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The Entrepreneurial Process: Reasons For Busines Failure

The document discusses several key aspects of starting and planning a business enterprise: 1) It identifies five phases of entrepreneurial process: identifying opportunities, evaluating opportunities, developing a business plan, assessing required resources, and managing the enterprise. 2) It discusses common reasons for business failure such as poor management, lack of experience, poor location, incorrect pricing, demand factors, poor cash flows, and too much competition. 3) It explains that a business plan outlines the business idea, management, market, resources, finances, and prospects to help obtain funding and ensure success. The business objectives are typically survival, profit maximization, and growth.

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Saffa Ibrahim
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0% found this document useful (0 votes)
109 views6 pages

The Entrepreneurial Process: Reasons For Busines Failure

The document discusses several key aspects of starting and planning a business enterprise: 1) It identifies five phases of entrepreneurial process: identifying opportunities, evaluating opportunities, developing a business plan, assessing required resources, and managing the enterprise. 2) It discusses common reasons for business failure such as poor management, lack of experience, poor location, incorrect pricing, demand factors, poor cash flows, and too much competition. 3) It explains that a business plan outlines the business idea, management, market, resources, finances, and prospects to help obtain funding and ensure success. The business objectives are typically survival, profit maximization, and growth.

Uploaded by

Saffa Ibrahim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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THE ENTREPRENEURIAL PROCESS

The decision to start any business or not to start a particular business must be based on the
understanding of the distinct phases that are important for the success of the business .five of
these closely related phases have been identified namely:

Identifying the Opportunities: This is perhaps the most difficult tasks in the entrepreneurial
process, because it is at this stage that the Entrepreneur goes in search of opportunities.
Sometimes the Entrepreneur might identify business opportunities through customers, business
associate, technical people or members of the distribution process.

Evaluating the Opportunities: After the identification of the existing opportunities, these
opportunities must be carefully evaluated to determine whether or not the opportunities could be
utilized for the purpose for which you want to go into the business.

Developing a Business Plan: A good business plan is a necessary condition for the decision to
exploit a certain opportunity. This is essential in determining the resources required, hoe these
resources could be obtained and how to successfully manage the resulting venture.

The Assessment required for the Business: This means that the resources needed for the
opportunities to be successfully exploited must be assessed, starting with an appraisal of the
Entrepreneur’s present or existing resources, in this process the most critical resource must be
distinguished from those that are not so critical in the production process.

Management of the Enterprise: After acquiring the resource, the Entrepreneur must
implement a management style and structure as well the key variables for success to start the
business. Once the appropriate management structure has been put in place, a control system
should be identified, so that problems can easily be dealt with on timely manner.

REASONS FOR BUSINES FAILURE


Everywhere in the world Small business suffer high failure than large business, while there are
no set pattern for such failure, the following main factor contribute to business failure.

Poor Management: this is a primary cause of business failure and very often contributes to
managerial incompetent and inexperience in taken decision.

Lack of Experience: Very little, no experience or knowledge of processes increases the chance
for failure.

Poor Location: Poor location leading to business failure is more dominant in retail business
.therefore proper and through study, investigation and planning should be done to ensure easy
accessibility and to avoid dismal sales which may lead to failure
Incorrect Pricing: in most cases small small business have the tendency to underprice their
product and service, hence they may fail to recover their initial capital and this may lead to
bankruptcy attributed to “selling best product at lowest prices”.

Demand Factor: where there is no demand for the service and product of a business such
business is bound to fail. Therefore do not undertake a business where no demand for the product
and service to be provided.

Poor Cash Flows: Cash flowing into and out of a business would determine the failure or
success rate of the business .if there are more cash flows into the business than the outflow from
the business is a recipe for success but where cash flow out exceed the inflow of cash this is a
recipe for failure.

Too Much Competition: Cut-throat competition may cause business failure especially for small
business. Cut-throat competition occurs where many business deal with the same product in the
same location. Therefore increase the chances for poor sales.

PLANNING A BUSINESS ENTERPRISE


Planning involves the decision to select the strategic goal of the organization. This includes the
selection on the organizational objectives and policies programmers. Planning a business
enterprise is a tool aimed at achieving the objective of the enterprise at minimum cost and
maximizing profit.

A business plan is a document which set out in detail what a business enterprise is going to do
with a given time frame. It include forecast of production, sales and budgeting requirement for
all its functions. Every business is it newly established, large or small needs a plan for the future.
Business plan normally ranging for short period between one to three years.

PURPOSE OF A BUSINESS PLAN


The purpose of a business plan include the following

 The business idea is sound that all the aspect of its operation has been well thought of and
each aspect can be made to work effectively.
 Banks and other lending institutions insist on a business plan before lending money to the
business or enterprise.
 People who wants to invest in the business can check the business if it has a sound based
facts and reasonable expectation, and to gain some confidence on the management and
ability to manage the business effectively.
 To ensure that there is a good marketing for the organization and determine whether it’s
worth investing in the firm and ascertain a possible return to be earned.
 The business plan can be used as a working document for monitoring process: Regular
checks particularly against the objective and financial forecast included in the plan can
act as a useful indicator of how well the business is doing. This can be part of an ongoing
monitoring process to help the owner of run an efficient organization in the future.

CONTENT OF THE BUSINESS PLAN


A business plan is a collection of plan and not all business are the same, each plan depends on
the type of business, but a typical business plan contains the following element.

(1) Name and address of the business

In the case of a new business an explanation of the business idea, objective of it and why it is set
up must be clearly spelt out for an existing business, a short history of the business and an
account of its past performance may be included. A statement of the business objective and
mission statement should be provided.

(2) Management/owner

 This includes statement on from the ownership (sole proprietor, partnership public or
private limited company)
 Main shareholders and form of share and its management
 Amount of experience senior managers, have a profile of owner

(3) Market

 This should include information about.


What market research has been done?
 The type of customers, their location local/national or international.
 The level of competitive if any, how strong and competition are located
 The type of product and how or why it is different from its competitors.
 The potentials for growth and how it can be achieved.
 The marketing plan should also be provided
 Analysis of strength, weakness opportunities and threats (SWOT) of the business.
 How the product is to be sold
 The Marketing mix
The cost of each part of the marketing plan
(4) Resources

 The size and kind of premises needed


 The number of employers, their skills needed
 For manufacturing business, the production methods used

(5) Financial Report

This should include

 Startup cost and detailed estimate of running cost


 Main source of revenue
The amount of capital and who owns it
 Details of existing laws of repayment plan
 An estimate of future revenue and cost as well as capital needed.
 Cash flow fore cash and most recent profit and loss account, balance sheet.

(6) Business Prospect

This involve the firms prospect over the next three to five years, based on the fact as
evidence of prospect being realistic

FACTORS TO BE CONSIDER IN SELECTING UP A BUSINESS

1. Finance/Capital
To set up a business an important factor is the money/funds available for the business and
this determine the nature and extent of the business.

Experience/Knowledge
Lack of experience/knowledge about the business to be undertaken become lack of
practical experience in a particular line of business will affect the level of success to be
achieved.

Location This depends on the line of goods the entrepreneur intends to deal with, but the
business needs to be located in a place where dealers can found customers available.

Price – You need to have a competitive idea of what price of the market are alike. In this
case the aim should be a policy of small profit, quick turn over may lead to more profit.

Transport – cost of transportation to the point of sales is very much important as it


influence the retail price should be.
BUSINESS OBJECTIVE
This is the essential part of the planning process for any business enterprise. The major
objectives include:

1. Survival
This is the basic objective of any business enterprise, because every business wants to
survive and stay competitive. To survive requires the cost must be recovered so that
sufficient profit is made to achieve this, service provided should attract more customers
to enhance profit and growth.

2. Profit Maximization – This is the likely hood of most operation and services
as yard stick for measuring efficiency business progress.
3. Growth – This determine the level of dividends to be paid to shareholders. More
sustained growth enhances dividends.

The need for financing a Business Enterprise


1. To overcome temporary shortage of funds or purchase of new building for
longtime purpose.
2. For internal growth resulting for increasing demand for the product e.g. to buy new
manufacturing equipment.
3. Acquisition of another companies e.g. Rokel Commercial Bank taken over
Barclays Bank Ltd, Ecobank taken over Procredit Bank
4. Replacement of old machinery and equipment with new ones e.g. new computer to
replace computer in use after several years.
5. Moving to new premises when business has out grown in its existing premises.

SOURCES OF FINANCE TO ENTERPRISE

This can be internal or external. Internal source of finance refers to funds


generated with the organization or from the business itself. These include reliance
profit from sale of asset, personal saving or owners’ investment.

External sources include funds derived from outside the organization.

Short term, medium term and long term sources e.g. 12 months, 1-3 years or
3years and above

Bankruptcy, overdraft – that is when withdrawn more than account level and
reach at a deficit.
Personal savings of shareholders or employers who have reserved funds can give
short term loan with or without interest.

Sales of assets – selling assets of a business that may no longer be needed.

MULTINATIONAL COMPANIES

These are companies that are usually large which may have a head office based in one
country but manufacturing and processing services and facilities in another country. The
company that is in the headquarter is refer to as Parent Company.

Advantages

 They bring in investment into a country that poorer countries cannot offer for themselves.
 They may help countries to exploit their natural resources.
 They trained local people improve and increase country’s skills, which may introduce
new methods and new technology.
 They employ local people and put to Government which improves a country wealth and
standard of living.
 If the goods they produce are exported that can help to boost of the country’s BOP

Disadvantages

 They can decide to move production from one place or country to another without
sufficient notification.
 They make decision based on their own interest. They do not take into account the effect
of their operation on a country’s economy in the form of loss of taxes, jobs etc.
 Because of their important to the economy, some people thought that they have two much
power and political influence over local institution.
 Host Countries have no control over the investment decision of multinational company.
 Most of their profits are repatriated to the country where they are based and often the host
country may not benefit much from their operations.
 The jobs created are often low level jobs and they tend to exploit the low labor cost in
less developed countries.
 They bring in people from their own countries to do the skilled and manufactured jobs at
the expense of the development of the local labor force.

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