COURSE OBJECTIVES

1. Student should be able to understand business creation

2. Should be able to creative and innovative
3. should be able to bear risks
4. should be able to impact the society

COURSE OUTLINE
Concept of Entrepreneur;
Reasons for Business Creation
Searching for and Evaluation of Ideals
Sources of Finance for a Business
Choices of Legal Status
Ethical Issues of the Business
Family Businesses
Preparation of the Business Plan

CHAPTER ONE
THE CONCEPT OF ENTREPRENEUR

WHAT IS ENTREPRENEURSHIP?
 A purposeful activity to initiate and develop a profit oriented business.
 Entrepreneurship is process of initiating a business venture, organizing the necessary
resources, and assuming the associate risks and rewards.
WHO IS AN ENTREPRENEUR?
 Generally, any person starting a new project or trying a new opportunity.
 An entrepreneur is an individual who accepts financial risks and undertakes new financial
ventures.

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  Entrepreneurs are business people who can detect and sense the availability of business
opportunities in any given scenario
 An entrepreneur is an individual who is capable of identifying a problem, search for
solutions to that problem, turn the solutions in to business ideals, creates a new business,
bearing most of the risks and enjoying most of the rewards

CHARACTERISTICS OF ENTREPRENEURSHIP :
Not all entrepreneurs are successful; there are definite characteristics that make entrepreneurship
successful. A few of them are mentioned below:
 Ability to take a risk- Starting any new venture involves a considerable amount of failure
risk. Therefore, an entrepreneur needs to be courageous and able to evaluate and take risks,
which is an essential part of being an entrepreneur.

 Innovation- It should be highly innovative to generate new ideas, start a company and earn
profits out of it. Change can be the launching of a new product that is new to the market or
a process that does the same thing but in a more efficient and economical way.

 Visionary and Leadership quality- To be successful, the entrepreneur should have a clear
vision of his new venture. However, to turn the idea into reality, a lot of resources and
employees are required. Here, leadership quality is paramount because leaders impart and
guide their employees towards the right path of success.

 Open-Minded- In a business, every circumstance can be an opportunity and used for the
benefit of a company. For example, Paytm recognised the gravity of demonetization and
acknowledged the need for online transactions would be more, so it utilised the situation
and expanded massively during this time
 Flexible- An entrepreneur should be flexible and open to change according to the situation.
To be on the top, a businessperson should be equipped to embrace change in a product and
service, as and when needed.

 Know your Product-A company owner should know the product offerings and also be
aware of the latest trend in the market. It is essential to know if the available product or
service meets the demands of the current market, or whether it is time to tweak it a little.
Being able to be accountable and then alter as needed is a vital part of entrepreneurship.

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  Decision-making ability: Entrepreneurs should have the willingness and capability to take
decisions in favour of the organization all the time.
 Competitive: Entrepreneurs should always be ready to give and face competition.
Intelligent: Entrepreneurs always need to keep their mind active and increase their IQ and
knowledge. An entrepreneur compete to compliment and not to compare
 Patience: This is another virtue which is very important for entrepreneurship as the path
to success is often very challenging and it requires a lot of patience for sustenance.
 Emotional tolerance: The ability to balance professional and personal life and not mixing
the two is another important trait of an entrepreneur.
 Leadership quality: Entrepreneurs should be able to lead, control and motivate the mass.
 Technical skill: To be in stride with the recent times, entrepreneurs should at least have a
basic knowledge about the technologies that are to be used.
 Managerial skill: Entrepreneurs should have the required skill to manage different people
such as clients, employees, co-workers, competitors, etc.
 Conflict resolution skill: Entrepreneurs should be able to resolve any type of dispute.
 Organizing skill: They should be highly organized and should be able to maintain
everything in a format and style. High motivation: Entrepreneurs should have high level
of motivation. They should be able to encourage everyone to give their level best.
 Creative: They should be innovative and invite new creative ideas from others as well.
 Reality-oriented: They should be practical and have rational thinking

THE ENTREPRENEURIAL MOTIVATIONS

What is the incentive for starting a business? Is it money alone? The factors that motivate people
to take all the risk and start a new enterprise can be identified. The 6Cs that motivate entrepreneurs
to establish their own business are as follows:

Change – Entrepreneurs frequently want change, not only change, they also want to be the bearers
of change. They are solution givers and want to interrupt the status quo.

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Challenge – Some people love challenges and they opt for starting a new business as it is very
challenging to handle big problems. These people find typical job in a big corporate as boring and
not challenging enough.

Creativity – Running one‘s own business is all about being more creative and having the
independence to make new discoveries. For example: testing a new website design, launching a
new marketing scheme, creating new advertising campaigns, etc.

Control – Some people tend to start a business because they don't want to be pushed around and
work for a product/company in which they have no way to shape their destiny. They want to be
their own boss having their own time, own pace, location of their choice, employees of their choice
and have a progressive role in deciding the direction of the company.

Curiosity - Successful entrepreneurs are always anxious and ask - "what if we do X this way?
They want to have more than one option to do a work and choose the best one from them. They
want to understand the customer's perceptions, point of views, markets and competitors. They are
frequently anxious to see how their particular theory like "people want to do A with B" works.

Cash – Many non-entrepreneurs have a misconception that cash comes first for entrepreneurs but
this is never really true. If this would be the case, then there is no reason for a business to keep
expanding their business aggressively after they have made more than billion dollars. However,
money is not the primary motivation

Other motives of entrepreneurship include;

 To be their own boss and avoid been controlled by others

 The desire for financial freedom
 The desire to achieve personal goals
 The desire to apply innovation

Exercise: WHAT IS THE DIFFERENT BETWEEN AN ENTREPRENEUR AND

ENTREPRENEURSHIP

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IMPORTANCE OF ENTREPRENEURSHIP:
1) Creation of Employment- Entrepreneurship generates employment. It provides an entry-level
job, required for gaining experience and training for unskilled workers.

2) Innovation- It is the hub of innovation that provides new product ventures, market, technology
and quality of goods, etc., and increases the standard of living of people.

3) Impact on Society and Community Development- A society becomes greater if the

employment base is large and diversified. It brings about changes in society and promotes
facilities like higher expenditure on education, better sanitation, fewer slums, a higher level of
homeownership. Therefore, entrepreneurship assists the organization towards a more stable
and high quality of community life.

4) Increase Standard of Living- Entrepreneurship helps to improve the standard of living of a

person by increasing the income. The standard of living means, increase in the consumption of
various goods and services by a household for a particular period.

5) Supports research and development- New products and services need to be researched and
tested before launching in the market. Therefore, an entrepreneur also dispenses finance for
research and development with research institutions and universities. This promotes research,
general construction, and development in the economy
6) Creation of wealth: entrepreneurship activity increases wealth for the country.
7) Entrepreneurship contribute to Social Wealth by creating new markets, industries etc.
8) Agents of Change And Growth through innovation and productivity that lead to increase in
output and sales
9) It provides employment opportunities and contribute to a growing economy
10) Community development: entrepreneurs also invest in the community projects by
providing financial support.
11) Infrastructure: It help in the development of infrastructure e.g., bridges, roads etc.
12) A Source of Government Revenue through the payment of taxes.
13) Unemployment: lack of employment opportunities is one of the major reason why people
get involved in entrepreneurship

GENERL CHALENGES FACING ENTREPRENUERS IN CAMERRON

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Entrepreneurship should not be viewed as a bed of roses. If one overcomes an already existing
problem, a new one emerges. The entrepreneur faces problems from the beginning. Every business
is affected by both external and internal factors, these factors are as follows:

Financial constraints

- Unstable political environment

- Start-up capital
- Infrastructure
- Government policy/ enabling environment
- Competition
- Market access – intra African trade
- Balancing economic and social objectives
- Production constraints like lack of power, water, etc
- Limited skill labour
- Poor access to justice
- Inability to get credit loans
- Locational disadvantages
WHY NOT ENTREPRENEURSHIP (HINDRANCES)
1. Risk
2. Fear of failure
3. Opportunity cost
4. Ridicule (mockery)
5. Peer Pressure
6. Family Pressure
7. Government regulatory policies
8. Ignorance
OVERCOMING ENTREPRENEURSHIP HINDRANCES
1. Clear personal vision. (WHY, WHAT, WHEN, HOW)
2. Well defined entry motives, what is your WHY?
3. Coaching and mentoring.
4. Surround yourself with like-minded people.

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 5. Study Knowledge is the biggest weapon to deal with fear of failure.
6. Think out of the box, dare to have confidence in yourself.

GENDER AND ENTREPRENUERSHIP IN CAMERRON

Women constitute over 60% of the total population but are confined to performing traditional
domestic functions. In a modern society, women now participate in all sorts of entrepreneurial
activities.

Women entrepreneurs can be defined as a group of women who initiate, run and organize a
business enterprise. Some of the following factors are considered to be the motivational drives for
women into entrepreneurship. Most are not different from the traditional factors that push men too:

- The desire to be her own boss

- Opportunity to make more money
- The belief that running her own business is more compatible with balancing her family role
- The need for equality has opened women to more opportunities
- She has become fade up with her demanding but unsatisfying work environment
- The need to earn a reasonable living
- The inflexibility ad unaccommodating nature of the corporate world for women
- The problem of discrimination in the offering of top ranking post to women
Positive factors influencing to women entrepreneurs in Cameroon

1. Characteristic trait: statistics now show that women have certain characteristics that
could push the out of poverty if connected. Some of these traits includes:
- Sharp communication skills
- Innate people skills
- Multi-tasking
- Consensus building competencies
2. Government policy: the government is now fighting for equal representation in all
domains of key decision making in the country. Women now take part in politics, economic
planning etc

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 3. Bank and loan services: it used to be difficult for ladies to obtain loans from banks without
the approval of their husbands. This greatly limited their ability to create at and develop
their own enterprises. But with the changing scenarios, they can start up their own empires.
Barriers or Challenges That Prevent Female Entrepreneurs from Reaching Full Potentials

In spite of their contribution to economic development, the freedom of women to lead ad make
strategic business decisions is limited due to following factors

a) Unequal access to property and land: unequal access to land and property mans women
have less collateral to secure loans from banks to start business
b) Taxes and custom duties: over 60% of women see taxes as constraints to their business
development as compared to 40% of men
c) Cultural barriers; culture looks down on women emphasizing that their role is to take care
of their husband and children. Women who do not follow such patterns are considered as
deviants. Reason why most successful women are single or divorced
d) Social barriers: more importance is given to the education of the boy child making the girl
lack sufficient skills and aptitudes to take on available opportunities
e) Lack of decision making authority: women have always been subjected to take decisions
from men making it difficult for them to make their own decisions regardless of how they
understand the business
f) Lack of confidence: women generally lack confidence in their own capabilities.
g) Limited mobility
h) Competition from well established male dominated enterprises
i) Lack of accurate information
j) Lack of finance for expansion
k) Lack of propensity to take risk
l) Domestic commitment
m) Stereotyping

CLASSIFICATION OF ENTREPRENEURS
Entrepreneurs are classified into three types. Personality, ownership and business scale

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CLASSIFICATION BY PERSONALITY
a. Aggressive/Innovative: Innovative entrepreneur is one who assembles and introduces new
combinations of factors of production.
b. Imitative: Imitative entrepreneur is also known as adoptive entrepreneur. He adopts successful
innovation introduced by other innovators.
c. Fabian: The Fabian entrepreneur is timid and cautious. He imitates other innovations only if
he is certain that failure to do so may damage business.
d. Drone: His entrepreneurial activity may be restricted to just one or two innovations. He refuses
to adopt changes in production even at the risk of reduced returns.
e. Empirical: He is an entrepreneur who hardly introduces anything revolutionary and follows
the principle of the rule of thumb.
f. Rational: The rational entrepreneur is well informed about the general economic conditions
and introduces changes which look more revolutionary.

g. Cognitive: Cognitive entrepreneur is well informed, draws upon the vice and services of
experts and introduces changes that reflect complete complete break from the existing scheme
of enterprise.
CLASSIFICATION ON THE BASIS OF OWNERSHIP:
1. Private: private entrepreneur is motivated by profit and it would not enter those sectors of the
economy in which prospects of monetary rewards are very bright.
2. Public entrepreneurship: In the underdeveloped countries government will take the initiative
to share enterprise.
CLASSIFICATION BASED ON THE SCALE OF ENTERPRISE:

A. Small Scale: This classification is especially popular in the underdeveloped countries. Small
entrepreneur does not possess the necessary talents and sources to initiate large scale
production and introduce revolutionary technological changes.
These businesses are a hairdresser, grocery store, travel agent, consultant, carpenter, plumber,
electrician, etc. These people run or own their own business and hire family members or local
employee. For them, the profit would be able to feed their family and not making 100 million

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business or taking over an industry. They fund their business by taking small business loans or
loans from friends and family.
B. Large Scale: In the developed countries most entrepreneurs deal with large scale enterprises.
They possess the financial and necessary enterprise initiate and introduce new technical
changes. The result is the developed countries are able to sustain and develop a high level of
technical progress

These huge companies have defined life-cycle. Most of these companies grow and sustain by
offering new and innovative products that revolve around their main products. The change in
technology, customer preferences, new competition, etc., build pressure for large companies to
create an innovative product and sell it to the new set of customers in the new market. To cope
with the rapid technological changes, the existing organizations either buy innovation enterprises
or attempt to construct the product internal.

QUESTIONS

1. What are the characteristics of entrepreneurship:

2. What motivates an entrepreneur

3. what is the different between an entrepreneur and entrepreneurship
4. what is the importance of entrepreneurship:
5. what are the challenges faced by entrepreneurs in Cameroon
6. what are the hindrances entrepreneurship
7. overcoming entrepreneurship hindrances
8. explain the classifications of entrepreneurs

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 CHAPTER TWO
DIFFERENT REASONS WHY PEOPLE CREAT BUSINESSES
Deciding to start your own business is a leap of faith. It requires pushing out of your comfort zone
and trying something new. If that idea excites you, why wait around? You’re ready to take the leap
and be the CEO of your OWN COMPANY. It’s a lot of work and there are some risks, but the
potential for rewards is huge.
1) PASSIONATE CREATORS

These are people who start their businesses out of love for what they do, and they believe
wholeheartedly that passion is a crucial quality of success. Running their businesses gives them a
sense of accomplishment and pride.
They are the most successful set of business owuners since they work to promote what they love.
They are also the most marketing-focused and tech-savvy owners of the bunch.
In a study conducted in USA, i twas seen that About half of this group spends $500 or more per
month on marketing activities. In addition, 65 percent use social media, 70 percent email to a list
and 48 percent use content marketing.
2) FREEDOM SEEKERS

Freedom seekers are people who start their small businesses because they value the ability to
control their work experiences. They want to be in charge of their schedules, career paths and work
environments.
This troop wants things simple and manageable. Close to half of them are the only employees in
their business, and they are the least likely of the four profiles to have more than one other
employee. Not surprisingly, they cite, "time to get everything done" as their biggest challenge.
In tackling the challenge of chasing daylight, they have adopted automation. Nearly 60 percent
utilize automated software, and its usage spans across many elements of their business, including
bookkeeping and email marketing.

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3) LEGACY BUILDERS
These people who start their businesses to bring something new to the marketplace. They are
practical in their approaches to business ownership.
Business ownership provides them with a sense of stability for their futures and the futures of their
families, and they have created businesses to help secure their retirements or legacies to their
children. They take tremendous pride in the businesses they have created and are in it for the long
haul.
However, they are less dependent on technology. Just slightly more than half of this group have
websites, and 21 percent do not use any bookkeeping, email marketing or payment processing
tools.
4) STRUGGLING SURVIVORS
The struggling survivor profile represents the cold, hard-truth of business ownership: Sometimes
running a small business is scarier than it is rewarding. Fear is deeply rooted in this group and they
face the very real challenges of ownership every day. Sometimes most of them consider closing
thier business due to hardship. A majority of businesses in Cameroon fall in this group.
They are jacks-of-all-trades, and masters of none, as 51 percent run their business alone. They are
spread too thin, wearing most of the hats within their businesses with a to-do list that includes
managing everything from sales to administrative duties to customer service.
From the above points we can say that what motivates small businesses is very diverse. When
running a small business, it's very important to understand which category you fall into so that you
can be aware of what your strengths and weaknesses are and act accordingly.

Question

In your words explain the reasons for creating a business

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

When you’re looking to start or expand a business, there is always one major barrier: money. So
the question is, how do you raise the finance needed to fund your endeavour?
There are many sources of funding available for entrepreneurs.

EQUITY FINANCING
"Equity" is another word for ownership in a company. For example, the owner of a grocery store
chain needs to grow operations. Instead of debt, the owner would like to sell a 10% stake in the
company for 100,000FCFA, valuing the firm at 1 million. Companies like to sell equity because
the investor bears all the risk; if the business fails, the investor gets nothing.
At the same time, giving up equity is giving up some control. Equity investors want to have a say
in how the company is operated, especially in difficult times, and are often entitled to votes based
on the number of shares held. So, in exchange for ownership, an investor gives his money to a
company and receives some claim on future earnings.
Some investors are happy with growth in the form of share price appreciation; they want the share
price to go up. Other investors are looking for principal protection and income in the form of
regular dividends.
ADVANTAGES OF EQUITY FINANCING
Funding your business through investors has several advantages, including the following:
The biggest advantage is that you do not have to pay back the money. If your business enters
bankruptcy, your investor or investors are not creditors. They are part-owners in your company,
and because of that, their money is lost along with your company.

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You do not have to make monthly payments, so there is often more cash on hand for operating
expenses.
Investors understand that it takes time to build a business. You will get the money you need without
the pressure of having to see your product or business thriving within a short amount of time
1. Alternative Funding Source
The main advantage of equity financing is that it offers companies an alternative funding source
to debt. Startups that may not qualify for large bank loans can acquire funding from angel investors,
venture capitalists, or crowdfunding platforms to cover their costs. In this case, equity financing is
viewed as less risky than debt financing because the company does not have to pay back its
shareholders.
Investors typically focus on the long term without expecting an immediate return on their
investment. It allows the company to reinvest the cash flow from its operations to grow the
business rather than focusing on debt repayment and interest.
2. Access To Business Contacts, Management Expertise, And Other Sources Of Capital
Equity financing also provides certain advantages to company management. Some investors wish
to be involved in company operations and are personally motivated to contribute to a company’s
growth.
Their successful backgrounds allow them to provide invaluable assistance in the form of business
contacts, management expertise, and access to other sources of capital. Many angel investors or
venture capitalists will assist companies in this manner. It is crucial in the startup period of a
company.
DISADVANTAGES OF EQUITY FINANCING
1. Dilution of Ownership and Operational Control
The main disadvantage to equity financing is that company owners must give up a portion of their
ownership and dilute their control. If the company becomes profitable and successful in the future,
a certain percentage of company profits must also be given to shareholders in the form of
dividends.
Many venture capitalists request an equity stake of 30%-50%, especially for startups that lack a
strong financial background. Many company founders and owners are unwilling to dilute such an
amount of their corporate power, which limits their options for equity financing.
2. Lack of Tax Shields

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Compared to debt, equity investments offer no tax shield. Dividends distributed to shareholders
are not a tax-deductible expense, whereas interest payments are eligible for tax benefits. It adds to
the cost of equity financing.
In the long term, equity financing is considered to be a more costly form of financing than debt. It
is because investors require a higher rate of return than lenders. Investors incur a high risk when
funding a company, and therefore expect a higher return.

DEBT FINANCING
Most people are familiar with debt as a form of financing because they have car loans or mortgages.
Debt is also a common form of financing for new businesses. Debt financing must be repaid, and
lenders want to be paid a rate of interest in exchange for the use of their money.
Some lenders require collateral. For example, assume the owner of the grocery store also decides
that they need a new truck and must take out a loan for 40,000FCFA. The truck can serve as
collateral against the loan, and the grocery store owner agrees to pay 8% interest to the lender until
the loan is paid off in five years.
Debt is easier to obtain for small amounts of cash needed for specific assets, especially if the asset
can be used as collateral. While debt must be paid back even in difficult times, the company retains
ownership and control over business operations.
ADVANTAGES OF DEBT FINANCING
There are several advantages to financing your business through debt:
The lending institution has no control over how you run your company, and it has no ownership.
Once you pay back the loan, your relationship with the lender ends. That is especially important
as your business becomes more valuable.
The interest you pay on debt financing is tax deductible as a business expense.
The monthly payment, as well as the breakdown of the payments, is a known expense that can be
accurately included in your forecasting models.
DISADVANTAGES OF DEBT FINANCING
Debt financing for your business does come with some downsides:
Adding a debt payment to your monthly expenses assumes that you will always have the capital
inflow to meet all business expenses, including the debt payment. For small or early-stage
companies, that is often far from certain.

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Small business lending can be slowed substantially during recessions. In tougher times for the economy,
it's more difficult to receive debt financing unless you are overwhelmingly qualified.

OTHER TYPES OF DEBT FINANCE

Perhaps the most obvious source of debt financing is a business loan. Entrepreneurs commonly
borrow money from friends and relatives, but commercial lenders are an option if you have
collateral to put up for the loan. If you're just starting out, that may mean pledging your personal
assets, including your home. (The "second mortgage" has a rich history of financing startups.)
Once your business is established, you may be able to pledge the assets of the company itself.
2) Installment Purchases
A business that takes out a mortgage on a building, buys a vehicle with a car loan or purchases
equipment with dealer financing is doing nothing more than acquiring debt financing. Someone -
- a bank, finance company or the actual seller of the asset -- is fronting you the money to buy the
assets. For new businesses, the ability to purchase assets with debt may depend on the owner's
personal credit rating. A mature business that has built a solid credit rating of its own is more likely
to be able to access financing independent of the owner.
3) Revolving Credit
Whether you use credit cards for smaller things such as office supplies or miscellaneous expenses
or for major spending categories such as inventory and capital assets, they represent a form of debt
financing. Businesses can also obtain a line of credit -- a pool of money it can borrow from when
needed. As with other kinds of debt financing, access to revolving credit may initially depend on
the business owner's
4) Trade Credit
With trade credit -- "buy now, pay later" arrangements with suppliers -- your vendors are the ones
providing the debt financing, even if it's relatively short-term. If you receive an order of inventory
with 30 days to pay, you've got a month's worth of debt financing for the cost of that inventory. A
business just starting out may not have immediate access to trade credit. It will typically have to
prepay or pay on delivery until it demonstrates to suppliers that it has the money to meet its
obligations.
5) Bonds

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Small business people likely don't give much thought to using bonds to raise money for long-term
investment. Even so, it's an option to at least keep in mind for down the road, once the company
is firmly established and needs capital for growth. Local governments have bond programs in
which municipal bonds can be sold to finance smaller business' capital projects, to be paid off with
money generated by those projects. And some small companies raise money by selling bonds
themselves -- although because of the risk involved, such bonds typically have to pay a high rate
of interest and are saddled with the term "junk bonds
6) Factoring
Factor purchases the accounts receivables of the companies. In factoring agreement, the business
gets the timely flow of money and does not have to wait for the customers to pay them. In return,
the business has to pay the factor a certain fee or commission. Factoring is of two types i.e. recourse
factoring and non-recourse factoring. Based on the need and requirement, the business can opt any
of the suitable financing facility.
7) Insurance Companies
Insurance companies act as a major source of finance for small companies. They provide two types
of loans to the businesses namely; mortgage loan and policy loan. A mortgage loan can be availed
by mortgaging any asset of the company. On the other hand, policy loan is based on the amount
of money that is paid in the form of a premium on the insurance policy.
8) Asset Based Lenders
Asset-based lenders are those finance companies that lend money to the business for purchasing
the assets. The business in return has to pledge its assets like inventory, accounts receivables, etc.
This type of debt financing is very useful for businesses that have higher inventory, account
receivables, real estate or any other asset that can be pledged.

OTHER MAJOR SOURCES OF FINANCE FOR A BSUIENSS

When a company is still private, equity financing can be raised from angel investors, crowd
funding platforms, venture capital firms, or corporate investors. Ultimately, shares can be sold to
the public in the form of an IPO.
1. Angel Investors

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Angel investors are wealthy individuals who purchase stakes in businesses that they believe
possess the potential to generate higher returns in the future. The individuals usually bring their
business skills, experience, and connections to the table, which helps the company in the long term.
2. Crowd Funding Platforms
Crowd funding platforms allow for a number of people in the public to invest in the company in
small amounts. Members of the public decide to invest in the companies because they believe in
their ideas and hope to earn their money back with returns in the future. The contributions from
the public are summed up to reach a target total.
3. Venture Capital Firms
Venture capital firms are a group of investors who invest in businesses they think will grow at a
rapid pace and will appear on stock exchanges in the future. They invest a larger sum of money
into businesses and receive a larger stake in the company compared to angel investors. The method
is also referred to as private equity financing.
4. Corporate Investors
Corporate investors are large companies that invest in private companies to provide them with the
necessary funding. The investment is usually created to establish a strategic partnership between
the two businesses.
5. Initial Public Offerings (Ipos)
Companies that are more well-established can raise funding with an initial public offering (IPO).
The IPO allows companies to raise funds by offering its shares to the public for trading in the
capital markets.

Question

Explain the sources of finance and give one advantage and disadvantage of each

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 CHAPTER FOUR
THE CHIOCE OF LEGAL STATUS OF THE BUSINESS
It refers to the ways in which businesses are organized in terms of ownership, objectives, control,
management, finance etc. Business units are classified into two main categories: Private and public
enterprises.
The private sector is comprised of those businesses whose main objective is to maximize profits.
They include sole proprietor, partnership, joint stock companies and cooperative societies. The
public sector is comprised of those businesses whose main objective is to provide essential goods
and services to consumers at affordable prices.

PRIVATE ENTERPRISES

Sole Proprietor: This is a business organization in which one person provides the capital, takes
decision, assumes risks and has all sole rights to the profits or losses. It is the oldest and simplest
form of business organization. Examples include farming, repairs, maintenance, personal services
etc. This business unit has the following features:

a) Formation is by one person who is the owner of the business.

b) The main objective is profit maximization.
c) Control and organization is carried out by the owner or by someone appointed by the
owner.
d) The raising of capital is done by the owner through the use of its past savings, borrowed
funds etc.
e) The size of the business is relatively small compared to other businesses.
f) It has the highest rate of formation and mortality.
Advantages of Sole Proprietor
1) There is full control of the business
2) There is quick decision making and implementation
3) Wastages and inefficiencies are easily checked due to the small size of the business
4) There is personal and direct contact with customers
5) This business is very suitable for commodities with small markets
6) Business secrets are kept confidential

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 Disadvantages of Sole Proprietor
1) There is limited ability to raise sufficient capital
2) There is lack of stability and continuity of the business.
3) No room for mass production
4) The sole proprietor suffers from unlimited liability
5) Fatigue is easily encouraged

PARTNERSHIP

This is an association of two or more persons formed to carry out a business in common with the
aim of making profits. The partnership business is one way in which the one man’s business is
expanded to overcome its disadvantages. Generally, partnership suffers from unlimited liability.

Deed of Partnership: This is a document which set details regarding the internal rules and
regulations governing partnership. In designing the document, the partners collectively agree from
the beginning the amount of capital to be contributed by each partner will contribute, what specific
function each partner will perform, how profits and losses will be shared and the terms of
admission of new partners. The deed of partnership is prepared because partners want to a
situation where trust and confidence bestowed on some partners is abused.

Types of Partners in Partnership

There are two main types of partners in every partnership: Ordinary and Limited partners:

Ordinary partners are those who contribute capital and also take active part in the running and
management of the business. They are also called active or equity partners and are believed to
suffer from unlimited liability, implying that in the event of business failure the partners will lose
their capital and even up to their private properties. Because of their participation in the
management of the business, they receive the normal share in profit and additional compensation
in the form of salary.

In every limited partnership, there are some active partners and many limited partners. Limited
partners are those who only contribute capital and share in profit but take no active part in the
running of the business. They are also called dormant or sleeping partners and they face limited

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liability, implying that in the event of any business failure, the partners will only lose their capital
contributed.

Characteristics of partnership

- Formation is by two or more persons

- Control and management is by all partners and by active partners in a limited partnership.
- The motive is profit maximization.
- Raising of capital is through contribution by partners or borrowing from friends and financial
institutions
- Risk bearing in an ordinary partnership extends to the private properties of ordinary partners
and to the capital contributed of limited partners.
- Size of the partnership is larger than that of sole proprietor
Advantages of Partnership
- There is the possibility to raise capital for expansion.
- There is the possibility for specialization which increases output
- There is continuity in the business unlike in sole proprietor.
- It is relatively easier and cheaper to setup than joint stock companies.
- Business worries are shared between partners which eases mental loads on a partner.
Disadvantages of Partnership
- There is unlimited liability faced generally by the partnership and specifically by active
partners in limited partnerships.
- The size of the business may be limited since partnership may not have the possibility to raise
sufficient capital as compared to joint stock companies.
- There may usually be disagreement in the partnership since decision involves consulting every
partner.
- Partners are generally bounded by a one-another Act undertaken in the course of the business
such that mistakes by one partner is suffered by all
- In small partnerships, the death of one partner may lead to loss of goodwill, business reputation
and contacts especially when it is difficult to replace such a partner.
- The decision making and implementation process is very slow as compared to sole proprietor

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JOINT STOCK COMPANIES (Limited Liability Companies)

It is an association of more than two (2) persons who contribute towards a joint stock of capital for
the purpose of carrying on a business with a view of maximizing profits. They generally enjoy
limited liability, implying that in the event of business failure caused by bankruptcy or insolvency,
the shareholders will only lose their shares and not their private assets. They are also known as
Limited Liability Companies and are of two types: Private limited Companies and Public limited
Companies.

a) Private Limited Companies: This refers to limited companies with number of

shareholders ranging from 2 to 50. It is private in the sense that it is not authorized by law to
publish an annual statement of account and is not also permitted to issue or sell shares to the
general public. It may however be allowed to sell shares only to specified individuals only
upon permission from the body of shareholders. Private companies have the following features:
- The formation or ownership is limited to 50 for now. However, recent adjustments not yet
implemented shows that the maximum number of shareholders for a private company should
be 200.
- The control and management is by a director elected by board of directors.
- The financing is by contributions from shareholders, sale of shares to specific members and
not to the public.
- The main motive is profit maximization.
- It ends with the name Ltd, which means Limited. In French, it is SARL, which means Societe
A Responsabilite Limitee.
b) Public Limited Company: This is a larger business unit with shareholders ranging from
7 to infinity. It ends with the letter PLC, implying that it has limited liability and is authorized
to sell shares to the general public. The public in its name does not mean that it is owned by
the state but that members of the public can buy shares in the business. It is also required by
law to publish an annual statement of account and can offer its shares and debentures to the
general public for subscription. Again, shareholders are allowed to transfer shares without
permission from the company. The following are features of a public company:
- Formation is by many shareholders.
- Motive is profit maximization

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- Control is by board of directors elected by shareholders
- Raising of capital is through sales of shares and debentures to the general public.
- Risk bearing is by all shareholders.
- The size is larger than that of private company.

FORMATION OF LIMITED COMPANIES

The formation of joint stock companies requires some important documents and processes. These
documents include:

a) Memorandum of Association: This is the first document to b drawn which governs the
external policies of a company. This document contains the following:
- The name of the company, Ltd for a private company and PLC for a public company
- Address of the registrar’s office
- Amount of authorized capital
- Objectives of the company
- Type of company; if it is a private company, the memorandum must be signed by two persons
only but if it is public, it must be signed by 7 persons
b) Article of Association: This is a document which indicates the internal policies of a
company. It contains the following:
- The manner of transferring shares.
- Procedure of calling general meetings and the voting rights of shareholders.
- Qualification powers and duties of directors
- A statement of division of profits
- The method of auditing
- The borrowing capacity of the company
c) Certificate of Incorporation: It is a document which in effect gives a company legal
existence either as a corporate body or separate legal entity. With this document, a private
company commences business immediately but a public company must be issued a
certificate of trading before it can start business. The reason is that the public company
would have to issue shares to the general public to raise sufficient amount of capital to
commence business.

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 d) Prospectus: This is an invitation made by the public limited company to members of the
public to take up shares from the company. It contains information to enable the public
have a fair idea of the company like the type of shares, price per shares, history of the
company etc.
Advantages of joint stock companies
- The shareholders enjoy limited liability.
- There is stability and continuity in the business activities
- The business has the possibilities to raise sufficient capital than partnership.
- There is easy transferability of shares.
Disadvantages of joint stock companies.
- It is very expensive to setup a joint stock company
- There is no privacy since the annual accounts are always filed with the registrar of companies
for inspection.
- A public company could be subject to take-over if another person or company has about 51%
shares. This process of obtaining shares of another company is called pyramiding.
- Joint stock companies may suffer from managerial problems when they grow too large in size.

There is usually a conflict of interest between owners and managers of the business.

Question

1. What is Private enterprises

2. What is partnership
3. State the types of partners in partnership
4. What is a joint stock companies
5. State and explain the important documents for acquiring a limited companies

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 CHAPTER FIVE
ETHICAL ISSUES IN BUSINESS
Ethical issues in business affect a variety of aspects related to a business’s general operating
standards. The topic of ethical problems in business is focused on what actions a business takes
and/or what policies a business creates in its efforts to resolve ethical questions that come up.
The importance of ethical issues in business cannot be overstated, particularly in today’s day and
age of social movements and political correctness. All personal feelings set aside, it remains a fact
that current events have reshaped current ethical issues in business and, to a large degree, have
increased the focus placed on ethics in the workplace.
Establishing a code of ethics for your business to operate that will help you lay a firm foundation
of basic trust between you and your employees, clients, partners, suppliers, and so on.
Every business owner should familiarize themselves with what ethical problems in business are,
why they matter, and how they should be addressed.
COMMON ETHICAL ISSUES IN BUSINESS AND HOW TO ADDRESS
THEM
It’s not enough to simply know what the biggest ethical dilemmas in business are – you should
also be aware of why they’re considered problems and what you can do about it at your business.
Ethical issues are important for startups and small businesses since their reputations are not as
well-established as a big corporation might be. What this means is, if there’s a lawsuit over an
ethical issue at your business, the process of defending yourself could do some serious damage. It
could even bankrupt your business! Take these ethical problems in business seriously and avoid
the risk to your reputation and financial stability.
The following are some of the common ethical issues in business
1. HARASSMENT AND DISCRIMINATION IN THE WORKPLACE
Harassment and discrimination are arguably the largest ethical issues that impact business
owners today. Should harassment or discrimination take place in the workplace, the result
could be catastrophic for your organization both financially and reputationally.
Every business needs to be aware of the anti-discrimination laws and regulations that exist to
protect employees from unjust treatment. The U.S. Equal Employment Opportunity

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 Commission (EEOC) defines many different types of discrimination and harassment statutes
that can have an effect on your organization, including but not limited to:
Age: applies to those 40 and older, and to any ageist policies or treatment that takes place.
Disability: accommodations and equal treatment provided within reason for employees with
physical or mental disabilities.

Equal Pay: compensation for equal work regardless of sex, race, religion, etc.
Pregnancy: accommodations and equal treatment provided within reason for pregnant
employees.
Race: employee treatment consistent regardless of race or ethnicity.
Religion: accommodations and equal treatment provided within reason regardless of employee
religion.
Sex and Gender: employee treatment consistent regardless of sex or gender identity.
2. HEALTH AND SAFETY IN THE WORKPLACE
As outlined in the regulations stipulated by the Occupational Safety and Health Administration
(OSHA), employees have a right to safe working conditions. According to their 2018 study, 5,250
workers in the United States died from occupational accidents or work-related diseases. On
average, that is more than 100 a week, or more than 14 deaths every day. The top 10 most
frequently cited violations of 2018 were:
Fall Protection, e.g. unprotected sides and edges and leading edges
Hazard Communication, e.g. classifying harmful chemicals
Scaffolding, e.g. required resistance and maximum weight numbers
Respiratory Protection, e.g. emergency procedures and respiratory/filter equipment standards
Lockout/Tagout, e.g. controlling hazardous energy such as oil and gas
Powered Industrial Trucks, e.g. safety requirements for fire trucks
Ladders, e.g. standards for how much weight a ladder can sustain
Electrical, Wiring Methods, e.g. procedures for how to circuit to reduce electromagnetic
interference
Machine Guarding, e.g. clarifying that guillotine cutters, shears, power presses, and other
machines require point of operation guarding

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Electrical, General Requirements, e.g. not placing conductors or equipment in damp or wet
locations
However, health and safety concerns should not be limited to physical harm. In a 2019 report
conducted by the International Labour Organization (ILO), an emphasis was placed on the rise of
“psychosocial risks” and work-related stress and mental health concerns. Factors such as job
insecurity, high demands, effort-reward imbalance, and low autonomy, were all found to
contribute to health-related behavioural risks, including sedentary lifestyles, heavy alcohol
consumption, increased cigarette smoking, and eating disorders.
3. ETHICS IN ACCOUNTING PRACTICES
Any organization must maintain accurate bookkeeping practices. “Cooking the books”, and
otherwise conducting unethical accounting practices, is a serious concern for organizations,
especially in publicly traded companies.
An infamous example of this was the 2001 scandal with American oil giant Enron, which was
exposed for inaccurately reporting its financial statements for years, with its accounting firm
Arthur Andersen signing off on statements despite them being incorrect. The deception affected
stockholder prices, and public shareholders lost over $25 billion because of this ethics violation.
Both companies eventually went out of business, and although the accounting firm only had a
small portion of its employees working with Enron, the firm’s closure resulted in 85,000 jobs lost.
In response to this case, as well as other major corporate scandals, the U.S. Federal Government
established the Sarbanes-Oxley Act in 2002, which mandates new financial reporting requirements
meant to protect consumers and shareholders. Even small privately held companies must keep
accurate financial records to pay appropriate taxes and employee profit-sharing, or to attract
business partners and investments.
4. NONDISCLOSURE AND CORPORATE ESPIONAGE
Many employers are at risk of current and former employees stealing information, including client
data used by organizations in direct competition with the company. When intellectual property is
stolen, or private client information is illegally distributed, this constitutes corporate espionage.
Companies may put in place mandatory nondisclosure agreements, stipulating strict financial
penalties in case of violation, in order to discourage these types of ethics violations.
5. TECHNOLOGY AND PRIVACY PRACTICES

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Under the same umbrella as nondisclosure agreements, the developments in technological security
capability pose privacy concerns for clients and employees alike. Employers now have the ability
to monitor employee activity on their computers and other company-provided devices, and while
electronic surveillance is meant to ensure efficiency and productivity, it often comes dangerously
close to privacy violation.
According to a 2019 survey conducted by the American Management Association, 66% of
organizations were found to monitor internet connections, with 45% tracking content, keystrokes,
and time spent on the keyboard, and 43% storing and reviewing computer files as well as
monitoring employee emails. The key to using technological surveillance in an ethical manner is
transparency. According to the same survey, 84% of those companies tell their employees that
they are reviewing computer activity. In order to ensure employee surveillance does not turn into
an ethical issue for your business, both employees and employers should remain conscious of the
actual benefits of being monitored, and whether it is a useful way of developing a record of their
job performance.
6. ENVIRONMENTAL RESPONSIBILITY
Environmental responsibility in business may seem like it’s targeted at big oil companies, lumber
businesses, farming, and other businesses that have a more direct impact on the environment. But
that’s not the case! Even if your business operates entirely within the confines of an office building,
environmental responsibility is still on the list of ethical issues in business that you should pay
mind to.
Every business owner is responsible for the carbon footprint that their company produces. That
applies to how your business affects air quality, water cleanliness, the safety of endangered species,
the use & conservation of other natural resources, the pristineness of protected nature reservations,
and so on. Fortunately, the government has made laws to address most of the environmentally-
related ethical dilemmas in business. Those laws include the Clean Air Act, the Clean Water Act,
the Endangered Species Act, the Resource Conservation and Recovery Act, and more.
All of that said, a recent study found that a whopping 78.2% of small businesses haven’t designed
or implemented an environmental management system. It should be noted though that small
businesses have reasons for not implementing environmental management systems. Those reasons
include the financial burden of making changes, complications that may arise while implementing

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changes, not having enough guidance on how to go green with the business, and so on. How can
your business avoid those obstacles?
7. NEPOTISM
Nepotism, in case you’re unfamiliar with the term, refers to a form of favoritism for family
members or close friends. While it can definitely introduce issues into the workplace under certain
circumstances, nepotism isn’t inherently a bad thing if the family member or friend is fit for the
position and gets along well with other employees.
The problem typically arises when that isn’t the case, and you wind up hiring someone based on
your personal relationship with them and not on their ability to do the job. But even when they are
qualified for the position, hiring a friend or family member can still breed resentment among other
employees. That’s why you need to be extremely careful when deciding to bring someone from
your personal life to work in your business.
What can your business do about nepotism?

Besides being very careful about who you bring into your business, there’s not much you can do
to eliminate the negative views that some employees may have if and when you hire a family
member or close friend. Even if yours is a family owned business, you’ll want to pay close
attention to the ratio of employees vs. friends/family. After all, as the old saying goes, “you can’t
be a boss and a friend”.

Questions

1. State and explain 4 ethical issues in business and how to address them

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 CHAPTER FIVE
FAMILY BUSINESSES
New Family members start a major portion of businesses launched in the world every year. It is
estimated that 60% of businesses in the world start as family ventures.

Whatever the family ties, starting a business with a spouse, parent, siblings, children or any form
of family ties present unique challenges over and above the usual problems faced by other start-
ups. That’s why only one out of three family businesses survives to the next generation.

In the start-up phase, the dangers can be especially acute. This is because family businesses are
not only conditioned by economic, social and economic factors but also by emotional issues.
Mixing business, personal and home life will eventually produce an unpredictable infusion. Family
members sometimes join the start-ups with a lot of excitement but without a clear idea and focus
of their role once the business is kicking. In family businesses, one should be clear up front about
compensations, exit plans, succession plans and other vital aspects before the problems develop
later when the business grows.

A family business may be defined in terms of ownership, authority and responsibility. One or more
family members have authority and responsibility while employees may or may not be family
members. A family business is a business which is owned managed and controlled by one or more
family members. It can also be defined as an organisation whose direction is influenced through
kinship tie, management roles or ownership rights. A family business is a unique synthesis of the
following:

 Ownership and control consist of two or more members of one family (15%) or a
partnership of families
 Family members exert a strategic influence on the management of the firm either by being
active in management or shaping its culture by being part of the board of directors
 Concern for family relationship
 The dream or possibility of continuing across generations
CHARACTERISTICS OF FAMILY BUSINESSES

Family businesses must possess one of the following characteristics:

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 The presence of the family
 Owners have as dream or objective to maintain the business through generations
 The overlap of family, management and ownership with zero-sum propensities which renders
family businesses particularly vulnerable during succession
 The unique source of competitive advantage derived from the interaction of the family,
management and ownership especially when family unity is high.
 Generally stay together and have a common goal
 Great cohesiveness due to shared back ground and values of the family members
 Great potential of risk taking, developing human resources, access to capital and provision of
continuity particularly in comparism with public sector
 Charitable services are visibly linked to specific family enterprises which have incentives to
ensure that all programs work, providing needy groups and individuals with better
opportunities for development and opportunities
 Capacity to make long term investments and more inclined to reinvest in itself to support and
perpetuate wealth for future generations
 Operating philosophy of family firms is typically guided by personalised mission to whom
employees can bond and rely upon the sense of autonomy and personal security
 Founders and their successors in family ventures tend to be highly accountable and maintain
strong sense of family and responsibility
CLASSIFICATION OF FAMILY BUSINESSES

Family businesses in Cameroon can be classified into three categories:

 Owner-managed businesses (OM) – the entrepreneur starts the business and takes active
part in management and control of its affairs
 The sibling partnership (SP) – after the entrepreneur starts up the business he involves
other family members like mom, dad, siblings who work in the family business or take
over the business after their death
The cousin syndicate (CS) - when the siblings are incapacitated or no more, the cousins
now manage the business.

ADVANTAGES AND DISADVANTAGES OF FAMILY BUSINESSES

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Family businesses have their own unique set of advantages and challenges. In order to succeed,
these advantages must be capitalised upon and the challenges over come.

- ADVANTAGES
Stability: family positions typically determine who leads the business and as a result there is
usually longevity in leadership which results in overall stability within the organisation. Leaders
usually stay in the position for many years until an event such as, illness, retirement or death takes
place.
Commitment: since the needs of the family are at stake, there is a greater sense of commitment
and accountability. This level of commitment is almost impossible to generate in a non-family
firm. This long term commitment leads to additional benefits such as better understanding of the
industry, organisation of job, stronger customer relationship and more effective sales and
marketing
Flexibility: family members are willing to take on different task outside their formal jobs in order
to make the company successful
Long-term outlook: non-family businesses usually have short term goals like quarterly or yearly
goals while family firms think for decades and generations. This patience and long term
perspectives allows for good strategies and decision making
Decreased cost: unlike typical workers, family members are willing to contribute their own
finances into the business in order to ensure the long-term success of the business. This could mean
contributing capital or accepting pay cuts especially during challenging times or economic
downturns when the business needs a lot of financial injections to survive
 DIADVANTAGES
Lack of self interest amongst family members: most often, family members are not interested
in joining the family business but do so because it’s expected of them. The end results is
indifference and unengaged employees who would otherwise be fired if in the public or private
sector
Family conflicts: conflicts are bound to happen in any business but to family businesses are added
long historical feuds, family relationship and the complex brought about with familiarity. Deep-
seated, long lasting bitter fights and quarrels can affect every single person within the organisation.
Since emotions and family is involved it usually becomes difficult to solve such problems which
usually can bring difficult endings.

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Unstructured governance: governance issues such as internal hierarchies and rules as well as the
ability to follow and adhere to external corporate laws tend to be taken less seriously at family
businesses because of the level of trust inherent with family businesses. This can unfortunately be
detrimental.
Nepotism: some family businesses are reluctant to let outsiders into top positions and the result is
that people are given jobs for which they have little or no skills, education and experiences. This
has negative effects on the success of the company. Talented and experiences people are held at
lower management levels because they are not part of the family
Succession planning: many family business lack succession planning because the leader does
want to admit that one day they will be out of reach for one reason or the other. Risk associated
with the absence of succession planning includes poor leadership, family quarrels, and often
financial and legal troubles for the company.
SUCESSION PLANNING IN A FAMILY BUSINESS

Succession planning in family businesses is one of the issues which have not been sufficiently
addressed and at this stage most businesses fail to carry on to the second generation. It is worth
nothing that succession planning in a family business is an important component that should be
thought of as early as when the venture is initiated but often this does not happens. In most cases
people start thinking of succession only when the founder is old or immediately he dies. In case
where the business is to be passed to direct sons or daughters, succession is easier but in other
cases the second generation simply doesn’t have the mindset to continue the business effectively.

PREPARING CHILDREN TO TAKE OVER THE FAMILY BUSINESS

As earlier mentioned, preparing children to take over family businesses is an initiative which
should be under taken as early as when the business is started. This will avoid all the problems
which could arise as a result of the death of the founder. Founders can therefore use one of the
following methods or techniques to prepare other family members for their succession:

1. Involvement of children in running business: children, siblings and other family members
should be treated as partners and part and parcel of the business. This keeps them in the loop
and gives them a sense of belonging. They also become familiar with the functioning of the
business

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Vision, mission and goal shared amongst family members: more often, a family venture is a brain
child of the founder who is usually unwilling to share his vision with other. This creates isolation
and a feeling of being left out. As such sharing with them makes them belong

2. Sharing of benefits: most founders solely run and manage their businesses keeping all the
benefits to themselves with other family members using them only after seeking permission.
Sharing benefits with family members make them value the business thereby committing to
drive its success
3. Appropriate training in relevant technical fields: taking the example of many Asian family
businesses, we see that different family members are trained in different professional fields
like accounting, management, information technology etc. This makes the family self
sufficient in terms of technical expertise.
4. Branding of family business: when citing the name of the business, choose a brand name that
is all inclusive and shows recognition and concern for of the family heredity. This gives the
children some security and protection in terms of owning the business after the parents die
5. Develop a succession plan: a family business without a formal succession plan is seeking for
trouble. The plan should spell out the details on how and when the torch should be passed to
the younger generation. It needs to be a financially sound plan for business as well as retiring
family members.
6. Acquire outside professional experience: before joining the business make sure children get
three to five years of working experience out of the organisation preferably in unrelated
industries. This would give them a valuable perspective of how the business world functions
outside the family setting.
7. Divide roles and responsibilities: while big decisions can be taken together, responsibilities
should be delegated to make each family member feel as a part of the business and avoid
conflict.
Treat family members fairly: avoid favouritism, pay scales, promotion, work schedules,
criticism, and praises should be enhanced between family members

REASONS WHY MOST FAMILY BUSINESSES IN CAMEROON FAIL AFTER

FOUNDERS DIE

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a) Lack of self interest: second generations usually lack self-interest in the business set up by
their fathers maybe due to the type of the business or its legal status
b) Types of family: family businesses are most likely to fail in polygamous families than
monogamous families due to constant disputes and fights
c) Technical reasons: founders fail to adequately prepare second generations with the adequate
technical skills to run their businesses. This leads to woeful failure when they take over.
d) Social network enjoyed by founders: the second generation may not enjoy the network put
in place by founders since some partners may shy away from working with second generations
due to age difference or lack of trust. Initiating a new network will take time and may cause a
shock to the business
e) Debts and other liabilities left by founders: often when founders die the debts and other
liabilities of the business have to be cleared. This means digging into the business saving and
sometimes the capital of the business leaving very little for the business to continue with.
f) The founders’ syndrome: many business founders have the tendency of tight-fitting to the
business empire they created from scratch and are not willing to let any information or control
over the business they founded. This effectively keeps off family members of the business.
The business therefore dies off with the founder.
g) Culture: the African traditional culture believes that only sons are capable of inheriting
properties and businesses included. So if there is a competent daughter very capable of
managing the business, a son who is not very competent may be chosen to take over the
business.
h) Lack of adequate documentation and records: many founders may not keep adequate record
of business transactions and records. Most of this information is stored in their own memories
or brains thus depriving the second generation of such experiences and track records
i) Founder’s short –term visions and lack of vision: some businesses have only short term
visions to feed their families. There is therefore the absence of long-term vision and in cases
where long term visions are present it is not shared between family members and founders
j) Lack of specialisation
k) Favouritism
l) Panic amongst suppliers, customers, creditors and other key actors
Question give a summary of family business

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 CHAPER SEVEN
THE BUSINESS PLAN
Creating a new business venture could be one of the most important things you do in your life. So
it would only make sense to spend time planning it. Most entrepreneurs initially develop a business
plan as a way of describing their business precisely. WHAT THEN IS A BUSINESS PLAN?

A Business Plan is a Blueprint or a Lay Down Roadmap or A Written Document That

Describes in Detail a Business Objectives and How it is to go About Achieving its Goals. From
Production, Marketing, Financial, and Operational Standpoints:

A business plan is a statement of your business goals, the reasons you think these goals can
be met, and how you are going to achieve them. If you start your business without a plan, you
will soon be overwhelmed by questions you haven’t answered.

A business plan forces you to figure out how to make your business work. A well-written business
plan will show investors and employees that you have carefully thought through what you intend
to do to make the business profitable. The more explanation you offer investors about how their
money will be used, the more willing they will be to invest. Your plan should be so thoughtful and
well written that the only question it raises in an investor’s mind is “How much can I invest?”

A well-written plan will also guide you every step of the way as you develop your business. It
becomes a decision-making tool. An entrepreneur uses the business plan to track whether the
company is meeting its goals.

From time-to-time, the business plan needs to be revised to keep up with the changing nature of
the business. Some business owners might do this on an annual basis; others, in well established
industries, might do it every three years. Still others, in newly developed or high-tech areas, may
need to do it monthly or even weekly

TYPES OF BUSINESS PLANS

Business plans have no set format. A plan is developed based on the type of business that is
intended. However, it is also based on the audience. Businesses need different types of plans for
different audiences. There are four main types of plans for a start-up business:

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 Quick Summary. This is a brief synopsis lasting no less than thirty seconds to three minutes.
It’s used to interest potential investors, customers, or strategic partners. It may seem strange to
consider this a type of business plan, but it is. In some cases, the quick summary may be a
necessary step toward presenting a more fully developed plan.
 Oral Presentation: This is a relatively short, colorful, and entertaining slide show with a
running narrative. It is meant to interest potential investors in reading the detailed business
plan.
 Investor’s Business Plan: Anyone who plans to invest in your start-up business (banks,
investors, and others) needs to know exactly what you are planning. They need a detailed
business plan that is well written and formatted so all the information can be easily understood.
When entrepreneurs talk about a business plan, this is typically the type of plan they mean.
 Operational Business Plan. Often a start-up business will develop an operational plan that is
meant for use within the business only. This plan describes in greater detail than the investor’s
business plan how the company will meet its goals. It is also often less formal than an investor’s
business plan. It is meant for the employees to have a precise vision of the enterprises vision

IMPORTANCE OF A BUSINESS PLAN

The business is probably one of the most important documents an entrepreneur will write for his
or her business venture and probably the most difficult.
Investors rely on business plans to evaluate the feasibility of a business before funding it, which is
why business plans are commonly associated with getting a loan. But there are several compelling
reasons to consider when writing a business plan, even if you don’t need funding. The business
plan has the following importance:
1) Planning. Writing out your plan is an invaluable exercise for clarifying your ideas and can help
you understand the scope of your business, as well as the amount of time, money, and resources
you’ll need to get started.

2) Evaluating ideas. If you’ve got multiple ideas in mind, a rough business plan for each can help
you focus your time and energy on the ones with the highest chance of success.

3) Research. To write a business plan, you’ll need to research your ideal customer and your
competitors—information that will help you make more strategic decisions.

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4) Recruiting. Your business plan is one of the easiest ways to communicate your vision to
potential new hires and can help build their confidence in the venture, especially if you’re in the
early stages of growth.

5) Partnerships. If you plan to approach other companies to collaborate, having a clear overview
of your vision, your audience, and your growth strategy will make it much easier for them to
identify whether your business is a good fit for theirs—especially if they’re further along than you
in their growth trajectory.

6) Competitions. There are many business plan competitions offering prizes such as mentorships,
grants, or investment capital. To find relevant competitions in your industry and area, try Googling
“business plan competition + [your location]” and “business plan competition + [poultary
farming].”
Other importance

1. It guides the company’s operations by charting its future course and devising a strategy for
following it. It preset tools like the mission statement, goals, objectives, budget, financial
statement, target market which the entrepreneur must use to lead to its success. It gives the
entrepreneur and his employee a sense of direction.
2. It is tool to attract lenders and investors: a business plan must prove to potential investors that
the venture is viable enough to repay their loans and investments
3. The business plan provides a vehicle for communicating the potentials of the venture, the
opportunities it faces and the way it intends to exploit them in a way which is concise, efficient
and effective
4. The business plan is a call for action: it provides details of a list of activities that must be
undertaken, the tasks to be performed and the outcomes that must be achieved if the
entrepreneur must convert his idea into a concrete action
5. Writing a business plan helps the entrepreneur shape his or her original vision into a better
opportunity by raising critical research questions and providing answers
ESSENTIAL OF A GOOD MARKETING PLAN

Although the elements comprised in a business plan are standard, each business plan is unique and
must be tailored to suit the business environment of the entrepreneur. The following are identified
features of a business plan:

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 Simplicity: facts, figures and other data must be presented in a manner which is simple to
understand
 Flexibility: plan must not be rigid i.e. it must be capable of changing with changing conditions
like demand, finance etc.
 Sustainability: it must be suitable for a particular unit or department depending the resources
and capabilities
 Acceptable: the plan must be acceptable to subordinates and other stake holders
 Facilitate organisation: it should enable proper organisation of both physical and human
resources
 Provide purpose and direction: a good plan sis a road map providing sooth directions
depending on planned schedules,
 Generate harmony and efficiency: a plan should generate team spirit amongst the different
organisational levels.
 Motivate personnel: a good plan should be realistic and challenging and should motivate
employees to achieve the goals.

PARTS OF A BUSINESS PLAN

In this section we will be focusing on developing an investor’s business plan. Bankers and other
professional investors need to see your business plan before they lend you money. You may have
a brilliant idea, but if you do not explain it carefully in a well-written business plan, no professional
investor will be interested. Professional investors typically see many business plans each year and
make very few investments. They will immediately reject an incomplete or poorly written plan.
Investors are busy people and don’t have time to read an overly long business plan. Your plan,
including the financials, should be no longer than 35 typed pages (and many are much shorter). It
should require no more than an hour of reading time. Most plans will include these seven parts
(although the order may differ, depending on the type of business):

 Executive summary
 Business description
 Industry analysis and market strategies
 Competitive analysis

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 Operations and management plan
 Marketing plan
 Financial plan
 Technical and Technological Analysis
 Risk analysis
 Impact of the enterprise

1) Executive Summary

The executive summary should provide an overview of your business with key points and issues.
Because the summary is intended to summarize the entire document, it is most helpful to write this
section last, even though it comes first in sequence. The writing in this section should be especially
concise. Readers should be able to understand your needs and capabilities at first glance. The
section should tell the reader what you want and your “ask” should be explicitly stated in the
summary. Describe your business, its product or service, and the intended customers. Explain what
will be sold, who it will be sold to, and what competitive advantages the business has

2) Business Description
This section describes the industry, your product, and the business and success factors. It should
provide a current outlook as well as future trends and developments. You also should address your
company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your
reasons for starting the business, a description of your products and services, your business model,
and your company’s value proposition. The industry extends beyond where the business is located
and operates, and should include national and global dynamics

3) Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales
potential. This is a place to address market segmentation strategies by geography, customer
attributes, or product orientation. Describe your positioning relative to your competitors’ in terms
of pricing, distribution, promotion plan, and sales potential.

4) Competitive Analysis
The competitive analysis is a statement of the business strategy as it relates to the competition.
You want to be able to identify who are your major competitors and assess what are their market

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shares, markets served; strategies employed, and expected response to entry? You likely want to
conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a
competitive-strength grid or competitive matrix. Outline your company’s competitive strengths
relative to those of the competition in regard to product, distribution, pricing, promotion, and
advertising. What are your company’s competitive advantages and their likely impacts on its
success? The key is to construct it properly for the relevant features/benefits (by weight, according
to customers) and how the startup compares to incumbents. The competitive matrix should show
clearly how and why the startup has a clear (if not currently measurable) competitive advantage.
Some common features in the example include price, benefits, quality, type of features, locations,
and distribution/sales. A competitive analysis helps you create a marketing strategy that will
identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving
you a distinct competitive advantage. When creating a competitor analysis, it is important to focus
on the key features and elements that matter to customers, rather than focusing too heavily on the
entrepreneur’s idea and desires.

5) Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure.
Here you can address the form of ownership and, if warranted, include an organizational
chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and
roles of members of the management team. This is also the place to mention any other stakeholders,
such as a board of directors or advisory board(s), and their relevant relationship to the founder,
experience and value to help make the venture successful, and professional service firms providing
management support, such as accounting services and legal counsel.

6) Marketing Plan
Here you should outline and describe an effective overall marketing strategy for your venture,
providing details regarding pricing, promotion, advertising, distribution, media usage, public
relations, and a digital presence. Fully describe your sales management plan and the composition
of your sales force, along with a comprehensive and detailed budget for the marketing plan.

7) Financial Plan
A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate
project costs, valuations, and cash flow projections. This section should present an accurate,

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realistic, and achievable financial plan for your venture. Include sales forecasts and income
projections, pro forma financial statements, a breakeven analysis, and a capital budget. Identify
your possible sources of financing.

The scope of a business plan therefore includes; economics/market aspects, technical aspects,
financial aspects, production aspects, managerial aspects etc

TECHNICAL AND TECHNOLOGICAL ANALYSIS OF ENTREPRENEURIAL

PROJECTS

(PROJECT FEASIBILITY ANALYSIS)

Feasibility literally means whether some idea will work or not. It knows beforehand whether there
exists a sizeable market for the proposed product/service, what would be the investment
requirements and where to get the funding from, whether and where the necessary technical know-
how to convert the idea into a tangible product may be available, and so on. In other words,
feasibility study involves an examination of the operations, financial, HR and marketing aspects
of a business on ex ante (Before the venture comes into existence) basis. Thus, you may
simultaneously read this lesson and the lessons on marketing, finance etc. to have a better idea of
the issues involved. What we present here under is a brief outline of the issues impinging upon the
various aspects of the feasibility of the proposed project. By now, you would have understood that
feasibility is a multivariate concept; that is, a project has to be viable not only in technical terms
but also in economic and commercial terms too. Moreover, there always is a possibility that a
project that is technically possible may not be economically viable. Examination of the feasibility
requires skills that you may fall short of. You may take the help of the Technical Consultancy
Organizations’.

 MARKET ANALYSIS

A market, whether a place or not, is the arena for interaction among buyers and sellers. From
seller’s point of view, market analysis is primarily concerned with the aggregate demand of the
proposed product/service in future and the market share expected to be captured. Success of the
proposed project clearly hinges on the continuing support of the customers. However, it is very
difficult to identify the market for one’s product/service. After all, the whole universe cannot be

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your market. You have to carefully segment the market according to some criteria such as
geographic scope, demographic and psychological profile of the potential customers etc. It is a
study of knowing who all comprise your customers, for this you require information on:

- Consumption trends.
- Past and present supply position
- Production possibilities and constraints
- Imports and Exports Competition
- Cost structure
- Consumer behaviour, intentions, motivations, attitudes, preferences and requirements
- Distribution channels and marketing policies in use
- Administrative, technical and legal constraints impinging on the marketing of the product
 FINANCIAL ANALYSIS

The objective of financial analysis is to ascertain whether the proposed project will be financially
viable in the sense of being able to meet the burden of servicing debt and whether the proposed
project will satisfy the return expectations of those who provide the capital. While conducting a
financial appraisal certain aspects has to be looked into like:

- Investment outlay and cost of project

- Means of financing
- Projected profitability
- Break- even point
- Cash flows of the project
- Projected financial position
 TECHNICAL ANALYSIS

The issues involved in the assessment of technical analysis of the proposed project may be
classified into those pertaining to inputs, throughputs and outputs.

- Input Analysis: Input analysis is mainly concerned with the identification, quantification and
evaluation of project inputs, that is, machinery and 67 materials. You have to ensure that the
right kind and quality of inputs would be available at the right time and cost throughout the

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 life of the project. You have to enter into long-term contracts with the potential suppliers; in
many cases you have to cultivate your supply sources. The activities involved in developing
and retaining supply sources are referred to as supply chain management.
- Throughput Analysis: It refers to the production/operations that you would perform on the
inputs to add value. Usually, the inputs received would undergo a process of transformation in
several stages of manufacture. Where to locate the facility, what would be the sequence, what
would be the layout, what would be the quality control measures, etc. are the issues that you
would learn in greater details in subsequent lessons.
- Output Analysis: this involves product specification in terms of physical features- colour,
weight, length, breadth, height; functional features; chemical material properties; as well as
standards to be complied with such as BIS, ISI, and ISO etc.
 ECONOMIC ANALYSIS

Economics is the study of costs- and- benefits. In regard to the feasibility of the study the
entrepreneur is concerned whether the capital cost as well as the cost of the product is justifiable
vis-à-vis the price at which it will sell at the market place. For example, technically, silver can be
extracted from silver bromide, (a chemical used for processing the X-ray and photo films); but,
the cost of extraction is so high that it would not be economically feasible to do so. Likewise, until
recently cost of harnessing solar power was prohibitively high. This cost-benefit analysis goes into
financial calculations for profitability analysis that we discussed under financial analysis. At this
stage it is also useful to distinguish between the economic and commercial feasibility; whereas
economic feasibility leads one to the unit cost of the product, commercial feasibility informs
whether enough units would sell. Apart from the cost-benefit analysis as above, which we also
refer to as private cost benefit analysis, it is also useful to do what is known as social- cost-benefit-
analysis (SCBA). For example, the entrepreneur may be getting subsidized electricity in which
case private cost would be less than social cost. Likewise, exporting units earn precious foreign
exchange resulting into social benefits being more than private earnings. Many a time, a project
that is worthy on SCBA may find greater favour with the support agencies.

 ECOLOGICAL ANALYSIS

In recent years, environmental concerns have assumed a great deal of significance especially for
projects, which have significant ecological implications like power plants and irrigation schemes,

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and for environment polluting industries (like bulk drugs, chemicals and leather processing). The
concerns that are usually addressed include the following:68

- What is the likely damage caused by the project to the environment?

- What is the cost of restoration measures required to ensure that the damage to the
environment is contained within acceptable limits?
 TECHNOLOGICAL ANALYSIS: In recent years with production techniques shifting from
manual to mechanical, a lot of emphasis is being laid on the production techniques and the
available technology to properly produce in terms of quantity and quality. The entrepreneur
therefore has to analyze if the level of technology necessary for his production is available
where his factories are located.

The Importance of Business Plan Presentation to Investors;

Once a business plan is developed, it has to be presented or pitched to potential investors,

employees, banks and other important organisations and individuals in order to raise finance, or
fill them in on the mission and vision of the yet to be started business. Seeking business funding
is a major step but you needn’t be daunted. Here’s how to help lenders and investors understand
your business and decide whether to take the risk with you.

What to demonstrate in your pitch

Whether you’re approaching a bank for a loan or trying to convince someone to invest in your
business, there are some basics to get down. On the one hand, you want to sell the dream. But you
also need to demonstrate that you’re sensible and cool-headed. It’s a balancing act. Get advice
from other business owners and an accountant or bookkeeper – they frequently prepare finance
applications and know what works.

1. Show you have a plan

There are dozens of approaches to writing a business plan. But the most important things to
communicate to a financier are:
 the opportunity – explain the need you’re fulfilling and estimate the size of the market
 market analysis – present some research that proves the opportunity is real

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  how you’ll resource the business – identify the skills you'll need versus the skills you
already have
 your business model – demonstrate how you’ll turn the opportunity into money
 financial forecasts and budgets – show when you’ll be profitable
It’s also important to talk about the long-term future, and your role in it. Are you staying in the
business for the long haul? Or do you want to grow it and sell it on? There’s no right or wrong
answer – but investors and lenders will want to know your intentions.
2. Share detailed financials
Show financiers you’ve thought of everything – the good, the bad and the ugly:
 Your budget needs to be thorough and should include allowances for unexpected costs
(contingencies) so they can see you’re well prepared.
 Be specific about how you plan to spend the funding.
 Show your workings on high-cost items. Is there a cheaper alternative and, if so, why didn’t
you go with it?
 Don’t be too ambitious with your sales forecasts. Include a best and worst-case scenario
but base your budget somewhere in the middle.
 If the business has assets (or owes money), create a balance sheet Lenders and investors
want to see what value already exists, and if you’ve put your own money into it.
 Show how and when your business is going to be profitable.
 Give details of how much you intend to take from the business as a salary or wage, and if
you’ve got another source of funds in reserve. Show how they’ll make money with you.
You need to show the financiers what’s in it for them:
 Show lenders how repayments fit in your budget (and don’t forget to account for interest).
 Show investors when they can expect dividends (or an increased share price).
Buying a business? If the funds are for buying a business, then you should also provide:
 two years of the business’s income statements
 sale and purchase agreement
 turnover warranty – a statement of the business’s guaranteed turnover during a defined
period
 any restraints of trade which prevent the previous owner setting up in competition or
contacting customers for a period of time

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Expanding a business? If the funds are to help you expand a business, then you should also provide:
 two years of income statements
 tax returns for the same period
 an explanation of how the funds will make the business more profitable
3. Convince them you master your business.
You need to show you understand the industry you’re entering. That goes without saying. But you
must also give lenders and investors confidence that you understand the financial side of your
proposal. It helps to know some (or all) of these numbers off the top of your head:

 Revenue – the money you’ll generate from sales of your product or service over a specific
period (normally a year)
 Costs, which come in three main varieties:
o Direct costs – costs that go up the more sales you make (includes things like
inventory).
o Indirect costs – costs that stay the same no matter how busy you are (includes things
like rent and staff).
 Gross profit – the amount of money your business will make from sales after deducting the
cost of goods or services sold (and before you pay operating costs, payroll, tax and
overheads)
 Net profit – the total amount of profit your business will make after deducting all costs
(including direct costs, operating costs, payroll, tax and overheads)
 Margin – the difference between your product or service's selling price and the cost of
production
 Value of collateral – the value of the assets you’ll use to secure the lending
 Credit score – an external rating of how good you are at paying your bills and debts
 Repayments or payback on the finance you’re seeking – what repayments you’ll make and
when, or what dividends you hope to pay out to investors and how much you’ll grow the
value of the company and their shares

4. Get them excited

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Don’t forget to show them your product or service! If it’s not created yet, show them a mockup.
Make a video, take photos, show screenshots. Lenders and investors want to see something
tangible. Don’t leave it all to their imagination.
Show your belief in the idea when you pitch it, but don’t lose sight of reality. While it’s great to
be excited about the financial potential of your business, you need to assure your audience that
you understand the risks and threats. It’ll be even better if you have strategies for addressing them.
And if there’s anything you don’t know, be upfront about that too.

ENTREPRENEURIAL STRATEGIES

This section is concerned with the various strategies used by entrepreneurs to expand their
ventures. Below are some of the methods and the issues related with each method.

 JOINT VENTURES:
With the increase in business risks, hyper-competition, and failures, joint ventures have increased.
A joint venture is a separate entity involving two or more participants as partners. They involve a
wide range of partners, including universities, businesses, and the public sector. A joint venture
therefore refers to a situation where two or more persons join together to carry out a specific
business venture and share the profits on an agreed basis it is called a 'joint venture. Each one of
them who join as a party to the joint venture is called “Co-Venturer”

Features of Joint Ventures

1. Joint venture is a special partnership without a firm name.

2. Joint venture does not follow the accounting concept 'going concern'.
3. The members of joint venture are known as co-ventures.
4. Joint venture is a temporary business activity.
5. In joint venture, profits and losses are shared in agreed proportion. If there is no agreement
Regarding the distribution of profit, they will share profit equally.
6. Joint venture is an agreement for polling of capital and business abilities to be employed
in some Profitable venture.

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 7. At the end of venture, all the assets are liquidated and liabilities are paid off: if necessary
the assets and liabilities could be shared by co-ventures.
8. Joint venture always follows cash basis of account
 ACQUISITIONS
An acquisition is the purchase of a company or a part of it in such a way that the acquired company
is completely absorbed and no longer exists. Acquisitions can provide an excellent way to grow a
business and enter new markets. A key issue is agreeing on a price. Often the structure of the deal
can be more important to the parties than the actual price. A prime concern is to ensure that the
acquisition fits into the overall direction of the strategic plan.

Advantages
Established business: The acquired firm has an established image and track record. The
entrepreneur would only need to continue the existing strategy to be successful. Location is already
established.

Established marketing structure: The employees of an existing business can be important assets.
They know the business and can help the business continue. Employees already have established
relationships with customers, suppliers, and channel members.

Disadvantages

Culture Clashes: Even a company has a personality, a culture that permeates the entire
organization. If you acquire a company that has a way of doing things that conflict with yours, the
employees of the acquired company may bristle at your management style. Conversely, your
employees may not accept managers and supervisors from the acquired company.

Redundancy: When you acquire a company, you may have employees who duplicate each other's
functions. This can cause excessive payroll expenditures where you pay for two employees to do
the work of one.

Increased Debt: If you borrow money to acquire a company, that debt goes on the books of the
original company. In order to service that debt, you need revenues from the acquired company.
Since many companies become the target of acquisitions because they are struggling financially,

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you may find that the financial problems of the acquired company prevent you from generating
the income you need to pay the new debt.

Market Saturation: If you acquire a company that is in the same line of business as your original
company, your hopes for market expansion may hit a barrier: the two companies together already
dominate the market. You may find it difficult to grow sales after the acquisition because not
enough new customers exist outside of the customer base you and the acquired company have
established.

 Merger
The combining of two or more companies, generally by offering the stockholders of one company
securities in the acquiring company in exchange for the surrender of their stock

Benefits of Mergers:

1. Economies of scale. This occurs when a larger firm with increased output can reduce
average costs. Different economies of scale include:
 technical economies if the firm has significant fixed costs then the new larger firm would
have lower average costs
 bulk buying – discount for buying large quantities of raw materials
 financial – better rate of interest for large company
 Organisational – one head office rather than two is more efficient
2. International Competition. Mergers can help firms deal with the threat of multinationals
and compete on an international scale
3. Mergers may allow greater investment in R&D This is because the new firm will have
more profit. This can lead to a better quality of goods for consumers
4. Greater Efficiency. Redundancies can be merited if they can be employed more efficiently
 Franchising
A continuing relationship in which a franchisor provides a licensed privilege to the franchisee to
do business and offers assistance in organizing, training, merchandising, marketing and managing
in return for a monetary consideration. Franchising is a form of business by which the owner
(franchisor) of a product, service or method obtains distribution through affiliated dealers
(franchisees).

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THE ENTREPRENEURIAL DEVELOPMENT PROCESS

 The process of starting a new venture is embodied in the entrepreneurial process, which
involves more than just problem solving in a typical management position. An entrepreneur
must find, evaluate, and develop an opportunity by overcoming the forces that resist the
creation of something new. The process has four distinct phases:
 (1) Identification and evaluation of the opportunity,
 (2) Development of the business plan,
 (3) Determination of the required resources, and
 (4) Management of the resulting enterprise.
 Although these phases proceed progressively, no one stage is dealt with in isolation or is
totally completed before work on other phases occurs. For example, to successfully identify
and evaluate an opportunity (phase 1), an entrepreneur must have in mind the type of
business desired (phase 4).
 Identify and Evaluate the Opportunity

Opportunity identification and evaluation is a very difficult task. Most good business
opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to
possibilities, or in some case, the establishment of mechanisms that identify potential
opportunities. For example, one entrepreneur asks at every cocktail party whether anyone is
using a product that does not adequately fulfill its intended purpose. This person is constantly
looking for a need and an opportunity to create a better product. Another entrepreneur always
monitors the play habits and toys of her nieces and nephews. This is her way of looking for
any unique toy product niche for a new venture.

Although most entrepreneurs do not have formal mechanisms or identifying business

opportunities, some sources are often fruitful: consumers and business associates, members of
the distribution system and technical people. Often, consumers are the best source of ideas for
a new venture. How many times have you heard someone comment, “If only there was a
product? That would…” This comment can result in the creation of new business. One
entrepreneur’s evaluation of why so many business executives were complaining about the
lack of good technical writing and word-processing services resulted in the creation of her own

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 business venture to fill this need. Her technical writing service grew to 10 employees
in two years.

Due to their close contact with the end user, channel members in the distribution system also see
product needs. One entrepreneur started a college bookstore after haring all the students complain
about the high cost of books and the lack of service provided by the only bookstore on campus.
Many other entrepreneurs have identified business opportunities through a discussion with a
retailer, wholesaler, or manufacturer’s representative.

Finally, technically oriented individuals often conceptualize business opportunities when working
on other projects. Whether the opportunity is identified by using input from consumers, business
associates, channel members, or technical people, each opportunity must be carefully screened and
evaluated. This evaluation of the opportunity is perhaps the most critical element of the
entrepreneurial process, as it allows the entrepreneur to assess whether the specific product or
service has the returns needed compared to the resources required. This evaluation process
involves looking at the length of the opportunity, its real and perceived value, its risks and returns,
its fit with the personal skills and goals of the entrepreneur, and its uniqueness or differential
advantage in its competitive environment. The market size and the length of the window of
opportunity are the primary basis for determining the risks and rewards. These risks reflect the
market, competition, technology, and amount of capital involved. The amount of capital needed
provides the basis for the return and rewards. The methodology for evaluating risks and rewards
frequently indicates that an opportunity offers neither a financial nor a personal reward
commensurate with the risks involved. One company that delivered bark mulch to residential and
commercial users for decoration around the base of trees and shrubs added loam and shells to its
product line. These products were sold to the same customer base using the same distribution
(delivery) system.

Follow-on products are important for a company expanding or diversifying in a particular channel.
A distribution channel member such as Kmart, Service Merchandise, or Target prefers to do
business with multiproduct, rather than single-product, firms.

Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is particularly
important that the entrepreneur be able to put forth the necessary time and effort required to make

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the venture succeed. Although many entrepreneurs feel that the desire can be developed along the
venture, typically it does not materialize. An entrepreneur must believe in the opportunity so much
that he or she will make the necessary sacrifices to develop the opportunity and manage the
resulting organization.

Opportunity analysis, or what is frequently called an opportunity assessment plan, is one method
for evaluating an opportunity. It is not a business plan. Compared to a business plan, it should be
shorter; focus on the opportunity, not the entire venture; and provide the basis for making the
decision of whether or not to act on the opportunity.

An opportunity assessment plan includes the following: a description of the product or service, an
assessment of the opportunity, an assessment of the entrepreneur and the team, specifications of
all the activities and resources needed to translate the opportunity into a viable business venture
and the source of capital to finance the initial venture as well as its growth. What market research
data can be marshaled to describe this market need?

 Developing a Business Plan

A good business plan must be developed in order to exploit the defined opportunity. This is a very
time-consuming phase of the entrepreneurial process. An entrepreneur usually has not prepared a
business plan before and does not have the resources available to do a good job. A good business
plan is essential to developing the opportunity and determining the resources required, obtaining
those resources, and successfully managing the resulting venture.

 Determine the Resources Required

The resources needed for addressing the opportunity must also be determined. This process starts
with an appraisal of the entrepreneur’s present resources. Any resources that are in critical need to
be differentiated from those that are just helpful. Care must be taken not to underestimate the
amount of variety of resources needed. The downside risks associated with insufficient or
inappropriate resources should also be assessed. Acquiring the needed resources, in a timely
manner while giving up as little control as possible is the next step in the entrepreneurial process.
An entrepreneur should strive to maintain as large an ownership position as possible, particularly
in the start-up stage. As the business develops, more funds will probably be needed to finance the

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growth of the venture, requiring more ownership to be relinquished. Alternative suppliers of these
resources, along with their needs and desires need to be identified. By understanding resource
supplier needs, the entrepreneur can structure a deal that enables the recourses to be acquired at
the lowest possible cost and the least loss of control.

Manage the Enterprise

 After resources are acquired, the entrepreneur must use them to implement the business
plan. The operational problems of the growing enterprise must also be examined. This
involves implementing a management style and structure, as well as determining the key
variables for success. A control system must be established, so that any problem areas can
be quickly identified and resolved. Some entrepreneurs have difficulty managing and
growing the venture they created.

Questions

1. What is a business plan

2. Explain the different types of business plans
3. What is the importance of a business plan
4. List the parts of a business plan

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