GSE 301

VOLUME 1: CONCEPT OF SMALL-SCALE ENTERPRISES

There is no internationally accepted definition of small-scale enterprises

because small is a relative concept. Variables used to describe small scale
enterprises include:
(i) Number of employees;
(ii) Sales
(iii) Project costs
(iv) Turnover scale
(v) Investment or
(vi) Combination of some or all of these
Problems with most of the single variable definitions are:
(i) They are inflexible and arbitrary in classifying these enterprises. For
example global inflation renders them irrelevant in later years.
Definition of small-scale enterprises in Nigeria
The definition varies over the years depending on the organization and
bodes. For example
(a) Federal Government Industrial Policy of 1999 definition of SSE 2
million naira excluding cost of land.
(b) National Economic Reconstruction Fund (NERFUND) defines SSE as
one in which the total outlay did not exceed thirty million naira (N30,
000,000.00). The reason for huge amount of capital is because most of
the enterprises they support have a substantial off shore components
that require foreign currency input especially for technical equipment
and parts.
(c) The Federal Government in the 1995 budget defines SSE as a firm
with a turnover of less than one million naira.
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(d) The Federal Ministry of Industry based its definition of SSE on the
value of Fixed Capital. Such values are not statistic, but subject to the
prevailing objective of the government policy. For example
In 1972 it was fixed at N50,000
In 1975 1980 it was fixed at N150,000
In 1989 it was fixed at N500,000 excluding cost of land but
including working capital.
The Federal Government in its new Industrial Policy defines SSE
as one with total investment of between 100,000 and 2 million
naira (excluding cost of land capital but including working capital).
The development of SSEs in the Industrial of the country
Prior to 1954 industrialization in Nigeria was anchored on
making Nigeria producer of primary raw materials for British
industries and importer of British industries and importer of
British manufactured.
The first indigenous administration in Nigeria sees for itself the
task of transforming the country into a modern economy. To do
this, the Federal Government pursued the programmes of
processing of raw materials for export and import
substitution industries (ISIs) from 1954 1960.
After early 1960s, the Nigeria Government pursued the
programmed (ISI) more vigorously than the processing of raw
materials for export, The Nigerian Government pursued ISI
programme for the purpose of producing certain commodities
in Nigeria. The projects set up by the Nigeria Government to
produce those commodities were few and established in Urban
Centre Enugu, Ewekoro and Ikeja.

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Problems of the project established to produce certain commodities in Nigeria
are:
(i) Inability to generate employment opportunities proportionally to the
accumulating manpower
(ii) Under employment
(iii) Regional economic disparities.
(iv) Undue concentration of power in the hands of raw people in the Urban
Centers.
(v) Wasteful utilization of productive resources
(vi) Mass migration of youths from rural areas of Urban Centres.
The above problems became more and more aggravated during the Military
regime when many development projects that were large were cited in the urban
centers.
From 1970s, the effects of ISI programme became glaringly manifested in
the economy of the country. Some of the effects are:
(i) Decline in Gross Domestic Product
(ii) Higher cost of production in ISI sector relative to imported goods which
created excess demand over supply for goods in ISI sector that
manifested itself in substantial increase in importation of raw materials.
In order to address the problems by ISI and export processing of raw materials
that were characterized by the establishment of large scale enterprises, Federal
and State Government decided to try an alternative industrialization strategy
the development of small scale industries or enterprises.

The Role and Importance of Small Scale Enterprises (SSEs)

Small scale enterprises are very important in any economy and
doubly so in a developing economy such as Nigeria.

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Small Scale Enterprises
(i) Account for 30 40% of all employment in developed economies
such as USA and Europe and in the advance Asian Tiger
Economies such as Malaysia, Indonesia and Thailand.
(ii) Are the engines of innovation in any economy. Even in developed
economies, most innovative companies started up SSEs before they
grew overtime into large companies which we see and observe today.
SSEs are created with a number of developmental attributes. Some of which
include the following:
1. Provision of the platform for the development of an army of
entrepreneurs who are ever willing to take advantage of available
business opportunities.
2. Offering of a very good avenue for mobilization of the domestic
saving for investment.
3. Generation of more jobs per unit of capital or energy than large
businesses.
4. Facilitate flexibility of operations.
5. Help to accelerate Industrial Dispersal and
6. Accelerate linkage between small and big firms.
Small scale Enterprises can serve the interest of the owner insignificant wys,
among which are:
i) Generation of Salary
ii) Provision of security
iii) Serving as asset builder
iv) Provision of independence and freedom
v) Provision of fulfillment.

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Types of Small Scale Business
There are two main types of small scale businesses. These are sole
proprietor and partnership.
Sale Proprietor
The business is owned by one man or tone woman. It is the oldest,
commonest, easiest and least expensive unit of business. The business ownership
has advantages aw well as disadvantage some of the advantages are:
(i) It can be commenced with minimal expenses and legal formalities;
(ii) The proprietor enjoys almost absolute privacy.
(iii) The business is run and decisions is taken promptly solely by the
owner.
(iv) The owner takes responsibility of his own actions and inactions.
(v) The business gives its owner the opportunity to do more than any
form of business.
(vi) The owner has credit advantages
Some of the disadvantage are:
(i) Lack of continuity
(ii) Low capacity utilization
(iii) Management problems
(iv) Unlimited liabilities.
Partnership
A partnership is a type of business where two or more persons (but not more
than twenty) come together to carry on a business in common with a view of
making profit and sharing thereon.

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Kinds of Partners
There are 5 kinds of partners. These are:
(i) Active partner
He participate in all activities of the business
(ii) Dormant or sleeping partner
He does not take active part in the activities of the business but shares in
the profit. Generally, He is not known by the public.
(iii) Silent partner
He is known by the public as part of the partnership but he does not take
active part in the management of the business.
(iv) Nomina partner
He lend his name to a partnership without having any financial
contribution in it. He lends his name to the partnership for a
consideration.
(v) Secret partner
He takes an active part in the affairs of the enterprise but he is not known
by the public as part of the ownership.
Partnership has advantages as well as disadvantages. Some of the advantages
are:
(i) More capital is available than is in the case under sole proprietorship.
(ii) More skills and abilities of partners are pooled together thereby
promoting the efficiency of the business operation.
(iii) Ability to enjoy economies of scale.
(iv) Eliminates cut-throat competition.
Some of the disadvantages of partnership are:
1. The ability of each member of an ordinary partnership is unlimited.
2. Short length of life.
3. It is not uncommon for disagreement to ensure among partners.
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 4. It is possible for a partner to enter into a contract on behalf of the
partnership which then becomes binding on the rest of the partners
irrespective of the financial implications and economic worthwhileness
of the contract.
CAUSES OF SMALL SCALE BUSINESS FAILURE
Only few small-scale businesses in Nigeria are successfully Reasons while
most of the businesses failed in Nigeria include the following:
1. Lack of training and adequate preparation in the line of business
2. Inability to separate self from the business
3. Lack of proper understanding of the market.
4. Getting too involved or preoccupied with day-to-day details that the
owner has no time to plan for future and analyze the business.
5. Tying available capital in buildings and cozy offices and furnishings.
6. Premature expansion
7. Poor owners managers attitude towards the customers and employees.
8. Lack of or inadequate succession plan
9. Inadequate product mix
10. Wrong pricing of products
11. Lack of adequate infrastructural facilities
12. Poor accounting system.
VALIDATION OF PRODUCT/SERVICE IDEA
Less than 25% of new businesses are successful in providing a high standard
of living for the proprietors and making a significant contribution to solving the
unemployment problem.
Some are launched without sufficient research and others on wave of oven
optimism. But others fail simply because those who started them were not of the
right temperament to set up on their own.

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 The reason or need for validation of product/service idea is to reduce the
possibility of a proposed business owner from joining the 75% who are
unsuccessful.
Going through the process of validation of product/service idea will enable
the would be proprietor to give more thought to the problems he will likely face
and to prevent some of the worst from happening.
Also going through the process of validation of production /service idea will
give the would-be proprietor better appreciation of his business sense, management
abilities and his deficiencies.
The process of validations of product/service idea involve providing answers
to questions that can be categorized into six sections. Namely
(1) Are you a person who should start the proposed project or service single-
handed?
(2) What the business will cost?
(3) What money will you receive?
(4) How about a partner?
(5) Do you have the characteristics of successful entrepreneurs?
To facilitate answering the above questions objectively you need to answer certain
sub-questions are listed under the main questions below:

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 1. ARE YOU A PERSON WHO SHOULD START THE PROSPOSED
PROJECT/SERVICE SINGLE-HANDED?
i. Are you prepared to work long hours for uncertain returns?
ii. Do you have any practical experience of the product or service you want to
start?
iii. Have you any experience as a supervisor, a foreman or an manager?
iv. Have you any formal training ?
v. Have you any money you can put into the business?
vi. Do you understand the legal requirements placed upon you as a small
business owner?
2. WHAT WILL THE BUSINESS COST?
i. Do you have an appreciable idea of how much more is needed to meet the
project cost?
ii. Have you calculated how much you can provide from your own resources?
iii. Do you know if you can obtain credit from your supplier? And if so, how
long?
iv. Have you checked if you are qualified for government or local authority
grants or incentive schemes?
v. Do you know how much you will need to raise from outside sources?
3. WHAT MONEY WILL YOU RECEIVE?
i. Have you calculated your business income for the first year ?
ii. Have you calculated your business income for subsequent years?
iii. Having deducted your business cost including loan interest charges,
insurance and taxations. Have you estimated what your salary and profit
will be?

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 4. HOW ABOUT A PARTNER?
i. Have you considered a business partner?
ii. Is there somebody you get on with who should be suitable?
iii. Have you weighed up on the pros and cons each form of your
particular scheme?
iv. Have you considered the various tax implications?
v. Have you consulted a solicitor?
5. HOW ABOUT YOUR CUSTOMER?
i. Do you know much about your customers and their needs?
ii. Have you fully investigated your customers requirements?
iii. Do you know which type of customers will buy what you
intend to sell?
iv. Is the market for your goods or services a growing one?
v. Are similar businesses doing well?
vi. Is another business doing well?
vii. Are your customers close at hand and easy to reach?
viii. Are your customers scattered around the country?
2.1.6 CHECKING YOUR ANSWERS
SO FAR, YOU HAVE been answering questions about your proposed
business, your skills, the costs and income you may expect and market in which
you will be operating. If th answers to most of the questions were YES the
obviously you have given considerable thought to the venture. If most answers are
NO, the there is still a great deal more to consider before embarking on your
proposed enterprise.
2.2 DO YOU HAVE THE CHARACTERISTICS OF SUCCESSFUL
ENTERPRENEURS
A successful entrepreneur is a person who starts a business and runs it
successfully. Researchers have raised 10 main questions which one must answer in
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order to determine whether one possess the characteristics of successful
entrepreneurs. The main questions are listed below. Under each question are listed
statements one has to respond to tick in order to facilitate answering the questions
objectively.
1. ARE YOU A SELF-STARTER?
a) I do things on my own intuitive. I dont need anyone to tell me what to
do ( )
b) Once someone has explained what to do, I get on with it ( )
c) I bide my time, I wont put myself out until I have to ( )
2. HOW DO YOU GET ON WITH OTHER PEOPLE?
a) I like people, I get on with just about anybody ( )
b) I have my close circle of friends. I dont really need anyone else
( )
c) Im never at ease in company, most people irritate me ( )
d) Im always uncomfortable with strangers ( )
3. CAN YOU LEAD AND MOTIVATE OTHERS?
a) I can get most people to go along with me when I start something
( )
b) Im very good at giving order once I know what to do ( )
c) Once something is moving I will probably join in ( )
4. CAN YOU TAKE RESPONSIBILITY?
a) I like to take charge and see things through ( )
b) Ill take over if I have to but I prefer someone else to be responsible ( )
c) If there is an eager person around waiting to show off. I leave it to him ( )
d) Never volunteer. That is my motto ( )
5. ARE YOU A GOOD ORGANIZER?
a) I like to have a plan to work to. Most of friends leave it to me to get things
organized ( )
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b) As long as I can keep to a plan its plan saving. But when unexpected
problems arise, I get confused. ( )
c) I get everything carefully prepared , then something comes along to upset
the apple cart. So, I just take things as they come ( )
6. HOW GOOD A WORKER ARE YOU?
a) I know what it means to work long hours. I am quite willing to work hard for
something I want
( )
b) I will work hard for a while, but when I have had enough. that is it
( )
c) I cant see that working hard is that important. Look at all the people who
take it easy and still have a good life
( )

7. CAN YOU MAKE DECISIONS?

a) I often make snap decisions. They usually work out well ( )
b) Yes, if I have time to think about them. if I dont have much
time I think later that I should have decided the other way.
( )
c) I prefer to leave it to others ( )
8. CAN PEOPLE TRUST WHAT YOU SAY?
a) I am straight as a die. I dont say things I dont mean. ( )
b) I try to be honest most of the time but sometimes it is too difficult
or complicated to explain in detail ( )
c) Why bother if the other fellow is happy ( )
9. CAN YOU STAY THE COURSE?
a) If I decide to do something. Nothing will stop me ( )
b) I usually to finish what I start if it goes well. ( )
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c) If it doesnt go right the first time I lose interest and do something else.
( )
10. HOW GOOD IS YOUR HEALTH
a) I can keep going the dawn to dusk no problem ( )
b) I have enough energy to do most of the things I want to do
( )
c) I seem to run out of energy before most of my friends ( )

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CHECKING YOUR RESPONSES ON CHARACTERISTICS OF
SUCCESSFUL ENTREPRENEURS
If most of your answers fall on the top line, you probably have what it takes
to run a business. If not, then think again, or you are likely to have more problems
than you can cope with single-handed. The answer may be to find a partner who is
strong on the points you are weak on.
If most of your answers are on the bottom line then sadly, you possibly have
not got what it takes to run a business.
FEASIBILITY STUDY
When contemplating to establish an Enterprise it is necessary to undergo
project feasibility Study to predetermine whether or not the project would be
viable and feasible before committing any investment.
The objectives of Feasibility Study
i. To gather as much information about the project at minimum cost.
ii. To minimize the possibility of investing scarce capiral resources to
unprofitable venture.
iii. To minize losses.
iv. To help choosing from alternative projets/ventures
v. To develop the chosen project / venture in greater design and complexity.
The size and complexity of the project would determine the formality and
the extent to the investigation.
The study seeks to find out if:
(i) All necessary inputs for production of the product are secured i.e. Raw
materials, Utilities, Labour and other services.
(ii) Expected revenue to be derived from the sale of the product or service
exceeds all cost involved in producing and selling it.
AREA OF FEASIBILITY STUDY

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 While there are many areas to be covered, depending on the depth and
complexity of the project, the most important areas are:
1. Market Study
2. Technical or Engineering study
3. Financial study
Market Study
The aim of market study is to thoroughly acquaint the proposal of the
project with all aspects of the market so that he can formulate a plan to cap
are a part of it. A market is defined as the set of all actual and potential
buyers of a product or service.
The proposal must find out if there exist acceptable quantity of
potential customers willing to buy the product as specific price through
which sales revenue that will cover expenses and generate profit will be
earned.
The most import questions that need to be answered in the process of
conducting marker research are as follows:
1. What is the current or potential demand for the proposed
products or services?
2. What are the target markets for the proposed products or
services? (Target Market is a specific group of potential
customers towards which a business aims its marketing plan).
3. What is the magnitude of the projected supply of the products
on services?
4. What competition exists in the market?
5. Can the proposal establish a market niche?
If the market study is positive, the proposal should proceed to undertake the
technical study. If otherwise, the proposal should proceed to undertake the

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technical study. It otherwise, the proposal should forget the technical study and
drop the proposed project idea.
Technical / Engineering Study:
The objectives of the technical study are:
1. To select the type of technology (production process and raw materials).
Plant rated capacity, machinery design, plant location and layout equipment
and structure specifications and other operating equipment.
2. To determine the :
Projected Profit Loss Account
Yr 1 Yr 2 Yr3 Yr4 Yr5
Installed capacity (Tones)
Production (tones)
Capacity Utilization
Sales Revenue
Less 5% Excise Duty
Less 5% Sales Commission
Net Sales Realization
OPERATING EXPENSES
Raw Materials
Utilities
Wages and Salaries
Factory overhead
Cost of Producation
Administrative overhead
Selling and Distribution Exp.
Contingency
Cost of Sales
Gross profit
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Less Interest on term loan
Less Int. on commercial bank
Borrowing
Profit before Dep. & Tax
Less Depreciation
Profit before tax
Taw at 40% of adjusted profit
Profit after tax
Dividend
Un-appropriated profit b/f
Unappropriated profit c/f
(a) Fixed investment required
(b) Manufacturing costs and expenses
(c) Start-up cost and expenses
The level of the requirements of the enterprises may defer in accordance
with the nature of the business.
If the technical study points out that the product or service contemplated can
be technologically produced at a cost much lower than the determined selling price
in the market study, proceed with financial study. Otherwise, abrogate the project.
Financial Study
Is the final part of feasibility study.
Aims of the financial study
To quantify the data derived in both market study and technical study into
proforma and projected financial statements: total project cost, profit, and loss
account and cash flow relative to the project time table ( see the attached).

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Total project cost:
The contents of total project costs include the following:
1. Land and Development cost
2. Building
3. Factory and machinery
4. Vehicles
5. Utilities
6. Furniture and fittings
7. Contingency (expenses that might incurred but not certain)
8. Interest during construction period (if loan will be taken).
9. Preliminary expenses (e.g. formation Expenses), Traveling and
Hotel expenses etc).
10. Working capital i.e. money that is available to be used for the
operation of a business.
Profit and Loss Account
This statement of account will show the projected results of the financial
operation of the business for 5 years.
In summary the account shows projected profit of the business for 5years i.e.
Sales less Operating Expenses.
Projected Balance Sheet
Balance Sheet:
The balance sheet will give a projected statement of what business will own
and will owe for 5 years.
Cash Flow
This shows a statement of inflow and outflow of cash into the business
during the construction period and for the next 5years

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 Projected Cash Flow
Construction Yr1 Yr2 Yr3 Yr4 Yr5
Period
Cash-in-flow
Equity
Long Term Loan
Commercial Bank
Borrowing
Depreciation
Profit before tax

Cash-Out-Flow
Fixed Assets
Term Loan Repayment
Tax paid
Dividend paid

Change-in Current Assets

Checks of Raw material
Finished Goods
Work-in-progress
Receivables
Cash supply (Deficit)
Cumulative Cash Balance

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 How Much Do I Need?
TOTAL COST OF PROJECT
Cost already Cost still to be
Incurred as incurred
AtOffshore Local Total
N N N N
i. Land and Development costs (hecter)
ii. Building (in sq meters) Factory ( M2)
Store ( M2)
Office ( M2)
Residential ( M2)
OR
Rent for first 2 years
iii. Plant and Machinery
(a) Main Plant and Machinery
(b) Auxiliary Equipment
(c) Spares
(d) Transportation to site
(e) Transportation and commissioning charges
(f) Duty
(g) Others
iv. Vehicles
v. Utilities
(a) Electricity
(b) Well water tank
(c) Generating set (..KVA)
(d) Access Road

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vi. Furniture and Fittings
(a) Furniture
(b) Office machinery & equipment
vii. Contingency (10% of cost still to be incurred)
Total Fixed Assets
viii. Interest During Construction Period
ix. Preliminary Expenses
(a) Formation Expenses
(b) Feasibility studies, surveys and project documentation
(c) Legal fees (Stamp duty and fee) Registration
(d) Traveling and Hotel Expense
(e) Start up costs
(f) Front end fee (1% of loan)
(g) Others
x. Working capital.
TOTAL

ENTERPRENEURAL SKILLS
Business Plan
Introduction
It is important that we plan ahead of whatever we want to do in life. To be
successful in business it is important that activities are planned before hand, taking
into consideration all related and relevant conditions.
Planning is the establishment of objectives and the formulation, evaluation
and selection of the policies, strategies, tactics and actions required to achieve
these objectives. Planning for business therefore involves the establishment of the
objective(s) and taking all those necessary steps to achieve them.

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 Business plan is a document that details the business objective(s) and means
of achieving the objective(s). By way of definition, a business paln could be
defined as a document prepared by the management that summarizes the
operational and financial objectives of a proposed or existing venture and contains
the detailed plans and budgets showing how the objectives are to be realized. A
business plan seeks to capture the vision, current status, expected needs, defined
markets, projected results and financial needs for a business.
Business plan may be internally or externally focused. Externally focused
plans target goals that are important to external stakeholders. Particularly ,
financial stakeholders. They typically have detailed information about the
organization or the tam attempting to reach the goals. They may cover the
development of a new product, a new service, a new IT system, a restructuring of
finance, the refurbishing of a factory or a restructuring of the organization.
Preparing a business plan draws on a wide range of knowledge from many
different business disciplines: like finance, human resource management,
intellectual property management, supply chain management, operations
management, and marketing among others.
Preparing a Business Plan
Business plans are decision-making tools. There is no fixed content for a
business plan. Rather the content and format of the business plan is determined by
the goals and audience. A business plan should contain whatever information
needed to decide whether or not to pursue a goal.
If you are to prepare business plan, the following checklist shows the
information items you will require. It may be that you cannot provide most of the
information straight away. This is not unusual, but merely means that you have to
research, if you are to provide an over-view of your business and its future.

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 Also, many of the information will not be applicable to all business and the
list is not intended to be followed slavishly, and neither is it exhaustive. There
may be other matters which are of particular relevance to a particular project which
need to be highlighted. Actual and potential problems should be identified and
addressed. The size and detailed content of a business plan will vary with nature of
the project and extent of required financing. The plan should as far as possible be
prepared by the promoter(s) with as little assistance as possible from professional
advisors. Potential investor, in a new business, need to be able to assess skills and
business acumen of the promoter(s) and ability to think through and manage the
project successfully.
The check list:
(a) Background of the business this should provide information
- Name of business
- Business Address
- Telephone and E-mail Address
- Date business will commence or commence
- Type of business
- Principal activities of the business
- Description of the business location
- If the business premises is rented state;
(i) Present rent payment in Naira
(ii) Date of rent payment
(iii) Date of next rent review
- What rates are payable on your business premises in Naira
- What dates the rates are payable
- Description of any competitive advantages offered by your business
location and premises.
- if you insure your business premises what are
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 (i) Amount of cover and
(ii) Premium
- State if your business premises is adequate for your future needs? If
not what future plans do you have?
- How long have you been in business?
- Are your operations still the same as when you first started your
business? (If not, explain the original business operation).
- What successes have been achieved as a result of the change?
- Are any further changes planned?
- Financial information of the existing business (up to the last 3 years)
(b) Products/Services
- Types of products/service offered by your business and what
proportion of turnover does each contribute
- If any products or services are under development or will be added,
give details.
(c) Personnel for running the business
- State the key personnel in the running of the business.
Provide their names positions and salaries. Further information on the
background of the key personnel should be given by way of
appendices.
- If there are any additions, necessary to the management team,
necessary to the growth of the business, you should state the special
skills required, positions to be required, Date required and Salary to
be paid.

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 - State the contingency plan you have if your key personnel are unable
to work due to illness or injury.

(d) Business market

- Describe your target market

- State whether market declining static is increasing and why?

- List your major competitors

- Specify features of your competitors products/serviced that make you

competitive in your business market

- Specify the level of sales you anticipate achieving in the first 6months
and following 6months.

- If customers have made orders for products or services, give details.

- State what makes you certain of achieving these levels of sales.

Support your sales forecast with evidence.

- Specify and budget for methods you intend using to market and sell
you products/or services, e.g. advertising, trade fairs, personal selling.

(e) Financial Considerations

- Give detailed description, the life expectancy and value of existing

plant, machinery/equipment.

- If you anticipate capital expenditure items during the next 12 months,

state their purchase date, cost and life expectancy by item.

- Indicate how the capital expenditure will be paid for from the
following source.

Source Amount N
Government grant/aids
Your own resources
Other external sources (such as
Bank, Hire purchase and leasing)
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 - Specify, if any further private cash will be available to inject into the
business.

- Specify your key suppliers (trade creditors) and the number of days
credit they will allow.

- If you will allow credit terms, state number of days you will allow
credit for.

- Specify the necessary level of stock to support your proposed business

objectives for one month, under the following headings.

(i) Raw materials

(ii) Work in progress and

(iii) Finished goods, all at cost

- Specify the basis for determining your price (e.g. mark-up, what
market will bear, competitors prices, negotiation)

- Compare your price with your competitor

Converting Business Plan to Financial Terms

First, your estimate should be based on what you need to achieve just to
break-even (that is the level of business activity at which a company is neither
making a profit nor a loss). This is demonstrated using an Example:

The following figures were derived from the books of Adejumo over six months
period

Sales(3000 units @ N50 each) 150,000

Purchases of Material 65,000

Labour costs 10,000

Rent 4,000

Rates 1,000

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Light 1,000

Telephone/ postage 1,000

Insurance 1,000

Repairs 2,000

Advertising 2,000

Bank Interest / TIP 1,000

Other Expenses 2,000

Business Salaries

Including own salary or drawing 12,000

You are required to calculate break even amounts for inclusion in his
business plan from this list.

Solution

Step 1. Calculate your contribution (A)

Project sales 150,000

Less Direct cost:

Purchases (Materials) (65,000)

Labour costs (40,000)

Contribution 45,000

Step 2. Calculate your contribution margin (CM) (B)

CM = Contribution x 100
Sales
= 45,000 x 100

150,000

= 30%
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Step 3. Calculate (your overhead or indirect/Fixed costs) (C)

Business Salaries

Including own salary or drawing 12,000

+ Rent 4,000

+ Rate 1,000

+ Light 1,000

+ Telephone/ postage 1,000

+ Insurance 1,000

+ Repairs 2,000

+ Advertising 1,500

+ Bank Interest / HP 2,000

+ Other Expenses 2,500

= Overheads 28,000

Note: indirect costs or overheads exist whether sales are achieved or not
and, although some may change slightly in proportion to sales they should
be regarded as fixed costs of the business.
Step 4. Calculate your actual turnover in Naira required to break even (D)
D = Overhead (C)
Contribution margin (B)
= 28,000
30%
= N93.333
Breakeven sales for 6 months = N93.333
This figure relates to the monetary value of sales but, at this stage it is
worth checking the number of units that have to be sold to achieve the value.
Step 5: Calculate the number of units of break-even sales
Divide the break-even sales in Naira by the unit slaes price of your product
28
 For example, if the unit sales price of your product is fifty naira (50) the
number of products that will be sold to break-even in 6 months is

= N93.333
6months
= N15,556 per month

While the break-even in units is 1867 = 311 units per month

6 months
profits accumulate in favour of the business after the break-even point has
been reached. As overhead costs have been provided for in the break-even
calculation, profit accumulate at a rate of 30% (i.e. trhe contribution
percentage) projected over and above the break-even figure.

In the case of example this is:

Projected Sales N150,000

Break-even sales (D) N93,333

Break even sales (units) 1,867 units

Contribution margin (b) 30%

These figures can be affected by

- Actual level of sales achieved

- Increase/decreased in gross margin

Cash Flow Forecast

Having calculated break-even sales, gross profit margin, and profit, now
look at your projections and relate them to cash generated and how and when that
cash passes through your business. It will also help identify, if any additional
finance shall be required. To do that, you need to complete a cash flow forecast.

New businesses should attempt to forecast for 5 years, but if this is difficult,
a 6 month period should regarded as an absolute minimum. An hypothetical cash
flow forecast form should be completed following the note below:

29
1. Two columns are provided for each period. The budget solution is to be
completed with estimate figures and the actual column is to be completed at
the end of the period so that the accuracy of the budget may be assessed.

2. Receipts of cash sales appear in the same month as the projected sales.

3. Where you allow credit terms, show your receipt from debtors in the actual
month of receipt, not the month of sales i.e. sales on 2 months credit will be
shown as a receipt debtors in 2 months following the month of the sale.

4. Payment of cash purchases should be shown in the same month as

purchases.

5. Where you have been allowed credit, payment should be shown in the month
you make the payment, not the month of purchase (i.e. where you are
allowed 2months credit, payment will be shown in month 2 following the
month of the purchase.

6. Once completed, the form will reflect the projected inflow and out-flow of
cash through your business.

7. A separate line is provided for you to show purchase (or sales) of capital
items such as plant and machinery, or land and building, which to not form
part of your normal trading activities.

30
31
 MODULE 5

SOURCES OF FINANCE

INTRODUCTION

Either at the part of the business or any time within the life of the business,
the enterprise will need money to finance its operations and activities. Various
sources are available for finance of business
For a well established big business, it could be said that there is nearly
unlimited sources for financing projects because of their goodwill and expertise in
evaluation of finance sources. For a small business, however, there is limit to the
extent to which to can access some sources, this is usually due to the conditions
that may be attached to them. The second is that extra care need be exercised by
proprietor not to take finances that can affect the sustainability of the venture.
For business generally, two broad categories of finance sources are available and
are;
Internal, and
External source
Internal Sources are from profits retained, customers and suppliers.
External are from either equity or debt.
Equity can be from friends, partners, co-members or institutional investors,
while debts can also be from different sources, as short term medium or long term
finances. Be it big established or small upcoming or starting business, it is
recommended that whatever source to be chosen is evaluated in the ligh of the
following:
Cost: How will the source of fund affect your cash flow/profit?
Risk: Will the source limit your ability to seek additional funds or use of funds?
Control: Could you lose control of your business or have to share the decision-
making because of the source you use?

32
Availability: When can up acquire the funds?
Also that it is always advisable to use short term sources for short term
return project and long term source for capital project.
SOURCE OF FINANCE FOR SMALL SCALE BUSINESSES
At one time or another in the life of an enterprise, the entrepreneur would
nee money. The purpose of this module is to discuss the mahor ways of generating
funds for small scal businesses. Basically, funds ofr small businesses can be
obtained by:
1. Equity and
2. Debt financing
SOURCE OF EQUITY FINANCING
When an entrepreneur is not able to generate all the money necessary to start
busness or to keep and un-going business, ther is need to invite other investors to
contribute capital (Equity) and be part of the ownership. The new investors may
not be active in the day-to-day operation of the business. Equity represents
ownership. The souces of funds for equity finances include:
a. Personal savings andincome
b. Family, friends, relations and close acquaintances
c. Partners and Business Associates
d. Retained Earnings
e. Venture capitals
Personal Savings and Income
The promoters of small scale businesses often use their personal savings and
other incomes to provide the initial capital to start a business particularly for
preliminary and pre-operation expenses.

33
Family, Friends, Relations and Close Acquaintance
When starting a new business, the relations, family, friends and close
acquaintances of the promote of the business usually assist in raising capital either
as direct free assistance or in form of soft and interest free loan.
Partners and Business Associates
Capital base for the entrepreneur can be increased by admitting more
partners and business associates through the sales of share to partners and business
associates. Where the partners and business associate are well chosen, their
individual skills and business acumen also serve as invisible capital for the firm.
This is because their presence in the business can contribute substantially to the
success of the business.
Retained Earnings
If businesses are managed properly and consequently run profitably, retained
earnings can be a good and cheap source of capital. Here, instead of sharing
dividend of share holders the whole of it or substantial proportion of it is
reinvested n the business.
Venture Capitalists
A venture capitalist makes money available in new entrepreneur. Venture
capitalists can invest their money to relatively risky enterprises. They love to
maximize their investment, thus they invest on entrepises or project they believe
will give the highest return for the money.
Sources of funds or Debt Financing
The following are source of fund for debt financing
- Bank facilities
- Government Agencies
- Trade Credit
- Equipment Leasing
- Hire purchase
34
Bank Facilities
For any entrepreneur sourcing for funding. The first thing that come to mind
is to try banks of course, a commercial bank for example is the centre of lending
market and characteristically makes the greatest number of variety of loans.
Typical bank looks beyond the ability of entrepreneur to provide collateral and
may be interested on key factors such as (i) ability of the firm to repay the loan, (ii)
The profit picture as shown by analysis of the firms operating record over the year
(iii) Management expertise (iv) The entrepreneur personal credit records, and (v)
The nature of the enterprise.
The different type of financial assistance grant by banks include the
following
Overdraft
Overdraft could be temporary or revolving overdraft. A temporary overdraft
is a short-term loan that allows the enterprise to overdraw its accounts by an agreed
amount. Interest is normally paid on the debt balance to the account on each day. It
is one for all facility. A revolving overdraft on the other hand is renewable within
the period of the loan.
Commercial Loan
Commercial loans are short term loan given to enterprises to enable them
overcome periods of emergency. For example, when machinery breaks down and
requires an amount of money beyond the present capacity of the enterprise to
repair, the company can apply for this loan from its bankers. The current account
operation of the enterprise and the integrity of the owner mangers can influence the
decision of the bank to grant this loan.
Term Loan
Term loan is a medium to lont-term that is usually granted for the purchase
of fixed assets or the expansion of an existing business. Loan repayment is by

35
installments spread throughout the duration of the loan. Banks always ensure the at
this loan is fully secured.
Bank guarantee
Bank guarantee is a short term finance whereby a bank undertakes to pay
the amount guaranteed on behalf of its customer to a third party.
Government Agencies
There are established agencies and organizations though which the State and
Federal Government make low interest loans to entrepreneur. State Government
give agricultural development loan to small entrepreneur in agriculture. The
Federal Government has established Bank of Industry. National Directorate of
employment etc to assist entrepreneur and to make loans to them at very
reasonable rate. Because of their specialized nature, they can make loans to
entrepreneurs rejected by commercial banks. An entrepreneur looking for loan
must shop around for the lender that will make the loan to him at a reasonable
interest rate and within a duration that will suit his unique circumstance.
Trade Credit
Trade credit is a grace period which a supplier gives to his customers to
delay payment for good supplied up to a specified period of time. This delay in
payment is interest free and entails little or no administrative cost. It does not
require any collateral. Any enterprise that is well managed and has consequently
established good reputation with its suppliers can take advantage o this source of
finance.
Equipment Leasing
Equipment leasing is an agreement between the owner of an asset (the
lessor) and the current or prospective user of the asset (the lessee) in which the
Lessor transfer the use and not the ownership of the asset to the Lessee for the
specific period of time (usually less than the asset economic life ) during which the
lessee pays rent. The above definition implies that at the end of the lease period the
36
asset will be returned to the lessor (owner). However, in same cases, a clauses is
usually inserted which gives the lessee the option of renewing the lease or outright
purchase of the asset
Hire Purchase
Here the hirer of an equipment pays and initial deposit (usually up to 25%)
of the total cost of the equipment and thereafter takes possession and uses it. The
balance of the cost of the asset and the accorded interest is paid in installment for a
fixed period of time after which ownership of the assets passes over to the hirer
defaults in payment the hire purchase company is empowered by law to repossess
the assets.
MODULE 6
ENTREPRENEUR SKILLS
BUSINESS CONTROL
Introduction
Control is the process of comparing actual results with planned or budgeted
results and reporting upon variations. It is concerned with the efficient use of
resources to achieve a previously determined objective or set of objectives
contained within the plan.
The purpose of business control is to identify unavoidable business
performance so that appropriate action can be taken. Having a control system
allows the owners or manger to monitor, measure and adjust where necessary,
organizational performance. Business control process involves several activities
some of which are:
- Establishing performance standards,
- Reporting or monitoring performance
- Comparing performance against standards
- Identify unsatisfactory performance and
- Pursuing appropriate action to correct significant deviation in performance
37
Control of business activities takes place at two levels:
- Control from within the organization (internal control) and
- Control of outside the organization (external control)
Internal Control involves the creation of management system to control business
activities. The design of the internal control system involves the creation or
programmes and activities, which operate automatically to keep all activities under
control. A typical internal control system will provide:
- For managing, the consistency and qualities product coming off a
production line.
- For the management of waste and pollution
- For monitoring employee absence rate, and
- To ensure that the best candidates are recruited to the company
External Control refers to control exercised on concern from outside the
organization. Typical of such control emanate from government and government
agencies. For example, companies are expected to audit the accounts on annual
basis to ensure that the accounts present a true and fair view. Standard setting
organization, the Inland Revenue and other regulatory agencies also exercise
control over businesses.
Record keeping in business control
As we have stated above, control entails having results that shall be compare
with budget and plant. It is by implication means that recording of business
activities is inevitable for us to generate those results that may then be compared.
This makes recording a very essential activity in the control process.
Adequate business record can provide answers to the following questions
which could enable the owner of the business to know whether something is
wrong:
i. How much business (cash and credit) am I doing? And how is it tied up
recievables?
38
ii. How are my collections? What are my losses from credit sales? Who owes
me money? Which account is delinquent? How soon can I collect my
account receivables?
iii. How much cash do I have on hand and in the bank? Does the amount agree
with what my records tell me I should have or is there a shortage?
iv. How much is my investment in merchandise? How often do I return over my
inventory? Have I allowed my inventory to become obsolete?
v. How much merchandise did I take out to my store for personal or family use
which affects my gross profit calculations?
vi. How much do I owe my suppliers and other creditors? Have I received all of
my outstanding credits for returned merchandise?
vii. How much gross profit (margin) do I earn?
viii. What are my expenses including those that do not require cash outlays?
ix. What is my weekly or monthly payroll record to meet the requirement of
National provident fund, PAYE and other labour legislation?
x. How much profit did I earn and how many income taxes will I owe? Is my
record keeping system sufficient enough to meet the requirements to satisfy
the tax authorities?
xi. What is the worth of my total assets? How much would be left for me after
paying my creditors in full?
xii. Are my sales, expenses, profits and capital showing improvements or did I
do better last year than this year? How do I stand as compared with two
periods ago? Is my position about the same, improving or deteriorating?
xiii. On what lines of goods or in what department am I making profits
breakeven, or losing money?
xiv. Am I taking advantage of cash discounts for prompt payments?
xv. How do the financial facts of my business compare ewith those of similar
businesses
39
2. Provide information required for negotiating loan from banks or
Governmental promotion agency.
It is practically impossible to negotiate for business loan for a bank or
government promotion agency without a properly prepared financial statement.
Bankers and other credit guarantors need to study the business owners balance
sheet and profit and loss statements in order to decide whether credit should be
extended or not. Sometime audited financial statements are required. The record
keeping system must provide the basis for these statements.
3. Provide report required by Government or its agencies.
Federal, State and Local Government Agencies required business to keep
adequate records of its transactions. Federal and Local income taxes, payroll
taxes, sales taxes, personal property taxes, excise duties, customs duties and an
increasing number of other laws and regulations require certain reports which are
easier to prepare and substantiate if the figures are organized by a good record
keeping system.
A careful analysis of the foregoing will definitely show you the need for an
efficient record keeping system. The volume of information proves that it is
impossible for any individual to carry in his head all these information in an
analytical manner.
To keep in touch with financial condition on a day to day basis requires
accounting information that is accurate, properly organized and continually up to
date. A good accounting system must be comprehensively enough to satisfy the
purpose of financial control, yet easy to understand and interpret. Financial
decisions based on inadequate, unreliable or confusing account information often
lead to financial disasters.
Failure to keep proper accurate and reliable records put the owner in
confused state o affairs. In this atmosphere, unscrupulous employees take
advantage of the situation by pilfering, theft, mismanagement and so on. Financial
40
assistance from external source is denied because of the weakness in internal
control. Very often, TAX authorities estimate the taxes on the high side and in
some cases levying fines all due to the failure of the owner to keep proper records
or non at all.
Sometimes while the money doe to creditors flow out promptly the money
which should be paid by debtors does not flow in time due to failure to watch
prompt debt collections based on proper records a to due date, amount due etc. the
capital invested in the business with the idea of multiplying gradually diminishes,
vanishes away completely. This ends up in the failure of the business. The small
owner also fails in his personal life as the very source on which he depended for a
living collapsed.
In summary: Record keeping is the process of sorting business data and
collecting the chronologically and scientifically so as to provide valuable
summarized information promptly so that management can plan, control and
monitor business for better results.
Reports emanating from the records when properly understood and used
enable business growth. The volume of business papers flowing in and out of the
business daily is beyond the human memory and therefore needs proper collation
so that when any information is needed, it is readily available rather than to search
for them from heap of papers
The main purpose of keeping accounting records are as follows:
a. Indicator of current financial status.
b. Pinpointing potential problem areas as to assist management in making
decisions and taking timely lucrative actions.
c. Provision of tax information
d. Provision of information for making internal and external financing
decisions.
e. Provision of information for future planning
41
 f. Determination of cost, price and profit determination including break-
even analysis and
g. Controlling the firms assets and safeguarding against losses due to
fraud, pilferage, theft, waste etc.

BUSINESS RECORDS
THE SOURCE DOCUMENTS
They are documents that provide information that shall be recorded in eh
books of the business. They include:
The receipt: A written evidence of payment of money.
An invoice: a written statement of charges for goods delivered or services
rendered.
The voucher: a document for payment, that is prepared by the business
containing information on goods/service, the quantity of it, the provider, the
amount due for payment, account to be charged and other relevant
information in support of the payment.
Delivery Note: a document prepare by consigned of good sent through
transporter for the consigner to acknowledge the quantity and quality of
goods received.
Requisition Form: this is filed by an operational department of an
organization, requesting that s specified quantity of goods be delivered to it
at a given period.
THE BOOK OF ORIGINAL ENTRY
These are books used to make initial recording of transactions as they occur,
before eventual transfer to the principal books of the business. They are:
- The Sales Day Book: this is the book where all credit sales are entered.
- The Purchase Day Book: this is the book where all credit purchases are
entered.
42
 - The Sales Return Book: it is used to keep or record of all items which
are sold but for valid reasons they are returned in the organization. These
reasons might include winning quality, lateness of order or items
damaged.
- The purchases Return Book : deals with times which the firm wishes to
return because they are not in accordance with the order, unsuitable or for
some other equally valid reasons.
- The Journal: large organizations are use journal as alog book for
recording purchase of fixed assets, correction of errors, adjusting entires,
transfer of accounts and opening and closing entries. However, for small
business, journal is used for recording purchases of fixed assets.
- The Cash Book: the book deals exclusively with the cash transactions of
the business. It is used to records the cash receipts of the business and its
cash payment. The reciepts are usually recorded on the left hand side of
the book and all the payments are recorded on the right side. At the end
of each month and how this cash was spent, if the total in debit side (left)
is higher, the business will have a positive cash balance in the bank and if
the total on the credit side (right) is higher, it means the business has paid
out more cash than it receive during the month.
THE PRINCIPAL BOOK OF BUSINESS
The ledger is the principal book of the business. It is the set of books that are
used to record all the transactions of the business as they related to third parties.
Four types of ledger exist. They are;
- The Sales ledger, which contain the accounts of debtors (those that buys
on credit) of the business, and within which all transactions with them are
recorded.

43
 - The Purchase ledger, which contains the account of creditors (those that
the business buys from on credit) of the business, and within which all
transactions with the m are recorded.
- Cash Book, which is used for recording transactions executed on cash
basis. That is both where the business buys and pay cash, or sells and
receive cash.
- General ledger, which contains all other accounts of the business and
prominent of which include:
- The capital account
- Purchases Account
- Sales Account
- Salaries and wages Account, and
- Electricity, water and other expenses Accounts.
TRADING, PROFIT AND LOSS ACCOUNT
Periodically, at least once or twice a year, it is necessary to look through the
accounts to see how the business has faired. In this connection, it is necessary to
prepare the financial statement of the company. Two of such statements are the
trading, profit and loss accounts. These accounts will enable the entrepreneur ot
ascertain:
i. The result of his business operations during a given period and
ii. His financial position at the end of the period.
Before we go into calculation of the two statements we will define some
terms in order to enhance the understanding of the account:
Opening stock: This is the value of raw materials and finished good as at the
beginning of the trading period.
Closing stock: value of stock of raw materials at the close of the closing period.

44
Gross profit or loss: The excess of the amount charged to customers in respect
of goods sold over the amount paid for them. i.e. the difference between the cost of
goods sold and the amount realized from it.
Net profit: this is the gross profit plus any gains less the various expenses and
losses i.e. the credits (receipts) exceed the debits (payments).
Depreciation: the permanent decrease in value of an asset through wear and trear
in use of thepassage of time.
In cases where gross loss is sustained the various debits for expense (less
gains) are added to gross loss in order to ascertain net loss.
Let us now consider the following illustration of trading account and profit
and loss account of ORSGARR (Nig) Ltd.
All figures used in our preparation of their accounts are assumed.
PISGAFF (NIG) LTD.
TRADNG ACCOUNF THE PERIOD ENDING DEC. 2007
DR. (EXPENSES) N CR. (RECIEPTS) N
Opening stock 10,000 Sales 180,000.00
Purchases 28,000
Wages 5,000
43,000
Less closing stock 5,000
Cost of gold sold 38,000
Gross Profit 142,000 __________
180,000 180,000.00

The Gross profit gives very little information about the performance of the
business. Until all costs are deducted from the total income, it will be difficult to
say much about the profitability of the business. This is why it is necessary to

45
prepare a profit and loss account of the business which is another financial
statement of the account.
The opening item of the profit and loss account on the credit side is the gross
profit taken from the trading account. All expenses of the business are set against
the gross profit.
PISGAFF (NIG.) LTD.
PROFIT AND LOSS ACCOUNT AS AT DECEMBER, 2007
DR. (EXPENSES) N CR. (RECIEPTS) N
Salaries 10,000 Gross profit 142,000.00
Electricity 3,000
Telephone bills 800
Plant Maintenance 2,000
Miscellaneous 1,500
Depreciation 800
Net profit 123,900 __________
Gross profit 142,000 142,000.00

BALANCE SHEET
Another component of financial statements is balance sheet. Balance sheet is
a state of what a business owns and what it owes at a particular date. The name
Balance Sheet comes from the fact that total assets (what the company owns)
always equals to the total liabilities (what the company owes). In other words, they
balance each other. The purpose of preparing a balance sheet is to present a true
and correct view of the financial position of the business at a given date.
Items in the Balance Sheet
LIABILITIES: Under liabilities are various amount of money owned by a
business, otherwise known as:
1. (a) Capital or Equity or money contributed by business owners.
46
 (b) The balance of Profit and Loss Account
2. Long Term Liabilities
Loan not repayable within 2-5 years or more. These are loans from
Development Banks, mortgage loans etc.
3. Short term or Current liabilities
These are generally payable fairly quickly (usually within 12 months)
specifically they are:
(a) Creditors or Account Payable (those the business owes for material
and expenses).
(b) Bank overdraft
(c) Taxation and Dividends (if any) due but not yet paid (i.e. accrued
charges).
ASSETS
These are:
1. Fixed Assets: these are assets which are generally intended for use over a
long period and are not meant for sale in the ordinarly course of Business.
Some of these include
a. Land and building
b. Plant and machinery
c. Motor vehicle
d. Office Equipment etc.
2. current Assets: These are items which in the normal course of
manufacturing the business seeks toconvert into cash into order to earn
profit.
These are:
f. Stock of raw material
g. finished goods tha have not been sold
h. Work in progress
47
 i. Debtors (also known as Account receivable)
j. Prepayments (Payment made in advance)
k. Cash in Bank
l. Cash in hand
In the balance sheet the total of Fixed Asset plus Current Assets are equal to
the total of the liabilities plush share capital.
KOLA COMPANY LTD
Balance Sheet as at 31st December, 2008
ASSET
N
Fixed Assets X
Less Depreciation X
X
Total Fixed Asset
Stock of Raw Material X
Finished Good X
Work-in-progress X
Debtors Receivable X
Cash Surplus/Deficit X
Total Assets X

FINANCED BY
Share Capital X
Long Term Loan X
Short Term Loan X
Un-appropriated Loan X
Total X

48
Current Liabilities
Tax X
Proposed Dividends X
Total Liabilities X

MODULE 7
MANAGEMENT
Introduction
Process of managing
Planning
Organizing
Staffing
Directing
Controlling

INTRODUCTION
Early economist identified three factor of production, namely, land, labour,
and capital. It was not until last century that a fourth factor, namely management
was acknowledged. Proponents of this factor argued that the ability to procure and
combine the earlier identified factors for the purpose of production, was itself a
factor, probably a more important factor than any others. While this may be true,
empirical evidence both past and present, of successes and failures of business
enterprises in Nigeria as in other parts of the world, has shown the mere existence
of these factors (or inputs) does not guarantee the success or even survival of any
business enterprise. Perhaps this is best borne out on a macro-level by the example
of our present economic predicament in spite of our abundant resources. In its
simplest definition, management can be described as the art of utilizing given
resources to achieve desired objectives. The performance of management is
49
therefore measured by its ability to achieve the companys determined objective
from the least possible resource inputs.
Good management is absolutely essential to successful operation, and so to
the survival of a business. This requirement of good management applies to both
small and large firms. It is dependent of a firms scale of operations. Therefore, the
entrepreneur must effectively perform the same general functions as the executive
of a large firm.
PROCESS OF MANAGING
The process of managing consists of the following essential functions
(a) planning
(b) organizing
(c) staffing
(d) controlling
In a small business it is the entrepreneur who must reconcile diverge goals of
employees to the companys goals.
PLANNNING
Planning is making advance decision concerning future course of action. It is
the responsibility of the manager rather than the worker. It is concerned with such
matters as:
(a) Determination of companys objective
(b) Formulations of policies, programs and procedures designed
attainment of companys objectives
(c) Designation of performance and cost standards and these
incorporation in a budget
(d) Long range planning which will govern the development of the
companys line to product, services and processes.
Specific and concrete action to implement the decision or the plan must follow.

50
ORGANIZING
Organizing involves the assignment of functions and tasks to organizational
components and to individual employees. It includes the delegation of authority to
subordinates, so they can properly carryout their duties. Thus organizing
establishes the pattern of relationships by all members of the organization, an
organization chart is prepare showing all the managerial levels and positions. Some
companies prepare a supporting organizational manual to show detailed functions
assigned each executive and each supervisor in the management team. In a typical
small business, the management team may consist of very few persons. Also in a
very small business there may not be the need for a written char. In some very
small concerns, the entrepreneur performs the functions of the Board of directions
management and also supervisory functions. A business organization is a group of
people who must work together to attain common goal.

ORGANIZATION CHART
Board of Directors

Managing Director

Secretary

Production Accountant Sales Admin Manager

Manager Manager

51
STAFFING
Staffing includes the choice and development or personnel. This aspect is
very important, because it is the people in an organization that makes it successful
or not, Best method of selection must be used to get and effective workforce.
Development of personnel is often neglected by small firms because it is
expensive, but it is important to train staff. Personal training is intended to yield
better job performance, fewer accidents better understanding of company policies,
practices and products. Training also allows smooth managerial succession through
the creation of a reserve of trained replacements within the organization. In a small
firm, provision for managerial succession is very difficult because, often the
owner/operators in most cases is the broad of directors top management,
Supervisor, trouble shooter, errand boy and public relation expert. In short, he is
the company this makes it difficult in finding a management succession as in big
business, no understudy to take over a situation which constitute a real emergency.
DIRECTING
Directing consists of the following activities
(a) Order giving
(b) Supervising
(c) Leadership
(d) Motivating
(e) Communication
Order giving
Order may be given in person or in writing. Written order may take the form
of notices or bulletin boards. Standard policies, standard operating, procedures.
They may be addressed to a specific person or group of persons. The modern
concept of good order giving is one of democratic rather than autocratic
commanding.

52
Supervision
This is the activity of management concerned with the training and
disciplines of the work force. It includes the checkups required to ensure the
prompt and proper execution of all orders given. Supervising is a required function
for every member of a management team, from chief executive down to foreman.
In a small business, it is the required activity of the owner, manager and for each of
his assistance above the worker level.
Leadership
This is the ability to inspire and influence others to give maximum effort and
cooperation willingly and voluntarily for attainment of group objectives. The
leader may find certain technique helpful for getting people to do better work.
Among these are:
(1) Being a good listener and a ready and accurate communicator
(2) Being always considerate of other people
(3) Using suggestions or requests to make ones wishes known and being
sure of given the reason why.
(4) Criticizing and reprimanding in private, but praising when praise due,
promptly and in public.
(5) Studying subordinates to find out the best type of motivation for each.
(6) Taking subordinates into plans and programme before decision and
commitments are made and giving credit where their ideas are used.
(7) Building up subordinates in ability and judgment through a development
program.
(8) Always letting subordinates know where they stand.
(9) Admitting ones own mistakes promptly.
(10) Delegating function effectively to subordinates. Creating good work
climate. When a good work climate has been achieved, loyalty, a sense
of security and efficient teamwork will result.
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Motivation
For inducing staff to attain the companys objectives number of motivating
factors exist among these are: loyalty, a spirit of competition, job and old age
security, job safety, fair play, fair treatment, training and promotional
opportunities, good machines on which to work and only the minimum of
disciplinary action. Contest and awards may be used to develop a healthy rivalry
aimed at better achievement of enterprise goals competition with other firms may
also be used to evoke maximum performances.
Communicating
Communicating depends on formally established channels for
communicating up and down the chain of command. It depends most of all upon
prompt transmission of all pertinent facts which can be revealed and upon being a
good listener to subordinate with a gripe or suggestion. Manager communicates
verbally, by written notice, by well trained silences and by extending or
withdrawing status symbols from subordinates.
CONTROLLING
The fourth general function is that of controlling, operations control involves
the establishment of standards and the appraisal of operating result, followed by
prompt remedial action on the part of management when results are significantly
bellow par. Evaluation of operating results involves appraisal of managerial
performance, policy and employee relations audit, review of cost and performance
control, reports and analysis of financial transactions. Control is required in the
areas of sales, costs, profits, output, quality, labour turnover, accidents, employee
morale and labour relations among others. The corner stone of control is the
budget, in which accurately set cost and performance standards are incorporated.
In every small business cost and performance standards may not be formally
determined, nor is it likely that the budget will be reduced to writing. Nevertheless,
the efficient entrepreneur will have in mind what cost and performance should be
54
will keep tract of actual results, will investigate looking toward prompt remedial
action whenever there is a variance.
The mangers environment is constantly changing. Therefore, managers in
small business should be aware of such changes and their import to them. The
mangers or entrepreneurs in small businesses in Nigeria should therefore take
prompt advantage of innovations in management techniques in order to achieve the
business objective and goals.

MODULE 8
ELEMENT OF MARKETING
CONTENTS
INTRODUCTION
ESSENCE OF MARKETING
MARKETING CONCEPT
MARKETING RESEARCH
HOW TO CONDUC MARKETIN RESEARCH
MARKETING MIX
PRODUCT
PRICING
SALES DISTRIBUTION CHANNEL
PROMOTION
ADVERTISING
PERSONAL SELLING
SALES PROMOTION
INTEGRATED STRATEGIES FOR SMALL BUSINES

55
 ELEMENTS OF MARKETING
INTRODUCTION
Consumers are skeptical of buying from a new supplier of goods and
services because they do not;
1. Know him
2. Have Experience of his product or service before,
3. Know whether he can provide goods to the kind of quality that they want.
4. Familiar with the prices he is charging
5. Hear about him and they are ignorant of what he supplies
In order to disabuse the mind of the prospective buyers of the product the
supplier must design some strategies. This module will look at those things that a
new supplier needs to know in order to have a good understanding of the type of
steps he should take to make his product acceptable in the market place.
Specifically, we examine the following:
1. Essence of Marketing
2. Marketing Concept
3. Marketing research
4. Marketing mix
5. Integrated promotional strategy for small scale business
ESSENCE OF MARKETING
Marketing is one of the most important functions of the entrepreneur.
Whatever business the entrepreneur is engaged in, he must market his products or
services to consumers at a profit. The essence of marketing therefore is to make the
profits or services available to the consumers.
Distribution
1. Ways and means of joining sellers to buyers
2. Location
3. Sizes, types and organizational structures
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4. Methods of operation etc.
The market
1. Buyers descriptions and characteristics
2. Location
3. Needs and wants
4. Resources
5. Relations with potential sellers etc
Publicity
1. Appeals
2. Media audience and coverage
3. Subjective Vs Objective channels etc.
Accounting
1. Long and short term costs
2. Long and short term profitability etc
Marketing Research is expected to be an on-going exercise that has to be
performed before an entrepreneur goes into business and while the business is in
business helps to determine what industry, line of business within the industry (
product or service) to offer. It helps the entrepreneurs to:
a. Identify which markets are the most profitable to go after.
b. Identify soft spots in market coverage
c. Choose new products or services that customers want.
d. Find out why existing products or service are selling well or
poorly.
e. Set realistic market goals.
While the business is in existence the entrepreneur needs to do marketing research
to monitor what is going on in the market and evolve a new strategy to combat the
strategies of his competitors. An entrepreneur who is not doing marketing research
may not know when competitors are taking his share of the market by using such
57
factors as better packaging, pricing strategy, new services to customers and
distributors or offering special discounts to distributors.
How to conduct Marketing Research
Many entrepreneur shy away from marketing research because they believe
it is too academic. This is not true. We do not expect the entrepreneur who has a
small or medium enterprise to have a special research department as big
corporations do. Many entrepreneurs do not have money to hire a specialist and it
is not recommended that this be done. Information required for marketing research
can be obtained from:
a. Published information
Daily newspapers, weekly newspaper, magazines etc
b. Information from associations and organizations, Chambers of commerce,
National Association of Small Scale Industries, central bank of Nigeria
Reports, Ministry of Industries, and other related government establishments
and Manufacturer Association of Nigeria.
c. Undertaking a simple market survey to find out what is going on in the
industry by making inquiries and comparing notes with other businesses,
obtaining information from distributors of competitors products, company
sales men and workers.
d. Engaging the services of a marketing research company.
e. Obtaining the services of students in marketing department of a University
to conduct the research at little costs.
For example, a simple research effort for an entrepreneur in restaurant profitable as
other restaurants could involve seeking information or looking for answers to
questions such as:
a. Why are other restaurants in this area attracting more customers than
mine?

58
 b. How are they doing what they are doing so well? What are they doing?
How are they doing it?
c. What specific marketing strategy must I adopt to attract more customers?
Do I need more advertising, sales promotion or personal selling to all
customers?
d. What synergy must I exploit to be more competitive (synergy arises
when two actions performed jointly produce a better result than they
would if performed independently).
e. What specifically do people who patronize restaurants want or what are
their expectations in areas such s price and quality, assortment or variety,
cozy environment quality of service or the image of the establishment?
An average entrepreneur can obtain these types of information make the best
use of them without elaborate design effort.
A woman operating a profitable restaurant near a college of Education
discovered after a while that her daily sales had started to decline. At first she
attributed it to increase in the number of eating houses in the area. There were only
three eating places at the beginning, but they had increase to eight. As sales
continued to fall, she decided to find out from customers. She paid visits to other
restaurants and started monitoring what was going on in her establishment.
She discovered that other restaurant had reduced prices from N200 a plate to
N150 and there was no waiting and that their employees were more variety of
dishes than she did. She took corrective steps and the business started to increase
sales.
An entrepreneur in manufacturing or operating a supermarket may require a
more sophisticated approach if he has to conduct a marketing research on
consumers. He may require the services of professionals. In many instances,
realization that marketing research is an on-going exercise that the entrepreneur
ignores at his own peril.
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MARKETING MIX
Every entrepreneur must have a target market which is a fairly homogenous
groups of customers to which he wished to appeal. He must design the best way of
researching the group through customer services, quality goods, appropriate
packages, right prices and personal solicitation or advertising. The choice of the
package which the entrepreneur uses in order to satisfy this target market is called
marketing mix-product. Price distribution or place channels and promotions. Many
products are known to have failed because the entrepreneur failed to use an
appropriate marketing mix to reach the target market. Identification of appropriate
marketing mix is a sine qua non for effective marketing.
An entrepreneur who sells stereo equipment or one who operates restaurant
must only decide on the target market but also the marketing mix.
An advertisement that is aimed at old people may not be appropriate for
appeal to the upper income class will be more concerned about quality of food and
a cozy environment than a restaurant owner who has students as his target market.
We will discuss each of the marketing mix briefly
Product
One of the problems confronting entrepreneur is to determine the types of
products or services (product or services line) to offer product line or service line
planning is one of the major decisions that must be made by an entrepreneur. The
decisions is often influenced by consumer preferences in the market place, the
creative ability of the entrepreneur, his motivations, financial strength, employees
capabilities, complement of the products and many other factors. An entrepreneur
in manufacturing must decide on how many different sizes, grades and shapes of a
particular product he has to produce. The desire to be different from a competitor is
one of the key factors that necessitate having different product lines. Product mix
is very good when the products are identical and can be sold by the same
distributors or using the same channel. Many entrepreneurs start off with one or
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two products and add new lines as they gain experience and identify the demand
for their products. Adding new lines for the sake of being seen as big or successful
is self deceit.
Pricing
Pricing is one of the most important functions of an entrepreneur invariably
pricing influences the companys sales volume and profitability. In a situation of
galloping inflation and reduced purchasing power consumers become price
sensitive.
To many Nigerian entrepreneurs in manufacturing setting prices is a
problem. Whereas to some in retailing and wholesale, this does not pose a serious
problem. They go along with the prevailing market price. They are aware that no
consumer will be prepared to pay more for one product that aware that no
consumer will be prepared to pay more for one product than another if the products
are identical. In this situation, entrepreneurs strive to control costs and to follow
competitors. When a product is unique or new or has no fixed price, pricing
strategy of small business firm should be determined after weighing marketing
considerations such as:
1. The customers perceptions of their needs or values benefits and satisfaction,
the costs of production and distribution of the goods and services.
2. The firms image and advertising campaign targeted at its customers.
3. the relative strength and weaknesses of the firms products or services vis--
vis competitors product or services in terms of quality
4. The relative sensitivity of the firms customers to different price level;
5. Possible alternatives to variation in pricing and their impacts on the firms
sales volume and profits.
There is no hard and fast formula for pricing goods and services but it is important
to know that each product or service presents its own unique pricing decisions.

61
Thus, determining price levels appropriate to a frims products or services is more
of an art rather than science.
In trying to determine products or services prices, products or services
determine products or service prices are:
1. Over-caution
Producers often play too safe to charge appropriately in the early stage of
products or services because of fear of losing patronage. The attempt to price low
to attract first time customers may back fire because when prices are later raised to
levels that will yield reasonable profits many of the customers may stop
patronizing the products or services.
2. Regarding low prices as the principal incentive to attract and retain
loyal and as the major weapon for competing
Entrepreneurs should realize that prices can only be a key factor in the
buying decision when the value of the product or service is not a critical factor, and
the goods and services are undifferentiated are frequently purchased, are basic and
uniquely functioned or are purchased by discerning and enlightened consumers.
3. Fixing prices for what market can bear or accept
An entrepreneur should realize that customers buying a firms product at a
certain price level does not mean they would not buy more at a lower price or the
same amount even if the price were higher or that they will necessarily buy at the
same price in the future. Thus, it may be nave to ask what the market will accept
for there is no quick fix to determine accurately what, for how long and in what
quantities, a given price will buy.
4. Fixing prices on the basis of what competitors charge.
Entrepreneur fixing prices on the basis of what competitors charge because
of an assumption that more or less competitors know more or have better
judgment. This assumption is not true because the product or service market is an
imperfect market (i.e. market where no one has perfect information of the market).
62
What is important to consider is how comparable the firms goods and services are
and look out carefully for differences that could be exploited in determining prices.
5. Setting prices on costs only
Though, it is necessary that the price of a product or service reflects the
production cost and distribution costs, cost-plus or mark-up pricing formula do not
solely determine how high a price customers may be willing to pay would be.
Cost-plus pricing may appear very appealing only when it incorporates other basic
marketing assumptions and objectives of the firm.
Sales or distribution Channel
Sales channel is the means by which products or services are made available
to customers in the market place. Products or services can be distributed directly to
the customers or through middlemen or third party intermediaries. The former
requires the basic qualities of friendliness, courtesy and responsiveness to
customers needs. Moreover, it demands that he firms sales staff posses the
knowledge and skills to sell its products. The later option for distribution can be
any or combination of the following:
1. Producer Retailer Consumer
2. Producer Wholesale Retailer Consumer
3. Producer Agent Retailer Consumer
4. Producer Agent Wholesaler Retailer Consumer
The argument in support of the need for third-party intermediaries boils
down to the following
1. They provide economies of scale
Because the intermediaries may carry complementary goods of other
manufacturers along with those of the manufacturer there is greater efficient as
overhead costs from distribution are absorbed by more than one product. This
economy will not be achieved if the manufacture decided to distribute the single
product himself to every possible consumer.
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2. Allows for specialization
Established intermediaries have experience and knowledge in performing
distribution functions which may be take the manufacturer something to acquire.
They tend to know the market better than the manufacturer because of their
proximity.
3. They reduce the number of contacts
They reduce the number of contact between the manufacturer and consumers
because one intermediary represents a large number of contact. This reduces the
manufacturers distribution cost.
4. Many producers lack the financial resources. Many producers lack
financial resources to embark on the programme of direct marketing.
5. The third party intermediaries are a good source of information.
Promotion
Promotion is a firms effort to influence customers to buy. It represents the
companys attempt to stimulate sales by directing persuasive communication to
buyers. The promotional tools often-found in any marketing organizations
promotional model include advertising sales promotion, personal selling, public
relations and other marketing mix. Promotion helps to build a producer or create
service. A producer who ignores promotional tools and activities after producing
his products and sit back to watch the product sell will soon discover that he has
achieved very little. Promotion, therefore, assists in pushing forward and
advancing an idea or product with the underlying motive of gaining acceptance and
approval for it.
The basic objective underlying most promotional activities is to increase
sales or to win back customers. When targeted at increasing sales, the strategies
could be devised for achieving short and long term goals. In most cases however
both aims are achieved but the short-term objectives will shape the strategies
methods and tools utilized.
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 To accomplish promotion objectives appropriately, the marketer must do the
following:
1. Identify the particular group of individuals that should comprise the
intended audience.
2. Identify the particular behavior that promotion is intended to influence
create. It may be awareness of product or brands or development or
change of attitudes or intention to buy.
3. Decide what should be the message content, message structure and
message format (that is what to say, how to say it logically and
symbolically).
4. Choose the appropriate media that should be use. The media could
either be person or person communication or mass communication.
5. Determine the appropriate source from which the message will be
received. (That is the person that will deliver message of the specific
mass media that will deliver the message).
The degree to which the message influences its audience will to some extent
depend on the source from which it is received.
To understand the role of promotion in marketing we need to assign specific
role to the tools (advertising, sales promotion, public relations, personal selling,
and other marketing mix) within an integrated communication strategy. This sub-
section discusses these tools briefly to underline their roles and examine their
implications for the activities of small- scale enterprises.
Advertising
Advertising is any paid form of non personal presentation and promotion of
ideas, goods or services by an identified sponsor.
Advertising comes in many forms. Magazines, newspaper, radio and
television, posters, handbills, catalogues etc.

65
 The basic role of advertising in marketing is to make relevant information
about a product or service to the target audience. Te following are the roles or
benefits of advertising:
1. It reduces the costs of selling
A product that is constantly advertised helps to sell itself because people
tend to be favorably disposed to it. This invariably means that retailers channel will
no longer have an uphill task of convincing prospective customers before they
make up their minds to buy.
2. It reduces the cost of promotion
It may lead to greater demand, which will in turn make for greater output by
the manufacturer. When the factory is fully engaged, the overhead costs allocated
to each and cost of production will be much smaller than if they are shared
between a few hours a day.
3. It creates favorably image and establishes reputation
Most wholesalers and retailers prefer to handle products that are well
established and properly advertised. This is because it is easier for them to sell the
advertised goods, and the notion that since the advertisement is continuous, the
manufacturer must be making it.
Personal Selling
Personal selling is an oral presentation in a conversation with one or more
prospective purchasers for the purpose of making sales. It takes several forms such
as sales calls b y a field representative, assistance by sales clerk or sale persons. It
is time consuming, expensive and slow. However, for a small scale business trying
to break into a market dominated buy products and services of large enterprises, it
is worth the while to spend quality time and resources.
Personal selling functions provide specific inputs that are not contained in
advertising messages. While advertising primarily seeks to inform consumers,
personal selling goes to a step further by attempting to convince the individuals to
66
try out a product. Obviously, personal contact is necessary to effect a sale, answer
all the consumers information need, elaborate upon specific points perceived as
individuals and resolve doubts regarding eh suitability in a particular situation.
Publicity
Publicity is stimulation of demand for product, service or business unit by
planning commercial significant news in a medium obtaining favorable
presentation of it on radio, television or stage that is no paid for by the sponsor.
Publicity is used to promote products, persons, places, ideas, activities and
organizations. Publicity in many cases created a memorable impact on public
awareness that advertising alone could not have accomplished. Marketers have
little control over publicity in comparism with advertising, personal selling and
sales promotion. But when the information is transmitted the audience tends to find
it more believable than if it came from a sponsor.
Sales Promotion
Sales promotion consists of those marketing activities other than advertising,
personal selling and publicity, that stimulate consumers purchasing and dealers
effectiveness. It include activities such as displays, exhibitions, demonstration, free
samples and various non-recurrent selling efforts. It involves strategies aimed to
give a product or service a temporary lift in order to achieve a tactical objective.
The objective involved could be to get retailers to stock the product or the
customers to sample it or to stimulate sales.
Under normal circumstances, sales promotion is not a routine activity. Sales
promotion activities are often used to supplement other promotion tools and
usually consume a large percentage of the promotion budget.
Integrated Promotion Strategies for Small Business
The nature of business will determine to a large extent to promotional
strategies to be adopted by the entrepreneur. A cottage business that produces a
brand of beverage or pure water should consider a combination of several
67
strategies and options before settling for a particular one or a number of them. For
instance, before the product reaches the market, the public would have been
sensitized adequately about the new product through the use of press releases
featured in newspaper and other media that enjoy patronage in the area. The
strategy adopted here is publicity aspect.
In addition, some advertisement could b e placed in the local media.
However, the entrepreneur should be careful about trying to reach an audience that
cannot serve effectively. There is no harm in focusing on one local government
area or one city or town. When demand had been effectively met in the area then
the enterprise could consider expanding its scope of marketing and coverage.
The employment of advertisement should not be restricted to media outlets.
Other avenues that could be used include the posters, stickers, and banner among
others. These channels have been found to be very effective as they could e
targeted at particular areas with a considerable degree of success. A cottage
enterprise that wishes to focus initially on its local environment would naturally
discover that it spends a lot less in promoting its image and product than an
enterprise that begins by focusing on, say, an entire state. For a barbing salon in a
suburban area personal selling should be employed to stimulate patronage.
Prospective patrons that already have their loyalties elsewhere require a lot of
conviction to be able to sway them. To sway such prospective patrons an
entrepreneur should use incentives

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 MODULE 9
ELEMENTS OF INDUSTRIAL / PUBLIC RELATIONS
CONTENT
INTRODUCTION
SUPPLIERS
CONSUMERS, RETIALERS AND WHOLESALERS
BANKS
EMPLOYERS
COMMUNITY
GOVERNMENT

INTRODUCTION
Business enterprises is not an island. It operates in economic, technological,
political and socio-cultural environments. There are various actors in these
environments. To succeed not only for a short time, but also for a long time,
business enterprise must have common relations with those actors in the
environment.
The objectives of this module are to:
1. Identify the various actors in the environment without which the small
business cannot survive and
2. Offer advice on how to relate positively with the actors in the environment,
Figure 1: Belo depicts the actor which small business enterprises will have to relate
with amicably in order to make a success of the business.

69
SUPPLIERS EMPLOYEES
Small Business
BANKS (Entreprenuer) CONSUMERS
JOHN
RETAILERS
COMMUNITY

WHOLESALERS
GOV. FED

STATE

SUPPLIERS
As a business man we cannot do without having suppliers who will be
supplying is with products we sell or raw materials we use for producing products.
Therefore, it we want a long lasting relations with our suppliers we need to project
the right kind of image to them. Researchers have identified those factors which
suppliers expect for customers in order to have an established long lasting
relationship with them. These factors are:
1. Buying regularly from them
2. Buying at the right price
3. Buying sufficient quantity from them;
4. Providing good feedback to them about their services in a constructive
fashion-whether good or bad
5. Who recommend them to others.
6. Paying them promptly
7. Customers not complaining much
8. Customers not situated too far away from them
9. Customers not erratic in behavior
70
 10. Honesty of customers
11. Customers having regular source of income
12. Customers having business should be well managed and healthy
13. If they are new businesses that are growing, that they themselves
should have good products.
14. The staff and the owner of the customers business should be friendly
and approachable.
15. The staff and the owner of the customers business should be people
who have understanding of any difficulties they may have and are
willing to help.
The above factors are the things that those who supply to businesses are
looking for. It is important, therefore that those running businesses project
the right kind of image to their suppliers because they will be more helpful
towards the buyer.
CONSUMER, RETAILERS AND WHOLESALERS
Without continual or persistent patronage of consumers, retailer and or
wholesalers business cannot survive. As a producer of products and entrepreneur,
ought to realize that there are many other firms offering the same type of product
you intend to sell in the market place. In order to persuade the consumers of the
type of product you are offering in the market towards buying you own product as
opposed to buying from other producers you need to:
1. Offer good quality product of reasonable price
2. Supply product to meet the customers demand at all time.
3. Provide friendly services and be honest in dealing with your customers.
4. Make yourself presentable to your customers
5. Dont be rigid in dealing with them
6. Make your working place clean and tidy
7. Give credit when occasion demands
71
8. Give good advice on issues such as correct usage of your product, by
consumer, display of your product by retailers supermarket and in solving
problems that your customers have in their businesses.
9. Tell your customers clearly of your business problems that affect or may
affect negatively your business transaction with them.
10. Provide assistance to customers in emergencies if you are convinced that
such customer deserve the assistance.
11. Be courteous to your customers and employ employees who are not only
competent but who will be courteous to customers.
12. Provide a wide range of services to meet many of customer needs. This is
applicable to enterprises that provide range of services to car owner. Such
services are repair of mechanical, electrical parts of vehicles, panel beating
and spraying of vehicles.
13. Devise and employ strategies that can make established customers to
recommend your business to others.

BANKS
For any entrepreneur sourcing for funding the first thing that comes to mind
is to try the banks. Of course a commercial bank, for example, is the centre of the
lending market and characteristically makes the greatest number and variety of
loans. The commercial bank unfortunately is the most conservative lender. A
typical bank looks beyond the ability of the entrepreneur to provide collateral.
Apart from the ability of the entrepreneur to provide collateral the following are
the conditions that an entrepreneur who wants his application for loans from
commercial bank should meet
1. Giving the loan or credit officers of the bank comprehensive past
history of the enterprise and the entrepreneurship.

72
 2. Providing good evidence that the idea in which the application for
loans is based will work
3. Providing evidence that the money asked for has being reasonably
worked out in total amount and the credit officer can see their reasons
behind this
4. Demonstrating to the credit officer when the entrepreneur will be able
to pay back the loan in what kind of installments and over what kind
of period.
5. Specifically specifying what exactly the money will be used for.
6. Demonstrating to the credit officer that what the money will be used
for is necessary to pursue the business successfully.

EMPLOYEES
As an entrepreneur you will expect your employees to make themselves
available for work promptly and consistently to work conscientiously and to
exhibit loyalty and commitment to your course in their attitude and behavior.
However, if you want your expectations to be met you need to encourage them in
your dealing with them. The following factors will assist you immensely towards
encouraging them to meet your expectation positively:
1. Providing work in a conductive environment
2. Paying hem reasonable wages and salaries as at when due
3. Involving them in decisions that affect their work
4. Treating and respecting the rights of the employees

COMMUNITY
Business organization does not operate in a vacuum. It operates in a
community. Business organization should endeavour to achieve social harmony
between itself and the community in which it operates so that the latter can allow it
73
carryout its every day economic activities. The following factors can assist the
business immensely towards achieving social harmony with the ommunity in
which it operates:
1 Guiding against pollution of the environment
2 Production of products that are not damaging to the consumers health.
3 Avoidance of misleading advertising
4 Not engaging in smuggling activities
5 Contributing to community development
6 Payments of local government taxes and levies as at when due.

GOVERNMENT
Business organization cannot exist for a long time without having interaction
with the Federal, State and Local Governments and their agencies which enact
certain laws which affect the operations of small scale enterprises. As a n
entrepreneur, you should endeavour to be conversant with those laws and obey
them so as to allowed to carry out your enterprise day to day economic activities.
Federal and State government have established some agencies that are
offering various assistance which can enhance and promote the development of
small scale enterprises. Some of these agencies are:
1 Small and Medium Scale Enterprise Development Agency of Nigeria
(SMEDAN).
2 Industrial Development Centres (IDCs)
3 Federal Institute of Industrial Research (FIR)
4 National Office for Technology Acquisition and Promotion (NOTAP)
5 Project Development Agencies (PRODA)

As and entrepreneur you need to identify these agencies and familiarize

yourself with the types of assistance they offer as well as requirements for
74
obtaining their assistance, familiarized yourself with the requirement for obtaining
assistance from the agencies will adequately equip you on how to relate with them
in order to receive needed assistance in future.

MODULE 10: SMALL AND MEDIUM SCALE BUSINESS

DEVELOPMENT PROGRAMS IN NIGERIA

As important as small- scale businesses in the development process, their

contribution in Nigeria has been less than adequate, owing to various institutional
constraints as well as problems inherent in them.
In particular, SSBs have problems of undercapitalization, high rate of
business failure, shortage of skill , poor accounting standards and restricted access
to big markets,. These problems in turn restricted them from performing their
expected traditional roles towards the development of Nigeria. However, the
government realized that the best way to develop small-scale businesses was to
reduce or alleviate the problems facing the small-scale business sector. The
government also realized that the types of assistance needed by small scale
businesses, if available from private consulting firms or large industrial enterprises
might entail cost beyond the capabilities of small-scale businesses. Therefore, both
the federal and state governments to set up various programs and schemes to
provide assistance to small-scale business in Nigeria. The following are some of
the program which the governments have put in place for the development and
promotion of small-scale businesses in Nigeria:

Industrial Development Centres (IDCs)

The federal government established IDCs in 21 states of the federation. Primarily
the IDCs aimed at introducing modern efficient management techniques to SSBs
and their services free of charge. The main functions of IDCs are as follows:
75
 1. Technical appraisal of loan applications
2. Provisions of industrial extension services
3. Training of entrepreneurs and their staff including management trainees.
4. Applied research into industries product involving design of products for
SSBs and
5. Helping small-scale businesses to purchase and install machinery.

2. Small Scale Industries Credit Scheme (SSICS)

The (SSICS) schemes were set up in each of the federation in 1971 to give
loans to SSBs carrying on manufacturing, processing or servicing activities with
capital investment not exceeding N150,000.00 machinery and equipment only.
The loan is to be given for the expansion and modernization existing of SSBs and
also for the development of new SSBs of the mechanized type to manufacture
relatively sophisticated goods as well as simple producer goods. Few states are still
operating the scheme.

3. Nigerian Bank Of Commerce And Industry(NBCI)

NBCI was established in 1973. One of the objectives of setting up the bank
was to improve upon the low success of small scale industry credit
scheme(SSICS). The functions of the NBCI include the provision of loans to
indigenous persons, institutions and organization for medium and long term
investment in industry and commercial at a liberal term than those of commercial
banks. The NBCI had been in moribund state since early 1970s until it was
matched with Nigeria industrial and development bank and National Economic and
Reconstruction fund in 1999 to from bank of industries.

4. Credit Guidelines To Financial Institutions

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 Among several ways in which central bank of Nigeria(CBN) contributes to
the development of small-scale businesses is through its influence on bank credit.
Specifically, CBNs annual credit guidelines to commercial banks stipulates a
percentage of their total loans and advances to be lent to small-scale industries. For
instance, CBN directed in 1970 that all banks should grant a minimum of 35
percent of their loans and advances to indigenous borrowers. Following growth in
the industrializations process in Nigeria, the target was increased to 49 percent and
50 percent in 1978. The credit guidelines have been suspended since early 1990s.

5. National Economic And Reconstruction Fund (NERFUND)

The introduction of structural adjustment program in 1986 and devaluation
of the naira created problems of Small And Medium Scale Enterprises(SMEs) as
they grappled with high production costs and rising costs of imported inputs and
increasing interest rates following deregulation. Also a mismatch of securities was
observed as banks tended to lend short and SMEs had to borrow and supply such
loans to finance of medium to long term investments.
In order to bridge the perceived gap in banks lendings to SMEs, the federal
government set up the National Economic and Reconstructions Fund (NERFUND)
through the NERFUND decree no 2 of 1989. The main focuses of NERFUND are

The provision of soft medium to long-term investments for wholly Nigerian owned
SMEs in manufacturing and agro allied enterprises , mining, quarrying, industrial
support services, equipment leasing and other ancillary projects.
Provision of medium to long-term loan to participating commercial and merchant
banks for on lending to SMEs for the promotion and acceleration of productive
activities in such enterprises. The interest rate payable on funds from NERFUND
was expected to be lower than that of the market rates. NERFUND had been in a

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moribund state since late 1990s until it was emerged with Nigerian Industrial Bank
and Nigerian Bank for Commerce and Industries in 1990.

6. Industrial Estates and Layouts

The provision of industrial estates dated back to 1958 when the federal
Government in collaboration with the United Nations Industrial Development
Organization (UNIDO) built the first small-scale industrial Estate at Yaba, Lagos,
Enugu and Anambra States also built one industrial Estate each in her states
capital. In the 1990-1992 rolling plan sum of N5 million was budgeted for the
development of industrial estates by the federal government. The scheme is
expected to play the role of clustering together SSB enterprises producing similar
products or services in locations with ready accommodations and infrastructural
facilities.

7. The Nigerian Industrial Development Bank(NIDB)

Through NIDB which was established in 1964 by the federal government
aimed at ensuring that credit facilities were provided for medium and large-scale
enterprises, it also has the responsibility of funding small-scale businesses with a
capital outlay of not more than N750,000.00.
The bank was in a state of moribund in the 1990s before it was merged with
National Economic Reconstruction fund(NERFUND) and it Nigerian bank for the
commerce and industries (NBCI) and Nigerian Industrial development Bank
(NIDB) in 1999.

8. Bank of Industry (BOI)

Bank of industries was set up by the federal government in 2000 through th
amalgamation of three formal development financial institutions. Nigerian Bank
for Commerce and industries (NBCI), National Economic Reconstruction Fund
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(NERFUND) and industrial development bank (NIDB). The bank has since 1999
been given mandate by the federal government to source funds from multinational
agencies outside the country to supplement local investible funds and medium
scale businesses.
9. National Directorate of Employment (NDE)
Though the national directorate of employment was created in 1986 to create hob
opportunity for Nigerian especially school leavers it has two programmes that were
of direct relevance to small-scale industries development. These programmes are
the vocational skills development programme and the small scale enterprises.
The vocational skills development programme has the objective of assisting
youths to acquire marketable skills that would be enable them to be easily absorbed
into the work force. However, those of them who opt out for self employment
would be given tool kits relevant to the apprntices trade and working capital as
loans under the job creation guarantee scheme of the directorate scheme of the
directorate.
In the case of small scale industries programme, unemployed graduates and
other young entrepreneurs are encouraged to set up small scale enterprises with the
provisions of loan facilities. One main distinguishing feature of the loan scheme is
that all participants are required to undergo a two week programme in
entrepreneurship development before they can be eligible for loan.

10. Small and Medium Enterprise Agency of Nigeria(SMEDAN)

SMEDAN linked to the federal ministry of industry was formed by an Act of
parliament in 2003. SMEDAN is expected to play the following rules:
Co-ordinates the activities of other agencies of government, such as Federal
Institute of Industrial research (FIIRO), National Office For Technology
Acquisition And Promotion (NOTAP), National Science and Engineering
Infrastructure (NASENI), projects development agency(PRODA) et to facilitate
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access to micro, small and Medium Enterprises (MSMEs) technology and
necessary technical supports
Facilitate access of MSMEs to technology both local and foreigh through
exhibitions in partnership with relevant institutions.
keeps data/inventory of raw materials bylocal governments/states and
disseminates to various MSMEs.
Partners with donor agencies; such as UNIDO, UNDP, World Bank (IFC AND
IDA) group to give the necessary supports that will enhance the skills of MSMEs.
Encourages the setting up of product clusters.
Encourages and facilitates the development of infrastructures and business support
services Etc.
Links MSMEs with large industries in a strategic manner for out-sourcing and sub-
contracting for some of the inputs in large industrial production, to facilitate
MSMEs active role in the value and supply chain.
Provides both local and foreign market information to MSMEs operators
Establishes business support centre to provide services to MSMEs in the area of
feasibility studies and development of business plan; and
Refers MSMEs to sources of credits.

CURRENT ISSUES IN SCIENTIFIC INVENTION, TECHNOLOGY

TRANSFER AND INTELLECTUAL PROPERTY RIGHT

Scientist and Engineers

pure scientists and engineers often totally misunderstand each other

I think it is fair to say that most pure scientists have themselves been
devastatingly ignorant of productive industry.

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Pure scientists have by and large been dim-witted about generators and applied
science

Engineers have to live their lives in an organized community..they are absorbed

by making things

Invention: what is it?

it is often confusing with discovery which is making something known for th
first time. Invention can build on discovery. Invention is the new, useful and
nonobvious improvement to a process, object or product.

What is innovation?
Invention happens and IP is created, patents filed etc..
The intellectual property right(IP) has to be converted into a business or a product
this is the innovative step. Managing innovation is a and poorly understood topic.

An idea is not an invention.an invention is not a product. A useful invention is not

a random idea or thought process needs a strong and scientific and technical
background. Not done before is not equal to necessarily useful invention!
Interdisciplinary knowledge helps.

Examples of discovery and invention

Take the example of titania as a photocatalyst for self-cleaning surfaces
Discovery was: fujishima (Nature vol 238,37,(1972) but had published in
Japanese in 1969.
Invention was filed in 1990s as PCT/JP96/003684 by Toto ltd

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 Figures 1 and 2 show the innovation chain and the time gap in the innovation

Invention to Product
It is important to understand that there are quite a few things to be done in
taking an invention to a product- and it takes some time to accomplish all these!

Various aspects of taking an invention to a product

1. Technology development
2. Securing intellectual property
3. Financials
4. Manufacturing process development
5. Business development

Applied or Commercial Research (Context-based research )

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Example : new palstics in plastics industry, new cancer drugs in pharmaceutical
industry. Objectives are somewhat known.

Basic Research (Context-free research )

Typically university research/research institutions
Example: research on properties of fluids or matter. Generally, we have faster
development of products from applied or commercial research

What are you inventing?

1. New technology? (Method and Apparatus or process)
Technology is a capability that can be used in a product. Nuclear Magnetic
Resonance technology, superconducting materials, laser, radars, wireless
communication, new process

2. A New Product ?(Apparatus)

Makes use of existing or new technologies
MRI scanners, low-loss electrical transmissions systems, optical readers/scanners,
laser-based eye surgery systems, cell-phones, wireless sensors
A new product has a customer and a market in mind

Why do we need inventions?

Improve quality of life useful
Commercialization for economic benefit profit, to be more specific

Things to take care of when working on an invention

1. Record as clearly as possible the purpose of the work, the methodology, the
References
a) http://www.bookfactory.com/special_info/invent_notebook_guidel
ines.html
b) The inventors notebook by Fred Grissom and David Pressman
2. Think of products that can be developed using the invention. Your
invention/product can stand on its own or be a part of others product or
system.
3. Connect yourself to the markets in the field of invention and possibly other
related areas.

Stages in the Development of a Product

Invention
Literature Survey
Patent application
Start product development
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Finish Bread Board version of product
Start Manufacturing
Finish first version of product
Second version of product
Product Launch

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