PMT 411: INTRODUCTION TO ETREPRENEURSHIP AND HEALTH SYSTEMS

MANAGEMENT
UNIT INSTRUCTOR : DR. DAVID MASINDE

BROAD COURSE OBJECTIVES

1. To introduce students to entrepreneurship and self-employment
2. To acquire skills and knowledge necessary for starting enterprises
3. To cultivate positive attitudes toward self-employment

TOPICS OUTLINE
BASIC CONCEPTS AND OUTLINE
1. General overview of trends and employment situation in Kenya and the rest of the
world
2. Definitions and concepts-entrepreneurship, entrepreneurs, intrapreneurship
3. Types of entrepreneurs
4. Characteristics of success entrepreneurs
5. Importance of self-employment to individuals
6. Requirement for entering into self-employment
7. Importance of studying entrepreneurship

ENTREPRENEURSHIPAND SOCIETY
1. Entrepreneurial ventures vs. small businesses
2. Entrepreneurs' contribution to national development and general society
3. Entrepreneurship development success factors

ENTREPRENEURIAL OPPORTUNITIES
1. Identification of business opportunity
 Business ideas and the opportunity
2. Sources and ways of getting business ideas
3. Evaluating business opportunities

TECHNOLOGY, INNOVATION AND CREATIVITY

1. Meaning and importance of intellectual property

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 2. Forms of intellectual property-patents, registered trademarks, copyrights, trade secrets
etc
3. Role of Kenya intellectual property Institute (KIP I)

ENTREPRENEURIAL AWARENESS
1. Legal aspect of a business
2. Business legal forms/types, registration and licenses
3. Sources and types of business finance
4. Government policies and enablingenvironment

ENTREPRENEURSHIP MOTIVATION
1. Internal source of motivation
2. External source of motivation
BUSINESS PLANNING
1. Business plan definition
2. Uses and importance of business plans
3. Business planning process

EVALUATION
The final grade will be based on the following:
CAT 15%
Assignment 15%
Final exam 70%
Total 100%

TEXTS FOR FURTHER READINGS

1. Meridith,GA., Nelson,R.E,and Neck, P.A.(1987). The practice of
entrepreneurship .ILO, Geneva.
2. Kuratko, D& Hotgetts R. M.(2005). Entrepreneurship theory, process & practice.
Mason, south-western.
3. Illinois Department of commerce (1989). A business plan outline, Illinois. USA.
4. Neck, P. and Nelson, R.E.,(Eds.) (1987). Small enterprise development: policies and
programmes. ELO, Geneva.

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5. Dollinger , M(1999).Entrepreneurship: Strategies and Resources, upper saddle
River,New Jersey: Prentice Hall.
6. Timmon, J. (1995). New Venture Creation. A guide to Entrepreneurship, Chicago
Irwin Publishers.

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LECTURE ONE: INTRODUCTION TO THE CONCEPT OF ENTRPRENEURSHIP
The learner should be able to explain
1. The basic terminologies used in entrepreneurship.
2. The evolution of entrepreneurship in Kenya
3. Types of entrepreneurs
4. Characteristics of entrepreneurs
5. Importance of self-employment

The Evolution of Entrepreneurship in Kenya

□ Interest in the development of entrepreneurship and small enterprise in Kenya gained
momentumas a possible remedy to the stagnation of economic development and the
escalating unemployment problem between the early 1960 and 1970s.
□ Although there were attempts by the government to develop entrepreneurship, the
main impetus came form the international labour organization (ILO) report.
□ The report centered on the potential of the informal sector and suggested that the bulk
of Kenya's urban workers were self-employed in small enterprises.
□ The report proposed that the development of this sector could;
 promote employment.
 facilitate development
 facilitate equitable distribution of resources.
□ Based on this report the government responded with a seasonal paper in 1973 - which
recognized the role of entrepreneurship in employment creation not just in the formal
sector but also in the formal sector.
□ Subsequent development plans have devoted time to the development of strategies
and to promote small-scale enterprises and entrepreneurs which include.
 The industrial estate programme
 Establishment of development agents e.g ICDC and KIE
 Policy and institutional framework to promote entrepreneurs.
 Promoting indigenous Kenyan enterprises.

How the government planned to promote entrepreneurship

 The development plan laid down proposed to implement small scale industrial policy
 Review the central and local government regulations that a hindrance to

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 entrepreneurial development.
 Provision of direct assistance to the small scale businesses all over Kenya.
 Establishment of an organization that would give extension services to the small scale
enterprises.
 Creating and strengthening institutions and schemes for the assistance of the small
enterprise sector
 Establishment of credit guarantee schemes for loans given by commercial banks
 Establish procedures to improve small scale training through the ministry of technical
I training and Applied Technology.
 Overhaul the education system i.e. introduction of the 8.4.4 system.
 Establish a full-fledged small industrial division in the ministry of commerce and
industry which gave rise to the District focus for rural development.
 Introduction of entrepreneurship education is all levels of training.

CONCEPTS-ENTREPRENEURSHIP, ENTREPRENEUR AND

INTRAPRENEURSHD
 Entrepreneurship- is the process of creating something new with value by devoting
the necessary time and effort assuming the risks involved and receiving the resulting
rewards inform of monetary gain personal satisfaction and independence.
 In the broader sense entrepreneurship refers to the means of stimulating innovative
and creative undertakings for a better business community or world.
 The meaning of entrepreneurship brings four aspects of being an entrepreneur;
1. It involves creating something new and of value to both the entrepreneur and
the customer.
2. It requires the devotion of both time and effort
3. It assumes the necessary risks such as financial, psychological and social risks
4. It brings forth rewards such as good profits , personal satisfaction, prestige,
independence etc
 Entrepreneur- is one who creates a new idea in the face of risks and uncertainty for
the purpose of achieving profit and growth by identifying significant opportunities
and assembling the necessary resources.
 An entrepreneur is basically a person who identifies a business opportunity, harshness
and obtains the resources necessary to initiate a successful basis activity. The

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 entrepreneur implements the idea and undertakes to operate the business.

NB: All entrepreneurs are business people - though not all business people are
entrepreneurs.
Entrepreneurs tend to be more innovative than ordinary business people and end up
An entrepreneur is therefore a central key individual in the society who makes things
happens for economic development.

Intrapreneurship
This is entrepreneurship practice within an existing business. Many organizations are
developing an entrepreneurship environment to accommodate employees who have a strong
need for creativity and innovation. These are individuals who believe strongly in their own
talents and desire to create something of their own.

Types of Entrepreneurs
a) Craft entrepreneurs
□ Exploits and utilizes personal skills to start a business without thinking of its growth
or the expansion objectives.in this type of entrepreneurship
i. There is no expanding even after along time
ii. It is not business expansion oriented.
iii. The skills can be technical skills, professional skill e.t.c

b) Opportunistic entrepreneurs
 This is a person who starts a business, acts as a manager and with a view to
expand the business to maximum.
 He might not have the sill to profession but he has the opportunity to start and
direct others.
 He sees beyond and has abilities to initiate and venture into business that will
expand and grow.
 He is innovative i.e. somebody able to delegate activities to others , ready and
able to see, scan the environment.

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 c) Soloist entrepreneur
This is a self-employed person operating alone. It is common in professions such as
medical (clinics),law(advocate firm) etc

d) Acquirer
An entrepreneur who prefers to take over a business that already exist rather than start
up from the scratch.

e) Turn about entrepreneur

An entrepreneur who buys a small business with problems but potential for growth

f) Matriarch/patriach entrepreneur
This is a head of a family owned business which often employs several members of
the family

The Characteristic of successful Entrepreneur.

Initiative and risks taken by;
□ Doing things before being asked or forced by events
□ Acts to extend business in to new areas products etc
□ Sees and acts on opportunities
□ Looks for and takes action on opportunities.
□ Sees and acts on new business opportunities

Persistence and patience through

□ Taking repeated action to overcome obstacles
□ Taking action to overcome obstacles
□ Taking action in the face of significant obstacles.

Information and property seeking

□ Takes action on his own to get information to help reach business objectives
□ Does personal research on how to provide a product or service
□ Consultation of experts on business and technical advice
□ Asks questions to clarify information
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 □ Undertakes market research analysis and investigation.

Concern for high quality work by

□ Acting to do things that meet or beat existing standards
□ A desire to produce and sell top and better quality products or services
□ Compares own work favorable to other.

Commitment to work contract by

□ Placing the highest priority on getting the job completed.
□ Accepts full responsibility for problems that may arise in getting the job done
□ Expresses concern on customers satisfaction.

Efficiency orientation by;

□ Finding ways of doing things faster and cost effectively
□ Uses information to improve efficiently.
□ Express concern on costs improvements change etc.

Systematic planning
□ by developing and using logical plans to meet goals
□ breaking tasks down to sub-tasks
□ developing plans which anticipate obstacles
□ evaluates alternatives
□ takes logical and systematic approach to activities
□ identifies new and potential unique ideas to reach goals
□ Switches to alternative strategies to reach goals.

Self -confidence
□ has a strong belief in self and own abilities
□ expresses confidence in own ability to complete task or meet challenges
□ sticks with own judgment in the face of opposition or early lack of success
□ confronts problems and issues directly
□ Tells others what they have to do.

Persuasion
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 □ convinces people to buy the products or service
□ convinces people on providing funds
□ Asserts own competence reliability and the company product.

Uses strategic influence and networking

□ To develop business contact
□ Uses influential people as agent to accomplish objectives

Self-employment
Entrepreneurship often leads to self-employment.
Factors to consider when preparing to be self-employed:
 Source of finance eg savings, bank , friends and family
 Government policies
 Availability of competent labour force
 Availability of raw materials
 Availability of security
 Purchasing power of consumers
 Availability of transport and communication
 Competition
 Availability of auxiliary

Self-employment is significant in the following ways:

 Fast decision making because of less consultation
 Job security
 Enjoyment of profits alone
 Being one boss
 Self-satisfaction
 The owner can work for more hours and generate income
 services e.g. banks, post office. Insurance companies
 Availability of land

Problems of self-employment

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  No sharing of losses
 Long working hours causing health related problems
 Less consultation may lead to wrong decision making
 One may be unable to employ individuals with the right competencies especially at
entry point of a business
 Little expansion of business due to lack of enough funds
 High competition which may lead to collapse of business
 Monotony which may lead to demoralization

Advantages of Entrepreneurship
 Financial gains
 Self-employment which leads to job satisfaction and flexibility
 Provide job opportunities to the unemployed or those seeking better jobs.
 A means of opening up new industries especially in the rural areas – facilitating
globalization
 A source of generating income and increased economic growth.
 facilitates competition encouraging high quality products
 facilitates production of more goods and services
 Leads to the development of newer markets
 Promotes use of modern technology in especially small- scale manufacturing to
enhance higher productivity

Drawbacks / challenges/disadvantages of entrepreneurship

 poor pay
 long working hours
 unclear future
 fear of losing all that has been invested
 bankruptcies and closure
 lack of experience
 poor financial management

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  Fear of delegating
 High cost of production
 Lack of market
 Lengthy and complicated government procedure
 the problem do it yourself and know it all
 competition by established business
 lack of funds especially before break even
 Mis- management by employees

Promotion of Entrepreneurship
 Integrating entrepreneurship into the education system
 Registration to encourage risk taking
 National companies to promote entrepreneurship
 Support of entrepreneurs through friendly loans at the appropriate time.

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LECTURE TWO: ENTRPRENEURSHIP AND SOCIETY
The learner should be able to
1. Distinguish between entrepreneurial ventures and small business ventures
2. Explain entrepreneur's contribution to economic development
3. Explain entrepreneur's critical success factors

Entrepreneurial ventures and small business ventures

Entrepreneurial ventures are business ventures that are created to introduce new goods or new
methods of production.
Small business ventures on the other hand refers to businesses that are independently owned
and operated by one person. They are commonly referred to as sole proprietorship or single
licence businesses.

Entrepreneurial ventures can be distinguished from small business ventures in the

following ways

Entrepreneurial ventures Small business ventures

They are concerned with their future and thus They are concerned with the daily operation of
spend a great deal of time planning for the future the business
Spend a great deal of time learning new and They prefer already tried methods of doing
different ways of doing things things. they only make the methods efficient
Time conscious and dislike details Concerned with details. Have a more realistic
idea of how long tasks take
Makes decisions that are _risk y in nature Prefer routine decisions that may not put the
business to any risk
Are always creative., and innovative for new Lack innovation and creativity
business ideas

Role of Entrepreneurship in Economic Development

□ Economic development is the process of structural transformation of an economy
towards a modern technologically advanced economy based on services and
manufacturing.

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 □ This process involves not only qualitative changes but also accompanied by
quantitative changes to improve welfare.

Entrepreneurship contribution to economic development

1. Generation of employment
2. Capital formation - through production, profits, investments, savings and further
investments
3. Growth of infrastructure- helps to open up infrastructures such as roads,
communication, factories etc boosting economic independence by producing goods
that would have otherwise being imported
4. Provision of essential capital goods such as tools and equipments. Furniture etc
5. General improvement of standards of living by providing goods and services to the
society
6. Growth of industries- entrepreneurship results in growth of industries thus
contributing to industrialization
7. government revenue through taxes taxation
8. Rural development which in effect-Equitable development
9. Reduced rural-urban migrations
10. Entrepreneurship facilitates structural transformation, innovation - driven growth by
Facilitating transformation from traditional agricultural based economy to modern
industrial economy and production for the market.
11. Entrepreneurs are seen as capitalists and therefore facilitate increased savings through
which capital accumulation is stimulated for investment e.g.
 Entrepreneurs save to start-up businesses
 Entrepreneurs save to expand their businesses
 Entrepreneurs save to reduce need for expensive borrowings
 Entrepreneurs save for precautionary reasons.

12. Entrepreneurs provide an environment where human capital is accumulated in the

form of; workers specialized and non-specialized Managers of all levels.
13. The entrepreneurial ability determines the sizes of firms and the general growth of an
economy by; The limitative role and ability to take risks and ability to trigger
investments.
14. Entrepreneurship facilitates re-allocation of production factors from less productive
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 areas to productive areas.
15. They cause an increase in the demand for education of labour.
16. Facilitates adoption of improved technology. Through entrepreneurship creation of
new
firms through, which
a. Increased production
b. Production for expert market
c. Employments are achievable.
17. Through entrepreneurship need to knowledge accumulation generalization and
commercialization has had to cooperation between researchers and institutions,
private firms (sector) and the government.
18. Through entrepreneurship development and production of;
a. variety of consumer goods
b. producers goods or intermediate goods has greatly increased hence new
products are bought to the market
c. Application of new technology and profit multiplication.
19. Through entrepreneurship information if provided on what an economy can be good
at
producing which in the context of LDCS information is lacking.
20. Thorough entrepreneurship a vast growth of the private sectors tends to automatically
check the large government sector facilitating to development a greater free market
economy.

Entrepreneurial development success factors

These are factors that one needs to consider before starting a business and are critical to its
success. They include:
 Capital – ensure you have enough capital to start and continue with the business.
 Availability of market for the product.
 Availability of infrastructure
 Level of technology- keeps pace with existing modern technology
 Appropriate location of the business
 Availability of security
 Availability of auxiliary services such as banks, insurance services etc

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 Legal matters-Consider government policies and regulations
 Ability to cope with competition
 Competent staff

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LECTURE THREE: ENTREPRENEURIAL OPPORTUNITIES
The learner should be able to:
1. Identify sources of business ideas
2. Generate business idea
3. Identify and evaluate business opportunity

Procedures of Starting a Business

1. Identification of a business idea
2. Development of a business plan
3. Location of a business demand evaluation
4. Registration of the business
a. Choice of the business organization
b. Business name
5. Trading licences / permit
6. Start-up and management of the business.

Means of Generating a Business Idea

 identifying a need
 brainstorming
 building on ones skill, hobbies or interests
 spotting a market niche
 listening to what people say
 attribute listening
 gaining from waste
 look to see and listen to hear
 research
 importing an idea
 day dreaming
 Spin off from employment.

Identifying a Need
A need can be an opportunity and indeed a consumer buys to satisfy need. Abraham Maslow
in his humanistic hierarchy of needs, physical needs to very high personalized needs.

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Therefore identifying an unidentified or unserved need is a sure way of generating business
ideas.
The Maslows Hierarchy of needs
 Self-actualisation
 Self-esteem / ego
 Social needs
 Basic/ Physiological needs

i. Basic or physiological needs

The first and the most basic need such as thirst hunger and sleep - in the process of
satisfying these needs, entrepreneurs can generate a lot of business ideas- such as
cloth stores, food stores, building materials etc.
ii. Safety and security needs
Human beings require these and entrepreneurs can generate ideas in the process of
satisfying them e.g security, watchmen e.t.c.
iii. Social needs
Generally speaking to need should be accepted in the society e.g membership clubs,
beauty clinics et.c
iv. Self-esteem or ego
the need only needs recognition e.g need for luxury cars cellular phones e.t.c
v. self – actualization
The need to prove the ability in one's self i.e self fulfillment - research institutions
opportunity to do something in one's ability.

Brain Storming
This is a process of detaching analysis of an idea from the actual ideas.

The idea may or may not be related to a given product. In brainstorming even silly and stupid
ideas may be generated.

Building on One's Skill, Hobbies or Interests

□ business ideas can be generated through

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 a. personal interests and hobbies
b. Copying or improving somebody's ideas. (skills)

Sporting a Market Niche

Entrepreneurs usually look for gaps in the growing markets, identifying market sections
which are not being utilized.

Listening to what People say

These are people who simply say or speak their needs e.g if these good bus services

Attribute listening
This method of generating business ideas is based on changing the way one looks at
something in order to find a new use for it.
It attempts to answer the question - what do we do with this product.

Gaining from Waste

What would appear waste can be used- say recycles to create a new opportunity.
OthersBy soliciting ideas by interview, reading, observations, listening

The Process of Screening a Business Idea

After generating business ideas- it is important that some evaluation through a screening
process be made. The screening process is a systematic evaluation ideas in order to select the
best idea which would suit one. The screening process must be done carefully, objectively,
soberly and without any emotions. The business idea screening is required even when there is
only one idea to consider. This is because this is a stage of starting a business that may be not
be profitable or may be difficult to run.
The screening process must therefore evaluate the following
a) Personal Evaluation
1. The objective for going to business
2. personal interests
3. The degree of commitment to the business or others e.g. family.
b) Personal Skills
c) The self-SWOT analysis - this aims at analysing
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 i. Strengths
ii. Weaknesses
iii. Opportunities
iv. Threats
d) Market evaluations
e) An analysis of skills available
f) Analysis of the government policies.

The Importance of this Screening Stage include;

 In order to develop a strategic profile.
 To provide a framework to assess the current and future plans
 To act as a control technique when conducted periodically
 To get realization ( reality) on the activities

Components of the SWOT

The screening process or evaluation helps identify;
a. Strength
i. Distinctive competence
ii. Adequate finances
iii. Access to economies of scale
iv. Good innovation ability
v. Proven management

b. Weakness
i. Lack of key skill
ii. Internal operations problems
iii. Low morale
iv. Poor track records
v. Weak internal image

c. Opportunities
i. Potential customers
ii. Potential goodwill

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 iii. Health
iv. A favourable social

d. Threats
i. strong competitions
ii. Adverse government policies
iii. Political instability
iv. A designed economy mismanaged economy
v. Unfavorable legislation

Market evaluations
The aim is to create assurance of adequate market
The main components include:
i. Consumer demand analysis i
ii. Product price and placements
iii. No. of competitors in markets.

An analysis of availability of raw materials in terms of:

i. Adequacy
ii. Reliability
iii. Price

Analysis of providing technology in terms of:

i. Appropriateness
ii. Affordability

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
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 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.

The Generation and Sources of Business ideas

Entrepreneurs have the ability to see opportunities in whatever environment they happen to
be
They are sensitive to people's needs
They use people's problems as opportunities of a business
The entrepreneurs can use several methods to help generate and test new ideas.

Methods of Generating ideas or Business Opportunities

a) Focus groups- i.e. where a moderator leads a group of peoples though an open, in -
depth discussion through which new ideas are shared.
Apart from generating new ideas, the focus group is an excellent method of screening
ideas.
b) Brainstorming
 The brainstorming method allows people to be stimulating to greater creativity
by meeting with others and participating in organized group experience.
 When using brain storming the following rules must be obeyed.
i. No criticism nor negative comments
ii. The wilder the idea the better ( freewheeling)
iii. Quality of ideas is desired
iv. Combinations and improvements of ideas are encouraged.
c) Problem inventory analysis
This method used individuals in a manner that it focus groups to generate new ideas
e.g. consumers given a list of problems in a general product category and discuss the
various problems in each product category normally used to test new products.
d) Creative problem solving- is a method of obtaining new ideas by focusing on the
parameters such as:
Brainstorming - group method of obtaining spontaneous ideas Reserve
brainstorming - a groupmethod of obtaining new ideas but by focusing on the

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negative i.e. by finding fault.

Brain writing - is a form of brainstorming which gives participants more time to

think than brainstorming which dwells on spontaneous ideas the participants write
their ideas on a special form.

The Gordon method- is the method of developing new ideas when the individual are
unaware of the problem.
 it ensures that the solution is not clouded by pre-conceived ideas or behavioral
pattern
 Checklist method.- is a method of developing new ideas through a list of
related issues
 Free association method
i. A new idea is developed through a chain of world association
 Forced relationship it is a technique that asks questions about an object or idea
in an effort to develop a new idea it follows the following five steps
i. Isolate the element of the problem
ii. Find the relationships between these elements
iii. Record the relationship in an orderly way
iv. Analyze the resulting relationships to find ideas pattern
v. Develop new ideas from the pattern.
 Collective notebook method
i. Develops new ideas by a group members regularly recording ideas
 Attribute listing
i. Developing a new idea by looking at the positives and negatives.
 Big-dream approach
i. Developing a new idea by looking without constraints i.e. think of the
problem and its solutions I, thinking big.
ii. Every possibility should be recorded and investigated without regard to
all the negatives.
 Parameter- analysis
i. Developing a new idea by focusing on parameter identification and
creative synthesis

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 ii. Parameter identification involves analysis variables in the situation to
determine theirimportance.

The sources of new ideas

 Some of the more frequently used sources of business ideas for entrepreneurs
include.
i. Consumers
 Potential entrepreneurs not only pay attention to potential customers but also
monitor their potential needs through allowing the customers to express their
opinions.
ii. Existing products and services
 Through monitoring and evaluating competitive products and services.
iii. Distribution channels
 Contact with members of the distribution channels since they are familiar with
the needs of the market and give suggestions of new products and consumer
needs.
iv. Federal government
 Can be a source of a business idea through
The patent office which contains numerous product possibilities.
Official government magazines
Government regulatory bodies e.g KBS
Government shows and exhibitions
v. Research and development
a. Is the largest source of new ideas to the entrepreneur.
vi. Education - i.e. picking a given line of study e.g. construction
vii. Vocational training programmes and experience.
viii. Personal hobbies especially for craft entrepreneurs.
ix. Personal contacts and observations through.
a. Interactions
b. Newspapers and magazines.
x. Conducting surveys and interviews of the people around.
xi. Other ways of generating business ideas

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Opportunity Recognition
 Some entrepreneurs have the ability to recognize a business opportunity which
is fundamental to the entrepreneurial process as well as growing business.
 A business opportunity represents a possibility for the entrepreneur to meet a
large enough unsatisfied need that is worthwhile.
 The key to recognition of an opportunity lies in the knowledge ( education)
and experience gained either personal or through work by both
 The prior knowledge is as a result of the combination of education and
experience.
 The entrepreneurship needs to be aware of this knowledge and experience and
have the desire to understand and make use of it.
 The other important factors in this process include
 Entrepreneurship alertness
 Entrepreneurial networks
Those entrepreneurs who have the ability to recognize meaningful business
opportunities are in strategic position to successfully complete the planning
and development process and successfully launch a new venture.

Definition of a Business Opportunity

A business opportunity may be defined as an attractive project idea with an entrepreneur
accepts for investment on the basis of what is known about the possible success for the
project
A real business opportunity can by distinguish from a mere possibility through the following
two ingredients.
i) A good market scope
ii) An attractive return on investment ( profit)

Qualities (Characteristics) of a Good Business Opportunity

The following are qualities of a good business opportunity.
1. Demand - there should exist a good market scope
2. Returns on investment - i.e. the business should be sufficiently profitable.
3. availability of raw materials
4. Enough skilled people.

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 5. Potential for growth
6. Where there is insufficient quantities
7. Where quality is lacking
8. Where a product or service is unavailable

Evaluation of Business Opportunities (objectives of a pre-feasibility study)

□ Once a business opportunity has been identified one needs to confirm that it is viable
through a pre-feasibility study.
□ The main objective of a feasibility study is to determine whether.
 The investment opportunity is promising enough
 The project is viable from the marketing manufacturing and other points of
view.
 Any aspect of the project that may be crucial to call for in-depth analysis.

The Purpose of Pre-feasibility Study (Market Research)

i. To verify that the investment opportunity is promising enough to make a firm
decision.
ii. To confirm that the project is viable from the:
a) Marketing
b) Manufacturing and
c) Other points of view
iii. To identify any aspects of the project that is critical or crucial enough to call for in
depth
analysis
iv. To acquire comprehensive technical, economic and commercial data for the final
investment decision.
v. To enable an in-depth study of aspects such as
a) Market potential
b) Technical requirements
c) Managerial ability
d) Financial projections and analysis
e) Risks evaluation
f) Business environmental analysis.

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 vi. To enable sourcing reliable information such as
a) Authorized publications
b) Consultants openings.
vii. To establish the final outcome of whether or not to proceed with the business.

LECTURE FOUR: TECHNOLOGY INNOVATION AND CREATIVITY

The learner should be able to:
1. Define innovation/ creativity and technology
2. explain types of innovation
3. describe the elements and types of technology
4. explain the creative process

Definitions
Invention or creativity or noveltyrefers to the process of devising a new idea, or thing or
improving an existing idea or thing. Innovation turns new concepts into realities, creating
wealth and power. Innovation can also disrupt the status quo. E.g computerization i.e
Creative destruction. Creative destruction occurs when innovations make long-standing
arrangement obsolute and frees resources to be employed elsewhere leading to greater
economic efficiency.
Innovation-it is practical application of new inventions ie it is the process of implementing
something new.

Types of innovation
1. Invention- creation of a new product, service or process.
2. Extension- the expansion of a product, service or process already in existence
3. Duplication- the replication of an already existing product, service or process
4. Synthesis- the combination of existing concepts and factors into a new formulation

Technology
It is the application of new knowledge and techniques in production. Types of technology
include:
1. Information technology-it provides access to knowledge and other information
resources
2. Technology productivity tools-it refers to technology that enable us to work more
27
 efficiently and effectively eg computers hardware and software,
3. Medical technology- advanced equipments that are used in medical field
4. Instructional technology- equipmens used in the process of teaching and learning
Reasons for Innovation
 Innovation is essential for the entrepreneur in solving the inefficiency problems.
 means of cost reduction and imposing significance social and market grip.
 Profit improvements are looked at from the innovation point of view though
technology in management and production.
 To encounter competition by already established businesses.
 To facilitate opening up of new markets both locally and internationally.
 To facilitate diversification of products risks and losses.
 To protect current position of monopoly or success.

Reasons for Opposing Innovation

 The entrepreneurs tend to have a practical concern that unforeseen innovation may
cause a disaster e.g. side effects e.g. of a drug.
 Fear of loosing profits in the event innovation does not translate to the expectations.
 Where the entrepreneur held a monopoly position in the market, there is fear of losing
authority and control.
 Fear of upsetting the moral and social value of demand for the product.
 Desire to preserve the existing market confidence.
 Fear of upsetting tradition in production management and market scope.
 Fear of opening a loophole to competition hence loss of business grip.

New venture creation process

1. Discovering entrepreneurial potential i.e. entrepreneurs self-evaluation of strengths
and weaknesses before entering into the new business venture
2. Identifying a problem and potential solution-a new venture has to solve a problem and
meet a new need. Here one selects an idea.
3. Evaluating an idea as a business opportunity- find out whether the business idea can
be turned into a business opportunity.
4. Investigating and gathering the resource- this involves analyzing and gathering the
resources required launching the new venture.

28
 5. Implementation - this is the actual launching of the new venture
EXERCISE
1. Identify simple types of technology an entrepreneur can take advantage.
2. Explain the factors that an entrepreneur should consider before acquiring a business
machine
3. Highlight the advantages and disadvantages of using technology

29
LECTURE FIVE: INTELLECTUAL PROPERTY RIGHTS
The learner should be able to:
1. Define intellectual property
2. Describe the forms of intellectual property
3. Highlight the role of Kenya Intellectual Property Institute (KIPI)

Intellectual property
This the process of Protections of Business ideas & maintaining Secrecy
□ Most entrepreneurs will not be inventors, at least not in the classic sense but all
entrepreneurs are concerned with protecting their business ideas, especially when
those ideas are related to;
 Un usual production
 Unique designs e.t.c.
□ And for this to be done understand the " patent law" becomes but simply paramount
□ When entrepreneurs want to protect unusual brand name, products business ideas or
simply establishing ownership, then understanding trade marks and copyrights if vital
as a way of protecting a business idea.
□ The government law pertaining to;
 Patents
 Trademarks
 Copyrights - are not complicated
□ Many entrepreneurs file their own patent claims or prepare documentation for
trademark or copyright protection without professional help from the Attorney or
patent agents.
□ However it is always wise to have professional assistance though the laws are simple.

Forms of intellectual property

a) Patent
b) Trade mark
c) Copyrights
d) Trade secrets

a) A patent

30
A patent is a grant of property right by the government to an inventor. It is issued through
the commissioner of patent rights, and the most common type of patent is called a utility
patent. All patent however, have the distinction of being assets with a commercial value
because they provide exclusive rights of ownership the patent holders.

Patents are exclusive property rights that can be sold, transferred, or used as collateral much
alike other valueable assets.

The patent law stipulates broad categories of what can and cannot be patented and in the
words of the statute any person who "invents or discovers any new and useful process,
machine manufacture, or composition of matter, or any new and useful improvements thereof
may obtain a patent"
Anything that is patentable must be new and useful (must have some demonstrated
function)

The Nature of Patentable Inventions

The terms used give classification of patentable
1. Process- The word process as used in patents refers to new methods of manufacturing
or new technological procedures that can be validated as unique.
2. Machine - In patent law means that the patent application if for a specific physical
item.
3. Manufacture- refers to physical items that have fabricated through new combinations
of materials or technical applications.
The application must explain how the product is made including materials processes
e.t.c.
4. Composition of Matter- this category is patent law relates to the chemical
compounds such as synthetic materials, medicine, cosmetics etc
Types of Patents
Patent law provides for three categories of patents namely
1. Utility patent
2. Design patent
3. Plant patent.

1. The utility patent

31
Utility patent is granted for new products processes, machines, methods of manufacturing
and composition of matter.
This category excludes, most botanical creations related to plant and agricultural use.

2. The design patents

Are granted for any new or original ornamental design for an article of manufacture
A design patent protects the appearance of an article and not the article itself.

3. The plant patents

In botanical terms any, new variety of plant that have been sexually reproduced can be
granted a plant patent.
The new plant must not exist in nature or in an un cultivated state. Therefore new plants
hybrids and seedlings may be patented.

4. Disclosures
The patent office provides an important service of limited protection through the invention
disclosure programme
As a first step in seeking protection form the disclosure statement - the aim is to register an
idea with the government.
The investor explains what the items is, that it is new and useful and how it is to be used copy
is given or photograph.
This gives the investors protection as evidence of any legal tassel, or conflicting claims
giving the investor priority.

The Patent Procedures

i) The disclosure
When an idea is first reduced to sketches on paper or when it is mocked up, a disclosure
should be filed.
This is a measure of insurance that precedes the actual patent and provides legal recognition
for all aspiring inventors.
If someone took the sketches or steals the idea, evidence is on record.

ii) The patent sketch

A patent sketch is required to determine whether an inventor's creation already exists and
32
remains actively protected under the law.

iii) The preliminary section

The preliminary search scans the patent summaries for prior claims or invention Records are
accessed to make judgments and diligent decisions are made.

iv) Collecting search documents

The application can the collect the approved documents for further processing.

v)Making the patent application

□ A formal application is now made at the search and is sent to the commissioner of
patents and trade market
□ The application contains three parts
 A description of the item
 A set of drawings
 A formal oath or declaration
 Payment of patent filing ideas

Trademarks
Trademarks include any word, name, symbol or distinguishing device or any combination
thereof adopted and used by a manufacturer or merchant to identify his goods and distinguish
them from those manufactured or sold by others.
Trade-marks can be names used in commerce such as KCA it can be a symbol or any
distinguishing device artistic in nature.
An important qualification for a trademark is that mark, name etc. must be used
commercially. Service mark-Is similar to at trademark and can be registered in the same way
with the sale protection A service market can be a name, wording used in advertising symbols
or artistic figures that create a distinctive service concept.

Copyrights
Are similar to patents in establishing ownership and protection for creative ideas but they
pertain to the intellectual property. The copyright is distinct from patents and trademarks in
that intellectual property is protected for the life of the originator plus a further 50 years.
This protection affords an extraordinary property right and substantial estates. It extends
33
protection to author, composers and artists.

Trade Secrets
□ Are proprietary information "used in the course of business to gain an advantage in
manufacturing or commercialization of products or services.
□ Trade secrets
i. Formulas
ii. Patterns
iii. list of customers
iv. data bases
v. chemical compounds
vi. combinations of ingredients for commercial products
vii. process of manufacturing
viii. Complied information.
□ Every organization must keep their secrets because
 Modern communications systems contain so much information which if not
guarded, the business may collapse.
 Employees leaving may disseminate information to competitors.
 In any business to maintain a market Niche, then desire to protect their
product.

Trade SecretsIn certain instances the entrepreneur may prefer to maintain an idea or process
as confidential, and eventually sell or license it as a trade secret. The trade secret will have a
life as long as the idea or process remains secret. A trade secret in not covered by any law but
is recognized under a governing body. Employees involved in working with an idea or
process may be asked to first sign a confidential information agreement that will protect
against their giving out the trade secret either while as employees or when leaving the
organization - this is called trade secret non -disclosure agreement.
Most entrepreneurs have limited resources so they choose not to find means of protecting
their ideas or products or services.

Steps to be taken in order to maintain Secrecy in an Organization.

1. Train employees to refer sensitive questions to designated personnel

34
 2. Provide proper security measures such as escorts to all visitors
3. Avoid discussing business ideas in public places
4. Keep important travel plans secret.
5. Control information that might be presented by employees at conferences or
published journals
6. Use simple security measures such as locked file cabinets, passwords or computers,
shedders e.t.c.
7. Have employees and consultants sign non-disclosure agreements.
8. Debrief departing employees on any confidential information.
9. Avoid faxing any sensitive information
10. Mark documents confidential when needed.
11. Unfortunately protection against the leaking to trade secrets is difficult to enforce.

Intellectual property Licensing

Licensing may be defined as an agreement between two parties, where one party has
proprietary rights over some information, process or technology protected by a patent,
trademark or copyright. This arrangement specified in a contract requires the licencee to pay
royalty or some other specified sum to the holder of the proprietary rights in return for
permission to copy the patent trade mark or copyright.

Licensing has significance as a marketing strategy to holders of patents, trademarks or

copyrights to grow their business in a new market when they lack resources or experiences in
such markets.

It is also an important marketing strategy for entrepreneurs who wish to start a new venture
hut need permission to a copy or incorporate the patent trademark or copyright with the ideas.

Functions of Kenya intellectual property institute

1. Administer industrial property right
2. Provide technological information to the public
3. Provide inventiveness and innovativeness in Kenya
4. Provide training on intellectual property

35
36
LECTURE SIX: ENTREPRENEURIAL AWARENESS
The learner should be able to
1. Discuss legal aspects of a business
2. Identify and discuss various legal forms of business ownership

Legal aspects of business.An entrepreneur should be aware of certain legal requirements that
will affect his business this include an understanding of;
1. Business laws and regulations
2. Legal forms of business organizations

Business laws and regulations

These are government laws and regulations that an entrepreneur needs to comply with. They
include;
1. product safety laws
2. Building laws
3. labour laws
4. insurance
5. taxation etc

Product Safety and Liability

It is very important for the entrepreneur to assess whether any product that is to be marketed
in the new venture is subject to any regulations under the consumer product.

In addition to setting standards for products the commission also has a great deal of
responsibility and power to identify what to consider being a substantial hazard and barring
any products that may be considered unsafe.

Any products introduced by entrepreneurs must obtain clearance from the Kenya bureau of
standards under the consumers protection Act.

Building laws-These are laws enacted to ensure safety and suitability of business premises

Lab our laws-these laws guide the relationship between employer (entrepreneur) and
employee. E.g. employment act, workers injury act, labour relations act, industrial attachment

37
act etc
Insurance-certain types of insurance are required by the law and cannot be avoided eg third
party vehicle insurance.

Taxation- its mandatory for business people to pay tax to Kenya revenue authority

Legal forms of business organizations

Unincorporated Business
□ These are business which do not have separate entity (existence from that of their
owners)
□ According to law such organizations are one and same in the existence of the owner.
□ They do not have separate rights and obligations from those of their owners
□ They include:
1. sole proprietors
2. partnership

Sole Proprietorship
Sole means single while proprietorship refers to the owner of a business owned by one person
who takes responsibility on risks of the business. He enjoys the profits or servers the losses of
the business alone.

Formation of Sole Proprietorship

It is simple and easy to form since legally only license^ from the government is required

If the name of the business is different from that of the owner the business name should be
registered with the registrar.

Management of Sole Proprietor

The owner of the business is the manager of the business
He makes decisions operating the day to day activities the business.
He may employ people to work in the business or be assisted by family members.

Sources of Capital
□ The term capital is used her to refer to the resource required to start and operate the
38
 business
□ He may obtain capital from;
1. his own savings
2. borrowing from friends and relatives
3. banks and other financial institutions
4. credit suppliers
5. borrowing from government institutions i.e. KJE, ICDC
6. funding from non-government organizations
7. hire purchase funds
8. The business itself from retained profits.

Liability
Liability refers to the extent which the owner of the business can be called upon to meet the
debts of the business.
A sole proprietorship is viewed as being one and the same with the owner hence does not
have separate rights and obligation.
Where a sole proprietorship business cannot pay its liabilities all its assets and the business
properties are sold in order to clear the business debts.
The responsibility of the owner of the sole proprietorship business is thus unlimited. The sole
proprietor is therefore said to have unlimited liability.

This means that the liability of the owner is no just restricted to capital contributed but
extends to include its personal property.

Features of a Sole Proprietorship

1. Is a business owned by one person
2. It had no separate legal existence from its owner
3. It has a limited legal life since its existence depends on the life of the owner.
4. The owner has unlimited liability in the business.
Advantages of a Sole Proprietorship
1. It is easy to start since only a license is required
2. Quick decision making
3. Freedom of action at any time
4. Flexibility in adopting quickly to changes in customers needs
39
 5. Profits are entirely on the owner's hands
6. There is control over business secrets
7. Easy to use family labor cheaply.

Disadvantages of Sole Proprietorship

1. Limited life in case of death of the owner
2. Unlimited liability may cause the owner to loosing personal property.
3. The sole proprietor serves loses entirely by himself
4. Limited capital may delay expansion.
5. working for longer hours may result to fatigue
6. Lack of essential skills may cause mis-management.

Circumstances under which the Sole Proprietorship ideal

1. When customers show preference to specialized services
2. Where small capital is required to start up a business
3. Where returns are low and may not warrantee existence of a large business.
4. Where the market experiences frequent demand changes
5. Where locations are remote and the population may be small.

Dissolution of a Sole Proprietorship

□ Dissolution refers to the termination of the legal existence of the business. This may
be caused by;
 The death of the owner
 The transfer of the business to another person.

Problems the Sole Proprietorship may face.

1. Lack of continuity in case of death.
2. Lack of skills may lead to mis-management
3. Working for longer hours may lead to fatigue
4. Loses are served by the owner
5. Limited capital to facilitate expansion functions.
6. Lack of consultancy may lead to poor decision making

40
 7. Unlimited liability may cause loss of property.

Partnership
According to the partnership Act. A partnership is referred to as a relationship which subsists
between persons carrying on a business in common with view of making profits.
A partnership is thus an extension of sole proprietorship and is in fact necessitated by the fact
that a sole trader may for several reasons fail to carry out his business efficiently and
profitability.
Partners pull the financial and managerial skills together in order to make profit.

Formation
According to the partnership Act (934) a partnership business may come into existence
through of the following ways.
 Orally
 By actions of persons concerned
 By a simple put in written
 By a partnership deed

NBthe above ways of forming a partnership are allowed by the partnership Act, However its
better to remember that it may be made illegal under the following circumstances.

Circumstances under which the Partnership is illegal

1. If the partnership has been formed for an illegal purpose e.g. theft.
2. If is formed and the partners do not meet the minimum qualifications e.g. auditing
3. Where the partnership contains more than 20 members
4. Where the partnership wants to run their business with the name which does not
disclose the true names of all the partners or the name had not been registered under
the registration of the business Act under which it is deemed illegal.

Requirements for the Registration of a Business Name

□ Under the partnership Act , the partners must furnish the registrar of business names
for the following
1. The business name

41
 2. The general nature of the business
3. The principle place of location of the business
4. The present Christian and sir names together with their usual residential
address.
5. The nationality of each partners
6. Any other occupation of the partners
7. The date of commencement of their business.

Types of Partners
a) General partners
These are the real partners in new sense of the partners which refers to those partners who are
the most active partners in the partnership
In most cases the general partner is a reliable of the debts of the partnership.

b) Limited partners
This is a partner whose liabilities are limited to the amount of capital contributed to the
partnership business
This type of partners do not usually participate in the management of the partnership because
if they do they lose their limited liability in respect to the transaction and decisions
participated in.

Active partner
This is the type of partner who takes the active part in the running of the business.
In most cases such a partner may be employed somewhere or may be in another business all
together
The partner contributes capital to the partnership business and the profits or losses at lower
proportions.

Articles of Partnership/ Partnership Deed

Although it is not a statutory requirement the partnership can be formed by a written
agreement, it is usual for the partnership business in particular those involved in huge
commitments to write articles of a partnership also known as a partnership deed.
The aim of this document is to safeguard the interest of each partner and it constitutes a legal
contract among the partners.

42
Contents of a Partnership Deed
1. The nature of the business to be carried out
2. The capital and property of the firm together with the respective capital contributions
of each partner.
3. The sharing of profits or loses by partners.
4. The rules as to the case of interest on capital and drawings by partners.
5. Provision for proper accounts and their audit
6. The power of each partner.
7. The drowns for the resolution of the partnership
8. The method of determining the value of good will on retirement of drafting in of a
new partner.
9. The method of determining the amount payable to a deceased partner.
10. No partners may should carry on a competing business
11. Any changes in partnership composition must be agreed upon by all partners.

Management of Partnership
Members of a partnership are correctively responsible for the management of the business.
The members may share responsibilities and duties according to their respective skills and
availability in order to ensure effectiveness in management of the partnership.
The partners may decide to hire skilled or non-skilled labour to assist the management of the
partners.
Features/ characteristics of a Partnership
1. Mutual agency- each partner is an agent of the partnership and therefore any action
by one partner with transacting the business binds the rest of the partners provided his
actions are within the partners express or implied authority.
2. Limited life- since the partnership is a relationship originating from an agreement
between two or more members any changes in their relationship caused by factors
such as- death withdrawal of a partner e.t.c terminates the partnership or dissolves it.
3. Unlimited liability - In a partnership the partners' liability is not limited to the
amount of capital investment.The partners are separately held liable for the debts of
business and their personal properties maybe sold to meet such debts.
4. Ownership of interests- the interest of a partner in a partnership business e.g. right to
inspect the accounting records of a firm of a firm, admission or dismissal of partner
43
 transit of interest e.t.c must have the full consent of the partnership.
5. Sharing of profits - Each partner’s share of profits of proportional to his/her
investment in the partnership. And any agreement of non-partner to share the profits
does not make a non-partner a partner. NB circumstances under which a non-partner
may be included in sharing the partnership profits and losses.
• As compensation for services rendered to the partnership
• As compensation for the partnership use of his/her property or name.
• As payments for loans advanced to the firm
• As payment to the next of kin.

Sources of Capital of a Partnership

1. contributions from partners
2. Loans from commercial banks and other financial institutions
3. Stock from hire purchase firms
4. Credit facilities from suppliers
5. Loans from government institutions e.g. K.I.E e.t.c.
6. Plough backs from retained profits

Classification of Partnerships
There are five ways through which partnership are classified
1. By trading
A partnership may be classified was:
a. Non-trading partnerships- these partnerships whose activities are to offer services e.g.
legal, medical, accountancy, teaching e.t.c.
b. Trading partnerships - these are partnerships whose main activities are manufacturing,
purchasing or sales of goods.

2. By liability
General partnerships - are partnerships in which all partners may publicity act on behalf of
the firm and each partner individually be held responsible for the debts of the firm. Their
properties may be attached to clear the debts of their partnership.

Limited partnerships - a partnership whose activities of certain partners are limited. The
44
personal liabilities of such partners (limited partners) are limited to a certain amount stated.
These amounts are normally equivalent to the amount of their contributions.
NB the following conditions must be fulfilled for a limited partnership to be formed.

 The partnership should not consist more than 20 partners.

 The partnership must consist one or more general partners.
 The limited partners are not liable to the partnership debts beyond his capital
contribution.

NB Restrictions of the limited partners.

1. Is entitled to inspect the books of the firm and examine the partnership state at any
time.
2. The death, withdrawal bankruptcy of a partner shall not cause dissolution of a
partnership or the partnership can not be dissolved by a court order because of lunacy
of the partner.
3. A limited partnership is only dissolved by the general partners unless brought through
a court order.
4. Any differences on partnership matters can only be decided by a majority of the
general partners.
5. With the consent of the general partners a limited partner may assign his/her shares in
the partnership to another person.
6. A person may be introduced into the partnership without the consent of the limited
partners.

3. By time duration
1. A temporally partnership (joint venture partnership) - this is a partnership formed for
a specified period of time .Termination of the stated period or accomplishment of the
purpose may cause the partnership to come to an end.
2. Permanent partnership (partnership at will) - This is a partnership formed to carry the
business indefinitely .It does not have a fixed life of fulfilling its purpose

4. By activity
a) Active partner- this is a partner who is actively involved in the day to day management of

45
the partnership and may be paid a salary for these services. And the partner is held liable for
the debts of the firm.

b) A dormant /sleeping partner - does not take part of the day to day management of the
partnership but contributes capital, shares profits and is liable for the business debts

5. By capital contributed
a. Real partner - a partner who contributes capital into the business and whose name
may be used in relation to transactions of the business and enjoys the profits of the
partnerships.
b. Nominal partner - is a partner who has not contributed any capital to the business
but allows his or her name to be used in the business. They are usually influential
persons whose names can be used.

He is not fully liable to the partnership debts however is he presents himself to the public in a
manner that portrays him a general partner he will be held liable.
c. Quinsy-partners - a partner who has retired from the partnership but has left his
capital in the partnership business which is treated as a loan, he earns interest

6. By age
a) Majority partner - A partner who has attained the age of 18 years and above. Such a
partner unless stated to the centrally can be held liable for the partner.
i. Partner shares only profits and not losses since he didn't participate in decision
making that may have caused such losses.
ii. The liability of the minor is limited only to the amount of capital contributed
to the business since any liabilities arising may not be part his decision
making.
iii. The minor partners can act on behalf the partnership and such acts shall be
binding on the other partnership
iv. When the minor partner attains the age of majority he/she has up to six months
to decide whether or not to continue with the partnership. If he/she decides to
stay, he has full responsibilities and rights of a major partner.

Termination/ Dissolution of Partnership

46
  Although the partnership deed or articles of partnership will contain regulations of
terminating the partnership, nevertheless in the absence of our subject these
regulations, a partnership may be dissolved in the following ways.
1. When the fixed time if any are stated in the articles of the partnership expires.
2. If the partnership was specifically entered into for a given venture,
transactions or undertakings the completion of which or achievement will
automatically dissolve the partnership.
3. If the partnership is a partnership at will, it can be dissolved by any partner
giving notice of his intention to dissolve the partnership.
4. By mutual consent of all partners
5. By bankruptcy or death of one the partners.
6. By one partner's shares in the partnership being changed or attached by a court
order for private debts.
7. If any events occur which will make the partnership business illegal, the
partnership will stand dissolved irrespective of the content of the partnership
deed.
8. Automatic or compulsory dissolution as it is provided section 39 of the
partnership Act which lay the following grounds under which a partnership
may be dissolved by a court order.
i. If any one of the partners becomes insane
ii. If any of one partner becomes permanently in case of performing
his/her duties through in capabilities, accidents or disabilities
iii. Where a partner has acted in a manner which is pre-judicial to the
carrying out firm's business and may bring the name of the business to
its disables.
iv. Where a partner was found guilty of breach the partnership contract.

Where the firm has been operating in losses.

Circumstances under which the Partnership Deed is ideal

 In a business where the amount of capital required is reasonably large.
 If professional were pulling together effort for efficiency and better performance.
 If professional areas where the law prohibits a couple of days.

47
Advantages of Operating a Business under a Partnership
1. Partnership business benefits from the talents of individual ensuring almost efficiency
and acceptance.
2. Since a partnership would be owned by a no. of partners it sets a basis of pulling
together saving to raise large capital for investments
3. Sound decision making through consultative processes
4. A higher growth rate as a result of combining ambitious from different partners.
5. Partnerships have a good will and financial influence enabling it to raise finance
easily.
6. Collateral or security of loans can be easily be raised.
7. Formation of partnership business requires minimal government interventions.

Disadvantages of Operating a Business under a Partnership

1. Slow decision making due to long discussion processes
2. Sharing of profits tends to disregard hard working partners.
3. Partnership business have limited life incase of retirement or dead of one partner.
4. Disagreements make partnerships business vulnerable to disputes among partners.
5. The partners have unlimited liability which lead to loosing personal property in the
event the partnership business cannot settle its debts.
6. The agency burden where every partner is an agent of the partnership and one's
partner's mistake may affect the rest.
7. Limited managerial skill may lead to mismanagement of the business.

Incorporated Business / Joint Stock Companies

i) Incorporated Business
We have so far looked at unincorporated business and have seen the main features of such
business is that they do not have a separate legal existence from the owners.
We shall now focus on business units that are legally viewed as separate and distinct units
from their owners
Such businesses are called in co-operated or joint stock companies.
Incorporated business organizations are legally separate and distinct from their owners or
members.
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The main forms of incorporated business or joint stock company include;
i. Companies
ii. Co-operative societies
iii. Public co-operation

These are advanced forms of companies where a group of people pull their savings together
and contribute as capital to set up a business enterprises or companies.
These companies are governed by Acts of parliament under the Kenya all joint stock
companies fall under the Kenya Companies Act = (cap 486) of 1948
The Act lays down the formation and general conduct of joint stock companies.
Companies
A company is a business registered by the registrar of companies Act. The Act of registering
a company is known as incorporation.

Incorporation
This is a process that creates an organization separate and distinct from the person forming it
(owners)
The organization is known as a body corporate and registered company is known as a
cooperation
NB companies are business organizations or units formed to carry out a specific activity.
They are organized by processing an existence that is separate and distinct from the persons
who own it.
Companies have rights and obligations of a natural person.

Rights and Obligations of Companies

1. It can own and dispose off property.
2. It can enter into a contract on its own name
3. It can borrow and lend money in its own capacity
4. It can hire and fire employees
5. It can sue and be sued in its own right
6. It can form subordinate agencies and its authority
7. It can spread information.

49
Features of a Company
1. It is an artificial person created through legal process
2. A company has rights and obligations of natural person e.g. holding and disposing
property.
3. A company has a perpetual life independency of the owners lives i.e. has perpetual
succession.
4. A company has a separate legal identity from the owner.
5. A company is created for a particular purpose
6. The owners of a company enjoy limited liability

Types of Companies
There are basically two types of companies. Namely
 Public limited companies
 Private limited companies

Public Limited Companies

A public limited company has a minimum number of 7 members with no maximum
membership. The maximum membership normally is determined by the number of authorized
shares (capital) of the company.
In Kenya a public limited company has the term limited at the end.

Characteristics/features of a Public Limited Company

1. Minimum membership is 7 with no maximum
2. Invites members of the public to subscribe to its shares
3. The shares are easily transferable among shareholders
4. It has a minimum of 3 directors
5. It has authorized minimum capita figure.

NB authorized share capital is to the total shares that have been legally authorized by the
government during the company's registration
A public limited company starts to operate after receiving a certificate of
commencement(trading)

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A private Limited Company
This is a company with a minimum of 1 persons and a maximum of 50 persons excluding all
past and present employees.
A private limited company should have name ending with limited.

Characteristics of a Private Limited Company.

1. Has a minimum of 1 members and maximum 50 members
2. It does not invite the members of the public to subscribe its shares.
3. It's shares are not easily transferable unless with consent with other shareholders.
4. Operates with only one director.
5. Its shares don't have authorized minimum capital figure
6. It can start its operations after receiving its certificate

Limited liability Concept in Companies

This is the fact that the liability of companies of owners is restricted to the amount of
investment of a company plus any other amounts that to be undertaken to be contributed
towards payment of one companies debt.
The word limited indicates that the liability of the owners of members in respect to this
amounts (capital contributed) and not their personal property, mpany may be limited by-:
i. Shares
ii. Guarantee

Companies Limited by Shares

This is a company where member's liability is limited to the value of shares held. The liability
of members is limited to the share contributed.

Company limited by guarantee

□ This is a company whose members liability is limited to the amount that members
have undertaken to contribute to the business debts.
□ These contributions may cover for;-o Court charges and
□ Any other expenses.

Formation of Companies
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A company may be formed by any person or persons associating for a legal purpose through
registration with a registrar of companies under the companies Act.
Although a limited company is a legal person it can only act through human agents who must
register it with registrar of companies and for a company to be
MEMORANDUM OF ASSOCIATION
This is document that defines that relationship between the company and outsiders.
It informs the outsiders what the company does, the amount that is required.
The memorandum of association is the company's chatter constitution and once the company
is
registered the memo becomes a legal document that can only be altered by law.

Contents of a Memorandum of Association

1. Name clause - This states that name of the company ending with the work limited.
Any name may be selected to be used by the company as long as it is not prohibited
by law. This requirement is meant to protect people who may erroneously enter into a
contract in the company believing it to be another company an also protects
companies from possibly mis-use of their names.
2 Object clause - this clause outline the objectives of the company anything outside this
objective will ultra-virus.

Importance of the Memorandum of Association

 It defines the limits of company associations.
 It informs subscribers the purpose for which their money will be put.
 It protects subscribers form possible misuse of their money
 It protects outside parties dealing with the company by informing them the extent of
its operation.
 Situation clause- This clause discloses the locations of the legislative office and it
contains the following elements.
 Where the company is situated
 Where the letters may be delivered
 Where sermons may be served.
 Liability clause - This clause states the status of the member's liability with regard to
the debts of the company.

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  The clause enables people who may enter into contract with the company to
determine the extent of the company's liability.
 The statement of liability should clearly specify the members’ liability regard to the
company debts.

5. Capital clause
The clause states the total capital of the company is authorized capital into shares and their
corresponding value.
In case of a public company, the capital clause will give the minimum amount of capital hat
the company must raise before it commences business.

6. Association of substitution clause- This contains a declaration by the promoters (original

owners) that they desire to form a company to pursue the objects of the memorandum of
association and that they agree to take payments of their shares.
The promoters are required to give details of their name addresses, occupation and no. of
shares

ARTICLES OF ASSOCIATION
This document contains the rules and regulations pertaining the relationship between the
shareholders and the company among the shareholders themselves.
These rules regulate the internal relations of the company forming a binding contact between
the members and the companies and as well as among the members themselves.

Content of Articles of Association

 The right of each member e.g. voting rights.
 The issue, transfer and for future of shares and the alterations of shareholders.
 procedures of calling and conducting meeting
 the methods of appointing or electing officials
 Qualification procedures duties and rights of directors
 Preparation of books of accounts and the auditor's report.

NBwhereas the memorandum of association is mandatory document of all companies, the

articles of association are optional.

53
Where the company does not draw the articles of association, it can adopt the standard
articles of association contained in the company Act.
A company may alter or amend its articles of association and such amends shall be valid. The
power to alter the articles of association is specified in the memorandum of association.
List of persons who have consented to the directors of a company
The directors are chosen from the founders of the company referred to as promoters and the
list contains details of names addresses, occupations, shares subscribed and a statement of
agreement serve as directors.

A statutory declaration of compliant with the requirement of the company's Act.

The declaration must be signed by person's names as directors or the company's secretary.
The declaration must be equally by signed by the advocate engaged in the formation of the
company and must expressly state that the company is formed by lawful persons.

CERTIFICATE OF INCORPORATION/ REGISTRATION OF A COMPANY

Once all the required documents are properly filled with the registrar of companies is ratified
with what is contained in these documents.
The registration brings the company into being and the companies issued with a certificate of
registration.
The registration gives a company an identity that is separated and distinct from its owners.
From the date of incorporation the company becomes a body corporate with the name powers
and rights and obligations of an incorporated company.
The process of forming a company is formalized when a certificate of incorporation issued
has inclusive evidence that all the information has been complied with and that the company
is duly registered.

NB - A private company can start its business operations immediately it is issued with a
certificate of incorporation, this is because the company does not have to invite the members
of the public to buy shares.
A public limited company must proceed to issue proposals inviting the members of the public
to buy shares. (A prospectus a notice or circular of advertisement inviting the public to
purchase the shares of a company).
Public limited companies can only be allowed to purchase goods only when the registrar is
satisfied that-:
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 i. The company has raised a minimum amount of capital as required by the memo.
ii. That every director has paid to the company the minimum amount of money on the
shares to be taken.
iii. That there's a declaration by at least one director that the company shall comply with
the regulations stipulated by the law that governs companies.

Once the registrar is satisfied by the above requirements then the public limited company is
issued with the certificate of trading which will enable the company to commerce its
operations.

Ownership and Management of Companies

i) Ownership
A company is owned by any person who has subscribed and purchased that
company's shares. The owners of a company are known as shareholders and their
names are entered into the company's registrar.
Each shareholder has a claim in the property of the company proportional to the
shares held. The shareholders of a company have unlimited rights to the transfer
or sale of their shares in the company.
ii) Management
The management of a company is in the hands of the board of directors.
The initial directors stay in the office till the first meeting (AGM) is held at which
new directors are elected.
The size of the board is usually determined by the size of the company.
The board of directors is charged of formulating and overseeing the
implementation of company policies.

The board is normally supported by a terms of profession employed to the

responsible for the day to day management of various departments.
For a public limited company, the directors are required by law to present the
company's financial statement at the AGM meetings and filled with the registrar
of companies.

Sources of Capital of a Company

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 1. From the public through the sale of shares
2. From commercial banks and other financial institutions
3. government institutions i.e. KIT, ICDC e.t.c
4. Suppliers inform of trade credits.
5. The business itself inform of retained profits
6. Higher purchase traders.
7. Rent revenue earnings from any investments.

Public limited companies

□ These are stock joint companies that have sold stock to the general public and thus
attracts public money in form of share capital Le ordinary or preference shares.
□ Such companies are usually quoted at the stock exchange where shares are bought and
sold "through stock brokers.
□ These companies usually raise large size of money from the public and in order to do
so the companies must;
□ Obtain permission from the development market authority also known as " New issue
committee" this committee assesses the financial soundness of such companies before
allowing theme to attract public money.
i. The aim is to safeguard die interests of public investors
ii. The company in need of public money will have to obtain permission from the
Nairobi stock exchange council before it can be allowed to have its shares
dealt with.

Private limited companies

These companies are formed by submitting the necessary requirement to the registrar of
companies (the five documents)
Once this has satisfied the registrar of companies such a company will receive a certificate of
incorporation.
The private limited companies are usually not allowed to advertise their shares to attract
public money and as such they sell their shares privately (private placing to the interested
members of the public.
Like public limited companies, private limited companies have limited liability, their shares
are not fully transferable as they are not quoted at the stock exchange. Any transfer of shares
56
requires the consent of other share members of the company.

Advantages of a Company
1. More capital can be raised since it has large membership
2. The company offers better collateral for loans to be advanced.
3. Limited liability secures private property in case of inability to pay debts.
4. The companies have continuity i.e. have perpetual life or succession.
5. A company has a liability to hire highly qualified professionals facilitating better
management
6. Shares are easily transferable.
7. The companies have legal identity and therefore no conflicts to its members.

Disadvantages of a Company
1. Difficult to form since it is costly and has long legal procedures
2. The company has restricted operations by the memorandum of association
3. Slow decision making due to long approval procedures
4. Limited ownership caused by land of control of the firm
5. The agency burden may cause mismanagement when especially the board is weak.
6. Double taxation especially of the dividends
7. Lack of secrecy since the company has to publish its financial status annually.

Main Features of Joint Stock Companies

1. As already noted a joint stock company is an association of people who contribute
capital to form common stock in order to carry on a business activity for product
motive.
2. The company formed comprises- corporate status and is registered under the
company's act.
3. A joint stock company may be public or private company and its main features
include;
4. Legal personality - the company has identities separates from that of other persons
contributing capital and can therefore hold property, contract in its own name sue and
be sued.
5. The shares are transferable - the shareholders can sell their interest in the companies
to other persons willing to invest in it (freely for public ltd company but limited to the
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 consent of the rest of the shareholders for private company.
6. Common sill - as a separate entity it will be necessary for a joint stock company to
sign documents and such signatures are normally embodied in a common sill of a
company. The sill is kept under custody of the responsible offices.
7. Members/ shareholders can not bind the company by their Acts
8. Individual/ members are not entitled to take part in business since it is managed by the
board of directors
9. Shareholders have a limited liability.

Advantages of Joint Stock Companies

1. The liability of shareholders is limited to the capital contributed by shares guarantee.
2. A joint stock company is going concern implying that it has perpetual existence
separate from that of the shareholders.
3. A joint stock company is an artificial legal person independent of the shareholders
and it can own its assets and liabilities.
4. The shares of a joint stock company in particular public limited company are freely
transferable.
5. The shares of a joint stock company can easily be used as security for loans making it
easy to obtain loans.

Disadvantages of Joint Stock Companies

1. It lacks secrecy and privacy since it requires audited financial statement annually.
2. The formation of a joint stock company requires long legal formalities.
3. They are difficult to form since they require a heavy capital investment.
4. Joint stock companies cannot increase their capital investments beyond the legally
authorized capital.
5. The decision making process of joint stock company is slow and bureaucratic due to
consultations.
6. Joint stock companies are not flexible to changes.

Dissolution of a Joint Stock Company

1. When a company has started its expected to continue with its operations to the future
since it is a form of business with perpetual succession.
2. Termination of the life of a company may be through;
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 3. Failure to commerce business within one year of its formation - upon this it may be
would up by its court order on application.
4. The membership falling below the required minimum and this dissolution may be
decided by a court order.
5. Accomplishment of the purpose or expirely of the period of operation.
6. The registration if it fails to comply with statutory cooperation e.g. failure to file
annual files to the registrar of companies or engaging in illegal activities.
7. A resolution by members to voluntarily wind up the company which may arise
through.;
8. where the company does not have a future on that line of business
9. The members wish to sell it as a going concern in order to share profits.
10. Where one company is acquired by another and the members wish to discontinue it so
as to terminate its existence a separate legal entity.
11. Through a merger with a larger company
12. Insolvency - the company is not able to meet its obligations.

Holding Companies
The company Act of the laws of Kenya defines a holding company as one which has more
than half of equity share capital of another company of which it is a member or controls a
bigger percentage of the board of directors of one or more other companies which are called
subsidiary companies.
A holding company may be public or private depending upon wishes of the promoters or
shareholders.
In Kenya a good example of a holding company is ICDC.

Public Corporations
 This is the net price to which the government has stakes in
 The government owns a certain percentage of the enterprises shares.
 Where a government has a fall ownership of the corporation, the business enterprise is
known as a parastatal
 Some public corporations are profit seeking while other are not.
 examples of such public corporations include;
Kenya pipeline

59
  Kenya airways
 KCB (Kenya commercial Bank)
 Kenya lighting company (KPLC)
 Parastatals are run to provide the essential services such as education, medical etc.

Similarities between public cooperation's and joint stock companies

They are both legal entities
They are governed by a board of directors appointed
They are self-financing.

Public corporations
A cooperation is wholly and partially owned by the government
Corporations tend to be monopolists
Are operated on public interest not entirely on profit motive.
They are paid for by the public from the taxes collected by the government.

Joint stock companies

Owned by the public and has shareholders.
They are subjected to companies
Purely operate on a profit motive.
Private funds finance joint stock companies.

Parastatal Bodies
A parastatal body is an organization distinguished from a body government but in which the
government is a sole owner.
They are established by the government to perform specific functions and their management
is in the hands of board of directors.
The board of directors is appointed by the government and the parastatals bodies do not sell
shares since they are whole financed by the government.

Examples
Marketing boards
Coffee board of Kenya e.t.c.

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Marketing Boards
These are produce organizations set up to encourage and control of the Agricultural produce.
Their objective is to protect producers and consumers and may be formed by both producers
coming together or be constituted by the government.

Classification of Marketing Boards

Commodity marketing boards- these are producer organizations with objectives are restricted
to purchasing and selling of commodities e.g coffee, tea, pyrethrum producer marketing
boards- this is a produce organization dealing with a wide range of products e,g maize, wheat
e.t.c
Expert marketing boards- this concentrate on marking one or more products overseas e.g
KTDA or coffee board.

Functions of Marketing Boards.

1. To encourage and control the marketing of Agricultural produce through purchasing
at fixed prices to facilitate stable incomes
2. To encourage income and price stability through the buffer stock in buffer funding
system.
3. To facilitate farmers to obtain loans for farm inputs e.g quality fertilizers, seeds and
equipment.
4. To support the government in licensing regulations
5. To provide a wide range of sport e.g transport, grading, packaging of products e.t.c
6. Marketing boards provide advisory advise to farmers
7. They facilitate research on agricultural products and markets.

Formation of a Public Cooperation

They are formed by a specific Act of parliament which define and powers and the overall
mandate of there institutions.
The law creating corporations also state the minimum capital under which they will operate.
The corporations are viewed as separate legal entities and may be wholly or partially owned
by
the government.
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Management of Public Corporations
This is under a board of directors.
Directors are appointed by the government when the government owns wholly the
corporation or relevant joint directors and government appointed directors where the
government owns partially the cooperation.
The government influences decisions of the corporations either directly or indirectly e.g
pricing decisions.
In Kenya the board of directors is appointed by the relevant ministries or by the president, is
this it is board which is responsible for the implementation of the policies of the organization.
The board may employ professional managers charged with the day to day running
corporations,

Sources of Share Capital

1. Public corporations may get their capital from the government through loans or
budgetary provisions.
2. Where the government own corporations jointly both contributions of capital and the
public will raise capital through issuing shares.
3. As a body corporate a public corporate has power to borrow money from financial
institutions.

Features of a Public Corporation

1. A service motive- they provide essential services to the citizens and may therefore not
aim at making profits - entirely.
2. They are formed by an Act of parliament which states that government ministries will
take charge of such corporations.
3. They are subsidized by the government to enable them provide essential goods and
services at minimum fees.
4. The board of directors is wholly appointed by the government or jointly with other
stake holders to influence the policies of the cooperation.
5. They are financed by the government but for jointly owned public corporations.
6. It has a legal distinct from the government or any other owners
7. They have limited liability
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Advantages of Public Corporations
1. Raising initial capital is each since funds comes from the government
2. Public corporations improve the welfare of the people since basic goods and services
are offered at affordable prices
3. The company has limited liability
4. They are used to meet government objectives.

Disadvantages of Public Corporations

1. Political influence may lead to a week management
2. Public corporations may not respond to consumer needs since some operate as
monopolist.
3. Public corporations have a public interest making them difficult to achieve their
objectives.
4. The job insecurity of senior managers e.g C.O.S , may lead to dishonest management
5. Slow decision making because of the size of same public corporations
6. most corporations are loss making

Dissolution of Public Corporations

1. Since formation of a public corporation is by an Act of parliament it follows
therefore, that in order to dissolve such an organization one would have to repeal the
Act of parliament under which they are allowed.
2. The following reasons may lead to repealing the Act of parliament under which they
are formed.
3. Perpetual operations of the corporation of a loss
4. Outright insolvency.
5. Mismanagement which mat adversely affect the performance of the corporation

Co-operative Societies
This refers to a co-operative,
The term co-operative is derived from cooperation
It is a body of people or a body of persons who have agreed to come together to achieve a
certain goal.
The members of the public get together to voluntarily contributes capital to the corporative
63
society sharing the risks of investments in order to achieve and enjoy the benefits.

Reasons for Promoting Cooperative Societies in Kenya

1. They facilitate members to manage their own society and distribute themselves the
benefit generated.
2. In order to increase bargaining power in selling the members produce or gaining
maximum satisfaction.
3. In order to enhance participation by members in economic activities minimizing the
middlemen.
4. In order to reduce market cost of produce especially in transportation and storage.
5. In order to promote and improve quality production
6. In order to facilitate stable income earning
7. In order to put together capital resources of expensive investment e.g transport,
refrigeration e.t.c.

Formation of Co-operative Societies

They are formed by a minimum number of 10 members who pursue to undertake some
objectives

The members work out a defined plan of what the co-operative society is supposed to do.
For the co-operative society to be formed they have to submit their constitution to the
commissions of co-operative societies with the following detail.

The objectives of the society

 By-laws of the society
 The areas of corporation of the society.
 The nature of the business to be undertaken
 The location of the head office.
 The application of registration is to be submitted to the commissioner through the
local co-operatives.
Upon satisfying the commissioner, a certificate of registration is issued.
The co-operation then recruits members who pay registration fees and buy their specified
shares in the society.

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No member is allowed to buy more than 5% of the share capital.
The registration of the co-operative society makes it a body separate meaning it becomes a
separated entity distinct from its owners and with perpetual succession.

Ownership and Management of a Co-operative Societies.

It is owned by its owners and its ownership and membership is opened and voluntarily
The members in a co-operative society have a limited liability to the amount contributed.
The supreme authority of the registered co-operative society is in the AGM (Annual general
meeting).
During the AGM the managing director is elected on one person one vote basis irrespective
of the shares owned by each member.
The outcome is determined by a simple majority and such elections are supervised by the
district corporation officer.
The managing director serves for a period of time after which elections are held by a vote.
The elected members hold constant meetings to discuss operations and the concerned, of the
cooperative.
The committee may employ professional staff to charge of various parts in the society.

A number of sub-committees may be formed from the elected officers to take to take various
responsibilities of various societies.

Examples of Committees in a Co-operative society

Executive Committee-The committee is charged with the day to day running of the society
and
its membership is made up of the following
Chairman
V-chairman
Honorable secretary
Treasurer
Secretary
Education committee- It is charged with educating members of the society and it is made up
of 3-members answerable to the executive.
Credit committee- It is normally common in saving and credit societies. It is made up of 3-
members answerable to the executive and it is charged with the following:
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 i. Processing loan applied and making recommendations.
ii. Loan recovery
iii. Credit recommendations and approval

4. Supervisory committee-It is charged with overseeing the overall management of the

society's finances.
The Relationship between the Cooperative Society and its Business with its Members

A cooperative society should usually transact its business with its members. This business
relationship relates the following relations.
i. The customer relations- The members can be customers of the cooperative society by
purchasing its goods and services
ii. The supplier relations-The members can supply to the society by the seeling to the
cooperative society marketing their produce.
iii. The employee relations- The members can be employees who work for the
cooperative society which they jointly own.

Sources of Capital for Cooperative Societies

1. Members contributions through
a. Registration fee
b. Amount contributed by members to purchase shares
2. The fee charged from the proceeds or sales of the members produce.
3. Interest earned on money loaned out or firm inputs advanced to members.
4. The loans from financial institutions.
5. Plough backs or financing through retained profits.

Features of the Cooperative Society

1. Separate entity- Registration of a cooperative society makes it separate from its
owners and the cooperative society has rights and obligations that are separate distinct
from those of its owners.
2. Liability-The liability of its members is restricted to the amounts they have
contributed in terms of capital.
3. The minimum membership of a cooperative society is 10 persons and the maximum
number is specified since it depends on the share capital of the society.
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 4. Continuity-The cooperative society has a perpetual life.
5. Cooperative societies are governed using by-laws contained in the constitution of the
cooperatives.
6. The share capital is divided into units both persons who want to become members of
the society.
7. The cooperative society is run by management committee elected
8. The distribution of profits to the members is according to the level of activity carried
out among members-High volume of activity command high portions of profits.

Essentials for the Success of a Cooperative Society

 Adequate volumes to secure the benefits of large scale production.
 Adequate finance to fund operations construction purchasing of equipments.
 A sound management team with effective entrepreneur skills.
 Existence of a definite objective

Principles of Cooperatives
1. Open Membership
Membership is open and voluntary without artificial restriction imposed on
membership
2. Democratic administration.
The affairs of the cooperative society are managed in a democratic manner and
elections are on a one person
3. Service to members-The primary purpose of a cooperative society is to render
services to members.
4. Distribution of profits or surplus- Distribution of profits or surplus is based on a
specified rate.
5. Limited interest on capital- This is because the aim of cooperative society is to help
its members and not make profit.
6. Cooperation with officer cooperative society so as to achieve a common purpose and
a common objective.
7. Education to its members.

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Types of Cooperative Societies
A cooperative is a voluntary association of persons who come together to promote then social
e -economic interest.
The types include:-
Producer cooperatives
A producer cooperative is an association of producers such as societies which collect,process,
market and distribute the members produce.

Functions of Producer Cooperatives

1. Getting better prizes for members produce.
2. Providing better transport facilities for moving the produce from the source to the
market.
3. Providing better storage facilities for members for members produce.
4. Proving grading, packing and processing services to the members.
5. Extending credit facilities to its members.
6. Educating members on better methods of production through seminars,
demonstrations etc.
7. Facilitating use of quality seeds, fertilizers and farm inputs

Consumers Cooperatives
A consumer cooperative is an association of borrowers who have the same consumer needs.
The consumers buy bulky and sells to the consumers at lower/fair prices. This reduces the
cost of products by eliminating the middle men.

The main function of these cooperative societies is to purchase and distribute quality goods to
members at reasonable prices.

Benefits of the Consumer Cooperatives

 They make goods easy available to members.
 They buy goods in bulky and sell to members at lower prices.
 They distribute the realized profits to members at lower prices

Why consumer cooperatives are not popular in Kenya.

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  Fears competition between the local traders which push prices down and provide
quality goods hence no need for cooperatives.
 Many people supply enough subsequent food for themselves.
 Most people cannot afford large amount of capital required to start.
 Most population in Kenya lives in the rural setup and may not accept the cooperative
rule.
 No proper attention to such cooperatives by the government.

Savings and Credit Cooperative Society (SACCOS)

These societies are formed by persons who come together to save their money in a common
pull with a view of getting loans to improve their welfare.

The members of a SACCO are usually under one employer and members contributions are
deducted from their salaries but the employer to the cooperative society through a check of
system at regular intervals usually monthly.
At the members savings earn interest and get loans at reasonable interest rates normally 1%
per month.
Members savings serves as a security for a loan, three guarantors and a pay slip.

Why SACCOS are Popular among Employee

1. It is easy to save with the SACCO since deductions are done through a check of
system.
2. Easy to get loans from SACCOS due to fewer simple requirements.
3. Interest charge on loans is low compared to commercial banks.
4. Loans do not require collateral except far members' salary slip and guarantors.
5. Members savings are save since they are insured.
6. Incase of death the beneficiaries do not lose their savings in cooperatives nor they are
called upon to repay.
7. SACCOS are flexible since they give different types of loans e.g. normal, emergency,
school fees loans, medical etc.

Structure of Cooperative Societies

This refers to the hierarchy of the cooperative movement.

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It shows the various levels of which various cooperatives operate this include:

i. Primary Cooperatives
Draw membership from business organizations engaged in production of particular
goods and services.
Such cooperatives are found in specific geographical turgid or sector.
Examples:- Local agricultural societies in different regions. ,
ii. Secondary cooperatives made up of the primary cooperative within a region e.g. a
district. Through such cooperative the primary cooperative society pulls their
objectives.

Main Reasons of Forming a Cooperative Union

1. To strengthen the buying capacity especially of farm inputs or transport facilities.
2. To negotiate for loans for members cooperatives from the cooperative banks.
3. To market the produce of members cooperatives.
4. To help members cooperatives with the processing of their produce.
5. To help member's cooperatives with storage, administrative services, accounting etc.
6. To educate, advice, train, the staff of members cooperatives.

National Union
□ This is the union of various cooperative unions.
□ The national cooperatives form umbrella bodies of cooperatives formed.
□ The membership of such a cooperative comprises cooperative societies or operating in
a particular production line.

Examples:-
The Kenya Planters Cooperative Union.
The Kenya Union of Savings and Credit.

Apex Cooperatives
These are the overall cooperative bodies to which all other cooperatives i.e. primary,
cooperative unions and national union are carried. An example in Kenya is the Kenya
National Federation of Cooperatives Union. They are formed to promote cooperative
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performance with the aim of:-
a. Providing information about the activities of cooperative in Kenya,
b. Providing education and training for member cooperative for efficient and
c. Represent Kenya cooperatives both regionally and internationally. Another
example is the Kenya cooperative bank.
International cooperatives: Are composed of national cooperatives from various countries
e.g. The Kenya Federation of Cooperatives

Problems Facing Cooperative Societies.

1. Mismanagement by cooperative officials who take advantage of their knowledge and
position to benefit themselves.
2. Unskilled management elected without any knowledge whatsoever with management
skills.
3. Lack of adequate capital due to small contributors and difficult to get bank loans.
4. Capital interference and self-interests.
5. Most cooperatives are agro based facing price fluctuations climatic problems, low
prices etc.
6. Little government input to rejuvenate the cooperative societies.

Advantages of Cooperative Societies.

1. Low cost services to members.
2. Improved welfare of members enhancing their participation in economic activities.
3. Encourage savings enabling members to accumulate their capital.
4. Extended credits to members at low interest rates improving their welfare.
5. Limited liability protecting personal property.
6. Flexibility in membership for entity and exit.
7. Equality of the members in terms of rights irrespective of the number of shares held.
8. Large capital base due to high membership.
Structure of Cooperative Societies
International Cooperative Societies
Apex Cooperative Society
National Cooperative Societies National cooperative societies
Secondary co-operatives secondary co-operatives secondary cooperatives
Primary co-operatives primary co-operatives primary co-operatives
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Disadvantages of Cooperative Society
1. Poor management caused by the system of choosing the managers I.e. AGM
elections.
2. Constant political interference causing unrest and mismanagement.
3. Withdrawals are easy which may cause instability and discontinuity.
4. Slow decision making due to over consultation.
5. Lack of secrecy since all activities must be approved by all members.
6. Large membership may cause management problems.

Dissolution of a Cooperative Society

 Disagreement among members or an agreement of members may lead to application
of registration.
 Insolvency- Where the cooperative is unable to meet its debts.
 By a court order upon application by one or more members.
 An order of dissolution by the apparent ministry in the interest of its members.
 Withdrawal of members leaving membership to less than the minimum required.

Review Questions
1. Explain advantages of running a business as a sole trader
2. Describe hurdles faced by a sole trader in raising capital
3. Explain at least 3 types of partners
4. What is a partnership deed and what are its contents
5. Briefly explain circumstances under which a partnership may be dissolved
6. Briefly explain circumstances under which a partnership deed may be ideal
7. Describe the process of setting up a company
8. What are the main features of a limited liability company?
9. Explain the features of a public company
10. What are the characteristics of a private company?
11. What are the contents of memorandum of association?
12. Define cooperative society and state reasons for formation of cooperative movement

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Steps towards Promoting Entrepreneurship by the Government
i. Increase small scale industrial sector. These are small tiny cottage industries. They
have
increased and the governments in developing schemes to help entrepreneurs
ii. Increase investments in the service sector by Increased investments in quality services
especially in the transport sector repairs services entertainment sector hospitality
sectors
iii. Increased in rural entrepreneurship development by Promoting rural entrepreneurship
and Promoting Agro exports e.g eggs , meat e.tc
iv. Development of brick making
v. Promoting women entrepreneurs in; Encouraging women to a variety of ventures
vi. Education programmes in entrepreneurship
vii. Providing cheap finance i.e. loans at low interest rates
viii. Providing cheap land or industrial estates
ix. Guaranteeing entrepreneurs market for their products
x. Government purchasing from Kenyan entrepreneurs

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LECTURE EIGHT: SOURCES OF BUSINESS FINANCE
The learner should be able to
1. Identify and explain sources of business finance
2. State advantages and disadvantages of each source of finance
3. Classify sources of finance

Sources of Business Finance

 Capital is needed to operate and grow or expand a business.

 Business may need to purchase equipment, inventory, create awareness, restructure
or even renovation to be properly positioned to handle challenges.
 Financing is the use and manipulation of money.
 Raising finances for a business is one aspect of financing.
 There are different forms of raising funds open to the entrepreneurs.
 The various sources of funds for business ventures are classified under the following:
The Personal and family sources, Internal sources The External sources

1) The Personal and family

 This source of finance is peculiar to a new venture, although it may also be applicable
to an existing venture particularly loans from friends and relations as explained below
Personal savings: -
 It is expected that an individual that wants to start a business should be able to have
saved part of the funds required for the business. This is necessary because relying on
borrowed funds may be too dangerous for a new venture. It is also a way of
motivating the owner to know that if the venture fails the life saving will be lost.
 Loan from family and friends: - Family members often want to support other family
members venturing into business, hence part of the venture funds are contributed in
form of loans or gifts. Also, friends support through loans and sometimes gifts to
encourage their friend that is starting a business.

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2) Internal Sources
 An internal source of funds is peculiar to an existing venture. The internally generated
funds can emanate from the following sources
Retained profits: - It is an accepted practice to finance the fixed and working capital
requirement from profits generated from the previous business activities of the
venture. Provisions: - Provision for tax and depreciation are another internal source
of finance. Since business tax are payable a year after profits have been declared, this
amount could serve as a source of fund for small business firm. Furthermore, annual
provisions for depreciation represent cash retained by the enterprise over and above
the normal undistributed profit.
Reducing current asset: - Reducing current assets is a source of fund and large
amount of money could be made available for financing the activities of the venture.
3) External Sources
 The external sources of funds are those that are obtained outside the venture. The
external sources can be sub-divided into three namely; -
 Short- term finance
 Medium term finance
 Long term finance

 Short term finance: Short term financing involves obligation debts that have
maturity date of less than one year. The typical example of short term finance
includes goods purchased on credits, outstanding short term loans from banks/
accrued payment such as deferred taxation, salaries and wages etc. Some of the
methods of short term financing are; -
i) Open account or Trade credits/ Account payable: - It is a form of
financing in which the seller extends credits to customers. The credit is
reflected on the entrepreneur’s balance sheet as accounts payable, and
in most cases it must be paid in 30 to 90 days.
ii) Account receivable financing: - It is a short term financing that
involves either the pledge of receivables as collateral for a loan or the
sale of receivables (factoring). Accounts receivables loans are made by
banks, whereas factoring is done primarily by finance companies and
factoring concerns.
iii) Bank overdraft facilities: - An arrangement which allows a person
who keep a current account with a bank the opportunity to draw above
the balance in the account. The customers who overdraws his/her
account pays both the overdrawn account plus the interest on the
amount overdrawn.
iv) Notes payable: - These are payments to banks (commercial)
individuals or firms in which the maker of such notes endorses them in
favour of the payee. A typical example of notes payable is a
promissory note which is a short term marketable debt security in
which the borrower promises to pay a stated sum on a stated future
date, also known as one-name paper or commercial paper.
v) Commercial draft: - It is a short term credit instrument, it is similar to
a promissory note, except that the payee creates the draft in which the
drawer indicates the time on the draft or sight draft requiring payment
on presentation.

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vi) Bill of exchange: - A bill of exchange is a marketable short time debt
security in which one party (the drawer) directs another party (the
acceptor) or draw to pay a stated sum on a stated future date.

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vii) Loans from acceptance houses: - It is a method of borrowing on short
term basis from banks; this method has the advantage of securing
funds needed and at the required time. A letter of credit is a good
example.

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viii) Specialized Institutions: - Some specialized institutions were
established to provide credit facilities to the small and medium scale
enterprises, such institutions include microfinance banks, Cooperative
banks, Agricultural development banks etc.

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ix) Factoring: - It is a method of short term financing, where debts are
sold to a factor by an arrangement. A factor then assumes all the credit
risks associated with the account receivables. Though costly, factoring
has the advantage of converting an account receivable into cash and
thus saves the seller the stress of pursuing payment.

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x) Discounting bills: - Similar to factoring in many ways, discounted
bills are used by firms with lump sum of funds tied in receivables or
marketable securities who require immediate cash. Instead of
approaching their banks for loans, the firms approach finance houses
to discount their receivables and marketable securities upfront by
receiving cash lower than face value of the receivables.

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xi) Medium term Finance:- This type of finance fills the funding
requirements of a firm in the medium term. In essence, medium term
finance is not intended for long or short term use. By way of
durational availability, medium term finance can refer to funds made
available for use between two and five years. Generally, such funds are
used for acquisition of small tools and light equipment with a few
years life span. Medium term financing are debts, often obtained by
borrowing. They have implications for interest payment. The main
sources of medium term finance are: -

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xii) Bank loans: The requirements for bank loans are usually tedious and
cumbersome for young entrepreneurs to meet, this is not to say it is not
possible. According to Kuratko & Hodgetts (2007) to secure a bank
loan, an entrepreneur must be able to provide answers to the five
mostly asked questions together with descriptive commentaries: -

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 LECTURE NINE: CREATION OF AN ENABLING ENVIRONMENT AND
ENTRPRENEURIAL MOTIVATION
The learner should be able to
1. Explain ways by which the government can create an enabling environment
2. discuss internal motivation to entrepreneurship
3. discuss external motivation to entrepreneurship

Steps towards Promoting Entrepreneurship by the Government.

i. Increase small scale industrial sector. These are small tiny cottage industries. They
have increased and the governments in developing schemes to help entrepreneurs
ii. Increase investments in the service sector by Increased investments in quality services
especially in the transport sector repairs services entertainment sector hospitality
sectors
iii. Increased in rural entrepreneurship development by Promoting rural entrepreneurship
and Promoting Agro exports e.g. eggs , meat e.tc
iv. Development of brick making
v. Promoting women entrepreneurs in; Encouraging women to a variety of ventures
vi. Education programmes in entrpreneurship
vii. Guaranteeing entrepreneurs market for their products

MOTIVATION OF STARTING A BUSINESS

There are several factors that motivate an entrepreneur to take all the risks and launch a new
business against all odds of failure. They can be categories into two sets:
1. Internal motivation /pull influences
2. External motivation/push influences

Internal motivation factors

1. Desire for independence
2. Desire to exploit an opportunity
3. Financial rewards associated with entrepreneurship
4. Turning a hobby or previous work experience into a business
5. Job satisfaction
6. Need or achievement

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External motivation factors
1. Retrenchment from ones formal employment
2. Lack of employment
3. Job insecurity
4. Disagreement with employer
5. Dissatisfaction with ones job

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 LECTURE TEN: BUSINESS PLANNING

The learner should be able to:

1. Explain the uses and importance of business plans
2. Explain the components of a business plan
3. Prepare business a plan

Planning for the Business Venture

Planning is a predetermine cause of action. It is a statement outlining an organizational
mission and future direction, short and long term performance, targets and strategies

Planning as a formal document contain a mission statement description of the firm's goods
and services, a market analysis, financial projections and description of management
strategies together with policies for attain the goals.

Planning is a process of determining the goals and objectives of the enterprises for a future
period of time developing the strategies guiding the firms operational and utilizing the
available resources towards achieving the set goals and objectives.

Planning involves;
 Predicting into the future by defining the enterprise vision/ mission statement
 Determining the organizational goals and objectives
 Formulating strategies towards achieving and objectives.
 Assigning of responsibilities and functions
 Allocating resources
 Monitoring and evaluation
 Taking corrective action or re-designing the original.

Need for Planning

Planning is the cornerstone and backbone of management.
It covers all the functional levels and activities of the entrepreneurs/ enterprise.
It involves predicting and projecting the future and making adequate arrangements on how to
reach there.

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Planning helps entrepreneurs in the following ways.
 To develop the most effective way of achieving maximum growth.
 To properly informed about the competitors and the able to predict their next cause of
action
 To meet up with the consumers needs and income
 To meet up with the frequent changes in the market
 To be acquitted with the market forces of fluctuations.
 To have adequate knowledge of the financial requirements of the business.

The planning function

The planning function covers all activities of the business i.e finance, sales, marketing,
personnel management, research and development.

Planning functions involve formulation of the enterprise goals, objectives, strategies, policies
standards, budgets, procedures and programmes to be embarked upon towards fulfilling the
business mission statement.

The components of planning function

a) Objective - is the measurable, verifiable, specific and attainable - The objective gives
focus and direction to a business mission statement.
b) Strategies - are a scheme & methods which an entrepreneur hopes to deploy in order
to move the enterprises from it's presentposition to arrive at its targeted goals
c) Policies - are overall guides to action which must be followed consistently for the
achievement of organization goalsthey act as rules & regulations which an
entrepreneur imposes on the enterprise in order to achieve the major objectives.
d) Standards - are a planning function that permit an entrepreneur to usevalues as forms
(acceptable standards) when certain things have been adopted as norms in the
entrepreneur, they acts as control measures for evaluation of performance.
e) Budgets - are quantitative expressions of future cause of action. They usually show
cash flow of an organization and act as a guide especially for the entrepreneurial
spending i.e
 sales budgets

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  purchases
 experiences
 cash
f) Procedures - help and entrepreneur to chart the sequence or related tasks to be
performed for the accomplishment of the enterprises objectives it enables the
entrepreneurship determine how a particular task will performed and when it should
be done.
g) Methods reveal the manner of performing specific tasks. It mainly Prescribes how one
step of a procedure should be carried out.
h) Programme - are a set of activities- undertaken to accomplish objectives e.g a
Production programme may specify a production objective Production standard or
even production policies.

Business Plan
Definition: a business plan is a document that convincingly demonstrate that your business
idea can sell enough of its products and services so as to make products and services so as to
make satisfactory profit and attractable to potential financiers.
In other words a business plan in a road map you can follow to start and manage a successful
business. It shows step by step on how to start, fund, manage, monitor, and evaluate a
successful business.

Business Plan as a Tool

 Objective and goal creating tool management tool training tool
 promotion tool
 fund raising tool/capital
 staffing tool
 monitoring and evaluating tool
 business creation tool
 weakness/ omissions identifying tool
 measuring performance
 for motivation

Why Prepare a Business Plan

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  To avoid silly mistakes
 It defines and focus business objectives and goals
 As a tool for fundraising, marketing, monitoring, evaluation, staffing
 To be realistic on our intentions
 To clearly communicate your vision/ ideas to other within and outside.

Who should writes a Business Plan?

Should be written by entrepreneur since he/ she is the owner of the business idea and is the
custodian of the vision
Can be written by consultants and employees.

What is a "good" Plan?

 a good plan should be dynamic document which should be available for reference for
decision making evaluation and future plans
 it should clearly communicate visions and ideas
 should show the evidence of understanding of target customers
 Appealing to the potential financier.

Benefits /uses/ importance of a business plan

1. It forces would be entrepreneur to establish written goals and objectives for their
proposed businesses.
2. it enables potential entrepreneur to assess the viability of their business opportunity on
paper by
3. enables identifying the products one will be dealing with
4. help entrepreneur determine in advance the financial and other resources required and
plan on how and where to get them
5. It enables the entrepreneur to evaluate/assess the performance of the business. The
plan is the yardstick for such evaluation
6. it assist in identifying the potential customers, marketing opportunities, pricing
strategy, promotional activities, distribution strategy and a competitive conditions
needed for business success.
7. it identifies the number of employees needed, the skills they should possess, the task
they will perform and the methods of remuneration to be adopted.

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 8. it establishes the financial needs of a business and suggests the possible sources of
financing
9. suppliers need to see a good business plan before signing contracts to supply large
quantities of materials
10. Customers want to review a business plan before buying a product that may require
significant long term commitment such as high technology equipments and machines.
11. Lenders such as banks and investors require a business plan to assess the possibility of
receiving their money back. They will not lend money for ideas they do not believe
viable even when security is provided.
12. it helps to identify critical factors for successful entry and growth of a businesses in a
given market place.

Components of a business plan

Business plans include details under the following main sections;
1. Executive summary
2. Business description
3. Marketing plan
4. Competitor analysis
5. Management plan
6. Business operation (production/ service, delivery plan)
7. Financial plan
8. Appendices

Executive Summary
N/B. This should be done last

It includes the;
1. type of venture
2. products/ service to be offered '
3. how unique
4. it there a major opportunity for products/ services
5. the business status/ stage
6. legal form of business
7. location of business
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 8. target market
9. . % share of market
10. competitor strength and weakness
11. strategy of entering the market
12. managing staff and their qualifications and experiences
13. Time frame for accomplishing your goals.
14. how much money needed for starting and running the business
15. what type of financing are seeking
16. loan
17. grant
18. the strength of the business that will make it succeed
19. future plans of the business

Business Description
For a new start-up business it will include
1. objectives, vision, mission statement and goals
2. specific objectives (SMART)
a) service objective (quality of service)
b) profit objective ( actual % and amount targeted)
c) growth objective
d) social objectives ( corporate responsibility)
3. type/form of business venture
4. date of commencement
5. physical location
6. advantages of the location
7. postal address, physical address/ street/buildings/ road
8. telephone contact/ email/ fax/website
9. brief history of the business (company)
10. experiences of the owners

Marketing Plan
description of the target market ( customer segment)
Description of products/ services
prices of products/ services
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distribution of products /services
promotion of productions/ services

Competitor Analysis
internal analysis both strength and weakness
external analysis ( opportunities and threats)
environmental analysis (political, social, economic, regulatory factors that can impact on your
business)

Management and Organization

1. key management staff
a) their positions/ designations and responsibilities
b) qualification and experience
2. other staff
a) their positions/ designation and responsibilities
b) qualification and experience
c) Their number.
3. Human resources practices
a) Staff recruitment
b) Motivation
c) Training and development
d) Reward and recognition
e) Staff appraisal

Business Operation
1. Product/service development design and facilities.
2. Description of premises
3. ownership status
4. renovations/ facelifts/medications
5. products and services to be offered
6. machinery, tools, equipment and other facilities required
7. implementation
a) procurement
b) repair and maintenance
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 c) future expansions
8. legal requirements: business name, tax compliance, labour laws, by-laws e.t.c
9. monthly overhead expenses
10. professional and support services

Financial Plan
1. pre-operational costs ( costs before start-up
2. working capital
3. projected monthly cash flow statement
4. projected annual cash flow statement
5. projected profoma income statement
6. projected balance sheet Appendix
7. brochures and advertisement materials
8. maps and photos of location
9. copies of lease and contracts
10. company certificates of registration
11. list of assets available as collateral for a loan
12. copies of licences
13. research and marketing results
14. any other materials needed to support your business plan
15. list of equipment owned or to be purchased

How does Potential Lenders and Investors Evaluate the Plan

Potential readers or evaluators should reflect on the strengths of management and personnel,
the product or service and the available resources.

Suppliers who may want to see a business plan before signing a contract together with
customers who may want to see the business plan before buying the product or service and
the available resources

Suppliers who may want to see a business plan before signing a contract together with
customers who may want to see the business plan before buying the products pay more
attention to the i) experience of the entrepreneur

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ii) Market projections
□ Lenders will primarily be interest in the ability of the new venture to pay back the
debt of together with the interest within a designated period of time.
□ Banks want facts with an objective analysis of the business opportunity and all the
potential risks associated with a business
□ Lenders focus on the 4cs of credit i.e
i. Cash flow
ii. Collateral
iii. Character
iv. Contribution of equity
v. The business plan must therefore reflect the entrepreneurs credit history, the
ability of the entrepreneur to meet the debt and the interest payable (cash flow)
the collateral or tangible assets being seemed for the loan and the amount of
personal equity the entrepreneur has invested in the business.
□ Investors on the other hand place more emphasis on the entrepreneurs character then
lenders.
□ Investors want to make sure that the entrepreneur is complaint and willing to accept
this involvement.
□ They also demand a high rate of returns and will therefore focus on the market and
financial projections
□ In preparing a business plan it is important for the entrepreneurs to consider the needs
of external sources and not merely provide their own perspective.

Presenting the Business Plan

It is often necessary for an entrepreneur to orally present the business plan before and
audience of potential investors - in this case the entrepreneur is expected to provide a short
presentation of the business plan.

The entrepreneurs are expected to sell their business concept in this short period - try and
persuade potential investors that his is a good investment

The focus of such presentation is why this is a good opportunity - an overview of the
marketing program.

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Concluding remarks might reflect the recognized risks and how the entrepreneur plans to
address them.

Unlike oral presentation -written presentation requires the entrepreneur to consult where
necessary the services of lawyers accountants, marketing consults and engineers in
preparation of the business plan.

The plan must give a detailed account of the needs of the expected readers.

Information Needs
□ Before committing time and energy to preparing a business plan, the entrepreneur
should do quick feasibility study of the business concept to see whether there are
possible barriers to success.
□ The information obtainable from the many sources should focus on:
i. Marketing
ii. goals and objectives
iii. finance
iv. production

Goals and Objectives

Before beginning the feasibility study the entrepreneur should clearly define the goals and
objectives and also provide frame work for the business plan, marketing plan and financial
plan.

Goals and objects that are too general or that are not feasible make the business plan difficult
to control and implement.

Market Information Needs

One of the initial and important elements of information needed by the entrepreneur is the
market potential for the product or service
In order to ascertain the size of the market it is important for the entrepreneur to define the
market e.g the consumer group men, women, youths e.tc.
The consumers income - high or low- are they rural or urban deadlier.
The education level is another important aspect of consideration
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A well-defined target market will make it easier to project the market size and subsequent
market goals.

In order to build a strong marketing plan with reasonable and measurable market goals* and
objectives the entrepreneur will need to gather information on the industry and market.

Most entrepreneurs have difficulty with this stage and do not of tern known where to begin.
The best way to start is to first visualize the following process of gathering market
information.

An upside -downpyramid approach to gathering information (for a food business)

General information and demographic trends
National food industry trends
Local environment & demographic trends
Local food industry

Local competition
Strengths & weakness
Market positioning Market objectives
□ This means that we start with very broad -based data and information and work down
until we develop a positioning strategy and quantifiable goals and objectives.
□ We begin the process by evaluating the general environments trends - this would
include household income trends.
 Population shifts
 Food consumption habits and trends o Travel trends and o Employment trends
□ The next step is to assess the trends in the national food service industry- here the
points of interest would be;
 Total food sales
 The commercial restaurant sales e.t.c.
□ This first two stages focuses on the national market and the located
□ This consists of the general local economic trends and as assessment of the local food
industry
□ The final step is an analysis of the local competitive environment by analyzing each

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 competitors strengths and weaknesses.
□ Once this analysis is completed, the entrepreneur is ready to clarify the product of
service he/she would offer, the actual market positioning in the competitive
environment and the market objectives - in order to form the marketing plan.

Writing of a Business Plan

The time of writing a business plan depends on the experience and knowledge of the writer
(entrepreneur) as well as the purpose it intends to serve.

It should be comprehensive enough to give any potential investor a complete picture and
understanding of the new venture
The following is a simple outline of a business plan.

Outline of a Business Plan

Introducing page;
 Name and address of the business
 Names and addresses of the principal owners
 The nature of the business
 Statement of financing needs
 Statement of confidentiality of the report

ii) executive summary

iii) description of the venture ( business)
a) the product/services offered
b) the size of the business
c) the background of the entrepreneurs

iv) the production plan

a) the manufacturing process
b) the physical plant and machinery
c) the suppliers

v) the marketing plan

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 a) the pricing
b) the distribution
c) the promoters

vi) competitors analysis

vi) Management plan
vii) Financial plan
viii) Appendices

Introductory page
□ This is the title of cover page that provides a brief summary of the business plan's
content. The introductory page should contain the following:
 The name and address
 The names of entrepreneurs (Tel, Fax , Email, Box e.t.c)
 A description of the company and the business nature
 The amount of finance needed
 A statement of the confidentiality of the report.

Executive Summary
□ This section of the business plan is prepared after the total plan is written - normally
to maximum of two pages.
□ It should stimulate the interest of the potential investor and therefore should not be
taken lightly
□ The executive summary should be concise and convincing, addressing issues such as
 The business concept or model
 The unique aspects of concept
 The individual starting the business
 How the money will be made and how much

Any supportive evidence that may give it strength are included

□ The section is only meant to highlight factors and provide a strong motivation to the
person reading the plan.

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Description of the Business
The description of the venture should be detailed so as to enable the investor to ascertain the
size and scope of the business

This sect ion should begin with the mission statement and vision of the business venture
□ The statement basically describes the nature of the business and what the entrepreneur
hopes to accomplish
□ The definition will guide the firm through long -term decision making
□ After the mission statement a number of important factors that provide a clear
description and understanding of the business venture should be discussed.
□ Key elements are the:
 Products or services
 The location and size of the business
 The history of the venture.

Production Plan
The plan should describe the complete product. If some or all of manufacturing process is to
be subcontracted

The plan should describe the sub-contractors, including location, reasons for selection, costs
and any contracts competed.

Others include - manufacturing operations and layout the raw materials the suppliers, costs
capital equipment e.t.c.

Operation Plan
This section goes beyond the manufacturing process and describes the flow of goods and
services from production to the customer
It includes storage, shipping, control procedures, customer support services Others include
renovations, product service, machinery and tools et.c

Marketing Plan

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The marketing plan- is an important part of the business plan since it describes how the
product or service will be distributed, priced and promoted.

Marketing plan - is an important part of the business plan since it describes how the product
or service will be distributed, priced and promoted

Marketing research evidence to support any critical marketing decisions as well as

forecasting sales should be described in this section.

Organization Plan
The organizational plan in part of the business plan that describes the ventures form of
ownership
That is, proprietorship, partnership or corporation
The details the shares of stock authorized, share options as well as names and resume of
directors It details the organizational structure.

Financial Plan
Is an important part of business plan since it determines the potential investment commitment
needed for the new business venture and indicate its economic feasibility

Appendix

The appendix of a business plan generally contains any back-up materials that are necessary
in the text of the document. Reference to any documents in the appendix should be made in
the plan itself.

Review Questions
1) What are the components of planning function?
2) What is the importance of preparing business plans?
3) How do Potential Lenders and Investors Evaluate the Plan
4) Describe the contents of a good business plan

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 Health Management
An organisation refers to the structure of relationships among individuals. It means every
organisation whether business, social, religious or political is basically a group of people
formed to accomplish some common objectives.
Definitions of Management
Management is getting things done '-through other people". Management" is that function of an
enterprise which concerns itself with the direction and control of the various activities to attain
business objectives...

Characteristics of Management
The functions of management are required at all levels of organisation and in all areas of business.
Management is purposeful. Management exists for the achievement'of specific objectives. It is a means
towards the accomplishment of predetermined goals.
The success of management is measured by the extent to which desired objectives are attained
Management is an integrative force. The essence of management lies, in the coordination of individual
efforts into a team effort.
Management is a social process. Management is done by people, through people and for people.
Management is multidisciplinary. Management has to deal with human behaviour under dynamic,
conditions. Management is a continuous process-Management is a dynamic and an on-going
process.
Management is intangible. Management is an un-seen, or invisible force. It cannot be seen but its
presence can be felt everywhere in the form of results.
Management is an art as well as a science. It contains a systematic body of theoretical knowledge and it
also involves the practical application of such knowledge.

On the basis of these characteristics, management may be defined as continuous social process involving the
coordination material resources in order to accomplish desired objective.
Management as an Art
An art may be defined as a skill, or knowledge-in- a particular field of activity or a method of doing a
thing. It means, art involves the practical/application of theoretical knowledge and skills to achieve
desired results

Management is essentially an art because of the following reasons:

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 a) The process of management involves the use of knowhow i.e. knowledge .and skills. Every
manager has to apply certain-knowledge and skills while dealing with people
b) Management seeks to achieve concrete practical results ie profits, growth etc
c) 'Like any other art, Management is creative. It brings out new situations and makes resources
productive
d) Like, any other art, management is a personalized process. Every;^f manager has his own
approach and technique depending upon his perception and the environmental conditions.
e) Good management is efficient and the success of a manager is measured by the effective '
realisation of organisational goals.

Management as a science refers to the application of scientific methods in making decisions and
evaluating different courses' of action, to involves obtaining of complete, valid and reliable information
in respect of the problem under consideration, before making a decision.

Management is a science because of the following reasons:-

a) There is a systematized .body of knowledge in management Principles . are now available in
every function of management and these principles help to improve managerial
effectiveness.
b) The principles .of^ management have been developed through continuous observation
and empirical verification.
c) The principles of management are capable of universal application.
d) Management theory helps to examine and evaluate,, alternative courses of action to resolve a
given problem.
Management as a Profession
A profession, may be defined, as a 'field where training is intellectual in: nature, a field, in which one
enters for the sake of others... and m which financial reward is not considered-as a measure of
success".

Management vs. administration

1. Administration is different from management
According to this view "point, administration is a higher level while management is a lower level
function. 'Administration is a determinative function concerned with the determination, of objectives
and policies while management is an executive function involving the implementation of policies and
direction of efforts for the achievement of objectives.
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Administration is a part of management
According to him, "management is- the generic term for total process of executive., control
involving responsibility for effective planning and guidance of the operations of an enterprise.
Administration is that part of management winch is concerned with the installation and carrying out
of the procedures by , which the programme is laid down and communicated and the progress of
activities is regulated and checked against plans".

LEVELS OF MANAGEMENT
The different levels of management may be classified into four categories:' –
o Top management;
 Intermediate or upper middle management;
 Middle management a nd
 Supervisory or operating management.
Top Management
The management of a company consists of the board .of directors and chief executives. Chief
executive may be' known as managing 'director, general manager, president, chairman - cum-
managing director, etc. Top management is the ultimate source of management authority and it is
accountable for overall management to the shareholders of the company. The main functions of top
management are as follows:
i. To analyze, evaluate and deal with the environmental forces:
ii. To establish, overall long-term goals and policies of the company including the master
budget;
iii. To appoint departmental and other key executives;
iv. To represent the company to the outside world, e.g.. trade associations.
v. government, trade unions, etc;
vi. To exercise overall review and. control on the company's operations: and
vii. To coordinate the activities and efforts of different departments.
Intermediate Management
Intermediate or upper middle management comprises departmental or divisional heads, e.g., works
manager, marketing manager, personnel" manager, finance w manager etc. Each one of these
managers is responsible for the efficient an coordinated functioning of. his own department in
accordance with the basic objectives and policies laid down by the top management.

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Middle Management
This level of management consists of deputy heads of departments and sectional officers such as
plant manager, area sales manager or branch manager, office manager, chief accountant^ purchase-
officer, etc,
The middle management usually performs the following functions:
1. To interpret and explain the policies framed by top and intermediate managements.
2. To compile and issue detailed instructions regarding operations.
3. To co-operate among themselves so as to integrate various parts of a division or a department.
4. To motivate supervisory personnel to work for organisational goals.
5. To develop and train supervisory and operative personnel.

Supervisory or Operating Management

Supervisory management is the lowest level of management. It consists of plant superintendent,
foremen and front, line, supervisors, sales officers, accounts / officers, etc
The, functions of supervisory management are as follows:-
1. To plan day-to-day production! With it the goals laid down by higher authorities.
2. To assign jobs to workers and to make arrangements for their, training’ and development.
3. To supervise and control workers and to maintain with them;
4. , To arrange materials and tools and to maintain machinery
5. To advice and assist workers by explaining work procedures, solving their problems, 'etc,
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6. To maintain discipline and good human relations among workers.
7. To report feedback information and workers' problems' which cannot be solved at the
supervisory level?

SKILL OF MANGMENT
Different types of skills are required to manage effectively a large organization in a dynamic environment.

Technical skills
Technical skills refer to the ability and knowledge -in using the equipment, techniques and procedures'
involved in "performing specific tasks.
Human skills
Human skills consist of the ability to work, effectively with other people both as individuals and as members
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of a group. These are required to win co-operation of others and to build effective work teams.
Human skills are reflected in the way a manager perceives his superiors, subordinates and peers.

Conceptual skills
Conceptual skills comprise the ability to see the whole; organization and ' the inter-relationships between its
parts. These skill's refer to the ability to visualize the entire picture, or to consider a situation in its totality.
'Such skills help the manager to conceptualize the environment

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CHAPTER 2: FUNCTIONS AND PRINCIPLES OF MANGMENT
FUNCTIONS OF MANAGEMENT
The process of management consists of several interrelated activities. These activities are known as
the functions of management
The various functions mentioned by different experts may be classified into these five categories as
follows
Function Sub function
Planning Forecasting, decision-making, establishing objectives. policy
making, programming, scheduling^ budgeting, strategy
formulation, problem-solving, setting procedures, innovation,
research, investigation,, etc.

Organising Functionlisation, divisionalisation, departmentation.

assignment of duties, delegation of authority '
decentralisation, etc.

Staffing Recruitment, selection, training, placement.

Compensation, etc.
Execution or implementation of plans, guiding, counselling,
Directing or commanding supervision or overseeing, motivation or activating,
communication, leadership, etc..

Setting standards, recording, measurement, reporting,

Controlling review or appraisal or evaluation, actuating, corrective;

PRINCIPLES OF MANAGEMENT
A principle is a fundamental statement of truth that provides a guide to. thought. and action. It establishes a
cause and effect, relationship between two or- more variables. The principles of management lay down
guidelines for improving management

Need for Principles of Management

To increase efficiency-A sound knowledge of the principles of management enables a manager to

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take more realistic view of organizational" problems and .their solution

To crystallize the nature of management job.-Development of the science of management in the

form of principles is helpful in analyzing the management job and in defining the exact scope
of management process
Planning-Planning is like most basic or primary function of management. It precedes other functions
because a manager plans before he acts. Planning involves deteimtrting the objectives and selecting a course
of action to achieve them It implies looking
ahead and deciding in advance what is to be done, when, and where it is to be done,
The process of planning consists of'
i. Determination of objectives,
ii. Forecasting and choice of a course of action,
iii. Formulation of policies, programmes,budgets schedules etc to achieve the objectives,
iv. Laying down of procedures and standards cf performance.
The process of organising-consists of the foil owing .steps

Organising
Organising is the process of establishing harmonious authority-responsibility relationships among
the members of the enterprise. It is the function of creating a structure of duties' and
responsibilities. The network of authority responsibility relationships is known as organisation
structure.
To improve research in management
The body of management principles serves as the basis for productive research so as 'to expand future.
horizons of management knowledge.
To attain social goals-The standard of living of the people in a society depends upon- the 'quality of
management
Nature of Management Principles
The principles of management contain the following characteristics
Universality of principles:
Management principles are fundamental truths of general validity. The> can be applied in different types of
organisations, e.g., business, government, educational, military, etc
Dynamism:
Management principles are flexible guides rather than hard and fast: rules. These are dynamic rather than static,
diagnostic rather than determinative.
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Relativity:
Management principles are relative rather than absolute. Therefore, these should be applied according to the
need of the organisation and demands of the situation
Human limitations:
Management is an inexact social science because it deals with liftman behaviour. Human
behaviour is very'complex and unpredictable and in order to understand and influence it various
principles 2developed in other disciplines are being increasingly applied in the field of
management.

Principles of Management
Division of Work
Division of work or specialization of labour belongs to the nature order. It helps a person to acquire an ability and
accuracy with which he can do more and better work with the same effort every person in the organisation
should be limited as far as possible to the performance of a single leading function
Authority and Responsibility
According to Fayol, responsibility is a natural consequence of and a corollary to authority.
Discipline
Discipline is defined as respect for agreements which are, directed at achieving obedience, application,
energy, and out- ward marks of respect.
Unity of Command
Every subordinate should receive orders and be accountable to only one supervisor
Dual or multiple commands is a perpetual source of conflict.

Unity of Direction
The principle of unity of diretion seeks to ensure unity of action Unity of direction should not be confused with
the unity of command. Unity of command pertains to the functioning of the personnel while unity of direction
refers to the functioning of the body corporate.

Subordination of Individual to General Interest

Effort should be made to reconcile individual interests with common" Interests. When there is conflict,
between two. The interests of the. Organisation' should prevail over individual interests.

Remuneration of Personnel
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The amount of remuneration and the methods of pay be just and fair and should provide maximum possible
satisfaction for both employees and employers.
Centralisation
According to Fayol, the question of centralisation and decentralisation is a matter of finding the optimum
degree for the particular concern. The degree of concentration of authority should be based upon optimum
utilisation of all faculties of the personnel

Scalar Chain
Scalar chain refers to the chain of superiors ranging from top to bottom authority to the lowest level in the
organisation. There should be a clear line of authority ranging from top to bottom of the organization. All
upward and downward communications should flow through each position of authority along the scalar chain.

Order
This principle is concerned' with the arrangement of the things and placement of people. In
material order, there should' be- a place for everything and everything should be in its proper place.
Equity
Equity implies that employees should be treated with justice and kindness. Managers should be
fair and impartial in their dealings with subordinates. They should adopt a sympathetic and unbiased
attitude towards; workers.

Stability of Tenure of Personnel

Employees cannot work efficiently unless Job security is assured to them. Time is required for an
employee to get used to new/work and succeed in doing it well

Initiative
Employees at all levels should be given the opportunity to take i initiative and exercise judgment in the
formulation and execution of plans Initiative refers to the freedom to think for one-self and use of
discretion in doing work.
Sprit de Corps
This refers to harmony and mutual understanding among the member of an organization. Union, is
strength and unity in the staff is foundation of’ Success in any organization. Management should
not
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follow the policy of/divide and rule'.

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