Entrepreneurship - Business Studies Form 1 Notes

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Introduction

  • Entrepreneurship is the process of identifying a business opportunity and getting the necessary resources to start and run the business.
  • The person who does entrepreneurship is called an entrepreneur.
  • An entrepreneur is a person who creates a new business or transforms an existing business into a profit making business.


Duties of an Entrepreneur

  1. Provides the capital required to start the business
  2. Acquires the other factors of production
  3. Managing, controlling and co-ordinating the business activities
  4. Taking responsibilities over the risks involved in the business
  5. Earning profits


Importance of Entrepreneurship to an Economy

Entrepreneurship contributes to the economic growth and development in the following ways:

  1. Creates employment
    • Entrepreneurship enables the creation of jobs to employ the unemployed population
  2. Contributes to formation of capital
    • Entrepreneurship may contribute to the creation of capital to help in expanding the existing business or to start new businesses. This is done by ploughing back profits. The salaries paid to workers may also be a source of capital to enable them start their own businesses
  3. Reduces rural - urban migration
    • Entrepreneurs can set up businesses in the rural areas where they can employ the rural population thereby preventing them from moving to rural areas in search of jobs.
  4. Raises standards of living
    • Entrepreneurship avails a variety of goods and services to people to enable them lead better lives. Besides the salaries paid to the workers by the entrepreneur enables the afford high quality goods and services
  5. Saves on imports
    • Local entrepreneurs produce goods and services that substitute imports thereby enabling the country reduce the amount of money paid for imports
  6. Improves infrastructure
    • Set up of many businesses in a particular area makes the government see the need of improving the infrastructure of that area. Besides, entrepreneurs may join hands to improve infrastructure in their area of operation.
  7. Reduces foreign dominance in the economy
    • Local entrepreneurship reduces the number of foreign investors in the country.
  8. Makes use of local resources
    • Entrepreneurship creates a conducive environment that makes the exploitation of local resources possible. For example resources like scrap metal can be used to make jikos
  9. Promotes technology
    • Through their creativity, entrepreneurs can contribute to the development of new technology e.g. the development of charcoal refrigerators.
  10. Promotes entrepreneurial culture
    • Successful entrepreneurs acts as an eye opener to the society hence encouraging more society members to engage in entrepreneurship.


Characteristics of an Entrepreneur

The following are some of the quality of successful entrepreneurs

  1. Desire to achieve
    • An entrepreneur should have the drive to succeed while competing with others.
    • He/she should be motivated to accomplish something new.
  2. Ability to solve problems
    • An entrepreneur should be in a position to get solutions to complex problems in his/her business
  3. Ready to take risks
    • A risky situation is the one which presents a loss or a gain. An entrepreneur should be in a position to assess a risky situation and take advantage of the gain
  4. Initiative
    • An entrepreneur should be ahead of his/her competitors in implementing ideas
  5. Time consciousness
    • An entrepreneur should be able to use time wisely in order to avoid time wastage.
  6. Creativity and innovation
    • Creativity refers to the imagination or an idea in mind whereas invention refers to the introduction of new methods and ideas.
    • An entrepreneur should be able to generate new ideas and think of a way of putting them into practice.
  7. Independence
    • An entrepreneur should be in a position of making decisions independently.
    • He/she should be a position to become his/her own boss in order to run the business in his/her own way
  8. Self confidence
    • An entrepreneur should have strong beliefs in his/herself and in his/her abilities
  9. Persistence and patience
    • An entrepreneur should not give up when he/she is confronted with challenges.
    • He/she should look for ways of overcoming challenging situations
  10. Seek information
    • An entrepreneur should continuously seek for more and better ideas on how to run his/her business more effectively.
  11. Concern for high quality products
    • An entrepreneur should always aim at providing high quality goods and services to his/her customers. This will enable him/her cope with the existing competition in the market.
  12. Commitment to work
    • An entrepreneur should ensure that tasks are accomplished in time even if it involves working over-time.
  13. Concern for customer satisfaction
    • An entrepreneur should ensure that his/her customers are satisfied with his/her products. He/she should be ready to deal with customer complaints as they arise
  14. Desire for feedback
    • An entrepreneur should be interested in making follow-ups in order to know how his/her business is performing


Business Idea

A business idea is what the entrepreneur is thinking concerning the prospective business. It is what is cooking in the mind of the entrepreneur.

Contents of a Business Idea

  • The products the business will sell
  • The intended buyers (market)
  • The intended location of the business
  • The objectives of the intended business.
  • The management of the intended business

Sources of Business Ideas

  1. Newspapers
    • Business ideas can be generated by reading the business and advertising sections of the local newspapers e.g. the nation and the standard newspapers.
  2. Shows and exhibitions
    • Business ideas can also be generated by attending shows and exhibitions organised by manufacturers and distributors. The entrepreneur may get business ideas by asking sales persons in these shows and exhibitions questions
  3. Magazines and articles
    • By reading magazines especially those with information on business may equip the entrepreneur with new business ideas
  4. Hobbies
    • Hobbies are activities which a person engages in for pleasure. Such activities may be a good source of business ideas. For example a person whose hobby is to watch movies may end up opening his/her own movie shop.
  5. Vocational training and experience
    • A business idea may be generated from a person’s area of training or experience.
    • For example a teacher use his/her experience as a teacher to start his/her own private school.
  6. Surveys
    • Business ideas can also be generated by finding out what consumers want. The entrepreneur will hence turn the needs of the consumer into a successful business.
  7. Waste products
    • Waste products can be recycled into useful products hence making it a business.
    • For example scrap metal can be converted into a raw material for making products such as jikos.
  8. Listening to what people say
    • By listening to people keenly, one will get information about their complaints about the goods and services offered in the market. These complaints may form a business for a business idea.
  9. Identifying a gap in the market
    • Business ideas can be generated by identifying goods and services which are not available in the market. For example an area where schools and colleges are developing may be in need of a book shop.


Business Opportunity

This is a business idea that can be translated into a viable business activity.

It exists where there is gap to be filled in the market. Examples of business gaps which present business opportunities to the entrepreneur include:

  1. Inavailability of demanded products
  2. Provision of poor quality products
  3. Provision of products in low quantities
  4. Selling products at higher prices
  5. Provision poor customer care services

Evaluating a Business Opportunity

This means to assess whether the identified business opportunity is viable or not.

Factors to Consider when Evaluating a Business Opportunity

Factors to consider when evaluating a business opportunity may be classified into two:

  • Personal considerations
  • Business considerations
  1. Personal considerations
    - These are the abilities and the expectations of an entrepreneur. They include the following:
    1. Entrepreneur’s objectives
      - The entrepreneur has to check whether a given business opportunity meets his/her objectives of starting the concerned business
    2. Entrepreneur’s skills
      - The entrepreneur has to assess whether he/she has the skills required to run the concerned business. For example a clinic requires one to have medical skills
    3. Personal commitments
      - The entrepreneur has to consider the level of attention required by the concerned business. It is advisable for the entrepreneur to ignore the business opportunity if he/she has other commitments
    4. Personal interest
      - The entrepreneur has to take into account his/her personal interests. He/she has to consider his/her level of interest in operating the concerned business. The business opportunity should be ignored if the entrepreneur has no interest in the business.
  2. Business considerations
    - These are external factors which may affect the operations of the business. They may include:
    1. Availability of market
      - Availability of market is determined by the number of customers (buyers). An entrepreneur should assess the availability of market before taking advantage of a given business opportunity. Market exists where these is a gap in the market.
      - This gap may be characterised by:
      • Inavailability of products
      • Provision of insufficient quantities of products
      • Provision of customer care services
      • Provision of poor quality products
      • Selling products at higher prices
    2. Level of technology
      - Technology required to run the given business should be taken into consideration. As relates to technology, the entrepreneur should take into consideration the following
      • Appropriateness of the technology
      • The cost of the technology
      • The effect in the operations of the business if the technology becomes outdated
    3. Availability of raw materials
      - The entrepreneur should take into account access to raw materials required by the business. As relates to raw materials, the entrepreneur has to take into consideration;
      • The availability of raw materials
      • The cost of raw materials
    4. Government policy
      - The entrepreneur has to consider the requirements of the government concerning the business to be started. For example the government may require certain businesses not to be located in certain areas.
    5. Other considerations
      - Other factors to take into account when evaluating a business opportunity may include:
      • Amount of capital required
      • Level of market competition
      • Difficulties in marketing
      • Possibility of expansion
      • Impact of operations of the business activities on the environment
      • Level of security in the preferred location
      • Level of development of infrastructure
      • Business potential for future growth in terms of expansion
      • The risks involved
      • Acceptability of the business by the community


Business Plan

A business plan is written document which highlights the objectives of the business and the steps to be followed in achieving those objectivities.

A business indicates where the business is, where it wants to move to, how and when to get there.

Contents of a Business Plan

  1. Name of the business
  2. Products to be sold
  3. Personnel to manage the business
  4. Amount of finance required
  5. Market to be served
  6. Types and number of employees required
  7. Projection (objectives) of the business
  8. Summary of the plan

Importance of a Business Plan

  1. Helps the business avoid mistakes
    - In the process of drawing a business plan, mistakes that would have been made in the business are identified and therefore corrected. This helps in avoiding the occurrence of such mistakes in the business
  2. Enables the identification of strengths and weaknesses
    - A business plan helps in revealing the strengths and weaknesses in the business.
    - If weaknesses are detected, remedial action may be taken early enough
  3. It is required by financiers
    - Financiers are those financial institutions from where the business can borrow money e.g. banks. These institutions require the business to enable them determine whether the business will be profitable enough to repay them
  4. Determines the amount of finance required by the business
    - A business plan enables the working out of the amount of finance that is required to fund the various activities of the business
  5. Enables efficient allocation of resources
    - A business plan enables the entrepreneur to allocate the available resources in an efficient and appropriate way. This ensures that resources are not underutilised or used for the wrong purposes.
  6. It acts as a motivating factor in the business
    - A business plan is used to direct all the employees in an organisation towards a common objective. It therefore motivates them to work towards the attainment of common objectives
  7. Facilitates adaptability in the business
    - A well-drawn up business plan will leave room for the business to accommodate any changes that might occur in the future.
  8. It acts as a control tool
    - A business plan enables the business plan properly for future events in the business.


Factors that Influence Entrepreneural Practices

These are factors which influence the performance of entrepreneurs. These factors are discussed below

  1. Government policy
    - Some government policies may be favourable to the operations while others are unfavourable. Favourable government policies e.g. decrease in taxes may encourage entrepreneurial practices while unfavourable government policies discourage entrepreneurial activities.
    - The government may also influence the location of businesses and even the type of goods to be produced.
  2. Level of infrastructure
    - Infrastructure refers to the basic systems and services that are necessary for efficient operation of businesses. Infrastructure may include transport network, water systems, electricity, communication etc.
    - Availability of good infrastructure in an area encourages entrepreneurial practices while poor infrastructure discourages entrepreneurial practices.
  3. Levels of education and skills
    - Relevant knowledge and skills are essential for business success. Knowledge and skills on business can be acquired through education, training and experience. An entrepreneur who has appropriate knowledge and skills is likely to succeed in business than the one without appropriate skills and knowledge.
  4. Availability of markets
    - Availability of market determines the profitability of the business. Availability market encourages entrepreneurial activities whereas inavailability of market discourages entrepreneurship.
  5. Availability of resources
    - For a business to start and run efficiently, resources are required. These resources may include; capital, labour, technology, finances etc.
    - Availability of adequate resources enables the business produce high quality goods and services that will encourage more customers. Availability of adequate resources will therefore encourage entrepreneurial practices while lack of adequate resources discourages entrepreneurial practices.
  6. Culture
    - Culture refers to the norms, values and beliefs of a given community. Culture influences the kind of goods and services that people consume thereby determining the type of businesses to be established in a given area. E.g. Muslims don’t eat pork, therefore a business selling pork will not be suitable in an area with many Muslims.
  7. Level of competition
    - Competition is an attempt by businesses to out-do each other in their efforts to attract and retain available customers. A business will therefore do well where there is minimal competition hence lack of competition encourages entrepreneurship than presence of competition
  8. Political stability
    - Political stability gives a conducive environment for businesses to operate hence encouraging entrepreneurial activities. On the other hand, political instability increases the level of insecurity in a given area hence discouraging entrepreneurial activities.
  9. Natural factors
    - Natural factors such as rainfall, temperatures, earthquakes, pests, wind, drought etc. may influence the type of businesses that are carried out in a certain area. E.g. finishing is only possible in places with water bodies.


Causes of Business Success

These are factors which contribute to the success of a business. These factors are discussed below:

  1. Proper management of people (workers)
    When workers are managed properly, they will be motivated to work harder leading to the success of the business. Management of workers includes the following:
    1. Hiring: this the process of acquiring new employees to take up new positions or to replace those who have left
    2. Assigning duties: refers to the allocation of responsibilities to workers according to their qualifications
    3. Supervising: refers to monitoring to ensure that workers undertake tasks assigned to them
    4. Training: refers to enabling workers acquire knowledge and skills that are necessary to perform duties assigned to them
    5. Motivating: refers to giving employees inducements to make them perform their duties better.
  2. Proper location/availability of customers
    - The business should be located in a place which is convenient for its operations.
    - A business whose location is accessible and has minimal competition will have more customers hence it will be successful compared to a poorly located business
  3. Availability of raw materials
    - A business requires adequate supply of raw materials to operate efficiently.
    - Adequate supply of raw materials ensures that the business is operating continuously hence it is able to meet its customers’ needs. Therefore a business with adequate supply of raw materials is likely to be successful.
  4. Adequate finance
    - Money is required in the business to acquire other resources that are required for efficient running of the business. These resources may include labour, capital, raw materials land etc. a business that has capital is likely to do well as it is able to finance its operations
  5. Lack of competition
    - A business operating in an area where there is little or no competition is likely to succeed as it will have high sale volume
  6. Commitment to the business
    - A business whose owner is committed to the business is likely to be successful.
    - This is because such owner will have enough time to identify and solve any problems arising in the business.
  7. Proper financial management
    - Finance refers to money required to fund the operations of the business. Proper management of finances results in business success as it ensures that money is always available and that it is used for the intended purpose
    - Financial management includes the following activities:
    1. Acquisition of finances: this refers to raising the required amount of money. Finances can be acquired through loans, grants, owners’ contributions etc.
    2. Managing finances: this ensures that the available moneys are used for the activities which are beneficial to the business
    3. Proper record keeping: this involves keeping a record of finances raised and how they are used.
  8. Proper debt management
    - Selling goods on credit increases business’ sales volume. However credit should be extended to customers whose chances of paying back are very high. Debt collection should be carefully planned to ensure that they are collected when due. A business with proper management of debt is likely to be successful
  9. Good public relations
    - Public relations refers to creation and enhancement of relationships between the business and other people. Good relations enables the business attract and retain customers. Therefore a business with good public relations is likely to be successful.
  10. High level of creativity and innovation
    - Creativity and innovation enables the business come up with new ways of doing things e.g. finding new uses of a product, finding markets new markets, identifying a new production methods. Creativity and innovation enables the business improve the quality of its goods and services hence attracting and retaining more customers to ensure business success.
  11. Proper market research
    - Proper market research is necessary for the success of the business since it facilitates the identification of new markets for its goods and services.
  12. Good infrastructure
    - Availability of well-developed infrastructure such as roads, communication network and electricity enables the business operate efficiently hence making it successful.


Causes of Business Failure

 Some of the factors that may contribute to the failure of a business include:

  1. Lack of adequate finances
  2. Lack of market
  3. Use of poor technology in the production of goods and services
  4. Lack of proper entrepreneurial skills
  5. Poor customer (public) relations
  6. Poor infrastructure
  7. Presence of stiff competition
  8.  Lack of creativity and innovation
  9. Poor location of the business
  10. Poor management of the business
  11. Lack of adequate raw materials
  12. Lack of commitment to the business by the entrepreneur
  13. Poor debt management
  14. Poor management of finances
  15. Lack of market research


Ethical Issues in Business

The term ethics refers to a set of values and principles which influence how individuals, groups of people and the society in general behave.

Business ethics therefore deals with how such values and principles affect the operations of the business. They help a business in deciding what actions are right or wrong depending on given circumstances. Business ethics guides the business in ensuring fair play in its operations.

Need for Ethical Issues in Business (Importance of Business Ethics)

  1. Gets rid of discrimination in business
    - Business ethics ensure that the business does not discriminate in areas relating to recruitment, promotion, training, renumeration and assigning of duties.|
    - Business ethics therefore that every person is given an equal opportunity when it comes to recruitment, promotion, training, renumeration and assigning of duties.
  2. Creates fairness in competition
    - Business ethics ensures that there is fair play as businesses compete with each other. For example it will be unethical to:
    • Destroy competitors’ promotional materials such as bill boards
    • Discredit competitors’ products
    • Buy competitors’ products and destroying them before they get to the market.
  3. Ensures protection of the environment
    - Business ethics prohibits businesses from carrying out activities that may cause environmental pollution and degradation.
    - Environmental degradation may be caused by human activities such as logging and unplanned cultivation. On the other hand environmental pollution may be caused by activities such as:
    • Damping wastes from production units into water bodies thereby causing water pollution
    • Emitting carbon dioxide and other gases into the atmosphere causing air pollution
    • Damping of waste material on land surfaces causing solid waste pollution
  4. Ensure rights of employees are observed
    - Ethics ensures that the employer does not violate the rights of employees laid down in the terms and conditions of employment and in the employment act.
    - Such rights may include payment of salaries and wages in time.
  5. Eliminates use of unfair means of achieving business objectives
    - Ethics ensures that business operations are carried out professionally by observing all the laid down standards. For example it will be unethical for a business to hoard goods awaiting their prices to go up
  6. Avoids consumer exploitation
    - Business ethics ensures that consumers are not exploited by the business.
    - Consumers may be exploited in the following ways:
    • Charging them high prices
    • False advertisement
    • Selling poor quality goods and services.
    • Selling goods of wrong quantities
    • Selling harmful goods.

NOTE: Business ethics can be enforced through:

  1. Government legislations
  2. Activities of consumer associations
  3. Activities of owners of businesses and business associations
  4. International organizations and pressure groups
  5. Individual consumers’ initiatives


Reasons for Starting a Business

  1. Lack of employment
  2. The need to supplement insufficient income
  3. The desire to be self-reliant
  4. The need to keep oneself busy in order to avoid idleness
  5. The need to gain recognition and prestige
  6. The desire to put one’s talent into action

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