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REPUBLIC OF KENYA
DIPLOMA ENTREPRENEURSHIP MANUAL
KENYA INSTITUTE OF EDUCATION

P O BOX 30231 00100
TEL 020 – 3749900-9
NAIROBI MARCH 2010
KENYA INSTITUTE OF EDUCATION
TECHNICAL, INDUSTRIAL,
VOCATIONAL
AND ENTREPRENEURSHIP TRAINING
i
(TIVET) PROGRAMMES
ENTREPRENEURSHIP MANUAL - DIPLOMA
MARCH 2010
ii
First printed 2010
© Kenya Institute of Education
All rights reserved. No part of this manual may be reproduced, stored in retrieval system or
transcribed in any form by any means electronic, mechanical, photocopying, recording or otherwise
without the prior written permission of the copyright owners.
ISBN ______________________
Table of Contents
FOREWARD...................................................................................................................................................
INTRODUCTION..........................................................................................Error! Bookmark not defined.
OBJECTIVES................................................................................................Error! Bookmark not defined.
NATIONAL GOALS OF EDUCATION IN KENYA................................Error! Bookmark not defined.
NATIONAL AIMS OF TIVET.....................................................................Error! Bookmark not defined.
METHODOLOGY.........................................................................................Error! Bookmark not defined.
INTRODUCTON...........................................................................................Error! Bookmark not defined.
GENERAL OBJECTIVES............................................................................Error! Bookmark not defined.
INTRODUCTION TO ENTREPRENEURSHIP........................................Error! Bookmark not defined.
1.1 Introduction..................................................................................Error! Bookmark not defined.
1.2 Specific Objectives.......................................................................Error! Bookmark not defined.
1.3 Content.........................................................................................Error! Bookmark not defined.
1.3.1 Definition of terms...............................................................Error! Bookmark not defined.
1.3.2 Why people become entrepreneurs......................................Error! Bookmark not defined.
1.3.3 Characteristics of an entrepreneur........................................Error! Bookmark not defined.
1.3.4 The importance of entrepreneurship to:...............................Error! Bookmark not defined.
1.4 Emerging issues and trends..........................................................Error! Bookmark not defined.
1.5 Learning resources.......................................................................Error! Bookmark not defined.
1.6 Activities......................................................................................Error! Bookmark not defined.
1.7 Suggested Self-Assessment Questions.........................................Error! Bookmark not defined.
ENTREPRENEURSHIP AND SELF EMPLOYMENT............................Error! Bookmark not defined.
2.2 Specific objectives.......................................................................Error! Bookmark not defined.
2.3 Content.....................................................................................Error! Bookmark not defined.
2.3.1 Definition of self employment.............................................Error! Bookmark not defined.
2.3.2 Role of entrepreneurship in self employment......................Error! Bookmark not defined.
2.3.3 Why people go into self employment..................................Error! Bookmark not defined.
2.3.4 Importance of self employment to:......................................Error! Bookmark not defined.
2.3.5 Advantages and Disadvantages of self employment............Error! Bookmark not defined.
GENERATION OF BUSINESS IDEAS......................................................Error! Bookmark not defined.
3.3.1 Definition of terms:..............................................................Error! Bookmark not defined.
3.3.2 Sources of business ideas.....................................................Error! Bookmark not defined.
3.3.3 Methods of generating business ideas..................................Error! Bookmark not defined.
3.3.4 Generation of business ideas................................................Error! Bookmark not defined.
3.3.5 Methods of identifying business opportunities....................Error! Bookmark not defined.
3.3.6 Assessing the suitability/profitability of business opportunity..........Error! Bookmark not
defined.
3.5 Learning Resources......................................................................Error! Bookmark not defined.
FORMS OF BUSINESS OWNERSHIP......................................................Error! Bookmark not defined.
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4.3.1 Forms of business ownership...............................................Error! Bookmark not defined.
4.3.2 Outline the advantages and disadvantages of each form of ownership....Error! Bookmark
not defined.
CHAPTER FIVE: STARTING A BUSINESS ENTERPRISE............Error! Bookmark not defined.
5.3.1 Types of businesses that can be started................................Error! Bookmark not defined.
5.3.2 Procedure for starting a business enterprise.........................Error! Bookmark not defined.
5.3.3 Factors to consider when starting a business.......................Error! Bookmark not defined.
5.3.4 Support services available for small enterprises..................Error! Bookmark not defined.
FINANCING A BUSINESS ENTERPRISE................................................Error! Bookmark not defined.
6.1 Introduction....................................................................................Error! Bookmark not defined.
6.2 Specific Objectives.........................................................................Error! Bookmark not defined.
6.3.1 Definition of business finance..............................................Error! Bookmark not defined.
6.3.2 Sources of business finance.................................................Error! Bookmark not defined.
6.3.3 Personal finance and business finance.................................Error! Bookmark not defined.
6.3.4 Types of business finance....................................................Error! Bookmark not defined.
6.3.5 Advantages and disadvantages of each source of business finance...Error! Bookmark not
defined.
6.7 Self Assessment Questions......................................................Error! Bookmark not defined.
MANAGING A BUSINESS..........................................................................Error! Bookmark not defined.
7.3.1 Definition of business management.....................................Error! Bookmark not defined.
7.3.2 Functions of management....................................................Error! Bookmark not defined.
7.3.3 Importance of management in a small business...................Error! Bookmark not defined.
7.3.4 Business resources...............................................................Error! Bookmark not defined.
7.3.5 Management of business resources......................................Error! Bookmark not defined.
7.6 Activity.........................................................................................Error! Bookmark not defined.
7.7 Suggested self-assessment questions.......................................Error! Bookmark not defined.
MARKETING................................................................................................Error! Bookmark not defined.
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8.3.1 Definition of terms...............................................................Error! Bookmark not defined.
8.3.2 Ways of gathering Market information................................Error! Bookmark not defined.
8.3.3 Components of marketing....................................................Error! Bookmark not defined.
RECORD KEEPING IN BUSINESS...........................................................Error! Bookmark not defined.
9.3.1 Definition of record keeping................................................Error! Bookmark not defined.
9.3.2 Importance of record keeping..............................................Error! Bookmark not defined.
9.3.3 Books for record keeping.....................................................Error! Bookmark not defined.
9.4 Emerging issue.............................................................................Error! Bookmark not defined.
9.6 Activity.........................................................................................Error! Bookmark not defined.
INFORMATION COMMUNICATION TECHNOLOGY IN A SMALL BUSINESS................Error!
Bookmark not defined.
10.1 Introduction:.............................................................................Error! Bookmark not defined.
10.2 Specific Objectives...................................................................Error! Bookmark not defined.
10.3.1 Definition of Information Communication Technology (ICT)..........Error! Bookmark not
defined.
10.3.2 Importance of ICT in small business management..............Error! Bookmark not defined.
10.3.3 Types of ICT equipment/tools.............................................Error! Bookmark not defined.
10.3.4 Benefits of each type of ICT tools/equipment to businesses.............Error! Bookmark not
defined.
10.3.5 Challenges of using ICT in a small businesses....................Error! Bookmark not defined.
10.4 Emerging issues and trends......................................................Error! Bookmark not defined.
10.5 Learning Resources..................................................................Error! Bookmark not defined.
10.6 Activities..................................................................................Error! Bookmark not defined.
10.7 Suggested question...................................................................Error! Bookmark not defined.
BUSINESS PLAN...........................................................................................Error! Bookmark not defined.
11.1 Introduction..............................................................................Error! Bookmark not defined.
11.2 Specific Objectives...................................................................Error! Bookmark not defined.
11.3.1 Definition of business plan..................................................Error! Bookmark not defined.
11.3.2 Uses of a business plan.......................................................Error! Bookmark not defined.
11.3.3 Major parts of a business plan..............................................Error! Bookmark not defined.
11.4 Emerging issues and trends......................................................Error! Bookmark not defined.
11.5 Learning Resources..................................................................Error! Bookmark not defined.
11.6 Activity.....................................................................................Error! Bookmark not defined.
11.7 Suggested Self-Assessment Questions.....................................Error! Bookmark not defined.
iv
FOREWORD
In the year 2007 Kenya unveiled Vision 2030 which is a long-term development blueprint for the country
whose aim is “the globally competitive and prosperous country with a high quality of life by 2030.” The
Vision aims at transforming Kenya into “a newly industrializing, middle income country providing a high
quality of life to all its citizens in a clean and secure environment”.
To industrialise Kenya must create value adding economic and other activities. One avenue for achieving
this is via the inculcation of an entrepreneurship culture into the populace creating entrepreneurs in the
country. It is globally acknowledged that entrepreneurship is a key driver of any economy. Wealth and a
high majority of jobs are created by small businesses started by entrepreneurially minded individuals,
many of whom go on to create big businesses and by extension cause industrialization. Global experience
shows that fostering a robust entrepreneurial culture will maximize individual and collective economic
and social success on a local, national, and glob
al scale. With this in mind and in order to contribute towards the Vision 2030 the Kenya Institute of
Education embarked on revising entrepreneurship education curricula for the non-university tertiary
educational and training institutions.
This manual facilitates interpretation, content delivery and evaluation of the diploma syllabus as well as
suggesting the appropriate teaching and learning methods at this level. It is designed to be used by both
the instructor/trainer and the trainee.
It is my belief that this manual will provide a critical source of knowledge and skills where the source
materials are limited.
PROF. HENRY KAANE

EDUCATION SECRETARY
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INTRODUCTION
This manual contains guidelines for Entrepreneurship Education instructor/instructor/trainers/trainees on

how to approach the teaching/learning of the subject.
The Entrepreneurship Education syllabus incorporates fundamental aspects of the various

entrepreneurship disciplines. Its aim is to help the instructor/instructor/trainer to equip the trainees with
necessary knowledge, skills, values and attitudes that will enable them to start and manage a successful
enterprise.
The instructor/instructor/trainer/trainee is advised to lay emphasis on the use of specific objectives in the
manual for effective training. The manual outlines several instructional methods which serve as
guidelines to effective training. The instructor/instructor/trainer is encouraged to be creative and
innovative in order to come up with more instructional methods. Time allocation for the various topics
has been proposed and the instructor/instructor/trainer should feel free to make any necessary
adjustments.
The instructor/instructor/trainers are advised to attach more importance to the use of professional
documents to enhance training. Training/learning resources have been suggested but the
instructor/instructor/trainer is encouraged to use other relevant and appropriate resources.
Entrepreneurship Education has addressed contemporary issues such as information and communication
technology, environmental and economic issues, HIV/AIDS, ethical issues and integrity. The
instructor/instructor/trainer is advised to integrate and infuse these emerging issues during the training of
various relevant topics. The manual should be used together with the syllabus and relevant textbooks.
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OBJECTIVES
The objectives of the diploma syllabus are derived from the tertiary objectives and the national goals of
education. There are four levels of objectives namely:
 National goals/objectives of Education
 Tertiary objectives (Objectives of TIVET Education)
 General course objectives of Entrepreneurship, and
 Specific course objectives of each topic
NATIONAL GOALS OF EDUCATION IN KENYA

Education enables a society to meet its needs. The society expresses its needs in broad National Goals of
education. A National Goal is a general statement of intent expressing broad values of the society. It is a
long-term target. National Goals of education are derived from the philosophy or political ideology and
social-economic aspirations of the nation. The National Goals of education in Kenya are given below.
Education in Kenya should:

1. Foster nationalism, patriotism and promote national unity.
2. Promote the social, economic, technological and industrial needs for national development.
3. Promote individual development and self-fulfilment.
4. Promote sound morals and religious values.
5. Promote social equality and responsibility.
6. Promote respect for and development of Kenya’ rich cultures
7. Promote international consciousness and foster positive attitudes towards other nations.
8. Promote positive attitudes towards health and environmental protection.
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NATIONAL AIMS OF TIVET
TIVET refers to Technical, Industrial, Vocational and Entrepreneurship Training. It is the Kenyan version
of the internationally known Technical, Vocational Education and Training (TVET). TIVET programmes
are in line with the government policy of industrialisation by the year 2020 and vision 2030, which will
enhance the transformation of Kenya into a newly industrialised middle income country.
The national aims of TIVET are:

1. To provide increased training opportunities for the increasing number of school leavers to enable
them to be self supportive.
2. To develop practical skills and attitudes that will lead to income generating activities in rural and
urban areas through self- employment.
3. To provide practical education and training skills which are responsive and relevant to Kenya’s
industrial, commercial and economic needs.
4. To provide the technical knowledge and vocational skills necessary to enhance the pace of Kenya’s
development.
5. To encourage self-employment while at the same time producing skilled artisans, technicians and
technologists for both formal and informal sectors at the ratio of one technologists to five
technicians to thirty craftsmen/ artisan (1:5:30).
****OBJECTIVES OF DIPLOMA ENTREPRENEURSHIP PROGRAMME

The general aims of the Diploma Programme are:
1. To develop skills which will be responsive and relevant to the
country’s manpower needs at middle level.
2. To prepare trainees so that they can enter the world of work with
confidence for either salaried or self-employment.
3. To impart adequate skills that will enable the trainee to work as a
technician.
4. To impart necessary knowledge and skills for further training.
5` METHODOLOGY
Entrepreneurship is a practical and dynamic subject which is influenced by social, economic, political,
legal and technological changes among other factors.
Entrepreneurship activities carried out in the business world are relevant to the lives of the trainees and
the society as a whole. Training in entrepreneurship must therefore be more learner centred than
instructor/trainer centred. The instructor/trainer should therefore allow opportunities for the trainees to
share experiences. The instructor/trainer should be creative and innovative in the approach to various
topics and subtopics. Practical approaches and use of real life cases to expound certain concepts is
encouraged. Some of these approaches include field trips, case studies, use of guest speakers,
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observations, brain storming etc. Some of these are discussed below but the instructor/trainer is free to
use other methods they may find fit.
Field Trips
These are organized visits to places of learning interest. The trips should give the trainee first hand
information to understand various aspects of entrepreneurship.
Field trips should be well planned in advance and the learners should be sensitized on what to expect and
look for. This helps them to be focused in their observations during the visit. Field trips should be
appropriate and cost effective.
Case Studies
A case study is a detailed study of a person/group/organization in order to learn about their development
and relationship with other similar people or organizations.
The aim of training using case studies is to allow critical analysis of the given sample in order to gain
insight of the concept being addressed. For instance, a case study of a successful entrepreneur can
highlight to the trainee; key entrepreneurial characteristics, business activities, success factors and
contributions to individual, local and national development. The trainees should be encouraged to identify
relevant case studies for discussion in class.
Guest Speakers
This approach is particularly important for creating and inculcating positive entrepreneurial attitude.
Experts from various entrepreneurial disciplines and practicing entrepreneurs should be invited to
highlight on the specific relevant issues. Practicing guest speakers should be identified very carefully and
be briefed in advance on how to deliver the information appropriately to the trainee. The trainee should
be present during the presentation to recapitulate the lesson by relating the presentation to the objectives
of the lesson or to guide the trainees when reacting to the presentation. The trainee should be exposed to
the specific objectives before the presentation.
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Discussion, Brainstorming and Debate
These are participatory methods that are used to help the trainees express their views and share their
different experiences. These methods are used to make the trainees express their views on the specific
topics in groups. For this approach to be successful, the instructor/trainer should plan ahead on the areas
for discussion in order to achieve the training objectives.
The instructor/trainer should guide the discussion by asking leading questions and involve as many
trainees as possible. The instructor/trainer should summarise the ideas and come up with relevant
conclusions.
A discussion is an exercise of identifying the advantages and disadvantages of an issue in order to come
up with relevant and appropriate conclusions for application. This method is appropriate for generating
varied views.
Brainstorming involves encouraging the trainees to contribute ideas freely. The ideas can then be assessed
for relevance and possible application.
A debate is an exercise of defending a given point of view. The debate should be planned to help the
trainees to be creative in their presentation of ideas. Opportunity should be accorded to as many trainees
as possible to participate in the debate.
Planning is of vital importance in ensuring success in all the above methods.
Emerging issues and trends

Due to the dynamic nature of the business environment, the user of this manual is advised to scan the
environment for any emerging issues and trends in every sub-module unit and include it in the learning
process. New marketing methods and technologies for example, may emerge thus creating the need to be
captured in the learning process.
COURSE DURATION
Entrepreneurship education has been allocated a total of *66 hours
PROFESSIONAL DOCUMENTS
The instructor/trainer’s attention is drawn to the important role played by professional documents such as
schemes of work, lesson plans and records of work covered in facilitating the training/learning process.
(Refer to the Instructor/trainers’ Guide)
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MODULE TITLE: Diploma Entrepreneurship Manual () - 66 Hours
MODULE UNIT: Entrepreneurship Education
INTRODUCTON
This module unit is intended to equip the trainee with necessary knowledge, skills, values and attitudes
that will enable him/her to plan, start, operate and manage a personal, group, private or public enterprise.
It is also intended to instil in the trainee the drive necessary to venture into profit making activities.
GENERAL OBJECTIVES
By the end of this module unit, the trainee should be able to;-
a) Appreciate the importance of entrepreneurship.
b) Acquire entrepreneurial competencies necessary for planning, starting and managing a business
c) Demonstrate positive attitude towards self employment.
d) Portray a desire to venture into business
e) Identify viable business opportunities
f) Demonstrate entrepreneurial behaviour in planning, starting and managing a business enterprise.
g) Demonstrate creativity and innovation in their day to day business activities
h) Appreciate the role of business planning
i) Appreciate the emerging issues and trends related to the business environment.
MODULE UNIT: Entrepreneurship Education

INTRODUCTON
This module unit is intended to equip the trainee with necessary knowledge, skills, values and attitudes
that will enable him/her to plan, start, operate and manage a personal, group, private or public enterprise
effectively. It is also intended to instil in the trainee the drive necessary to venture into profit making
activities.
GENERAL OBJECTIVES
By the end of this module unit, the trainee should be able to;-
j) Appreciate the importance of entrepreneurship.
k) Acquire entrepreneurial competencies necessary for planning, starting and managing a business
l) Demonstrate positive attitude towards self employment.
m) Portray a desire to venture into business
n) Identify viable business opportunities
o) Demonstrate entrepreneurial behaviour in planning, starting and managing a business enterprise.
p) Demonstrate creativity and innovation in their day to day business activities
q) Appreciate the role of business planning
r) Appreciate the emerging issues and trends related to the business environment.
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COURSE UNIT SUMMARY AND TIME ALLOCATION
CODE SUB-MODULE UNITS SUB-TOPIC TOTAL
TIME(HRS) TIME
THEORY PRACTICAL ( HRS)
INTRODUCTION TO  Definition of terms 1 1 2
ENTREPRENEURSHIP  Differences between self and
salaried employment
 Contribution of entrepreneurship
towards national development
EVOLUTION OF  History of entrepreneurship 2 2 4

ENTREPRENEURSHIP  Myths associated with
entrepreneurship
 Theories of entrepreneurship
THE ENTREPRENEUR  Types of entrepreneurs 2 2 4

 Qualities of an entrepreneur
 Role of an entrepreneur in an
enterprise
CREATIVITY AND  Definition of terms 4 2 6
INNOVATION  The process of creativity and
innovation
 Importance of creativity and
innovation.
 Barriers to creativity and
innovation
 Ways of managing barriers to
creativity.
ENTREPRENEURIAL  The entrepreneurial culture. 3 1 4
CULTURE  Cultural habits that promote
entrepreneurial development.
 Factors inhibiting entrepreneurial
development.
ENTREPRENEURIAL  Meaning of business opportunity 2 2 4
OPPORTUNITIES  Ways of generating ideas for
business opportunities
 Evaluation of business
opportunities for viability
ENTREPRENEURIAL  Definition of entrepreneurial 1 1 2
MOTIVATION motivation
 Entrepreneurial motivation factors
ENTREPRENEURIAL  Entrepreneurial competences in a 1 1 2

COMPETENCIES business
STARTING A SMALL  Procedure of starting a business 4 2 6

BUSINESS enterprise
 Factors to be considered when
starting a small enterprise
 Forms of business ownership
xii
 Challenges faced when starting a
small enterprise
 The business life cycle
 Support services available to small
businesses
BUSINESS  Definition of the term management 2 2 4
ENTERPRISE  Functions of management in an
MANAGEMENT enterprise
 Methods of inventory management
Management of business resources
FINANCIAL  Meaning of financial management 4 2 6

MANAGEMENT Sources of business finance
 Types of business records
 Recording business transactions in
the books of accounts
 Preparation and interpretation of
financial statements
 Importance of budgeting to a
business
MARKETING  Definition of terms 2 2 4

 Components of marketing
 Process of Marketing
ENTERPRISE SOCIAL  Definition of terms 2 2 4

RESPONSIBILITY  Meaning of enterprise social
responsibility
 Types of enterprise social
responsibility
 Importance of enterprise social
responsibility
 Ethical behaviour in a business
enterprise
BUSINESS PLAN  Definition of business plan 3 3 6

 Components of a business plan
 Uses of a business plan
INFORMATION  Definition of ICT 2 2 4

COMMUNICATION  Benefits of ICT to a small
TECHNOLOGY enterprise
 Uses of ICT equipment in a
business enterprise
EMERGING ISSUES  Definition of terms 2 2 4

AND TRENDS  Emerging issues and trends in
enterprises management
 Challenges posed by emerging
trends in entrepreneurship.
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TOTAL 66
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1.0 INTRODUCTION TO ENTREPRENEURSHIP
1.1 Introduction
Small scale enterprises play a major role in the development of a country’s economy. Small enterprises create
many jobs, provide a variety of goods and services, contribute a lot of revenue and promote the use of locally
available resources.
This sub-module unit introduces the concept of entrepreneurship and its importance in the promotion of the
national development of a country and the differences between self and salaried employment.
1.2 Specific Objectives
By the end of the sub-module unit, the trainee should be able to:
a) Define various terms used in entrepreneurship.
b) Explain the differences between self and salaried employment
c) Explain the contribution of employment towards national development
1.3 Content
1.3.1 Terms used in entrepreneurship
i) Entrepreneurship
The term entrepreneurship has been described by different people in different ways.
Entrepreneurship is the process of scanning the environment in order to identify a business opportunity, gathering
resources with the aim of establishing a profit making enterprise, under conditions of risk.
The concept of entrepreneurship became clear due to the researches by scientists like Mc Clelland(1969) who
stressed need for achievement motive, Schumpeter( ) who prioritized new combinations of means of production
by which there occurs disequilibrium, Cantillon ( ) who emphasized the functions of risk taking and uncertainty
bearing, Drucker who stressed on ‘systematic innovation’ consisting purposeful and organized search for changes
among other scholars.
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ii) Entrepreneur
The term entrepreneur is coined from a French verb ‘entreprendre’ which means to undertake. Various scholars
have defined the term entrepreneur in different ways but all place emphasis on the entrepreneur;
1. Bringing innovation and creativity into the enterprise.
2. Taking calculated and moderate risks and
3. Facing uncertainties
An entrepreneur is someone who detects a previously untapped opportunity to make some profits (either by
lowering the costs of producing the existing goods /services or by creating new ways for people to satisfy their
needs or wants through new products). They then brings together the necessary factors of production to exploit
these opportunities.
Richard Cantillon defines an entrepreneur as a person who buys factor services at “certain” prices, with a view to
sell their product at “uncertain” prices in the future.
David McClelland defines an entrepreneur as a person with a high need for achievement, someone who has
control over the means of production and produces more than they can consume in order to sell (or exchange) it
for income.
Joseph Schumpeter defines an entrepreneur as a person who carries out new combinations of means of production
within an organization, while distorting the routine of the existing products/services, to set up new products and
services.
iii) Intrapreneurship
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It is the practice of entrepreneurship by employees within an organisation. Intrapreneurship is a novel way of
making organisations more profitable where imaginative employees entertain entrepreneurial thoughts. It is a
significant method for companies to reinvent themselves and improve performance.
iv)Intrapreneur
An intrapreneur is an employee who uses entrepreneurial skills to generate profits for the venture they works for.
v)An enterprise
It is a business organisation that provides goods and services to make profits and has growth potential.
A business enterprise is a legally recognised organisation designed to provide goods and/ or services to
consumers.
vi)Business person
A person who undertakes any business activity for the purpose of making profit
1.3.2 Difference between self employment and salaried employment
Self employment
Self employment is a situation in which a person starts and operates a business enterprise. Since entrepreneurial
skills drive people into self employment, entrepreneurship training is therefore expected to prepare trainees for
starting and operating their enterprises effectively.
Self employment is a situation in which individuals create and run/operate their own income generating activities.
Salaried employment
Salaried employment is a process in which an individual is hired for a period of time, which may range from a
few months to a few years, and is paid a given amount of money as salary or wages for the work done.
The merits and demerits of salaried employment are varied and largely depend on a person’s qualification,
experience and specialisation area. The merits and demerits are also determined by the magnitude of growth,
investment ability, profit and government support of a given organisation.
Defined working hours, guaranteed income, delegation of duties and specialisation are some of the main
advantages of being in salaried employment. However, salaried employment is affected largely by organisational
elements such as change of management, especially where new management introduces new policies, rules,
conditions of employment and other statutory requirements to the organisation. Job security is not guaranteed and
personal satisfaction and motivation is not wholly experienced.
1.3.3 Contribution of Entrepreneurship to National Development

Entrepreneurship is the process that creates people (entrepreneurs) who contribute to economic development in
various ways. The contributions are made through:
1. Stimulating indigenous entrepreneurship and technological development.
2. Creating jobs for themselves and other people
3. creating wealth and distributing income
4. Utilising locally available resources
5. Dispersal and diversification of economic activities and mobilisation of savings.
6. Promotion of entrepreneurial culture i.e. they become models to be imitated by potential entrepreneurs
because of successful images already potrayed by existing entrepreneurs.
7. Increasing regional business activities through the export of manufactured goods.
8. Promotion of indigenous/local technology e.g. use of jua kali technology.
9. Raising the economic productivity level.
10. Narrowing the “missing middle gap”
1.4 Suggested Teaching and Learning Resources
1 Textbooks
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2 Relevant newspaper cuttings
3 Resource persons
4 Training manual
1.5 Suggested Teaching and Learning Activities
Present various ways in which entrepreneurship contributes towards national development.
i) Demonstrate various ways in which the employer and the employee benefit from entrepreneurship
development.
ii) Identify different entrepreneurial activities within your locality and their benefits to explain the community.
1.6 Suggested questions.
i) Define the term entrepreneur according to your own understanding
ii) Among the scholars already highlighted identify the following:
 who has defined the meaning/concept of entrepreneurship and entrepreneur ?
 identify and explain who has linked entrepreneurship with
- Creativity and innovation
- Risk bearing
- Facing uncertainties
- High achievement drive
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2.0 EVOLUTION OF ENTREPRENEURSHIP
2.1 Introduction
Entrepreneurship was introduced by the economists of the eighteen century, and it continued to attract the interest
of economists in the nineteenth century. In the present century the world has become synonymous or at least
closely linked with free enterprise and capitalism. Also it is generally recognised that entrepreneurs serve as
agents of change, provide creativity innovative ideas for business enterprises and help businesses grow and
become profitable.
By the end of this sub-module unit, the trainee should be able to
a) Describe the history of entrepreneurship

b) Describe the myths associated with entrepreneurship
c) Explain the theories of entrepreneurship
d) Explain the importance of these theories
e) Entrepreneurial environment
2.3 CONTENT
2.3.1 HISTORY OF ENTREPRENEURSHIP GLOBALLY AND IN KENYA
History of entrepreneurship globally
Entrepreneurship has been part of human history since records began. The bible, in the old testament, raises the
idea of stewardship with regard to utility resources of the earth.( Gen. 2.15)The bible also in the new testament,
reveals that gain requires risk (the parable of talents) (Luke 17.11)
Entrepreneurship is also closely linked to the protestant work ethics and capitalists
(Weber 1995)
Early economists in the 18thc such as Richard Cantilon and Jean Baptiste Say recognized in the role of the
entrepreneur as essential to the progress of the world economic system 8 developed early economic theories on
entrepreneurship.
During the industrial revolution entrepreneurship was linked to the creation of wealth and prosperity (long 1983)
The 1920s and Schumpeter (1934)linked entrepreneurship with the dynamic process on innovation from the
1960s entrepreneurial SME (s) have played an increasingly significant role in the economic development of the
world (Kirzner 1973)
From the 1980s government have increasingly seen entrepreneurship as a means of creating innovative
technology and services which can increase , national competitiveness fosters economic growth and employment
(stoner and Freeman1992) Commentators suggests that two main reasons for the ascend reccefs of high tech .
Entrepreneurial SME(s) are the difficulty of the large organizations to grow and prosper in an increasingly
competitive market place .
Consequently, 8th need to decentralize despecialize and downsize the operations (Harrell 1992) In construst in
the 1980s those high growth new ventures (SME(s)) known as “gazelles’ represents only 5% of new business
due, but were responsible for as much as 87% of all new jobs created (Zimmbrer & Scarbrough 1996) in the
UK in the 1980s small businesses generated more than 805% OF UNP and more than 40% of employment ,
more than 80 Employment growth came from newly started companies (Burns and Dewhurst 1989) This
development has accentuated during the 1990s and today entrepreneurs help in high on the political agenda world
wide.
History of Entrepreneurship in Kenya
In Kenya the concept of entrepreneurship was embraced at the end of the 1980’s and early 1990. This was as a
result of the international labour organisation (ILO) working in conjunction with the governments and private
sector institutions in the projects related to SME development and vocational education. Entrepreneurship
education was seen as an important element to develop entrepreneurial attitudes. However, no specific trainings
were available.
To close this gap, funds were provided by ILO Geneva in 1996, to develop a training package for TIVET
Institutions; that included entrepreneurship education and business skills.
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History of entrepreneurship in Kenya started as a pioneer project borne out of the collaboration among university
of Illinois, International Labour Organisation (ILO), UNDP and KTTC, in 1990. It was offered at Masters and
PhD levels by the University of Illinois and KTTC provided the premises and conducive learning environment.
In 1992 the program was transferred to Jomo Kenyatta University of Agriculture and Technology (JKUAT) while
at KTTC started its first higher diploma class in 1993. The first class was sponsored by ILO. Since 1995
students have been paying fees on their own without sponsorship. Otherwise it was, and still is a popular course.
satisfaction especially with those students who have been attached and apprenticed at their organisations.
2.3.2 Myths associated with entrepreneurship in Kenya

The following are some of the myths associated with entrepreneurship:
i) Entrepreneurs take wild risks at the start of their business. Even though risk is an integral part of
business, the start of business is not considered the highest risk. An entrepreneur is more likely to face bigger
risks at the latter stage of the business.
ii) Entrepreneurs introduce break-through inventions in their start-up business. It would be easy to assume
that entrepreneurs introduce new inventions, usually technological inventions. This is not true. Innovation
may be important, but what makes entrepreneurship successful is the ability to execute an ordinary idea
exceptionally.
iii) Most successful entrepreneurs have years of experience in their chosen line of business. Bill Gates was
still a student when he started Microsoft with Paul Allen. This story of several inexperienced entrepreneurs
starting out a new business venture is replicated over and over again in the lives of millions of other
successful entrepreneurs.
iv) One needs a lot of money to start a business. This is not so. Money is not always an important prerequisite
to be able to start a business. What sets the successful entrepreneur apart from the not-so-successful is the
ability to make do with what little he or she has. For instance, they look for other sources of money such as
borrowing to grow their business.
v) Start-ups use equity, not debt money. Entrepreneurs who put up equity coming from their own pocket only
comprise less than 50% of the total start-ups. The majority of the companies are financed by debt.
2.3.3 Theories of entrepreneurship
These refer to the various approaches, which have been advanced to give an explanation as to why entrepreneurs
behave the way they do. They are also known as the perspectives of entrepreneurship.
The theories try to explain whether entrepreneurs are born or made. The born entrepreneurs inherit the
entrepreneurial behaviour from their parents and grandparents while made entrepreneurs acquire entrepreneurial
behaviour from the behaviour in which they live in.
The following are some of the entrepreneurial theories:
Economic theory
The theory holds that entrepreneurial behaviour is determined by economic factors.Thus entrepreneurs are greatly
influenced by economic activities. From an economic point of view an entrepreneur is a person who brings
together the factors of production into a combination to make their value greater than before.
According to Schumpeter, entrepreneurs are innovators who bring together the various resources to produce a
new product/service through new ways/methods of production, finding new markets, finding new sources of
materials to create a new business.
The economic theory provides basic data in the economic environment – activities for business start-ups. Thus
entrepreneurial activities take place where conditions are supportive/conducive to investment. This theory
revolves around an entrepreneur being an innovator, combining the various resources/ factors of production to
create new products/wealth.
Psychological theory
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The theory holds that entrepreneurs possess unique needs, values and attributes, which drive them into
entrepreneurial behaviour. It holds that people have personal traits and attributes, mental desires to be
independent.
The main proponent of this theory is McClelland who attributed entrepreneurial behaviour to the high need for
achievement. Entrepreneurs are characterised by high need for achievement, which tends to give them high desire
to take personal responsibility in risks. They have little interest in routine activities, which are not challenging.
According to this theory, entrepreneurial behaviour is environmentally determined and is inherent during
childhood, where parents have certain high standards achievement.
Sociological theory
The sociological theory maintains that environmental factors such as values and beliefs influence entrepreneurial
behaviour. (Max Weber, 1904). According too this theory, beliefs and societal aspects such as social status and
recognition influence entrepreneurial behaviour.
2.3.4 Importance of Entrepreneurship theories

i) Entrepreneurship theories bring greater understanding of entrepreneurship behaviour exhibited by different
entrepreneurs.
ii) They enable one to understand the need for entrepreneurship and why some people are more entrepreneurial
than others.
iii) The theories bring out various approaches and perceptions held by entrepreneurs.
iv) Show that the desire for entrepreneurship is innate as well as environmentally determined.
v) Helps us to understand the role played by role models through networks that provide support.
2.3.5 Entrepreneurial Environment

The environment within which the business operate has a great influence on the attractiveness of any opportunity.
By business environment, we are referring not only to the physical environment, which is important and
increasingly so, but also the political, economic, geographical, legal and regulatory contexts. Political instability,
for example, renders business opportunities unattractive in many countries, especially for ventures requiring high
investment with a long payback period. Similarly, inflation and exchange rate fluctuations, or a week judiciary
system, are not a good environment to start a business, even if the potential returns are high. The lack of
infrastructure and services (such as roads, electricity, water supply, telecommunications, transportation, and even
schools and hospitals ) also affect the attractiveness of an opportunity in a given environment.
3.4 Learning resources

i) Textbooks
ii) Newspaper cutting(s)
iii) Resource persons
iv) Role models
2.5 Suggested learning Activities
i) Discuss business environmental factors affecting entrepreneurship development.

ii) Group discussions on historical evolution of entrepreneurship in Kenya
2.6 Suggested assessment questions

1. Discuss the myths associated with entrepreneurship in their environment
2. Explain the importance of entrepreneurship theories in the modern day.
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3.0 THE ENTREPRENEUR
3.1 Introduction
Different types of entrepreneurs portray certain characteristics and patterns of behavior which could be all learned
and/or acquired depending on the entrepreneur’s environmental background.
Entrepreneurs may play various roles in the enterprise. They scan the environment, identify opportunities, plan,
organize resources, oversee production, marketing and liaise with their employees. They also innovate and bear
risk.
This sub-module unit focuses on the types, qualities and roles of an entrepreneur in an enterprise.
3.2 Specific objectives
By the end of this sub-module unit, the trainee should be able to:-
a. Describe the type of entrepreneurs
b. Describe the qualities of an entrepreneur
c. Explain the role of an entrepreneur in an enterprise
3.3 Content
3.3.1 Types of Entrepreneurs
Entrepreneurs have their own typical qualities depending on their social, economic, political and cultural
environment. Each has an independent way of thinking and a unique approach to decision making and handling
situations in the business.
The following are the three main types of entrepreneurs.

i. Craft Entrepreneurs
ii. Opportunistic Entrepreneurs
iii. Egoistic Entrepreneurs
i. Craft Entrepreneurs
Craft entrepreneurs are those who may start a business using their learnt or acquired skills.
They may exhibit the following characteristics:
a. They are of blue collar origin i.e they come from the informal sector of employment.
b. Their education or training background is focused on the current business activity.
c. They may have low or high technology experience.
d. They have a reputation in a specific industry e.g masonry, teaching, engineering.
e. They are marginal people and were mostly associated with fellow workers. i.e they do not
identify with unions.
f. They have limited cultural background and social induction with entrepreneurship.
g. They are not interested in growing
h.
i. their business ie they are not ambitious. E.g mechanics who have worked in motor factories,
leave to start their own simple garages.
j. They insist that for things to be done right, they must be done by themselves
k. They tend to hire people they have known for a long time.
l. They gain their customers through prior relations or personal contacts.
m. They do not hold the lowest post nor are they at the management level in the organization they
worked for.
ii. Opportunistic Entrepreneurs
Opportunistic entrepreneurs are those entrepreneurs who may scan the environment in search of a viable
business opportunity that may exist. They are creative and very hardworking and venture in businesses they
do not necessarily have skills or training in.
These types of entrepreneurs exhibit the following characteristics:
a. They are of middle class origin
b. Their education involved many different kinds of courses
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c. They have a variety of work experiences and they have been through various educational
courses.
d. They have a reputation across the industry.
e. They are more aggressive/ambitious.
f. They have been in senior profile levels in employment.
g. They are previously associated with managers and business owners.
h. They believe that those holding the lower posts in an organization should handle operations.
i. Their customers are neither gained through prior relations nor personal contacts.
iii. Egoistic Entrepreneurs

Egoistic entrepreneurs venture into business not only because there exists a business opening but because they
would also like to satisfy their ego. They are highly motivated. These types of entrepreneurs are:
a. They are very eager to experiment upon new ideas.
b. They can acquire material and financial resources to experiment upon new ideas
c. Their economic system is well developed enough to bear the costs of venturing into a business.
d. They are well networked are able to find new markets and customers with ease.
3.3.2 Qualities of an Entrepreneur
Entrepreneurs portray certain characteristics and patterns of behavior which can be all learnt and/or acquired.
Every entrepreneur may not possess all of the qualities useful to make him/her successful. The following are the
various qualities an entrepreneur may have:
a. Risk taking
An entrepreneur is open to risk in his business. They has to make decisions and implement plans, the success of
which cannot be fully guaranteed. He risks financial, material and human resources at his disposal in the venture
that he undertakes.
b. Autonomy/independence
An entrepreneur by his/her own nature likes to be his own boss and does not want to follow the instruction of
another person without thinking further. This, however, does not mean that they rejects counseling from others.
They wants to try his own ideas and while making decisions, they has to form his own opinion and a set of course
of action. They is ready to carry the burden of the consequences of the decisions they makes. Independence of
thought is important.
c. Creativity and innovativeness
entrepreneurs must have an aptitude for searching out new ways and means of doing things. They must be
innovative in their approach to carrying out business activities. To remain competitive, they must experiment to
find out new techniques of production, kinds of materials, types or variety of products. They attempt to modify
the method of manufacture to accommodate technological developments, discover marketing opportunities,
identify sources of supply and develop sound organizations to meet requirements of the environment.
d. Internal locus of control
Entrepreneurs possess a high internal locus of control. They believe that achievement of goals is dependent on
their behavior or individual characteristics.
NB: A person with external locus of control believes that achievement of goals is a result of luck or other people’s
action. Such a person is not an entrepreneur.
e. Need for achievement
Entrepreneurs believe in achieving the set goals. The need to achieve may be satisfied by acquiring higher status,
succeeding in business, inventing and popularizing a product, targeting new markets and attracting a greater
number of customers. It is the achievement motive which makes an entrepreneur diversify, expand and innovate.
f. Keenness to learn
Entrepreneurs analyze the results and try to learn from them. They constantly watch the path they take. They
draw inferences from feedback, information and have alternative plans.
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g. Ability to marshall resources
Entrepreneurs have to bring together all the required resources in the right quantities at the right time. To achieve
this, entrepreneurs must have patience, ability to convince others and a strong conviction that their job is going to
be successful.
h. Time-consciousness
Entrepreneurs are interested in timely delivery of results. In order to achieve this they must complete their
activities within a given time.
i. Organizational skills
Entrepreneurs have the ability to organize activities and utilize manpower in order to put them to productive use.
For effective utilization of resources, the entrepreneur has to build a suitable organization structure and with it,
appropriate manpower.
Hardworking
Starting a business is hard work. An entrepreneur has to cope with the
demanding work of starting a business. Success comes very slowly for those
who are not willing to work hard.
Integrity
Integrity plays an important role in the advancement of any corporation and the lack of it poses risks of loss of
confidence, faith and commitment of employees, clients and colleagues. Companies can promote integrity by
establishing the moral standards expected of its employees and implementing systems to reinforce these
standards. This will entail the provision of model roles, developing codes of ethical conduct and providing
information channels to report questionable actions. Companies should also include integrity in their evaluations
and consider ethical aspects when formulating long-range plans.
Persistence
Successful entrepreneurs are persistent and hardworking. They master self-discipline to such extent that if a work
is important and related to their goals, they will, eventually, complete it.
Getting things done is the vital link between motivations and their outcome. At times, entrepreneurs force
themselves to choose work over fun, a boring job against a pleasant one, working on tax papers rather than
reading a glamour magazine. This requires a self-control that many people simply fail to develop in them.
Successful entrepreneurs persist.They understand that it takes time to make it really BIG !!! They are prepared to
go the extra mile and do that little bit extra for which they do not get paid.
Self Confidence
Self confidence is a key entrepreneurial skill for success. It is easy to become demoralized, frustrated and
resentful if you lack self-confidence.
Self-confidence is concerned with how a person feels about his ability. A successful entrepreneur believes
in his abilities. He is not scared to explore, take risk and take difficult decisions.
Entrepreneurs are highly motivated to achieve. They tend to be very

competitive.
Information seeking
Opportunity seeking
Honesty
Goal oriented
3.3.3 Role of an entrepreneur in an enterprise
Entrepreneurs play different roles in an enterprise. These include:
a. Initiator
The entrepreneur as the prime mover of the business. He/she is the director of the enterprise and comes up
with ideas which he convinces the members of the organization to follow. He/she is therefore the promoter of
the business.
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b. Director
The entrepreneur as a person who engages the participation of others. They knows that they cannot run the
enterprise single handedly. To effectively manage the enterprise, he requires the knowledge and skills from
diverse persons. The entrepreneur incorporates shareholders incase;
i. The enterprise is too large for him/her to purchase.
ii. They is not able to purchase the enterprise alone.
iii. They does not want to commit his/her time wholly in the business.
c. Manager
The entrepreneur as the person in charge of coming up with the organizational structure.
The entrepreneur is in charge of developing an effective organizational structure showing the distribution
of the employees’ posts and responsibilities. The organizational structure is important for effective
control and monitoring operation in the firm and facilitates communication with workers.
- The entrepreneur as the person in charge of developing an organizational design. He has the role of
establishing an effective organizational design reflecting the daily activities of the organization in relation to
time, beliefs and philosophies and how the business relates with the external environment.
d. Financier
The entrepreneur and the director. They is the controller of all the enterprise activities. He mobilizes
resources needed to start and run a business i.e finances, raw materials, human effort among others.
3.4 Suggested Teaching and Learning resources

 Textbooks
 Newspapers
 Relevant cases
3.4 Suggested Learning Activity
Entrepreneurial Tendency Test

Ring round your answer (Yes, Maybe, or No) to each of the following questions, then check your score below.
I am persistent Yes Maybe No

When I’m interested in a project, I need less sleep Yes Maybe No
When there’s something I want, I keep my goal Yes Maybe No
When there’s something I want, I keep my goal
Clearly in mind Yes Maybe No
I examine mistakes and learn to succeed
I have new and different ideas
I am adaptable
I am curious
In am intuitive
If something can’t been done, I find a way
I see problems as challenges
I take chances
I’ll gamble on a good idea, even if it isn’t a sure thing
To learn something new, I explore unfamiliar subjects
I can recover from emotional setbacks
I feel sure of myself
I’m a positive person
I experiment with new ways to do things
I’m willing to undergo sacrifices to gain possible long-term rewards
I usually do things my own way
I tend to rebel against authority
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I often enjoy being alone
I like to be in control
I have a reputation for being stubborn
Once you have answered all the questions, give yourself 3 points for every ‘Yes’ answer, 2 for every ‘Maybe’ and
1 for every ‘No’. Add up your score.
60-75 points
You possess the attributes of the entrepreneur. You can start your business plan immediately.
48-59 points
You have potential but need to develop yourself. You may want either to improve your skills in your weaker
areas or hire someone with these skills.
37-47points
You may not want to start a business alone. Look for a business partner who can complement you in the areas
where you are weak.
37 points and under
The entrepreneurial life may not be for you. You will probably be happier and more successful working for an
established company. If you still hanker after doing your own thing, remember there are organizations that
reward those employees who take an entrepreneurial approach in a corporate context.
3.5 Suggested Assessment Questions

 ‘An entrepreneur is a catalyst of change.’ Explain.
 Describe the different qualities of an ideal entrepreneurs.
 Write notes on;
i. Innovating entrepreneurs
ii. Problems of entrepreneurs in Kenya
iii. Types of entrepreneurial risks
iv. Importance of entrepreneurial growth
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4.0 CREATIVITY AND INNOVATION
4.1 Introduction
Customers’ tastes and needs are continually changing. Thus there is need for the entrepreneurs to think of new
ideas and better methods of running their businesses in order to satisfy the customer. Creativity and innovation are
therefore key to generation of such new ideas and methods of improving goods and services to meet the
customers’ needs.
This sub-module unit discusses the importance of creativity and innovation, the barriers to creativity and
innovation including managing barriers to creativity and innovation.
a) Define the terms creativity, innovation, discovery and invention.
b) Explain the process of creativity and innovation
c) Explain the importance of creativity and innovation.
d) Explain barriers to creativity and innovation
e) Explain ways of managing barriers to creativity.
4.3 Content
4.3.1 Meaning of creativity and innovation
i) Creativity
Creativity is the ability to bring something new into existence. It is the ability to think and act in new ways. This
is done through the process of germination, preparation, incubation, illumination and verification.
ii) Innovation
It is the process of doing things in a new way for value addition. It is thinking creatively about something already
existing. Innovation transforms creative ideas into useful application. For example, having a new use for old
things. It is also an intentional change to add value. For example, the tape recorder, walkman, and CD player are
all innovations on the phonograph or landline telephone to cell (mobile) phone.
iii) Discovery
It is making known that which has been in existence but whose uses have not been perceived. For example,
Harvey’s discovery of the circulation of blood.
iii) Invention
It means bringing something new that has not been in existence into existence. It is the act of creating or
producing by exercise of the imagination and have no prior existence. For example, cellular phone money
transactions.
4.3.2 Process of creativity and innovation
Process of creativity and innovation
The process most commonly used to encourage creativity is brainstorming. It works best in a group situation.
Another process that can be used both individually and in a team environment is the SCAMPER process. The
process works particularly well in creating new products and services that will add additional value to customers.
Here is how to use the SCAMPER process, step by step:
SUBSTITUTE
1. Think of ways of replacing one thing with another. For example, could plastic replace wood, aluminum,
or steel? Could electronic transfer replace the mail or a phone call replace a fax message?
COMBINE
2. Are there ways of bringing things together that could result in one unique item? For example, could some
services be combined to produce one-stop shopping?
ADJUST, ADD, OR ADAPT
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3. Figure out what changes can be made to improve products. Similar products could be added together, for
example, such as two blades joined to a twin razor. Adding stamps to each other can create a single roll or
sheet. An alternative is to unite dissimilar products to create something new, such as a Swiss Army knife.
MODIFY, MAGNIFY, OR MINIATURIZE
4. Think about the possibilities of changing the size or the nature of the product itself. Post-it Notes have
done an exceptional job of taking the basic technology of a multiple-stick product and producing different
sizes, colours, shapes, and uses.
PUT PRODUCTS TO OTHER USES
5. This is a commonly used strategy. Excess newspapers can be made into fire logs; a kitchen knife can be
used as a screwdriver.
ELIMINATE OR ELABORATE
6. Consider the benefits that can be derived from less use. For example, packaging is reduced if refills are
used. Generic products save advertising.
REARRANGE OR REVERSE
7. Investigate the advantages of changing the order or sequence of events, or see if things can work the
opposite way. One example with a twist on this theme would be a car that goes in two directions, not only
one.
THE PROCESS OF INNOVATION
Creativity as a process has several stages. These are:

i) Germination
ii) Preparation.
Getting the mind ready for creative thinking using
methods such as
- realizing that every situation is an opportunity to learn
- reading on a variety of topics/subjects
- creating a file of interesting articles
- developing the ability to listen to and learn from others
- attending professional/ trade association meetings, both to brainstorm with others having a similar
interest and to learn how others have solved a particular problem.
iii) Investigation.
Studying the problem and understanding its components
27
iv) *Transformation.
Identifying the similarities and differences in the information collected.
v) Incubation.
The subconscious needs time to reflect on the
information collected. Incubation can be enhanced by
- doing something totally unrelated to the problem/opportunity under investigation
- taking time to reflect (freeing the mind from self imposed restrictions)
- playing and relaxing
- thinking about the issue before going to sleep so that the subconscious can work on it during
sleep
- working on the problem or opportunity in a different environment.
vi) Illumination.
This occurs when all the previous stages start getting
clear.
vii) Verification.
Involves testing if the idea will work, is practical to implement and is a better solution to a particular
problem or opportunity. Experiments, test marketing and piloting are some of the methods that can be
used.
(vii) Implementation.
Transforming the idea into reality by bringing it to the market. This is what distinguishes the entrepreneur
from the inventor.
4.3.3 Importance of creativity and innovation

Creativity and innovation are key to generation of new ideas and methods of improving goods and services for
customer satisfaction. They are key to the success of a business particularly when strategizing during strategic
planning, and when designing new products and services. Creative thinking and innovation are particularly useful
during planning and setting out strategies to compete. Thus creativity and innovation:
i) Leads to increased productivity
ii) Helps in profit maximization
iii) Motivates employees to become more creative
iv) Leads to diversification of products and services
v) Introduces a variety of goods and services
In order to arouse creativity, the following ideas may be explored:
 Is there a better way of doing things in a business organisation?
 Need to challenge custom, routine and traditions of the organization.
4.3.4 Barriers to creativity and innovation

These are limitations to creativity and innovation which may include the following:
Negative Attitude
The tendency to focus on the negative aspects of problems and expend energy on worry.
Fear of Failure
For an entrepreneur failure is not a discouraging factor but is a necessary condition and a stepping stone to
success.
Executive Stress
It is the state of not having time to think creatively. An over-stressed person finds it difficult to think
objectively. Unwanted stress reduces the quality of all mental processes. An entrepreneur should avoid
executive stress because it hampers creativity
Following Rules
A tendency to conform to accepted patterns of belief or thought – the rules and limitations of the status quo –
hampers creative breakthrough. Some rules are necessary, but others encourage mental laziness.
Making Assumptions
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Both conscious and unconscious assumptions restrict creative thinking. There is a need for an entrepreneur to
identify and examine assumptions made to ensure new ideas are not excluded.
Over-reliance on Logic
This is investing all intellectual capital into logical or analytical thinking – the step-by-step approach – which
excludes imagination and therefore creativity.
Other barriers include the following:

(i) High cost of research and development.
(ii) Inability to protect invention through patents
(iii) Searching for the one right answer
(iv) Being over specialized
(v) Believing that one is creative
(vi) Creativity is not taken seriously
4.3.5 Managing barriers to creativity and innovation
Barriers to creativity and innovation can be overcome by removing obstacles to creativity and logical thinking.
The barriers to creativity can be managed using the following process:
Stage 1: Experience
Experience is needed in order for one to discover a creative solution. That requires being open to ones
environment and feelings.
However, there are blocks to obtaining experience such as:
 Fear of not learning. If you feel unable to retain information, you'll be anxious about new experiences.
If you fear being tested on what you were supposed to learn, you may shut down. If your self-concept
calls you incompetent, you won’t put yourself in a position to be humiliated. And if you are always being
compared to people who are supposedly "brilliant," you may be driven away. All of these can limit your
experiences.
 Fear of violating standards. Were you raised to believe that certain topics are “none of your business,”
certain actions “impertinent”? If these feelings cause you to feel "out of bounds," you'll avoid
investigating a wide range of phenomena and your curiosity will shut down. You may even close off your
unconscious and all the creative potential it holds.
Stage 2: Association
You must be able to associate experiences into a useful product.
What are the blocks to making associations?
 Over valuing rationality. If you stay in control by being utterly rational, you may reject associative
thinking, and forgo using intuition. Equally, you will curtail your creativity..
 Fear of self-awareness. To make useful associations, you must avoid self-deception and understand the
consequences of your actions. For example, one lab director eventually realized that his unwillingness to
acknowledge other people's contributions stemmed from his fear of seeming incompetent. Denigrating
the “competition” helped him avoid feeling uncreative himself.
Stage 3: Expression
Once you’ve associated diverse experiences or information, you must express your idea: a creative association
isn’t worth much unless you can communicate it.
What are the obstacles to expression?

 Fear of embarrassment. If you are uncertain of your abilities, fear criticism, or fear speaking before a
group (or certain individuals), you’ll have difficulty bringing ideas to light. Such ideas will remain
underdeveloped for lack of feedback.
 Fear of assertion. If you express what you feel, will people still like you? Will you get into trouble?
Tom Sawyer always figured that "staying mum" kept him out of a jam; but if you agree, your inhibition
about expressing ideas will limit your creativity.
29
Stage 4: Evaluation
People who undervalue their ideas tend not to be creative. Some hurdles an stand in the way of your evaluation
process:
 Fear of humiliation. If you rate your solution highly, and other people think it’s rotten, you could end up
looking like a boaster or fool. (That's why people adopt false modesty or convince themselves that their
creations are boring or obvious.)
 Fear of rejection. On the other hand, if you are negative about your own solution or product, people may
ignore it—and you. After all, if you don’t think much of your work, why should they?
Stage 5: Perseverance
Original ideas and products are fun, but unless you persevere, they won't make anybody rich. The concept of
continuous improvement says any process or product should be endlessly revised and improved.
Perseverance-related blocks include:
 Fear of failure. What if you carry your idea to completion and find it’s not as good as you thought
(meaning you’re incompetent)? Therefore play it safe by failing to develop your product to the point
where it's a truly creative work.
 Lack of rewards. Much of your creative activity is probably motivated by the admiration your creations
inspire in others. Unfortunately, for many people, the work needed to turn a creative impulse into a
product is less rewarding. Do you regard yourself as an “idea” person instead of a "detail” person? This
attitude may partly stem from fear that you are poor at follow-through, meaning your impulse will come
to naught.
Other ways of managing barriers to creativity would include:
:
i) Budgeting for research and development
ii) Strengthening public institutions that process the(such as KIRDI, KIPRI and WIPO) patenting process
iii) Rewarding creativity
iv) Promoting creativity training
v) Avoiding mental blocks
vi) Being systematic
vii) Being a problem solver
viii) Approaching issues from different angles
viii) Focusing on end results rather than the means
ix) Embracing divergent views
4.4 Learning Resources

 Text books
 Relevant magazines
 Relevant newspaper cuttings
 Business games
 Tangible products
 Resource persons
4.5 Suggested learning activities
 Carrying out a class exercise aimed at bringing out creativity in the learners e.g. joining 9 dots with
straight lines, discussing the various uses that an identified item can be put into.
 Playing relevant game.

4.6 Self-assessment questions
i) Distinguish between creativity and innovation.
ii) Explain the importance of creativity and innovation to an enterprise.
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5.0 ENTREPRENEURIAL CULTURE
5.1 Introduction
An Entrepreneurial Culture is a system of shared values, beliefs and norms of members of an organization or
community. It includes; valuing creativity and tolerance of creative people, believing that innovating and seizing
market opportunities are appropriate behaviors to deal with problems of survival and prosperity, environmental
uncertainty, and competitors’ threats, and expecting the community and organizational members and to behave
accordingly.
An entrepreneurial culture will lead to the growth of trade and industry in a country.
This sub-module unit discusses the concept of entrepreneurial culture and the factors that inhibit entrepreneurial
development.

By the end of this topic the trainee should be able to:
a) Explain the concept of entrepreneurial culture.
b) Discuss habits that promote entrepreneurial development.
c) Discuss factors inhibiting entrepreneurial development.
5.3 CONTENT
5.3.1 Concept of Entrepreneurial Culture
Culture encompasses a wide variety of elements, such as values, norms and artefacts. These are dependent on
language, social situations, religion, political philosophy, economic philosophy, education, manners and customs.
i) Values
These are ideas about what is important in life. They guide the rest of the society.
ii) Norms
These are expectations of how people will behave in different situations. Each culture has different methods
called sanctions of enforcing norms.
Sanctions vary with the importance of the norm.
Norms that society enforces formally are called laws
iii) Artefacts
These refer to material culture. They are derived from the cultural values and norms.
NB: Culture is dynamic. Cultural change can be caused by the environment inventions and other internal
influences and contact with other cultures.
Example: Some inventions that affected western culture in the 20th century were the birth control pill, television
and the Internet. The television brought similar visual programmes into many homes but influences how and
when family members interact with each other.
The rate of savings and investment depends on the influence of cultural benefits upon the people. The culture may
emphasise on some jobs while detesting others. Some communities may be more entrepreneurial than others. For
example, the joint family system in which elders opinions are not questioned, may lead to children who are unable
to develop, expand, innovate or change the business.
Elements of Entrepreneurial Culture
The following are elements of entrepreneurial culture:
 People are empowerment focused
 Value creation through innovation and change
 Attention to the basics/detail
 Hands-on management
 Doing the right thing
 Freedom to grow and to fail without embarrassment
 Commitment and personal responsibility
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 Emphasis on the future
NB: It is through the interaction of founding values, theories and new venture that organisational culture begins to
take shape and perpetuate itself.
If long term values are held then the creation of culture by the entrepreneurial team may be a good predictor of the
future of the firm.
5.3.2 Habits that promote entrepreneurial development
As stated earlier, values, norms and beliefs guide the society towards acceptable behaviour which leads to
formation of good habits which may promote entrepreneurial development. The habits include:
Independence
A person who is independent finds it difficult to work for others. Such a person also has the ability to create
and innovate, therefore promoting entrepreneurial development.
Time consciousness
Entrepreneurs value and effectively manage time and are able to achieve set goals.
Direct/personal involvement
An entrepreneur is a hands-on person and believes in participatory approach.
Risk taking
An entrepreneur continually takes moderate or calculated risks. This enhances growth of the enterprise.
Willingness to fail or make mistakes

An entrepreneur does not fear failure but learns from it.
*** continue from here
(i) Family history
(ii) Decision
Follows dreams with decision
(iii) Relationship with others
Transactions and deal making. Build strong relationships with people around them
5.3.3 Factors inhibiting entrepreneurial development

The following factors may inhibit entrepreneurial development
 Poor or lack of business acumen
 Poor marketing techniques
 Poor pricing policy or poor casting
 Poor networking and benchmarking to expand business horizon, customer base and markets
 Negative attitude towards entrepreneurial culture
 Lack of achievement motivation
 Poor delegation due to belief of self righteousness, confidence or lack of trust in other people.
 Inability to uphold new technology, ideas and practices
 Failure to utilise time effectively
5.3.4 Ways of managing factors that inhibit development of entrepreneurial culture.

These include:
1. Relevant training to gain skills and experience
2. Ability to apply marketing, research, promotion and publicity
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3. Employing people with right qualification to advice on pricing and costing of products to beat competition
4. Upholding social networking, joining business groups like chamber of commerce and business associations in
order to expand business horizon, customer base and markets.
5. Inculcate entrepreneurial culture and have positive attitude outlook towards entrepreneurial activity benefits.
6. Employ qualified experienced workers and delegate responsibility and encourage teamwork and team spirit
7. Training workers in appropriate technology use and innovative ways and practices
8. Manage time effectively by working within blocks of time. They can also be trained in time management and
time valuation.

i) Textbooks
ii) Internet
5.5 Suggested Learning activities

i) Group discussions on cultural habits that promote entrepreneurial development
ii) Brainstorming on cultural habits inhibiting entrepreneurial development.
iii) If you intend to start a new business in a certain area, state the methods that can be used to gather market
information.
iv) Explain ways in which ICT could be used for enterprise growth
5.6 Self – assessment questions

i) Everything held constant (everything being equal) would prefer to be self-employed or be employed by an
organisation?
a. By an organisation
b. Be self-employed
ii) Would you find it difficult/easy to start your own enterprise?
iii) Do you like being in other people’s company or being alone?
iv) Have either /both of your parents or guardian been self-employed?
v) Where do you see yourself in 10 years time, in term of career or occupation?
vi) What is your attitude towards other people who pose challenge to you?
vii) How would you use opportunity (entrepreneurial) by your country e.g funds, electricity, roads, premises, etc.
viii) If you were given an opportunity to start a business enterprise today, would you prefer small stall rather
than the traditional retail shops?
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6.0 ENTREPRENEURIAL OPPORTUNITIES
6.1 Introduction
Starting a business requires knowledge, skills, abilities and values. It is therefore important for entrepreneurs to
develop viable business ideas by identifying community needs for products and services.
This sub-module unit focuses on business ideas and opportunities, methods of generating these ideas and
opportunities and finally assessing the viability of the generated opportunities.
By the end of the sub-module unit the trainee should be able to:-
a) Explain the meaning of business opportunity
b) Explain ways of generating ideas for business opportunities
c) Evaluation of business opportunities for viability
6.3 Content
6.3.1 Meaning of business opportunity
A business opportunity is an attractive idea which provides the possibility of a return for the entrepreneur taking
the risk. Such opportunities are presented by customer requirements and lead to the provision of a product or
service which creates or adds value to the buyers or end users.
Characteristics of a good business opportunity

A good business opportunity must fulfil or be capable of meeting the following:
 Real demand i.e. it should respond to unsatisfied needs or requirements of customers who have ability to
purchase and are willing to exercise that choice.
 Return on investment – provide durable, timely and acceptable returns or rewards for the risk and effort
required.
 Competitive – Equal to or better – from the viewpoint of the customer – than other available products or
services.
 Meet objectives – meet the goals and aspirations of the person taking the risk
 Available resources and competencies – be within the reach of the entrepreneur in terms of resource,
competency, legal requirements etc.
6.3.2 Ways of Generating business ideas

What is a Business Idea
 An opportunity in the environment which, can be translated into a business activity.
 The existence of a situation in the environment which, can be advantageously turned into a business
activity.
 The existence of an opportunity which can be exploited for making money through the operation of
business activities.
 It is the response of a person (s) or organisation to solving an identified problem or to meeting perceived
needs in the environment (markets, community)
Why search and evaluate business ideas?
 You need a great idea to start a new business. A good business idea is essential for successful business
venture both when starting a business and to stay competitive afterwards
 Business ideas need to respond to market needs. Customers have needs/wants waiting to be satisfied.
Firms that are able to satisfy these requirements are rewarded.
 Business ideas need to respond to changing consumer wants and needs. i.e. provide opportunities for the
entrepreneur to respond to demand with new ideas , products/services
 Business ideas help entrepreneurs stay ahead of competition. Challenge is to be different or better than
others. If you don’t come up with new ideas products/services a competitor will.
 Business ideas use technology to do things better. Technology has become the major competitive tool in
today’s markets as a result of which many people have to come up with new ideas.
 Business ideas are needed because the life cycles of products are limited. Products have a finite life, they
become obsolete or outdated. Firms have to introduce new products
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 Business ideas help to ensure that businesses operate effectively and efficiently .
 There are so many business opportunities available at any one time and the requirements for translating
them into business activities differ between each of them.
 The need to develop a competitive edge by providing something new that has little or no competition
 The success and profitability differ between various business opportunities, hence need to pick one with
profit and success potential.
Finding a good idea is the first step into transforming the entrepreneurs desire and creativity into a business
opportunity.
Sources of business ideas

Ideas can be generated from:
i) Hobbies/personal interests
ii) Personal skills/experience
iii) Franchises – An agreement where manufacturers or sole traders of a trade mark,
product/service gives exclusive rights for local distribution to independent retailers in return
for their payment of loyalties and their willingness to conform to standardized operating
procedures. Common type of franchise are those that offer name, image and method of doing
business and operating procedure.
iv) Mass media (newspapers, magazines, TV, internet)
v) Business exhibitions
vi) Surveys
vii) Customer complaints
viii) Changes in society
ix) Brainstorming
x) Being creative
6.3.2 Ways of generating business ideas
There are various ways through which business ideas can be generated. These include:
i) Identifying a need in the community: people usually have many unsatisfied needs. By carrying out a
market survey on the location where you need to establish your business and talking to the potential customer
may reveal gaps in that market.
iii) Market research: Conduct a market survey and try to identify business opportunities existing in the
market. People may be requiring new product/services or the ones existing could be having several weaknesses.
These are good opportunities for you.
v) Listening to complaints of customers so that you improve an existing
business.
vi) Brainstorming- this involves sitting in a group and trying to think of as many possible businesses as
possible using the ‘freewheel ’policy . take time and digest all the suggested ideas as a basis for making the final
decision on the one most suitable for you.
v) Creativity – By looking at things in a new way and combining two or more ideas in a new way, such as,
one stop shopping spots for customers e.g.. a restaurant and a salon combination.
Business ideas can also be generated through developing personal hobbies and discussions with friends
Guidelines for Business Idea Generation Process:
 Think of as many ideas as possible
 Go out, look and listen.
 Always analyse ideas carefully before finally selecting which ones to implement.
 Be simple
 Start small . “If you want to go somewhere start small” Schummacer
6.3.3 Evaluation of business opportunities for viability .
Ideas and opportunities need to be screened and assessed for viability once they have been identified or generated.
This is not an easy task though important because it makes the difference between success and failure.
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The exercise certainly helps in minimising the risks and thus the odds of failure.
Identifying and assessing business opportunities involves determining risks and rewards/ returns reflecting the
following factors.
i) Personal goals and competencies of an entrepreneur.
It is important for an entrepreneur to possess competencies, knowledge, skills and abilities before starting a
business where these competencies are lacking, it’s vital to develop or bring in others/managers that compliment
what is already available.
ii) Length of the ‘window of opportunity’.
Opportunities do not exist forever. The entrepreneur has to assess how long this window will be opened in order
to make an investment decision.
iii) Industry/market.
Is there a need for the product/service? It is also important to know the size of the market.
iv) Management skills.
Those businesses that require high level of capital injection, require proper management skills.
v) Competition
Check out whether the business has a competitive edge over other competitors e.g. potential constraints and if the
industry faces existing entry barriers.
vi) Resources
Availability and access of these resources determines whether certain opportunities can be pursued.
vii) Environment
This refers to political, economic, geographical, legal, regulatory and also
physical environment within which a business operates.
viii) Business plan
The process of examining the factors discussed above is often the initial step in developing a business plan.
Investors and lenders may require these issues to be considered and set out in form of a business plan.

i) Textbooks
ii) Internet
6.5 Suggested learning activity

Invite an entrepreneur to talk to the learners about he or she found a business idea/opportunity and transformed it
into a successful venture.

1. Briefly explain the meaning of business opportunity
2. Explain methods of generating business ideas for business opportunities
3. For an idea to translate to an opportunity it has to be screened or evaluated. As an entrepreneur discuss
how an idea is evaluated for viability
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7.0 ENTREPRENEURIAL MOTIVATION
7.1 Introduction
For entrepreneurship to thrive, an entrepreneurs needs to be motivated. Motives are the needs, drives and values
that add energy to and direct one’s abilities.
This sub-module unit addresses the meaning of motivation, motivational theories and factors.

By the end of this sub-module unit, the trainee should be able to:-
a) Define entrepreneurial motivation
b) Identify entrepreneurial motivation factors
7.3 Content
7.3.1 Definition of terms
Motivation refers to a drive that is sufficiently pressing to direct the person to seek satisfaction of the need while a
need becomes a motive when it is aroused to a sufficient level of intensity. In human psychology it is realised
when a person feels strongly that he is lacking something. That person is bound to take a certain positive action so
as to reduce or eliminate the deficiency. The person is therefore motivated by the need to act in a manner such
that his need is satisfied. Therefore, the forces that have moved that person to react in the manner he does are his
motivations.
Motivation can be viewed better by looking at factors which help sustain the quality or intensity of the manifested
behaviour.
Many theories have been developed on motivation. The following are some theories that could support
motivation.
1.) Achievement Theory (mcClelland)

Human beings are seen to be driven by three main factors:
 Need to achieve
 Need for power
 Need for affiliation
To achieve means success and therefore the underlying entrepreneur motivation. If you need to achieve you select
goals which will accomplish the need. This need makes an entrepreneur to be persistent. They choose challenging
tasks. This motivation behaviour is related to parental characteristics, family, culture, role models.
2.) Laws of Control
Talks about the need to control. To make things happen. We want to see the outcome of an event. Our behaviour
will determine the results. Self concept here is very crucial, want to strive for your success(internal laws of
control)
External laws of control – believes that outcome of an event is influenced by factors beyond you. They believe in
others influence on an activity. So an entrepreneur must know whether they is driven by an inner need to succeed
and win. Are you internally or externally driven. In evaluating your internal – external control dimensions, an
entrepreneur depicts a sense of control over his/her life.
Abraham Maslow’s Hierarchy of Needs
This theory was developed by Maslow in 1954. It states that human needs are arranged in hierarchical order
beginning with the most basic need.
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Succeeding to your Being promoted and given
full potential more responsibilities
Self
Actualisation
Having status and Being given recognition
recognition, achievement, for a job done
& independence Self Esteem
Friendship, a sense of Work colleagues that

belonging to Social needs support you to work
Protection against Job security

danger, poverty
unfair treatment
Security Needs
Food, rest, Wages high
Shelter, enough to
Recreation Physiological meet needs
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Maslow suggests that each level in the hierarchy must be achieved before an entrepreneur can be motivated by the
next level. E.g. when a social need is satisfied, it ceases to be a motivator. Your full potential motivation depends
on you not others. One must strive to realise your full potential.
Many people like the comfort and security they have in their jobs. As long as they are able to provide to their
families. They could be having resources needed to start a venture but have no drive to do so.
Motivation for venturing into business vary a lot. Those frequently cited would include, both internal and external
motivational factors
7.3.2 Entrepreneurial motivation factors
Although the motivations for venturing out alone vary greatly, the following are some of the reasons cited for
becoming an entrepreneur:
Internal motivations and drives include:
a) Need for self actualisation

b) Need for achievement
c) Need to take up a challenge
d) Need for inadequacy
e) Need for success in certain class (social)
f) Need for adventure – discover the business world
g) Need to reduce tension
h) Need to acquire the social status
i) Need to control power
j) Unemployment
External motivations and drives
a) Role models – looking at those already successful in business
b) Family background
c) Training
d) Support social systems
e) Geographical position of the area
f) Needs for external income as a push
g) Government incentives
h) Market availability
i) Infrastructure
j) Credit facilities

i) Textbooks
ii) Internet

1. Class discussion on motivational factors that have contributed to successful.
2. Discuss motivational factors that may lead them to venture into business.
7.6 Suggested assessment questions
1. Discuss the internal and external motivation factors that contribute to successful ventures.
2. In groups, research on government incentives that motivate the youth to venture into business, and present to
the class.
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8.0 ENTREPRENEURIAL COMPETENCIES
8.1 Introduction
Entrepreneurial competencies play an important role in entrepreneurship development. To achieve high
productivity levels in the enterprise, the entrepreneur needs to acquire entrepreneurial competencies in order to
carry out effective managerial and entrepreneurial functions. With the acquisition of entrepreneurial
competencies activities such as; employee motivation, organisational communication, employees training and
development, participation and decision making, among others will be now be performed effectively.

By the end of this sub-module unit, the trainee should be able to:
a) Define entrepreneurial competence in a business
b) Explain key entrepreneurial competencies in business
8.3 Content
8.3.1 Definition of entrepreneurial competence
A competence is the ability, which an individual requires to do an assigned job. It is a work related concept which
refers to areas of work at which the person is competent.
Entrepreneurial competencies are clusters of related knowledge, attitudes, and skills which an entrepreneur must
acquire through managerial training and development to enable him produce outstanding performance, maximize
profit, while managing a business venture or an enterprise
8.3.2 Key entrepreneurial competencies

To achieve high productivity levels in the business enterprise, an entrepreneur requires having entrepreneurial
competencies. The following are some of the competencies necessary for setting up and managing a successful
business enterprise:
a. Time management
Time is a scarce resource, it is irreplaceable and irreversible, therefore to achieve more in the day to day business,
the entrepreneur must be thoroughly equipped with the skills for managing his/her time effectively. The
entrepreneur needs to learn how to manage their time effectively by carrying out activities such as; quick decision
making habits, keeping diaries, delegating duties, avoiding unnecessary interruptions, properly conducted
meetings, avoiding queues, selecting and following priorities among others. A successful entrepreneur is an
effective time manager.
b. Communication
Communication is the transfer of ideas from the sender to the receiver. It is a means of transmitting information,
work instructions and feedback in the business enterprise. It is an indispensable management tool, and an
entrepreneur must learn to communicate in correct, clear, short and courteous manner in order to accomplish
desired goals. The entrepreneur requires effective communication skills for the following reasons:
i. Communication process helps the entrepreneur effect the managerial functions of planning,
organizing, staffing, influencing, interacting, controlling and coordinating.
ii. It facilitates distribution of work to various categories of staff.
iii. It is an effective tool for staff participation in decision-making and entrepreneurial effectiveness.
iv. It enhances the development of actual understanding among all organizational members.
v. It helps create good public relations of image for an organization.
c. Human Resources Management

The human resources are the most difficult to obtain, the most expensive to maintain and the hardest to maintain
in a business enterprise. The entrepreneur needs to put in place both human resources (labor) and capital resources
(money, machinery, materials and methods) in order to achieve the overall organizational goals and objectives.
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The effective management of human resources determines the success or failure of the organization because all
other resources depend on the human element.
As the business enterprise grows, the entrepreneur may need to hire new employees. To do so, he must follow
important procedures for of interviewing, hiring, evaluating and preparing job description for new employees.
d. Marketing Management
Marketing skills in the growth stage of a new venture are also critical to a venture’s continued success. A
business enterprise will need to develop new products and services to maintain it’s distinctiveness in a
competitive market. This should be an ongoing process based on information regarding changing customer needs
and competitive strategies. This information can be obtained formally using survey or focus groups, or informally
by direct contact with customers by the entrepreneur or his/her sales forces.
e. Social Responsibility
The establishment of every business venture is backed up by the profit motive which leads to the production of
goods and services. The business venture also has the responsibility to embark on certain projects within and
outside its environment as part of its social responsibility. The entrepreneur needs to effect some social
responsibilities contribution to community development, product safely, employment generation, ethical business
among others.
f. Leadership
Leadership is an important factor in determining the success or failure of a business enterprise. For an
entrepreneur to succeed, they must have the ability to direct the organization and persuade others to meet the
objectives of the business. They has to be creative with unique leadership qualities and personal styles.
g. Decision- making
Decision-making is very important to the success of an entrepreneur. They makes decisions on a daily basis and
therefore has to acquire adequate knowledge and skills in decision making to enable him/her make the right
decisions and implementing them in order to achieve the optimum result in a given situation.
h. Financial Management
Every business enterprise requires capital with which to start its operation. This capital refers to the money
needed to start and operate the business assets. An entrepreneur needs to acquire knowledge on financial
management issues like anticipation of financial needs for the enterprise, acquisition of funds and allocation of
funds in order to yield optimum result.
The essence of financial management knowledge is therefore to ensure that there is adequate cash on hand to meet
the necessary current and capital expenditures as well as to assist in maximizing growth and profits.
8.4 learning resources

i) Textbooks
ii) Internet
iv) Business games

Discuss competences observed during the field visit
8.6 ***Self – assessment question
Comment on competencies considered necessary for successful entrepreneurial behaviour
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9.0 STARTING A SMALL BUSINESS
9.1 Introduction
When starting a business the entrepreneur must comply with certain requirements and regulations.
This sub-module unit looks at the procedure to be followed in starting a business, factors to be considered in
starting a business including support services required and available for the entrepreneur.
a) Describe the procedure of starting a business enterprise
b) Explain the factors to be considered when starting a small enterprise
c) Describe the different forms of business ownership
d) Explain challenges that are faced when starting a small enterprise
e) Describe business life cycle
f) Discuss business support services available to small businesses
9.3 Content
9.3.1 Procedure for starting a Small enterprise

For a business to succeed the right approach must be followed. Below is a suggested approach that can be
followed:
i) Idea generation.
ii) Market survey:
- Define problem, target population, select sample, define survey instruments, collect data,
analyse data, report findings
ii) Business plan

- business description
- marketing
- operation/production
- management
- finance
- risks and assumption
iii) Selection of a suitable location.

iv) mobilisation of finance
iv) Business registration
vi) Licensing
9.3.2 Factors to consider when starting a small enterprise
Below are some of the factors to consider when starting a business:
i) Entrepreneurial traits
ii) Business management and technical skills
iii) Long term market demand for product/service
iv) The cost of starting, operating and personal finance
v) The level of competition – direct, indirect and future
vi) The business location – zoning law and appropriateness
vii) The rules and regulations for operating the business.
- Legal registration
- Tax compliance
- Relevant licenses
- Code of conduct
- Environmental requirements
viii) The anticipated profit.
- Importance of profit
- Adequate to cover inflation rate and opportunity cost
- Adequate to cover all expense, savings and investment
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ix)The machinery, tools and equipment required and their cost.
- Lease/buy decision
- Calculation of lease/ buy decision
- Maintenance cost
- Availability of spare parts
- Cost of service
- Availability of technical support
- Technological advances
x) The source of supply of goods/raw materials.
- Identify long term supply sources/ reliable source
- Quality of supply
- Alternative sources of supply
- Terms of supply should be favourable
Causes of Business failure
i) Inappropriate business management and technical skills (adaptable to changing customer needs).
ii) Inadequate financing
- Start-up
- Operating
- Expansion capital
- Personal expenses
iii) Lack of proper record keeping
- Use of records for sound decision making
- Little understanding of accounting records
iv) Improper costing and pricing
- Retail
- Manufacturing
- Service business
- Direct costs
- Indirect cost
v) Incompetent employees
- Lack of motivation
- Poor pay
- Unskillful
- Job not marching skill
- Employment of relatives
- Inaccurate recruitment procedures
- Training and development
- Clear job description
vi) Neglecting customers
- Customer centered organization
- Exceed customer expectations
- Survey customer satisfaction
- Provide avenue for resolving customer issues
- Prompt service and resolution to customer
- Customer friendly terms
vii) Ignoring competition
- Know your competitors
- Know your position in regard to your competitor
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- Know the competitors strategies
- Note direct, indirect and future competitors
- Coping strategies
viii) Neglecting suppliers
- Make prompt payments
- Develop good relationship with suppliers
- Adequate time to supply
Forms of business ownership

The following are the types of business organisations:
i) Sole proprietorship –This is a business owned by one person.
Advantages.
 Ease of formation: this is the easiest form of business organization to establish. There are no complex forms
to complete and no documentation required between you and any other party. It involves registering your
choice of business with the registrar of companies by filling in a simple form and paying a small registration
fee.
 Easy to raise capital.
 Owner makes independent decisions: the business owner has complete control over the business is solely
responsible for all decisions in the business.
 Owner has personal contact with employees and customers.
 Owner enjoys all the profits.
 Flexibility: the business owner is able to respond quickly to business needs in day-to-day management
decisions of the business. One can easily take advantage of an attractive business opportunity.
 Total control of business
Disadvantages
 Bears all the losses.
 Capital base may be limited: This kind of business has less financing capacity. The amount of funds a sole
proprietor can raise is limited to their assets and their credit worthiness.
 Has unlimited liability: The business owner has little or no protection against personal liability in the event of
bankruptcy or adverse legal judgement. Personal assets such as the owners house, land, car and investments
are liable to be seized if necessary to pay outstanding debts.
 Success of the business depends on the entrepreneur’s hard work.
 Business operations can be affected by death of the owner.
ii)
Partnerships
A partnership is an association of two or more persons who come together to carry on a business with a view to
making profit. Although it is possible to establish a valid partnership without a formal agreement, it is advisable
to sign an agreement first. The agreement will state:
 The effective date of the partnership.
 The business name of the partnership.
 The contributions of capital by each partner
 How the business profits and losses will be shared.
 How a partner may withdraw from the partnership
 How the business assets and liabilities will be shared in the event of a dissolution.
Advantages
 Capacity for more capital; partners can raise more capital than a sole trader. The asset base is much
higher.
 Work is divided among partners.
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 Better combination of skills and talents: for example, a mechanic and driver could successfully combine
resources and talents to start a driving school.
 Losses and liabilities are shared among partners.
 Business can easily expand.
 Formation of the business is simple: the registration and legal formalities are easy and simple.
Disadvantages
- The liability of partners is unlimited.
- Partners are likely to disagree on various matters affecting the business.
- If one partner makes a mistake, all other partners suffer the consequences.
- Some partners may work harder than others, yet the profits are shared. This may discourage a hard
working partner.
- If the business relies heavily on one partner and the partner leaves or dies, the firm can easily collapse.
- Control is shared
iii) Private limited company – It is formed by a minimum of two shareholders
and a maximum of fifty.
Advantages
- Can raise more capital through sale of shares.
- It has limited liability.
- Death of a shareholder does not affect its operations.
- They are managed by professionals.
Disadvantages
- Shareholders can only transfer their shares with the consent of other shareholders.
- The company is not allowed to appeal to the public for extra capital, so it may find it difficult to raise
money for expansion.
- Accounts of the company must be filed annually with the registrar of companies.
v) Public limited company – It has a minimum of seven shareholders and no
maximum number of shareholders
Advantages
1. Shareholders liability is limited to the amount contributed.
2. It can raise more funds through sale of shares.
3. There is no restriction on the transfer of shares.
4. Public companies can easily expand due to large capital base.
Disadvantages
1. The procedure of forming the company is long and complicated.
2. Raising capital can be expensive due to the cost involved.
3. As the company grows it may be difficult to manage.
4. Once established it has to comply with many regulations.
5. The accounts of a public company must be published, so there is no secrecy or privacy about its affairs.
6. Owners exercise little control over the business.
v) Co-operative - It is formed by people with a common interest such as those in the same trade or dealing in
similar commodities.
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9.3.4 Challenges faced when starting a small business
i) Estimating market demand
ii) Estimating start –up capital and operating expenses
iii) Meeting collateral requirement – obtaining money to adequately fund the start –up
iv) Meeting legal requirements
v) Financial institutions are redundant to lend to start –ups
vi) Identifying reliable source of supply
vii) Lack of entrepreneurial skills, business management skills and technical
viii) Selecting a suitable business location
ix) Deciding on the type of business ownership
9.3.5 `Business life cycle

Insert diagram
Business Life Cycle: 5 Stages of Small Business
In the small business life cycle not every business will go through every stage, and not all small businesses will
succeed
as a result of these stages. However, they are proven stages or small business that are an important part of running
a small business, whether from home or from a formal office.
Stage One
The first stage of any small business is obvious – establishment. At this stage, the business is being created,
planned and the early days of its operations take place.
For some, this is the only stage that a small business may see, as it is by far one of the most difficult to survive.
Many things can go wrong at this stage; thus, good business planning a crucial and necessary part of it.
Without a good business plan, it is impossible to get a small business off the ground, running and eventually
moving through to the next stages of its life cycle.
Stage Two
The second stage of small business in the small business life cycle is the
growth period.
During this stage, a business has an initial time of negative profit until it breaks even and begins to show
increased revenues that allow it to truly grow. This is also the stage that the real test of a business comes into play.
How the business is managed and how it is able to compete within its designated market will determine whether it
will survive, heading to the next stage - or whether it will decline and reach the last stage of its life.
Stage Three
The third stage of small business is about expansion. This is the point at which a business gets to the point where
there is sufficient revenue being brought in so that there are no doubts of its survival and it can expand its
horizons.
This includes taking on staff, expanding the office space of the business or even investing in equipment to deal
with a larger base of clientele. This stage also entails producing more products if necessary.
Stage Four
The fourth stage of small or other business is about maturity.
The business is now stable enough to survive most unforeseen circumstances. It has enough backing, capital and
support to ensure that even if the market becomes unstable, it can pull through.
This may be accomplished by rearranging its management plan, getting rid of one product to replace another or
adding an additional product to an already existing product line.
However, if the market declines, it may survive, though its profits may take a temporary slide backwards.
Stage Five
In the small business life cycle the fifth stage of small business, is about decline. In fact, it is the easiest stage to
reach for any business because it is the point where a starting business will fail.
An existing business, even a mature one, can decline in profits, take heavy losses and eventually either fail or
cease operations to avoid further losses. As any small business owner can attest to, the stages of business are
necessary and a normal part of the small business life cycle.
46
9.3.6 Regulations Affecting Business
i) Legal registration e.g. registration of business names
ii) Tax compliance e.g. VAT, income TAX, PAYE
iii) Trade license e.g. single business permit
iv) Public health inspection
v) Environmental requirements e.g. NEMA
vi) Registration with relevant government department e.g. Ministry of Fishery, Livestock, Training
vii) Social Security requirement e.g. NSSF
viii) Zoning regulation e.g. Industrial zone
ix) Code of conduct
9.3.7 Business support services available for small businesses.

In order to increase chances of survival small businesses need to identify firms that offer support services where
they can get help with the running of the business. Some of the support services for small enterprises include:
1. Training services
This is necessary to improve capital in entrepreneurial, management and technical skills
2. Marketing services
To determine market demand and provide market linkages
3. Business counseling
This will help improve management. Capacity of small business owners in effective planning, implementation
and control of business operations
4. Banking services
This enables businesses to build credibility, reduce risks of handling cash and save funds for future use.
5. Insurance services
Insurance firms are important for small business as it enables them reduce risks associated with operating
businesses.
6. Postal services
To facilitate effective and affordable communication
7. Book keeping
To ensure business records are accurate and up to date and that the organization is tax compliant.
8. Business incubators
To provide a nurturing environment for small businesses through the provision of a wide range of business
support services such as training, marketing assistance, networking, tax preparation.
9. Technology provision
Enables small businesses to embrace appropriate and affordable technologies e.g. Agriculture Technology
Development Centers, Kenya Industrial Research and Development Institute ( KIRDI)
Before you start-basic checklist
YOU
47
1. Are you a self-starter?
yes no
2. Are you willing to work harder than you've ever worked before and for long hours without the security of
as steady paycheck?
3. Can you afford to work without knowing how much money - or success - you'll ultimately earn?
4. Are you ready to make tough decisions on your own?
5. Do you know when you're "in over your head" and need outside help?
6. Are you willing to seek outside help? Do you know where to find it?
7. Can you deal effectively with other people?
8. Are you an effective leader, motivator, and communicator?
9. Are you willing to delegate authority and responsibility to others?
10. Are you willing to admit it when you're wrong?
11. Do you project a professional image to your clients and customers?
12. Can people trust what you say?
13. Can people trust you to do what you say you will do?
14. Do you have managerial experience?
SKILLS
15. Do you have the technical skills you will need to operate your particular business?
15. Do you have the business skills you need to run a business?
16. Do you know your strengths and weaknesses?
17. Do you have business partners or advisors who can compensate for your weaknesses?
18. Have you worked in a business like the one you want to start?
19. Have you researched your business thoroughly?
22. Do you read a lot about your business and its industry?
23. Are you a good listener?
YOUR IDEA
24. Is your product or service idea unique?
25. Does it serve a customer need or want?
26. Have you defined the competitive advantage your product or service offers ?
48
27. Do you know what your product or service will cost you?
28. Have you defined the "image" you want your product or service to have in the marketplace?
29. Can competitors easily copy your product or service?
30. Have you located suppliers who will sell you what you need at a reasonable price?
YOUR BUSINESS
31. Have you evaluated the various forms of ownership to determine which one is best for you?
32. If you have chosen to form a sole proprietorship, can you afford the unlimited personal liability?
33. If you have chosen to form a partnership, have you created a partnership agreement?
34. If you have chosen to form a partnership, have you determined which partners are general partners and
which are limited partners?
35. If you have chosen to form a partnership, have you determined how a partner can leave the business?
36. If you have chosen to form a partnership, have you determined how you will settle disputes?
37. If you have chosen to form a corporation, have you filed the articles of partnership with the appropriate
state?
38. If you have chosen to form a corporation, are you willing to tolerate the "double taxation" of this form of
ownership?
39. Have you considered the Limited Liability Company (LLC) as a form of ownership?
40. If you have chosen to form an LLC, have you filed both the articles of organization and the operating
agreement with the proper state?
41. If appropriate, have you filed a patent application with the U.S. Patent and Trademark Office for your
product?
42. Have you given your business, product, and service names proper trademark protection?
43. If the answer to question #42 is "Yes," are you using the trademark properly?
44. If your business is built around original works of authorship, have you protected them with a copyright?
YOUR STRATEGY
45. Have you defined the core values that will guide your business?
46. Do you have a well-articulated, meaningful mission statement for your business?
47. Have you assessed your company's strengths and weaknesses?
48. Have you identified the key opportunities and threats facing your business?
KEY SUCCESS FACTORS
49. Do you know what the key success factors are for your business?
49
50. Have you analyzed your competition well enough to know their strengths and weaknesses?
51. Have you established meaningful goals and objectives for your company?
52. Have you formulated a clear, coherent strategy that will serve as your company's "game plan"?
53. Have you created specific tactics to implement your company's strategy in the marketplace?
54. Have you established accurate control systems that will give you feedback on how well your strategy is
working and how well your business is doing?
YOUR MARKET
55. Have you evaluated key economic trends and how they will affect your business?
56. Have you evaluated key technological trends and how they will affect your business?
57. Have you evaluated key sociopolitical trends and how they will affect your business?
58. Have you evaluated key demographic and lifestyle trends and how they will affect your business?
59. Have you identified your company's target market?
60. Have you researched your target customers enough to know their likes, dislikes, wants, needs, and
preferences?
61. Have you determined the level of satisfaction your target customers have with existing products or
services?
62. Have you defined how you will create value for your customers?
63. Do you know why your customers will want to buy your company's product or service?
YOUR MARKETING STRATEGY
64. Have you developed a marketing strategy that is customer-focused?
65. Have you developed specific practices to implement this strategy?
66. Have you developed a marketing strategy that will produce a quality product or service for your
customers?
68. Have you developed a marketing strategy that is focused on providing customer convenience?
70. Have you developed a marketing strategy that will generate innovations in your product or service over
time?
72. Have you developed a marketing strategy that exploits speed as a competitive advantage?
50
74. Have you developed a marketing strategy that is built on customer service?
76. Do you know what stage of the product life cycle your product or service is in?
77. Have you identified the channels of distribution you will use to get your product or service to your target
customers?
78. Have you established a price that will be reasonable to customers, profitable for your business, and will
create the image you want in the marketplace?
79. Have you determined which advertising media will be most effective in reaching your target audience?
80. Have you identified the unique selling position that you will build your advertising messages around?
81. Do the ads you are planning to run answer the customer's question, "Why should I consider buying this
product or service?"
YOUR FINANCIAL PLAN
82. Have you created projected income statements for three years for your business?
83. Have you created projected balance sheets for three years for your business?
84. Have you developed estimates for your one-time startup expenses?
85. Have you developed estimates for your on-going business expenses?
86. Can you analyze your company's financial statements using ratio analysis?
87. Do you know what your company's breakeven point is?
88. Have you reworked your startup cost estimates to see if you can lower your breakeven point?
89. Do you know how long your company's cash flow cycle is?
90. Have you developed a cash budget for your company's first year of operation using a pessimistic,
optimistic, and most likely sales forecast?
91. Have you developed a plan for collecting your accounts receivable promptly?
92. Have you set up a functional system for paying your accounts payable on time?
93. Have you set up a system for monitoring your company's inventory?
94. Do you know how much inventory you should have?
95. Have you developed a plan to avoid the "cash crunch?"
YOUR BUSINESS PLAN
96. Have you developed a complete business plan for your company?
97. Does your plan include the "5 M's' - Market, Methodology, Management, Money, and Menaces?
51
98. Have you scored your plan on the Business Plan evaluation Scale?
FINANCING YOUR BUSINESS
99. Do you know how much money it will take to launch your business, and have you included a little extra
for "Murphy's Law"?
100. Do you understand the implications of both debt and equity capital to your business?
101. Have you identified family members and friends who might be willing to finance your business?
102. Have you identified potential angels who might be willing to finance your business?
103. Is your business a possible candidate for a simplified registration or exemption for a public
offering?
104. Have you established a business relationship with a banker?
105. Have you answered the seven questions every entrepreneur should be able to answer before
approaching a banker for financing?
106. Have you considered other forms of debt financing?
Trade credit?
 
Equipment suppliers?
 
Commercial finance companies?
 
Savings and Loans?
 
Stock brokers?
 
Insurance companies?
 
Credit unions?
 
The Small Business Administration?
 
State and local development programs?
YOUR LOCATION AND LAYOUT
107. Have you studied the demographics of your proposed location and matched them against the
profile of your target customer base?
108. Have you analyzed data from Census reports concerning your location?
109. Have you calculated the index of retail saturation for your proposed location?
110. Have you evaluated the site in terms of the level of competition, retail compatibility, and other
factors unique to your business?
111. Have you evaluated building, buying, and leasing a building to house your business?
YOUR PEOPLE
52
112. Have you developed a human resources plan for your business?
113. Have you created job descriptions and job specifications for each job in your company?
114. Have you developed a recruiting strategy to get the workers you need?
115. Have you developed a job application form that will give you the information you need about
candidates and will avoid charges of discrimination?
116. Have you developed interviewing questions that will give you the information you need about
candidates and will avoid charges of discrimination?
117. Have you developed a plan for orienting and training your employees on a continuous basis?
118. Have you developed a compensation plan that is equitable and motivating to employees?
119. Have you developed a plan for evaluating your employees' performances regularly?
120. Have you developed a procedure for documenting employees' performances in case you must fire
them?

i) Business premises layout documents
ii) Registration document for business
iii) Business start up checklist
iv) Location selection checklist
9.5 Activities
i) Identify the legal forms of business ownership within the locality.
ii) Find out the business support services available in your locality.
9.6 Self-assessment questions
i) Explain the importance of following the right procedure in starting a business
ii) Explain ways of identifying a suitable location for your business
iii) Outline ways of identifying a suitable location for your business
53
10.0 BUSINESS ENTERPRISE MANAGEMENT
10.1 Introduction
Any business large or small must apply managerial skills in order to come up with decisions that are practical.
These decisions involve the utilisation of business resources so as to achieve organisational goals.
This chapter will introduce to the trainees the basic functions of management such as planning, organising and
controlling for effective and efficient utilisation of business resources.
a) Define the term management
b) Explain the functions of management in an enterprise
c) Explain the methods of inventory management
d) Explain the various methods of managing business resources
10.3 CONTENT
10.3.1 Definition of the term management
 Doing things through others

 Activities carried out by an organisation to achieve its objectives
 Planning, directing and controlling available resources to meet the desired results.
10.3.2 Functions of management in an enterprise
Management is necessary because resources are scarce and factors such as employees , technology costs keep
changing.
Effectiveness is the ability to obtain the intended results, while efficiency is accomplishing the objectives by
utilising minimum resources.
Management functions involve planning, organising, coordinating, controlling and directing a business.
i) Planning
Planning is necessary for commitment of organisation resources. It involves deciding in advance the actions to be
taken, when and how. Planning involves setting of objectives and goals to be achieved and deciding which
activities should be carried out to achieve them. In planning the manager needs to involve the other employees to
get their commitment in achieving the set objectives.
ii) Organising
A manager must delegate tasks to others since he cannot do everything. These employees must have the resources
to be able to perform tasks effectively. The manager is therefore responsible for organising people and resources
in a manner that facilitates achievement of organisations objectives.
iii) Directing
Directing is influencing other people towards achieving organisation goals. It involves guiding, leading,
supervising and motivating others to achieve set targets and deadlines.
iv) Controlling
Controlling involves checking the progress made towards the desired goal and correcting deviations that may
occur. The manager must try to measure and evaluate the work of all individuals and groups to make sure that
they are on target.
v) Coordinating
Coordinating involves working together. A manager must coordinate the various departments in the organisation
to ensure smooth running of organisation activities. This can be done through regular meetings.
vi) Leadership/motivation
Leadership involves directing human resource for optimum contribution. A good leader works with his staff as a
team. As a team leader the manager must motivate his staff and take care of them. He should be able to tap and
fully exploit the potential of those he leads.
54
vii) Decision Making
All the management functions discussed above involve decision making. The manager should make sound
decisions for the smooth flow of the business. Not all decisions made in a business have equal importance.
Decisions can be divided into:

i) Strategic decision – These are very important decisions that can affect the overall success of the
business. These are rarely taken (made) and could include: future plans, change of status, long term
investment etc.
ii) Tactical decision – These are taken more frequently and are less important. They could include: ways of
training staff, methods of advertising, types of machine to purchase etc. these decisions can be made by
middle management.
iii) Operational – These are day to day decisions taken by lower level management. Examples include:
staffing levels, stocking levels, methods of delivery of goods etc.
Qualities of a good manager

To be a good manager one should have the following qualities
i) Intelligence – to enable him understand difficult ideas and deal with varied issues.
ii) Initiative – to enable him get solutions to problems and take control of situations
iii) Self confidence – to be able to lead others and set an example
iv) Communication skills – to clearly pass ideas to others to enable them to respond positively
v) Energy and enthusiasm – to set high standards of effort and involvement to encourage others to follow
his example.
10.3.3 INVENTORY MANAGEMENT
In many businesses, the cost of purchasing merchandise for resale

(retailing) or the costs of purchasing and converting materials
into finished products (manufacturing) represent the business's
most significant expenditures. Keeping track of merchandise and
materials, known as inventory, is important because of the
considerable costs involved. This can be accomplished through a
good inventory record keeping system.
Inventory Record Keeping
Inventory record keeping establishes and maintains information on

current inventory, the additions and withdrawals to inventory and
inventory balances at the end of specified periods (week, month,
etc.). These records identify the products/materials, the
quantities and the value (cost) of these products/materials. A
simple inventory record could look like the one shown in
Table 1.
Table 1 - Sample inventory record

------------------------------------------------------------------
Product code: 3010
Product description: 1 litre Coconut Oil
------------------------------------------------------------------
55
Period Inventory activity
Month: May Beginning Sales Production End
------------------------------------------------------------------
Quantity (units) 600 (200) 300 700
Value/cost (KES) 300 (100) 150 350
------------------------------------------------------------------
The value is the cost of the product. This would be what a

retailer paid for the product or what a manufacturer paid for
materials plus labor and other charges applied in converting the
materials into the finished product. In Table 10, the cost of
goods sold would be KES100 for this product for the month of May.
There are two different methods used in inventory record keeping:

perpetual and periodic.
Perpetual Inventory
The perpetual inventory method starts with a physical inventory

(actual count) and then adjusts this inventory for additions and
withdrawals. The inventory at the end of the period is calculated
by subtracting the number of units sold from the total of the
beginning inventory plus the additional units produced. An
example is furnished in Table 2.
_______________________________________________________
Table 2 - Sample perpetual inventory

----------------------------------------------
Activity Value in units
----------------------------------------------
Beginning inventory 100
Sales (75)
Production 95
Ending inventory (calculated) 120
_______________________________________________________
The perpetual inventory method is used when reliable sales and

production information is readily available and the frequent
taking of physical inventories would be burdensome. However,
physical inventories must be periodically taken (e.g., quarterly
or annually) to check the calculated inventories. The inventory
records are then adjusted to agree with the physical inventories.
The financial effect of these adjustments is reflected in the
balance sheet and the profit/loss statement of the business.
Periodic Inventory
The periodic inventory starts with the physical inventory taken

at the end of each period. Sales or production amounts are then
calculated based on the beginning and ending physical
inventories. This method is used when reliable sales or
production data are not readily available. Consider the examples
56
in Tables 3 and4.
_______________________________________________________
Table 3 - Sample periodic inventory (retailing)

------------------------------------------------
Activity Value in KES
------------------------------------------------
Beginning inventory 12,000
Purchases 6,000
Cost of sales (calculated) (8,000)
Ending inventory 10,000
_______________________________________________________
_______________________________________________________
Table 4 - Sample periodic inventory (manufacturing)

----------------------------------------------------
Activity Value in units
----------------------------------------------------
Beginning inventory 1,500
Sales (800)
Production (calculated) 900
Ending inventory 1,600
______________________________________________________
In Table3, the cost of sales equals the beginning inventory

plus the purchases minus the ending inventory.
In Table 4, the number of units produced equals the ending

inventory plus sales minus the beginning inventory.
Inventory record keeping is primarily used to determine the cost

of goods sold as well as to provide information for financial
statements.
Inventory Control
Inventory control is the management of inventory and relies

heavily on information provided by the inventory record keeping
system. Inventory is required to support the operations of the
business, whether it be a retailing or manufacturing business.
The proper management of inventory helps the business achieve its
objectives in sales, costs and profits. The business plan must
recognize and define the role inventories will play in achieving
the business objectives.
Inventory control consists of the following:
* Setting objectives for inventory: the type, quantity, cost

and order/production point (what quantity will initiate
action for resupply) of products/materials.
* Recording and reporting actual results (done by the

inventory keeping system).
57
* Comparing actual results with objectives and analyzing the
differences.
* Taking action to correct problems or improve business

performance.
Inventory supports the sales activity. This means having what the
customer is willing to buy, when he or she needs it, at a price
that provides an acceptable profit to the business.
Inventory control is integrated with systems that track sales,

production and purchasing activities. The following is a simple
example.
The ABC Company plans to produce and sell three products: X, Y

and Z as detailed in Table 5.
_______________________________________________________
Table 5 - Proposed annual sales and production

rates for ABC Company
-----------------------------------------------
Annual sales Production rate
Product (units) (units/day)
-----------------------------------------------
X 26,000 200
Y 52,000 300
Z 13,000 100
_______________________________________________________
The business operates five days per week, 52 weeks per year. The
minimum economic production run is two weeks. It is planned to
have a minimum inventory equivalent to four weeks of the planned
sales rate to ensure having enough product for customer needs.
The maximum inventory is to be eight weeks of the planned sales
rate to limit the investment. The minimum and maximum
inventories, based on these plan assumptions, would be as listed
in Table 6.
_______________________________________________________
Table 6 - Minimum and maximum inventory

for BAC Company
-------------------------------------------------
Daily Minimum Maximum
sales rate inventory inventory
Product (units/day) (units) (units)
-------------------------------------------------
X 100 2,000 4,000
Y 200 4,000 8,000
Z 50 1,000 2,000
_______________________________________________________
58
When product X inventory falls to 2,000 units, a production order
is issued to bring the inventory level to 4,000 units. If sales
continue at 100 units per day and the production rate is 200
units per day, it will take four weeks of production time to
raise the product X inventory to 4,000 units.
Various measures are used, for control purposes, to relate

inventory amount to sales activity. Two commonly used measures
are inventory days (used in manufacturing businesses) and
inventory turnover (used in retailing businesses).
Inventory Days
Inventory days measure the amount of inventory in terms of days

of sales. In the example for BAC Company, where product X sales
rate was 100 units per day, the inventory days for the minimum
inventory planned of 2,000 units would be 20 days (inventory
amount divided by daily sales rate, or
2,000
-------
100 = 20). The maximum inventory days would be 40 days
(4,000
-----
100 = 40).
Values (costs) can be used in calculating inventory days. Assume

that the units cost KES5.00 each in the above example. For product
X, the minimum inventory planned would be KES10,000 (2,000 units x
KES5.00 per unit) and the daily cost of sales would be KES500/day
(100 units/day x KES5.00 per unit). Inventory days for the minimum
inventory planned would be 20 days (inventory value/cost of sales
per day or
KES10,000
-------
KES500/day = 20 days).
Inventory Turnover
Inventory turnover measures the number of times in a year that

the inventory "turns over." In the above example, if product
sales are planned at a rate of 100 units per day or 26,000 units
for the year and the inventory averages 3,000 units, the
inventory turnover would be 8.67
(26,000
------
3,000 = 8.67).
Again, values (costs) could be used in calculating inventory
59
turnover similar to that done above.
Although the time period of a year is used as the basis for

calculating inventory turnover in most cases, a seasonal business
(such as a store in a summer resort) would use the season as the
basis. In this case, the business objective is to turn the
inventory over as many times as possible and have little or no
inventory by the end of the season.
Actual sales activity (sales rate, product preferences, selling

prices) must be closely monitored with inventory (products,
quantities, costs, re-supply limits) to be sure that the inventory
control system is properly supporting the sales activity.
Another important objective of inventory control is to keep the

financial investment in inventories just sufficient to support
the business. Inventory building converts cash into products that
may or may not sell or may sell at a price less than cost.
Inventories consume cash, increase the investment in the business
and can bankrupt the business if not properly controlled.
Inventory Strategies
Every business competes within an industry and each industry has

a life cycle. The strategies employed by the business depend on
where in the life cycle the industry is. The management of
inventories is influenced by this life cycle.
Generally, there are four stages in the life cycle of an

industry. These are as follows:
* Development - Uniquely new products are being developed and

market tested. Products must be available for market
testing. There is little concern about inventory
investment, other than to be sure products are available
for market testing and development.
* Growth - The product has been demonstrated to have

significant market potential and the business strives to
gain a major market share. Investment in inventory is heavy
to ensure product availability to gain significant market
share.
* Maturity - Growth has leveled off. Inventories are very

closely controlled to keep investment in them just
sufficient to maintain market share.
* Aging - A period of retrenchment as competitive industries

take away or eliminate markets. Inventories decline as
unprofitable and marginally profitable segments of the
business are weeded out.
The proper control of inventories is essential to the success of

any business in which investment in inventories is significant.
60
Awareness of the competition and the state of new product
development is just as important as a finely honed record-keeping
system. While the record-keeping system is important, how it is
applied will determine the success of the business.
10.3.4 MANAGING BUSINESS RESOURCES

MANAGING EMPLOYEES
One of the keys to successful businesses is the employment and retention of the right people. However the
employment of staff also brings with it legal obligations, including:
 Provision of a safe working place as per the Occupational Health and Safety Act;
 The need to have a policy dealing with discrimination and harassment in the workplace; and
 Payment of minimum wages and provision of conditions.
Employment Conditions
All employers have certain legal obligations to their employees, including:
 paying correct wages;
 ensuring a safe working environment;
 supporting an anti-discriminatory and anti-harassment workplace;
 taking out workers compensation insurance;
 paying superannuation contributions;
 paying a range of employee-related taxes.
 a range of leave entitlements;
 notice of termination and severance pay;
 protection from unfair dismissal or unlawful termination.
All employers in Kenya are required to comply with, and exhibit a copy of, all relevant awards applicable to their
workplace.
To motivate and retain staff:
 Try to pay staff electronically or by cheque - avoid cash.
 Introduce staff incentives that encourage sales.
 Acknowledge staff performance and encourage good working morale.
 Determine the reason for staff turnover, if applicable.
 Identify training needs of staff and encourage ongoing learning.
 Be aware of occupational health and safety (OH&S) issues and have risk management policies and
processes in place.
 Ensure that staff and clients have facilities that will enhance relationships and satisfaction levels.
 Review the decor and layout of your premises to ensure that you are conveying the most professional and
appealing image to clients.
Personnel Selection
If your business will be large enough to require outside help, an important responsibility will be the selection and
training of one or more employees. You may start out with family members or business partners to help you. But
if the business grows - as you hope it will - the time will come when you must select and train personnel.
Careful choice of personnel is essential. To select the right employees determine beforehand what you want each
one to do.
Then look for applicants to fill these particular needs. In a small business you will need flexible employees who
can shift from task to task as required. Include this in the description of the jobs you wish to fill. At the same time,
look ahead and plan your hiring to assure an organization of individuals capable of performing every essential
function. In a retail store, a salesperson may also do stock keeping or bookkeeping at the outset, but as the
business grows you will need sales people, stock keepers and bookkeepers.
Once the job descriptions are written, line up applicants from whom to make a selection. Do not be swayed by
customers who may suggest relatives. If the applicant does not succeed, you may lose a customer as well as an
employee.
Some sources of possible new employees are:
1. Recommendations by friends, business acquaintances.
61
2. Employment agencies.
3. Placement bureaus of high schools, business schools, and colleges.
4. Trade and industrial associations.
5. Help-wanted ads in local newspapers.
Your next task is to screen want ad responses and/or application forms sent by employment agencies. Some
applicants will be eliminated sight unseen. For each of the others, the application form or letter will serve as a
basis for the interview which should be conducted in private. Put the applicant at ease by describing your business
in general and the job in particular. Once you have done this, encourage the applicant to talk. Selecting the right
person is extremely important. Ask your questions carefully to find out everything about the applicant that is
pertinent to the job.
References are a must, and should be checked before making a final decision. Check through a personal visit or a
phone call directly to the applicant's immediate former supervisor, if possible. Verify that the information given
you is correct. Consider, with judgment, any negative comments you hear and what is not said.
Checking references can bring to light significant information which may save you money and future
inconvenience.
Personnel Training
A well-selected employee is only a potential asset to your business. Whether or not he or she becomes a real asset
depends upon your training. Remember:
 To allow sufficient time for training.
 Not to expect too much from the trainee in too short a time.
 To let the employee learn by performing under actual working conditions, with close supervision.
 To follow up on your training.
Check the employee's performance after he or she has been at work for a time. Re-explain key points and short
cuts; bring the employee up to date on new developments and encourage questions. Training is a continuous
process which becomes constructive supervision.
Personnel Supervision
Supervision is the third essential of personnel control. Good supervision will reduce the cost of operating your
business by cutting down on the number of employee errors. If errors are corrected early, employees will get more
satisfaction from their jobs and perform better.
Motivating Employees
Small businesses sometimes face special problems in motivating employees. In a large company, a good
employee can see an opportunity to advance into management. In a small company, you are the management. One
thing you may wish to consider is to give good employees a small share of the profits, either through part
ownership or a profit-sharing plan. Someone who has a "share of the action" is going to be more concerned about
helping to make a success of the business.
Simpler ways of motivating employees include:
 Introduce staff incentives that encourage sales.
 Acknowledge staff performance and encourage good working morale.
 Determine the reason for staff turnover, if applicable.
 Identify training needs of staff and encourage ongoing learning.
 Be aware of occupational health and safety (OH&S) issues and have risk management policies and
processes in place.
 Ensure that staff and clients have facilities that will enhance relationships and satisfaction levels.
 Review the decor and layout of your premises to ensure that you are conveying the most professional and
appealing image to clients.
MANAGING CAPITAL
Cash shortages can prevent you from meeting your financial obligations and make it difficult to expand your
business. In some cases it will mean you will need to close your business. It is important to know your cash flow
position. To manage your cash flow, take note of the following tips.
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Account for Every Shilling and Cent
 Install an accounting system that produces relevant financial reports and meets tax requirements.
 Keep your financial records and bookkeeping up to date.
 Use the information in your accounting system to draw up a budget and cash flow forecast.
 Manage your cash inflow and outflow - be prepared for anticipated tax installments and other payments.
 Do your banking regularly, both for security reasons as well as keeping track of your cash flow.
 Reconcile your bank statements regularly, double-checking receipts and payments with your own records.
 Ensure that you receive record and retain all tax invoices for taxable purchases to support your claim for
tax credits.
 Consider visiting your accountant every three months to review your business performance.
Other Important Factors
 Bill your customers early and often.
 Keep a detailed account of all your debtors and act promptly on overdue accounts.
 Promptly follow up any dishonoured cheques.
 Consider offering discounts for cash sales or early payments of credit purchases.
 Consider alternatives to improve your sales terms, eg lay-by terms, payment terms, credit terms.
 Keep a detailed list of amounts that you owe. Your debts may build up without your knowing.
 Use payable credit terms to your benefit, increasing the effectiveness of your cash flow.
 If suppliers want to be paid early, ask about discounts for early payments.
 Manage your investment debt. Don't over-borrow.
 Keep some cash for rainy days.
 Don't over-commit your personal expenses.
MANAGING TIME
Time management is critical to the achievement of organization goals. Projects or activities delayed due to poor
time management can cost the company in terms of poor image and loss of business opportunities due to being
perceived by customers as unreliable.
Benefits of Time Management

Proper time management has several benefits.
 It conserves time allowing for the completion of many more projects or activities.
 Proper time management ensures greater organization and therefore smoother operations
 Reduces anxiety and stress
 Motivates and organizes employees
 Reduces avoidance or procrastination
 Eliminates crisis management
Factors influencing the use of time

The use of time is influenced by the following factors:
 Goals, values, standards – whether or not one values time.

 Responsibilities – Many responsibilities require proper time management to complete tasks.
 Abilities:
– to plan, organize, perform a task
– to manage time
Managing Time Effectively

Rules for managing time effectively include the following:
 Realistic time plan

 Decisive – focus on the tasks at hand
 Leave unnecessary jobs out
 Delegate to competent employees
 Work faster
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 Reward yourself and employees after successful completion of important tasks.
 Avoid procrastination
 Develop habits that save you time.
To-do Lists
Prepare to-do lists to ensure that you do the following;
 Keep track of performance

 Prioritize tasks – Important ones first
 Focus on current task
 Plan and ensure completion
Making a Written Time Plan

A written time plan will enable you to prepare accurate to-do lists.
Your time plan should be:
 Simple to implement
 Complete – include all that is necessary to complete required tasks
 Flexible – able to be adapted to changing needs
 Workable – Give adequate time to each task
 Prioritize tasks according to importance rather than urgency.
MANAGING TECHNOLOGY
The use of technology is important because it increases labour productivity and this in turn increases local
competitiveness for both consumer and producer. Technology selected by entrepreneurs should favour locally
produced tools and equipment. This makes it easier to maintain them and replace them wwhen necessary.
Characteristics of appropriate technologies:
Simple: It must be simple to operate, with minimal adjustment problems..
Effectiveness: The technology should be judged by how well it fits in with the objectives of the user.
Availability: The technology should be easily available locally.
Flexibility: The technology selected must be able to adapt to changing times and technologies e.g. upgrades.
Durable: Technology that is durable requires less maintenance and repairs.
Efficient: It should be efficient in utilization of resources.
Cost Effective: The cost of technology should be justified by it’s overall benefits. Benefits should outweigh
costs.

i) Technological advances
ii) Open office

i) Textbooks
ii) Case studies
iii) Class preparation
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iv) Observation
v) Business games
vi) Written tests

Visit a nearby business and highlight the various roles played by the management.
10.6 Self –assessment

i) Explain six qualities of a good manager
ii) Explain, giving examples, the differences between strategic and tactical decisions
iii) Highlight four main functional departments usually found in a business.
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11.0 FINANCIAL MANAGEMENT
11.1 Introduction
The success of business enterprise is determined by the ability of the entrepreneur to control the financial
resources of the business. An entrepreneur should maintain a sound system of accounting records as this would
aid in determining whether the business is making profit or a loss. This is necessary for decision making.
This sub-module unit covers sources of business finance, recording of business transactions and preparation of
financial statements.

a) Explain the meaning of financial management
b) Explain the importance of financial management
c) Identify the various sources of business finance
d) Identify types of business records
e) Record business transactions in the books of accounts
f) Prepare financial statements
g) Interpret financial statements for business decisions
h) Explain the importance of budgeting to a business
11.3 CONTENT
11.3.1 Meaning of financial management
This is the process of controlling the financial resources within a business enterprise. In order for the
entrepreneur to be an effective manager he needs to develop tools that aid in decision making. Some of the tools
that can be used are:
(i) Cash budgets
(ii) Cash flow statements
(iii) Income statements and a balance sheet
11.3.2 Importance of financial management

Financial management is important because:-
(i) It helps in planning business activities
(ii) Decisions can be made to make any necessary corrections where there’s need.
(iii) Evaluation of performance is necessary and proper management can be aided by the tools that have been
used.
(iv) Efficiency of use of resources and capital can be determined.
11.3.2 Sources of business finance

A business enterprise can finance its operation from various sources. These vary with the size of the business and
the stage of growth. Sources are categorised as either internal or external. Internal sources are generalised within
the business while external sources are acquired from other parties.
Examples of internal sources are:-

(i) Personal finance- personal savings are a major source of capital during the start-up stage. The personal
savings may be obtained from former employment, money saved in savings/ fixed deposit accounts, sale
of personal assets such as land.
Advantages of this source are:
- It is the least expensive since no interest is paid.
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- It does not involve legal process of acquiring
- It allows for flexibility on the use of funds
Disadvantages:
- It may be inadequate for business needs.
- May be used without proper planning.
- May take too long to raise adequate capital.
(ii) Retained earnings – These are the unutilized profits from previous years which can be used to finance
other needs such as expansion and acquisition of more assets.
(iii) Provision for depreciation and provision for taxation – These can only be borrowed for a short period of
time before replacement of depreciated assets or payment due to taxes that are made .
(iv) Sale and lease back – A business can opt to sell its assets and then lease the same from the new owner. It
will be paying rent for use of the assets.
(v) Sale of assets – A business could have at its disposal assets that can be converted into cash. Good
examples of such assets are old equipment, motor vehicles and other chattels.
External sources of business finance.

This type of finance is obtained from persons and parties other than the business owners.
Examples of external sources are:-
i) Trade creditors – these provide a business with goods on credit terms such as 90 days before repayment can
be made.
The entrepreneurs can sell the goods and use the proceeds to pay off the creditor on the due date.
vi) Loans – these are borrowings from commercial lending institutions. The terms and institutions vary from one
institution to another.
vii) Overdrafts – These are short term sources of finance from commercial banks that a business can resort to in
order to solve its liquidity problem. The repayment period is normally one year.
viii) Hire Purchase – a business can get equipment from a hire purchase firm and pay for them in installments
until the whole line purchase price is paid. It becomes the property of the business when the last installment is
paid, otherwise it was on hire before such last payment.
11.3.4 Types of Business Records
There are various types of records that may be maintained by a business depending on the size of the business.
The following are some of the important business records:
i) Purchases journal.
This is a record of all daily purchase of stock on credit. It keeps a record of daily purchase of stock on credit. It
keeps a record of persons from whom a business has purchased on credit.
It’s also referred to as the purchases day book.
ii) Sales journal.

This is used to record all the daily credit sales. It shows the particular persons to whom goods have been sold on
credit. It is also known as the sales day book.
iii) Purchases returns journal
It provides a list of goods returned outwards to supplies. Goods may be returned for reasons such as, they are
defective, wrong type of quantities or description supplied, or goods damage on transit.
iv) Sales returns journal

It provides a list of goods returned inwards to the business by the customers.
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v) The cash book.
This is the book in which all the receipts and payments are made. There are different types of cashbooks that a
business may maintain. These include one column, two columns or three columns cash book. The petty cash book
and analysis cash book may also be maintained.
vi) The ledger
All accounts of assets, liabilities, capital, revenue and expenses are maintained in a book known as the ledger. An
account- a chronological entry of all transactions affecting a given item or person.
Recording transactions in the ledger is made based on the concept of double entry which means that ever
transaction must have at least two effects and should therefore be recorded twice.
11.3.5 Recording business transactions in the books of accounts
Business transactions refer to the exchange of goods and services. Many transactions take place in a business on a
daily basis. Such transactions include: purchase of goods, selling of goods , payment of expenses, return of goods,
payment of expenses, return of goods bought, purchase of assets, receipt of payment from debtors among others.
These transactions are recorded in the books of account in order to aid in preparation of financial statements at the
end of the year. Business transactions are recoreded in different books of accounts. These include:
a) The journals such as purchases journal, sales journal, returns journal, general journal
b) The ledger
c) The cash book
THE JOURNAL
The term ”journal” means daily list of ooccurences,. A journal is a book in which the daily list of occurrences of
transactions is made. The different types of journals are discussed below.
(i) The Purchases Journal

Credit purchases are recorded in the purchases journal. The information recorded in the journal is
obtained from copies of purchases invoice. The format is as follows:
Date Details Invoice no Folio Amount
 Date column is used to record the date of the transaction

 Details column also known as particulars column is used to record details or particulars of the transactions
like the name of the credit supplier or description of the goods.
 The invoice column is used to record the serial number of the purchases invoice received.
 The folio column is used to record the account number to which the entry is to be pasted in the ledger.
 The amount column show the value of the item or items purchased.
Example:
Salim, an entrepreneur made the following credit purchases for the month of February 2009.
February 2: From Katue enterprises, invoice no 312, sugar 5000, detergent 3000, rice 4500
February 5: From Great fun distributors, invoice no 210, stationery 3200, books 1200
February 11: From Kyalo, invoice no 1200, flour 4800, mineral water 700
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February 15: From Zakayo, invoice no 98, soaps 400, soda 1800
Required:
Prepare the purchases journal in Salim’s books.
Purchases Journal
2/2/2009 Katue enterprises Sugar 312 Purchases ledger (PL
Detergent 1) 5000
Rice 3000
4500 12500
Great fun distributors

5/2/2009 Stationery 210 PL 2
Books 3200
1200 4200
Kyalo
11/2/2009 Mineral water
Flour 1200 PL 3 700
4800 5500
Zakayo
15/2/2009 98 PL 4 400
1800 2200
24400
GL 1
The purchases Returns Journal
This journal is used to record goods bought on credit but returned to the supplies for one reason or another.
The format of a PR Journal is as follows
Date Details Invoice no Folio Amount Total
Example: Goods were returned as shown

February 6: Goods worth sh.1, 200 were returned to Katu enterprises. Credit note no. 063 was
received
February 12: Goods worth sh. 200 were returned to Kyalo, credit note 064 being issued
Date Details Invoice Folio Amount Total

no
6/2/2010 Katu enterprises 063 PL1 1200 1200
12/2/2010 Kyalo 064 PL2 200 200__
GL 1400__
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Sales Journal
This is a subsidiary book used to record all credit sales. The source documents for this journal are invoice and
debit notes issued to customers when goods are supplied to them. The ruling of a sales journal is as shown below.
Date Details /particulars Invoice no. Folio Amount
Sales Returns Journal
This is the journal that is used to record sales returns. A credit note is issued for returned goods so that the
sales recorded earlier in returning customers account can be reduced by the amount in the credit note.
The Sales returns journal is as shown below;
Date Details Credit note Folio Amount (sh) Total (sh)

/particulars no.
Example
Mapengo, a textile dealer made the following credit sales in the month of January 2010.
Jan 3: Credit sale to C.Rama (invoice no. 29) 8 rolls of material 16,000, dresses 9,000, ribbons
3,000
Jan 7: Rama returned dresses worth shs. 3,800
Jan 8: Credit sale to Oyugi (invoice no. 72) material 12,000 ribbons 1,300
Jan 10: Credit sale to Cyrus Magero (invoice no 80) rolls of material 28,000, ribbons 7,000
Dresses 17,000
Jan 10: Credit sale to Manooj (invoice no 81). Rolls of material 80,000, dresses 56,000
Jan 15: Manooj returned materials worth shs. 14,000
Required
Enter the above information in
a) The sales journal
b) The sales returns journal
THE SALES JOURNAL

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3/1/2010 C.Rama 29 (SL 1)
Material 16000
Dresses 9000
Ribbons 3000 28000
8/1/2010 H.Oyugi 72 SL 2
Material 12000
Ribbons 1300 13300
10/1/2010 Cyrus Magero 80 SL 3

Material 28000
Ribbons 7000
Dresses 17000 52000
10/1/2010 Manooj 81 SL 4
Material 80000
Dresses 56000 136000
Credit to sales account
GL 5 229300
THE SALES RETURNS JOURNAL

Date Details Credit no Folio Amount
7/1/2010 Rama
Dresses 30 (SL 1) 3,800
15/1/2010 Manooj
Material 31 SL 2 14,000
Total GL5 17,800
(ii) The Cash Book

The cash account and the bank account are the most active accounts in the ledger. This is because they are
concerned with money which is the central focus of all business activities. The main purpose of the cash book is
to ensure that the cash account and the book accounts are contained in one special ledger making it convenient to
make entries relating to cash transactions since both accounts are on the same page. The entrepreneur is able to
keep control over the finances of the business.
Depending on the size and the nature of the business organization, there are five types of cash books. These cash
books are:
 The single column cash book
 The two column cash book
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 The three column cash book
 The petty cash book
 The analysis cash book
THE SINGLE COLUMN CASH BOOK
A very small business such as a kiosk, often does not have a bank account. The amount of cash involved is often
so small that that the owner finds it unnecessary to keep a record of cash transactions in two accounts. i.e. cash
and bank account . single column cash book operates in the same manner as cash account.
Format of a cash book.
DR CR
Date Details Folio. Amount Date Details Folio. Amount
When making entries, the following principles should be followed:

i) When cash is received in cash or cheque, the amount should be recorded on the debit side.
ii) When money is paid in cash or cheque the amount is credited to the cash book
THE TWO COLUMN CASH BOOK
This cash books keep a record of the cash in hand and cash at bank in one page. This makes it easier and
convenient to make entries in the two accounts on the same page, thereby saving on time.
Format: The Column Cash Book

DR CR
Date Details Fo. Cash Bank Date Details Fo. Cash Bank
The two column cash book has columns of both cash and bank on both debit and credit sides. When making
entries in the cash book, the following principles are followed:
i) When money is received in cash, the amount should be recorded on the debit side on the cash column.
ii) When money is received by cheque, this should be recorded on the credit side of the cash book.
iii) When money is paid in cash, the amount should be recorded on the credit side of the cash book.
iv) When money is paid by cheque, this should be recorded on the credit side in the bank column.
EXAMPLE:
The following transactions took place in the month of March 2010 in Kiboswa retailers
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March 1: The business had shs. 12,000 cash in hand and 20,000 cash at bank.
2: Sold furniture for shs. 4,000 cash
3: Sold goods for shs. 6,000 receiving a cheque.
4: Deposited shs. 5,000 from office cash into the bank
5: Bought goods for shs. 3,500 cash
7: Bought stationary worth shs. 6,000 by cheque
9: Paid rent by cash shs. 1,200
10: Sold goods for shs. 5,000 receiving a cheque
11: Bought goods worth shs. 10,000 cash
20: Sold stock of goods worth shs. 15,000 cash
Required
Enter the above transactions in the two column cash book.
TWO COLUMN CASH BOOK
DR CR
Mar 1: Balance b/d 12,000 20,000 Mar 4: Bank C 5,000
Furniture 4,000 5 Purchases 3,500
Sales 6,000 7 Stationary 6,000
Cash C 5,000 9 Rent 1,200
Sales 5,000 11 Purchases 10,000
Sales 15,000 30 Balance 21,300 30,000
41,000 36,000 41,000 36,000
April 1: Balance b/d 21,300 30,000
THREE COLUMN CASH BOOK
In order to facilitate the recording of the discount allowed and discount received in the cash book, the two column
cash book is extended to have a third column by adding one more column on either sides of the cash book. This
makes the three column on either sides hence the name “three column cash book”. The third column on the Debit
side is used to record discount allowed while the third column on the credit side is used to record the discount
received. This is because discount allowed is an expense while discount received is revenue.
Format: Three column cash book
CR
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Example
The information given below was obtained from the business records of Omondi Stores for the month of March
2010.
March 1: started a business with Shs. 6,000 cash

2: Deposited Shs. 5,000 of the cash in hand into a bank account
3: Bought furniture by cheque Shs. 9,500
6: Bought goods and paid by cheque Shs. 12,400
7: Paid rent Shs. 2,000 Cash
10: T.Ngari paid by cheque Shs. 2,100 in full settlement of his account of Shs. 2,200
11: paid M.Shah stores by cheque their account of Shs. 10,000 less a 5% discount
12: received a cheque of Shs. 3,800 from J.Mbogo who had deducted her cash
discount of shs. 200
15: paid rates by cheque Shs. 4,100
20: Paid F.Nzibo his account of Shs. 1,200 in cash after deducting a cash discount of
Shs. 60
25: cash sales amounted to shs. 8,800
26: Deposited cash shs. 8,000 into the bank for office use
29: withdrew shs. 5,000 from bank for office use
31: paid wages in cash shs. 4,000
31; sold goods at shs. 6,000 cash
Required
Prepare a three column cash book for Omondi stores
THREE COLUMN CASH BOOK
Date Details F. Dis. All Cash Bank Date Details Fo. Cash Bank
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Mar 1: Capital 60,000 20,000 Mar 2: Bank C 50,000
2 Cash 3 Furniture 9,500
10 T.Ngari C 100 6,000 6 Purchases 12,400
12 J. mbogo 200 5,000 7 Rent 2,000
25 Sales 800 5,000 11 M.Shah 500 9,500
26 Cash 15 Rates 60 1,140 4,100
29 Bank 5,000 36,000 20 F.Nzibo
31 Cash 6,000 30,000 26 Bank C 8,000
29 Cash C 5,000
31 Wages 4,000
31 Balance c/d 3,860 23,400
560 65,000 63,900

300 62,000 63,900
April 1: Balance b/d 3,800 23,400
THE LEDGER
A ledger is a book containing a collection of accounts. Accounts of all assets, liabilities, capital , expenses and
revenues are maintained in a ledger. Since accounts are found in a ledger, they are referred to as “ledger accounts”
A Ledger Account
An account is a chronological entry of all transactions affecting a given item. This has the effect of showing any
changes that take place in an account. The change could be of an increase or a decrease nature, which must be
recorded accurately in the relevant ledger account.
Format of an Account
Debit Credit
Date Particulars Folio. Amount Date Particulars / Folio. Amount
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/Details Details
An account has two sides that are similar i.e. the debit side and the credit side. The debit side is used for
recording an increase on gain value while the credit side is used for recording decrease or less in value. The
difference between all debits and credit at the end of the period reflects the account balance.
Double entry and the ledger

Recording of transactions is based on the double entry rule which states that every debit entry must have
corresponding credit entry of the same value.
Jan 2: Zuma Muindi Started a business with shs. 120,000, in cash and shs. 300,000 at Bank
Jan 5 2010: Purchased goods worth 5,000 cash
6 ” Purchased goods worth 13,000 writing a cheque no 024
7 ” Return goods worth sh. 400 to a supplier
7 ” sale of goods sh. 40,000 cash, 25,000 paid through cheques
8 ” wrote a cheque (025) for sh. 1,800 to pay for electricity
8 ” Purchased goods worth sh. 1,500 cash
9 ” Bought furniture worth 23,000, writing cheque no 026
10 ” Sold goods worth sh. 62,000 on Credit to Omar Hassan
11 ” Bought stationary worth sh 9,000 cash
15 ” Returned goods worth sh. 800 to a supplier
Required
Enter the above information in Muindi’s books of accounts
Balance off the accounts on 15th January, 2010.
CASH
Date Particulars / Folio. Amount Date Particulars / Folio. Amount

Details Details
Jan 2 Capital 120,000 Jan 5 Purchases 5,000
Jan 8 Purchases 15,000
Jan 7 Sales 40,000 Jan 11 Stationary 9,000
Jan 15 Bal c/d 131,000
_______ _______
160,000 160,000
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BANK
Date Particulars Folio. Amount Date Particulars / Folio. Amount
/Details Details
Jan 2 Capital 300,000 Jan 6 Purchases 024 13,000
Jan 8 Electricity 1,800
Jan 7 Sales 25,000 Jan 9 Furniture 026 23,000
Bal c/d 287, 200
_______ _______
325,000 325,000
DR Capital Account CR
Date Particulars / Folio. Amount Date Particulars / Folio. Amount
Details Details
Jan Bal c/d 420,000 Jan 2 Cash 120,000
15 Bank 300,000
_______ _______
420,000 420,000
DR Purchases Account CR
Date Particulars / Folio. Amount Date Particulars /Details Fo. Amount
Details
Jan 5 Cash 5,000 Jan 7 Purchases Returns 024 400
Jan 6 Bank Ch.02 13,000 Purchases Returns 800
Jan 8 Cash 4 15,000 Jan 15 Bal c/d 026 31,800
______ _______
33,000 33,000
DR Purchases Returns Account CR

Details
Jan 7 Purchases 400 Jan 15 Bal c/d 1,200
Jan Purchases 800
15 ______ _______
1,200 1,200
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DR Sales Account CR
Date Particulars / Folio. Amount Date Particulars Fo. Amount
Details /Details
Jan Bal c/d 127,000 Jan 7 Cash 40,000
15 Jan 7 Sales 25,000
______ Jan 10 Omar Hassan 62,000
127,000 127,000
DR Furniture Account CR
Details
Jan 9 Bank 23,000 Jan 15 Bal c/d 23,000
______ _______
23,000 23,000
DR Stationary Account CR
Details
Jan Cash 9,000 Jan 15 Bal c/d 9,000
11 ______ _______
9,000 9,000
DR Omar Hassan (Debtor) CR

Details
Jan Sales 62,000 Jan 15 Bal c/d 62,000
10 ______ _______
62,000 62,000
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DR Electricity (expense) account CR
Details
Jan 8 Bank 1,800 Jan 15 Bal c/d 1,800
______ _______
1,800 1,800
Petty cash
This is not the main cash book but a record in which minor transactions involving small sums of money are
recorded. Examples of items maintained in the petty cash are tea expenses, postage and travel. It can be
maintained by a person assigned to make the necessary payments but not necessarily by the accountant who keeps
the records of all major cash transactions in the business.
11.3.6 FINANCIAL STATEMENTS
Financial statements are important for the entrepreneur in determining whether the business is operating at a profit
or a loss and the financial wealth of the business. Two major financial statements the entrepreneur requires for
sound decisions are:
i) Trading, profit and loss accounts
ii) The balance sheet
Trading, profit and Loss Account

The financial statement is prepared to determine whether a business is operating at a profit or a loss for a given
period of time. E.g. one year
Trading Account
The trading account is prepared to determine the gross profit. The gross profit is the difference between the net
sales and the cost of sales
Trading Account Format
Opening Stock ××××× Sales ××××

Purchases ×××× Less returns ××××
Less returns ×××× ××××
××××
Less closing stock ××××
Cost of sales ××××
Gross profit c/d ××××
××××× ××××
Gross profit b/d ××××
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NB:Gross profit is the difference between Net Sales and Cost of sales
PROFIT AND LOSS ACCOUNT
11.3.7 INTERPRETATION OF FINANCIAL STATEMENTS

As financial statements have been worked out, it is necessary to compare the relationship between items in the
balance sheet and those in the profit and loss account. This gives a clearer picture of the company’s performance
in relation to the prevailing economic conditions.
The interpretation can be in the form of ratios, or percentages showing different relationships. They are
categorised into:
i) Profitability ratios
ii) Turnover ratios
iii) Return ratio
Examples of such interpretations are as follows:
Profitability ratios
(i) Current ratios
This is used to gauge the ratio of current assets compared to current liabilities. It is computed as: Current
Assets (CA)
Current Liabilities (CL)
(ii) Gross profit to sales or the gross profit margin
Gross profit is given by sales less cost of sales. Gross profit to sales is worked as follows:
Gross Profit × 100
Sales
It gauges the efficiency with which the company can generate a given level of profits out of its sales
activities.
(iii) Rate of Stock Turnover
This is an activity ratio that shows the number of times that stock is converted into sales on the average. It is
calculated by dividing the cost of sales by the average stock held during the year.
Rate of stock turnover = Cost of sales______________ = _____ times

(Opening stock + closing stock )
2
(iv) Debtors ratio
This is another activity ratio that shows the average credit period allowed to debtors.
Debtors ratio = __Debtors X 365 = ______________ days

Sales
(v) Creditors ratio

Like the debtors ratio, the creditors ratio shows the average credit period allowed by creditors.
Creditors ratio = creditors___ X 365 = ________________ days

Purchases
(vi) Net profit margin
It gauges the company’s overall efficiency. It is given by:
Net Profit × taxes X 100
Sales
(vii) Return on capital employed
It gauges the managements efficiency in utilising the capital employed.
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The computation is thus: Net profit before taxes__ X 100
Total capital employed
11.3.8 Importance of Budgeting to a Business

Budgeting is important to a business in the following ways:-
i) The success or failure of a business depends on the decisions that are mad e
ii) Budgeting helps to remove future uncertainties as it combines activities with resources
iii) It helps the entrepreneur to remain focused on the goods
iv) Resources are acquired when they are needed and therefore there is no time lost waiting
v) It facilitates long term planning within the business.
i) Textbooks
ii) Newspaper cuttings
******

Visit various financial institutions and compare their lending terms.
11.6 Suggested Question
The following Trial balance was extracted from the books of John Wafula’s Enterprise on 1.6 .2009
Details DR CR
Shs. Shs.
Sales 1,049,250
Purchase 580,000
Stock (1.4.2008) 120,000
Capital 188,500
Bank overdraft 108,750
Discount allowed 36,000
Discount received 23,250
Carriage in 9,000
Carriage out 54,000
Returns inwards 20,250
Returns outwards 14,250
Rent 43,500
Fixtures and fittings 40,000
Delivery van 52,500
Debtors 297,750
Stationary 2,250
Creditors 178,000
Drawings 72,000
Salaries and wages 223,500
General expenses 11,250
Additional information 31st March, 2009.

i) Goods taken for personal use valued at sh. 8,500
ii) Stock was valued at shs. 107,250
Required
(i) Prepare Trading, profit and Loss Account for the year ended 31.3.2009
(ii) Balance sheet for the year ended 31.1.2009.
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****(To be included in the guide omit)
John Wafula’s
Trading, profit and loss accounts
For the period ended 30th June 2009
Opening Stock (1.6.2008) 120,000 Sales 1,049,250
Add: Purchases 580,000 Less: Sales returns (Return Inwards) 20,250
Less: Carriage inwards 9,000 1,029,000
Purchases returns 14,250 574,750
Cost of goods available 694,750
Less: Closing Stock 107, 250
Cost of goods sold 587,500
GROSS 441, 500 _________
1,029,000 1,029,000
Expenses Sh.
Discount allowed 36,000
Carriage outwards 54,000
Rent 43,500
Salaries & Wages 223,500 Gross profit b/d 441,500
General expenses 11,250 Add: Discount Received 23,250
NET PROFIT 96,500
464,750
_______
464,750
John Wafula’s
Balance Sheet as at 30th June, 2009
Fixed assets Sh Sales 1,049,250
Delivery Van 52,500 Less: Sales returns (Return Inwards) 20,250
Fixtures & fittings 40,000 1,029,000
92,500
Current Assets Current liabilities

Stock 107,250 Bank overdraft 108,750
Debtors 297,750 Creditors 178,000
Stationary 2,250 _________
499,750 499,750
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12.0 MARKETING
12.1 Introduction
Marketing is an important aspect of business management. It is through marketing that a business creates
awareness about its products. An entrepreneur must endeavour to create awareness and interest to customers
about the products that his/her business deals with.
This sub-module unit deals with definition of the terms market and marketing, components of marketing and
methods of gathering market information
a) Define the terms market and marketing.
b) Outline the components of marketing
c) Identify ways of gathering market information
12.3 Content
12.3.1 Definition
A market refers to conditions that bring sellers and buyers together. This may be a physical location or any other
medium such as electronic or print. A market can also be a group of consumers or an organisation that are
interested in a product, have the resources to purchase the product, and is permitted by law and other regulations
to acquire the product. The market definition begins with the total population and progressively narrows as shown
in the following diagram.
Marketing refers to the performance of business activities that direct the flow of goods and services from the
seller to the consumer. It is an integrated process through which businesses create value for customers and build
strong customer relationships in order to capture value from customers in return.
Marketing is used to identify the customer, to keep the customer and to satisfy the customer. With the customer as
the focus of its activities, it can be concluded that marketing management is one of the major components of
business management.
12.3.2 Components of marketing.

Market components are commonly referred to as marketing mix. Marketing mix consists of the following
components:
i) Product
Product refers to tangible, phyical products or services that a business offers for sale. During the product
design and development, an entrepreneur must make decisions pertaining to the following:
 Brand name
 Functionality
 Styling
 Quality
 Safety
 Packaging
 Repairs and Support
 Warranty
 Accessories and services
ii) Place/ Distribution
Place refers to the actual location where the product is to be sold. It includes the activities that make the
product available to target consumers. In this case, an entrepreneur must make decisions pertaining to:
 Distribution channels
 Market coverage (inclusive, selective, or exclusive distribution)
 Specific channel members
 Inventory management
 Warehousing
 Distribution centers
 Order processing
 Transportation
 Reverse logistics
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iii) Price
Price is the unit value attached to a product i.e. the amount of money that customers have to pay to obtain
the product. The entrepreneur in this regard must make decisions in relation to:
 Pricing strategy (skim, penetration, etc.)
 Suggested retail price
 Volume discounts and wholesale pricing
 Cash and early payment discounts
 Seasonal pricing
 Bundling
 Price flexibility
 Price discrimination
iv) Promotion
Promotion is the process of letting buyers know about a product, how it is made, its benefits, cost, and
quality among others.
It constitutes the activities that communicate the benefits of the product and persuade target customers to
buy it. The marketing communication decisions include:
 Promotional strategy (push, pull, etc.)
 Advertising
 Personal selling & sales force
 Sales promotions
 Public relations & publicity
 Marketing communications budget
Limitations of the Marketing Mix Framework

The marketing mix framework was particularly useful in the early days of the marketing concept when physical
products represented a larger portion of the economy. Today, with marketing more integrated into organisations
and with a wider variety of products and markets, some authors have attempted to extend its usefulness by
proposing other P, such as people, process and physical evidence.
People
This refers to the consumers for whom the goods and services are intended. There are various
considerations made about the consumers in determining the suitability of the market mix to be used.
(Figure. 12.1)
An effective marketing program puts together all the marketing mix elements.
Figure 12.1 showing the marketing mix elements
MARKETING MIX
PRICE PRODUCTS PEOPLE PLACE PROMOTION

List price Product variety Income Channels Advertising
Discounts Quality Employment Coverage Personal selling
Allowances Design Age Assortments Sales promotion
Payment period Features Tastes and Preferences Locations Publicity
Credit terms Brand name Population density Inventory
Packaging Transport
Sizes
Services
Warranties
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TARGET MARKET
The other extended components of marketing mix include the following:
PROCESS
Refers to the systems used to assist the organisation in delivering the service. Imagine you walk into Burger King
and you order a Whopper Meal and you get it delivered within 2 minutes. What was the process that allowed you
to obtain an efficient service delivery? Banks that send out Credit Cards automatically when their customers old
one has expired again require an efficient process to identify expiry dates and renewal. An efficient service that
replaces old credit cards will foster consumer loyalty and confidence in the company.
PHYSICAL EVIDENCE
Where is the service being delivered? Physical Evidence is the element of the service mix which allows the
consumer again to make judgments on the organisation. If you walk into a restaurant your expectations are of a
clean, friendly environment. On an aircraft if you travel first class you expect enough room to be able to lay
down!
Physical evidence is an essential ingredient of the service mix, consumers will make perceptions based on their
sight of the service provision which will have an impact on the organisations perceptual plan of the service.
12.3.3 THE MARKETING PROCESS
Under the marketing concept, the firm must find a way to discover unfulfilled customer needs and bring to market
products that satisfy those needs. The process of doing so can be modeled in a sequence of steps: the situation is
analyzed to identify opportunities, the strategy is formulated for a value proposition, tactical decisions are made,
the plan is implemented and the results are monitored.
The Marketing Process
Situation Analysis
Marketing Strategy
Marketing Mix Decisions
Implementation & Control
I. SITUATION ANALYSIS
A thorough analysis of the situation in which the firm finds itself serves as the basis for identifying opportunities
to satisfy unfulfilled customer needs. In addition to identifying the customer needs, the firm must understand its
own capabilities and the environment in which it is operating.
The situation analysis thus can be viewed in terms an analysis of the external environment and an internal analysis
of the firm itself.
The situation analysis should include past, present, and future aspects. It should include a history outlining how
the situation evolved to its present state, and an analysis of trends in order to forecast where it is going. .
If the situation analysis reveals gaps between what consumers want and what currently is offered to them, then
there may be opportunities to introduce products to better satisfy those consumers. Hence, the situation analysis
should yield a summary of problems and opportunities. From this summary, the firm can match its own
capabilities with the opportunities in order to satisfy customer needs better than the competition.
The two common frameworks used to do the situation analysis:
 PEST analysis - for macro-environmental political, economic, societal, and technological factors. A
PEST analysis can be used as the "climate" portion of the 5 C framework.
 SWOT analysis - strengths, weaknesses, opportunities, and threats - for the internal and external situation.
A SWOT analysis can be used to condense the situation analysis into a listing of the most relevant
problems and opportunities and to assess how well the firm is equipped to deal with them.
II. MARKETING STRATEGY
Once the best opportunity to satisfy unfulfilled customer needs is identified, a strategic plan for pursuing the
opportunity can be developed. Market research will provide specific market information that will permit the firm
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to select the target market segment and optimally position the offering within that segment. The result is a value
proposition to the target market. The marketing strategy then involves:
 Segmentation
 Targeting (target market selection)
 Positioning the product within the target market
 Value proposition to the target market
III. MARKETING MIX DECISIONS
Detailed tactical decisions then are made for the controllable parameters of the marketing mix. The action items
include:
 Product development - specifying, designing, and producing the first units of the product.
 Pricing decisions
 Distribution contracts
 Promotional campaign development
IV. IMPLEMENTATION AND CONTROL
At this point in the process, the marketing plan has been developed and the product has been launched. Given that
few environments are static, the results of the marketing effort should be monitored closely. As the market
changes, the marketing mix can be adjusted to accomodate the changes. Often, small changes in consumer wants
can addressed by changing the advertising message. As the changes become more significant, a product redesign
or an entirely new product may be needed. The marketing process does not end with implementation - continual
monitoring and adaptation is needed to fulfill customer needs consistently over the long-term.
Before selling a product or service, it's important to know the market that you will be entering into. Research
includes finding out what potential customers need, want and don't want, and why. Your goal is to build a
demographic profile of your customers. A research or business library can prove helpful for studying the manners
in which other small businesses have approached their target audiences. You can then take a similar approach,
adding your own creativity and the particular benefits of your products or services.
Surveys, questionnaires, and focus groups are three among the many ways to obtain original data on potential
customers. You can also get basic information when a customer calls for your services, visits your facility, or
browses your web site. When customers make a purchase, or any kind of inquiry, you can find out where they
heard about your business. In this manner you can better plan, and track, your marketing efforts.
Ways of gathering market information
Market information can be gathered through:
i) Asking customers.
ii) Reading relevant materials e.g. business pamphlets.
iii) Getting information from chamber of commerce
iv) Exhibitions/ shows/trade fairs.
v) Listening to people talk.
i) E - commerce - use of ICT, e.g. the Internet to market business activities and products.
ii) Focusing on the customer needs or satisfaction
iii) The need for meeting quality standards (KEBS)
iv) The need to address environmental standards (NEMA)
12.4 Learning Resources
i) Text books
ii) Newspapers
iii) Magazines
iv) Resource persons
12.5 Activities
i) Choose a product and explain how to market it based on the 5Ps.
ii) Discuss the marketing styles used by local entrepreneurs.
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12.6 Suggested Questions
i) An entrepreneur of manufactured goods wants to start a new business in a
certain area. Write down methods they can use to gather market
information.
ii) Discuss the importance of the 5Ps of marketing.
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13.0 ENTERPRISE SOCIAL RESPONSIBILITIES
13.1 Introduction
Social responsibility consists of those obligations a business has to society. It also involves specific
responsibilities and responsiveness to society. This requires obligation of businessmen to pursue those enterprise
policies to make those decisions or to follow those lines of action which are desirable in terms of objectives and
values to society.

By the end of this topic, the trainee should be able to:
d) Define the terms social responsibilities and business ethics
e) Explain the meaning of enterprise social responsibility
f) Identify types of enterprise social responsibility
g) Explain the importance of enterprise social responsibility
h) Explain ethical behaviour in a business enterprise
13.3 CONTENT
Social responsibility refers to the fact that businesses should not just be concerned with profit maximisation but
should do so in a socially responsible manner. This responsibility requires the management of the business to
consider the social and economic effects of their decisions on society. Businesses should therefore pursue profit
maximisation within acceptable moral limits.
Business ethics
Ethics concerns the rules and principles that define right and wrong good and bad conduct. Ethics also deals with
moral ability and obligations.
Business ethics is also called management ethics and it is the application of ethical principles to business
relationships and activities.
Statt (1999,19) sees business ethics as the application of ethical concerns to the world of business and has three
areas of concern namely;
a) Code of Ethics
Where a company has explicit guidelines for the members about what constitutes acceptable behaviour to
stakeholders like staff or customers
b) Changes in the board of directors
To include people from outside the business world who reflect broader interests.
c) Social responsibility
By a company in the marketing of its goods and services, The entrepreneurs and employees have ethical
responsibilities or obligations which are placed on them by virtue of the positions they occupy in the organisation.
- Entrepreneurs should adhere to high ethical standards e.g. dealing fairly honestly and responsibly with his
employees and other stakeholders
- Employees are expected to exhibit the same high ethical standard of behaviour that will affect the
company’s image financially and economically.
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13.3.2 ENTERPRISE SOCIAL RESPONSIBILITY
- The business operators have a responsibility to protect and improve society and their actions should not in
any way endanger a community or society.
- They should display high degree of corporate responsiveness which is the ability of an organisation to
relate its operations and policies to the environment in ways that are mutually beneficial to the
organisation and the society.
- Every enterprise small or large is expected to make positive contribution
a) To the community development
b) Product safety
c) Employment generation
d) Ethical business practices
e) Contribution towards educational activities like award of scholarships
f) Creating opportunity for apprenticeship training etc
- Undertaking some of these responsibilities may endear the entrepreneur to his host community to enhance
his/her image and social standing thus contributing significantly to his business success.
- Every business has a social responsibility to contribute to the development of the society in which it
operates. This social responsibility can be carried out in various ways such as
a) Supporting and contributing towards environmental conservation programmes
b) Ensuring that the goods and services produced and sold to the people are safe for human consumption
c) Ensuring that workplace is safe and secure for workers
d) Ensuring that the activities of the business do not cause environmental pollution or harmful effects to the
surrounding community.
e) Supporting and contributing towards social welfare programmes such as contributing towards the care of
orphans. , HIV/AIDs victims and flood victims.
Businesses have a duty to obey the laws of the countries in which they operate and also to fulfil their
contracts. Businesses are also a part of society and therefore they have a responsibility to maintain healthy
and safe surrounding.
This is done by;
i) reducing air and water pollution by applying appropriate waste disposal methods
ii) packaging goods in environmentally friendly materials e.g. the polythene bags used for carrying goods
from the supermarkets or the shops do not decompose. They therefore make the environment very untidy
and unhealthy especially in towns.

iv) Keeping the business premises and work place clean at all times.
v) Preserving the surrounding natural vegetation as much as possible
vi) Producing goods and services that are safe to use. These may be sold to consumers when safe especially
when handling and using.
In conclusion therefore, is the implied obligation of the business acting in its official capacity to serve or protect
the interests of community other than itself only?
13.3.3 TYPES OF ENTERPRISE SOCIAL RESPONSIBILITIES

Social responsibility can be put into three main categories.
a) social obligation
b) social reaction
c) social responsiveness
a) social obligation
Based on the fact that society supports a business by allowing it to exist, the business has a duty to supply the
society with quality goods and services.
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It should carry out its activities and make profit `within the limits of the law.
b) social reaction
A business can sometimes be under pressure from society to do certain things. As such, the response of business
gives/shows is referred to as a social reaction because the business is reacting to social pressure. This social
reaction is not a voluntary action on the part of the business.
It is a behaviour demanded by a group or groups of people who have a direct interest in the organisations actions.
E.g. a business could be forced to withdraw offensive advertisements by the public through social pressure.
c) social responsiveness
This refers to actions taken by a business voluntarily. These actions may be due to the anticipation of future needs
of a society which the business tries to satisfy.
A business that responds to the social needs will actively seek ways to solve social problems e.g. a business
operating in a given locality may decide to employ some of the local people in order to reduce unemployment in
the area.
A business should be socially responsible

Areas such as, to the customers by ensuring
1) SAFETY OF PRODUCTS
A business should show social responsibility by
a) Producing quality and safe products i.e. products should not be harmful to people’s health
b) Fairly pricing products – prices should not be exploitative
c) Having clear advertisements that do not misrepresent facts
d) Treating customers fairly
e) Offering clear credit terms and adequate product information
f) Responding quickly to customers complaints
g)
h) Conducting research before allowing a product in the market
i) Proper labelling, packaging and presentation of products in a manner that the quality and quantity hazards
of use and limitations of use are clearly set.
j) Advising consumers about products and their use
2) TO THE GOVERNMENT
The business should be socially responsible to the government by:
a) Complying with the government laws and regulations
b) Paying proper taxes
c) Supporting the government in welfare and development programmes
3) TO EMPLOYEES
Business should show social responsibility to employees by:
a) Paying them fairly without delay and treating them humanly.
b) Safeguarding their health and safety by providing safe working environment such as offering safety gear
e.g. dust coats, factory boots etc.
c) Providing employees welfare through provision of recreational facilities, housing, transport and credit
facilities
d) Offering equal opportunities in matters pertaining to promotions and training
e) Offering training and educational opportunities equally to employees
4) TO SUPPLIERS AND CREDITORS

Businesses should be socially responsible to suppliers through:
a) Fair and reasonable terms of purchase

b) Fairness in tender allocation
90
c) Paying suppliers for goods in time
d) Not defaulting in payments
e) Paying fair and reasonable interest rates to creditors
f) Paying interest and principle amount in time to creditors
5) TO THE COMMUNITY /GENERAL PUBLIC
a) By supporting or providing welfare programmes for the aged, handicapped and the under nourished in the
community
b) Making information concerning the business operations public
c) Ensuring that business activities of the business do not have harmful effects to the community
d) Providing educational recreational and healthy facilities
e) Offering employment opportunities to disadvantaged in the society and even handicapped members too. Thus
offering equal employment opportunities for employment to both males and females
f) Avoiding pollution of environment through such things as noise , and waste products
6) TO NATURAL ENVIRONMENT
A business should be socially responsible towards the environment by:
a) Recycling products – some of the materials that pollute the environment if thrown away carelessly can be
taken back to the factory for recycling. Such materials become raw materials when producing other products,
e.g. used plastic materials can be reprocessed into pellets which in turn can be used for furniture or trays
thereby creating a healthy environment.
b) Reducing all types of pollution(noise, water, air etc.)
 Ways of reducing noise can be devised e.g. those operating in Jua kali castor may be supplied ear plugs
 Business in the manufacturing sector should get a way of getting rid of unwanted chemicals and other wastes
instead of channelling them into rivers
 Businesses should devise proper ways of disposing their gabbage, such waste pollutes the environment when
disposed carelessly and it may breed flies especially during rainy seasons.
- However where effluent from factories must be channelled into the river then it needs to be treated first.
- used water by business operators if put back into the rivers is a threat to life of water creatures like fish
and also unsafe for human consumption.
e.g. Nairobi river has suffered such pollution as a result of passing through an area that has both manufacturing
and service industries.
13.3.4 Importance of Enterprise Social Responsibility
 A marketing tool
 Conducive atmosphere for the success of the business
 Environmental conservation programmes
 Ensures security for workers
 Social welfare programmes
Benefits of Social Responsibility

 It leads to creation of a better social environment both for the society and the business
 It improves the value of the business shares on the stock exchange
 It improves the image of the business to the public
 It makes the business follow government regulations
 It makes business live up to the social expectations
 Such social actions are profitable to the business in the future
 The business can develop new measures from which the society benefits

Limitations of Social Responsibility
 It increases costs to the business
 It makes the business to spend resources and thus reduces profit
 Increased social responsibility cost is passed onto the consumers in form of higher prices
 Most businesses lack the skills to solve social problems
 The business might misuse its powers on the society
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 The business may deviate from its main purpose of existence
13.3.5 ETHICAL BEHAVIOUR IN A BUSINESS ENTERPRISE
Ethics refers to prescribed or accepted code of conduct. For a business to run smoothly there must be rules and
regulations that govern the behaviour of each and every employee.
These rules could either be written implied or naturally accepted especially if they affect the moral standards.
The Role of Ethics in Business

(i) Encouraging good working relationships among workers
(ii) Ensuring good working relationship between employer and employee
(iii) Ensuring rights of individuals in working environment are protected e.g. a doctor is expected to treat and not
kill
(iv) Ensuring that professionals relate professionally to their clients e.g. counsellor and their client
(v) Helping workers to protect and hold a good reputation
(vi) Helping the workers to develop proper skills and right attitude towards their work.
- The business set up and operations should be such that they provide ample facilities and opportunities for
each employee too practice the business ethics. For example, it would be very difficult for an employee to uphold
business ethics if the management mistreats him/her.
NB: Business ethics is not the same as social responsibility because social responsibility refers to relationship
between organisations and the society around.
While ethics refers to set values and principles which influence how individual groups of people and society in
general behave.
- Business ethics deals with how such values and principles affect business operations. Business ethics
therefore guides the business in ensuring fair play in business operations.
Need For Ethic Issues in Business
1. Creates fairness in competition

Business ethics ensures that there is fair play as business firms compete with each other. e.g. It would be unethical
to:
(i) Buy competitors products and destroy them before they reach the market
(ii) Discredit competitors products with a view to reducing their sales
(iii) Damage the competitors promotional materials such as bill boards
2. Ensures no discrimination in business

Business ethics ensures that there is no discrimination in areas such as recruitment, promotion training,
remuneration, and assignment of duties. Everybody should therefore be equal opportunity or equal chance
regardless of set of ethnicity.
3. Ensures protection of the environment

Ethics in business prohibits business units from carrying out activities that may cause pollution and degradation of
the environment.
Environment degradation may be caused by human activities such as logging and unplanned cultivation.
Pollution may be caused by activities like:

(i) Dumping effluents from production units into water masses thus causing water pollution. This is disastrous
to human health and animal.
(ii) Emitting carbon dioxide and other gases into atmosphere causing air pollution.
(iii) Damping of waste materials on the land surface causing solid waste pollution.
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4. Avoid consumer exploitation
Ethics ensures that consumers are not exploited by the business through:
(i) Overcharging
(ii) False advertisement
(iii) Selling poor quality goods and services
(iv) Selling wrong quantities
(v) Selling harmful commodities
5. Ensures fair play in competition
Ethics ensures that businesses do not engage in unfair practices while competing with others. These practices
include:
(i) Destroying a competitor’s product or promotional tools such as billboards
(ii) Buying and destroying competitors products before they reach the market
(iii) Giving false information about a competitor’s product
6. Ensures rights of employees are upheld

Ethics ensures that the employer does not violate the rights of employees especially as laid out in terms and
conditions of employment. Such rights include payment of dues in time.
7. Eliminates use of unfair means of achieving business objectives
Ethics ensures that business operations are carried out in a professional way. For example it is unethical to give or
receive a bribe in order to win a business contract. It is also unethical to hold goods awaiting for their prices to go
up.
UNETHICAL BUSINESS PRACTICES

The question of ethical business practice is a widely debatable subject.
(i) Profit and morality are incompatible. For instance the pursuit of wealth is a barometer of success yet it is
popularly believed that wealth tends to corrupt individuals.
(ii) All ethical problems have simple solutions i.e. right or wrong. This is a misconception based on the
assumption that there is an absolute standard for judging moral conduct.
(iii) Ethics is simply a matter of compliance with laws and regulations
Despite these misconceptions, unethical behaviour is inherent in many entrepreneurs. This happens because of:
 Greed
 Inability to distinguish activities at work and at home
 Survivalist thinking
 Lack of foundation in the study of ethics etc.
However, some studies on ethical practices have shown that entrepreneurs have different concerns regarding
specific business issues. Etc.
Issues that entrepreneurs believe require a Issues that entrepreneurs view with greater
strong ethical position tolerance in regard to ethical position
 Evaluating faulty investment advice  Tax evasion
 Favourism in promotion  Collision on bidding
 Reporting dangerous design flaws  Insider trading
 Misleading financial reporting  Discrimination against women
 Misleading advertising  Copying an idea etc.
 Cigarette smoking on the job
Code of Conduct
The code of conduct within a business is a statement of ethical practices or guidelines to which an enterprise
adheres. A variety of such codes exist; some relate to the business at large and some relate to corporate conduct.
The codes cover subjects such as misuse of corporate assets, conflict of interest, use of inside information, equal
employment practices, falsification of books and records etc. The codes of conduct are normally written and
distributed to everyone in the business to read and follow.
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Crime and the Small business
The cost of crime has become a major cause of small business failure all over the world. Crime in the business
may be internal i.e. employee dishonesty or external i.e. robberies which sometimes may even be in collision with
employees. The entrepreneur should be aware of such crime possibilities and make adequate provision for
tackling them as they may lead to bankruptcy.
Fraud
Fraud is very common and popular with the use of credit cards. The use of credit cards has grown tremendously in
the recent past and the front-line defence in the small business can be salespeople and cashiers. They should have
the knowledge and means to discover this type of crime effectively.
The following precautions can help reduce credit card fraud:

d) Scrutinise Signatures – compare signature on sales ship to that on the card.
e) Get Credit Authorisation – only one person whose signature is on the card is authorised to use it.
f) Ask for additional identification etc.
Cheque Deception
Sometimes small businesses pass bad cheques which costs them million of shillings. The entrepreneur needs to
establish a firm cheque cashing policy and procedure. This can be done by:
 Supervisor approval
 Photographs of customers
 Cheque cashing limit
 Intensive identification etc.
Shoplifting
This is a crime involving the loss of stealing merchandise and this causes great loss to small businesses. In many
cases, shoplifting is done by outsiders themselves, in collusion employeese or outsiders themselves.
To deal with this problem, the entrepreneur should make employees aware of this problem and minimise
opportunities for shoplifting. For instance customers who visit the business more often arrange the merchandise
or send sales people away, bears watching. Employees should also watch customers wearing loose clothing.
Opportunities for shop lifting can be minimised by checking customers at entry points when entering and leaving
etc. However, when shoplifting occurs,, the culprit should be arrested and prosecuted under the law.
Internal Theft
Internal theft is also very common in small business. The Presence or increase in internal theft may be attributed
to poor hiring practices where the entrepreneur does not take due attention to the background of employees, poor
employer- employee relationships, presence of theft opportunities, economic conditions etc.
The internal theft can be reduced by reduction of theft opportunities i.e. controlling keys – who should keep them,
use of designated entry and exit points, signing in and out of employees etc
Embezzlement
This is a fraudulent appropriation by a person to whom it has been entrusted. In most cases and embezzler is an
employee of higher position of trust and confidence.

i. Textbooks
ii. Internet
iii. Resource persons
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Example of Mary’s Successful Business that has Benefited Community

Mary is forty years old. She currently lives in Thika. Mary came to Thika when she was young. Her father worked
as a cook in a restaurant. She attended Secondary School. After graduating, she did not qualify for college, but she
was admitted at a Technical Institute where she enrolled in a two –year course in tailoring. On completion of her
course, she was employed by a tailoring company in the Industrial Area of Thika.
She worked for this company for two years. Then she decided to start her own business. She obtained a loan from
a commercial bank as capital for the business. From her savings, she contributed additional capital.
Mary then rented a room in the shopping centre nearest her house so that she could walk to work. She bought 4
sewing machines. She bought cloth and then employed 4 skilled tailors to do the cutting and sewing of the
clothes. At first she made dresses, trousers and shirts. She displayed the products in her shop for customers to
come and buy them. Later Mary visited several shops in the city square that sell uniforms in quantities. Two
businesses placed orders with her to supply uniforms. To be able to meet this order, she needed to employ 5
skilled employees’ full time and 2 employees on part time basis. She also needed to buy three more sewing
machines. Mary was able to meet her orders and her customers were satisfied with the products.
As Marys business expanded, she needed additional space. She rented a bigger room in a popular place in town.
She was also nearer to her prospective customers as well as her existing customers. She continued supplying
uniforms to two same companies and at the same time made clothes to sell to other customers. At this juncture she
needed to employ an account clerk to deal with the records and handle cash for the business, and a messenger to
do errands. Mary was the overall manager.
Mary organised exhibitions in Nairobi to advertise her products both to local customers and to customers in
foreign markets. Soon after the first two exhibitions, she started exporting some of her products to neighbouring
countries. Her net income rose quickly.
Mary is friendly to her customers. They like her because of her quality products and her honesty. Her employees
also like her and are loyal and committed to their work. Five of her employees have worked in the business for
over ten years. The employees and the customers have nicknamed her “fashion”. She like the name and has
accepted it. Mary pays her employees reasonably well. She has also organised an insurance scheme for them. She
pays them a travel allowance in addition to their monthly salaries.
GROUP WORK
The instructor/trainer will divide the class into four groups: A,B,C,D and assign each group two questions in
relation to how Mary (as an entrepreneur ) has contributed to the national economic development of the society
she lives in.
A person from each group will present a report of group responses.
GROUP A: 1. How has Mary created employment for young people?
2. How has Mary raised the standard of living of her employees?
GROUP B: 1. How has Mary contributed to price stability and

increased completion in the textile industry?
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2. How has Mary assisted the Government in earning
foreign exchange?
GROUP C: 1. How has Mary assisted the country in increasing the

Gross Domestic Product (G.D.P)?
2. How has she contributed of entrepreneurial spirit and culture?
GROUP D: 1. How has Mary utilised the local resources and how
has this contributed to the welfare of the nation?
2. How has Mary provided cheap skills in terms of

Learning on the job?
After discussions, the instructor/trainer will have a person from each group give a report on their discussion. The
class can then add their ideas after each report. Finally the instructor/trainer will briefly summarise all the points
mentioned by each of the groups.
13.3.6 Self –assessment questions

i) Explain the importance of enterprise social responsibility to society.
ii) Explain types of enterprise social responsibility
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14.0 BUSINESS PLAN
14.1 Introduction
A business plan is an important document for an entrepreneur because it acts as a guide and reference point in
regard to overall business management.
This sub-module unit outlines the major components of a business plan and how to write it.
By the end of this sub-module unit the trainee should be able to
a) Define the term business plan
b) Describe components of a business plan
c) Explain the uses of a business plan
d) Prepare a business plan
14.3 Content
14.3.1 Definition of business plan
This is a written document justifying the business and gives a step-by-step explanation of how the business will
achieve its goals. It summarises the operational and financial objectives of a business and contains the details,
plans and budgets showing how the objectives will be achieved.
A business plan shows a clear picture of what the business is, where it is going and how the entrepreneur proposes
to get there.
14.3.2 Components of the business plan
A business plan should be comprehensive enough to give any potential user a complete picture and understanding
of the venture and will help the entrepreneur clarify his or her thinking about the business.
Although there is no generally accepted format of a business plan. A typical format would possess the following:
i) Cover page:
It contains the name of the business, its owner(s), nature of the business, and the organization to which
the business plan is to be presented.
ii) Executive summary:
Contains a brief summary of the main contents of the business plan. It is prepared after the entire plan is
written. It summarizes every chapter of the page.
iii) Business description:
Contains a comprehensive description of the business and what it intends to accomplish
Example of information contained includes:-
 Name of the business and its contact
 Vision and mission of the business.
 Location.
 Form of ownership.
 Major activity of the business.
 Major customers.
 Justification statements/viability
 The goals of the business
iv) Marketing plan:
The marketing plan outlines the specific action the entrepreneur intends to carry out to attract potential
customers. The marketing segment is divided into two major parts:
 Research and Analysis: describes the target market i.e. who the customers are, the size and its
trends, the existing and possible competition.
 Marketing strategy: This part describes the methods that will be used to market the product, price
the product, make sales, advertise and promote the product and also the distribution channels that
will be used.
iv) Organization/ management plan.

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

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

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

A business plan is important for a business because it can be used to:
i) Obtain finances
ii) Hire staff
iii) Attract partners -
iv) To expand the business
v) Guide the business in its operations
14.3.4 Preparing a business plan
BUSINESS PLAN
Business Plan for Small and Medium Enterprises
Step 1: Preparation of business plan and estimation of costs
A business plan is the most essential document for starting, building and making businesses successful. It is an
effective tool for raising the necessary capital to start and/or run business enterprises. The business plan describes
what the business will do, how and where it will be started. Many businesses fail due to lack of planning and
preparation.
The preparation of a business plan is important because it provides information about:
 What profit your business can expect to make in the future;
 How much money you can expect to come into and go out of your business;
 Level of profit expected from your business within the period of the life of the business;
 Which part of your business you can improve.
The two most important planning documents for your business are:
 Sales and cost plan;
 Cash flow plan.
When you make business plans:

 Make them simple;
 Choose the most suitable period;
 Make them before you need to use them;
 Look for information.
In working out your own project, you should prepare a sound business plan based on data which you collected
and in which you have the utmost confidence. Make your business plan tailor-made based on your specific
strengths and weaknesses. Decide on how much of your savings should be invested in the project, how much
income you should generate from the business, who your clients would be, and which technical process is in line
with your level of skills, resources and market size.
Presented below is a business plan format. The format will help you take practical steps to prepare your business
plan accordingly. You will find help topics and explanations for the majority of the elements of the business plan.
When applying the format, you need to organize and make use of data collected in the information seeking stage.
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Business Plan Format
The Cover Sheet
What to Include on a Cover Sheet
The first page of your business plan will be the cover sheet. It serves as the title page and should contain the
following information:
• Company name
• Company address
• Company phone number (including area code)
• Web address, if you have a web site
• Logo, if you have one
• Names, titles, addresses, and phone numbers of the owners or corporate officers
• Month and year in which the plan is issued
The month and year in which the plan was written is important to include as it lets the reader and especially – if
the plan is also intended for providers of finance - the lender know if the business plan is up-to-date.
Please refer to the Business Plan template for the structure of the Cover Sheet.
Table of Contents
BUSINESS PLAN
Cover Sheet
Table of Contents
Executive Summary
1. The Nature of the Business

1.1 Mission Statement
1.2 Objectives
1.3 History of the Company
1.4 Legal Structure
1.5 Ownership and Investors
1.6 Company Location and Facilities
2. The Organisation
2.1 Organisational Structure
2.2 Management
2.3 Key Staff
2.4 Other Employees
2.5 Payment of Employees
3. Products and Services

3.1 Product/Service Descriptions
3.2 Product/Service Uniqueness
3.3 Statutes of the Products
3.4 Proprietary Position
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3.5 Production Process and Capacity
3.6 Production Site
3.7 Cost of goods
3.8 Suppliers
3.9 Quality Control
4. Marketing
4.1 The Market
4.1.1 Market Characteristics and Customer Profile
4.1.2 Existing and Potential Customers
4.1.3 Market Segments and Selected Target Markets
4.1.4 Market Size
4.1.5 Competitors
4.1.6 Geographical coverage
4.1.7 Market Share and Estimated Sales
4.2 Marketing Strategy
4.2.1 Product Positioning
4.2.2 Price
4.2.3 Sales and Distribution Channels
4.2.4 Promotion
4.2.5 Marketing Budget
5. Risks
5.1 Strength of the Business
5.2 Weaknesses to Overcome
5.3 Opportunities in Future
5.4 Threats
6. Financial Plan
6.1 Financial History or Start-up Information
6.2 Budget for Private Drawings
6.3 Budget for Start-up Costs / Pre-Operating Expenses
6.4 Budget for Operating Expenses
6.5 Capital Requirements
6.6 Projected income Statement
6.7 Balance Sheet (5-year)
6.8 Assets
6.9 Liabilities
6.10 Shareholders’ Equity
6.11 Projected Cash Flow Statement / Liquidity Planning
6.12 Break-even Analysis
6.13 Funding Request and Security
Executive Summary
Why write an Executive Summary?
The executive summary is often the most important part of your business plan. Positioned at the front of the
document, it is the first part to be read. The executive summary is a brief but concise statement designed to give
your reader an overview about your business by summarising the key points. Its purpose is to explain the basics of
your business in a way that both informs and interests the reader. If, after reading the executive summary, the
reader understands what the business is about and is keen to know more, it has done its job.
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What to include in an Executive Summary!
The executive summary must summarize the essence of your proposed business undertaking. It is a summary of
the key points of your entire plan. It should include highlights from each section of the rest of the document -
from the type of business you are in through to the highlights of the financial forecasts. The executive summary
should be able to communicate in brief everything that a reader needs to know. It is therefore also very important
that the summary is easy to understand and well-structured. It should not exceed 2 pages. If the executive
summary is not precise, the reader may not go to other sections.
The summary could contain some of the following points:
Type of business
 Describe briefly what business you are in (wholesale, retail, manufacturing, service provider), and what is the
goal of your business.
 Describe the product/service you are offering and clearly state why the product/service is unique. If the
product/service is not unique be sure to explain why it will succeed over existing products.
As your mission statement should contain more or less this information you may choose simply to include it in the
summary.
Company Background
 Describe whether your business is a start-up or an existing business and the background for starting your
business.
 Describe the location of your business.
Market
 Describe in brief the market, hereunder its size, your customers and competitors, and how the product or service
fits into the market.
Personnel
 List the number of employees.
 Describe the management and the key employees and their expertise and experience.
Financial Objectives
 Clearly state the sales and profitability objectives and the way that you will meet these objectives.
Funds requested
 If you are writing this proposal to an audience where you are requesting funds, describe what amount is needed,
when it is needed and for which purpose (working capital, purchase of machinery, development of product etc).
2) The Nature of the Business
Why write about the Nature of the Business?
This section of the Business Plan provides background and other information on what you would like to do with
your business and what is your goals. It also provides information on how your business was started or how and
when you plan to start it. The content of this section will help you to make youself aware of your goals but it will
also give potential lenders the opportunity to analyse the seriousness of your business idea.
What to include in the description of the Nature of the Business
Mission Statement
Writing a mission statement may seem more complicated than what it actually is. At its most basic a Mission
Statement describes what it is you would like to do with your business. It is a brief clarification of your overall
business goals and why your business exists. It should briefly describe the nature and uniqueness of your product
or service and whether your business is in wholesale, retail, manufacturing, or whether you are a service provider.
Your product or service should only be briefly introduced as a longer description will follow the section linked to
the product/service. Describe the benefits your product or service will provide to your customers and your
employees. In essence the statement should contain:
 What business you are in and why (manufacturing, wholesale, retailing, service provider)
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 What is your product or service (a short and precise description)
 What benefits will your product or service provide your customers and what needs will it cover.
 What are your strategic goals, detailing what you want to achieve the next one to three years
 How you will achieve your goal and how you expect your business to develop.
Objectives
The objectives of your business undertaking should describe the direction your business is going to take and how
it will achieve its goal. The objectives will guide you through your work with your business and should describe
what you hope to achieve and by when.
It is of outmost importance that the objectives are specific and precise as it will both show readers that you are
clear in your mind of what you will do but they will also put your ideas into context.
The objectives of a business differ depending on the nature of the business, but whatever objectives you choose,
you should be able to back them up with facts and figures. You may consider turning your objectives into growth
and financial objectives, making your objectives specific, measurable business goals, including sales, profits,
growth rates, etc.
You may consider dividing your objectives into short-term (during the first 12 months) and long-term (after the
first 12 months) objectives.
Remember: Make sure that your objectives are realistic and consistent.
History of the Company

Here you should briefly describe the history of the company to date. Whether it is a start-up or an existing
company, who started the company, when it was formed and why, how the idea originated and when your product
or service was introduced or will be introduced. If your business is an existing business, briefly describe the
company’s historical performance.
Legal structure
You should describe the legal structure of your company – that is whether your company is established as a sole
proprietorship, a partnership or a corporation. In this section you could include the strengths and weaknesses of
your choice of legal structure. If you are a start-up company and are not yet formally registered you may consider
describing how you will proceed with the registration.
Ownership and Investors

You should put down the names of the owner/owners, partners or major investors. Later in the section
“Organisation” a more fully description of the owner/owners should be provided.
Company location and facilities

A good location for your business is a very crucial factor in market development and you should therefore
carefully consider this aspect. Location of the business is essential to either reduce costs, or increase the chances
of attracting customers to look at your product. If the business is retail or service-oriented, it must be near the
market. If it is production oriented, it may be better to be closer to raw material sources or near infrastructure
facilities, transport and utilities centres.
In this section, you should describe where your business is located and what facilities your company own or have
rented. You could include why you find that the location is advantageous for your business. As the answers to this
question derive from your market analysis, you should consider writing this part after having described your
market.
When writing the section, The Nature of the Business, you need not to include all the above subheadings, it may
be better to weave the various bits of information into a cohesive narrative. However, if you find it easier to write
about each item in separate sections that is what you should do.
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3) The Business Organisation
Why write about the Organisation?

Describing your organisation is important in order to show the structure of your company and the competencies
and experiences of both the management and the key staff. Lack of experience is one of the leading causes of
business failure. People are resources and play an important role in your business operation.
By describing the organisational set-up you will both have the ability to analyse and demonstrate the experience
and skills of your company as a total. It also gives you an opportunity to reflect upon whether your company is in
possession of the right kind of experience and expertise or whether you need to hire other staff members or
upgrade the current ones in order to ensure that all expertise needed is within your company.
A clear separation of responsibilities is needed in order to run your company and make sure that all aspects of
your business operation are taken care of. Writing down the exact responsibilities of each staff member will also
help you understand what skills are needed.
If you are just starting, you face a special challenge because you do not have an established track record. Instead,
you must concentrate heavily on your ability to sell yourself as a potentially successful business person. In
essence, your ability to sell yourself is a substitute for the historical information that does not exist. Therefore, a
description of your employees is essential. This is also the case if you run your business on your own or with only
one or two employees. Here you should be sure to describe as thoroughly as possible why you will be able to run
your business alone or with only few staff members.
Furthermore, if your business is small or if you are just starting up your own business your financial situation may
not allow you to employ all people needed. You may for example need an accountant but cannot afford to pay a
full-time accountant. Instead you should consider how you can hire the needed expertise on a temporary or hourly
basis.
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What to include in the description of the Organisation
Organisational structure
Start out by presenting an organisational diagram. Elaborating a diagram of the organisational structure of your
company including the various areas of responsibility may be a useful tool for the reader in order to understand
better how your organisation is structured. The organisational diagram should give an overall picture of whom are
responsible to whom and which tasks the various staff members or staff member groups are in charge of. An
organisational diagram may take different forms.
An organisational diagram may look as the one depicted below:
Board of Directors
Managing Director
Finance and Admin Operations Technical Division Sales & Marketing
Accounts Sales
Engineers
Clerks Personnel
Admin. Quality
Sales Asst.
Assistants Control
Management
In this sector you should describe the management of the company. In many small companies, it is the same
person who manages and owns the company. Managing a business demands dedication, persistence, ability to
take decisions, and manage employees and finances. You should demonstrate that the management is able to take
up this challenge.
List the names of the management and describe the qualifications (hereunder educational background) and
previous relevant working experience. If the management does not possess experience from the business you are
in, you should focus on experiences and skills that can be transferred into your current business. Think of what
responsibilities the management staff has had previously and which skills have come out of these job functions
and how they can be used in your current business. In addition you could also describe the strengths and
weaknesses of the management.
Finally, describe the responsibilities of each of the members attached to management.
You may consider including CVs for the management as appendices if you find it relevant.
Key Staff
List the number of employees and describe the key staff members that are attached to your company, their
qualifications and their experiences. As was the case with the description of the management staff, think of
transferable skills and how the staff can use skills obtained from other jobs or other situations if they do not have
prior experience relating to your current business activities.
Finally, describe the responsibilities of each of the staff members.

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You may consider including CVs for the key staff as appendices if you find it relevant.
Other Employees
You should also consider writing about your personnel needs that is what experience and skills are missing in the
company, whether you plan to recruit additional staff or whether you plan to provide training in specific areas for
your current employees.
Payment of Employees
If your company is more than a one-man business, you should also consider which salaries, benefits, vacation etc
you plan to offer your employees.
4) Products and Services
Why describe your Product or Service?

The section on your product or service will help your reader understand what it is exactly that you are/will be
selling and why it is unique compared to the products or services of your competitors. The section will also help
the reader understand how your product is produced or how your service is delivered. If you are a wholesaler or a
retailer, the section on the production process will not be relevant.
What to include in the description of your Product or Service

When you write about your products or services, imagine that your reader has only little or no understanding of
your business idea. It is tempting to assume that your reader will automatically understand what you are trying to
tell them but when the reader have read the section on your products or services he/she should have more than a
vague understanding of your products or services. You should not try to sell the product to your reader. The
challenge is to be specific and stick to the facts.
The following elements could be included in the description of your product or service.
Product/Service Descriptions
Describe each of your products or services. Go into as much detail as necessary for the reader to get a real
understanding of what you are selling. You should describe the product in such a way that people who are not
experts in the field understands what it is that you are selling. The description should, however, be as brief as
possible without leaving out important information. Obviously, the more complicated your product is the more
detail you will have to go into.
In the description you should explain how your product or service is used and stress specific characteristics or
variations that your products or services have. Customers buy benefits, and specific features make those benefits
possible. Describe how your customers can benefit from you product or service. What will they get out of buying
it?
In addition to describing your products or services, you should note any applications or uses of your products that
are not readily apparent to the reader. You may also consider including information about whether you expect to
sell items on a one-time or infrequent basis, or whether repeat sales or after-sales services are an important part of
your business. A similar discussion is also how long your product or service will last and whether you intend to
upgrade or replace the product or service some time in the future. Such discussion will give the reader an
understanding of your future sales. If you have more than one product, describe each product individually.
Product/Service Uniqueness
Most new businesses are established to sell products or services that are already available on the market. Investors
will, however, often like to know what it is that makes your product unique what it is that sets your product or
service apart from your competitors. That is, why your product or service will be successful in the market?
Describe the unique features of your product or service. Your product may be a commodity but it can be
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differentiated by the way it will be delivered or by additional service. In order to succeed, you have to give
potential customers a reason for choosing your product or service instead of products or services sold by your
competitors.
You should make sure to emphasise this point. It is, however, not only important to stress this point vis-à-vis
potential investors but it is also a critical point in your sales and marketing strategies. If your product is not unique
as such then explain why you think that it will succeed on the market.
Status of the product

Describe the current stage of your product or service and when the product or service is ready for the market. If
your product is not ready for sale you should in this section also describe any research and development activities
that are required before you launch your product/service and give a clear indication of the effort/cost involved and
the time required for completion. Be realistic about the effort and the time it will take to develop it. These points
are often underestimated, and this leads to serious financial difficulties before the product is ready to be sold and
bring in cash. Therefore, readers of your plan, especially potential investors, will scrutinize your development
plan to determine whether you have taken into consideration all issues that could lead to delays or cost overruns.
Proprietary position
If your products or services have any competitive advances due to patents, copyrights, trademarks, franchise or
dealer rights, this should be included in your business plan.
Production process and capacity
Production Process
The reader – and especially if the reader is an investor - should understand how your product or service is
produced or developed. A production plan is not only required for start-up companies who aim at setting up a
manufacturing business, but also for service providers and traders. Describing the production process, will help
you to find out which machinery and items (fixed assets or capital investments), which have to be purchased. It
also indicates the production capacity and the production techniques.
Manufacturer
If you are a manufacturer you should go through each stage in the production process and describe the stages from
raw material to finished product. How is your product made? For each stage you should explain the following:
 The process, The equipment used, The material needed, The personnel
When describing the material needed, you should explain which parts you will make yourself and which parts you
need to buy from outside suppliers.
You may consider describing the production process by using the following table. Write down the required
equipment, material, personnel and person hours for each step in the production process.
Overview of production process

Process Equipment Material Personnel Person-hours
1.
2.
3.
4.
Service Provider
If you are a service provider you should describe the process of delivering the service. The following provides
you with an example of the process of delivering a service.
Production Capacity
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Having described your production process, you also know how much production capacity is needed to produce
your product or deliver your service, and taking into account your estimated future sales (see next chapter) you
will be able to estimate the needed production capacity. As a manufacturer it is of great importance that you do
not buy machinery that is over-sized or too excessive for your business and as a service provider that you for
example do not hire too much staff.
Calculate how many items you can produce per month with the machinery you intend to buy and the number of
employees you have or how many courses (if you as a service provider sell courses) you can deliver with the
number of employees you have.
Production Site
Include considerations of the production site in your business plan. Is it safe? Is power and water supply reliable?
Is the site big enough also for enlargements or is it too big? Is the road access good enough? Is it accessible for
the employees? Are production procedures safe and healthy? Do you have a title on the property?
Remember to be very cautious when buying buildings and also equipment for that matter. You could consider
renting buildings and equipment until you find out exactly how the market looks like. In general, it is safer to start
out on a modest scale as it may be too costly to buy large production sites and machinery if it turns out that the
market is not big enough.
Cost of Goods
It is important to get an overview of the production costs of your product or the costs of delivering your services.
This information is important to have when you come to the Marketing strategy section where you should set your
selling price of your product or service. For a manufacturing company, the cost of goods is the cost incurred in the
manufacturing of the product. For a retail or wholesale business, the cost of goods (sometimes called the cost of
sales) is the purchase of inventory. To find out how you calculate your production costs (Annex 1)
Suppliers
In this section, you should describe how the supply of the material and utilities required for production is ensured.
Investors and bankers are aware that interruption in the supply of any essential material, spare parts or equipment
could have a serious impact on the overall profitability and even viability of the business. Such supplies may
include:
• Raw materials for the products;
• Outsourced components of the products;
• Spare parts for machinery and equipment;
• Energy (oil, gas, electricity, etc.);
• Consumable chemicals, lubricants, colours, etc.;
• Packaging material;
• Water, etc.
Depending on the location of your production facility, supply problems may arise because of import restrictions
or custom delays, transport difficulties, unreliable logistics, etc. In this section you must analyse the critical issues
related to the supply of material and describe how you will deal with such problems if they arise.
Quality Control
You can choose briefly to describe how you intend to control the quality of your product or services and which
procedures you will use for this purpose.
5) Marketing Plan
Marketing plays a vital role if you wish to be successful. Even though, the biggest mistakes in connection with the
elaboration of a business plan are often made in connection with the marketing planning. There are two main
reasons for this:
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1. You must put yourself in the situation, thinking and emotional state of your future customers, which is not an
easy task.
2. There are a lot of market factors that you cannot directly influence.
It is for example very difficult to find out exactly how many customers are going to buy your products. These are
figures that you must estimate. Marketing is not an exact science and especially with regard to new business ideas
a lot is founded in sound human understanding. However, with a systematic analysis of the market and your
competitors you can improve considerably your business plan.
You can elaborate your marketing plan in four steps.

1. Analysis of the market and customers: You analyse who may be your potential customers and the size of the
market.
2. Analysis of competitors: You analyse your competitors, their strengths and weaknesses and the position of
your product compared to theirs.
3. Target market: Out of the potential customers you have identified you select the customer groups whose
needs your business idea covers the best and which you have the most to offer compared to your competitors.
4. Marketing-mix: You select the appropriate marketing mix, that is product, price, place and promotion.
The three first steps will be explained in section 5.1 whereas the fourth step will be described in section 5.2.
5.1 The Market and your Competitors
Why write about the Market and your Competitors?

How well you market your business, will ultimately determine your degree of success or failure. The key element
of a successful marketing plan is to know your customers, their likes, dislikes, expectations etc. By identifying
these factors, you can develop a marketing strategy that will allow you to stimulate and fulfil their needs.
Making a useful analysis of the market and your competitors requires research. You need to study your market
and competitors in order to elaborate a useful marketing strategy. The aim of this section is to get a thorough
understanding of the market and your competitors, prove that there is a demand for your products or services and
that your company is sufficiently competitive to get a share of the market.
What to include in the description of the Market and your Competitors
Market Characteristics and Customer Profile

Compiling a business plan is all about forward planning and getting strategies to ensure that your business is both
viable and profitable. Knowing and understanding who your customers are is crucial in order to elaborate your
marketing plan. Consequently, this section should be a description of the market and the profile of the customers.
Who uses your goods and services?
Marketing has the customer as its sole focus. Everything in your business, whether it is a start-up or a going
concern, old or new, big or small, revolves around your customers and potential customers. Your product or
service has to be in accordance with their view on what is worth buying. Your location and working hours have to
fit their needs. The more you know about your potential customers, the better off you will be.
Customer research: what you need to know

You will need to focus your efforts on finding out as much as you can about existing and potential customers. If
you can work out how they make their buying decisions, you can adapt your sales methods and techniques to fit
your customers' needs. Customers buy because they have needs or desires to fill, problems to solve, or see an
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opportunity. If you can help them fulfil their needs or desires, solve the problem, or take advantage of the
opportunity better than any of your competitors, then they are likely to buy from you.
The first step is hence to find out exactly what problems you will solve or needs you will fulfil for your
customers. Secondly, you have to find out who has these problems and needs. Since not all consumers or
businesses are customers for your products or services, you must discover which ones are your most likely
customers. In general, your most likely customers are those who already recognize that they have a need to fulfil
or a problem to solve, and are ready to take action to fulfil the need or solve the problem. If you are not sure
which consumers or which companies are likely to be your best customers, then you will have to do some initial
research to determine who they are and how you can reach them.
If you are an existing company you could start with your current customers. They find what you offer them to be
of value. If you are in a start-up business, you should describe who you think your customers will be? Your aim is
to know in detail what your customers want that your business can profitably provide them.
For your existing customers, try to find out:

 what they think about your products or services
 why they need your product or service - this may be different from what you believe
 why they buy from you and not your competitors
 what they think of your prices
 what they expect from you, for example reliable delivery
 how they rate your customer service
 how they think you could develop or refine your products or services
For your potential customers, try to find out:
 who your potential customers are and what groups they fall into
 how many potential customers there are
 how much of your kind of product or service they already buy from your competitors
 what it would take to get them to buy from you
 what developments they expect in your product or service
 when and where they prefer to buy
Identifying market segments and selecting target markets
No business has the resources to sell to the entire world. The customers are too many and diverse in their buying
requirements. Instead of serving the whole market the company needs to identify the market segment(s) or
customer group(s) that it can serve more effectively - the target market. You can then develop your products and
marketing strategies especially for this/these segments. So the best is to select a group or more between the
potential customers whose needs your business idea covers the best and which you have the most to offer
compared to your competitors. Identifying your target market requires two major steps.
1. Market segmentation: Identify and profile distinct groups of customers in the market who may require
different products.
2. Choose target market: Select one or more market segment.
Segmenting the market Choosing the target market
Identify segmentation variables Evaluate the attractiveness of each

and segment the market segment
Develop profiles of resulting Select the target segment(s)
segments
So the fundamental question you should ask yourself is to whom – within the identified market area - you will sell
your products. Here we are talking about a specific target group or market segments, within the specified market
you have chosen. Describe these customers as clearly as possible in order to ensure that the product suits their
taste, needs, wants, income etc.. Segmenting and categorizing your current and potential customers makes sense
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for even the smallest business. Focusing on specific groups will also allow you to make the most of your
promotional activities.
Grouping your potential and current customers into segments

Markets consist of buyers, and buyers differ in many ways. Markets can be segmented or grouped in a number of
ways. Market segments are normally large identifiable groups within a market.
The ways in which you can divide your customers into groups depends on whether your customers are
business customers or individual consumers. If you are targeting individual consumers, you use
variables such as geography, demography, and behaviour. For business customers, you will want to
know how big their businesses are, what sectors they are in, where they are situated geographically, and
who makes the decision to buy your product or service. The following table lists a number of
segmentation criteria that can be used in order to divide potential customers into various groups.
Individual Consumers Business
Type of business (Manufacturer, retailer, wholesaler,
Age
service)
Gender Buying motivation
Race and ethnic group Location
Reading, listening and viewing Legal structure (Sole proprietor, corporation,
patterns partnership)
Education Sales level
Social Class Distribution patterns
Occupation Number of employees
Income level
The segmentation variables can be used singly or in combination but it should be remembered that the variables
listed are only for inspiration. You should be very selective when you choose your variables as the variables
should fit into your business situation. Not all segmentations are effective. To be useful, market segments must
be:
 Measurable: The size, purchasing power, and characteristics of the segments can be measured.
 Substantial: The segments are large and profitable enough to serve as segments. A segment should be the
largest possible homogeneous group worth going after.
 Accessible: The segments can be effectively reached and served.
 Differentiable: The segments can be distinguished from each other.
Choosing a target market
Once you have identified the market segments, you have to evaluate the various segments and decide how many
and which ones to target.
When evaluating the segments, you must look at

1) The attractiveness of the segment. That is whether it has the right size, whether it will grow, whether the
segment is profitable, has low risks etc.
2) How the segment fits into the objectives and resources of your company. You must consider whether
selling to this segment makes sense given your company’s objectives and resources. It may be that you do
not possess the skills and resources it needs to succeed in the segment.
Having considered the above factors, you must decide which segment or segments to target. You may choose one
or more segments depending on your resources, but at first you should consider only targeting those customers
who are the most likely to buy your product or service. Later you can expand your business to other customers.
Having chosen your target market it is important to be thorough and specific when elaborating the final
description of the target customer for your product or service as you will need this information in your marketing
strategy.
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Market size
Estimating the size of a market is not an easy task. However, in a number of ways it is possible to estimate how
much of the product is currently being sold. Basically, the approach is to move from the general to the particular.
For example, taking your target customer group you can start buy estimating consumption, usage or sales of the
product per head in your local area.
If possible, it is good to check some statistics, if they are available. If you cannot get hold of any reliable statistics
(secondary data), it may be better to make a simple low-cost sample survey, i.e. gather firsthand or primary data.
For example if you know how many shops there are which sell your or similar products, and if you question a few
of them regarding their sales, you can estimate the total sales of the product.
Analysing the size of your market will allow you to find out whether your market is large enough for you to
expand your sales in a later stage.
Competitors
The competition section indicates where your products or services fit into the competitive environment. Analysing
your competitors helps you to understand the market you are operating in and identifies some of the barriers that
you may face. Knowing who your competitors are, and what they can offer, can help you to:
 make your products, services and marketing stand out

 ensure your prices are competitive
 respond to rival marketing campaigns with your own initiatives
 learn ways to improve your own business performance
 create a marketing strategy that takes advantage of competitors' weaknesses
 be realistic about how successful you can hope to be
Your competitors may not always be immediately evident, as they do not necessarily provide the exact same
product or service as you. If you sell beer, your direct competitors will be other beer producers but you might also
compete with producers of wine – the indirect competitors.
What you need to know about your competitors

In order to understand your competitors you could try to find out:
 the products or services they provide and how they market them to customers
 the prices they charge
 how they distribute and deliver
 the devices they employ to enhance customer loyalty and what back-up service they offer
 whether they innovate - business methods as well as products
 their staff numbers and quality
 how they use IT (for example, if they offer a website and email)
 their market share
 their annual sales
 their annual report if they are a public company
 their strengths and weaknesses
Collect the promotional material of your competitors and do it periodically to be up to date.

A table presenting your five biggest competitors can be a good way to analyse the competitive situation. Columns
should at least include the name of your competitor, market share or position, annual sales (if available), strengths
and weaknesses. For a format for such an analysis (Annex 4)
You will find it very difficult to get information about your competitors. They will be unlikely to want you to help
you and little data may be published on their operations. Persistence is required as there are few businesses with
no competition. Indeed if you do find that there is no competition it may be because you have not looked properly
or because the business area is not worth going into.
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Competitive Comparisons
When you have identified your competitors you should compare your product or service against their products
and services and describe your products or services advantages and disadvantages compared to the ones of your
competitors. The purpose of this exercise is to find out whether your products or services can compete effectively
with the ones of your competitors. If you find that your products or services will be able to compete with the ones
of your competitors state why or if not consider how you can change your products or services so that they will be
able to compete in the market.
Geographical Coverage
Determining the geographical coverage (that is, where to market the product) depends very much on the nature of
the product; how well it lends itself to transport and distribution; the size of the market in different localities; the
presence of strong competitors in the areas under consideration; your willingness to travel; and of course, on
existing contacts or channels of distribution you are familiar with.
In general, it is easier to deal with a limited marked area, since travel time and distribution costs can be kept to a
minimum.
Market Share and Estimated Sales

What kind of share of the identified market that can be captured by your own business is always a difficult
question to answer precisely, since much depends on your ability as a company to sell your product, your
network, and the effectiveness of your marketing strategy. It also depends on the extent and strength of
competition. In the final analysis, your estimated sales should be what you find reasonable given all the
information available to you. The estimated sales of your business should be based on your assessment of the
advantages of your product or service, the size of your market and the share you expect to get.
However, some guidelines can be given. If you have done your market survey properly, you will know the
following information about your competitors:
a. whether there are few or many competitors;
b. whether they are large or small in size;
c. whether their product features are similar or not similar to one another;
d. whether their product features are similar or not similar to yours.
To estimate your market share you can get help from the below Market Share Decision Guide. The guide may
help you in processing information to make an estimate of your market share.
Market Share Decision Guide

Number of Size of Product Feature Market Share (in
Competitors Competitors* of Competitors %)
Many Large Similar 0 - 2,5
Few Large Similar 0 - 2,5
One Large Similar 0 - 5
Many Large Dissimilar 0 - 5
Few Large Dissimilar 5 - 10
Many Small Similar 5 - 10
Few Small Similar 10 - 15
Many Small Dissimilar 10 - 15
One Large Dissimilar 10 - 15
Few Small Dissimilar 20 - 30
One Small Similar 20 - 50
One Small Dissimilar 40 - 80
No competitor 100
*It is assumed that your business will be in the "small" category when entering the market.
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If for example you have many competitors, that they are small in size and sell products with features that are
similar to each other and to your products, you may estimate your market share to be somewhere between 5 and
10%. This is of course only a rough estimation, but it may give you an hint about your potential market share.
For existing businesses, the current client base and client gains anticipated in the foreseeable future form a sound
basis for the sales forecast.
Now that you have estimated the market share you can realistically capture, you make an estimate of your
targeted sales (sales forecast). For the first year you should calculate the monthly estimated sales and for the
following four years the yearly estimated sales. The estimated sales figures should be sales in unit and in cash.
The first annual sales forecast is generally a fraction of the estimated market share and could be anywhere from
60 to 80% of the market share in the beginning. This is to give allowance for some errors in estimating the
market.
Projected Sales by Year

Year Product Sales Volume (units) Sales Amount (KES)
Justify your sales projections by explaining the underlying assumptions made. The estimated sales figures will be
crucial to other financial documents you present later in the plan.
Market Trends
If possible you should try to estimate whether the market is growing, steady or declining
5.2 The Marketing Strategy
Why write a Marketing Strategy?
Marketing is an important element of a business’ operations. A marketing strategy forms the basis of how you
intend to promote your business and ensure that you are successful in generating sales. The nature of your
business and the market you are in will influence your choices taken in relation to your marketing strategy.
Attracting and maintaining customers is the key goal of any business. The best way to develop a marketing
strategy that will be successful is to view your product or service through the eyes of your customers. What is it
that they want from your product? Hence a key element of a successful marketing strategy is to know your
customers.
A marketing strategy consists of a mix of different aspects. Normally the marketing mix consists of four aspects:
 Product
 Price
 Place and
 Promotion
It is important to look at these four aspects in an integrated manner as it is the total of them all that will make you
successful in your business.
You should not assume that because your product is good that customers will automatically buy your product.
When elaborating your marketing strategy make sure to use the information you have gathered about your
customers and competitors.
What to include in a Marketing Strategy

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When you have determined your target market and hence also the characteristics of you customers, as well as
those of your competitors, you should ask yourself how you can use these data. What do they say about where
you have to locate your business, how you should advertise, what the price of your product should be. Also if you
during your research have obtained information about what the potential customers perceive as the strong and
weak points of your product and/or services, you may be able to use this information to make your products
and/or services more appealing to potential customers. Hence when you elaborate your marketing strategy
including your four Ps (product, price, place, promotion) you should make sure that it is fitted to the
characteristics of your customers.
If you are a potential franchise owner, you will have to use the marketing strategy developed by the franchiser.
With regard to all four aspects below, you should in your business plan explain how you wish to deal with the
four issues and how you have arrived to these decisions.
Product (Product Positioning)

By product is meant what the product or service offers to the customers in terms of features and benefits, quality,
guarantees and after sales service. The product position is your identity in the marketplace that is how you want
the market and your competitors to perceive your product or service.
There are a number of ways that you can position your product:
 By product difference
 Find the benefits of your product or service that is the most important to your target market
 By highlighting the users of your product
 By positioning your product against a competitor. Here you should analyse what you can offer that the
competitors cannot and then seek to provide a product or service that is different to the ones of your competitor
Find the one that works best for your company and product.
Price
Product pricing is a major consideration in your plan since it has a significant impact on your profitability
objectives. In this section of your business plan you should hence describe your pricing policy and why you think
that it will result in a maximization of your profits. Discuss what you will charge for your product or service and
how you derived at the price. You may also include where your chosen price places you in the spectrum of other
providers.
Your pricing strategy is a marketing technique you can use in order to improve your competitiveness. The
objective of your pricing strategy is of course to set the price at a level that maximises profits. When setting your
price remember that claiming that your product or service will be higher in quality and lower in price than those
of their competitors often makes a bad impression because it is usually unrealistic. If you really do have a higher
quality product, it will appear that you may plan to underprice it, and consequently undersell it.
When setting you your prices you should take into consideration the following aspects:
Cost prices
The costs of your product are an important basis for setting your price as you should not sell below what it costs
to produce or buy your service or product.
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 If you are a wholesaler or a retailer you should
Define your product
explain the basis of your mark-up. Mark-up
pricing is the formation of a product price by
adding a percentage for profit to the unit
average cost. Estimate your costs:
- development costs Set your sales
 If you are a manufacturer or a service provider
- cost of goods and profit
you should do a cost analysis, breaking down - operating expenses expectations
the direct costs into their components. - financing costs
You reach your selling price by adding a

reasonable profit margin to the final product
cost. You will here be able to use the Work out the price
calculations of the cost price made in the
product/service section. Remember that costs
tend to be underestimated. If you start out with
low costs and low prices, you leave yourself Is the price
Does the price Can the
equal or better
with little room to manoeuvre. correspond to customer afford
than the
the value the the price?
The diagram to the right gives an overview of customer gets?
competitive
choices?
some the considerations that you should be made
before setting the price of your product or
service. no yes no
The Customers Set the price
One consideration when setting your prices is
the perception of the value of your products or Source: UNCTAD
services by the customers. Your customer’s
opinions of value may have little or no relation to the cost of the product or service. The value of a consumer
product can often be measured by how much it contributes to cover basic or important needs of daily life. Your
prices should reflect how well you know your customers.
 Are they wealthy people that demand high quality merchandise and personalised service?
 Or are they budget conscious people who want a good quality product at a fair price?
A very important aspect is also whether your target group can afford the price you offer. You should consider
whether the price is within the budget of your potential customers.
You should here use your analysis of your customers.
Competition
Competition is, of course, an important consideration in pricing. By comparing your product with others in the
market and then, based on your product’s quality and other features you may fix your price higher or lower than
your competitors. For example, even though you sell exactly the same as our competitors, your prices may need to
be much higher or lower than his for various reasons:
1. Your costs of operation are higher or lower than your competitors
2. You offer more or fewer other benefits to the customers
3. Your customers may be different from those of your competitors
You should here use your analysis of your competitors made in the previous sections.
Demand and Supply

The demand and supply of the product should also be considered. If there is a scarcity of your product in the
market, you can set your price high (by increasing your profit margin) but if there is a surplus you may be forced
to lower your price (by reducing your profit margin or your costs).
In practice, all considerations can be used from time to time in any business, but in general and especially when
starting a business, it is safer to set your prices based on your costs.
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Place (Sales and Distribution Channels)
Sales and distribution plans is all about how you get your products in the hands of your customers. This section
should describe the channels and mechanisms by which your
product or service will be reaching the end user. You should demonstrate that
you have established appropriate logistics for ensuring that your product will
reach the clients in time, in perfect condition and in a cost-effective way. Whatever the size of your business, you
must expect that at some point you will have to address the issue of distribution. How you intend to distribute
your product or service to your customers will depend on a number of factors including your profit margin and
selling price.
Distribution channels. What are your primary distribution channels? There are three methods of distribution for
you to consider:
 Indirect distribution: If your product will be sold through retail stores or wholesalers this is considered as
indirect distribution as your customers will be buying your product from a business other than yours. Only
products with a large profit margin and mass appeal tend to be sold in this way.
 Direct distribution: Products which are sold straight from yourself to your clients are described as direct
distribution.
 Third party distribution: Appointing an agent to sell your products on your behalf is another method of
distribution. This may include door-to-door selling.
In the business plan you should describe which distribution channel you are using and why this is the best one.
If you distribute your products through store, offices or other physical locations, these channels should be
described by size, location, and physical characteristics in reasonable detail. If you use door-to-door selling you
should describe how the salesmen will get around. If you plan to create a website you should include information
on the design of the webpage, description of contents and major features, hosting arrangements, technological
considerations, and other details about the creation and maintenance of this website. In this section you may also
consider to write down the opening hours of your company.
When choosing your distribution channel you should consider the below questions:
• Impact on quality. Is the quality of the products adequate when they reach the final consumer? For example, if
you distribute perishable goods such as flowers, tropical fruits or fresh fish, will these be fresh enough when they
reach the consumer? Are your products stored and transported at an appropriate temperature and humidity? Does
the delivery time meet the requirements of the product?
• Costs. Is the chosen distribution channel cost-effective for the type of products, quantities and markets that you
are targeting?
• Mark-up. Can your product bear the mark-up required by the distributors?
• Packaging. If you provide a product, your packaging will be a crucial early consideration. Is the packaging of
your product suitable for the distribution and transportation channels that you have chosen? Can you be sure that
the product reaches the client in a perfect condition? The more stages in the distribution channel and the more
loading/unloading, the more robust your packaging has to be. Remember: Many small businesses assume that a
sales effort can be set up with minimal timing, effort and expense. This is not the case. It can take as long as a
year for a sales person to become acquainted with a product and territory.
Promotion
Promotion is one of the most neglected aspects of marketing a product. However, how you advertise and promote
your products and services may make a difference. Having a good product or service but not making your
customers aware of it may be like not having a business at all. Promotion is necessary to make your customers
aware of your products or services and to convince them to buy your product and not the ones of your
competitors. Some of the promotional measures are:
 advertisements on radio, newspapers, magazines, trade journals or, television

 buy one - take one
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 coupons
 direct mail
 free samples
 free trial
 merchandising ensuring proper display of your product on shelves of your market outlets
 handbills distribution
 package design
 participation in trade fairs and exhibits
 personal selling
 posters
 press release
 prompt, regular, courteous and efficient service to your clients
 signboards
 special credit facilities to regular customers
 sponsorship of local shows, festivals
 trade associations
 volume discount (reduced prices when selling in bulk)
One word of caution on promotional measures. These activities cost money to your business, so be sure that for
every promotional measure adopted, there is a foreseeable increase in sales. Without a justifiable increase in sales,
cost will escalate, hence increasing the unit cost of the product.
If you are a start-up you may consider beginning by developing small brochures that describe your products and
services and their benefits, their prices and the location of your business.
Marketing Budget
You must have a marketing budget that includes your marketing cost such as for promotion, distribution and
salaries of your sales force, if any.
Marketing Budget
MONTHS
Item
1 2 3 4 5 6 7 8 9 10 11 12
Projected Sales
Marketing Expenses:
Promotion (specify)
Distribution (specify)
Advertising (specify)
Selling (specify)
Total Marketing
Expenses
Marketing Expenses
over Sales (%)
7) Risks and Opportunities
Why write about the Risks and Opportunities related to your business?
This part of your business plan may be optional though it is recommended to think about the risks and
opportunities related to your business operation and it will be good background material to have when you
elaborate your business plan.
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Every business is connected with risks and opportunities. By analysing and writing down the risks that you may
encounter you show that you have thought through your business idea carefully. Remember that no business is
without risks.
Elaborating a SWOT analysis will help you analyse your risks and opportunities. It is recommended that you
conduct a SWOT (strengths, weaknesses, opportunities and threats) analysis while you are planning your
business. A SWOT analysis will help you in structuring your thoughts, analysing your risks and setting up your
strategy. Specifically, a SWOT will be of value in helping you to:
• Build on your strengths

• Work with your weaknesses
• Exploit opportunities
• Develop strategies to deal with threats
What to include in the description of the Risks and Opportunities
First you should describe your strengths, weaknesses, opportunities and threats. In general strengths and
weaknesses are issues within your company whereas opportunities and threats you find outside your company.
 Strengths: The strengths of your business include everything you are competent at, and everything associated
with the running of your business from manufacturing and selling through to accountancy and purchasing.
 Weaknesses: This is the most difficult section of the analysis to assess critically- but it is important to try.
There will always be areas in which you lack the necessary expertise and experience whatever the size of your
company.
 Opportunities: It is unlikely that you will ever be able to dominate your market, but even so you may see some
future opportunities in the market.
 Threats: Your competitors will present the biggest threat but they are far from presenting the only one. Legal or
environmental factors could also pose threats. Be aware of anything which may affect the success of your
business. You should let the reader know that you have identified such threats and how you intend to deal with
them.
Having listed the strengths, weaknesses, opportunities and threats, the next step is to summarize and prioritize
your findings. Here you should pick the risks and opportunities and decide which ones are the most important to
turn your attention to. This list should be kept short. You will only be able to deal with a handful (at best) so a
long list will do you no good.
Finally, having outlined your most important strengths, best opportunities, and most dangerous weaknesses and
threats, you should consider what action you should be taking in order to build on your strengths and
opportunities and to shore up the major weaknesses and avoid major threats.
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You can use the following tables when conducting your SWOT analysis:
SWOT ANALYSIS
1) Internal and External Analysis
Internal analysis:
Factor Strengths Weaknesses
Quality
Customer service
Financial resources
Financial management
Marketing
Operations
Production
Staff
Training
Communication
External analysis:
Factor Opportunities Threats
Current customer
Future customers
Competition
Technology
Political climate
Government and other regulatory
bodies
Legal
Economic environment
2) Summarising and Prioritising
Opportunities: Most important strengths and best opportunities are:

1.
2.
3.
Risks: Most dangerous weaknesses and threats are:

1.
2.
3.
2) Actions to be taken
Strength or Opportunity
1. Strength or Opportunity:
Action:
2. Strength or Opportunity:
Action:
Weakness or Threat
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1. Weakness or Threat:
Action:
2. Weakness or Threat:
Action:
8) The Financial Plan

Why include a Financial Plan?
The financial plan is a key element of every business plan. It is an integral part of your overall business
management concept and good financial management is necessary for your business to remain profitable and
solvent. All decisions and assumptions you make will be reflected in the financial projections which are to be
included in your business plan.
For you as an owner or manager the two most important features of your financial planning are:
 An indication of how profitable your business is expected to be in the future, and possible financial risks
involved;
 A definition of additional funds required for developing your business, i.e. how much money you need
and when you will need it.
For your lender or investor, the financial statements presented in your business plan (historical and projected) are
the principal tools that will be used to analyse the performance of your business. Your lender or investor will
particularly want to know what you will be doing with the loan and how you plan to generate the necessary cash
flow to pay it back. A decision on whether your business will be funded or not, and if so on what terms and
conditions, will depend on how attractive and convincing the projected financial results of your business are.
Consequently, your financial plan will be assessed very thoroughly by the bank and therefore it is very important
that you include as precise information as possible allowing the bank to establish a realistic view of your future or
existing business. Do not manipulate with the figures because you believe that this would more easily get you a
loan. It will only give you problems.
What to include in a Financial Plan

The type of financial information that you will need for preparing your financial plan depends on whether your
business is an established enterprise or is just starting.
If you are writing a plan for a new business, you need to assess your assets and borrowing capacity. However,
since your business has probably only a few assets and no financial history, your lender or investor is going to
have to rely almost entirely on financial projections. Start-up businesses, or business expansions, frequently
involve start-up costs that are not applicable to on going businesses.
Existing businesses have a number of figures that they can use as their point of departure. As an existing business
it is important to include financial data from at least the past 3 years.
Whether a start-up or an existing business, a number of elements should be included in the financial part of your
business plan. These will be discussed in the below.
To effectively manage the finances of your business you need to elaborate realistic and sound budgets or
projections. To budget is to put numbers on the plans you have described in the previous chapters of the business
plan. The more precise your plans have been the easier it is to elaborate budgets and projections. Budgets can also
help you to make your plans more concrete. It is possible to make changes in the plans if the budgets show that
they are unrealistic or underestimated. Normally five budgets or projections should be made: a private budget, a
budget for start-up costs (if you are a start-up), a budget for operating costs, an income projection statement and a
cash flow projection.
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In addition to the elaboration of budgets it is important to include balance sheet projections, an overview of
capital requirements, important financial ratios and an estimate over funds requested.
The following lists the elements to include in your financial plan:
 Financial history/or start-up information;

 Private budget
 Budget for start-up costs and operating costs;
 Capital requirements;
 Income statement projections/budget (Profit and loss statement);
 Balance sheet projections;
 Cash flow projections (Liquidity planning);
 Break-even analysis;
 Important financial ratios;
 Request for funds
However, before venturing into the elaboration of the above projections, make sure that you have made a proper
analysis of the various costs involved in doing business.
Tables for calculation of the various parts of the financial plan can be found in Annex 1.
FINANCIAL HISTORY OR START-UP INFORMATION

Financial history: For existing businesses, results of past and ongoing operations will support the credibility of
your business plan. A proven track record is persuasive evidence of your chances of continuing success. If you
have created and maintained financial records since the start of your business most of your work is already done.
If you are preparing a business plan for an existing business, you should include the following financial
information for the last two to three years (or from the start of the business if it is less than three years old):
 An income statement, which lists the sales revenues, expenses and net profit of your business;
 A balance sheet, which lists the type and book value of your business's assets, liabilities and shareholders'
interest;
 A cash flow statement, which lists the cash you generated, the cash you spent, and the cash balance at the end
of the period (per month or quarter for the last year, and per year for the years before);
 The financial ratios derived from your income statement and balance sheet.
For existing businesses, these financial statements are the most objective pieces of evidence that most lending
institutions will look at in order to support or to disagree with your forecasts for future performance. With this in
mind, you are going to make sure that you present them in a format that is accurate, concise and easy to follow. If
you have scattered the data in such a way that they have to search everywhere and piece together information that
was supposed to be in one place, they will not look favourably upon the rest of your plan. It is an advantage if the
format and type of information included in the financial history section are similar to those of the financial
projections (discussed below). This will enable the reader and yourself to get a better overview and quicker
understanding of the development of your business.
Start-up information: If you are just starting up your business obviously you will not have a financial track-record
to include in your business plan. But as a start-up you should include information of orders, enquiries, test results
of the product, etc
BUDGET FOR PRIVATE EXPENSES

The budget for your private expenses, i.e. the private expenses of the owner of the company, should show how
much money you need in order to pay for your daily personal expenses. The amount of money that you need –
that is your salary – should be able to be withdrawn from the profit of the company.
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BUDGET FOR START-UP COSTS/PRE-OPERATING EXPENSES
When starting a new business you need to calculate the start-up costs. The budget for your start-up costs is
elaborated by determining the amount of money needed to open your business. Start-up costs are those expenses
which are needed in order to plan and to prepare for the business operation.
Start-up costs typically include the following:
 Furniture and equipment: This category would include office furniture such as desks and chairs, office
equipment such as typewriters, computers, a cash register, equipment and machinery you need if you
have a manufacturing or service business, storage shelves, display stands, and outside sign etc. You can
obtain this information from suppliers and contractors.
 Land and building-related expenses: This category would include any expenses incurred in conjunction
with obtaining the proper location of your business, whether you are purchasing or renting the property.
This would include the cost of the building and land if purchasing it, commissions and security deposits
payable when renting it, and the cost of decorating and remodelling the location.
 Deposits: List any deposit you need to pay utility companies, such as gas, electricity, telephone, internet
connection, water etc.
 Initial inventory: Suppliers can assist you in determining the size and cost of your initial inventory.
 Legal and professional fees: You can obtain this information from your accountant, lawyer etc.
 Registration, licences and permits: You should contact the authorities (Registrar General’s, Internal
Revenue Service, Value Added Tax office, Food and Drugs Board, Ghana Standards Board,
Environmental Protection Agency, etc depending on the kind of operations) to find out which ones you
will need, if any, and how much they will cost.
 Insurance premiums: Determine what kind of insurance you may need such as liability, fire, theft, and
find out the costs.
 Marketing: Determine your marketing budget for making the initial market survey, advertisement and
promotion.
 Other: Each business will have slightly different start-up costs, dependent upon the nature of the
business. Determine what other costs you will incur not listed above and detail them here. These could
include employee training, testing, travel to source suppliers of raw materials and machinery, or to
negotiate with potential market outlets, cost of preparing business plan, etc.
BUDGET FOR OPERATING EXPENSES

A part form the pre-operating costs, you will also need to calculate the costs you will haven when running your
business. Budgets for these expenses enable you to tell if your business is making a profit or a loss during a
certain period.
If you are a manufacturer, all production costs should be estimated. These would include materials, labour,
service and any other costs associated with manufacturing your product (see annex 1). If you are a service
provider, operational costs should be budgeted. Sales costs should be estimated, including costs for selling and
distributing your product, storage, discounts, advertising and promotion. To support production or delivery of
services and marketing activities of the business, some administrative activities have to be performed, and costs
have to be incurred in the performance of these activities. Administrative costs include the salary of the office
secretary, bookkeeper, driver, security guard, depreciation of fixed assets, furniture and fixtures used in the office,
communications, legal and accounting expenses etc. Projections should be prepared monthly for the first year and
quarterly for the second and third year. Remember to explain – possibly in a foot note – all items under the
various headings in your budget. You may also consider making separate and more detailed budgets for e.g.
marketing expenses and administrative costs.
CAPITAL REQUIREMENTS
This section details the amount of money you will need to procure the equipment used to start up and continue
operations of your business.
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Total capital requirement is composed of three items: pre-operating expenses (see above), fixed assets, and
working capital.
Fixed Assets: Fixed assets comprise your capital equipment – that is the items you require for the making of your
product or service. This includes the land and the building that hosts your business premises, the warehouse, the
office, the machinery, tools etc. In general, it includes those items that are needed on a long-term period, without
being consumed.
Aside from the fixed capital needed to manufacture the products or to facilitate and maintain the production
operation, the business needs other fixed assets to maintain the administrative aspects of the business. These
include a typewriter, furniture and fixtures, cabinets, electric fans, calculator, computer, vehicle, etc. The fixed
assets are here included in the start-up costs.
Working capital: Working capital is the amount of money permanently needed in cash or in kind to keep the
business operating while it is awaiting full payment for goods or services sold to customers.
For manufacturers working capital can be calculated by adding five factors:

1. The cost of maximum raw material stocks that will have to be stored to ensure continuous production. In
some cases this may be three to six months worth, if the raw material is difficult to obtain or has to be
imported, whereas in other cases (where raw materials are readily available) only one or two weeks worth
may be needed.
2. The cost of finished goods which will be kept in stock awaiting distribution to the customers;
3. The cost of work-in-process which are on the factory floor but have not yet been converted into a final
product or finished goods;
4. The cost of goods already distributed to customers but which have not yet been paid for (accounts
receivable);
5. The amount of ready cash needed to pay workers and overheads.
PROJECTED INCOME STATEMENT

The income projection statement, which is also called the profit and loss statement, is valuable both as a planning
tool and a key management tool to help control business operations. It is a central task in your financial planning.
It enables the owner or manager to develop a preview of the amount of income generated each month as well as
for the business year as a whole, based on reasonable predictions of monthly levels of sales, costs and expenses.
The projected income statement shows your expected revenues from sales, expenses and net profit (or loss). The
net profit (or loss) is equal to revenues minus expenses. The income projection statement will thus show whether
you will gain or lose from your business activities. In case your income projection statement shows that you are
not able to generate a profit or if the profit is too low, the ratio between sales and costs are not balanced, i.e. either
your sales are or low or your costs are too high. This will mean that you need to evaluate and adjust your
marketing concept (hereunder the marketing mix) and your operating costs (see above). If such adjustments are
not feasible, you are recommended to stop your business project.
An income statement for a business plan should be broken down by month for the first year. This projection is
basically your budget. The second year can be broken down quarterly. For the third and following years estimates
can be presented on an annual basis. When elaborating your income statement remember to supplement it with
explanations of the projections, e.g. how you have estimated your sales and you costs.
Many business plans tend to show rapid annual growth projections of 30, 40, 50 per cent or more. However, in
order to make the growth projections reliable they should be followed by an explanation of on which basis you
base your assumptions. In other words, if you say you expect your firm to grow by 30 per cent in the first year and
by 40 per cent in the second, you need to document why such growth can be attained. It can be because similar
companies have had this growth path; because the industry is growing at this rate (indicate the source for these
data); or because of projections from a specific market researcher, industry association or other sources. Avoid
large sales or expense categories that are grouped together without backup information about the components.
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As monthly projections are developed and entered into the income projection statement, they can serve as definite
goals for controlling the business operation. As actual operating results become know each month, they should be
recorded for comparison with the monthly projections. A completed income statement allows the owner/manager
to compare actual figures with monthly projections and to take steps to correct any problems.
Having elaborated your projected income statement you should seek to analyse the results of the income
statement briefly and include this analysis in your business plan.
Remember to include explanation of projections
For an example of which items should be included in an income statement, see Annex 1
BALANCE SHEET (3-YEAR BALANCE SHEET)

The balance sheet is a statement of your company's relative wealth or financial position at a given date (say 31
December of each year). If your business plan is for a start-up business, you will need to include an “opening”
balance sheet. If your business already exists, include the balance sheets of the last two to three years. Analyse the
balance sheet briefly and include this analysis in your business plan. As in the case of the other financial
statements, you should avoid large asset or liability categories that are grouped together without detailed
information.
The balance sheet of a company limited by share capital consists of the following categories of items:
Assets
Assets are those things owned by your business that carry a certain value. They include all the physical and
monetary items that are necessary for operating your business. Assets must be valued in money terms and they
must be valued at their original cost. Over time the value decreases by the accumulated depreciation. Assets are
generally divided into two groups, long-term assets and current assets (short-term).
 Long-term assets (equivalent to fixed assets);

Long-term assets such as plant and equipment are being “consumed” by the business over a number of years.
The process by which they are “consumed” in the financial statements and therefore disappear from the
balance sheet is termed “depreciation of fixed assets”.
 Current assets
Current assets are entered in the balance sheet in the order of their liquidity. Since cash is the most liquid of
all assets, it is entered the first, followed by marketable securities, accounts receivable, inventory, etc.
Liabilities
Liabilities are obligations/debts of your company to third parties. They are claims that creditors have on your
business. Liabilities come from two sources. They can be placed in the business through a borrowing process, or
they can be unpaid expenses incurred during business operations. Liabilities are generally divided into two
groups, long-term liabilities and
current liabilities (short-term).
 Long-term liabilities
Long-term liabilities are those that must be paid during periods longer than one year.
 Current liabilities
Current liabilities are those that must be paid within one year from the statement date.
Shareholders' equity
Shareholders' equity (or net worth) represents those assets that were placed at the disposal of the business by the
owners of the company. It enters a business in one of two ways: through investments by the owners (shareholders)
or through profits retained in the business. Accordingly, it leaves a business in one of two ways: the owners can
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withdraw assets from the business, or they can sustain losses from the business operations. The three important
positions in the balance sheet are:
 Share capital
Paid in by the shareholders/owners.
 Reserves
The position in the balance sheet to which part of the profit is allocated as a reserve (the minimum percentage
amount allocated to cater for risk inherent in the business is regulated by law).
 Retained earnings
Profits (or losses) accumulated over different accounting periods after dividends and allocation to the reserves
have been deducted. The retained earnings remain as wealth to the company.
For any business and at any point in time the assets of the company should be balanced with the liabilities plus the
shareholders'/owners' equity (that is the reason for the name “balance sheet”).
Assets = liabilities + shareholders' equity
PROJECTED CASH FLOW STATEMENT/LIQUIDITY PLANNING

Another essential element of the financial plan is the liquidity planning. Many enterprises generates high profits
but are not able to pay their current invoices because they lack cash funds. This is the cause of failure of many
businesses. Liquidity is important in order to stay financially sound. If it happens frequently that you are not able
to meet your liabilities, soon your banks, and suppliers will become nervous.
A cash flow budget is a plan which shows a company’s in-and-out flow of cash and how cash is generated to
cover outgoing payments. It shows which amounts of cash are expected to come in and go out, and when. It also
shows the net cash amount available at any time. The two basic elements of your business's cash flow are the cash
inflows and cash outflows.
Used properly, a cash flow projection will provide you with the tool to keep your business decision-making on
track and your inventory purchasing under control. If your cash flow estimates show that you will occasionally
not have enough money to pay your invoices, you can arrange in advance for other sources of funds to get you
through temporary cash shortages. It will tell you how much money is needed when it is needed, and where it will
come from. Improving your cash flow will make your business more successful. For your lenders your projected
cash flow is very important because it provides an indication of whether you will have enough cash to pay your
suppliers and other creditors on time, including the lender himself.
Much of the information that you need for your cash flow statement is the same as you needed for your estimate
of costs. However, you will now have to determine the timing (i.e., the month or quarter) of the cash receipts and
disbursements.
As with the Income Statement, the preparation of the Cash Flow Statement involves only basic calculations; the
critical factor is the quality of your data. If, after completing this projection, you find that your cash flow is not
adequate, you should go back to your financing requirements and revise it accordingly.
Remember. When other people read your cash flow statement, they may not understand how you arrived at your
figures, or what is included in them. Therefore, you must as with the other projections accompany the cash flow
statement with an “explanation of projections”.
Cash inflows are the movement of money into your business. Inflows are from the sale of your goods or services
to your customers. If you grant payment terms to your customers, an inflow occurs only when you collect money
from the customers. The funds received from a bank loan are also cash inflow.
Examples of typical sources of cash revenues are:

 Cash from direct sales (sales against cash) of products and services;
 Collection from accounts receivable;
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 Other cash revenues from business operations;
 Income from sale of real estate or equipment;
 Interest earned from bank deposits;
 Income from new loans;
 Capital increases in cash (new money put into the business by shareholders);
Cash outflows are the movement of money out of your business. Outflows are generally the result of paying
expenses or investing, for example purchasing equipment. If your business involves reselling goods, your largest
outflow is most likely to be due to the purchase of retail inventory. A manufacturing’s largest outflows will most
likely be for the purchase of raw material and other components needed for the manufacturing of the final
product. Purchasing fixed assets, paying back loans and settling accounts payable are also cash outflows.
Examples of typical cash disbursements are:

 Payments for raw material procurement;
 Payments for procurement of finished/semi-finished products;
 Payments for buying machinery and equipment;
 Personnel salaries;
 Advertising and promotion expenses;
 Professional fees (legal, audit, training and consulting);
 Licences, registrations and permits;
 Rental payment (premises, equipment and furnishing, vehicles etc.);
 Motor vehicle expenses;
 Insurance premiums (for premises, equipment, vehicles);
 Repair and maintenance expenses paid (for premises, equipment, vehicles);
 Utilities (electric, gas and water);
 Communications (telephone, fax, Internet provider);
 Postal expenses (mail, courier, telegrams, etc.);
 Cash payments for office supplies;
 Other business expenses (not elsewhere listed);
 Interest (and principal) payments to the bank for mortgages and working capital credits
 Tax payments (duties, tariffs, on income, etc.).
Some of the most important elements that need special attention when you are preparing your cash flow
projections and in managing your cash flow are:
 Credit terms and policy. Credit terms are the time limits you set for your customers before they should pay
for the merchandise or services purchased from your business. Credit terms affect the schedule of your cash
inflows. Offering discounts for immediate or fast payments might be one way of improving your cash flow. A
credit policy is the blueprint you use when deciding to extend credit to a customer.
 Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash.
An account receivable is created when you sell something to a customer in return for a promise that he or she
will pay at a later date. To manage your cash flow properly, you must know the time it takes your customers
to pay.
 Inventory. Inventory describes the extra merchandise or supplies that your business keeps in stock for meeting
demands of customers. An excessive amount of inventory damages your cash flow by binding funds that
could be used for other purposes.
 Accounts payable. Accounts payable are amounts that you owe to your suppliers and are usually payable in
the near future, "near" meaning 30 to 90 days.
It is necessary that you complete the projected income statements and projected balance sheets before preparing
the cash flow projection worksheet, as the latter will be based on data and assumptions made in the other two
financial statements. Remember that the income statement, balance sheet and cash flow worksheet have to be
consistent.
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The cash flow projection shall show for every month whether you have enough liquidity to pay the expenses that
you know will occur. The liquidity planning should cover three years as a minimum of period of time. It is
possible that in some months you will have either few or no funds in your register or bank account. But the
accumulated values in your cash flow must never be negative, because it means that you will definitely lack or
run out of money. In the case that your liquidity is not ensured you need to re-assess all postions again and
eventually adjust them, similarly to what you did in the income statement. Your bank in particular wants to know
if you are constantly able to pay back the loans including the interst payments.
The cash flow projections include many items and you need a good overview to be able to elaborate the cash flow
projection. You may consider using an accountant to elaborate this part of your financial plan. The cash flow
projection is normally elaborated as the last part of your financial plan.
Remember: Your profit is not the same as your cash flow. It is possible to show a good profit at the end of the
year, and yet face a significant money squeeze at various points during the year.
Break-even Analysis
The break-even analysis is an expected component of most business plans, especially for start-up companies.
Unfortunately, it depends on your assumptions for estimated monthly fixed cost, average per-unit revenue, and
average per-unit variable cost. These are tough assumptions to make. The break-even is valuable for a quick look
at risk, but it is not a very exact analysis.
Three kinds of break-even point (BEP) are commonly referred to, namely:
1. Break-even Point (BEP) Sales
Break-even point (BEP) Sales - is that amount of sales value at which no profit or loss is incurred by the
business.
2. Break-even Point (BEP) Production
Break-even point (BEP) Production - is that level (volume or quantity) of production at which no profit or no
loss is incurred by the business. Production above this level will result in a profit and production below this
point will result in a loss.
3. Break-even Point (BEP) Percentage
Break-even point (BEP) Percentage - is that level of percentage of sales or production at which the business
makes neither profit nor loss. Production above this level will result in a profit and production below this
point will result in a loss.
To determine the BEP, three figures need to be found:

 Sales: annual sales as given in the income statement
 Variable Costs - these are costs which change significantly according to levels of production and usually
consist of raw material cost plus direct labour provided it is hired and terminated according to how much
production a factory is making.
 Fixed Costs - these are costs such as indirect labour and overhead expenses, interest and depreciation.
These costs do not change significantly, if the factory produces more or less.
For guidance how to calculate the break-even point please refer to annex 1 (excel)
FUNDING REQUEST AND SECURITY

How the total capital requirement is going to be sourced is called the financing plan. Bankers want to know these
sources and what different project cost components are being funded by these various financial sources. After
determining the total capital requirement, it is important to see whether the amount required is too much for you
to finance on your own, or beyond your capability to finance. If this is the case, then a loan will be needed. The
owner is, however, almost always expected to make an equity (owner’s capital) contribution to the project.
To arrive at the amount of loan needed, you should subtract the equity from the total capital requirement and you
will have the amount needed. In addition to equity, the bank will want to know what kind of security you can
offer the bank to ensure that the loan is really repaid. Normally land and building (the title of ownership has to be
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certified by the appropriate government authority) are used for security purposes but also the machinery, vehicles
or building which the loan will finance can be used as collateral.
If you do not have enough security to cover the loan needed, you must raise this security from friends and
relatives or reduce the size of your project until the loan size matches the security requirement of the bank.
Attachments
Questions and Answers for Business Planning....................................................................................... 48
Cost Analysis.............................................................................................................................................. 59
Analysis of Competition............................................................................................................................ 61
Business Plan Template............................................................................................................................. 62
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Attachment 1:
QUESTIONS TO CONSIDER WHEN WRITING A BUSINESS PLAN
THE NATURE OF YOUR BUSINESS

QUESTIONS ANSWERS
Name of Business
What is the name of the Business? [Legal name]
[Trade name]
Mission Statement
What business are you in? Retailing/Merchandising
Wholesale
Manufacturing
Service Provider
What do you want to do with your business?
What is your product or service?
What benefits will your product or service
provide to your customers?
How will you achieve your goals?
Objectives
What are your short-term financial goals? (12 Sales:
months) Profit:
Growth rates:
What are your long-term financial goals? (after Sales:
the first 12 months) Profit:
Growth rates:
Company history
What is the status of your business? Start-up
Existing
Who started the business?
When was your business founded? [Date]
When will your business open? [Date]
Why was it founded?
When was your products introduced /will be [Date]
introduced?
Legal structure
Have you registered you company? Yes. When have you registered your company?
No. Do you plan to register your company and if so how?
What is the legal structure of the company? Sole proprietorship
A partnership
Write down the names of your partners
A corporation
Other
What are the strengths and weaknesses of the Strengths:

legal structure? Weaknesses:
Owners
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QUESTIONS ANSWERS
Who are the owners? [Names]
Company Location and Facilities
Where is your company located? [Address]
Why is the location advantageous for your Close to customers
company? Savings in rent or lease
Convenience to suppliers
Proximity to transportation
Close to essential raw materials
Close to markets and distribution channels
Availability of transportation
Availability of efficient and cheap skilled labour
Availability of skilled labour
Infrastructure facilities
Communication facilities
Does the company own the facilities or are Owned
they rented? Rented
How much space will you need for your
business?
The Organisation
QUESTIONS ANSWERS
Owners
What is the experience and qualifications of Education:
the owner? Work experience:
What are the weaknesses and strengths of the Strengths:
owners? Weaknesses:
Management
Who are the management?
What is the experience and qualifications of Education:
the management? Work experience:
Key employees
Who are the key employees, what are their [Name]: [Role in organisation]
roles and what are is their experience and Education:
qualifications? Work experience:
[Name]: [Role in organisation]

Education:
Work experience:
How can your business profit from the
employees?
Other employees
What are your personnel needs?
What experiences and skills are missing on
the team?
Do you need to train staff or is the required Need to train. [How will you train your staff and what are
personnel at the labour market? the costs?]
If necessary how will you recruit additional

staff?
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QUESTIONS ANSWERS
Organisational structure
How is your organisation structured? Describe the organisational structure and draw an
organisational chart
What work tasks are required in the company
(marketing, administration, personnel etc.)?
Who is responsible for what? Overall management:

Administration:
Accounting:
How will you pay your employees?
What pre-operating activities must be
undertaken before the business can operate?
PRODUCTS AND SERVICES

QUESTIONS ANSWERS
What are you selling?
What are you selling and what are the Product Describe size, colour, shape, quality etc.
characteristics of your product or service? Service
Is your product or service a new or a existing A new product/service
product? An existing one
What problems do you solve with your product
or service?
Which customer needs will be fulfilled and
what benefits will the customers obtain?
How will your product or service be used?
Uniqueness
How is your product unique?
Why will your product or service be successful
in the market?
Competitive Comparison
How is your product different from the product
of your competitors?
How does it compare in quality and price with
its competitors?
What is the current state of your product or
service? Yes
Is it ready for the market? No. When will it be ready?
What is missing?
How will your product be further developed?
What have been the development costs?
Production Process (Manufacturer)
Production methods
What is involved in the production process?
Materials
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QUESTIONS ANSWERS
What buildings and machinery (fixed assets)
are needed and what will be their cost?
When and where can the machinery be
obtained?
When and how will the machinery be paid for?
How will maintenance be done and are spare
parts available locally?
What materials do you need for the production
of the products and how much?
Source of supply
Which parts of your product will be bought
and which parts will you do yourself?
Who delivers these products?
What are the sources of raw materials? Are
they available throughout the year?
Production Capacity
What is your production capacity?
How much capacity will be used?
What are the plans for using spare capacity?
Labour
How many workers are needed and what skills
should they have?
Costs
What are the design and development costs?
How much will the raw materials cost?
What will be the cost of labour?
What factory overhead expenses are involved?
What is the production cost per unit?
Service providers
What is the process of delivering the service?
What is your service delivery capacity?
What are the design and development costs
(e.g. consulting fee, preparation of materials,
training)
THE MARKET AND YOUR COMPETITORS

QUESTIONS ANSWERS
Customers
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QUESTIONS ANSWERS
Who are or will be your customers? Individual Consumers (answer questions related to
individual consumers)
Businesses (answer questions related to businesses)
Wholesalers
Retailers
Service providers
Government
Other
Characteristics of the Customers

Within the specific market you have chosen, to
whom will you aim to sell (are you selling)
your products?
Individual Consumers
Where do your customers live (geography)?
What is the age range of your customers (age)?
What is the income per year of your customers
(income)?
What is the educational background of your
customers?
What is the sex of your customers?
What is the family size of your customers?
What is the occupation of your customers?
Businesses
What kind of business is it? Manufacturer

Retailer
Wholesaler
Service provider
What is the company size?

Where are they located?
What are their sales volumes?
How many employees do they have?
Important factors
133
QUESTIONS ANSWERS
What factors are important for your customers Appearance (colour, texture, shape, material etc)
when buying your product or similar ones? Durability
Fragility (ease of handling, transportability)
Innovation
Operating characteristics (efficiency, adaptability etc)
Packaging
Quality
Service
Warranties
Why, when and where?

Why would the customers buy your product
(Good quality, low price, good service etc)?
What benefits do you (can you) provide your
customers?
Why will they buy your products or services
and not the ones of your competitors?
When would the customers buy your product
or service?
Where do the customers currently buy products
or services similar to yours?
Where would the customers buy your product?
Customer Groups
Could you divide your customers into different
groups?
What are the most important customer groups?
Market Area/Geographical Coverage
What will your geographical coverage of your Local
product be? National
Where will you market your product? Regional
International
Market Size
What is the size of the market?
How much of the product/service is currently
being sold?
How many potential customers do you estimate
exists in the market?
How many customers do you need?
Market Share and estimated sales
What share or percent of this market can be
captured by your business?
How often will the customers buy your
product/service?
How much of your products/services do you
expect that each customer will buy a year?
134
QUESTIONS ANSWERS
Competitors
Who are your 5 most important competitors? Competitor 1:
Address:
Competitor 2:
Address:
Competitor 3:
Address:
Competitor 4:
Address:
Competitor 5:
Address:
How many years have they been in business?
What are they selling?
What is the price of their products?
What are their annual sales?
How do their products differ from yours?
Why do you think that you can capture a part
of their market/business?
Strengths and Weaknesses
What are the perceived strengths of your Convenience Price Service
competitors? (for each competitor) (location) Production Timeliness
Why do customers buy their products? Distribution capabilities Value
Experience and Quality Other
knowledge Reputation
Image Sales
Longer opening
hours
What are the weaknesses of your competitors? Convenience Price Service

(for each competitor) (location) Production Timeliness
Distribution capabilities Value
Experience and Quality Other
knowledge Reputation
Image Sales
Longer opening
hours
What are your strengths compared to your
competitors?
What are your weaknesses compared to your
competitors?
Economic, Environmental and Legal and
Governmental factors
Are there any important economic factors that
will affect your product or service (industry
health, economic trends, taxes etc)?
Are there any important environmental factors
that will affect your product or service
Are there any important legal factors that will
affect your market?
135
QUESTIONS ANSWERS
Are there any important government factors
that will affect your market?
Market trends
What are the known market trends?
Are your markets growing, steady or Growing
declining? Steady
Declining
How will your company react to these trends?
136
THE MARKETING PLAN /STRATEGY
QUESTIONS ANSWERS
Marketing Mix
Product
What qualities does your product have?
Product Positioning
What kind of image do you want your products Cheap but good
to have? Convenience
Customer-oriented
Exclusive
High quality
Speed
Other
Price
What will be the selling price of the product?
What pricing strategy are you going to use? Mark-up on cost
Above competition
Below competition
The same as the competitors
Do your prices cover costs and leave a margin Yes

of profit? No
Are your prices in line with your image? Yes
No
How is your selling price compared to the ones
of your competitors?
Place
What sales channel are you going to use?
What are the existing distribution channels?
How will your customers get hold of your
product?
Will you be selling directly to your customers?
Do you plan to have a direct sales force in
place?
Promotion
What features of your product or service do
you emphasize to get customers to notice your
product?
137
QUESTIONS ANSWERS
What promotional measures will be used to sell Advertisements in
the product? Newspapers
Magazines
Trade journals
Radio
TV
Billboards
Brochures
Buy one - take one
Coupons
Special credit facilities to regular customers
Direct mail
Free samples
Free trial
Handbills distribution
Package design
Participation in trade fairs and exhibits
Personal selling
Posters
Press release
Prompt, regular, courteous and efficient service to your
clients
Raffles
Signboards
Sponsorship of local shows, festivals
Trade associations
Volume discount (reduced prices when selling in bulk)
Yellow pages
Why do you consider the chosen media to be

effective?
Customer Services
What customer services will you provide?
Marketing Budget
How much do you need to promote and
distribute your product?
What will your marketing budget be?
138
RISKS AND OPPORTUNITIES
QUESTIONS ANSWERS
What are the internal strengths of your
company?
What are the internal weaknesses of your
company?
What are the opportunities facing your
company?
What are the threats or risks facing your
company?
How will you deal with the threats and risks?
Analysis of Costs
QUESTIONS ANSWERS
What fixed assets will be required for the
office?
What administrative costs will be incurred?
Financial Plan
QUESTIONS ANSWERS
Capital requirements
What is the total capital requirement?
Projected Income Statement
What does the projected Income Statement
indicate?
Projected Cash Flow Statement
What does the Cash Flow Statement indicate?
Projected Balance Sheet Statement
What does the Balance Sheet indicate?
Break-even point (BEP)
What is the break-even point?
Is the project feasible?
Funds requested
Is a loan needed?
What will be the equity contribution of the
entrepreneur?
How much money is needed?
What security (collateral) can be given to the
bank?
139
Attachment 2:
Analysis of Costs
During the previous sections of the business plan guide, the costs involved in running a business have been
mentioned on several occasions. In order to build a foundation for the financial part in your business plan – the
financial plan it is necessary to get an overview of the various cost categories you should take into consideration.
In the section the following costs will be touched upon: Costs of goods together with any associated cost of
transport/carriage to the place of intended use.
For the specific calculations of the various cost categories, please refer to the excel-sheet listing the various items
within each cost category. (annex 1) You should use the spreadsheets to elaborate budgets for your costs.
Generate budgets for the year in which you establish your business as well as projections for two years after. You
may require the help of an accountant or someone familiar with the cost of doing business in your industry and
chosen business.
This annex of the business plan guide should not be directly included in your business plan as a section as such
but the data that you find when working with this section should be included in the various places in the chapters
in your business plan where the cost category has already been mentioned.
The purpose of this annex is to elaborate on the various cost categories in a more structured way than could have
been done in the other parts of the business plan guide.
Cost of Goods
In Chapter 4 the importance of calculating the cost of goods was stressed. This section will go through the
calculation of the production costs per unit for manufacturers and the costs of delivering a service for service
providers.
MANUFACTURER - PRODUCTION COSTS PER UNIT

Production cost includes the cost of direct raw materials, direct labour and factory overheads.
1. Raw materials: When you have determined the quality and the quantity of the raw materials needed (this
was done in Chapter 4) you should find out the unit costs of the raw material (i.e., price per ton, square
meter, litre etc.). It is advisable to prepare a list of average monthly raw materials requirement and their
costs. Here you should include duties and relevant taxes, if raw materials are imported.
2. Cost of labour: Having estimated the number of workers needed in order to produce your product, you
should estimate how much each worker (from the production supervisor/foreman down to the production
worker, maintenance man, utility man, etc.) should receive on a monthly basis. Labour cost should
include effective total labour cost to cover basic salary, wage, fringe benefits, paid leaves, etc. In some
cases, direct labour will be paid according to the number of pieces they have produced. If this is the case,
estimate the production output of the worker and multiply this number by the amount that the worker will
receive for each piece produced.
3. Factory overhead expenses: Factory overhead expenses include such costs as rent of factory space,
maintenance and repair cost, depreciation of factory machines and equipment, cost of utilities (water,
electricity, salary of supervisors, cleaners, maintenance men etc.). In the case of electricity, if it is used in
large quantity and the amount used depends directly on the level of production, it should be treated as a
raw material rather than as an overhead. But if electricity is only used for lighting and general purposes,
then you should treat it as overhead. Only the costs, such as those listed above, which do not change or
vary much according to the level of production, are treated under overheads.
140
At least two different for calculating the production cost per unit can be used:
Method 1: To arrive at the production cost per unit, you should add the monthly cost of direct raw materials,
direct labour, and overhead expenses (1, 2 and 3), then divide this amount by the number of units produced during
the month.
Method 2: Unfortunately, it may not be as simple in real life to calculate the production cost as shown in method
1. It often gets more complicated as few businesses produce only one item for sale. It may be easy to identify the
raw material cost in any one item, but estimating the labour content or allocating a portion of the overheads to a
particular item presents another problem.
Allocating Labour Costs: To assign direct labour cost to a product, you should multiply the hourly direct labour
rate by the number of hours of direct labour that goes into manufacturing the specific product. The hourly direct
labour rate is derived by dividing the total direct labour cost by the number of hours of direct labour available.
Allocating Overhead Expenses: There are two ways of allocating overheads. These are:
a) Relating overheads to labour hours,
The first and preferred way is to relate overhead expenses to the hours of direct labour involved in making the
product. This can be done by dividing total overhead expenses by direct labour hours available and then
multiplying this amount by the number of hours it takes to make the product. For example if total overhead
expenses is KES 480,000 and total direct labour hours is 960, then the hourly overhead rate is KES 500 (Total
overheads of KES 480,000/960 total hours). Then you should multiply the hourly overhead rate by the
number of direct labour hours used to make the product. Hourly Overhead Rate of KES 500 x 8 hours to
make one (product) = KES 4,000.
Having found this figure it should be added to the raw material and direct labour rate to arrive at the unit
production cost of the product.
Example: Production of sandals

If one pair of sandals takes 8 hours of direct labour to produce, then the direct labour cost of the pair of sandals is:
Hourly rate of direct KES 500 x 8 hours = KES 4,000
b) Allocating overheads in relation to sales.

The second method of allocating overheads is according to % of sales of that particular product in relation to
total sales. If, for example, a shoe manufacturer produces the following products:
Unit Selling
Products Price (KES) Sales per Month % of Sales
20 sandals 1,000 20,000 12%
50 shoes for men 1,500 75,000 43%
50 shoes for women 1,550 77,500 45%
Total Sales 172,500 100%
Total sales is KES 172,500 of which 12% is sandals, 43% men’s shoes, and 45% women shoes. Therefore, 12%
of overheads could be allocated to sandals.
The overhead charge per pair of sandals can then be calculated as follows:
Total Overheads for 20 pairs of sandals is: total overheads per month A x 12%. = KES ????
The overhead charge for each pair of sandals is therefore KES A (total overhead for 20 pair of sandals/20 pair)
Having determined the raw material cost per unit, the direct labour cost per unit and the overhead rate per unit, the
unit production cost can be calculated by adding all of these three cost components.
RETAILERS AND WHOLESALERS

Explain the calculation of costs of goods
141
SERVICE PROVIDERS
Explain the calculation of costs of goods
Attachment 3:
Analysis of Competition
NAME OF
COMPETITOR Competitor
Competitor 2 Competitor 3 Competitor 4 Competitor 5
1
CRITERIA
Market
Share/Market
Position
Sales
Price
Quality
Location
Customer
Service
Strengths
Weaknesses

i) Textbooks
ii) Internet
i) Carry out a field study to identify different sources of financing a business stating the
benefits and limitations of each source.
ii) Discuss the kind of products offered by financial institutions which are beneficial to local
businesses.
Explain the importance of a Business Plan

142
Explain the uses of a Business Plan
What are the components of a Business Plan
143
15.0 INFORMATION COMMUNICATION TECHNOLOGY (ICT) IN A BUSINESS
15.1 Introduction
All businesses, small or large need information. Information is data that is relevant for a specific purpose.
Businesses require information on new products, technological changes and competitors to be able to cope. The
information must be communicated accurately and timely. It must also be complete and relevant to meet the
demands of today’s business environment.
By the end of this sub-module unit the trainee should be able to:
i) Define the term information communication Technology
ii) Explain the benefits of ICT to a small enterprise
iii) Identify uses of ICT equipment in business enterprise
15.3 Content
15.3.1 Definition of Information and Communication Technology (ICT)
Information and Communication Technology is an umbrella term that includes any communication device or
application. ICT describes a range of technologies for gathering, storing, retrieving, processing, analysing and
transmitting information.
15.3.2 Benefits/Importance of ICT to a small business enterprise
A business can utilise ICT in pursuit of its objectives. ICT enables a business to access the relevant information
for efficient management of the business. This is in turn leads to;
1. Increased profits,
2. Improved time management,
3. Increase in cost-effectiveness,
4. Increase in sales,
5. Higher market exposure
6. Reduced work force among others.
15.3.3 Uses of ICT equipment

The following are some of the benefits associated with the various ICT tools :
i. The Phone
The phone is used to communicate verbally with customers and suppliers. This includes both the fixed line and
mobile phones Other
han verbal communication, the mobile phone is also used for sending and receiving messages, sending and
receiving money e.g. MPesa.
Benefits of a mobile phone
 It is affordable
 It is easy to use and any one can understand its functions
 It is portable and therefore can be used anywhere at any time
 It is efficient because feedback is immediate
 It can be used in extreme remote areas as long as the network coverage is available
ii. Radio
 This is a very effective way to advertise a business
 It is quite inexpensive and can reach a wide audience
 Some communities have local radio service stations and the small business may use this service to
advertise its products or services where the entrepreneur may be interviewed during a programme. Examples
of such radio service stations are; Inooro FM, Murembe FM and Ramogi FM.
iii. Television
A small business may use the television as a tool for sourcing technological information, new
products/services, market trends and general information that will assist the entrepreneur to run his
business.
144
iv. Print Media
Examples of such are; newspapers, advertising papers/magazines and business directories.
Newspapers e.g. the local dailies(The Nation) which the business enterprise can use to ;
 Advertise their products/services
 Get information on market trends
 Access information on new technology, new products/services
 Access information on political and economic trends in the country
Advertising Magazines/Papers/Journals/Business directories

These are useful tools for advertising products/services/ location of the business enterprise
v. The Fax machine

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

 The message sent is received instantly
 If one is dealing with people far away, the fax can be a less expensive means of communication
 The sent copy is like the original copy
 A message sent through a fax machine confirms in writing anything that has been
previously agreed on verbally
145
vi. The Computer
This is one of the modern ways of communicating and advertising in use. It can be used in the following
ways;
 Word processing – writing letters or receipts
 Storing information – financial data, customers addresses, suppliers addresses
 Keeping track of records – purchases and sales
 Reminder messages – products or service delivery dates
 Generating advertising leaflets, posters or flyers
 Generating financial statements
 E-business – this is publicizing the business through the Internet

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

i) Discuss how available ICT can be used in a small business appropriately.
ii) Visit a small business which uses ICT equipment/tools and discuss how it contributes to the business’
performance.
iii) Discuss how an entrepreneur can use the current technological advancement for the
benefit of his/her business?
15.6 Self –assessment questions

i. What are the benefits of ICT?
ii. Which are the ICT equipment and tools?
146
16.0 EMERGING ISSUES AND TRENDS IN ENTREPRENEURSHIP
16.1 Introduction
Due to the dynamic nature of the business environment, the user of this manual is advised to scan the environment
for any emerging issues and trends in every sub-module unit and include it in the learning process. New
marketing methods and technologies for example, may emerge thus creating the need to be captured in the
learning process.

By the end of this sub- module, the trainee should be able to:-
a) Define of terms.
b) Identify the emerging issues and trends in entrepreneurship
16.3 CONTENT
16.3.2 Emerging issues and trends in entrepreneurship

Trends refer to long term movements in a certain direction. In society a trend describes a direction in the tastes
and desires of the general population. For entrepreneurs, trends present an incredible world of opportunities. Once
an entrepreneur identifies a specific trend then all their imagination and creative ability can go into generating
products and services to satisfy the demand that the trend creates.
Due to the dynamic nature of the business environment, entrepreneurs are advised to scan the environment for any
new trends. New marketing methods and technologies for example, may emerge thus creating the need to be
inculcated within continuing business ventures.
Emerging trends in enterprise management can be classified as technological, global, social/cultural, or economic
issues. Technological trends equip an entrepreneur with knowledge that is useful in the expansion and growth of
the business. The use of new technology creates a competitive advantage for the business by opening a potentially
attractive market for an entrepreneur.
16.4 Emerging Issues and Trends in Entrepreneurship
a. Environmental conservation and the need to address environmental standards (NEMA).

b. New marketing methods and technologies such as allowing managers to manage their enterprises in
the comfort of their homes or mobile offices.
c. introduction of business incubation centres such as:-
i. export processing zones (E.P.Z’s)
ii. Kenya Industrial Research Development Institute (KIRDI)
iii. Agricultural technology centres
iv. Kenya Kountry Business Incubator (KeKoBi)
d. introduction of entrepreneurship education at all levels of education to inculcate the entrepreneurial
cultlure.
e. Globalisation –
i. Networks being created among entrepreneurs to enable them go global.
ii. Opening unlimited business opportunities which small business enterprises can pursue.
f. Business clubs – entrepreneurs are more aware and are forming business clubs in order to access
opportunities and markets.
g. Gender equity – more women entrepreneurs in self employment hence various financial and non-
financial organisations to develop products targeting women.
147
h. More youths being involved in self-employment ( Ministry of Youth Affairs)
i. Large organisations are changing products and services regularly to suit for upcoming needs of their
customers.
j. Many people prefer to start small stalls rather than the traditional retail shops.
k. E-Commerce
 Being used globally to access customers and suppliers.
 Use of ICT such as the Internet to market business activities and products.
 Allowing a business enterprise to post/ have its profile in a website.
 E-learning.
l. the need for meeting quality standards (KEBS)

m. Use of business plans which is becoming mores of a requirement with many financial institutions.
n. money transfer for example mobile phone payment service is used not only as a means of sending
and receiving money but also for selling goods/services, paying bills (electricity, water, creditors)
and also as a means of safe deposit/ banking.
o. human rights
p. Alcohol and Drug Abuse (ADA)/ Drug and substance abuse.
q. HIV/AIDS
r. Conflict resolutions among others
Challenges posed by emerging trends and issues in enterprise management

i. Delays in processing approvals
ii. Meeting the required environmental standards
Management of challenges posed by emerging issues and trends in enterprise management
Complying with set rules
iv) Textbooks
v) Internet
vi) Resource persons

a) Discuss impact of emerging issues and trends in entrepreneurship development
16.6 Self –assessment questions
17.0 REFERENCES
148

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DIPLOMA ENTREPRENEURSHIP MANUAL

KENYA INSTITUTE OF EDUCATION

KENYA INSTITUTE OF EDUCATION

© Kenya Institute of Education

PROF. HENRY KAANE

This manual contains guidelines for Entrepreneurship Education instructor/instructor/trainers/trainees on

The Entrepreneurship Education syllabus incorporates fundamental aspects of the various

NATIONAL GOALS OF EDUCATION IN KENYA

Education in Kenya should:

The national aims of TIVET are:

****OBJECTIVES OF DIPLOMA ENTREPRENEURSHIP PROGRAMME

Planning is of vital importance in ensuring success in all the above methods.

Emerging issues and trends

MODULE UNIT: Entrepreneurship Education

EVOLUTION OF  History of entrepreneurship 2 2 4

THE ENTREPRENEUR  Types of entrepreneurs 2 2 4

ENTREPRENEURIAL  Entrepreneurial competences in a 1 1 2

STARTING A SMALL  Procedure of starting a business 4 2 6

FINANCIAL  Meaning of financial management 4 2 6

MARKETING  Definition of terms 2 2 4

ENTERPRISE SOCIAL  Definition of terms 2 2 4

BUSINESS PLAN  Definition of business plan 3 3 6

INFORMATION  Definition of ICT 2 2 4

EMERGING ISSUES  Definition of terms 2 2 4

1.3.2 Difference between self employment and salaried employment

1.3.3 Contribution of Entrepreneurship to National Development

a) Describe the history of entrepreneurship

2.3.2 Myths associated with entrepreneurship in Kenya

2.3.3 Theories of entrepreneurship

The following are some of the entrepreneurial theories:

2.3.4 Importance of Entrepreneurship theories

2.3.5 Entrepreneurial Environment

3.4 Learning resources

i) Discuss business environmental factors affecting entrepreneurship development.

2.6 Suggested assessment questions

The following are the three main types of entrepreneurs.

iii. Egoistic Entrepreneurs

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

3.4 Suggested Teaching and Learning resources

3.4 Suggested Learning Activity

Entrepreneurial Tendency Test

I am persistent Yes Maybe No

3.5 Suggested Assessment Questions

THE PROCESS OF INNOVATION

Creativity as a process has several stages. These are:

4.3.3 Importance of creativity and innovation

4.3.4 Barriers to creativity and innovation

Other barriers include the following:

What are the obstacles to expression?

4.4 Learning Resources

 Playing relevant game.

5.2 Specific Objectives

5.3.2 Habits that promote entrepreneurial development

Willingness to fail or make mistakes

(i) Family history

5.3.3 Factors inhibiting entrepreneurial development

5.3.4 Ways of managing factors that inhibit development of entrepreneurial culture.

5.4 Learning resources