BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

NTQF Level III

LEARNING GUIDE: - 10
Unit of Competence: Develop underfunding of
entrepreneurship

Module Title: Developing underfunding of

entrepreneurship

LG Code: CDS CPM3 M010 0918

TTLM Code: CDS CPM3 M01TTLM 030712v1

LO 1: Describe and explain the principles, concept and scope

of entrepreneurship

Instruction Sheet 1 Learning Guide #1

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –

 Terminology, principles and concepts of entrepreneur

 Understanding types of enterprises and their role
 Classifications of Enterprises

 Concept of Enterprise

 Functions of entrepreneurship in business

 The role of entrepreneur in business improvement

This guide will also assist you to attain the learning outcome stated in the cover page.
Specifically, upon completion of this Learning Guide, you will be able to –

 Identify Terminology, principles and concepts of entrepreneur

 Understanding types of enterprises and their role
 Understand Classifications of Enterprises

 Know the Concept of Enterprise

 Understand Functions of entrepreneurship in business

 Identify The role of entrepreneur in business improvement

Learning Instructions:

1. Read the specific objectives of this Learning Guide.

2. Follow the instructions described in number 3 to 20.

3. Read the information written in the “Information Sheets 1”. Try to understand what are
being discussed. Ask you teacher for assistance if you have hard time understanding them.

4. Accomplish the “Self-check 1” in page __.

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

5. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 1).

6. If you earned a satisfactory evaluation proceed to “Information Sheet 2”. However, if your
rating is unsatisfactory, see your teacher for further instructions or go back to Learning
Activity #2.

7. Submit your accomplished Self-check. This will form part of your training portfolio.

8. Read the information written in the “Information Sheet 2”. Try to understand what are being
discussed. Ask you teacher for assistance if you have hard time understanding them.

9. Accomplish the “Self-check 2” in page __.

10. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 2).

11. Read the information written in the “Information Sheets 3 and 4”. Try to understand what
are being discussed. Ask you teacher for assistance if you have hard time understanding
them.

12. Accomplish the “Self-check 3” in page __.

13. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 3).

14. If you earned a satisfactory evaluation proceed to “Operation Sheet 1” in page _. However, if
your rating is unsatisfactory, see your teacher for further instructions or go back to Learning
Activity #6.

15. Read the “Operation Sheet 1” and try to understand the procedures discussed.

16. You are provided with a CD containing lessons on how to clean and maintain equipment.
Before you open the CD read the information written in the “Information Sheets 1-2” in
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

pages ___. You will be also provided with additional reference reading materials regarding
the cleaning of masonry hand tools.

17. Request a desktop computer or laptop from your teacher. Make sure the unit is plugged to a
power source before turning on the power O. Then insert the CD in the CD drive located in
your computer. Access the information as described in the Operation Sheet 1 in page __.

18. Read all the contents of the CD and try to understand the procedures discussed.

19. Request access to the equipment and software described in the CD. Practice the steps or
procedures as illustrated in your CD. Go to your teacher if you need clarification or you want
answers to your questions or you need assistance in understanding a particular step or
procedure.

20. Do the “LAP test” in page __ (if you are ready). Request your teacher to evaluate your
performance and outputs. Your teacher will give you feedback and the evaluation will be
either satisfactory or unsatisfactory. If unsatisfactory, your teacher shall advice you on
additional work. But if satisfactory you can proceed to Learning Guide #8.

Information Sheet-1
Describe and explain the principles, concept and
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

scope of entrepreneurship

Introduction

A business enterprise is any type of operation that is involved in providing goods or services
with the anticipated outcome of earning a profit. The broad nature of a business enterprise
allows the term to be applied to any type of company or firm that is geared toward generating
revenue by selling products of any type. It is not unusual for the terms company, firm, and
business enterprise to be used interchangeably.

While some think of a business enterprise as being a large corporation or conglomerate, any
type of for-profit operation that involves sales to consumers can be rightly referred to as an
enterprise. A child who engages in the task of setting up a roadside lemonade stand, and has
the goal of earning a profit from that endeavor, can be said to be operating an enterprise. In like
manner, an individual who opens a small bookshop with the plan of selling books to generate
profit can also be rightly referred to as a business enterprise.

Along with the sale of goods, a business enterprise can also be involved in the sale of various
types of services. Companies that offer telecommunications services are part of this category.
Local businesses that offer outsourcing services such as accounting or janitorial support are also
considered to be business or commercial enterprises. Courier services also qualify as an
enterprise of this type.

1.1 Terminology, principles and concepts of entrepreneur

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

What Is Entrepreneurship?

Meaning of entrepreneurship has evolved over the centuries

What is meant by entrepreneurship? The concept of entrepreneurship was first established in

the 1700s, and the meaning has evolved ever since. Many simply equate it with starting one's
own business. Most economists believe it is more than that.

To some economists, the entrepreneur is one who is willing to bear the risk of a new venture if
there is a significant chance for profit. Others emphasize the entrepreneur's role as an innovator
who markets his innovation. Still other economists say that entrepreneurs develop new goods
or processes that the market demands and are not currently being supplied.

In the 20th century, economist Joseph Schumpeter (1883-1950) focused on how the
entrepreneur's drive for innovation and improvement creates upheaval and change.
Schumpeter viewed entrepreneurship as a force of "creative destruction." The entrepreneur
carries out "new combinations," thereby helping render old industries obsolete. Established
ways of doing business are destroyed by the creation of new and better ways to do them.

Most economists today agree that entrepreneurship is a necessary ingredient for stimulating
economic growth and employment opportunities in all societies. In the developing world,
successful small businesses are the primary engines of job creation, income growth, and poverty
reduction. Therefore, government support for entrepreneurship is a crucial strategy for
economic development.

The Principles
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

An entrepreneur as defined at reference.com as, "a person who organizes and manages any
enterprise, a business, usually with considerable initiative and risk". What the reference.com
doesn't mention is that entrepreneur's are often faced with the impossible task of competing
against the very giants of their respected industry, albeit computer software or infant shoes.

The word 'entrepreneur' derives from the French expression 'to take up'. 'Entrepreneur' refers to
the trait of taking up new ideas, products and concepts in the marketplace. They find an
unfilled need in the marketplace and fill it by developing an innovative solution to it. In return
they seek some sort of significant compensation; often being but not limited to financial
rewards. Other compensation may be aiding in the advancement of society, and having the
ability to create their own work environment.

Successful entrepreneurs soon realize they must focus on delivering specific goods or services to
specific customers rather than trying to be all things to all potential customers.

That is why the entrepreneur of today must be equipped and be prepared to face the difficulties
of today's often hindering commercial world. If success does ever waiver for an entrepreneur he
may seek to either choose to:

1. Convert and incorporate the entrepreneurship into an actual partnership or corporation

2. Sell the rights of the company or its assets usually for reparations or even...
3. Remain as a one-manned company and continue as an entrepreneurship probably inheriting
the rights to his son, family friend, etc.

However, with this said, there are many positives and negatives to converting a sole ownership
but that topic is too broad and multitudinous to cover here, but work will be done in the future
about the topic of the different types of incorporations. For now, you have learned a basic
comprehension of the life of an entrepreneur, his competition and his many options as an
entrepreneur, hopefully giving you a more potent sense of the principles of entrepreneurship as
well as incorporation.
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Concept What Makes Someone an Entrepreneur?

Who can become an entrepreneur? There is no one definitive profile. Successful entrepreneurs
come in various ages, income levels, gender, and race. They differ in education and experience.
But research indicates that most successful entrepreneurs share certain personal attributes,
including: creativity, dedication, determination, flexibility, leadership, passion, self-confidence,
and "smarts."

 Creativity is the spark that drives the development of new products or services, or ways
to do business. It is the push for innovation and improvement. It is continuous
learning, questioning, and thinking outside of prescribed formulas.

 Dedication is what motivates the entrepreneur to work hard, 12 hours a day or more,
even seven days a week, especially in the beginning, to get the endeavor off the ground.
Planning and ideas must be joined by hard work to succeed. Dedication makes it
happen.

 Determination is the extremely strong desire to achieve success. It includes persistence

and the ability to bounce back after rough times. It persuades the entrepreneur to make
the 10th phone call, after nine have yielded nothing. For the true entrepreneur, money
is not the motivation. Success is the motivator; money is the reward.
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 Flexibility is the ability to move quickly in response to changing market needs. It is

being true to a dream while also being mindful of market realities. A story is told about
an entrepreneur who started a fancy shop selling only French pastries. But customers
wanted to buy muffins as well. Rather than risking the loss of these customers, the
entrepreneur modified her vision to accommodate these needs.

 Leadership is the ability to create rules and to set goals. It is the capacity to follow
through to see that rules are followed and goals are accomplished.

 Passion is what gets entrepreneurs started and keeps them there. It gives entrepreneurs
the ability to convince others to believe in their vision. It can't substitute for planning,
but it will help them to stay focused and to get others to look at their plans.

 Self-confidence comes from thorough planning, which reduces uncertainty and the
level of risk. It also comes from expertise. Self-confidence gives the entrepreneur the
ability to listen without being easily swayed or intimidated.

 "Smarts" is an American term that describes common sense joined with knowledge or
experience in a related business or endeavor. The former gives a person good instinct,
the latter, expertise. Many people have smarts they don't recognize. A person who
successfully keeps a household on a budget has organizational and financial skills.
Employment, education, and life experiences all contribute to smarts.

Every entrepreneur has these qualities in different degrees. But what if a person lacks one or
more? Many skills can be learned. Or, someone can be hired who has strengths that the
entrepreneur lacks. The most important strategy is to be aware of strengths and to build on
them.

1.1.1 Understanding types of entrepreneur and their role

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Entrepreneurs play a key role in any economy. These are the people who have the skills and
initiative necessary to take good new ideas to market and make the right decisions to make
the idea profitable. The reward for the risks taken is the potential economic profits the
entrepreneur could earn

Types of entrepreneurs

The literature has distinguished among a number of different types of entrepreneurs, for
instance:

Social entrepreneur

A social entrepreneur is motivated by a desire to help, improve and transform social,

environmental, educational and economic conditions. Key traits and characteristics of highly
effective social entrepreneurs include ambition and a lack of acceptance of the status quo or
accepting the world "as it is". The social entrepreneur is driven by an emotional desire to
address some of the big social and economic conditions in the world, for example, poverty and
educational deprivation, rather than by the desire for profit. Social entrepreneurs seek to
develop innovative solutions to global problems that can be copied by others to enact change.

Social entrepreneurs act within a market aiming to create social value through the
improvement of goods and services offered to the community. Their main aim is to help offer a
better service improving the community as a whole and are predominately run as nonprofit
schemes. Zahra et al. (2009: 519) said that “social entrepreneurs make significant and diverse
contributions to their communities and societies, adopting business models to offer creative
solutions to complex and persistent social problems”.

Serial entrepreneur

A serial entrepreneur is one who continuously comes up with new ideas and starts new
businesses. In the media, the serial entrepreneur is represented as possessing a higher
propensity for risk, innovation and achievement.
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Lifestyle entrepreneur

A lifestyle entrepreneur places passion before profit when launching a business in order to
combine personal interests and talent with the ability to earn a living. Many entrepreneurs may
be primarily motivated by the intention to make their business profitable in order to sell to
shareholders In contrast, a lifestyle entrepreneur intentionally chooses a business model
intended to develop and grow their business in order to make a long-term, sustainable and
viable living working in a field where they have a particular interest, passion, talent, knowledge
or high degree of expertise.

A lifestyle entrepreneur may decide to become self-employed in order to achieve greater

personal freedom, more family time and more time working on projects or business goals that
inspire them. A lifestyle entrepreneur may combine a hobby with a profession or they may
specifically decide not to expand their business in order to remain in control of their venture.
Common goals held by the lifestyle entrepreneur include earning a living doing something that
they love, earning a living in a way that facilitates self-employment, achieving a good work/life
balance and owning a business without shareholders

Many lifestyle entrepreneurs are very dedicated to their business and may work within the
creative industries or tourism industry, where a passion before profit approach to
entrepreneurship often prevails. While many entrepreneurs may launch their business with a
clear exit strategy, a lifestyle entrepreneur may deliberately and consciously choose to keep
their venture fully within their own control. Lifestyle entrepreneurship is becoming increasing
popular as technology provides small business owners with the digital platforms needed to
reach a large global market. Younger lifestyle entrepreneurs, typically those between 25 and 40
years old, are sometimes referred to as Treps.

Cooperative entrepreneur

A cooperative entrepreneur doesn't just work alone, but rather collaborates with other
cooperative entrepreneurs to develop projects, particularly cooperative projects. Each
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

cooperative entrepreneur might bring different skill sets to the table, but collectively they share
in the risk and success of the venture.

Theory-based Typologies

Recent advances in entrepreneurship research indicate that the differences in entrepreneurs

and heterogeneity in their behaviors and actions can be traced back to their founder's identity.
For instance, Fauchart and Gruber (2011, Academy of Management Journal) have recently shown
that -based on social identity theory - three main types of entrepreneurs can be distinguished:
Darwinians, Communitarians and Missionaries. These types of founders not only diverge in
fundamental ways in terms of their

Self-views and their social motivations in entrepreneurship, but also engage fairly differently in
new firm creation.

1.2 Understanding types of enterprises and their role

Starting a Business - What is enterprise?

The term “enterprise” has two common meanings.

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Firstly, an enterprise is simply another name for a business. You will often come across the use
of the word when reading about start-ups and other businesses…“Simon Cowell’s enterprise” or
“Michelle set up her successful enterprise after leaving teaching”.

Secondly, and perhaps more importantly, the word enterprise describes the actions of someone
who shows some initiative by taking a risk by setting up, investing in and running a business.
An enterprise is an activity or a project that produces services or products. There are essentially
two types of enterprise:

 Business enterprises, which are run to make a profit for a private individual or group of
individuals. This includes small business.
 Social enterprises, which function to provide services to individuals and groups in the
community.

Business enterprises

There are lots of different enterprises in your community; many are small businesses.
Sometimes one person owns and runs them; sometimes they're a family business; other
businesses are owned and run by partners who aren't family relations.

People usually decide to set up small business to earn an income from producing and selling
products or delivering services to individuals or other businesses.

To earn an income from a small business, the enterprise has to run at a profit; that is, some
money should be left over for the business owner once all the costs of making the product or
delivering a service have been met.

Enterprise focuses on developing skills, attitudes and knowledge in three areas:

 Enterprise capability – innovation, creativity, risk management, risk taking, a ‘can-do’

attitude and a drive to make things happen
 Financial literacy – the ability to manage one’s own finances and to become questioning
and informed consumers of financial services
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

 Business and economic understanding – the ability to understand the business context

Social enterprises

Social enterprises are organizations led by local communities. They, too, are small businesses,
but they have been set up for a social purpose. Social enterprises need to be successful just as
business enterprises do, but their success is measured in terms of social rather than monetary
benefits.

Some examples of social enterprises are:

 community-based child care centers such as merry joy in Ethiopia

 health care centers
 sports clubs such as Dedebt, Saint gorge and Coffee in Ethiopia
 Meals on Wheels
 housing cooperatives
 Charities, such as Ethiopian family guidance association

These enterprises must find a way to cover the expenses they incur while providing their
services. Often they fund themselves using a combination of government funding, fund-raising
and fees charged to users of the service.

1.2.1 Types of enterprises

There are many types of business enterprises these include international, global,
multinational, and transnational firms.

An international enterprise is an organization which conducts business operations in cross

national borders. Herein, the term parent company is used which refers to the firm investing or
conducting business in international operations, while the host country is the country where
such enterprise is conducted. International business generally is business operations of any sort
by one firm which take place within or between two or more independent countries. This
general study can be subdivided into various branches of study as follows; the operation of a
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

domestic firm in overseas branches, wherein such branches may be involved in marketing,
manufacturing, or the sale of services (as with an accounting firm). This type of international
business involves a management dimension in a foreign environment, and as such is one of the
most complex and interesting types of international business studies. Firms cannot assume in
this case that management problems will be identical to those faced at home and export trade.
Some examples of these firms are Colgate-Palmolive, Dow Chemical, and Texaco.

On the other hand, global organizations are known as national firms having international
operations. This means that an establish company in one country buy have an international
business operations to other countries. Global companies view the world as a single unit, and
global corporation’s subsidiaries are guided by a global pervasive approaches and strategy.
Global industries tend to provide fairly standardized and high quality products all over the
world which enables the companies to exploit their savings derived from economies of scale.
Global firms include IBM, General Motors, Hyundai, and others.

Multinational enterprises are companies that undertake production, research and

development, finance and marketing on an international basis in more than one country. In
order for an enterprise to be multinational, its activities must have a certain impact upon the
economy. The management must have a global perspective and a strategy that surpasses
nationalities and boundaries. It must work to advance the enterprise by utilizing the differences
among various managerial resources and by setting regulations that limit corporate activities.
The multinational enterprise must be supported by the overall system of control and
organization in order to act as an entity. It must have enough flexibility to adapt to the
demands for localization and customs of the society and government of the host country. Only
when these five conditions are fulfilled can an enterprise be called multinational. Examples of
these multinational companies are McDonald’s, Siemens, Mitsubishi, and For. The United
Nations Divisions on Transnational corporation and investment estimates that there are
currently 38,000 multinationals, collectively controlling a total of 250,000 foreign affiliates. First
established in the seventeen hundreds, multinational companies were created as a means of
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

trade with, and obtaining raw materials from less developed countries. Aside from generating
profit, multinational corporations are also beneficial in its generation of vast employment.

The United nations have used a new term changing multinational or international firms, this
term is transnational corporation which is designed to over all business organizations that
operate across national boundaries and in any field of activity, through entities or affiliates in
two or more countries. It is noted that it does not matter whether the enterprise is privately-
owned, state-owned or of mixed undertaking. Some examples of transnational organizations are
Citicorp, Nigeria Plc, Unilever Corporation has evolved into one of the foremost transnational
companies and began to penetrate the home and personal market.

1.2.2The role of Small and Medium Enterprises (SMEs)

1. Empirical Research - Measurement of innovation as a determinant of economic growth

Research Institutes are using either input measures such as
a) Research and Development (R&D)expenditures or

b) Innovation outcomes such as p a t e n t s

In contrast to input measures, productivity growth results from intentional innovation supported by
modern business administration focusing on the importance of knowledge, knowledge – spillovers and
technological substitution in the process of economic growth.
The new class of emerging growth recognizes aspects of entrepreneurship by modeling the process of
invention and deriving the motives for invention from the microeconomic level, particularly from Small
and Medium Enterprises.

2. International trends of innovation development

As a result of fast progressing globalization, not only of international big companies but also of SMEs,
innovation and technology transfer into profitable products and services are increasingly becoming a
challenging task for entrepreneurs to stay competitive on their markets. According to an analysis
performed by Battelle and R&D Magazine global R&D spending is expected to grow by about 5.2% to
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

more than $1.4 trillion in 2012. “This advance is slightly less than the 6.5% growth seen in 2011 following
the end of the global recession and accompanying R&D stimulus incentives. Most of the global funding
growth is being driven by Asian economies, which are expected to increase nearly 9% in 2012, while
European R&D will grow by about 3.5% and North American R&D by 2.8%. U.S. R&D is forecast to grow
2.1% in 2012 to $436 billion.

China, which became the world's second largest R&D investor in 2011, remains noteworthy as well.
Driven by GDP growth, its rate of spending will remain strong in 2012. Three new emerging economies
joined this Forecast in 2012: Malaysia, Indonesia, and Saudi Arabia. Starting from relatively small
commitments (R&D expenditures at less than 1.0% of gross domestic product), each intends to increase
its funding over the next several years to reflect the R&D ratios of more innovation-oriented economies.

This report reflects the global researcher viewpoint of R&D. The multinational respondents to this
survey confirm trends reported elsewhere, including expectations of future funding constraints across all
R&D sectors—government, industry, and academia—as the most critical concern for researchers. It also
reveals that the U.S. and Europe continue to be the recognized leaders in a broad range of technologies
such as aerospace, agriculture, materials, and life science.”

3. How to ignite innovation by SMEs

WUSME World Union of Small and Medium Enterprises at International Conferences and on occasion
of recent missions 2011 and 2012 to African Countries, e.g. in Angola, Gabon and Uganda has successfully
enhanced awareness on governmental and private level that SMEs and Crafts create jobs, deliver
innovation and raise productivity.

We observe still lack of evidence about the best means to energize growth and to remove the biggest
barriers to faster development of SMEs in less privileged economies. WUSME, therefore, focuses on
building the evidence that a new architecture is needed for the implementation of programs and actions
that enhance and promote entrepreneurial growth.

On this line, WUSME recommended to establish Technology Transfer Centers in developing Countries,
particularly in cooperation with European and US Institutions and industrial partnerships and to create
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

SME Funds for Crises Prevention and Development, funded with a CTL Currency Transaction Levy and a

small percentage of the Value added Tax (VAT) as successfully practiced in Austria since many years.
WUSME’s aims and targets to promote innovation and technology transfer in the forthcoming years will
be, among others:

o Once consultative status has been obtained, e.g. at United Nations ECOSOC, UNIDO, OECD,
UNESCO, WUSME will request these Organizations to build more knowledge and awareness by
funding, conducting and enabling comprehensive studies and pilot projects, e.g. in the African UN
Millennium Villages and other developing regions of the world.

o WUSME can certainly contribute to build a network of specialists, practitioners and policy makers
focused on SMEs and Crafts development and offer this network to stakeholders and member
organizations.
o Via the WUSME Internet Portal „Partnership Exchange” collaboration between Government Agencies,
Universities and innovation Centers and entrepreneurs WUSME will connect people tackling similar
problems so that they may share and exchange ideas t their mutual benefit.

It is important to note that Innovation is critical not just for developed countries to sustain growth, but
for emerging economies and developing countries to catch up with developed countries. WUSME
considers innovation not only in the context of path-breaking inventions, but also in terms of
administrative and organizational changes that support technological diffusion.

1.3 Classifications of Enterprises

State-owned enterprises refer to non-corporation economic units where all assets are The status
of enterprises is classified into three categories: domestic-funded enterprises, enterprises with
investment from in land, and enterprises with foreign investment, following the registration
status of enterprises by industrial and commercial administration agencies.
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Domestic–funded enterprises include state-owned enterprises, collective enterprises,

cooperative enterprises, joint ownership enterprises, limited liability corporations, share-
holding corporations, private enterprises and other enterprises. Included in the enterprises with
investment from home country and enterprises with foreign investment are joint-venture
enterprises, cooperative enterprises, sole investment enterprises and share-holding
corporations.

For government agencies, institutions and social organizations that are not requested to
register in industrial and commercial administration agencies are classified mainly by sources of
funds and management form.

1. Owned by the state and which have registered in accordance with the Regulation of
countries.
2. Collective-owned enterprises refer to economic units where the assets are owned
collectively and which have registered in accordance with the Regulation of the countries
business Corporate Enterprises.
3. Cooperative enterprises refer to collective economic units where the capital comes
mainly from employees in the form of shares, with a certain proportion of capital from
the outside, where production is organized on the basis of independent operations,
independent accounting for profits and losses, joint work, democratic management, and
a distribution system that integrates remuneration according to work and dividends
according to capital share.
4. Joint-ownership enterprises refer to economic units established by two or more
corporate enterprises or corporate institutions of the same or different ownership,
through joint investment on the basis of equality, voluntary participation and mutual
benefits. They include state joint ownership enterprises, collective joint ownership
enterprises, joint state-collective enterprises, and other joint ownership enterprises.
5. Limited liability corporations refer to economic units established with investment from
2- 50 investors and registered in accordance with the commercial Regulation, depending
on its share of investment, and the corporation bearing liability to its debt to the
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

maximum of its total assets. Limited liability corporations include exclusive state-funded
limited liability corporations and other limited liability corporations.
6. Share-holding corporations refer to economic units registered in accordance with the
commercial Regulation Registration of Corporations, with total registered capital divided
into equal shares and raised by issuing stocks. Each investor bears limited liability to the
corporation depending on shares held, and the corporation bears liability to its debt to
the maximum of its total assets.
7. Private enterprises refer to profit-making economic units invested and established by
natural persons, or controlled by natural persons using employed labor. Included in this
category are private limited liability corporations, private share-holding corporations
and private partnership enterprises and private-funded enterprises registered in
accordance with the Corporation Law, Partnership Enterprises Law and other
regulations on private enterprises.
8. Other domestic-funded enterprises refer to domestic-funded enterprises other than
those mentioned above.
9. Cooperative Enterprises with Funds from home and abroad are established by investors
from both with enterprises in the country in accordance with the Law of the countries in
land-foreign Cooperative Enterprises and other relevant laws, where the investment or
provision of facilities and the share of profits and risks is stipulated in the cooperative
contract.
10. Enterprises with Sole refer to enterprises established with exclusive investment of
investors in accordance with the Law of Foreign-Funded Enterprises and other relevant
laws.
11. Share-holding Corporations Ltd. Is an Investment refer to share-holding corporations
established with the approval from the Ministry of Trade and Economic Relations in line
with relevant state regulations, where the share of investment is proportional of the total
registered capital, the enterprise is classified as a domestic-funded share-holding
corporation.
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12. Joint-venture Enterprises with Foreign Investment refer to enterprises jointly established
by foreign enterprises or foreigners with enterprises local and foreign Joint Venture
Enterprises and other relevant laws, where the share of investment, profits and risks is
stipulated in the contract.
13. Cooperative Enterprises with Foreign Investment refer to enterprises jointly established
by foreign enterprises or foreigners with enterprises in local and foreign Cooperative
Enterprises and other relevant laws, where the investment or provision of facilities and
the share of profits and risks is stipulated in the cooperative contract.
14. Enterprises with Sole (exclusive) Foreign Investment refer to enterprises established with
exclusive investment from foreign investors in accordance with the Law on Foreign-
Funded Enterprises and other relevant laws.
15. Share-holding Corporations with Foreign Investment refer to share-holding corporations
established with the approval of the Ministry of Trade and Economic Relations in line
with relevant state regulations, where the share of investment of foreign investors’
proportional of the total registered capital of the corporation. If the share of foreign
investment is less than the total registered capital, the enterprise is classified as
domestic-funded share-holding Corporation.

1.4 Concept of Enterprise

The Concept of Business The exchange of goods/services with money for mutual benefit/profit An
organization that provides goods and/or services to earn profits All profit-seeking activities that are
organized and directed to convert factors of production into goods and services or combination between
goods and services for customers in the markets to achieve the business objective
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The Concept of Enterprise Growth Strategy

Growth strategy is a holistic model for leading an enterprise for total excellence by focusing on
the needs of the customer. The model stresses excellence in all aspects of the enterprise:
organizational, product and operational, service, and people.

To achieve growth strategy in a global economy, all aspects must work collaboratively. A
visionary plan should incorporate people, product, processes, resources and technology.
Customers are very demanding – expecting on-time delivery of quality products/services at low
prices.

Some of the key elements of growth strategy are:

 Support markets and products growth

 Acquire new or expand business
 Improve margin
 Increase revenue and profitability
 Reduce business cycle time

Business leaders and associates have to partner in order to focus on the needs of the customer
and optimize the existing activities in the process. These processes include safety, quality,
productivity, resource development, cost, etc. Businesses must find a balance between passion,
people, and patience by studying the facts so as to fully grasp the situation. It is very important
for businesses to understand their place as either within a state of sustainability or growth. It
requires mutual trust and respect between business leaders, their associates, and most
importantly, their customers. Understanding the status of an enterprise is the key for success.

1.5 Functions of entrepreneurship in business

Entrepreneurship is the heart of job growth. According to the Small Business Association, small
businesses started by entrepreneurs provide 75 percent of the new jobs added to the economy
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

each year. There will always be a need and a position for business majors who focus on
entrepreneurship.

1. Planning of the project: He is the organizer to conceive the idea of launching the project and to
program the structure of business.

2. Management: The entrepreneur is also responsible for the management of business. He tries to have a
least cost combination of factors of production.

3. To Face Risks: He faces uncertainly and bears risks in his business uncertainly comprising those risks
against which it is not possible to insure. He also faces the risk of other producers may enter the market.
4. Distribution of Rewards: He is responsible of distributing the rewards to all factors of production. He
pays the reward in the shape of rent, wage, and interest and bears the risk of profit or loss himself.
5. Sale of Products: An entrepreneur is also responsible of marketing, advertising. He wants to maximize
his profits by selling his product in the market.

6. Scale of Production: He decided the scale of business in according with the provision of capital. Then,
he takes the decision of what where and how to produce goods.

7. Joint stock Organization: In a partnership, the entrepreneurial functions are divided between the
partners. But in public limited company, the board of directors takes this responsibility with
nationalized enterprise; the entrepreneurial decisions are left to the government or a body to which
government has delegated its powers.

Function of entrepreneurship in production process

1. Entrepreneur initiates the business activity

He has to start the business activity by preparing a proper plan. The plan should deal with the
type of goods or service to be produced, sources of raw material and credit, type of technology
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

to be used, the markets where the products can be sold, etc. The plan should be detailed one
covering all the aspects of the business.

2. Entrepreneur organizes the factors of production

The entrepreneur has to collect all the other factors of production and combine them in the
right proportion.

3. Entrepreneur is a decision maker

Business involves variety of decisions to be taken. The entrepreneur has to decide about the
nature of product, technology, price policy, advertisement strategy, employment of labour, etc.
A proper strategy has to be adopted by him to take the right decision.

4. Entrepreneur co-ordinate things effectively

A business firm consists of a number of departments. He has to co-ordinate various units

effectively by having proper communication channels and supervision.

5. Entrepreneur tries to introduce innovations

According to Prof. Schumpeter, the true function of an entrepreneur is introducing innovations.

Innovations imply introduction of a new product, discovering a new product, introduction of a
new technology or new method of production etc. Innovation involves risk. The entrepreneur
may get profit or may incur loss. Hence, few entrepreneurs try to introduce innovations. By
innovating, they contribute to technological process of the economy and accelerate the growth
and development.

6. Entrepreneur handles budget of his business

The entire budgeting process is the responsibility of the entrepreneur. He has to mobilize
resources for the implementation of the business plan. All other factors have to be paid
contractual payments. He gets the residual income, he has to make provision for future
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

investments for expansion and diversification. He has to maintain a balance between income
and expenditure.

7. Entrepreneur bears risk and uncertainty

This function distinguishes the entrepreneur from other functions while other factors need not
bother about risk and uncertainties, entrepreneur has to bear risks and uncertainties while risks
are insurable, uncertainties cannot be insured. E.g. risk like fire, theft, etc. can be insured.
Uncertainties like changes in tastes, fashions, cannot be insured. While facing these
uncertainties entrepreneur may get profit or may incur loss. Thus, risk and uncertainty bearing
is one of the unique functions of an entrepreneur. Thus the entrepreneur is the pivot around
which all the activities of the firm revolve around. He is the one who gives direction to the
business firms & ensures its effective operation.

1.6 The role of entrepreneur in business improvement

Successful entrepreneurs are usually modeled as combinations of innovators (with creative and
innovative flair) and managers (with strong general management skills, business know-how,
and sufficient contacts). Over the years, economists have, however, described more roles of
entrepreneurs.

The following is a summary of the economists' interesting discourse that, aspiring

entrepreneurs may, hopefully, find useful.

Entrepreneur as risk-taker
Richard Cantillon (1680-1734) suggested that an entrepreneur is someone who has the foresight
and willingness to assume risk and take the requisite action to make a profit (or loss).
Cantillon’s entrepreneur is forward-looking, risk-taking, alert though need not be innovative in
the strict sense.
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Two different kinds of risk were distinguished by Frank Knight (1885-1972): one is capable of
being measured (i.e., objective probability that an event will happen) and shifted from the
entrepreneur to another party by insurance; the other is un-measurable (i.e., no objective
measure of probability of gain or loss), e.g., the inability to predict consumer demand. According
to Knight, the entrepreneur takes the latter risk: “true” uncertainty found in situations, which do
not repeat themselves with sufficient conformity to make possible a computation of probability
(what we nowadays term as "unknown and unknowable").

Entrepreneur as business manager

Frank Knight established a boundary between management and entrepreneurship. He sees
entrepreneurs in the strict sense as producers; while the great mass of population furnish them
with productive services, placing their persons and property at the disposal of entrepreneurs
who guarantee to them a fixed remuneration.
Entrepreneurial profit depends on whether an entrepreneur can make productive services yield
more than the price fixed upon them by those who furnish productive services think they can
make them yield. Therefore, its magnitude is based on a margin of error in calculation by
entrepreneurs and non-entrepreneurs who do not force the entrepreneurs to pay as much for
productive services as they could be forced to pay.

Entrepreneur as exceptional leader

Hans Karl Emil von Mangled (1824-1868) developed the notion that entrepreneurial profit is the rent of
ability. He divided entrepreneurial income into three parts:

(1) A premium on uninsured risks;

(2) Entrepreneur interest and wages, including only payments for special forms of capital or productive
effort that did not admit of exploitation by anyone other than the owner; and

(3) Entrepreneurial rents or payments for differential abilities or assets not held by anyone else.

The first part is a return on risk taking; the second part from capital use and production effort, and the
third part from ability or asset specificity. Alfred Marshall (1842-1924) carried forward Mangoldt’s notion
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

of rent-of-ability by adding the element of leadership to “entrepreneurial” responsibilities. Marshall’s

entrepreneurs “must be a natural leader of men who can choose assistants wisely but also exercise a
general control over everything and preserve order and unity in the main plan of business.

In fulfilling this organizational function, the entrepreneur must always be “on the lookout for methods
that promise to be more effective in proportion to their cost than methods currently in use”. Marshall
noted that not everyone had the innate ability to perform this entrepreneurial role as these abilities are
so great that very few persons can exhibit all of them in a very high degree.

Accordingly, he termed the entrepreneurial rents specifically as a “quasi-rent”, which is a return for
exceptional natural abilities, which are not made by human effort, and enable the entrepreneur to
obtain a surplus income over what ordinary persons could expect for similar exertions following similar
investments of capital and labor in their education and start in life.

Entrepreneur as perceiver/restorer

John Bates Clark (1847-1938) noted that as static conditions change over time: population grow, wants
change, and improved production technologies are discovered and implemented, the mobility of capital
and labour is necessary to restore new equilibrium. He sees the entrepreneur as the human agent
responsible for the coordination that restores the economy to an equilibrium position.

Entrepreneur as innovator

Joseph Schumpeter (1883-1950), Austrian-born professor, is famous for focusing on the

entrepreneur as the central figure in advancing the wealth of nations and creating dynamic
disequilibrium in the global economy. In the process of “creative destruction” (of the market
system), entrepreneurs plays a central role by constantly assimilating knowledge not yet in
current use and setting up new production forms and functions to produce and market new
products.
He pointed out that knowledge underlying the innovation need not be newly discovered and
may be existing knowledge that has never been utilized in production. Therefore, the
entrepreneur need not be an inventor and vice versa. He is the one who turns an invention into
commercial exploitation.
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

For Schumpeter, successful innovation requires an act of will, not of intellect. It therefore
depends on economic leadership and not mere intelligence. He felt that such a hazardous
activity would not be undertaken by ordinary economic agents but only by entrepreneurs with
the vision, drive and commitment to survive the uncertainty and turbulence involved. When he
succeeds, the entrepreneur will realize exceptional (be it temporary monopoly) profits and he
may be able to fundamentally change existing or introduce new market and industry structures.
Therefore, Schumpeter’s theory of “creative destruction” has sometimes also been known as
“heroic entrepreneurship”.
Peter Drucker (1909-2005) notes that entrepreneurship can be defined as changing the yield of
resources (seen in supply or production terms) or as changing the value and satisfaction
obtained from resources by the consumer (defined in demand terms) and innovation to be the
specific instrument of entrepreneurship. Like Taussig and Mises, Drucker asserts that
innovation does not have to be technical and are often social as well.
He argued that management (as ‘a useful knowledge’) is an innovation of the 20th century as it
has made possible the emergence of the entrepreneurial economy in America and converted
modern society into something brand new: a society of organizations. He therefore prescribed a
systematic form of entrepreneurship management, based on systematic innovation: “Systematic
innovation consists in the purposeful and organized search for changes and in the systematic
analysis of the opportunities such changes might offer for economic or social innovation

Self-Check 1 Written Test

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Answer all the questions listed below-use the answer sheet provided below

1. Define Terminology, principles and concepts of entrepreneur

2. Identify types of enterprises and their role
3. Identify Classifications of Enterprises

4. Discus Concept of Enterprise

5. Functions of entrepreneurship in business

Answer Sheet Score = ___________

Rating: ____________
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Name: _________________________ Date: _______________

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

AWAERNES CREATION AND RESOURSE

MOBILIZATION

NTQF Level III

LEARNING GUIDE: - 10
Unit of Competence: Develop understanding of
entrepreneurship

Module Title: Developing understanding of

entrepreneurship

LG Code: CDS CPM3 M010 0312

TTLM Code: CDS CPM3 M01TTLM 030712v1

LO 2: Discuss how to become entrepreneur

BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Instruction Sheet 2 Learning Guide #2

This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –

 understanding self employment

 Advantages and Constraints of Self-Employment
 Entrepreneurial Characteristics
 Identifying Potential Entrepreneurs
 Competencies for Successful Entrepreneurship
This guide will also assist you to attain the learning outcome stated in the cover page.
Specifically, upon completion of this Learning Guide, you will be able to –

 Understand self employment

 Identifying Advantages and Constraints of Self-Employment
 Know Entrepreneurial Characteristics
 Identify Potential Entrepreneurs
 Understand Competencies for Successful EntrepreneurshipLearning Instructions:

21. Read the specific objectives of this Learning Guide.

22. Follow the instructions described in number 3 to 20.

23. Read the information written in the “Information Sheets 1”. Try to understand what are
being discussed. Ask you teacher for assistance if you have hard time understanding them.

24. Accomplish the “Self-check 1” in page __.

25. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 1).
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

26. If you earned a satisfactory evaluation proceed to “Information Sheet 2”. However, if your
rating is unsatisfactory, see your teacher for further instructions or go back to Learning
Activity #2.

27. Submit your accomplished Self-check. This will form part of your training portfolio.

28. Read the information written in the “Information Sheet 2”. Try to understand what are being
discussed. Ask you teacher for assistance if you have hard time understanding them.

29. Accomplish the “Self-check 2” in page __.

30. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 2).

31. Read the information written in the “Information Sheets 3 and 4”. Try to understand what
are being discussed. Ask you teacher for assistance if you have hard time understanding
them.

32. Accomplish the “Self-check 3” in page __.

33. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 3).

34. If you earned a satisfactory evaluation proceed to “Operation Sheet 1” in page _. However, if
your rating is unsatisfactory, see your teacher for further instructions or go back to Learning
Activity #6.

35. Read the “Operation Sheet 1” and try to understand the procedures discussed.

36. You are provided with a CD containing lessons on how to clean and maintain equipment.
Before you open the CD read the information written in the “Information Sheets 1-2” in
pages ___. You will be also provided with additional reference reading materials regarding
the cleaning of masonry hand tools.
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

37. Request a desktop computer or laptop from your teacher. Make sure the unit is plugged to a
power source before turning on the power O. Then insert the CD in the CD drive located in
your computer. Access the information as described in the Operation Sheet 1 in page __.

38. Read all the contents of the CD and try to understand the procedures discussed.

39. Request access to the equipment and software described in the CD. Practice the steps or
procedures as illustrated in your CD. Go to your teacher if you need clarification or you want
answers to your questions or you need assistance in understanding a particular step or
procedure.

40. Do the “LAP test” in page __ (if you are ready). Request your teacher to evaluate your
performance and outputs. Your teacher will give you feedback and the evaluation will be
either satisfactory or unsatisfactory. If unsatisfactory, your teacher shall advice you on
additional work. But if satisfactory you can proceed to Learning Guide #8.
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Information Sheet-2 Discuss how to become entrepreneur

2.1 Understanding self employment

Self-employment is an activity where individuals create their own employment opportunities

by creating a business.
Reasons for Wage Employment or Going into Business

A. Economic – to earn more money

B. Psychological – to feel useful and needed

C. Social – to be with people

D. Critical incidents – Shocks

E. Practical reasons – Rational

F. Personal reasons – Emotional

Reasons for Wage Employment or Going into Business

To accommodate:
1. CRITICAL INCIDENT (Economic, Psychological, Sociological)
• Inheriting family wealth.
• Being fired/sacked/made redundant/retired.
• Transferred to different job or location.
• Challenged by people you know/emulating others.
• Unhappy with your boss or colleagues.
• No job opportunity after leaving school or vocational training.
2. PRACTICAL REASONS (Economic, Psychological, Sociological)
• To make a living and/or get rich.
• To prepare for retirement. That is, “something to do” in retirement, or to
Provide additional income, or both.
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

• For supplemental income and equity building, such as in real estate.

• To use as a tax shelter or business write-off.
• To have something to occupy spare time. (To relieve boredom).
• To create a common cause for the whole family, thereby
building to getherness.
3. ABSTRACT PERSONAL REASONS (Economic, Psychological, Sociological)
Some of the abstract, personal reasons include:
• For emotional rewards, a realization of self-worth, self-image, seeing your
Creativity develops and expands.
• To escape working for someone else.
• To have flexible working hours – the freedom to do what you please, when
You please.
• To stop having to take orders.
2.2 Advantages and Constraints of Self-Employment
1. ADVANTAGES OF WORKING FOR YOURSELF
Those who choose self-employment as a career usually do so for five basic reasons:
Personal satisfaction, independence, profits, job security and status.
a. Personal satisfaction: To some people, the chief reward of working for your self
is personal satisfaction. Personal satisfaction means doing what you want with your life.
Being self-employed will enable you to spend each work day in a job you enjoy. For
example, if you like photography, you may start your own studio. Each time a customer
is pleased with a portrait, you will receive personal satisfaction.
You may receive satisfaction from aiding the community in which you live.
Self-employed persons supply goods and services and create jobs for others.
They also buy goods and services from other local enterprises, borrow money from
local banks, and pay taxes.
b. Independence: Another advantage of being a self-employed person is
independence. Independence is freedom from control of others. You are able to use
your knowledge, skills and abilities as you see fit. When you are self-employed you
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

are driven by spirit of self-reliance and individual survival.

Compared to those who work for others, self-employed persons have more
freedom of action. They are in charge and can make decisions without first having
to get the approval of someone else.
c. Profit and income: One of the major rewards expected when starting a new
business is profit. Profit is the amount of income left after all expenses have been paid.
Profits go to the owner of a business. Being self-employed, you would be able to control
your income. Very often, increased time and effort put into the enterprise results in
increased income.
d. Job security: Many enterprises are created by persons who are seeking the kind of
job that is not available elsewhere. Job security is the assurance of continued employment
and income. Self- employed persons cannot be laid off, fired, or forced to retire at a certain
age.
e. Status: Status is a term used to describe a person’s social rank or position. Self-
employed persons receive attention and recognition through customer contact and public
exposure. As a result, they may enjoy status above that of many other types of workers. Closely
related to social status is pride in ownership; most people enjoy seeing their names on
buildings, vehicles, stationery and advertisements. To some degree, all people seek status.
f Flexibility: Individuals who become self-employed have options to start enterprises in
all categories and sizes depending on their capabilities. Self-employment also gives the
individual the job of being an employer and a leader rather than an employee and a
follower.

2. CONSTRAINTS OF WORKING FOR YOURSELF

In addition to knowing the advantages of self-employment, you should also be familiar With
the disadvantages: possible loss of invested capital, uncertain or low income, long hours and
routine chores.
a. Possible loss of invested capital: One risk of being self-employed is the possibility of
losing your invested capital. The term invested capital refers to the money the
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

entrepreneur put into starting the enterprise. As a general rule, the riskier of the
business, the greater the profit potential. If the enterprise succeeds, profits may be high.
If the business fails, invested capital may be lost; the entrepreneur stands to lose a
lifetime of personal and family savings. It may take years to repay banks, suppliers and
individuals who loaned the money to get the business started.
b. Uncertain or low income: Another disadvantage of owning your business is the
possibility of uncertain or low income. Unlike the salaries of employed workers, profits
usually vary from one month to another. This is true even in well-established businesses.
When income is available, there still may not be enough to meet personal and family
needs. This is often the case during the first six to twelve months of operation.
c. Long business hours: Entrepreneurs do not work just forty hours a week; they do not
punch time clocks. Many self-employed persons work fourteen or more hours a day, six
or seven days a week. The owner is often the first to arrive at the business in the morning
and the last to leave at night. Business hours are seating the convenience of customers,
not the desire of the owner. For example, many market shops are open from 8:00 a.m. to
9:00 p.m. Some entrepreneurs feel they cannot leave their businesses for more than one
or two days at a time.
d. Routine chores: Running your own business may involve routine chores you do not like
to do.
e. Risks: You stand the best chance of success if you are prepared to take calculated risks.
risks allow you to estimate the chances of failure or success without taking a gamble.
Very low risk ventures have less reward in terms of profits and may lead to limiting your
ideas and their follow-up.
f. Time involvement: Starting a small business takes a lot of hard work. In fact, it may
consume most of your waking hours in the first few years. But in the long run, work effort
and personal involvement on the part of a small business owner can vary greatly. In many
established small businesses, day-to-day activities can be turned over to a manager.
Decide on the personal involvement and work effort you would like to put into your
business in the future (six years from now). Quite conceivably, you’ll want to continue to
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

be fully involved, or maybe you’ll prefer to be only partially involved or not involved at all.
g People contact: How do you feel about working with people? Do you really enjoy it, or do
you wish you could always work alone? Or are you somewhere in between? There are
really three types of people contact in a small business: contact with customers, with
employees, and with suppliers. Most small business owners don’t mind the contact with
employees and suppliers, since the owner is usually on the most comfortable side of the
relationship. The owner-customer relationship, however, differs greatly depending on the
type of business you ‘rein. For example, in selling real estate, personal aggressiveness is
important. If you don’t enjoy personal selling, don’t choose a business where it’s required.
Many businesses have a much more impersonal sales approach. In most retail operations,
for example, successful selling depends more on good merchandise, fair prices and
advertising than it does on personal contact with the customer. An extreme example of
impersonal selling is mail order, internet or e-mail, where you never even see a customer
(the customers send in orders and the owner sends out the merchandise).
Self Employment

ADVANTAGES CHALLENGES

1. Leads rather than follows 1. Long, irregular hours of

2. Can implement ideas Work
3. Can be creative 2. Broad responsibility
4. Potential income unlimited 3. Must take risks
4. Income not stable nonguaranteed
5. Independence
6. Can take initiative 5. No fringe benefits
7. Controls work 6. Always involved in finances
Environment 7. Time constraint
8. Gives orders 8. Uncertain future
9. Learning never ends
10. Hard to delegate work
11. Too much paperwork
12. Dependent on employee
Actions
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

Paid Employment

ADVANTAGES CHALLENGES

1. Specific (or fixed) responsibilities 1. Follows orders

2. Steady income 2. Ability not easily recognized

3. Fringe benefits 3. Set income
4. Fixed hours of work 4. Limited responsibility
5. More certain future 5. Difficulty to implement ideas
6. Set span of control 6. Dependent on the employer
7. Minimal risks

2.3 Entrepreneurial Characteristics

Have one of the learners is the entrepreneurial characteristics identified in the case studies
on the chalkboard. The list might include the following characteristics:
– Self confident – Gets along with others
– Independent – Flexible
– Optimistic – Responsive to feedback
– Dynamic leader – Achievement-oriented
– Originality of thought – Builds for the future
– Builds on strengths – Highly motivated – Profit-
– Innovative and creative oriented
– Resourceful – Persistent and determined
– Committed – Willing to listen
– Takes initiative – Hard working
– Versatile and – Energetic and forceful
knowledgeable – Perceptive
BICC Ethiopian TVET System Training, Teaching and Learning Materials Module

– Goal-oriented
– Risk-taker
– Accepts challenges
– Communicates
effectively
– Decision-maker
– Sets own performance
standards
– Sees broad picture
– Mentally well-organized
– Understands self
– Manages an organization
– Reliable, has integrity
– Copes with uncert
2.4 Identifying Potential Entrepreneurs
A growing number of employees are becoming dissatisfied with paid employment for a
Variety of reason:
1. They dislike following orders
2. Their abilities are not being recognized
3. Income is at a set level
4. Their responsibility is limited
5. Implementation of their own ideas is difficult
6. They are unhappy about dependency on their employer
Dissatisfied employees may seek new opportunities to become self-employed. They tend
to go into business for themselves for a variety of reasons:
1. Independence – they want to be their own boss
2. Immediate need for a job
3. They want to supplement employment income
4. They want to develop a business for their children
5. They want to make more money than they make as an employee
6. They want to have an opportunity to prove their ability
Although the term entrepreneur is generally used to describe a person who is self-
employed, being an entrepreneur is more than a job or a career, it is a lifestyle. You
should, therefore, look at your personal qualities in a realistic manner. Responses to the
following questions will give some indication as to your entrepreneurial abilities:
1. Are you usually self-motivated and willing to work hard to achieve goals?
2. Do you work well with other people?
3. Within a group of people, do you usually assume a leadership role?
4. Are you able to communicate well with others?
5. Are you a good listener?
6. Do you have self-confidence?
7. Do you have a positive self-image?
8. Are you decisive when making decisions?

42 | P a g e
The more YES responses you have to the above questions, the more entrepreneurial you
may be. One of the primary factors of being an entrepreneur is that you provide
something of value to others. The greater the need people have for your product or
service, the greater your potential benefits will be. If you work to help other people to
raise their standard of living and improve their lives, you will be serving the needs of
society. This is part of the meaning of being a good citizen as well as being a good
entrepreneur.
Important Entrepreneurial Traits
1. Hard Working: running a business requires a lot of energy and drive. This
involves the ability to work for long hours when necessary, to work intensely in spurts
and to cope with less than a normal amount of sleep.
2. Self-Confident: to succeed, entrepreneurs have to believe in themselves and in
their ability to achieve the goals they have set for themselves. This is often shown by a
belief that “if you want something badly enough and are prepared to work at it, you’ll
usually get it”.
3. Builds for the Future: the goal for most successful business people is to build a
secure job and income for themselves which is based on their own abilities. This means
entrepreneurs understand that it may take several years to build up business income to
a reasonable standard.
4. Profit-Oriented: interest in generating money is a clear indicator of an
entrepreneur’s suitability for being a business owner. This means recognizing that the
business comes first. Once profits are generated, the entrepreneur can make decisions
about how the profits can be used – to expand the enterprise or for personal use.
5. Goal-Oriented: success in business depends upon being able to set realistic goals
or targets and to work with determination to achieve them. This ability to set goals (for
things the person thinks are worthwhile) and to work to achieve them is fundamental
to being an entrepreneur.
6. Persistent: all businesses have their problems and disappointments. Being
persistent in solving a problem is one of the keys to being a successful entrepreneur.

43 | P a g e
 7. Copes with Failure: all business ventures inevitably contain disappointment sand
failures as well as successes. Coping with failures involves recognizing these failures,
learning from them and seeking new opportunities. Without this characteristic, early
failures may end a person’s attempt at self-employment.
8. Responds to Feedback: entrepreneurs are concerned to know how well they are
doing and to keep track of their performance. Obtaining useful feedback and advice
from others is another important characteristic of entrepreneurs.
9. Demonstrates Initiative: research shows that successful entrepreneurs take the
initiative and put themselves in positions where they are personally responsible for
success or failure.
10. Willing to listen: the successful entrepreneur is not an inward looking person
that never uses outside resources. Self-reliance does not exclude the ability to ask for help
when needed from such people as bank officials, accountants and business advisers. Being
able to listen to the advice of others is a key characteristic of an entrepreneur.
11. Sets Own Standards: setting standards of performance and then working to achieve
them is another indicator of a successful entrepreneur. These standards can be
income, quality, sales or product turnover. Most entrepreneurs want to do better each
year, to set and achieve higher standards from year to year.
12. Copes with Uncertainty: being an entrepreneur is much more uncertain than
employment. This uncertainty is about sales and
turnover, but it often also exists in other areas such as material delivery and prices, and
bank support. An ability to cope with this uncertainty without becoming too stressed is a
necessary trait of being an entrepreneur.
13. Committed: starting and running an enterprise demands total commitment by the
entrepreneur in terms of time, money and lifestyle. It has to be a major priority in the
entrepreneur’s life.
14. Builds on Strengths: successful business people base their work upon the strength(s)
they have, such as manual skills, interpersonal skills, selling skills, organizational skills,
writing skills, knowledge of a particular product or service, knowledge of people in a trade

44 | P a g e
and ability to make and use a network of contacts.
15.Reliable and Has Integrity: the qualities of honesty, fair dealing and reliability in
terms of doing what one has promised to do are essential traits of an entrepreneur.
16. Risk-Taker: being an entrepreneur involves some risks. Entrepreneurs have the ability
to take measured or calculated risks. Such risks involve working out the likely costs and
gains, the chance of success and the belief in oneself to make the risk pay off.
Entrepreneurs may be considered risk avoiders when they reduce their risks by having
others assume part of the risk. Those who assume the entrepreneur’s risk may be bankers,
suppliers and customers.

2.5 Competencies for Successful Entrepreneurship

There are three major competencies for successful entrepreneurship. These may be
defined as:
• A body of knowledge
• A set of skills
• A cluster of traits.
These are discussed in turn.
Knowledge has been defined as a set or body of information stored, which may be
recalled at an appropriate time. Knowledge in the context of business may be manifested
by information on, or familiarity with aspects such as:
•a business opportunity •the market
•customers •competitors
•production processes •technical matters
•business management •sources of assistance
Knowledge of business or entrepreneurship, however, is not enough for success in setting
up and operating a business – in the same way as, for example, reading or learning about
flying, driving or swimming will not on its own enable you to fly a plane, drive a car or
swim in a pool.

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Skill has been defined as the ability to apply knowledge and can be acquired or developed
through practice, e.g. flying, driving or swimming. In the context of business, it is possible
to distinguish between skills of a technical and managerial nature. Some examples are
listed below:
Technical Managerial
• Engineering • Marketing (including selling)
• Computing • Financial management
• Carpentry • Organization
• Mechanics • Planning
• Catering time • Leadership

N:B. Knowledge and skills are relatively easy to acquire or develop. By contrast, traits take
Trait
Trait has been defined as the aggregate of peculiar qualities or characteristics which
constitutes personal individuality. In a cross-cultural study of India, Malawi and Ecuador,
14 personal entrepreneurial characteristics (PECs) which appear to depict the behavior of
successful entrepreneurs were identified. The research was funded by USAID and
undertaken by McBer& Company and Management Systems International. The 14 PECs
can be summarized as follows:
A successful entrepreneur:
• Takes initiative • Sees and acts on opportunities
• Is persistent • Personally seeks information
• Is concerned for high quality • Is committed to fulfilling contracts
• Is oriented to efficiency • Plans systematically
• Solves problems in original ways • Demonstrates self-confidence
• Takes calculated risks • Is assertive
• Is persuasive •Uses influential strategies

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It is more likely than not that a person who does not have all 3 competencies in his/her
business will encounter difficulties in operating the venture successfully. What would
happen if a person had?
• Knowledge and skills only
An individual with only knowledge and skills is unlikely to survive for long; even if
he/she manages to start at all. For example, without the traits, he/she might exhibit
little persistence when faced with major obstacles; or the person may not see nor act
on opportunities; or he/she might simply be unwilling to take the calculated risk of
venturing into business in the first place.
• Knowledge and traits only
A person with only knowledge and personal traits might find nothing of value to
which these might be applied, without technical skills. Or they may find that they
are too dependent on outsiders and, therefore, possibly too vulnerable. The solution
might be to find a partner or employ people with the requisite skills.
• Skills and traits only
A potential entrepreneur with skills and entrepreneurial traits, but lacking in
knowledge, might be able to start a business. In a competitive environment,
however, the lack of knowledge or familiarity with, for example, customers, or the
market (including trends) could eventually lead to failure. Information is essential
for any business to succeed.

Self-Check 2 Written Test

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 Answer all the questions listed below-use the answer sheet provided below

1. Define self employment

2. Discus Advantages and Constraints of Self-Employment
3. What are the Characteristics and of Entrepreneur
4. Identifying Potentials of Entrepreneurs
5. What are the Competencies for Successful Entrepreneurship

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 Answer Sheet Score = ___________

Rating: ____________

Name: _________________________ Date: _______________

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AWAERNES CREATION AND RESOURSE
MOBILIZATION

NTQF Level III

LEARNING GUIDE: - 10
Unit of Competence: Develop underfunding
of entrepreneurship

Module Title: Developing underfunding

of entrepreneurship

LG Code: CDS CPM3 M010 0312

TTLM Code: CDS CPM3 M01TTLM 030712v1

LO 3: Discuss how to organize an enterprise

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 Instruction Sheet 3 Learning Guide #3

This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –

 Understanding of facts about small and medium small enterprise

 Role and Importance of Business Entrepreneurship in Society
 Key Success Factor to small and Medium Enterprises (SMEs)
 Ways of identifying business opportunities

 Techniques and steps of generating business ideas

 Procedures to identify suitable market
 Underfunding major factors in selecting location for business
 Types of business ownership
 Techniques of estimating money to start business
 Source of capital

This guide will also assist you to attain the learning outcome stated in the cover page.
Specifically, upon completion of this Learning Guide, you will be able to –

 Understand of facts about small and medium small enterprise

 Identify Role and Importance of Business Entrepreneurship in Society
 Understand Success Factor to small and Medium Enterprises (SMEs)
 Understand ways of identifying business opportunities

 Identify techniques and steps of generating business ideas

 Understand procedures to identify suitable market
 Underfund major factors in selecting location for business
 Know types of business ownership
 Identify techniques of estimating money to start business
 Identify source of capital

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Learning Instructions:

41. Read the specific objectives of this Learning Guide.

42. Follow the instructions described in number 3 to 20.

43. Read the information written in the “Information Sheets 1”. Try to understand what
are being discussed. Ask you teacher for assistance if you have hard time
understanding them.

44. Accomplish the “Self-check 1” in page __.

45. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 1).

46. If you earned a satisfactory evaluation proceed to “Information Sheet 2”. However, if
your rating is unsatisfactory, see your teacher for further instructions or go back to
Learning Activity #2.

47. Submit your accomplished Self-check. This will form part of your training portfolio.

48. Read the information written in the “Information Sheet 2”. Try to understand what are
being discussed. Ask you teacher for assistance if you have hard time understanding
them.

49. Accomplish the “Self-check 2” in page __.

50. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 2).

51. Read the information written in the “Information Sheets 3 and 4”. Try to understand
what are being discussed. Ask you teacher for assistance if you have hard time
understanding them.

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52. Accomplish the “Self-check 3” in page __.

53. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 3).

54. If you earned a satisfactory evaluation proceed to “Operation Sheet 1” in page _.

However, if your rating is unsatisfactory, see your teacher for further instructions or
go back to Learning Activity #6.

55. Read the “Operation Sheet 1” and try to understand the procedures discussed.

56. You are provided with a CD containing lessons on how to clean and maintain
equipment. Before you open the CD read the information written in the “Information
Sheets 1-2” in pages ___. You will be also provided with additional reference reading
materials regarding the cleaning of masonry hand tools.

57. Request a desktop computer or laptop from your teacher. Make sure the unit is
plugged to a power source before turning on the power O. Then insert the CD in the
CD drive located in your computer. Access the information as described in the
Operation Sheet 1 in page __.

58. Read all the contents of the CD and try to understand the procedures discussed.

59. Request access to the equipment and software described in the CD. Practice the steps
or procedures as illustrated in your CD. Go to your teacher if you need clarification or
you want answers to your questions or you need assistance in understanding a
particular step or procedure.

60. Do the “LAP test” in page __ (if you are ready). Request your teacher to evaluate your
performance and outputs. Your teacher will give you feedback and the evaluation will
be either satisfactory or unsatisfactory. If unsatisfactory, your teacher shall advice you
on additional work. But if satisfactory you can proceed to Learning Guide #8.

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 Information Sheet-3 Discuss how to organize an enterprise

3.1 Role and Importance of Business Entrepreneurship in Society

Economists and businessmen have no doubts that entrepreneur is in a lot of ways much
more efficient and effective than the simple business individuals, but few common people
share this opinion.

They generally believe that their greedy neighbors embark on business enterprises(who
are not entrepreneurs) driven mostly by insatiable passion for money and other selfish
aspirations and they refuse to see the role business plays in modern society – the role that
makes business not selfish at all.

1. Business produces and distributes goods and services to satisfy certain public needs. To
fulfill this task, business has to be very flexible and constantly research consumer
demands: what’s the point producing something that nobody wants to buy?

2. Business creates job opportunities. More than that, most jobs business helps create are
productive jobs, i.e., people employed by business ventures produce “real” goods and
services.

3. Business provides income – here we come at last to the money matter. But don’t forget:
income that business provides is by no means restricted to the profit its owners get. It
pays salaries and wages to its employees, and this way, makes the whole business world
go round: they spend the money they earn buying all kinds of goods and favor further
development of business ventures.

4. Business contributes to national well-being. It does it in several ways: by means of taxes

it pays which make it possible for the government to maintain all kinds of public and
social institutions and services; by investing money in developing science and technology

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and constructing new enterprises; by full use of local recourses, including those located in
remote rural areas, and in a number of other ways.

5. Business helps enlighten and educate people and encourages their further personal
growth. High level of competition makes it vital for both businessmen and their
employees to be involved in the constant process of learning and developing their
personal qualities such as creativity, determination, communication skills and vision for
new business opportunities.

So you see, that despite public opinion on this matter, business is not all that selfish. In
fact, it is much more unselfish than a lot of public institutions. It does not exist to satisfy
its own needs – that is a way to business failure. On the contrary, its function is to satisfy
in the long run the consumer demands – our demands, and to make our life comfortable.
So, when you make this crucial decision to embark on a business enterprise, bear it in

mind that it is a way to serve society

3.1.1 The Role of the Entrepreneur

By understanding your place in the economy, you can better position yourself for success.

Entrepreneurs occupy a central position in a market economy. For it's the entrepreneurs
who serve as the spark plug in the economy's engine, activating and stimulating all
economic activity. The economic success of nations worldwide is the result of
encouraging and rewarding the entrepreneurial instinct.

A society is prosperous only to the degree to which it rewards and encourages

entrepreneurial activity because it is the entrepreneurs and their activities that are the
critical determinant of the level of success, prosperity, growth and opportunity in any
economy. The most dynamic societies in the world are the ones that have the most

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entrepreneurs, plus the economic and legal structure to encourage and motivate
entrepreneurs to greater activities.

Economists viewed entrepreneurship as a small part of economic activity. But in recently

Economists recognizes entrepreneur as the person having the central role in all economic
activity. Why is that?

Because it's entrepreneurial energy, creativity and motivation that trigger the production
and sale of new products and services. It is the entrepreneur who undertakes the risk of
the enterprise in search of profit and who seeks opportunities to profit by satisfying as yet
unsatisfied needs.

Entrepreneurs seek disequilibrium--a gap between the wants and needs of customers and
the products and services that are currently available. The entrepreneur then brings
together the factors of production necessary to produce, offer and sell desired products
and services. They invest and risk their money--and other people's money--to produce a
product or service that can be sold at a profit.

More than any other member of our society, entrepreneurs are unique because they're
capable of bringing together the money, raw materials, manufacturing facilities, skilled
labor and land or buildings required to produce a product or service. And they're capable
of arranging the marketing, sales and distribution of that product or service.

Entrepreneurs are optimistic and future oriented; they believe that success is possible and
are willing to risk their resources in the pursuit of profit. They're fast moving, willing to
try many different strategies to achieve their goals of profits. And they're flexible, willing
to change quickly when they get new information.

Entrepreneurs are skilled at selling against the competition by creating perceptions of

difference and uniqueness in their products and services. They continually seek out
customer needs that the competition is not satisfying and find ways to offer their

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products and services in such a way that what they're offering is more attractive than
anything else available.

Entrepreneurs are a national treasure, and should be protected, nourished, encouraged

and rewarded as much as possible. They create all wealth, all jobs, all opportunities, and
all prosperity in the nation. They're the most important people in a market economy--and
there are never enough of them.

As an entrepreneur, you are extremely important to your world. Your success is vital to
the success of the nation. To help you develop a better business, one that contributes to
the health of the economy, I'm going to suggest that you take some time to sit down,
answer the following questions, and implement the following actions:

What opportunities exist today for you to create or bring new products or services to your
market that people want, need and are willing to pay for? What are your three best
opportunities?

1. Identify the steps you could take immediately to operate your business more
efficiently, especially regarding internal operating systems.
2. Tell yourself continually "Failure is not an option." Be willing to move out of your
comfort zone, to take risks if necessary to build your business.
3. Use your creativity rather than your money to find new, better, cheaper ways to
sell your products or reduce your costs of operation. What could you do
immediately in one or both of these areas?
4. Imagine starting over. Is there anything you're doing today that, knowing what you
now know, you wouldn't get into or start up again?
5. Imagine reinventing your business. If your business burned to the ground today,
and you had to start over, what would you not get into again? What would you do
differently?

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 3.1.2 Importance of entrepreneurship

Defining entrepreneurship

Brown and Upton had the opinion that Entrepreneurship can be known as the method of
gaining, pulling simultaneously all the resources, and installing them in the quest of
apparent chances in the coming future for lengthy gains.

Why entrepreneurship plays a vital role in the economy?

A very core and fundamental role is played by entrepreneurship in any economy and the
reasons why it holds such a dominant role in the economy is discussed minutely in the
given below

The following reasons are responsible for the same;-

1) Provides employment to huge mass of people; - people often hold a view that all those
who do not get employed anywhere jump into entrepreneurship, a real contrast to this is
that most of establishments of new business in recent years were due to an aspiration to
chase openings. This emphasizes the fact that entrepreneurship is not at all an
encumbrance to an economy. What's more is that almost of fresh employment
opportunities were created by entrepreneurs. This situation makes it clear that
entrepreneurship heads nation towards better opportunities, which is a significant input
to an economy.

2) Contributed towards research and development system; - almost majority of all

innovations are due to the entrepreneurs. Without the boom of inventions the world
would have been a much dry place to live in. Inventions provide an easier way of getting
things done through better and standardized technology.

3) Creates wealth for nation and for individuals as well; - all individuals who search
business opportunities usually, create wealth by entering into entrepreneurship. The

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wealth created by the same play a considerable role in the development of nation. The
business as well as the entrepreneur contributes in some or other way to the economy,
may be in the form of products or services or boosting the GDP rates or tax contributions.
Their ideas, thoughts, and inventions are also a great help to the nation.

4) Sky-scraping heights of apparent prospects; - the individual gets maximum scope for
growth and opportunity if he enters into entrepreneurship. He not only earns, the right
term would be he learns while he earns. This is a real motivating factor for any
entrepreneur as the knowledge and skills he develops while owning his enterprise are his
assets for life time which usually, lacks when a person is under employment. The
individual goes through a grooming process when he becomes an entrepreneur. In this
way it not only benefits him but also the economy as a whole.

5) It is a challenging opportunity for the people: - although entrepreneurship is a

challenging task but in most of the cases the rewards it gives are much more than what
one anticipates. It does not only reward an entrepreneur at financial levels but also on
individual level. It provides self satisfaction to the entrepreneur.

6) Entrepreneurship provides self sufficiency; - the entrepreneur not only become self
sufficient but also provide great standards of living to its employees. It provides
opportunity to a number of people working in the organization. The basic factors which
become a cause of happiness may be liberty, monetary rewards, and the feeling of
contentment that one gets after doing the job. Therefore the contribution of
entrepreneurs makes the economy an improved place to live in.

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3.2 understanding of facts about small and medium small enterprise

Definition of micro, small and medium-sized enterprises

The definition of micro, small and medium-sized enterprises is updated to take account
of economic developments since 1990s (inflation and productivity growth) and the
practical lessons learnt.

The new definition thus qualifies small and medium-sized enterprises (SMEs) and the
concept of the microenterprise. It strengthens the efficiency of the Community
programmes and policies designed for these businesses. The aim is to ensure that
enterprises whose economic power exceeds that of an SME do not benefit from the
support mechanisms specifically intended for SMEs.

3.2.1 Micro, small and medium-sized enterprises standards

"SME" stands for small and medium-sized enterprises – as defined in Ethiopia law: The
main factors determining whether a company is an SME are:

1. Number of employees and

2. Either turnover or balance sheet total.

Company category Employees Turnover or Balance sheet total

Medium-sized < 250 ≤ € 50 m ≤ € 43 m
Small < 50 ≤ € 10 m ≤ € 10 m
Micro < 10 ≤€2m ≤€2m
These ceilings apply to the figures for individual firms only. A firm which is part of larger
grouping may need to include employee/turn Small and medium-sized enterprises (SMEs)

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Micro, small and medium-sized enterprises

Micro, small and medium-sized enterprises are defined according to their staff headcount
and turnover or annual balance-sheet total.

A medium-sized enterprise is defined as an enterprise which employs more than

30 persons and whose annual turnover exceed 1.5 million birr or whose annual balance-
sheet total does not exceed medium-sized enterprises.

A small enterprise is defined as an enterprise which employs 6-30 persons and whose
annual turnover and/or annual balance sheet total does not exceed 10.000-1.5 million
birr.

A microenterprise is defined as an enterprise which employs fewer than 5 persons and

Whose annual turnover and/or annual balance sheet total does not exceed 50.000-
100.000birr?

3.2.2 Autonomous, partner, linked enterprises

The new definition of an SME clarifies the typology of enterprises. It distinguishes

between three types of enterprise on the basis of the type of relations they have with
other enterprises in terms of percentage interest in capital, voting rights or the right to
exercise a dominant influence:

 autonomous enterprises;
 partner enterprises;
 Linked enterprises.

Autonomous enterprises are by far the most common. These include all enterprises which
are not one of the other two types (partner or linked). An enterprise is autonomous if it:

 Does not have a holding of 25 % or more in another enterprise;

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  Is not owned 25 % or more by an enterprise or public body or jointly by several
linked enterprises or public bodies, with a few exceptions;
 Does not draw up consolidated accounts and is not included in the accounts of an
enterprise which draws up consolidated accounts and is thus not a linked
enterprise.

An enterprise may continue to be considered autonomous, even if this 25 % ceiling is

reached or exceeded, if there are certain categories of investor who play a positive role in
business financing and creation, such as "business angels".

Partner enterprises: This type represents the situation of enterprises which establish
major financial partnerships with other enterprises, without the one exercising effective
direct or indirect control over the other. Partners are enterprises which are neither
autonomous nor linked to one another. An enterprise is a partner of another enterprise if:

 It has a holding of 25 % to less than 50 % in the other enterprise;

 The other enterprise has a holding of 25 % to less than 50 % in the applicant
enterprise;
 The applicant enterprise does not draw up consolidated accounts which include
the other enterprise, and is not included by consolidation in the accounts of the
other enterprise or of an enterprise linked to it.

Linked enterprises correspond to the economic situation of enterprises which form a

group through the direct or indirect control of the majority of the capital or voting rights
(including through agreements or, in certain cases, through individual shareholders), or
through the ability to exercise a dominant influence on an enterprise. Such cases are thus
less common and very different from the two preceding types.

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3.3 Key Success Factor to small and Medium Enterprises (SMEs)

Well designed and well formulated strategic plan is a key factor for success of small and
medium business Enterprises (SMEs). Strategy is extensively implemented in both our personal
and professional lives. Its importance may be profound, but acknowledgement of the same is
vague. Strategy is not only important to individuals in daily walks of life, but organizations as
well, regardless of size, industry, geographical location or portfolio.

In business leadership, strategy is the on-going process of formulating, implementing and

controlling plans to guide the business in achieving the desired goals or objectives. In
brief, strategy is a tool for planning and execution.

In today’s competitive business milieu, businesses need not only to plan extensively, but
also implement prudently. Often, businesses suffer from incompetence in either of these,
which lead to harsh results. This is where the importance of strategy cannot be
magnified.

For SMEs, Strategy is a visionary process that best relates to its Business and Operational
Strategy through a strategic framework that inscribes Market Assessment, Plan
Formulation (idea formulation process), Plan Implementation (practical application of
the business idea), and Plan Evaluation (constant assessment of progress made whilst
correcting any deviations).

This should be in line with a progression that inquires on the current capacity of the
business in terms of know-how and business operations:

 Where are we now? (The current state of the business operation)

 Where do we want to go? (The business premise to migrate from the present stage
to the next)

 How do we get there? (The methodology / strategy implemented to reach the next
phase)

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3.3.1 Strategy Implementation

Most small businesses lack a formal mode of planning (most of small and medium
business enterprises surveyed independently). This clearly suggests that the key reason
for failure for SMEs is not only lack of access to finance, but also lack of planning. This is
not necessarily due to lack of know-how, but rather lack of acknowledgement or
importance of the same in ordinary course of business. This is a chronic trend that leads
to difficulty in harnessing opportunities in form of market identification and penetration,
and widening distribution channels that could positively impact the business.

Today, despite SMEs suffering from lack of finance to expand their business operation, it
is disconcerting to learn of lack of a clear Business Mission and Vision. This restricts the
business owners from tapping market potential. It is imperative for the Business Mission
and Vision to align with overall objectives in ensuring business survival and longevity.
This will help the business realize both its operational and financial objectives.

The Mission should clearly define the business endeavor; market served and core
competence, whilst the Vision should elaborate on future intentions and portfolio. These
are critical elements, which aid the overall planning process. Furthermore, business and
financial objectives need to be realistic, pre-emptive, and market-oriented. This is one of
the most common business alignment tools aiding small business development.

Another prominent business tool aiding small businesses to explore market avenues and
learn of existing potential is SWOT (Strengths, Weakness, Opportunities, Threats)
Analysis that explores Internal (within the business) and External (outside the business)
environment.

Strengths would explore business capabilities, Weakness would define business shortfalls
in terms of market reach or resources, Opportunities define the current market potential,
and Threats would elaborate on risks facing the business from the environment or
competitors. It is imperative for the business owner to define all variables purposefully in

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order to allocate resource that could positively impact the business. More often than not,
the process of SWOT is characterized by lack of market know-how and unclear
competitor identification that results in an indistinct exercise.

There are other various tools that small businesses could benefit from, but the reflective
impression of the alignment and SWOT process are distinct from the rest in terms of
business and market clarity resulting in well-defined perspective of the business scene.

3.3.2 Strategic Leadership

In summary, small businesses need to adopt strategy that is Simple, Measurable,

Actionable, Realizable, and Total (SMART). This is only possible if businesses strive to
transform their ideas and empower them through a detailed and well-thought planning
process subsequently resulting in careful implementation.

Moreover, the planning process needs to be characterized with effective assessment of

market trends; competitor actions and current potential to best maximize and allocate
resources. Furthermore, implementation needs to be proactive which would not
compromise potential and principle.

When strategy has been analyzed and selected, the task is then to translate it into
organizational action. Implementation is often the hardest part. As Sun Tzu, one of the
founding fathers of Strategy remarked in his book The Art of War, “Strategy without
tactics is the slowest route to victory, but tactics without strategy is the noise before
defeat.”

3.4 Ways of identifying business opportunities

3.4.1 How Do I Identify Business Opportunities?

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With so many business opportunities available, it is often difficult to determine whether a
particular opportunity shows great promise or is likely to fail. Your goal is to learn how to
tell a good opportunity from a bad one. Here are some tips that will help you assess the
potential of any business opportunity that comes your way and make the right decision.

One of the first factors to consider is the stability of the company associated with the
opportunity. In the case of a new business that does not yet have a proven track record,
you want to know who is behind the launch or who is supplying this company with
operating capital until the business begins to generate profits. Essentially, you want some
amount of assurance that the company will be around long enough for you to benefit
from a relationship with the opportunity, especially in terms of recouping any investment
of time or other resources.

Keep in mind that a new business or a plan to start a business may be riskier than going
with a company with an established track record. However, business opportunities of this
kind are not automatically suspect. If the funding is there and the organization is
structured properly, the opportunity is well worth your consideration.

3.4.2 How to Identify New Business Opportunities

To more effectively identify new business opportunities, you have to dig deep and ask lots
of questions. Take a step back, and use these questions as a guide to help you create or
adapt business strategies to meet the changing needs of your market.

• What frustrates customers or users of this industry? Some of the best ideas come from
looking at things that bug you, including not having enough options or selection, not
getting the product or service quickly enough, and poor quality.

• What should businesses be making, providing, selling in this industry that many are not
yet doing? What do you believe customers will want three to six months from now, one
year from now, that they can’t find today?

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• What have you experienced as a consumer of this industry? How would you do business
differently? What would you change based on what you experienced?

• What does everybody think "won’t work" in this industry? Asking questions about what
others have thought impossible is a great way to get new ideas.

3.4.3 Ways to Identify an Entrepreneurial Opportunity

If you look up the word opportunity, you will find a definition similar to this: “A favorable
or advantageous circumstance or combination of circumstances.” However, if seen
through the eyes of an entrepreneur, the definition is more like... “a favorable set of
circumstances that creates a need for a new product, service or business.” It is not easy to
spot a genuine opportunity. You must be sure that it is not just a different version of
something somebody else is already doing. A common mistake made when choosing an
opportunity is choosing a product or service that is already available and then trying to
build a better version if it. This approach does seem like it makes sense, but it usually
does not work out for the new entrepreneur.

The key to distinguishing a real opportunity is to recognize a product or service that

people lack and are willing to purchase, not one that you just want to sell because you
like it.

There is a difference between an idea and an opportunity. It is important to understand

that an idea may not meet the standards of being an opportunity. Businesses fail because
of being launched on the basis of an idea alone and not on a solid opportunity. So, before
you get all juiced up on your new idea, it is very important to know if the idea fills a need
and meets the criteria for an opportunity. Let’s take a look at three ways to identify an
opportunity.

1. Observing Trends

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Economic factors, social factors, political action, regulatory statutes and technology
advances are the most important trends to watch. You can follow and study them closely
on your own or you can pay independent research firms to provide you with customized
trend forecasts and market analysis. When looking at economic factors and how they
affect opportunities, first you should evaluate who has money to spend. When incomes
are high in a particular group or there is disposable money available, people are more
willing to buy products and services that enhance their lives.

Here are a few categories that could provide opportunities related to social factors:
1. Family and work patterns

2. The age of the population (baby boomers, etc...)

3. Increasing diversity in the workplace

4. Increasing focus on healthcare and fitness

5. Computers and the internet

6. Mobile technology

Advances in technology co-exist with social factors and economic factors to create
opportunities. Technological advances can provide opportunities to help satisfy basic
needs in a better, more convenient way. Once new technology is created, new products to
advance it are usually not far behind. Political action and regulatory changes will also
provide opportunities for the entrepreneur. New laws, political instability and global
terrorism have all provided business opportunities. A good example for this would be the
need for more and advanced security for companies and governments looking to protect
physical assets and intellectual property from attack.

2. Solving a Problem

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In the quest to recognize entrepreneurial opportunities, one must find a problem and
solve it. You can find these problems through observing challenges people encounter in
their everyday lives, by intuition or by chance. A large amount of the problem solving that
goes on is a result of personal problems or challenges that someone has in their own lives.
Haven’t you ever thought to yourself that there has got to be a better way to do the thing
that is aggravating you? Well, maybe there isn’t a better way (Research it.). That is an
opportunity. A constant trait with entrepreneurs is that they are always looking for
problems, or should I say, always looking for opportunities to solve a problem.

3. Finding Gaps in the Marketplace

Finding gaps in the marketplace is the third way to identify an opportunity. It involves
the ability to recognize a need that is not being met in a customer’s life. These gaps can
be hard to identify but can be potentially very rewarding. This is the world where the
niche market lives. Giant superstores have become a staple in our lives and try to have
just about anything and everything our hearts desire, but the reality is they can’t possibly
do that. A niche market is a place within a larger market that represents a narrower group
of people with similar interests. It covers the not so usual products in a boutique shop, to
the service that doesn’t even exist yet.

Opportunity is the word and you should always be on the look-out for it. Remember,
capitalizing on opportunity is one of the things that made this country so great and it is
why people from all over the world want to come to Ethiopia. Without opportunity there
is despair. Until next time, take Care.

3.5 Techniques and steps of generating business ideas

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The process of developing business idea is not a simple process. Some people just come to
a bunch of business ideas, but some really are without ideas. There are two problems:

 First is the excessive generation of ideas and that can make forever to remain
dreaming stage and
 Second is when we don’t have ideas and want to become entrepreneurs.

The most optimal way is to have a systematic approach in generating and selecting
business ideas that will be transferred in real business. Here are some basic but important
questions that can lead us through the process of business idea development:

Making a Framework

This is the first step of the process where we must make a framework for the next steps.
Everything that will be out of that framework will not be included in the next steps of the
process. This step is more about us as future entrepreneurs. The questions that we must
answer are:

1. Is entrepreneurial life that I really want to life?

2. Am I psychologically prepared for business startup?
3. What are my goals for the future?
4. How much I want to earn after several years?
5. How will be started my business solo or with a team of people?
6. How much money I have for startup?
7. How much money my partners have for startup?
8. How much I can spend on business startup?
9. How long I can persist before the business start generating money?

Brainstorming

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Brainstorming is the process of generating ideas where it is not looked into the quality of
an idea only on the quantity. Brainstorming is a group creativity technique designed to
generate a large number of ideas for the solution of a problem. Before starting this step it
is better to prepare a business idea book where we can note all business ideas that will
generate.

Selecting the Best Business Idea

This step is simply selecting the best business idea from the bunch of business ideas
generated in previous step – brainstorming. The purpose of this step is to find one or
several ideas that will continue in the next steps.

1. Can I exclude some ideas generated in the previous step?

2. Is there ideas that are not compatible with my answers in the first step –
framework?
3. What must be checked in ideas that were generated?
4. What is the opinion of my friends about the rest of business ideas?
5. What is the opinion of my previous colleagues about the rest of ideas?
6. What is the opinion of the market experts that I know about the rest of ideas?
7. What is my personal opinion about the rest of ideas?
8. What is the one or several business idea that received biggest amount of votes
from previous questions in this step?

Researching

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The fourth step is making the research about selected business idea or ideas from
previous step. Here needs broader audiences that must be included in our analysis. One
of the tools that we can use it, here are surveys.

1. Do I have capabilities to implement that idea?

2. What is expected reaction from the market about that idea?
3. What amount of money the market is willing to pay about product or service from
the idea?
4. Do markets will have a strong desire for something like my ideas?
5. How much will cost me the product or service?
6. What will be appropriate price for product or service?
7. Is that price that market is willing to pay?
8. Can I make a prototype?
9. If I make a prototype what is the opinion of our potential customers – people that
we include in our previous steps and here?
10. What is the feedback from testing a prototype?
11. Can I make adjustments according to feedback from previous question?
12. Can I start after adjustments?

5.1.1 Ten Steps to generating your successful business idea

You don’t have to be a genius to come up with a business idea. It’s the exact opposite! It’s
really simple to come up with business ideas all the time, however, the challenge lies in
coming up with a business idea that works for you and suits your personality and needs.

This is where most people get stuck, many people want to start their own and think about
it all the time, the big question is, what business should I start? And it is not a small
question, often, the kind of business you are in will dictate whether you will be successful
or not.

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So, if you have some sort of framework or directions to get your mind focused on business
ideas that will suit you and work with your own situation, then you’ve taken a big step
toward becoming successful in business.

1. Start thinking! Get your brain to work

This article has tips and advice that will help you get started with the creative process.
The first step towards creative thinking is understating how the mind works and how to
stimulate your brain. I will dig deep into this topic

To be successful in business, you have to have a balance on both sides. You have to be
imaginative and creative to come up with business ideas and to come up with creative
solutions for business problems. You also have to be logical to analyze and define
business opportunities, calculate business risks and weigh your options to deal with the
daily business issues.

2. Buy a notebook

Now that you know how to stimulate your brain and get started with the creative
thinking process, you need to keep count on your ideas and make sure that you can
document them to study and examine them further.

Every business you can think of started with a small idea somewhere, from a small
observations, a frustrating situation, or while taking a shower. The difference is that those
people who had those ideas took the time to think about these ideas and improve on
them to create successful businesses. You never know when the inspiration comes, so
keep a notebook close to you at all times to write these ideas down whenever they come.

3. Follow your passion

Starting and building a successful business is no small task, it will be a lot of work, you
will face many problems, you will have to deal with situations you never encountered

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before, so it better be something you love doing. You will find that when things go tough,
it is your passion that will get you going and make you overcome the hurdles. If you don’t
love what you’re doing, you will take the first exit when problems arise.

Additionally, if you do something you love personally and understand its motivations,
you will be in a better place to understand your customer needs and deliver on them.
Understanding customer needs and their motivations to buy is a key element of
understanding your business and ensuring its success.

Having that said, when you decide to take an old hobby into a new business, you have to
work out the calculations and make sure that there is enough demand for this product or
service, and that people are willing to pay for it. Otherwise, you will end up doing
something not many people are interested in.

4. Keep your eyes open

New business opportunities get born from new situations every day. Keep an eye on what
is happening around you, make it a habit to read the newspaper and identify new
opportunities. You may read that people are complaining from poor health services in
your area, or the lack of schools in your neighborhood.

Talk to your neighbors and the people you know, what is frustrating them? What would
they want to change in your neighborhood? Is your neighbor complaining that she needs
to drive long distances to get to the nearest dry cleaner? Or is your other neighbor
complaining about the lack of groceries in close proximities to where you live? Are you
coworkers frustrated that there are no restaurants close to your work building?

If you keep your eyes open to new developments and changes around you, you might
capitalize on the emerging opportunities that arise. You don’t need to come up with an
original and unique business idea to be successful, often, it’s the ideas that have been
tested time and time again that prove to be successful, so look into your area, and see
what is missing, it could be your next business.

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5. Capitalize on your strengths

Most people are good at something. Look at your experiences and career, what is it that
you can do well? Have you been working in project management for 15 years and know
the ins and outs of the business, this is often the best place to start.

Most people are afraid to start their own business because they focus on the weaknesses
and think that they will fail because of the things they cannot do well. No one is perfect,
not every successful business owner is a superman.

Instead of focusing on the things you cannot do well, focus on the things you are good at.
What can you do better than others? How are the others doing it? And how can you do it
differently? Sometimes, you need a new idea to start a business, maybe a small change to
an established idea is your answer. If your industry is behind other industries in the way it
does business, maybe you can come up with a new system to automate their processes or
to computerize their records.

6. Explore new things

As mentioned earlier, change is one of the biggest stimulators to the brain. Even if you
don’t want to open your own coffee shop, next time you’re in one, look at how things are
done and think of new ways to improve it. Often this thinking might lead you to new
ways to improve on your business ideas in your chosen field.

Strange enough, your next business idea might be something that never crossed your
mind if you haven’t been to that business meeting out of town. The more you experience,
the wider your options are, leaving you in a better position to generate new ideas and
come up with new thinking.

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7. Check your bank account

Starting and running your business requires money. Depending in your situation, you
need to think of businesses that suit your budget. Everyone’s finances are limited, so
make sure whatever business idea you come up with is doable.

If you have a small amount of money, then look into business ideas that are not cash
hungry, maybe start small and then grow with the business.

Having that said, there are places where you can get finance for your business, like banks,
venture capitals, family, friends and small business associations in your area. Work out in
advance the level of finance you are able to raise, and focus on business that will not
exceed those limits.

8. Know what you want in life

Aside from your business goals, think about the reasons you want to start the business in
the first place. What is it that you are looking for? What are your goals in life? Are you
starting a business to be able to spend more time with your family? To make more
money? To be respected among your peers?

Whatever your goals are, make sure that your business idea complements these goals and
help you achieve them. If your goal is to find more time to spend with your family and do
other things, then starting a business that requires you to work 16 hours a day or travel
constantly might not be the best idea.

More often than what people think, money is not the real reason most why most people
start their business. While financial freedom is a big perk of having a successful business,
any business can make money, the type of business and how you run your business will
be dictated by things other than money alone.

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9. Choose a business that suits your personality

Are you morning person or a night creature? Each person has his/her own peak hours of
the day. You will find very few successful bakers or newspaper owners that don’t like to
wake up in the morning. If you are not a morning person, avoid businesses that will need
you to work in the early hours of the morning. If you are a night person, then maybe
running a night club or a restaurant that stays open till late hours is more suitable for
you. Conversely, if you sleep early, running a business that requires you to stay late might
not be suitable for you.

Are you an indoor or outdoor person? Do you like working in an office for long hours or
can’t stand the office and feel that you need on the move all the time? If you like the
office quiet environment, then pick a business that can be done from an office. If you like
to be on the move, pick a business that requires you to go to different places and meet
new people.

Are you brainy or handy person? People do things differently, some people like to do
things that involve thinking and working their brains, other people like to do things that
involve craftsmanship and handy work.

Are you a shy or outgoing person? If you are a shy person, then becoming a public
speaker might not be the best idea for you. If you are an outgoing person and like to meet
new people all the time, having an internet based business might deprive you from that
joy.

I think you get the idea, think of your personal traits and attributes and pick a business
idea that suits your personality.

10. Read about other people that started their own business

A large part becoming successful involves looking at other successful people and learning
how they achieved their success. Reading autobiographies about prominent and

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successful business figures and learning how they started their journey will give you great
insight on how they did things and what exactly they did to become successful.

Study their characters, what do successful have in common? How did they achieve their
vision? What challenges did they have to overcome? Look for similarities between their
stories and your situation right now. You will find that it is a great source of inspiration
and motivation. If others just like you did it, then you can do it too.

I hope you found that this article have inspired you to start thinking about your next big
idea! If you have any stories you would like to share about how you came up with your
own business idea or any extra points you think the readers would like to know about,
then please do comment below and share the knowledge.

And if you know others that you think will benefit from this article, you can share it with
them through social networks or send them the link.

3.6 procedures to identify suitable market

The first step for market is to carry out a survey of the situation of market to identify
suitable markets for the goods he wants to provide. Alternatively, he could study a
specific market to identify the goods suitable for customer to that particular market. He
should also study the present competition and future prospects. The following are
procedures can be tapped for carrying out such studies:-

Procedures

(a) Acquisitions begin with a description of the Government’s needs stated in terms
sufficient to allow conduct of market research.

(b) Market research is then conducted to determine if commercial items or non

developmental items are available to meet the Government’s needs or could be modified
to meet the government’s needs.

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The extent of market procedure will vary, depending on such factors as urgency,
estimated birr value, complexity, and past experience.

3.7 Underfunding major factors in selecting location for business

Finding a suitable place for your business start-up can be a tricky question. Most products
are region specific. What I mean is that some products sell well in some areas while the
same product does not sell that much in another area. It is simply the demographics of
the area which decided which goes where.

3.7.1 Factors for choosing a perfect business location

1 Does the area you select have activities relating to your business core?

Would you be selling anything if you open a rock music shop near a temple? No. However
if you have a pub or a night club near your sock music store chances are that your sales
will go sky-high.

2 Buy a location for your business or lease them?

Most start-ups prefer to rent spaces for their offices and not having land and building on
their own. One such example is retailers or whole sellers buy space in this huge
commercial area. Ready-to-use infrastructure and developed plots, enabling lower
operational set-up time and cost.

3 Virtual office space for start-up business

This is something like you own a business address anywhere in the world, you have your
own private telephones, conference halls, mail forwarding and related. The only catch is
that you are not physically in that office. This is the new era of virtual office. Normally
this is for people seeking a cost-effective alternative to renting a conventional office. Read
more about virtual offices in this Wikipedia article.

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4 How long do you plan to run in the present site?

5 Transportation to the site

A very important aspect while choosing your business is transportation. It is really a no

brainer. You need to have good access to the site. If you can’t get the raw materials or
finished products for your business into your store/ factory then what use does it serve?
You will need to employ people to carry the materials over to your site.

6 Availability of workers

This is one that is mostly overlooked. You have to make sure that human resources are at
your disposal. If not then you will have the extra cost of having to lodge your workers. It
is also necessary to look into the average wage rate of the people in that location, the
retention rate of the workers there. You also want to research about the level of education
in the area, the number of educational institutes around and related to get an idea of the
education background of the area.

7 Economic condition of the place you selected

You can’t sell costly perfumes near slums, can you? So you must strategically place your
business where it SELLS!!! It would be a good choice to place a medical shop near a
hospital and so on.

8 Is this a new growth area or target market for future business?

You must always target the future audience while planning a business start-up. Do you
plan to start a business that is just a trend and will soon die off? Then think again.
Normally a business takes time to flourish and hence you must target a business that
could run for a long time. The location you choose for this is very important. If you don’t
see a growth in the business in your present location, then you may consider moving to
another location.

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9 Near your competitors?

You may find this absurd, but it is true. Sometimes placing your business close to your
competitors can be your best free source of traffic, especially if you are near an
established competitor. You will have a large amount of traffic to your business just
because of your location and this is true in the case of businesses like shopping malls.

10 Operating costs

 What are your country tax structures?

 What about business taxes?
 How much should you pay as compensation to your workers?
 How long does it take to get a permit and what is the process involved?
 Is sufficient amount of land and cheap fuel available?
 What about the building modification rates if required and electricity charges?
 Do you need extra utilities to work efficiently

11 Factors relating to your environment

 Does your business involve chemicals or hazardous materials? If so choose a

location that is strategically away from the townships. Each country may have
specific laws that state that such industries must be located outside the city within
a specific radius.
 What about the natural resources available? Do you need to import resources from
other places which would incur added costs or are they freely or cheaply available
locally?
 Ensure supply of clean water. If not then you have to set up water filtering plants.
 Do a research about the quality of the air around the region and noise rate. If you
do not run an industry or your industry demands cleanliness such as in
pharmaceutical industry, then this point is a must see.
 Make sure you analyze the environmental reports thoroughly.

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12 Business considerations

Most countries offer small business start-up incentives. These may range from cutting on
taxes, allocation of area for development and so on. You must have heard about SEZ
(Special Economic Zones) in Ethiopian. Know more about SEZ here

13 Other factors

 How much does it cost you to buy or rent a house nearby?

 What necessary facilities like hospitals, fire stations etc are available immediately?
 What is the geographical situation of the current location? Is it a zone where
earthquakes or other natural calamities like floods etc occur?

3.7.2 Factors to consider when selecting a business location

Selecting the ideal business location is guided by a four main factors, namely;
1. Nature and type of business – The nature and type of your business is the single
greatest determinant of where the business should be located. Businesses that rely on
walk-in customers from the public are the most affected, the main one's being in the
service industry. If your business relies heavily on walk-in clients as opposed to
businesses that prospect, then location is everything. Getting your location wrong can
spell doom for your business.

In the restaurant business, for example, there are three "main" rules when setting up.
These are, "LOCATION, LOCATION and LOCATION." This example underscores the
importance of a great location for restaurants. A study of McDonald's reveals this to be
true. Senior management at MacDonald's will tell you that they are burger salespeople
but their business is real estate. Therefore, businesses such as restaurants, supermarkets,
liquor stores, Ice cream parlors and the like must be located in easily accessible areas with
high levels of human traffic. In contrast, businesses such as law firms, accountants,
software firms and so forth which do not rely on high levels of human traffic can be
located in posh offices within office blocks.

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2. Budget – The amount of money you can afford to obtain premises must of course come
into play. Most first time entrepreneurs will be renting due to budget constraints. Always
try and secure premises that provide the best value for your money considering the
nature of business.

3. Space required – Certain types of business require very large amounts of space. For
example, car dealerships and car rentals require large space to park their vehicles. This
may mean looking for an out of town cheap location.
4. Special facilities needed – Certain types of businesses require special facilities to
carry out their business effectively. For example IT companies have some very special
mechanical, electrical, plumbing, and fire suppression requirements. Server rooms and
computer areas need dedicated cooling units. These must be taken into consideration
before settling on a business location.

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Factors affecting the choice of location

Whatever the business, there are several general factors that influence the choice of
location. These are:

Factor Comments

Communications This includes transport facilities (road, rail, air) as well as information
infrastructure. Transport links are particularly important if the
business delivers products, sells direct using a sales force or is
dependent on import and export. Information technology is less of
an issue these days – most start-ups can quickly establish reliable
broadband Internet connections.

Labor When a start-up needs to hire employees, then access to a reliable

pool of staff with relevant skills is important. Businesses that are
labor-intensive often look to locate in areas of traditionally low
wages.

Market - A start-up may need to be located near particular centers of

customers & population. For example, if the product is a service targeted at
population affluent older-aged people, then it is important to be located where
there is a sufficient population of such people. Franchise businesses
often analyze the population characteristics of a potential new
territory before setting up in a new location.

Suppliers The business may be dependent on supplies of a particular raw

material, so costs will be lower if the business is located near the
source of supply (e.g. where the raw material is grown or where a
distributor is based). This factor tends to be more important for
manufacturing businesses rather than service businesses.

Government Government policy has often been designed to influence the locations
assistance of new businesses. If the start-up is “location-independent” (i.e. the

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 other factors above don’t really make a difference to the choice of
location), then it may be that deals and incentives offered by
Government can influence the choice.
Some small business areas of the country are designated as “assisted
areas”. These include many parts of north, south, west, East of
Ethiopia. Locating a new business in one of these areas potentially
makes government grants and loans available.

There is no magic formula which can be applied to decide the most important factors in
choosing a location.

Where two possible locations have been identified, it might be that the availability of
government grants or other incentives is the deciding factor.

Making a choice of location involves drawing up a list of criteria of what the start-up is
looking for from business premises and then using qualitative judgment about what will
work best.

3.8 Types of business ownership

The pros and cons of different business types of ownership, including sole proprietorship,
partnering, corporations, and limited liability companies.

One of the first decisions that you will have to make as a business owner is how the
company should be structured.

This decision will have long-term implications, so consult with an accountant and
attorney to help you select the form of ownership that is right for you. In making a
choice, you will want to take in to account the following:

 Your vision regarding the size and nature of your business.

 The level of control you wish to have.

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  The level of structure you are willing to deal with.
 The business' vulnerability to lawsuits.
 Tax implications of the different ownership structures.
 Expected profit (or loss) of the business.
 Whether or not you need to reinvest earnings into the business.
 Your need for access to cash out of the business for yourself.

Sole Proprietorships
The vast majority of small businesses start out as sole proprietorships. These firms are
owned by one person, usually the individual who has day-to-day responsibilities for the
business. Sole proprietors own all the assets of the business and the profits generated by
it. They also assume complete responsibility for any of its liabilities or debts. In the eyes
of the law and the public, you are one in the same with the business.

Advantages of a Sole Proprietorship:

 Easiest and least expensive form of ownership to organize.

 Sole proprietors are in complete control, and within the parameters of the law,
may make decisions as they
see fit.
 Sole proprietors receive all income generated by the business to keep or reinvest.
 Profits from the business flow directly to the owner's personal tax return.
 The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship:

 Sole proprietors have unlimited liability and are legally responsible for all debts
against the business. Their
business and personal assets are at risk.

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  May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or
consumer loans.
 May have a hard time attracting high-caliber employees or those that are
motivated by the opportunity to
own a part of the business.
 Some employee benefits such as owner's medical insurance premiums are not
directly deductible from
business income (only partially deductible as an adjustment to income).

Partnerships
In a Partnership, two or more people share ownership of a single business. Like
proprietorships, the law does not distinguish between the business and its owners. The
partners should have a legal agreement that sets forth how decisions will be made, profits
will be shared, disputes will be resolved, how future partners will be admitted to the
partnership, how partners can be bought out, and what steps will be taken to dissolve the
partnership when needed. Yes, it's hard to think about a breakup when the business is
just getting started, but many partnerships split up at crisis times, and unless there is a
defined process, there will be even greater problems. They also must decide up-front how
much time and capital each will contribute, etc.

Advantages of a Partnership:

 Partnerships are relatively easy to establish; however time should be invested in

developing the partnership agreement.

 With more than one owner, the ability to raise funds may be increased.
 The profits from the business flow directly through to the partners' personal tax
returns.

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  Prospective employees may be attracted to the business if given the incentive to
become a partner.

 The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership:

 Partners are jointly and individually liable for the actions of the other partners.
 Profits must be shared with others.
 Since decisions are shared, disagreements can occur.

 Some employee benefits are not deductible from business income on tax returns.
The partnership may have a limited life; it may end upon the withdrawal or death
of a partner.

Types of Partnerships that should be considered:

1. General Partnership

Partners divide responsibility for management and liability as well as the shares of
profit or loss according to their internal agreement. Equal shares are assumed
unless there is a written agreement that states differently.

2. Limited Partnership and Partnership with limited liability Limited means that most of
the partners have limited liability (to the extent of their investment) as well as limited
input regarding management decisions, which generally encourages investors for short-
term projects or for investing in capital assets. This form of ownership is not often used
for operating retail or service businesses. Forming a limited partnership is more complex
and formal than that of a general partnership.

3. Joint Venture Acts like a general partnership, but are clearly for a limited period of
time or a single project. If the partners in a joint venture repeat the activity, they will be

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recognized as an ongoing partnership and will have to file as such as well as distribute
accumulated partnership assets upon dissolution of the entity.

Corporations
A corporation chartered by the state in which it is headquartered is considered by law to
be a unique entity, separate and apart from those who own it. A corporation can be taxed,
it can be sued, and it can enter into contractual agreements. The owners of a corporation
are its shareholders. The shareholders elect a board of directors to oversee the major and
decisions. The corporation has a life of its own and does not dissolve when ownership
changes.

Advantages of a Corporation:

 Shareholders have limited liability for the corporation's debts or judgments against
the corporations.
 Generally, shareholders can only be held accountable for their investment in stock
of the company. (Note however, that officers can be held personally liable for their
actions, such as the failure to withhold and pay employment taxes.)
 Corporations can raise additional funds through the sale of stock.
 A corporation may deduct the cost of benefits it provides to officers and
employees.
 Can elect S corporation status if certain requirements are met. This election
enables company to be taxed similar to a partnership.

Disadvantages of a Corporation:

 The process of incorporation requires more time and money than other forms of
organization.
 Corporations are monitored by federal, state and some local agencies, and as a
result may have more paperwork to comply with regulations.

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  Incorporating may result in higher overall taxes. Dividends paid to shareholders
are not deductible from business income; thus it can be taxed twice.

3.9 Techniques of estimating money to start business

Estimating money to start business

If you have effectively analyzed your target markets, put into place an attention-getting
promotional plan and learned how to demonstrate the benefits of dealing with your company,
you will start to receive money in return for providing satisfaction.

When people see that you keep your promises, they will develop a loyalty to you and your
business that will result in repeat sales. But a word of warning: Earning money by selling to
someone is only theoretical until you actually collect it! There are a million reasons why someone
can delay paying you. And if you are not careful, you can lose control of where the money goes
once it does arrive on your desk.

An effective financial management system for your small business has five parts: Estimating costs
and living by a budget; making frequent projections of profit and cash; developing a reliable
collection technique and expense control program; maintaining a dependable accounting system;
and managing your tax situation.

There are many more people with good ideas than there are people who also demonstrate
discipline in handling their business's money. Some say that one of the main reasons businesses
fail is lack of money. We believe it is lack of control of money.

Don't feel overwhelmed if managing money isn't your strong point -- there are many convenient
ways to learn how, including seminars at local colleges and Small Business Development Centers,
do-it-yourself books, computer programs and government tax classes, just to mention a few. In a
few hours a week you can create a sound system for managing your money.

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Rules for Estimating Startup Costs

.When starting a business, you need to be able to estimate the startup costs of your new
business. It is important that you know the money you need to open and run the
business. Underestimating your startup costs can result in big difficulties, even failure of
your business.

From the article “Estimate Startup Costs – 5 Tips” , here are rules to help you estimate the
startup costs of your business:

 Have a solid plan — then change it because your initial assumptions prove to be
unrealistic or not doable at this point
 Be willing to pull back, especially if your business proves to be bigger in cost than
what you initially estimated or you really haven’t tested the demand for your
product
 Calculate prices, time and initial cash flow correctly
 Correctly estimate your startup time, especially if you will be running on fixed
costs before you can even start the business (e.g. web hosting fees while you are
still designing the website, or monthly lease payments when you are still
renovating the place)
 Be realistic about the cost of money; include cost of borrowing such as interest
rates and other fees when you estimate your startup costs

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Estimating Startup Costs

If you are planning to launch a business venture, it is vitally important to know that you
will have enough money to keep it afloat.

Every business is different, and has its own specific cash needs at different stages of
development, so there is no universal method for estimating your startup costs. Some
businesses can be started on a shoestring budget, while others may require considerable
investment in inventory or equipment. Additional considerations may include the cost to
acquire or renovate a building or the acquisition of long-term equipment.

To determine how much seed money you need to start, you must estimate the costs of
doing business for at least the first several months. Some of these expenses will be one-
time costs such as the fee for incorporating your business or the price of a sign for your
building. Some will be ongoing costs, such as the cost of utilities, inventory, insurance,
etc.

While identifying these costs, decide whether they are essential or optional. A realistic
startup budget should only include those things that are necessary to start the business.
These essential expenses can then be divided into two separate categories: fixed and
variable. Fixed expenses include rent, utilities, administrative costs and insurance costs.
Variable expenses include inventory, shipping and packaging costs, sales commissions,
and other costs associated with the direct sale of a product or service. The most effective
way to calculate your startup costs is to use a worksheet that lists the various categories of
costs (both one-time and ongoing).

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3.10 Source of capital

Where to Get Money to Start a Business

Where can you get money to start your business? That's one of the biggest challenges a
startup business needs to address. These 12 start-up funding ideas can help you get your
business going.

What's the biggest obstacle to starting a business? For most

people, the answer is money. When you calculate your startup costs and then add in the
amount of money you need to cover your personal expenses during the startup phase,
getting enough money to start your new business can seem like an impossible dream.

Nevertheless hundreds of thousands of individuals a year do find the money to start a

business. How do they do it? How do they find the money to get started? Here are twelve
solution for financing the startup of your small business. Some are nearly risk-free. Others
involve significant financial risk and should be used with caution.

1 - Start part-time. If you need a steady source of income to meet your financial
obligations (and keep your family covered by health insurance) start the business as a
part-time venture. Don't quit the day job until the part-time business has a steady flow of
customers and profits.

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2 - Start the business from home. You can start your business for much less money if
you don't have to foot the bill for office space and utilities for an out-of-the-home office.
While you may not want to advertise the fact that you work from home, you will have
plenty of company. According to the US Small Business Administration Office of
Advocacy, 52 percent of businesses are home based.

3 - Get advance commitments for work. Line up one or two sources of business before
you take the plunge. Former employers, if you left on good terms, are often a source of
start-up work, or sometimes funding. Big companies that can send you their overflow
work or small jobs that they don't want to do can also provide the initial stream of work
and income.

4 - Get a part-time job. Work part time and save up your earnings until you have
enough money to start the business. Or, as an alternative, work part- or full-time in your
own business and take a part-time job to supplement the income from your new business

6 - Use a credit card. Using a credit card - if you have good credit - is the easiest way to
get money to start a business. Equipment, suppliers, advertising and postage (for
mailings) can all be purchased with a credit card. And if your credit card gives you a line
of credit, you can give yourself an instant loan (up to your credit limit). But using a credit
card to start your business bears some significant risk, too. If you're not careful you can
quickly run up a huge credit card bill - a bill you'll be responsible for paying whether your
business is successful or not.

7 - Apply for a home equity line of credit. Some banks offer home equity lines of
credit that let you borrow up to as much as 75% of the appraised value of your home.
Depending on the value of your home and what you still owe in other mortgages that can
put a significant amount of money at your disposal for starting your business. The
downside: you're putting your home at risk. If the business fails and you can't repay the
loan, you could lose your home. If you decide to go this route, be sure to read the Federal
Reserve Board's information about home equity lines of credit.

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8 - Apply for business loan instead of a home equity loan. Information you'll need to
give the bank includes the: purpose of the loan, projected opening-day balance sheet
(new businesses), lease details, amount of investment in the business by the owner(s),
projections of income, expenses and cash flow, signed personal financial statements and
your resume. You may also need a formal business plan. (If you’re trying to get funding to
grow a business you've already started, you'll also need business financial statements for
the last three years, and information on receivables, payables, and outstanding debt.)
Don't be surprised if the bank turns you down, though. Banks are often leery of lending
money to startups. For more information on bank funding, see our articles about getting
business loans.

9 - Ask Your Bank about an SBA-guaranteed loan if the bank turns you down for a
business loan, ask them if they'll consider your loan through the SBA guaranteed loan
program. If they agree to do so, they'll forward your loan application and credit
information to the nearest SBA district office, for a decision.

10 - Borrow from family and friends. Family and friends are a frequent source of
funding for small businesses. But remember, you have to live with your family for a long
time - and you probably want to stay friends with your friends. So don't borrow from
unless you have a business plan and have done enough research to know there is a market
for what you want to sell. Be sure your plans provide a way to also pay interest on the
money borrowed from family and friends.

11 - Look for angel capital groups in your area if your business has the realistic potential
to grow to a significant size, (Your local SBDC or SCORE office may be able to point you
to a group in your area.) You'll need a business plan and be able to prove that you have
the experience to run the business and the business will make enough money to make the
investors a nice profit on their investment. Learn what angel and venture capitalists look
for in our section on finding investors.

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12 - Consider applying for a loan through peer lending sites like Prosper.com and
Lendingclub.com

Capital Sources for Your Business

Not having enough capital is the cause of many small business failures. Adequate capital
is needed to start up the business, operate through hard times, and provide a good chance
to become a profitable enterprise.

There is no one best method of raising capital. Financing methods will vary as a result of
legal, legislative and economic changes. A 1980 Wisconsin study of small businesses
found that 1/4 of the firms interviewed said at least one lender had denied their loan
application. However, 3/4 of this group said the same proposal was financed by another
lender. Variations among lending institutions can affect your ability to raise funds. Your
success in raising funds for a new business depends on good planning, realistic
forecasting, and knowing what sources of capital are available.

To raise capital for your new business, you should be able to answer four questions.

1. How much capital will I need?

2. How much of my own capital can I put in the business?
3. How much capital can I get from someone else?
4. How can I convince someone to provide me with capital?

Sources of Capital for New, Start-up Businesses

Here are some ways you can raise that needed start-up money in a slow economy.

As the economy continues to face credit challenges, small businesses, especially new,
start-up companies are finding it even more difficult to find the capital they need to take
their ideas and concepts and turn them into viable businesses.

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Boots trapping, by far the greatest source of capital for new businesses is drying up fast.
Credit card issuers and backers are pulling programs, tightening approvals and reducing
limits. Friends and families are struggling just to survive themselves and do not have the
disposable income to investment in your company.

Taking loans from retirement accounts are nearly impossible today as the market values
of these assets have drop so dramatically over the last two quarters. There just isn’t the
value there to take a loan against.

So, what are new, small businesses to do?

A few suggestions are as follows:

First, start smaller and work your way up. Small scale operations mean smaller capital
needs. Thus, the small amount of capital a new entrepreneur does have (savings, home
equity, retirement plans) can be used to jump start a business if it is designed on a smaller
scale.

Micro-Loans: Micro-loans are loans for small organizations or start-up companies that
do not qualify for regular loan facilities. These loans usually range from hundreds to
thousands

Personal Loans: There are still a few companies that make personal loans provided the
borrower has excellent (and I mean excellent) credit and a demonstrated ability to make
the loan payments.

Asset Based Facilities: If your business has some proven track record, even if it is just
for a few months, and has generated some financial assets like accounts receivables or
credit card receipts, you may qualify for capital against those assets.

Account Receivable Factoring can help speed up your cash flow while you wait for your
customers to pay you. You can then access working capital that can be used to generate

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new business, cover current liabilities obligations, or make payroll. There are companies
that will factor receivables as required.

Included with Accounts Receivable Factoring is Purchase Order Financing. If your

business has an order to be filled but does not have the money to complete the order (e.g.
buy supplies or equipment or hire needed labor) Purchase Order financiers will provide
the funds needed based on that order.

Business Cash Advances, while not really a loan, can provide working capital against
FUTURE credit card sales. The funds can be use for any purpose and could provide the
capital your business needs to get it through these troubled times.

Equipment: Do you own some equipment outright? If so, you can sale that equipment
(including tools and machinery) to a leasing company. Then, lease the equipment back
from the less or. You get the cash you need now and still benefit from possible tax
deductions of the lease payments and other costs.

Where there is a will, there is always a way. These may not be the cheapest financial
products in the market but for most business owners and start-ups, these may be the only
option.

When seeking capital in this market, try to keep in mind that it is only temporary. The
markets will turn around and lending standard will loosen. So, what you seek now should
only suffice enough to get your new, start-up business through this down period.

Exercise 7.1 Sources of finance

Outdoor Living Ltd., an owner-managed company, has developed a new type of heating
using solar power, and has financed the development stages from its own resources.
Market research indicates the possibility of a large volume of demand and a significant
amount of additional capital will be needed to finance production.

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Advise Outdoor Living Ltd. on:

a) The advantages and disadvantages of loan or equity capital

b) The various types of capital likely to be available and the sources from which they
might be obtained

c) The method(s) of finance likely to be most satisfactory to both Outdoor Living Ltd. and
the provider of funds.

Self-Check 3 Written Test

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 Answer all the questions listed below-use the answer sheet provided below

 What are the facts about small and medium small enterprise
 Identify Role and Importance of Business Entrepreneurship in Society
 What are the Success Factor to small and Medium Enterprises (SMEs)
 Discuss ways of identifying business opportunities

 Identify techniques and steps of generating business ideas

 What are the procedures to identify suitable market
 What are the major factors in selecting location for business
 Explain types of business ownership
 Identify techniques of estimating money to start business
 Identify source of capital

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 Answer Sheet Score = ___________

Rating: ____________

Name: _________________________ Date: _______________

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AWAERNES CREATION AND RESOURSE
MOBILIZATION

NTQF Level III

LEARNING GUIDE: - 10
Unit of Competence: Develop underfunding of
entrepreneurship

Module Title: Developing underfunding of

entrepreneurship

LG Code: CDS CPM3 M010 0312

TTLM Code: CDS CPM3 M01TTLM 030712v1

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 LO 4: Discuss how to operate an enterprise

Instruction Sheet 4 Learning Guide #4

This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –

 Understanding of alternatives to become an entrepreneur

 Human resource management

 Techniques and importance of time management
 Techniques and procedures of sales management
 Factors and steps for selecting suppliers
 Understanding of the characteristics and impact of new technology

 Understanding of cost management

 Method of preparing simple financial statement and its importance

 Principles and process of negotiation

 Application of self management skill
 Concepts of Risk Management

This guide will also assist you to attain the learning outcome stated in the cover page.
Specifically, upon completion of this Learning Guide, you will be able to –

 Understand of alternatives to become an entrepreneur

 Know Human resource management

 Know Techniques and importance of time management
 Identify Techniques and procedures of sales management
 Know Factors and steps for selecting suppliers

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  Understand the characteristics and impact of new technology

 Understand cost management

 Identify Method of preparing simple financial statement and its importance

 Know Principles and process of negotiation

 Know Application of self management skill
 Know Concepts of Risk Management
Learning Instructions:

61. Read the specific objectives of this Learning Guide.

62. Follow the instructions described in number 3 to 20.

63. Read the information written in the “Information Sheets 1”. Try to understand what
are being discussed. Ask you teacher for assistance if you have hard time
understanding them.

64. Accomplish the “Self-check 1” in page __.

65. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 1).

66. If you earned a satisfactory evaluation proceed to “Information Sheet 2”. However, if
your rating is unsatisfactory, see your teacher for further instructions or go back to
Learning Activity #2.

67. Submit your accomplished Self-check. This will form part of your training portfolio.

68. Read the information written in the “Information Sheet 2”. Try to understand what are
being discussed. Ask you teacher for assistance if you have hard time understanding
them.

69. Accomplish the “Self-check 2” in page __.

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70. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 2).

71. Read the information written in the “Information Sheets 3 and 4”. Try to understand
what are being discussed. Ask you teacher for assistance if you have hard time
understanding them.

72. Accomplish the “Self-check 3” in page __.

73. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 3).

74. If you earned a satisfactory evaluation proceed to “Operation Sheet 1” in page _.

However, if your rating is unsatisfactory, see your teacher for further instructions or
go back to Learning Activity #6.

75. Read the “Operation Sheet 1” and try to understand the procedures discussed.

76. You are provided with a CD containing lessons on how to clean and maintain
equipment. Before you open the CD read the information written in the “Information
Sheets 1-2” in pages ___. You will be also provided with additional reference reading
materials regarding the cleaning of masonry hand tools.

77. Request a desktop computer or laptop from your teacher. Make sure the unit is
plugged to a power source before turning on the power O. Then insert the CD in the
CD drive located in your computer. Access the information as described in the
Operation Sheet 1 in page __.

78. Read all the contents of the CD and try to understand the procedures discussed.

79. Request access to the equipment and software described in the CD. Practice the steps
or procedures as illustrated in your CD. Go to your teacher if you need clarification or

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 you want answers to your questions or you need assistance in understanding a
particular step or procedure.

80. Do the “LAP test” in page __ (if you are ready). Request your teacher to evaluate your
performance and outputs. Your teacher will give you feedback and the evaluation will
be either satisfactory or unsatisfactory. If unsatisfactory, your teacher shall advice you
on additional work. But if satisfactory you can proceed to Learning Guide #8.

Information Sheet-4 Discuss how to operate an enterprise

4.1 underfunding of alternatives to become an entrepreneur

Business Ideas for the Entrepreneur; Many individuals nowadays prefer to have a home-
based job rather than working eight hours each day in the office. Some people are also
into franchising; this may sound good but if you want to become a successful
entrepreneur, you don't have to focus entirely on franchising. You should consider other
business ideas that you can venture into.

4.1.1How to Become an Entrepreneur

An entrepreneur is someone who creates his or her own business. An elementary study of
economics teaches us about the four factors of production, material, labor, capital and the
entrepreneur. The entrepreneur brings all the three other factors together for production
to take place. He is the visionary and risk taker. Here's how to become your own boss.

Steps

1. Think of a great idea. If a great idea comes to you, evaluate if it is realistic. Think
of cost, manufacturing time, and popularity. Always be open to different ideas. Ask
and record if people would actually buy the product. If you don't have an idea yet,

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 it is a good start to think of your target market first. Then brainstorm a list of
things like places they shop, things they like, and things you like. Narrow the list
down to about three items, keeping cost, manufacturing time, and popularity in
mind. Find the easiest, most realistic product you can realistically offer.
2. Write a business plan. Include details and descriptions, and plan everything out
realistically. Take your time and evaluate your product at each section. The
sections of a good business plan include:
o Product description: develop your product. What will it look like? What
materials will you need? Make your product eye-catching.
o Market Analysis: Who is your market? Where do they shop? Where are they
located?
o Competition: Who is your competition? What are their strengths? How will
you beat them?
o Marketing: How will you market your product? What kind of image do you
want to display? Where will you advertise? What is your tagline? What is
your packaging like?
o Sales: Where will you sell? How will you get your customers to buy? When
will you sell? What is your estimated sales forecast?
o Manufacturing: How do you make your product? Explain this in detailed
steps. What materials do you need to make your product? When and where
will you manufacture? What is your COGS (cost of goods sold)?
o Finance: how much money do you need to start your business? What is
your gross profit?

Or, don't write a business plan. A business plan is a work of fiction, anyway. If
you don't have much experience in business, or the market is new and
unknown, a business plan might be a waste of time, or, worse, a path to self-
delusion. Plan just enough to make your first sale. The main thing is to make at
least one customer happy, and complete the entire cycle of "make product, sell
product" as quickly as possible. Then you will have a business, and then you

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 might be in a position to understand some problems of the sort that extensive
planning can help solve.

3. Pitch your idea to any potential investor to get money to start your
company.

If you have a good idea, they will love to invest their money in your company. Make a
Power Point presentation explaining why your product is the best, including each part
of your business plan in the presentation. Tell them how much your estimated gross
profit is and how much percentage of that they will earn in interest. Many VCs are not
set up to make you successful.

4. Sell. Sell and distribute your product. If you're getting revenue, then you're in
business. You're testing your theories about the market, you're finding out what
really works and what doesn't, and you're getting fuel for more ideas and
improvements. If you're not getting revenue, then it's all in your head.

5. Hang out with entrepreneurs. By meeting entrepreneurs socially, you gain

contacts and hear about opportunities. More importantly, you learn how
entrepreneurs think. You pick up their attitudes, their nose for opportunity, their
willingness to explore every idea and its opposite (they know that often both
work), their contrarian nature, the great diversity in their styles.

4.1.2 How to become an entrepreneur with no money

Becoming an entrepreneur is hard; becoming an entrepreneur using no money is

extremely difficult. Many people like the idea of being their own boss and of building

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something of their own from scratch. In these harsh economic times, many people are
also looking to try to scrape a living for themselves online where the costs of starting a
business are lower.

Unfortunately, going your own way is often the most risky solution, and it takes time to
build up any sort of business. I will do my best to address the question of how to become
an entrepreneur with no money, however in reality; one will always need some level of
investment.

There are three questions to answer:

1. How much money is necessary – or for this case, what are the cheapest options
possible for an entrepreneur, since again, there is no such thing that is completely free.
2. How much/little money can I spare?

3. Can I get all or some of the money from elsewhere?

First let’s look at some of the cheapest options for an entrepreneur. The lowest cost
alternative is to start something online. The problem is that because it is easy, many,
many people are doing it too. However, it is not particularly expensive to purchase a
domain; there are also huge amounts of templates that one can get for free or purchase.

Cheap Alternatives to Become an Entrepreneur

The cheapest alternative at all is probably affiliate marketing. This is where you present
someone else’s products on your site and when they click that product they are sent to
the seller’s page. You then earn a commission of the resulting sale. This way, you do not
need to even have your own ecommerce system, but you will need a well functioning
website with traffic. The latter is hard to get without an investment of some kind.

If you have a specific area of expertise, you may also be able to start a business where one
handles projects using freelance labor. For example, a translation agency will receive

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projects from clients and assign them to freelancers. Just be sure you know what you are
doing, since you are usually liable if the job is done poorly.

Alternatively, if you are an expert, you could start your own freelance business. For
example, if you are web designer, programmer, social media marketer, translator,
transcriber, proofreader, etc. you could try to go solo and set up your own site. Then you
can find specialist forums and sites where you can bid on projects and try to find clients.
Be prepared for tough competition!

Now, the problem with all these options is that people will not find you unless you
market yourself properly.

How much money can you spare?

Becoming an entrepreneur is never completely free. However, costs can be kept to a

minimum if you have access to the skills you need to set up your business or website,
carry out marketing (whether it is brochures that need designing or phone calls that need
to be persuasive), and produce or acquire a product or service. Nevertheless, always
expect more costs than anticipated, whether they come from printing, subscriptions to
tools that help you do your job, and so on.

Can I acquire the money?

Now, the starting question was how to become an entrepreneur with no money. Well, the
easiest answer is: get someone else to pay. Of course, in practice that is much harder, but
if you have some experience, a great idea, and professional & persuasive presentation you
may well be able to acquire the funding you need. This can be obtained from banks,
venture capital organizations, or even just people you know.

Remember, to seem professional you need to have analyzed your market and industry,
determined you need to do to succeed, calculated an estimated budget, and made an
overall strategy.

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4.2 Human resource management

Human resource management (HRM, or simply HR) is the management of an

organization's workforce, or human resources. It is responsible for the attraction,
selection, training, assessment, and rewarding of employees, while also overseeing
organizational leadership and culture, and ensuring compliance with employment and
labor laws. In circumstances where employees desire and are legally authorized to hold a
collective bargaining agreement, HR will typically also serve as the company's primary
liaison with the employees' representatives (usually a labor union).

HR is a product of the human relations movement of the early 20th century, when
researchers began documenting ways of creating business value through the strategic
management of the workforce. The function was initially dominated by transactional
work such as payroll and benefits administration, but due to globalization, company
consolidation, technological advancement, and further research, HR now focuses on
strategic initiatives like mergers and acquisitions, talent management, succession
planning, industrial and labor relations, and diversity and inclusion.

Human Resources Specialists

Human resources specialists recruit, screen, interview, and place workers. They also may
handle human resources work in a variety of other areas, such as employee relations,
payroll and benefits, and training.

The Human Resource Management (HRM) function includes a variety of activities,

and key among them is responsibility for human resources -- for deciding what staffing
needs you have and whether to use independent contractors or hire employees to fill
these needs, recruiting and training the best employees, ensuring they are high
performers, dealing with performance issues, and ensuring your personnel and
management practices conform to various regulations.

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Some people distinguish a difference between HRM and Human Resource
Development (HRD), a profession. Those people might include HRM in HRD,
explaining that HRD includes the broader range of activities to develop personnel inside
of organizations, e.g., career development, training, organization development, etc.

The HRM function and HRD profession have undergone tremendous change over the
past 20-30 years. Many years ago, large organizations looked to the "Personnel
Department," mostly to manage the paperwork around hiring and paying people. More
recently, organizations consider the "HR Department" as playing a major role in staffing,
training and helping to manage people so that people and the organization are
performing at maximum capability in a highly fulfilling manner. There is a long-standing
argument about where HR-related functions should be organized into large
organizations, eg, "should HR be in the Organization Development department or the
other way around?"

4.3 Techniques and importance of time management

Time management is the act or process of planning and exercising conscious control
over the amount of time spent on specific activities, especially to increase effectiveness,
efficiency or productivity. Time management may be aided by a range of skills, tools, and
techniques used to manage time when accomplishing specific tasks, projects and goals
complying with a due date.

This set encompasses a wide scope of activities, and these include planning, allocating,
setting goals, delegation, analysis of time spent, monitoring, organizing, scheduling, and
prioritizing. Initially, time management referred to just business or work activities, but
eventually the term broadened to include personal activities as well. A time management
system is a designed combination of processes, tools, techniques, and methods. Usually
time management is a necessity in any project development as it determines the project
completion time and scope.

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4.3.1 The Importance of Time Management

Good time management will allow you to:

1. Ensure you are using your time effectively and not concentrating on busy work
It is very easy to get pulled into doing tasks that make you feel like you are accomplishing
things but are not really bringing you any closer to your goal. Often people put off those
tasks that most effectively lead to their goals because they are difficult in some way.
Instead, they focus on tasks that are not challenging, but basically amount to busy work.

If you understand the importance of time management, you'll develop a plan to ensure
that you are working effectively toward your goals.

2. Gain control over your time

Once you discover those tasks that drain your time but provide very little benefit, you'll
be able to eliminate, delegate, outsource or restructure those tasks so that they take up
much less of your time. When you determine which repetitive tasks or business contacts
require a lot of your attention but provide very limited payoff, you can shift your focus
onto those tasks that do lead your toward your goals.

3. Ensure you are moving toward your goals and use time productively
once you determine your own work habits that cause time to slip away, you can manage
those to ensure you are working toward your business goals. If you discover that you like
to check your Face book account frequently, or spend more time than necessary on the
phone with business contacts or write long, involved emails, and those things are
draining your work time, you can develop strategies to minimize those distractions and
keep yourself focused on the tasks at hand.

4. Feel a sense of accomplishment

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If you've determined your goals, created a plan to reach them and begun taking steps
toward fulfilling that plan, you begin to feel a real sense of accomplishment. You'll see
how much you've accomplished and be motivated to move forward.

5. Have more time to pursue your other interests

The importance of time management is not about cramming in as much work as possible
into a given time frame. It's about understanding your real goals, and ensuring your
actions truly lead toward those goals in the most effective way possible. When you work
effectively, that is, you focus on tasks that are truly productive, you can actually reduce
your work hours and have extra time to focus on other priorities and goals.

4.3.2 Time Management Tips and Techniques for Entrepreneurs

Time management is the creation of tools and processes that allow individuals and
organizations to accomplish more in a set time period. While time management is critical
to success for all individuals, it is critically important to entrepreneurs. This is because
entrepreneurs are typically faced with tons of challenges each day and quickly compile
massive "To Do" lists. This article presents tips to help entrepreneurs to better manage
their time to be more effective.

The first step in time management for entrepreneurs is to identify key uses of their time.
For instance, what percent of your time is spent answering phone calls (both personal and
professional), having company meetings, traveling to meetings, finding information,
managing your team, etc.?

After identifying the key uses of time, entrepreneurs must determine whether these uses
maximize the value of their time. For example, questions must be answered such as

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whether more value is added to the organization if the entrepreneur spent less time
traveling and more time managing the team.

In addition to figuring out the best uses of their time, entrepreneurs must follow several
tried and true time management tips including the following:

1. Not ensuring that everything is perfect. Great organizations perform the critical
tasks expertly. However, it is impossible to be great at every imaginable aspect of a
business. Entrepreneurs must focus their time on the critical activities.

2. Saying "no". While it's always nice to be the hero and adhere to everyone's wants and
desires, doing so takes up an unreasonable amount of time. Entrepreneurs must be
willing to say no to actions/plans that do not add as much value to the organization as
other actions/plans.

3. Prioritizing. Since there are only a limited number of hours in the day, not only must
entrepreneurs say "no" to certain activities, but they must be vigilant in prioritizing those
activities that add the most value and which best allow the organization to execute on its
business plan.

A critical component to a successful time management plan is a solid business plan. The
business plan lays out the critical elements that the business must accomplish and what
the action plan is to get there. The time management plan should be overlaid on this.
That is, it should force the entrepreneur to plan and prioritize their time to best meet the
goals set forth in the business plan.

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Importance of Time Management

Time management is a set of tools, techniques and principles which help you make the
most of your time and manage it effectively. These set of skills are important to your
career and personal success.

Here are top reasons why time management is important in your life and why you should
develop these important skills.

1. Time is Scarce

Once you spend time, you can't take it back. On her deathbed, the last words of Queen
Elizabeth I, Queen of England, was: "All my possessions for a moment in time”. She had
money. She had power. But all she wanted was to trade her possessions for time. Even in
business, "time is the scarcest resource available", according to management guru Peter
Drucker. Time, once spent, cannot be retrieved. This is the importance of time
management; it allows you to manage your time wisely.

2. Time Management is Essential to Success

Another importance of time management is that it can help you reach the top of your
field. According to business expert Brian Tracy, excellent time management is the
common denominator of success. In his study of success and successful people, Tracy
found that the common denominator of successful people was how they valued their
time. They placed a really high value on their time.

3. You Can Work Less and Accomplish More

If you manage your time effectively, you work smarter, not harder. Time management
skills like prioritizing and handling distractions allow you to boost your productivity levels
sky high. Using a wide range of techniques for managing time, you can free up a lot of
time and find more time with for your family, friends, studies or work.

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4. You Become Highly Effective

Experiencing a lack of time is the result of trying to do everything on your to-do list. With
proper skills for managing time, you eliminate the non-essential tasks and focus on high-
return activities. This leads to better use of your time and can increase your sense of
fulfillment in life.

5. It Helps You Find More Time for Other Important Areas in Life

When people feel like they have too little time and too many things to handle, they
attribute this problem to their financial worries, relationship problems, stress or any
other sort of areas of their "unmanageable" lives. They use it as an excuse to avoid
managing their time effectively. In actual fact, investing time in learning time
management skills actually saves you time in the future!

These skills help you manage all your activities in an organized and efficient manner. It
will help you find MORE time in the future to do the things you really want to do.

6. It Maximizes Your Efforts and Returns

With the help of time management tools, you tend to spend your time more effectively.
Planning and prioritizing your activities in advance helps you avoid time-wasting
activities. You will start achieving greater results in your life and career because you tend
to spend more time on high-return activities, rather than trivial, low-value tasks.

7. Achieving Your Personal Goals Becomes Easier

Time management can truly help you achieve your personal goals faster and easier. These
skills guide you to stay on course on your goals. It provides a stable platform for staying

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organized and effective. As a result, you gain a tremendous level of productivity and
personal efficiency. Not only do you work more efficiently, you will also find more time to
spend on your goals, which allows you to easily and quickly move closer to your goals.

Peak performance trainer and success coach Anthony Robbins says that "once you have
mastered time, you will understand how true it is that most people overestimate what
they can accomplish in a year - and underestimate what they can achieve in a decade!"
This is why it's so important for you to plan your time and activities carefully, focusing on
the things that matters most and stop wasting your times on unimportant tasks. By doing
so, you will achieve your goals and create great successful results in life.

4.4 Techniques and procedures of sales management

Sales managers use a variety of management techniques to maximize the performance

they get from their sales force. Sales people are professionals dedicated to serving their
customers and generating profit for the company. In order to properly motivate a sales
force and make it as effective as possible, a manager needs to learn good management
techniques that are used to optimize sales personnel performance. When you allow a
sales professional to do their job and create a successful environment for your sales force,
you get the maximum performance from the team. Improve your sales management
techniques.

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Good sales management is one of the simplest ways to increase your revenue and
profitability.

Sales management is about leading the people and process your company uses to sell
prospects and service customers. Responsibilities include:

 Building the right sales strategy

 Hiring the right team
 Creating the right compensation plans, territories and quotas
 Setting the right projections
 Motivating your team
 Tracking revenue against goals
 Resolving conflicts
 Training and coaching sales reps
 Managing processes
 Getting the sale!

4.4.1 Sales Management Key Concepts & Steps

Before you begin

It’s always a good time to increase your focus on sales management. Your sales process
and CRM are important tools that can help you manage your team, forecast results and
keep your team on course.

Create the right compensation plan and tie it to your revenue goals

Great salespeople want to make money. Tie the plan to your revenue goals and make sure
that you’re compensating your reps for the right things. For example, if your reps don’t
earn commission for managing “house” accounts, they’ll spend their time going after new
business and you could lose valuable existing customers.

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Set realistic quotas

Be realistic about what a salesperson can accomplish in a set timeframe. Good salespeople
can be demotivated by unrealistic quotas, which can lead to turnover.

Hire the right people

To build a great team, start with a strong recruiting effort. Create a detailed job so you
know exactly what you need in your candidates. Cast a wide net, use a thorough interview
process, and go after the candidates you really want.

Coach and provide feedback

A good manager actively works with the sales team. Train your reps thoroughly and coach
them to improve their skills. Go on calls, establish performance measurements, and
provide feedback. If a rep has trouble in a particular area, create an action plan and
measure improvement.

Generate good reports

You’ll need good sales reports to measure team and individual progress. Yet you don’t
want your sales reps to spend valuable sales time creating manual lists and reports.
Instead, develop automated reporting processes – for example, create reports in your
CRM system. With good reports, you can see problems much earlier and take action more
quickly.

Motivate!

Good sales reps want to get better – encourage them to read, attend seminars, network,
and keep refining their skills.

After Sales Management

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Keep working with your team, improving their skills, and adjusting as needed. Hire the
right people, manage them well, and enjoy their success! For hands-on guidance on
managing your sales team,

4.4.2 Sales & Marketing Procedures to Improve Sales Pipeline Management

Sales & Marketing is the foundation of any business. The Sales & Marketing Procedures
for Sales Pipeline Management can help you take control of your Sales & Marketing
processes and improve key facets like lead generation and sales closing. Thoroughly
researched and reviewed by experts, these pre-written policies and procedures are based
on the continually improving process philosophy, and they incorporate best practices and
proven techniques that provide results. Creating clear policies and procedures can help
align your sales and marketing efforts, which dramatically improves your sales pipeline
management.

They also assist in determining which efforts and practices produce tangible results;
leading to improved cost per lead and cost per sale performance. Designed for busy
professionals like Sales Managers, Marketing Managers, Sales & Marketing VPs, and
Business Owners, the Sales & Marketing Procedures for Sales Pipeline Management can
save you hundreds of hours in researching and writing the procedures you need to
standardize efforts and practices in areas such as developing strategies and tactics,
administration, lead management and lead qualification, customer life cycle
management, training, and product launch. There is no need to start from scratch. It has
already been done for you.

4.4.3 Sales Management Process

This article will give you a bird's-eye view of a sales management process and offer an
insight into what are its most important features.

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Every company exists to sell some kind of product or service to make profits. That is how
our system of revolutionary democracy works. Sales management process is the most
important of all managerial processes that sustain a business.

What is Sales Management Process?

This process includes all the aspects, resources and procedures involved in selling. It
begins where the manufacturing process ends. It involves every transaction from the
deployment of product from assembly line to its delivery to the customer and its follow
up service. It also involves reverse feedback from the customers to the company with a
purpose of making the product better and of course increases revenue!

Steps in the Process

Every managerial process is a chain of tasks dependent on human resources for its
completion. The success of the whole process in the form of increased sales revenue and
profits depends on the efficient execution of tasks at every level. Let us see the various
steps involved in this process, irrespective of the product or service being sold.

Step 1: Sales Training

This step is reached after one is through with the initial field testing of the product, where
it has been sold in limited amount in select localities, to test its response. Necessary
improvements have been made according to field test feedback and now the product is
ready to be sold along with a full-fledged marketing campaign ready to boost sales.

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The important task that remains is training the sales representatives about the product.
They are educated about all the pros and cons associated with the product and taught
what to say and what not to say when selling the product. They are given sales goals for a
month and assigned to different regional sales divisions. An important part of their sales
training is learning selling techniques through various distribution channels.
Step 2: Sales Plan Execution
This is the execution part of various sales management strategies which are used. It
involves various modes of selling which are coupled with marketing campaigns for the
product sale.
This is the toughest part of the whole process and it's all up to the sales representatives
and sales managers to make the sales happen.

It all depends upon the salesmanship talents of the people who actually interact with end
customers. It involves taking in product inquiries from potential customers, following
them all up with personal calls or visits and ultimately closing the deals. The ratio of sales
inquiries to closed deals or sales is called the 'Conversion Rate'. More the conversion rate
more is the probability of the sales team actually meeting targets.

Step 3: Feedback and Analysis

This step involves review and feedback of the sales performance. Sales force management
has a huge impact on the sales performance. The sales targets if achieved are applauded
while sales targets which fall short are examined. Both cases are explored and the data for
this evaluation is retrieved from sales representatives and studied by sales managers.

The reasons for low sales are examined right from shortcomings in the product or
incompetence on the part of sales representatives. The feedback is used to make changes
in management techniques. The most important ingredient which makes a process stand

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out is experienced sales managers who have an excellent understanding of ground
realities and who know what the customers really want.

4.5 Factors and steps for selecting suppliers

One of the aspects of being successful in business is producing a quality product as cost
effectively as possible. Finding the right suppliers can add to the bottom line. Unreliable
suppliers that cut corners and cannot keep up with demand can ruin the very business
you've worked hard to establish and grow.

4.5.1 Supplier selection process

Choosing the right suppliers involves much more than scanning price lists. Your choice
will depend on a wide range of factors such as value for money, quality, reliability and
service. How you weigh up the importance of these different factors will depend on your
business priorities and strategy.

This guide illustrates a step-by-step approach you can follow that should help you make
the right choices. It will help you decide what you need in a supplier, identify potential
suppliers and choose your suppliers.

Thinking strategically when selecting suppliers

Effective purchasing focuses on what your business needs and what you want to achieve.
The right products or services and a good price are not the only factors to consider. For
example, if you want to cut down the time it takes you to serve your customers, suppliers
that offer you quick, reliable delivery will rate higher than those that compete on price
alone. For some pointers to help you identify what you want from suppliers, see the page
in this guide on what you should look for in a supplier.

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How many suppliers?

It's well worth examining how many suppliers you really need. Buying from
a targeted group could have a number of benefits:

 it will be easier to control your suppliers

 your business will become more important to them
 you may be able to make deals that give you an extra competitive advantage

However, it's important to have a choice of sources. Buying from only one supplier can be
dangerous - where do you go if they let you down, or even go out of business? Equally,
while exclusivity may spur some suppliers to offer you a better service, others may simply
become complacent and drop their standards.

The partnership approach

Focus your efforts on choosing and managing strategic suppliers who provide goods or
services that are essential to your business. A strong relationship will benefit both sides.
You want your suppliers to make every effort to provide the best service possible. You're
more likely to create this response by showing your suppliers how important they are to
your business.

What you should look for in a supplier

Reliability; Remember if they let you down, you may let your customer down.

Quality; the quality of your supplies needs to be consistent - your customers associate
poor quality with you, not your suppliers.

Value for money; the lowest price is not always the best value for money. If you want
reliability and quality from your suppliers, you'll have to decide how much you're willing
to pay for your supplies and the balance you want to strike between cost, reliability,
quality and service.

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Strong service and clear communication

You need your suppliers to deliver on time, or to be honest and give you plenty of
warning if they can't. The best suppliers will want to talk with you regularly to find out
what needs you have and how they can serve you better.

Financial security

It's always worth making sure your supplier has sufficiently strong cash flow to deliver
what you want, when you need it. A credit check will help reassure you that they won't go
out of business when you need them most.

A partnership approach

A strong relationship will benefit both sides. You want your suppliers to acknowledge
how important your business is to them, so they make every effort to provide the best
service possible. And you're more likely to create this response by showing your supplier
how important they are to your business.

Identifying potential suppliers

You can find suppliers through a variety of channels. It's best to build up a shortlist of
possible suppliers through a combination of sources to give you a broader base to choose
from.

Recommendations; Ask friends and business acquaintances you’re more likely to get an
honest assessment of a business' strengths and weaknesses from someone who has used
its services.

Directories; If you're looking for a supplier in your local area, it's worth trying directories
such as Yellow Pages and Thomson.

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Trade associations If your needs are specific to a particular trade or industry, there will
probably be a trade association that can match you with suitable suppliers.

Business advisors Local business-support organizations, such as chambers of commerce,

can often point you in the direction of potential suppliers. You can also contact our
Strategic Information Centre.

Exhibitions; Exhibitions offer a great opportunity to talk with a number of potential

suppliers in the same place at the same time. Before you go to an exhibition, it's a good
idea to check that the exhibitors are relevant and suitable for your business.

Trade press; Trade magazines feature advertisements from potential suppliers. You can
contact our Strategic Information Centre for a list of specialist trade magazines.

Drawing up a shortlist of suppliers

Once you've got a clear idea of what you need to buy and you've identified some potential
suppliers, you can build a shortlist of sources that meet your needs.

When considering the firms on your shortlist, ask yourself the following questions:

 Can these suppliers deliver what you want, when you want it?
 Are they financially secured?
 How long have they been established?
 Do you know anyone who has used and can recommend them?
 Are they on any approved supplier lists from trade associations or government?

Do some research and try to slim your list down to no more than four or five candidates.
It's a waste of time for you and the potential supplier if you approach them when there's
little chance of them fulfilling your requirements.

Choosing a supplier

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Once you have a manageable shortlist, you can approach the potential suppliers and ask
for a written quotation and, if appropriate, a sample. It's best to provide them with a
clear brief summarizing what you require, how frequently you'll require it and what level
of business you hope to place.

Get a quotation It's worth asking potential suppliers to give you a firm price in writing for,
say, three months. You can also ask about discounts for long-term or high-volume
contracts.

Compare potential suppliers

When you've got the quotation, compare the potential suppliers in terms of what matters
most to you. For example, the quality of their product or service may be most important,
while their location may not matter.

Price is important, but it shouldn't be the only reason you choose a supplier. Lower prices
may reflect poorer quality goods and services which, in the long run, may not be the most
cost effective option. Be confident that your supplier can make a sufficient margin at the
price quoted for the business to be commercially viable.

Check that the supplier you employ is the one that will be doing the work. Some suppliers
may outsource work to subcontractors, in which case you should also investigate the
subcontractor to determine if you are happy with this arrangement.

Wherever possible it is always a good idea to meet a potential supplier face to face and
see how their business operates. Understanding how your supplier works will give you a
better sense of how it can benefit your business.

And remember that your business' reputation may be judged on the labour practices of
your suppliers. It makes good business sense to consider the ethical dimensions of your
supply chain.

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Negotiate terms and conditions

Once you've settled on the suppliers you'd like to work with, you can move on to
negotiating terms and conditions and drawing up a contract. See our guide on how to
negotiate the right deal with suppliers.

Getting the right supplier for your business

Know your needs

Make sure you know what you need. Don't be tempted by sales pitches that don't match
your requirements. Understand the difference to your business between a strategic
supplier, who provides goods or services that are essential to your business - such as high-
value raw materials - and non-strategic suppliers who provide low-value supplies such as
office stationery. You will need to spend much more time selecting and managing the
former group than the latter.

Spend time on research; choosing the right suppliers is essential for your business. Don't
try to save time by buying from the first supplier you find that may be suitable.

Ask around; People or other businesses with first-hand experience of suppliers can give
you useful advice.

Credit check potential suppliers; It’s always worth making sure your supplier has
sufficiently strong cash flow to deliver what you want, when you need it. A credit check
will also help reassure you that they won't go out of business when you need them most.

Price isn't everything; other factors are equally important when choosing a supplier -
reliability and speed, for example. If you buy cheaply but persistently let down your
customers as a result, they'll start to look elsewhere.

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Agree on service levels before you start; It’s a good idea to agree on service levels before
you start trading so you know what to expect from your supplier - and they know what to
expect from you. See our guide on how to manage your suppliers.

Don't buy from too many suppliers...

It will be easier for you to manage - and probably more cost-effective - if you limit the
number of sources you buy from. This is particularly the case with low value-added
suppliers....but don't have just a single supplier

It's always worth having an alternative supply source ready to help in difficult times. This
is particularly important with regard to suppliers strategic to your business' success.

4.5.2 Instructions

1. Look for a supplier that is known to have a quality product. The whole is a product of the sum
of its parts. If you are creating the most expensive jewelry and use one material that is inferior, it
affects the overall quality of your product.

2. Find a supplier that is reliable. If your supplier is the best in the business, but is temperamental
and does not produce what you need in the time you need it, that is a liability you cannot afford.
The best supplies in the world are useless to your business if they are not received on time.

3. Compare costs. Cheaper is not always better. A supplier that takes the time to ensure his
supplies conform to governmental regulations might cost a little more than one from a supplier
who cuts corners. Make sure you make an apples-to-apples comparison.

4. Ensure your supplier can keep up with demand. If you need 500 widgets a week and your
supplier, although working to full capacity, can only handle 350, it's time to look for a different
supplier.

5. Seek proof that your supplier is producing supplies up to code. You don't want to be brought
into a lawsuit later on down the line because your supplier was cutting costs and not making the
supplies up to code. Get documented proof of industry standard compliance.

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4.6 Understanding of the characteristics and impact of new technology

"Advancing" means progressing, taking steps over time or distance toward another, a
"better," place, objective, goal or goal state. So the overall topic of these proceedings, on
advances in philosophy of technology, would appear to mean one of two things: progress
or advances in technology, as seen from the perspectives of the philosophy of technology;
or as intellectual steps taken toward achieving a new state of the art within the field of
philosophy of technology itself.

4.6.1 Characteristics of Technology

The purpose of this topic is to clarify and define the discipline of technology, how it is
characterized and described. It presents the component descriptor, the key ideas
underpinning it, and illustrative examples of these from technology. This topic also
suggests possible learning experiences.

Component descriptor

Technology is defined as purposeful intervention-by-design. It is a human activity, known

as Technological Practice that results in Technological Outcomes that have impact in the
world. Technological outcomes can enhance the capability of people and expand human
possibilities. Technological outcomes change the mad world, and may result in both
positive and negative impacts on the social and natural world.

Technology uses and produces technological knowledge. Technological knowledge is

aligned to function, and validation of this knowledge occurs within technological
communities when it is shown to support the successful development of a Technological

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Outcome. Technology is historically positioned and inseparable from social and cultural
influences and impacts. Contemporary Technological Practices increasingly rely on
collaboration between people within the technology community and with people across
other disciplines

4.6.2 Impact of new technology

With all the improvements in productivity and efficiency offered by new technologies,
there are areas of concern that must be considered thoroughly by any organization before
implementing a new technology. Security is a primary concern inherent in a mobile and
accessible IT system. Denying network access to unauthorized users is an ongoing battle
in many firms. Physical security of IT equipment is also an issue. "It was recently reported
hat the average business laptop held about $1 million of commercial data."

Companies implementing new technology must also take into account the social impact.
"teamwork is a crucial element of workplace functioning." He goes on to explain that
studies have shown lower satisfaction levels for users of virtual meeting tools in contrast
with fact-to-face meetings. This effect may be able to be mitigated with a hybrid virtual
team, where members occasionally meet in a traditional physical location.

There are also some concerns to consider with the telecommuting arrangement. If team
cohesiveness is a primary concern with an organization, the lack of interaction between
peers could hinder this goal. Supervision of employees working off-site is also
problematic. Evaluating performance, distributing the workload, and motivating
employees is more difficult when they are not physically present. Finally, how will
customer service be affected by a transition to a mobile workforce? Customer acceptance
is important.

The growth of new technologies to be used in the workplace is showing no sign of slowing
down. Some examples of technology currently in development for commercial use are
wearable computing, city and region-wide, and nanotechnology. Microsoft and IBM are

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working on collaboration technology that will facilitate virtual meetings where
participants will be able to teleconference on their computer screens, while creating or
changing documents and product designs using a "virtual whiteboard". These
technologies and many more, including all the unforeseen advances, will continue to
contribute to an increasingly mobile workforce.

The challenge lies in discovering how to implement new technology in the workplace as it
becomes available. Says that according to a Global Future Forum survey, 76 percent of
respondents agreed that "organizations are unable to effectively manage and deploy new
technology due to rapid change and constant innovation." The ability to keep up with
technology changes and integrate them in to business will require a paradigm shift in the
way we view technology. Today's children are growing up in a high-technology era, and
will be very capable of realizing this new business model in regard to technology.

4.7 understanding of cost management

Cost management is the process of planning and controlling the budget of a business.
Cost management is a form of management accounting that allows a business to predict
impending expenditures to help reduce the chance of going over budget.

Many businesses employ cost management plans for specific projects, as well as for the
over-all business model. When applying it to a project, expected costs are calculated
while the project is still in the planning period and are approved beforehand. During the
project, all expenses are recorded and monitored to make sure they stay in line with the
cost management plan. After the project is finished, the predicted costs and actual costs
can be compared and analyzed, helping future cost management predictions and budgets.

Implementing a cost management structure for projects can help a business keep their
over-all budget under control. Several business intelligence (BI) programs, such as Oracle
Hyperion, offer cost management software to help businesses monitor costs and increase

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profitability. While the software may help, it is not imperative that software is used when
executing a cost management plan.

Vendors may refer to cost management software applications as cost accounting, spend
management or cost transparency products.

What Are the Different Types of Cost-Benefit Analysis Techniques?

Cost-benefit analysis techniques are a common business activity owners and managers
use to assess various projects. These techniques essentially compare the total capital
investment for the project against its potential returns. Several techniques are available,
with the most common being the payback period, net present value, and rate of return.
Companies can use one or all of the cost-benefit analysis techniques. The assessment
occurs after the company has all necessary information and prior to investing capital into
one or more of the projects.

The payback period is generally the simplest of all cost-benefit analysis techniques. The
method uses all the same information as the other techniques, except the calculation
process is quite different. First, a company must compute all costs associated with a
project. This includes investment in fixed assets, costs for employees, and lost production
time for training or implementation. Second, the company divides the total for all these
costs by the potential financial returns, resulting in the time it will take for the project to
pay for itself.

The net present value technique is a bit more technical than the payback period. The cost
accumulation process is the same as the payback period. The company then uses the cost
of capital associated with outside funds to pay for starting the new project. The
estimation of future financial returns is also the same as the other cost-benefit analysis
techniques. A financial manager will discount the total future financial returns using the

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company cost of capital to determine if the current value of the return is higher than the
investment’s cost.

The rate of return is a common method a company can use for single or small
investments. The basic formula for this process is the total gains from the investment less
its total associated costs. Dividing the difference between these two items by the
investment’s cost produces a percentage return. Owners and managers use this
percentage to determine if the investment is a worthwhile use of capital. Rate of return
may be a hybrid method among different cost-benefit analysis techniques as companies
can compare the return percentage to the cost of capital.

Companies may also use other cost-benefit analysis techniques. These techniques
essentially all test the same information. The purpose of using different techniques,
however, is to determine which one provides the most accurate information. Financial
members may use multiple analysis formulas for different projects. The purpose behind
this is to match a formula to the information on hand so the company will be able to
accurately assess various projects.

Cost Management Process

Project Cost Management

Process helps you to monitor and report all expenses within a project.

Costs (or "expenses") are recorded by team members, using Expense Forms. These forms are
reviewed and approved by the Project Manager, prior to the expense items being purchased. The
project cost management process steps you through this process, to ensure that all of the costs
within your project are accurately recorded and tracked.

This project cost management process will help you to:

 Identify each of the costs within your project

 Ensure that expenses are approved before purchasing

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  Keep a central record of all costs incurred
 Control the overall cost of your project

This template will also enable you to:

 Determine whether your expenses were adequately budgeted

 Monitor and control instances of over-spending
 Gain special approvals for extra-ordinary expenses
 Schedule expense payments and invoice approvals
 Keep your project and financial plans up-to-date

To deliver your project under budget, it is essential that you implement a project cost
management process. This process will help you identify, monitor and control costs, at
each phase in the project.

What is a Cost Management Process?

A Cost Management process helps you control expenses within an organization. By

purchasing the Project Cost Management process advertised here, you can ensure that all
expenses are approved before they are paid. Using this project Cost Management process,
you can ensure that your project is delivered within budget.

When do I use a Cost Management Process?

If you want to control the way that expenses are incurred, then you need to implement a
Cost Management process. It will help you to control project expenses, ensuring that only
expenses which have been approved, may take place. Using this Cost Management
process, you can also keep your project plan up-to-date with the latest expense
information available.

Cost Management

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Cost certainty and control are essential for any client, planning property, construction or
infrastructure capital projects or programmes.

When you engage Turner & Townsend your commercial interests are safeguarded at every
stage of the design, procurement and construction process. We support you in three
critical key areas:

Management. We focus all our resources and experience on achieving the best results
from your investment. We make sure that the design fully matches your needs and
budget. We drive the commercial agenda and procurement strategies. We manage cost
and risk performance against targets and identify every opportunity for improvement.

Governance. We help you identify the best method of directing and controlling your
project or programme. We establish the best delivery policy and we define crystal clear
project accountabilities and responsibilities.

Assurance. At each and every stage of project or programme delivery, we verify that
performance conforms to your commercial policy, process and practice. We address any
risks and issues that arise, and if problems, discrepancies or conflicts occur, we provide
the solutions that will protect your interests.

4.8 Method of preparing simple financial statement and its importance

4.8.1 Financial Statements: A Basic Overview, and its Importance

Financial statements provide an overview of a business’ financial position, performance

and changes in the financial position at a particular point in time or throughout a
specified reporting period. With regard to surety underwriting, financial statements are a
key component in determining a contractor’s single job and aggregate bonding
capabilities.

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The four main components to a financial statement and their general purpose are as
follows:

 Balance Sheet; Provides a company’s assets, liabilities and equity position at a particular
point in time
 Income Statement (often referred to as a Profit & Loss statement);Reports the
revenue/sales/income, expenses and profits of a company over a period of
time
 Statement of Cash Flows; Provides details regarding the cash flow activities of a
company over a period of time with regard to operating, investments and financing
activities
 Statement of Retained Earnings; Explains the changes in a company’s retained earnings
(portion of net income undistributed by the company to its owners or shareholders)

A Simple Overview of some Construction Based Accounting Methods:

 Cash Basis; Cash basis accounting simply acknowledges for income/revenues and
expenditures only as they have been physically received or paid. Be advised that cash basis
accounting is not useful to the surety underwriting process.
 Accrual Basis; Accrual basis accounting recognizes income/revenues and expenditures as
they are physically received or paid as well as those that have been billed thus, represents
accounts receivable and payables, as well.
 Percentage of Completion; he percentage of completion method of accounting is
generally utilized by construction contractors and is an accrual based accounting method
which includes the recognition of income/profit on projects which are not complete as of
the period in which the financial statement is being reported.
 Completed Contracts; The completed contracts method of accounting is similarly
utilized by construction contractors and is an accrual based accounting system which only
includes the recognition of income/profit on projects that have been completed prior to
the ending period in which the financial statement is being reported.

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4.8.2 Preparing Financial Statements - Basic Concepts

The Income Statement (Also called the "Profit and Loss" Statement)

The income statement shows the financial results of operations for a period of time.
Think of it as a “diary” of what transpired for, say, a 12-month period (e.g., “For the Year
Ended 2005”). From the income statement, one can determine the level of profit or loss
because amounts received from selling goods and services and other items of income are
matched against all the costs and expenses incurred in the delivery of these goods and
services. The major elements of an income statement are:

 Net Sales – represents the primary source of money received by the business from its
customers for goods sold or services rendered. The net sales item covers the amount
received after taking into consideration returned goods and allowances for reduction of
prices.
 Cost of Sales and Operating Expenses – all costs incurred in the factory (including
depreciation) in order to convert raw materials into finished products.
 Operating Profit – net sales less all operating costs
 Interest Income – additional source of revenue from investments
 Interest Expense – interest paid to creditors
 Provision for Income Tax – amount of income tax due

The Balance Sheet

The balance sheet presents the financial position of a business as of a specific date, much
like a “snapshot” (e.g., As of December 2005). It is a report on the financial resources
(assets) available to the business to carry out its economic activities as well as claims
(liabilities) against its resources. The difference between assets and liabilities is the
owner’s equity. This follows the fundamental accounting equation: Assets = Liabilities +
Owner’s Equity.

The main elements of the balance sheet are:

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 Assets – economic resources of a business such as buildings, equipment, land, motor
vehicles, amounts owed by customers (accounts receivable), patents and bank deposits.
 Liabilities – economic obligations to pay definite or reasonably certain amounts at a time
in the future. They are claims against the business by creditors.
 Owner’s Equity – residual interest of the owners in the business.

The specific elements of the balance sheet are:

 Current Assets – include cash and those assets which in the normal course of business will
be turned into cash generally within a year from date of balance sheet. These consist of
cash, marketable securities (or temporary investments), accounts receivable, inventories
and prepaid expenses (payments made in advance, such as insurance, from which the
business has not yet received benefits). Therefore, current assets are mostly working
assets in the sense that they are constantly being converted to cash.
 Fixed Assets – also referred to as property, plant and equipment, these represent those
assets not intended for sale that are used over and over again in order to manufacture the
product, display it, warehouse it, transport it. Fixed assets generally consist of land,
buildings, machinery, and office equipment.
 Depreciation – defined for accounting purposes as the decline in useful value of a fixed
asset due to wear and tear from use and passage of time. Fixed assets may also suffer a
decline in useful value from obsolescence because new inventions and more advanced
technologies are introduced. The cost incurred to acquire the property, plant and
equipment must be spread over the expected useful life. The usual method used is
straight-line depreciation. Land is not subject to depreciation.
 Current Liabilities – generally includes all debts that fall due in the coming year. Payments
made on current debts generally come from a business’ current assets.
 Accounts Payable – represents the amounts that the business owes to its regular business
creditors from whom it has bought goods or services.
 Notes Payable – money owed to a bank or other lender (wherein a written promissory
note has been given by the borrower).
 Accrued Expenses Payable – may include salaries and wages payable to employees, interest
on funds borrowed from banks, insurance premiums and similar items. To the extent that

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 the amounts owed are unpaid as of the balance sheet date, these expenses are grouped as
a total under accrued expenses payable.
 Income Taxes Payable – amount of taxes owed and due
 Long-term Liabilities – debts due after one year from the date of the financial report

It would do well to prepare the income statement and the balance sheet on a regular basis
to guide the entrepreneur on critical decisions that must be made with regard to the
business. There are a number of technology solutions available to aid the entrepreneur in
generating these financial reports.

4.8.3 Cash Flow Statement Example-Direct and Indirect Method:

Unlike the major financial statements, cash flow statement is not prepared from the
adjusted trial balance. The information to prepare this statement usually comes from
three sources:

1. Comparative balance sheets provide the amount of the changes in assets,

liabilities, and equities from the beginning to the end of the period.
2. Current income statement data help the reader determine the amount of cash
provided by or used by operations during the period.
3. Selected transaction data from the general ledger provide additional detailed
information needed to determine how cash was provided or used during the
period

Preparing the statement of cash flows from the data sources above involves three major
steps:

Step 1. Determine the change in cash:

This procedure is straight forward because the difference between the beginning and the
ending cash balance can be easily computed from an examination of the comparative
balance sheet.

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Step 2. Determine the net cash flow from operating activities:
This procedure is complex. It involves analyzing not only the current year's income
statement but also comparative balance sheets and selected transitions data.

Step 3. Determine net cash flows from investing and financing activities:
All other changes in the balance sheet accounts must be analyzed to determine their
effects on cash.

Cash Flow Statement Example:

A Comprehensive illustration

To illustrate a statement of cash flows we will use the first year of operations for Tax
Consultants Inc. The company started on January 1, 2003, when it issued 60,000 shares of
$1 par value common stock for $60,000 cash. The company rented its office space and
furniture and equipment, and it performed tax consulting services throughout the first
year. The comparative balance sheets at the beginning and at the end of the year 2003
appear as follows.

Assets Change
Dec. 31, 2003 Jan. 1, 2003 Increase/Decreas
e
Cash $49,000 $-0-
Accounts receivable $36,000 $-0- $49,000 increase
----------- --------- $36,000 increase
Total
$85,000 $-0-
====== =====
Liabilities and
Stockholder's Equity

Accounts payable
$ 5,000 $-0-
Common stock $ 5,000 increase
$60,000 $-0-
Retained earnings

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Total $20,000 $-0- $60,000 increase
--------- ------- $20,000 increase
$85,000 $-0-
======= =====

The income statement and additional information for Tax Consultation Inc. are as
follows.

Tax Consultants Inc.

Income Statement
For the year ended December 31, 2003

Revenue $125,000
Operating expenses $ 85,000
---------
Income before income taxes
$ 40,000
Income tax expenses
$ 6,000

Net income ----------

$ 34,000
=======

Step 1: Determine the Change in Cash:

To prepare a statement of cash flows, the first step―determining the change in cash―is a
simple computation. The company has no cash on hand at the beginning of the year 2003,
but $49,000 at the end of 2003. Thus the change in cash for 2003 was an increase of
$49,000

Step 2: Determine Net Cash Flow from Operating Activities:

A usual starting point in determining net cash flow from operating activities is to
understand why net income must be converted. Under generally accepted accounting

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principles, most companies must use the accrual basis of accounting, requiring revenues
be reported when earned and that expenses be recorded when incurred. Net income may
include credit sales that have not been collected in cash and expenses incurred that may
not have been paid in cash. Thus, under the accrual basis of accounting, net income will
not indicate the net cash flow from operating activities.

To arrive at net cash flow from operating activities, it is necessary to report revenue and
expenses on cash basis. This is done by eliminating the effects of statement transactions
that did not result in a corresponding increase or decrease in cash.

The conversion of net income into net cash flow from operating activities may be done
through either a direct method or an indirect method as explained in the following
discussion.

1. Direct Method:

(Also called the income statement method) reports cash receipts and cash disbursements
from operating activities. The difference between these two amounts in the net cash flow
from operating activates. In other words, the direct method deducts from operating cash
receipts the operating cash disbursements. The direct method results in the presentation
of a condensed cash receipts and cash disbursements statement.

As directed from the accrual based income statement, Tax consultants Inc. reported
revenues of $125,000. However, because the company's accounts receivable increased
during 2003 by $36,000, only $89,000 ($125,000 − $36,000) in cash collected on these
revenues. Similarly, company reported operating expenses of $85,000, but accounts
payable increased during the period by $5,000. Assuming that payable related to
operating expenses, cash operating expenses were $80,000 ($85,000 − $5,000). Because no
taxes payable exist at the end of the year, the$6,000 income tax expense for 2003 must
have been paid in cash during the year. Then the computation of net cash flow from
operating activities is as follows:

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Cash collected from revenues $89,000
Cash payment for expenses $80,000
---------
Income before income taxes
$ 9,000
Cash payments for income taxes
$ 6,000
---------
Net cash provided by operating activities
$ 3,000
======

"Net cash provided by operating activities" is equivalent of cash-basis net income. ("Net
cash used by operating activities" would be equivalent to cash-basis net loss)

2 Indirect Method:

(or reconciliation method) starts with net income and converts it to net cash flow from
operating activities. In other words, the Indirect method adjusts net income for items that
affected reported net income but didn't affected cash. To compute net cash flows from
operating activities, noncash changes in the income statement are added back to net
income, and net cash credits are deducted. Explanations for the two adjustments to net
income in this example―namely, the accounts receivable and accounts payable―are as
follows.

Increase in Accounts Receivable―Indirect Method:

When accounts receivable increase during the year, revenues on an accrual basis are
higher than on a cash basis because goods sold on account are reported as revenues. In
other words, operations for the period led to increased revenues, but not all of these
revenues resulted in an increase in cash. Some of the increase in revenues resulted in an
increase in accounts receivable. To convert net income to net cash flow from operating
activities, the increase of $36,000 in accounts payable must be deducted from net income.

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Increase in Accounts Payable―Indirect Method:

When accounts payable increase during the period, expenses on an accrual basis are
higher than they are on a cash basis because expenses are incurred for which payment has
not taken place. To convert net income to net cash flow from operating activities, the
increase of $5,000 in accounts payable must be added back to net income.

As a result of the accounts receivable and accounts payable adjustments, net cash
provided by operating activities is determined to be $3,000 for the year 2003. This
calculation is shown as follows.

Net income $34,000

Adjustments to reconcile net income
to net cash provided by operating
$(36,000)
activities:
$ 5,000 ($31,000)
Increase in accounts receivable
----------
Increase in accounts payable
$ 3,000
Net cash provided by operating =======
activities

Note that net cash provided by operating activities is the same whether the direct or
indirect method is used.

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Step 3: Determine Net Cash Flows from Investing and Financing Activities:
Once the net cash flows from operating activities is computed, the next step is to
determine whether any other changes in balance sheet accounts caused an increase or
decrease in cash.

For example, an examination of the remaining balance sheet accounts for Tax
Consultants Inc. shows that both common and retained earnings have increased. The
common stock increase of $60,000 resulted from the issuance of common stock for cash.
The issuance of common stock is a receipt of cash from a financing activity and is
reported as such in the statement of cash flows. The retained earnings increase of $20,000
is caused by two items:

1. Net income of $34,000 increased retained earnings

2. Dividend declared of $4,000 decreased retained earnings.

Net income has been converted into net cash flows from operating activities, as explained
earlier. The additional data indicates that the dividend was paid. Thus, the dividend
payment on common stock is reported as cash outflow, classified as financing activity.

We are now ready to prepare the statement of cash flows. The statement starts with the
operating activities section. Either the direct or indirect method may be used to report
net cash flow from operating activates.

The statement of cash flows under indirect method for Tax Consultation Inc. is as follows.

Tax Consultants Inc.

cash flow statement-Indirect Method
For the year ended December 31, 2003

Cash Flows From Operating Activities:

Net income

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Adjustments to reconcile net income to net cash $34,000
provided by operating activities:
Increase in accounts receivable
$(36,000)
Increase in accounts payable
$ 5,000
Net cash provided by operating activities ---------------
($31,000)
Cash Flows From Financing Activities: -------------
$ 3,000
Issuance of common stock
Payment of cash dividend $60,000
$(14,000)
Net cash provided by financing activities ----------

Net increase in cash

Cash, January 1, 2003 $46,000
-----------
Cash, December 31, 2003 49,000
-0-
----------
$49,000
=======

As indicated, the $60,000 increases in common stock results in a cash inflow from a
financing activity. The payment of $14,000 in cash dividends is classified as a use of cash
from a financing activity. The $49,000 increase in cash reported in the statement of cash
flows agrees with the increase of $49,000 shown as the change in the cash account in the
comparative balance sheet.

4.9 principles and process of negotiation

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Negotiation is the application of basic principle that we all use on daily basis. It is a
problem solving process for resolving conflicts in which all parties attempt to find a
solution to which all will voluntarily agree.

In simplest terms, negotiation is a discussion between two or more disputants who are
trying to work out a solution to their problem.

NATO Secretary General, Jaap de Hoop Scheffer (third from right) and High Representative for Common Foreign and Security Policy, Dr. Javier
Solana (far left) meet on March 10, 2004. This is an official NATO photograph, obtained from
http://www.nato.int/multi/photos/2004/m040310a.htm.

[1] This interpersonal or inter-group process can occur at a personal level, as well as at a
corporate or international (diplomatic) level. Negotiations typically take place because
the parties wish to create something new that neither could do on his or her own, or to
resolve a problem or dispute between them.

[2] The parties acknowledge that there is some conflict of interest between them and
think they can use some form of influence to get a better deal, rather than simply taking
what the other side will voluntarily give them.

[3] They prefer to search for agreement rather than fight openly, give in, or break off
contact.

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[4]When parties negotiate, they usually expect give and take. While they have
interlocking goals that they cannot accomplish independently, they usually do not want
or need exactly the same thing.

[5] This interdependence can be either win-lose or win-win in nature, and the type of
negotiation that is appropriate will vary accordingly. The disputants will either attempt to
force the other side to comply with their demands, to modify the opposing position and
move toward compromise, or to invent a solution that meets the objectives of all sides.
The nature of their interdependence will have a major impact on the nature of their
relationship, the way negotiations are conducted, and the outcomes of these negotiations.

[6]Mutual adjustment is one of the key causes of the changes that occur during a
negotiation. Both parties know that they can influence the other's outcomes and that the
other side can influence theirs. The effective negotiator attempts to understand how
people will adjust and readjust their positions during negotiations, based on what the
other party does and is expected to do.

[7] The parties have to exchange information and make an effort to influence each other.
As negotiations evolve, each side proposes changes to the other party's position and
makes changes to its own. This process of give-and-take and making concessions is
necessary if a settlement is to be reached. If one party makes several proposals that are
rejected, and the other party makes no alternate proposal, the first party may break off
negotiations.

[8] Parties typically will not want to concede too much if they do not sense that those
with whom they are negotiating are willing to compromise.

The parties must work toward a solution that takes into account each person's
requirements and hopefully optimizes the outcomes for both. As they try to find their
way toward agreement, the parties focus on interests, issues, and positions, and use
cooperative and/or competitive processes to come to an agreement.

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Approaches to Negotiation

Negotiation theorists make several overlapping distinctions about approaches to

negotiation. Fisher, Ury, and Patton distinguish between positional bargaining, which is
competitive, and interest based bargaining or principled negotiation, which is primarily
cooperative. But they also make the distinction between soft, hard, and principled
negotiation, the latter of which is neither soft, nor hard, but based on cooperative
principles which look out for oneself as well as one's opponent.

4.9.1 Principled Negotiation

Principled negotiation is the name given to the interest-based approach to negotiation set
out in the best-known conflict resolution book, Getting to Yes, first published in 1981 by
Roger Fisher and William Ury. The book advocates four fundamental principles of
negotiation:

1) Separate the people from the problem; separating the people from the problem means
separating relationship issues (or "people problems") from substantive issues, and dealing
with them independently. People problems

2) Focus on interests, not positions; Negotiating about interests means negotiating about
things that people really want and need, not what they say that want or need. Often,
these are not the same. People tend to take extreme positions that are designed to
counter their opponents’ positions. If asked why they are taking that position, it often
turns out that the underlying reasons--their true interests and needs--are actually
compatible, not mutually exclusive.

3) Invent options for mutual gain; By focusing on interests, disputing parties can more
easily fulfill the third principle--invent options for mutual gain. This means negotiators
should look for new solutions to the problem that will allow both sides to win, not just
fight over the original positions which assume that for one side to win, the other side
must lose.

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4) Insist on objective criteria. The fourth rule is to insist on objective criteria for
decisions. While not always available, if some outside, objective criteria for fairness can
be found, this can greatly simplify the negotiation process. If union and management are
struggling over a contract, they can look to see what other similar companies have agreed
to use as an outside objective criteria. If people are negotiating over the price of a car or a
house, they can look at what similar houses or cars have sold for. This gives both sides
more guidance as to what is "fair," and makes it hard to oppose offers in this range.

4.9.2 Fundamental Principles of Negotiation:

Focus on your target:

One of the laws of "human nature" which holds true in negotiations is that those who set
and focus on the most favorable targets achieve the most favorable settlements. All offers
should be based on sound information. The psychology of negotiation is that typically,
the initial settlement offer should leave "negotiating" room. By setting a favorable
resolution target within the settlement range and by making an initial offer that leaves
adequate negotiating room.

The adversary should be encouraged to make a more realistic assessment of the value of
the case. The negotiator's ability to focus on the settlement target often influences the
perceptions and expectations of the other negotiator. The negotiation plan should be
executed within the parameters of the strategy established.

Manage Information Skillfully:

Managing information means planning and preparing before the negotiation, which will
empower the negotiator. Position Your Theme Advantageously: Positioning your theme
allows you to frame the issues being negotiated in a fair yet empowering way. Effective
negotiators create a clear theme that accurately reflects their position. What critical and
key facts are the most favorable from which you can construct your theme? Positioning is
most effective when the theme is both compelling and reacted often. The negotiator who

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can continually return the discussion to his/her most favorable issue is far more likely to
create advantages in the negotiation.

Know and Maintain Your Power:

Negotiations center around power. To be successful in a negotiation, you must recognize

and develop all of your sources of power. When you have confidence and are fully aware
of your power, you are able to act with the level of conviction and resolve necessary to
persuade other negotiators and produce fair and favorable settlements.

Power can be either good or bad. Power should be used in an ethical, professional, non-
punitive way to move the negotiation toward mutually acceptable closure. Your power
can come from information, being prepared, your negotiation skills, the strength of the
case, or your personal resolve and motivation.

Emphasize Needs Over Wants:

Try to become attuned to the needs that may underlie the opposing party's demand. Do
not be swayed by the opposing party's posturing or unreasonably high demands.
Determine the value of the case based on the facts rather than the demands of the
opposing party. Do not assume that the other party's position lacks merit.

Again, probe what, if anything is the demand based on. Be alert and listen actively to
uncover information. The art of negotiation is the ability to peel away layers of
information, which reside between opening demands, and mutually acceptable
settlements.

Concede Strategically:

Concessions are the compromises you make after your opening offer to move the
negotiation forward. To concede strategically means to develop a plan that manages the

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concession process that will enable the negotiator to exert control over the negotiation
process and outcome.

Your concession pattern sends a message: so make sure that the way you make a
concession sends the right message. Don't make unnecessary concessions. De-escalate the
concession process. Each one should be less than the previous one. When you do make a
concession, do it slowly, and make sure you get a concession in return.

Powerful Tips

Distinguish between interests and positions

The classic story to illustrate this describes two sisters fighting over the only orange in the
family larder. Each sister must have the entire orange for herself, any less is impossible. A
wise parent asks each of the girls (in private) why she wants the orange. One explains she
wants to drink the juice; the other wants to use the rind to cook a pudding. What each
sister wants is her position, why she wants it is her interest. In this case, the simple
solution is to give the cook the rind after the juice has been squeezed for the thirsty sister
- thus meeting the interests of both.

4.9.3 The Negotiation Process

Discover what the other side knows

Educate the other side on your position

Create doubt about the other side's position

Make the other side advocates for your position

Determine enforcement means

Enhance implementation through good relationship

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Until the other side establishes trustworthiness by credible performance, you must learn
as much about the other side's position as possible, while revealing as little as possible
about one's own:

First, you should have completed preliminary work, to scope out what the other side's
position and strategy will be, so you aren't hearing it in negotiations for the first time.
Second, you should have selected your team with an eye toward enhancing your ability to
figure out the other side -- its strengths and its weaknesses. And your team should be
highly disciplined in order to establish a good relationship. It should also be understood
who talks for the team.

The second principle is to get the other side to lose confidence in its position while
gaining confidence in yours. This is where "education" comes in- the process of selectively
revealing information that strengthens your case while questioning that of the other side.
It sounds like a breach of ethics to reveal information selectively to strengthen your case
while weakening your opponent's. However, until trust is established, negotiation is a
contest. You would not use your weak arm to arm-wrestle with a stranger. Ethics in
negotiation has to do with being principled and fair, and neither demands complete
disclosure.

The "decision" in negotiation is whatever the negotiators agree on, and can convince their
ratifiers to accept. This, incidentally, is another reason for intense preparation prior to the
actual negotiation. If you are not going to reveal weaknesses, you can be sure your
opponent will not. You will need to discover them through meticulous spadework before
the fact, with careful attention to body language, tone, and what your opponent does not
say.

This leads to the third principle: creating doubt about the other side's position. As you
educate the other side to see the advantages of your position, you want to undermine
their confidence in their own position. These two principles, educating the other side on
your position and creating doubt about their own position, are a cyclical process.

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The fourth principle is to make the other side an advocate for your own position. Neither
you nor they will have the power to decide. That power has been withheld by those who
sent you to negotiate for them. They are your "retifire," your "closers." You are a better
negotiator than they are, or you would not have been sent to do that job for them. So a
part of your strategy is to manage the other side's access to your retifire. You don't want
someone as good as you are to have access to your own decision makers.

The retifirer,

Customer: This dickering is getting on my nerves. I'll give you $15,599 for that car and not
a penny more. That is my last offer.

Salesman: I don't know if we can do that, but I'll take it to my manager and see if he will
approve it. (Later) I'm really sorry but my boss said we can't do that. We would lose
money.

Customer: Well, if you don't know what kind of deal your boss will buy, I'm through
negotiating with you. Bring him out and I will deal with him.

Salesman: I'm sorry. He was leaving just as I was talking to him. He won't be back until
tomorrow.

Customer: Well, you know my position. Tell me what you think he will approve.

First, the customer and the salesman are doing positional bargaining. Given a "hard"
position, the salesman takes the offer to his gratifier, thereby posturing as the customer's
advocate, but protecting himself from having to say no. The retifirer, who may not even
have been there, refused. The customer now demands to see the individual who has the
authority to decide, but the salesman cannot afford to have his ratifier brought into the
process. The customer then seeks to co-opt the salesman by asking him to frame
something the ratifier will approve. This still may not work, but the salesman is now on
the defensive, for at least a few moments. Negotiators must be very skillful in their use of

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psychological advantage. This remains true, though a less critical consideration, in
principled negotiation.

The fifth principle is to enhance both enforcement and implementation by building in

objectively verifiable means. Even with principled negotiation and trust, future doubt or
suspicion can be avoided by including in the agreement some objective means for
checking that the agreement is honored by both sides, and for enforcing compliance.
Sales contracts, for example, have clauses that address the potential for default. A house
loan is secured by a deed of trust. Equally, negotiated agreements should be written with
some consideration of how non-compliance would be treated.

The sixth principle is that it is essential to maintain a good relationship with the other
side. A good relationship enhances the operation of the preceding principles, and, indeed,
may be essential to some of them. Further, if initial initiatives toward principled
negotiation get no response from the other side, maintaining a good relationship "in spite
of it all" may produce a change of heart with your opponent. Principled negotiation can
emerge at almost any time, so long as one negotiator has been behaving in a principled
manner all along. So the other side must be treated with courtesy and respect.

4.10 application of self management skill

Self Management Skills

The ability to manage your own self is very important for the development of an
individual. It helps one to become more responsible in life. Let us know more about the
topic Self management skills are vital for the development of an individual. Often, we
blame others or the situation for our failures, but if we do a bit of retrospection, the
challenges that we face can very well be a result of poor planning - something which
stems from the lack of self management.

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These skills may be inherited by the select few, but most of us are acquainted with these
by our parents, teachers or employers. It is also important to mention that these skills
cannot be developed overnight and it takes a sustained effort on our part to be able to
manage ourselves in a better way. Self management does not necessarily mean that we
will reach the zenith of perfection, but what it essentially implies is bringing some
amount of discipline in our lives.
4.10.1 Self Management Qualities

 Self management helps an individual in becoming a better employee. It inculcates

qualities such as punctuality, discipline and subservience.
 It encourages one to develop new skills over a period of time. In today's scenario, it
is important to be multifaceted, so that there are myriad opportunities of growth
for an individual.
 It helps in the development of interpersonal skills. It has often been seen that most
of the issues arise due to miscommunication. It helps an individual to keep
negative emotions at bay and develop good relationships with people.
 It advocates the prophecy of being responsible for one's actions. It makes an
individual feel a part of the whole activity. For example, in a household with young
kids, it is often the parents who have to take care of the issues concerning their
children. However, with a bit of self management, kids can reduce some of the
responsibility of their parents. This also helps them to know themselves in a better
way apart from helping in character building.

Self management skills should ideally start at the school level so that students become
responsible for themselves. There are a lot of challenges that we face on a day-to-day
basis and help us deal with these in a better way. Today, one challenge that most of us
face is stress. It can be effective in developing a strategy to dispel negative emotions.
These can help one to look at the positive side of things. There are times when the going
gets tough and our emotions get the better of us, so it is important that we are able to
regain our composure. It instills a sense of confidence in an individual which helps in

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problem solving. Pressure situations require someone who is cool-headed, as decisions in
haste can prove to be fatal for an individual or an entity. It also helps in ensuring that
even the most difficult problems are dealt within a systematic manner.

4.10.2 Self-management Skills

Self-management skills tell an employer whether or not your personality fits the
personality of the company, the bosses, and the co-workers. Most of the people who are
not successful on the job have trouble with their co-workers and bosses, so it’s important
for you to show employers how you fit into their operations.

Many employers would rather hire an inexperienced worker with good self-management
skills than an experienced worker who might cause problems.

Self-Management Skills List

Here is a list of the key self management skills required for an employee to be more
productive. If you’ve decided to achieve career advancement, you need to consider this
best management skills list and work on the development of all the necessary abilities for
self-organization.

1. Stress-Resistance

The first and foremost skill of self-management refers to a personal ability to resist
any stressful situations. When you develop this self management skill, you can
avoid many mistakes that people usually make when being stressed out. Because a
stressful situation usually blocks our ability to think and make rational decisions,
we can’t cope even with the simplest tasks at our workplace, so our productivity
goes down and we get frustrated. That’s why you need to develop this ability in
order to be a productive employee able to offer resistance to a stressful situation.

2. Problem Solving

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 The second self-management skill requires you to use your brain as a mechanism
for making right decisions. Even the hardest tasks and challenges can be efficiently
handled if the mental process in your head is always in progress. Problem solving
requires you to operate facts and make right assumptions to analyze the situation,
review problems, and find effective solutions. Keeping your mind sober allows you
to take right decisions even in the toughest situations.

3. Communication

The way how you can communicate information to others will determine your
success. Communication is one of the key self-management skills required for
both personal development and career advancement. Being able to efficient
communicate any information to other people means that you can share
information with the minimized possible distortion and in the fastest possible way.
Productive employees always can efficiently communicate with their colleagues
and management because they comprehensively understand the value of clearly
and timely delivered information. So be sure you work on developing this skill for
self-management.

4. Time Management

Producing expected results in a timely manner defines the success of our effort.
Time management is an extremely important self-management skill that makes an
employee be more productive. There’re a great variety of time management
techniques that show you how to develop this skill for self-management. Just use
the web search to find plenty of them.

5. Memory

An ability to memorize events, names, facts, etc., allows an employee to remember

about everything he/she needs to do daily tasks and duties. Among other self-
management skills examples, committing to memory requires your personal effort

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 for developing your mind abilities. There’re a lot of techniques for improving
memory, so use the web search to find them.

6. Physical Activity

Keeping your body in good shape is a critical self-management skill example.

When you feel healthy and have a robust nervous system, you can do more things
and cope with many challenges. Physical Activity (like jogging, fitness, different
sorts of sports, etc.) allows you to strengthen your body, keep your muscles up,
and be more productive.

4. Concepts of risk

Risk; Generally everyone has some understanding of the meaning of the word 'risk'. As
children we are taught that something is risky, or we are told not to take risks. But what
exactly is 'a risk'?

In fact we all take risks everyday quite happily. We do things knowingly that there is a
risk involved. For example, we know that there is a risk involved in driving a car, or riding
a bike, or going on a skiing holiday. We accept the level of risk because in our minds,
although the potential consequences can be death or serious injury, we think that if we
are careful, the chances of something dread full happening is very low.

When we evaluate a risk, therefore, we take into account two factors - the probability of
something happening that we don't want, and the consequences if it does.

Risk Management; It is difficult to confine the word, 'risk' in limitations of verbal

language, as its scope and extent is far and wide. However, pertaining to risk
management, it can be said that it is the scientific and holistic assessment of potential
risks hidden in a project. By using tools and techniques explained in the risk mitigation
strategies, the probability of occurrence of any risk is analyzed.

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 Similarly, in the event of the occurrence of the risk, the financial impact on the
organization and actions that can be taken to minimize the loss is also given a deep
thought. Many a time, the concepts enshrined in risk management are generally
associated with negative connotations. However, it is a fact that risks also present
opportunities, though in disguised forms. Risk managers must not only focus on negative
aspects of risk but they must try to find various positive dimensions and hidden
opportunities in risks.

4.11 Concepts of Risk Management

In the recent years, a lot of emphasis has been put on effective application of the concepts
of risk management by risk managers. Keep reading to know more about the same.
"The first step in the risk management process is to acknowledge the reality of risk. Denial
is a common tactic that substitutes deliberate ignorance for thoughtful planning." ~
Charles Tremper

On an individual level, saving some modest income from your monthly salary and
investing it in good investment schemes can ensure that you're ready to face any possible
risk of financial crisis in the near future. For large organizations, who are multibillion
dollar enterprises with significant global presence, financial risks are compounded many
times relative to individual financial risks. Failure of economy, rising prices, labor strikes,
accidental hazards - the possibility of any of these risks can't be denied and emergency
readiness is something that can be of great help in such situations.

4.11.1 Purpose of Risk Management

Risks are an integral and inevitable part of life. As individuals, every decision that we take
regarding our personal or professional life brings along with it the risk of failure or
success. Similarly, for large corporations and governments, assessing risks before
investing billions of dollars in projects is vital to abort the chances of loss of men, money

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and material. Risks can be man-made or natural. Human mistakes that lead to
operational failure often pose risk to human life safety.

For example, if a nuclear engineer in a nuclear power plant is careless about his duties,
even a minor error can lead to dangerous consequences. On the other hand, if the
radiation is caused due to a natural disaster (earthquake, Tsunami), then the risks are
triggered by natural phenomena. While occurrence of risks due to operational failure or
poor human performance can be controlled by improved technology and better training,
threats of natural disasters are difficult to handle.

It is a harsh reality that even with the growth of advanced science and technology, it is
not possible to predict occurrence of natural disasters to mathematical accuracy. Even if
they're predicted, the loss caused by catastrophic risks can only be lessened, but not
completely averted. Hence, when we study risk management, the basic objective is to
analyze threatening situations that can cause extreme loss to governments or any
organization. Though practically it's not possible to completely eliminate risk in any
situation, the discipline of risk management that has been developed in the past couple of
decades aims to study, analyze and predict occurrence of adverse events to avoid loss of
men and money.
4.11.2 Risk Management Concepts and Guidance

Analysis forms the core of risk management concepts. Knowing what you're going to do is
very important. It is the ignorance that nothing will go wrong, which becomes the
nemesis for companies.
Know the Project
Awareness about numerous aspects of the project is vital to make effective business plans.
Lacking in knowledge in any of the area can be a loophole for poor planning. Hence,
know the project well before you began to assess the risks associated to it. Only then
you'll be able to figure out minor and major risks.

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Analyze
Make a list of all possible risks and estimate or calculate probability of occurrence of
those risks. You may consider using numerous risk management tools and techniques to
come with accurate estimates. For this, you need to have databases and information
regarding your project. Further, after evaluating the probability, you've got to know the
impact of the risk. Make a note of all that can be lost due to the risk. Now, think of ways
to minimize probability (mitigation) and impact (contingency). Also, calculate by how
much you should reduce the amounts of mitigation and contingency to lessen financial
risks.
After you've done that, you can directly calculate the reduction by multiplying mitigation
and contingency. Subtracting reduction from risk will give you 'exposure' and it is called
the amount that you simply can't avoid, even with your risk analysis. Exposure is the
minimum risk that you have to bear even with everything being perfect. This step by step
approach can help you deal with financial risks effectively.
Brainstorm
The more research and analysis you do, better will be your chances of coming out with
effective risk control strategies. That is why; it is helpful to take ideas from all the staff of
the risk management team. You can certainly take advice from experts in the same field.
Sometimes, thinking out-of-the-box can be very beneficial.
Monitor
Risk monitoring is a continuous process during the project. You can take help of software
designed to handle the task of huge databases effectively. During the monitoring process,
you have to oversee that all steps regarding safety are being taken properly and everyone
is working with an awareness to minimize risks. Effective communication is very
important to explain things to employees from various educational and cultural
backgrounds.
The concepts of risk management are not something that is difficult to master. It can be
summed up to be a scientific way to avert the chances of losses based on statistics and
data handling, common sense, good judgment skills and effective execution of plans.

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 Self-Check 4 Written Test

Choose the best answer for the following questions

 What are the alternatives to become an entrepreneur

 Explain Human resource management

 Identify Techniques and importance of time management
 Identify Techniques and procedures of sales management
 Discuss the Factors and steps for selecting suppliers
 Explain the characteristics and impact of new technology

 Define what is cost management

 Identify Method of preparing simple financial statement and its importance

 Identify Principles and process of negotiation

 Identify Application of self management skill
 What are the Concepts of Risk Management

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 Answer Sheet Score = ___________

Rating: ____________

Name: _________________________ Date: _______________

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AWAERNES CREATION AND
RESOURSE MOBILIZATION
NTQF Level III

LEARNING GUIDE: - 10

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 Unit of Competence: Develop underfunding
of entrepreneurship

Module Title: Developing underfunding

of entrepreneurship

LG Code: CDS CPM3 M010 0312

TTLM Code: CDS CPM3 M01TTLM 030712v1

LO 5: Develop one’s Owen business plan

Instruction Sheet 5 Learning Guide #5

This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –

 Steps of business plan preparation

 Underfunding of standard structure and format

 Method of developing clear business idea
 Understanding of threats

 Techniques of obtaining information

This guide will also assist you to attain the learning outcome stated in the cover page.
Specifically, upon completion of this Learning Guide, you will be able to –
 Identify Steps of business plan preparation

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  Underfund standard structure and format
 know Method of developing clear business idea
 Understand threats

 Identify Techniques of obtaining information

Learning Instructions:

81. Read the specific objectives of this Learning Guide.

82. Follow the instructions described in number 3 to 20.

83. Read the information written in the “Information Sheets 1”. Try to understand what
are being discussed. Ask you teacher for assistance if you have hard time
understanding them.

84. Accomplish the “Self-check 1” in page __.

85. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 1).

86. If you earned a satisfactory evaluation proceed to “Information Sheet 2”. However, if
your rating is unsatisfactory, see your teacher for further instructions or go back to
Learning Activity #2.

87. Submit your accomplished Self-check. This will form part of your training portfolio.

88. Read the information written in the “Information Sheet 2”. Try to understand what are
being discussed. Ask you teacher for assistance if you have hard time understanding
them.

89. Accomplish the “Self-check 2” in page __.

90. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 2).

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91. Read the information written in the “Information Sheets 3 and 4”. Try to understand
what are being discussed. Ask you teacher for assistance if you have hard time
understanding them.

92. Accomplish the “Self-check 3” in page __.

93. Ask from your teacher the key to correction (key answers) or you can request your
teacher to correct your work. (You are to get the key answer only after you finished
answering the Self-check 3).

94. If you earned a satisfactory evaluation proceed to “Operation Sheet 1” in page _.

However, if your rating is unsatisfactory, see your teacher for further instructions or
go back to Learning Activity #6.

95. Read the “Operation Sheet 1” and try to understand the procedures discussed.

96. You are provided with a CD containing lessons on how to clean and maintain
equipment. Before you open the CD read the information written in the “Information
Sheets 1-2” in pages ___. You will be also provided with additional reference reading
materials regarding the cleaning of masonry hand tools.

97. Request a desktop computer or laptop from your teacher. Make sure the unit is
plugged to a power source before turning on the power O. Then insert the CD in the
CD drive located in your computer. Access the information as described in the
Operation Sheet 1 in page __.

98. Read all the contents of the CD and try to understand the procedures discussed.

99. Request access to the equipment and software described in the CD. Practice the steps
or procedures as illustrated in your CD. Go to your teacher if you need clarification or
you want answers to your questions or you need assistance in understanding a
particular step or procedure.

100. Do the “LAP test” in page __ (if you are ready). Request your teacher to evaluate your
performance and outputs. Your teacher will give you feedback and the evaluation will

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 be either satisfactory or unsatisfactory. If unsatisfactory, your teacher shall advice you
on additional work. But if satisfactory you can proceed to Learning Guide #8.

Information Sheet-5 Develop one’s Owen business plan

5.1 Steps of business plan preparation

5.1.1 Steps in the Business Planning Process

The plan is the result of an ongoing process.

Planning is a critical element of business success, but one that is often misunderstood by
entrepreneurs starting companies. They often believe the purpose of writing a business
plan is to convince investors to put money into the venture. Actually, planning is an
ongoing process that must be done with great diligence whether the company is looking
for capital or not. The company's plan shows the steps that must be completed in order to
reach its revenue and profit goals. The end product of this planning process is the
business plan document.

1. Define Customer Need

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 o Before starting a venture, you must be certain that your target customer
groups have a strong, even urgent need for the product or service you will
be offering. Show that you are providing well-defined, quantifiable benefits,
such as saving them 25% versus the product that they have been using.
Unless the need is compelling and the solution you are providing is
significantly better than what customers can get from your competitors,
they will not be willing to spend money on it.

Research the Market

o Investors seek out companies in markets that are just now emerging or are
about to enter a rapid growth phase. This is often called having a first-to-
market advantage, being the first company to take advantage of a new
opportunity. Present a clear case about why your market is vibrant, with
excellent growth prospects for the next three to five years.

Study the Competition

o Entrepreneurs often underestimate the strength of their competitors and

how entrenched they are within the market. Pinpoint the weaknesses you
think competitors have--which you intend to exploit to build your
competitive advantage--but be realistic about the competition your venture
is going up against.

Develop a Business Model

o Where will your revenues come from? That's the central idea of a business
model. Present how many different ways you will generate revenues. If you
can earn more than one revenue stream from a customer, that is a positive
factor in your model. The business model also explains the factors and
conditions that will cause your company to be profitable. You might have

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 scalability, meaning you can rapidly grow revenues without a corresponding
increase in costs.

Devise Marketing Strategies

o Show how you are going to convince customers to purchase your products
and services, and the marketing cost involved. Another weakness of many
business plans is describing vague goals such as "attain a 5 percent market
share by the second year," but failing to present detailed marketing tactics
to acquire customers.

Describe How the Team Fits Together

o Companies succeed because the right management team has been

assembled, not simply because they have a superior technology to offer the
marketplace. The team members must be able to work in harmony during
the often stressful early days of the company's existence. Combined, they
must have specific skills, experience and the drive to succeed that will
enable them to execute the strategy outlined in the business plan.

Prepare Financial Projections

o Financial projections must be realistic and based on concrete assumptions.

How the company derived the numbers is just as important to investors as
how attractive the forecast profit appears. It usually takes longer than
anticipated for sales momentum to build in an early-stage company. Try to
make the first year's projections conservative.

5.1.2 Steps to Creating a Simple Business Plan

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Your business plan is like a road map to long-term success. Have you ever been in a
situation where you didn't have a map to find your destination and got lost wasting
precious time and money? Well, the same can happen to your business if you don't plan
out your business strategies.

Why you need a business plan.

It gives you a clear direction where your business is heading. Many business owners just
jump into creating a business without researching and making a concrete plan. Inevitably,
they soon find that they are out of money and have no time or clear strategies how to
market their business.
Here are 8 simple steps to creating your own business plan (this is by no means a
comprehensive plan but a primer to get you started):

1. Name of your business - create a name or reevaluate the name of your business. Does
it integrate well with what you are selling? Is it easy to spell and remember? Is it a name
that can be well branded over time?
2. Vision - what will your business look like 5 years from now? Think of how you may
want to expand it to include other branches or extra employees.
3. Mission statement - this defines what your business really does, what activities it
performs and what is unique about it that stands out from your competitors.
4. Goals and objectives - clearly define what you want to achieve with your business.
Make sure they are quantifiable and set to specific time lines. Set specific goals for each of
your products or services.
5. Strengths, weaknesses, opportunities, threats (SWOT) -by analyzing these
characteristics in your business, you will get a clearer idea of what it will take for you to
not only to survive but also prosper.

This could include such factors as:

- your companies own changing industry

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- the marketplace which may change due to social and economic conditions.
- Competition which may create new threats and/or opportunities.
- New technologies which may cause you to change products or the process in how you
do things.
Evaluating your SWOT will help you to:
- build on your strengths
- resolve your weaknesses
- exploit opportunities
- avoid threats

Doing this analysis will help you create a more realistic strategic action plan.

6. Strategic action plan - this is the most critical step of your business plan, because
without it, your business will not get off the ground. This should include your sales and
marketing strategies.
7. Financial plan - a business can operate without budgets, but it is clearly good business
practice to include it. With budgets, you will be more likely to achieve your business
objectives, you will make more-reasoned decisions and you will have better control of
your cash flow.
For any period, a cash flow statement would include:
- The cash and credit sales (or accounts receivable) expected to be received during the
period.
- The anticipated cash payments (for example, expenses for purchases salaries, utility
charges, taxes, Office expenses etc.)
- A description of other incoming and outgoing cash with a calculation of the overall cash
balance.
This will assess how much money is on hand to meet your financial obligations - what
cash has been received and what has been paid out. Knowledge of this cash flow cycle will

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help you predict when you will receive funds and when you will be required to make a
payment.

8. Measuring and evaluation - you wrote your business plan and set the goals with the
intent of achieving them. So now break them down into measurable pieces and monitor
the results regularly. A plan that cannot be measured is almost always destined for failure.
Celebrate your wins and recharge yourself to accomplish your next goal.

Decide beforehand what constitutes a real serious loss and what loss will be acceptable. If
you find your goals are unrealistic and unattainable, adjust them, but realize that it takes
hard work to achieve them, so don't give up easily.

Conclusion: Now that you have a business plan, make it a part of you by knowing and
understanding it clearly. Build upon it continuously and refer to it often, so you remain
on track to building a profitable business.

5.1.3 Critical Steps to Writing a Business Plan

Writing a business plan can be an overwhelming task. These feelings often translate into
immobilization or confusion as to how to start the business plan. Starting a business plan
begins with the first step:

1. Audience & Funding Type:

When writing a business plan, you must determine who will be reading it. This decision will
shape the business plan. Do you plan to go for debt or equity financing? Each form of funding for
your business has pros and cons. For instance, the venture capital market can be very time
consuming and competitive. Do you have the time to write the business plan for investor funding
and to network within the community?

Writing a business plan for investors is 15-30 pages with in-depth analysis and full details
of facts and figures to support assumptions of the market. Writing a business plan for the
bank is 10-15 pages and focused with the bank's concern with risk. A venture plan presents

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the upside and potential return on investments, whereas a bank plan reduces the risks
and sells the ability to repay the loan.

2. Business Plan Outline:

A business plan outline is the second most important starting point once you've pre-determined
your audience. The business plan outline should be prepared before the actual research and
writing of the business plan.

3. Research & Information Collection:

Once you have made the decision of the type of funding your business requires, it is time for the
research. Business plan research covers several key areas:

 Insight from your experience working and observing the industry you will enter. This data
will have to be backed but by the next two sources.
 Published information from library, Internet, and paid database services will provide
information on the market growth, overall industry perspective, and customer profiles.
 Field research covers interviews with customers, suppliers, competitors, and industry
experts. This provides the real insight behind all the published facts.

4. Collection Files:
The easiest way to go about collecting all your experiences, interviews, and research is to create
files for each section of the business plan. These files can be: paper-based, computer files or set-up
using business planning software. As you start the research and collection phase of planning, fill
your files with notes and printouts.

5. General Industry Overview:

Begin the research process with an overview of the industry; uncovering industry and association
reports. By having a general understanding of the industry, you will avoid embarrassment in
contacting experts with basic questions. Begin the field research once you have a good grasp of
the industry fundamentals and need answers to the hard-to-find information.

6. Analysis:
Once the bulk of the data has been collected, the process of analysis begins. Look at building a
competitive profile, contingency plan, risk assessment, etc.

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7. Financials:
Start the financials when you have found some average industry ratios for your business. Work
closely with your accountant to develop realistic projections. Being overly optimistic will raise
eyebrows with your investors or banker.

8. Executive Summary:
Save the first section for last. When you have thoroughly, completed all sections of the business
plan, write the summary. Highlight the key points and include the return on investment or loan
payback requirements.

9. Review & Editing:

Remember, you only have one shot at making a good impression. A well-written business plan
that opens doors and wins the money is a plan that has been revised and reviewed. Do not forget
this important step. Ask others for feedback. Make certain to edit, proofread, proofread, and
proofread.

Business planning is not easy but by following these critical steps to writing a business
plan, you will ensure your business has a chance at funding and success in the future.

5.2 underfunding of standard structure and format

5.2.1 Business Plan Format: How to Structure Your Business Plan

Use these tips to structure and format your businesses plan professionally, ensuring that
readers look beyond distracting style to the real meat of your idea.
Cover Sheet
Every business plan should begin with a simple cover sheet including the business name,
your name and contact information. An easy to read table of contents should follow. The
cover sheet should leave no question for readers to be able to identify the plan when it is
in a stack with dozens of others on their desk. The table of contents allows them to easily
refer to sections within the plan. For example, after reading the executive summary, some
investors with an eye for numbers may turn directly to the financial plan and statements.
5.2.1.1 Follow Standard Outline

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About ten sections are common to almost all business plans. These are the executive
summary, company overview, industry analysis, customer analysis, competitive analysis,
marketing plan, operations plan, management team, financial plan and appendices.
Within these sections, charts and graphs displaying information in a graphical format are
welcomed and help to break up long blocks of text.
However, charts and graphs shouldn't be used for their own sake. They must make the
information easier to pass on than text would.

Consistent and simple headings should be used for each section. Subsections should also
assist in breaking up the ten main sections into smaller topics. Also, the business plan
should be designed to read from start to finish, although this may not be how all readers
use it. Information in a section can rely on previous information brought up, but should
not require knowledge of future sections for understanding.
5.2.1.2Formatting
overall, business plans should use simple and standard formatting. Twelve point font size
in a standard font like Arial or Times New Roman is recommended, as well as the margin
size of one inch on each side. Pages should be numbered, and the name of the company
should appear on each page in the header or footer.

5.3 Analyzing findings of business plan

5.3.1 How to Analyze a Business Plan

A business plan is important for anyone that is starting a new business. For those who
already have a business plan, it is important to revise it if the business is experiencing
growth and development. Analyzing the business plan requires in-depth evaluation and
examination, which is essential to make sure that the information is correct.

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Instructions

1. The Steps

1 Assess the executive summary of the business plan. This is the part where the
company's mission statement and the purpose of the business will be listed. Make
sure that the overview of the company is stated clearly.

2 Search to find any summary about the company that mentions funds for starting
the business. Try to find any information containing employee data in this section.

3 Find the section where the product or service is detailed. Look to see what kinds
of product or services will be involved with the business. Compare this with what
other similar business plans are offering.

4 Look to see if there are any strategies mentioned in the business plan about
marketing and research. This section should indicate what the sales projection will
be in detail. It should include projections for each month, quarter, and year. Try to
determine whether the financial forecast is indicative of a continual increase over a
specific period of time.

5 Examine the summary of the financial data to see what the specific date is
mentioned by the owner of the company that profitable earning will take place.
See if there is any point where the company will break even in terms of finances.

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 Estimate from where the income will be generated. Inspect the profit and loss
statement, as well as the cash flow.

Steps to Analyzing your Business Plan

When running a business it is very important to have a clarified, written statement on

where the company is going. It is also very important to specify how it’s going to get
there. Many small businesses think that just because they only have a hand full of
employees they don’t need a strategic plan. This is not true. When writing your business
plan you should invite all of your employees to participate. This will form teamwork
within the company and give the employee motivation to work hard. After the plan is
written you should have a strategy adaptation meeting at least twice a year. This will give
direction and clarify any adjustments that need to be made.

When doing the yearly strategic analysis you should look at six aspects of the business.

1. Your customers: Figure out who your customers are at present the time, which they will
be in the future, and how they are changing.

2. Your people: What skills will be needed to handle changes in the market and threats
from competitors? This information should consist of how many employees will be
needed, what kind of knowledge they should have, and who should be promoted to
leadership positions.

3. Suppliers and distributors: Are they capable of proving all the necessary materials? Are
there new companies that could provide the same service at a lower price?

4. Competitors: Who is the main competition in the market? What kind of competitive
advantage do they have over you? Where are their weaknesses?

5. Products and Services: Are you developing anything new and cutting edge which will
give you leveraging in the market? If so, when is the product going to be released?

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6. Infrastructure technology & organization: What will the company have to do to stay
with the competition? Is the company using all existing technologies to best achieve this?

Planning really isn’t all that complicated. It is more a process of common sense and the
willingness to ask a few hard questions. The most important thing is to think everything
out and communicate with others. Having several people participate in the analysis will
give you a variety of perspectives. In the end, this analysis will help your small business
stay ahead of the curve

5.3.2 How to Conduct a SWOT Analysis for Your Business Plan

how do you create a business plan that will seize business opportunities and sidestep
potential threats? You conduct a SWOT (strengths, weaknesses, opportunities, threats)
analysis. A SWOT analysis helps you analyze your company’s capabilities against the
realities of your business environment so that you can direct your business toward areas
where your capabilities are strong and your opportunities are great.

To conduct a SWOT analysis, follow these steps:

1. Review your company’s strengths and weaknesses and your opportunities and
threats from your business plan.
2. Divide your strengths into two groups: strengths that can help you take advantage
of opportunities facing your business and strengths that can help you head off
potential threats.
3. Divide your weaknesses into two groups: those that require improvement before
you can take advantage of opportunities and those that you need to completely
overhaul and turn quickly into strengths in order to avert threats on your business
horizon.

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.By investing time upfront to understand their strengths and weaknesses — and by
dealing with their opportunities and threats — the caterers increased their chances of
success.

Include findings from your SWOT analysis in your business plan, addressing how you
intend to

 Seize business opportunities by capitalizing on your company’s strengths

 Improve weaknesses in order to take advantage of business opportunities
 Monitor potentially threatening outside forces while maintaining internal
capabilities so that you’re prepared to respond from a position of strength if a
threat arises
 Eliminate weaknesses to protect your business from current threats

Revisit your SWOT analysis on a regular basis — at least annually and more frequently if
your business is under siege, experiencing growth problems, or failing to meet goals and
objectives — to see how the balance of strengths, weaknesses, opportunities, and
threats may have shifted. Your business environment is constantly changing, so you
want to be sure that your business plan reflects the world around you as it is, not the way
it was.

5.4 Method of developing clear business idea

5.4.1 Finding and developing your idea and new products and services

A new idea is often the basis for starting up a business. Many entrepreneurs spot a gap in
the market and start businesses that provide a product or service that fills it. Others come
up with ways to improve an existing product.

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Coming up with a new idea

If you want to start a business but don't yet have an idea to work with, there are many
ways to go about identifying one. The following questions may help:

 Do you have any particular skills that could form the basis of a new business?
 Are you aware of a gap in the market in the industry that you currently work in?
 Do you have a hobby that could be turned into a business?
 Has there ever been a time when you needed a particular service or product that
nobody else provides? If you needed it, there is a good chance that other people
will too.
 Can you help solve any of the problems posted by government departments and
public sector organizations on the Small Business Research Initiative (SBRI)
website? SBRI is a government scheme supported by the Technology Strategy
Board that awards funding to develop innovative ideas.

Developing your idea

Once you have got a business idea, take time to refine it. This will help you to decide
whether it could be the foundation of a successful business.

There are various established methods of developing a business idea. You can:

 conduct market research to discover whether your idea fills a gap in the market - see our
guide on market research and market reports
 brainstorm your idea with friends, colleagues or staff - they can give different
perspectives on the idea and may know if anyone else is doing the same thing
 think about whether your idea can take advantage of an opportunity created by new
technologies, eg by trading online
 consider whether social trends will affect demand for your product, eg the increasing
demand for organic food or concerns about global warming and carbon footprints

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Developing new products and services

There's a lot at stake when you are developing a new product or service. To minimize
risks and allocate investment and resources wisely, you should consider a number of
factors, including customer needs and design, whilst also clearly defining your plans. For
more information, see the page on the development stage of a product life cycle in our
guide to the product life cycle.

Support for businesses developing new ideas

Designing Demand is a practical mentoring programme developed to help small to

medium-sized businesses and technology start-ups use design to improve performance.

It helps businesses embed effective processes for the management of design and
innovation and gives managers the skills to exploit design by spotting opportunities,
briefing designers and running projects that deliver.

Designing Demand is part of a range of support offered to businesses in England through

the government's Solutions for Business portfolio.

Is there a market for my idea

There are certain criteria you can use to establish whether there is a market or demand
for your product or service:

 Does it satisfy or create a market need?

 Can you identify potential customers?
 Will it outlive passing trends or capitalize on the trend before it dies away?
 Is it unique, distinct or superior to those offered by competitors?
 What competition will it face - direct or indirect, local, national or global?

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  Is the product safe for public use and does it comply with relevant regulations and
legislation? Seek legal advice before proceeding.
 Will the market want your product or service at a realistic price?

Market research can play an important role in answering many of these questions and
increasing your chances of success. It is much better to invest time researching before you
invest your money. See our guide on market research and market reports.

Remember that although the end user of your new product or service might be your most
important customer, you may have to take the needs of other parties into account, such
as retailers or distributors.

It is very important that you are as thorough in your market research as possible, as
mistakes made at this stage of development could prove costly later on. Remember, the
more information you have, the better you will be able to understand your potential
customers, the marketplace and how your product fits in. For more information, see our
guide on common mistakes when starting up - and how to avoid them.

Your competition

Not only must you meet your customers' needs, you should do so in a way that is better
than the alternatives offered by your competitors.

Your new product or service should have a unique selling proposition - a feature or
property that makes it stand out in the marketplace. Before entering the market you need
to gather 'competitive intelligence' by determining:

 how customer needs are currently met

 why customers would choose your product or service rather than your competitors', both
now and in the future
 what risks you are prepared to take to launch your product or service into this market

5.4 .2 Plan the development of your idea

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Try to identify the key stages or checkpoints in the development of your idea. Each
checkpoint gives you a chance to evaluate the progress of your product or service and
decide whether you need to make any changes. It will also allow you to consider at the
end of each stage whether to progress with the idea. Any idea that has no realistic chance
of success should be dropped before too much time or money is invested.

Your checkpoints may include:

 designing - turning your idea into a product or service that can actually be sold
 prototyping - creating a useable example of your product or service, which can then be
tested
 protecting - applying for a patent if you have invented a product or type of technology
 financing - raising the money you will need to get your business started
 operations - setting up the structure of your business, eg finding a suitable location,
hiring staff, etc
 marketing - working out how you will sell your product or service

Judge your progress

If the goals of any of your checkpoints are not met, you need to analyse why this is the
case. Ask yourself whether your objectives were unreasonable. If so, you may need to
revise your objectives.

There are circumstances when you should reconsider your original idea.

These include:

 developing a product or service that isn't commercially viable and won't produce a
reasonable financial return
 developing a product that is not technically viable, eg it cannot be manufactured or it
doesn't meet performance requirements

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  someone else releasing a product or service which is very similar or identical to yours,
especially if they are a large or well-established competitor

5.5 Understanding of threats

Understanding risk, threat, and vulnerability

A lot of security terms get used almost interchangeably in the popular tech press, even
when they shouldn’t. Different security jargon terms have distinct meanings, to be used
in specific ways, for a reason. For example, a “risk assessment” and a “threat assessment”
are two entirely different things, and each is valuable for its own reasons and applicable
to solving different problems.

The three security terms “risk”, “threat”, and “vulnerability” will be defined and
differentiated here:

Risk

The term “risk” refers to the likelihood of being targeted by a given attack, of an attack
being successful, and general exposure to a given threat. A risk assessment is performed
to determine the most important potential security breaches to address now, rather than
later. One enumerates the most critical and most likely dangers, and evaluates their levels
of risk relative to each other as a function of the interaction between the cost of a breach
and the probability of that breach.

Analyzing risk can help one determine appropriate security budgeting — for both time
and money — and prioritize security policy implementations so that the most immediate
challenges can be resolved the most quickly.

Threat

The term “threat” refers to the source and means of a particular type of attack. A threat
assessment is performed to determine the best approaches to securing a system against a

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particular threat, or class of threat. Penetration testing exercises are substantially focused
on assessing threat profiles, to help one develop effective countermeasures against the
types of attacks represented by a given threat.

Where risk assessments focus more on analyzing the potential and tendency of one’s
resources to fall prey to various attacks, threat assessments focus more on analyzing the
attacker’s resources. Analyzing threats can help one develop specific security policies to
implement in line with policy priorities and understand the specific implementation
needs for securing one’s resources.

Vulnerability

The term “vulnerability” refers to the security flaws in a system that allows an attack to be
successful. Vulnerability testing should be performed on an ongoing basis by the parties
responsible for resolving such vulnerabilities, and helps to provide data used to identify
unexpected dangers to security that need to be addressed. Such vulnerabilities are not
particular to technology — they can also apply to social factors such as individual
authentication and authorization policies.

Testing for vulnerabilities is useful for maintaining ongoing security, allowing the people
responsible for the security of one’s resources to respond effectively to new dangers as
they arise. It is also invaluable for policy and technology development, and as part of a
technology selection process; selecting the right technology early on can ensure
significant savings in time, money, and other business costs further down the line.

Understanding the proper use of such terms is important not only to sound like you know
what you’re talking about, nor even just to facilitate communication. It also helps develop
and employ good policies. The specificity of technical jargon reflects the way experts have
identified clear distinctions between practical realities of their fields of expertise, and can
help clarify even for oneself how one should address the challenges that arise.

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5.6.1 Understanding Threats and Managing Risk

Under the business mandate to open their networks and mitigate risk, resource
constrained security teams are challenged to stay on top of emerging threats and
implement safeguards that instill confidence that their security infrastructure meets
industry best practices.

Understanding Threats

During your SWOT analysis you will consider a variety of threats to your business these
threats will all be external to your business. A threat is a forecast environmental condition
that is out of your control and has the potential to harm your businesses profitability. You
will find your threats when completing your industry environment analysis and your
macro environment analysis

A common example: If you import goods for resale, then a negative shift in exchange
rates will force up your costs, if you are unable to pass these costs on to your customers,
your margins will reduce. So, exchange rate volatility could be a threat. Read on for a list
of possible threats that you may find during your analysis of threats

Some Possible Threats

You will find that your threats will fit into two categories

 Industry threats
Industry threats are related to an increase in the competition in your industry or a
reduction in market size. Generally industry threats threaten to reduce your
businesses profitability.
 Macro Threats
Macro threats are the kinds of things that affect all industries in your region. These
also generally result in a risk of reduced profitability.

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Some possible Industry Threats include

 Low cost imports, the threat of low cost imports affects almost any manufacturer
in the developed world, with the possible exception of food manufacturing.
 Consumer ability to shift to a substitute product and changing demand for
substitute products, consider the manufacture of nails used in the assembly of
house frames, if housing developers shifted from timber frames to steel framed
houses, demand for nails would drop significantly.
 Slow market growth or decline in market size, western countries the demand
for alcoholic drinks remains pretty flat
 Shifts in customer or supplier buying power reducing your margins,
consolidation in the retail industry has shifted buying power to the retailer who
can place suppliers for generic products under high price pressure.
 The changing needs of buyers, (customers), take the McDonalds fast food chain
as an example, Faced the threat of Australian customer needs changing towards a
healthier life style. In response to this threat McDonalds has introduced several
healthy eating options.

Some possible Macro Threats include

 Shifts in foreign exchange rates impacting your imports or exports.

International tourism is often hit hardest by shifts in exchange rates. As your
currency increases in value you will get less tourists visiting you, and more people
in your country will seek affordable overseas holidays. A strong currency has a
double impact, less international travelers and less domestic tourists.
 Demographic changes, the aging workforce making it difficult to get skilled
workers in many developed countries.
 Industry Regulation, a good example is aged care facilities who are impacted by
increasing regulation and increased costs to administer these new regulations.

5.6.2 Developing Successful Innovative Ideas

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Innovation is the process of identifying, evaluating and implementing opportunities to
add value to customers. Value is anything that increases the chances that the customer
will achieve better results in whatever it is they want to achieve.

The absolute best method for generating successful innovations is to be with the
customer. Walk in their shoes. Ask them for suggestions. Don't use a survey; actually talk
with customers while they are customers. Tom Kelley wrote a brilliant book, The Art of
Innovation, on how IDEO uses this approach to innovation. Keep in mind the following
six steps:

1. Identify a specific customer experience

Start by knowing what you want feedback on. Make sure this is clear to all members of
your search team.

2. Send out search teams

Spend time with the people who purchase and use your product or service. Ask a few
open-ended questions and see where the conversation goes. Ask follow-up questions that
dig deeper into what the customer wants. Get to as many customers as you possibly can.
If you truly get customers to feel they make a difference in finding better solutions, they
will open up and share their ideas.

3. Relay all valuable information

After the search is over, provide each member of the search team the opportunity to
speak to the rest of the group and share every tidbit of information they gathered. After
each speaker, the other members share the ideas that came to them while they listened.

4. Look for common themes

After every one has spoken, have the group analyze all of the input and gather it under
various themes. Try to capture it all under four or five themes.

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5. Develop each theme

Divide the large group into "Theme Teams." The responsibility of each Theme Team is to
discuss and develop new ideas for improving their particular area of the product or
service.

6. Regroup and move forward

Gather all of the Theme Teams together and have them explain their ideas for improving
the product or service. Then have the other members of the group provide feedback until
all ideas on a particular theme have been exhausted. Once all of the themes have been
thoroughly discussed, each member votes on the ideas they want included in the final
revision. After the voting is finished, the final tallies indicate which opportunities for
improvement the group will include in the prototype they test market.

In this process, actual customers' perspectives drive all areas for improvement. Go be with
your customers before you develop any new products or services.

5.6 Techniques of obtaining information

5.6.1 Methods and Techniques of Obtaining Information

Determining collection policy, formulating collection plans and selecting collection

methods will not collect the information without the aid of specific means of collection.

I. Administrative Procedures

Information collection is conducted through the authority of administrative

organizations and leadership and through authoritative administrative command. It
encompasses such forms as report submissions, subscriptions and allocations. The

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collection of documents, archival information and program information must be done
through administrative procedures.

II. Economic Procedures

Information collection is conducted according to the requirements of economic laws and

regulations, through such forms as economic levers and adjustments. It involves such
things as ordering of goods, making purchases, and conducting on-line retrievals.
Information collected from independent economic profit-making information sources
must be conducted though economic procedures. Economic procedures are the most
important and most common procedures used in information collection.

III. Legal Procedures

Information collection is conducted in accordance with laws and regulations and social
standards comparable to laws. There are many such procedures in operation abroad, such
as the contract system. Collection of national defense S&T by U.S. national defense
technical intelligence centers by law is subject to the budgetary system. This sort of
procedure is not much used in China.

IV. Person to Person Exchange Procedures

Information collection is conducted through personal contacts, as in attending academic

exchange conferences, technical exchange conferences, planning, demonstration, and
appraisal meetings and through discussions between individuals. This is the procedure
commonly used for collecting verbal information, but it is not limited to verbal
information. Participation in consultative activities is also a person to person exchange
procedure for collecting information.

V. Social Service Procedures

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Information collection is conducted through the social service attributes of intelligence
elements, such as through the receipt of complimentary books, requests and exchanges.
Intelligence elements should be attentive to using their attributes as information sources
to spread their influence. Intelligence networking activity should be developed. In times
past the social service procedure was an important form of information collection, but
has gradually fallen into disuse.

5.6.2 Methods of getting information from customers

Many business managers think they know what their customers think and want. This
feeling is derived from their gut feel which often times are contrary to what is obtainable
in the market place. Businesses cannot survive and excel if they don’t meet the needs of
their customers. That’s a fact of life. In order to be relevant and competitive in the
modern day market place businesses need to continually look for information which gives
them direction with regards to the ever changing consumer needs.

Many companies frown at the mention of information gathering as they think market
research budget is a sheer waste of resources. There are several ways companies can use
to gather information without spending so much money. Important information about
your customers can be gathered from the following sources:

Employees

Your employees interface with your customer on a daily basis. Ask them about products
and services that customers are asking for. Also ask them about what the customers
complain about. Is it service related or product related. This information will provide a
vital platform on which you can start re-engineering your service/product offering.

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Customers – Comment Cards

Provide brief, half-page comment cards on which your customers can answer basic
questions such as: Were you satisfied with our services? How can we improve on our
service offering? Are there any services you would like to see which we are not offering at
the moment? Make the comment card very SIMPLE in order to get more responses from
customers. You can have maximum 10 questions on the score card, the response should
be close-end with the comment are left open in order to solicit qualitative feedback

Analyze internal Records

You can mine data in your sales records to see what customers are buying most across
your business. This will provide you with monthly, weekly or bi-monthly trend analysis.
With this information you will be able to see where your customers are spending most of
their money.

Telephone Surveys

Hire summer students or part-time people for a few days every six months to do
telephone surveys with your customers. This provides you with an opportunity to get
information about your business from your customers. This information will help you in
mitigating service short falls before they become catastrophic.

So there you are. Before you think about spending top dollar in conducting market
research, you can start by collecting information internally before engaging an external
research agency. It is however, important to note that the above information gathering
methods DO NOT SUBSTITUTE an independent survey which can be commission with
an external market research agency. It is advisable to do a robust market survey every six
months in order to keep abreast with market trends and consumer behavior.

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5.6.3 Methods to Obtain Market Research Information

The objective of market research whether you are starting a business or growing an
existing one is to find out if there are enough potential customers for your product or
service and if enough of them will be eager to pay your price for the product/service you
have to offer. In writing a business plan you want to convince the reader and yourself that
there are enough members of your target market to warrant your forecasted sales results.
You also must convince the reader that that target market will pay your price for the
product. Here are some ideas about how to do the research.

1. Survey - One way to find out if your target market has a need for your product and is
willing to pay for your product is to conduct a survey.

2. Focus Group - If you want to brainstorm with a group of people about your product
and its attractiveness to the market enlist the aid of a focus group. This group can provide
valuable input to shape your offer. The focus group would consist of from 8-10 people in
your target group.

3. Demographic Information - What is the age, sex, income, occupation, marital status
of your target market. How many prospects are in your target market? For demographic
information use the site of the US census.

4. Interviews - Conduct individual face-to-face interviews with members of your target

market. You could use survey questions as an outline for your interview. This will lead
you to a more in depth understanding of what your target market wants.

5. Similar Businesses - Talk with others in similar businesses. Talk to someone in a

similar business in a different geographic area if talking to a competitor seems
inappropriate. Otherwise find people who serve the same target market to find out the
concerns and challenges they face.

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6. Chambers of Commerce - Chambers of Commerce has a wealth of information about
their members and usually knows most of the businesses in their area. They may be able
to direct you to businesses that could be strategic partners as well as people in your target
market.
7. Trend information - Understand the trends that would bring you customers. Trend
spotting -Think Foreword, Get Ahead, Cash in On the Future by Richard Laemer is a book
that addresses the trends in the 21st century. If you can hook your product or service to a
trend, marketing it becomes easier.

8. Psychographic information - Psychographic profiling is a process of grouping

customers via lifestyle choices, personality, activities, beliefs and values. This information
will help you to locate your target market (important when you want to market to the
group) and help you to talk to them in a voice they are receptive to.

9. Associations - Find associations that your prospects belong to. The leaders of the
association can direct you to members who are able to help you in understanding your
market. Associations may also provide you access to your target market.

10. Advertise - Place a test ad for your product/service in the paper to see if you a get
response. Make your ad hard to refuse.(Free or low price) This is a test to see if your
product is wanted and needed. Make note of the response. Is the customer/client
satisfied? Follow up to get customer testimonials and comments. Another test ad could
check your price point to see what the market will bear.

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 Self-Check 5 Written Test

1. Identify workplace rules of information

2. What are methods of gathering, interpreting and recording of information?

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 Answer Sheet Score = ___________

Rating: ____________

Name: _________________________ Date: _______________

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