desires of the general population. For entrepreneurs, trends present
an incredible world of opportunities. Once an entrepreneur identifies a specific trend then all
their imagination and creative ability can go into generating products and services to satisfy
the demand that the trend creates.

Due to the dynamic nature of the business environment, entrepreneurs are advised to scan the
environment for any new trends. New marketing methods and technologies for example, may
emerge thus creating the need to be inculcated within continuing business ventures.

Emerging trends in enterprise management can be classified as technological, global,

social/cultural, or economic issues. Technological trends equip an entrepreneur with
knowledge that is useful in the expansion and growth of the business. The use of new
technology creates a competitive advantage for the business by opening a potentially attractive
market for an entrepreneur.
11.4 Emerging Issues and Trends in Entrepreneurship
a. Environmental conservation and the need to address environmental standards
(NEMA).
b. New marketing methods and technologies such as allowing managers to manage
their enterprises in the comfort of their homes or mobile offices.
c. introduction of business incubation centres such as:-
i. export processing zones (E.P.Z’s)
ii. Kenya Industrial Research Development Institute (KIRDI)
iii. Agricultural technology centres
iv. Kenya Kountry Business Incubator (KeKoBi)
d. introduction of entrepreneurship education at all levels of education to inculcate the
entrepreneurial cultlure.
e. Globalisation –
i. Networks being created among entrepreneurs to enable them go global.
ii. Opening unlimited business opportunities which small business enterprises can
pursue.
f. Business clubs – entrepreneurs are more aware and are forming business clubs in
order to access opportunities and markets.
g. Gender equity – more women entrepreneurs in self employment hence various
financial and non-financial organisations to develop products targeting women.
h. More youths being involved in self-employment ( Ministry of Youth Affairs)
i. Large organisations are changing products and services regularly to suit for
upcoming needs of their customers.
j. Many people prefer to start small stalls rather than the traditional retail shops.
k. E-Commerce

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• Being used globally to access customers and suppliers.
• Use of ICT such as the Internet to market business activities and products.
• Allowing a business enterprise to post/ have its profile in a website.
• E-learning.
l. the need for meeting quality standards (KEBS)
m. Use of business plans which is becoming mores of a requirement with many
financial institutions.
n. money transfer for example mobile phone payment service is used not only as a
means of sending and receiving money but also for selling goods/services, paying
bills (electricity, water, creditors) and also as a means of safe deposit/ banking.
o. human rights
p. Alcohol and Drug Abuse (ADA)/ Drug and substance abuse.
q. HIV/AIDS
r. Conflict resolutions among others
Challenges posed by emerging trends and issues in enterprise management
i. Delays in processing approvals
ii. Meeting the required environmental standards
Management of challenges posed by emerging issues and trends in enterprise
management
Complying with set rules
11.5 Suggested learning activity
a) Discuss impact of emerging issues and trends in entrepreneurship development

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