MAASAI MARA UNIVERSITY

BBM 3200 : ENTREPRENURIAL AND WORK SKILLS

B. ED(SCI.) AND PROJECT PLANNING GROUPS

CONTINUETION FROM WEEK 8

TOPIC: THE ENVIRONMENT OF A SMALL BUSINESS

Business exists in an environment just like human beings and animals that life in a surrounding.
Business grow and prosper in a healthy environment . the result is job growth and wealthy that
makes it possible to have a high standard of living and a high quality of life. the wrong
environmental conditions in contrast lead to business failure, loose of jobs, low standard of living
and poor quality of life hence creating the right business is the foundation for social progress of
all kinds including good schools, clean air and water , good health care and low rates of crimes.

Business environment is a set of factors both inside and outside the organization that may
influence the firm’s ability to attain its goals. the knowledge of a business environment is key to
the organization because it presents both opportunities and threats(constrains, challenges).

Business management must monitor changes in the environment to take advantage of the
opportunity and deal with the challenges it brings.

Business environment involves two categories:

1. Micro – environment or internal or controllable or variable forces- that affect the firm’s
ability to achieve its objectives.
2. Macro- environment or external or uncontrollable forces- this refers to the firms outside
forces that causes opportunities and threats to way it is carrying out its business
activities and achieve its goals.

Micro environment

It consists of forces or factors that directly or indirectly influence the firm’s ability to achieve its
objectives. It consists of:

1
 i) intermediaries

This is other firms that assist the company in promoting and selling and distributing its goods
and services to the final consumers. they provide valuable services that link the producers and
the end users. they include; middlemen, agents, brokers, marketing service agencies, research
firms, advertising and media agencies and marketing constant firm. other intermediaries include
financial agents such as banks.

How do they affect the business?

 the more they are the more likely to hick the prices ie increasing prices
 if they delay on delivery of goods may make customer loose loyalty
 Enhance steady supply of good
 Break the bulky goods.
 provide valuable information about a certain good
 must be honest
ii) employees

Employees have a big impact on the business operation. The level of their skills, number of
workers after personnel and general operation decision. Management must decide the appropriate
compensation terms and conditions of employment for successful attainment of organizational
objectives.

How they affect the business activity

 skilled employees provide quality services

 Poorly paid employees will hinder provision of sufficient service.
 taking care of employee warfare
 Employee should be promoted in terms of merit for motivation.
 dedicate workers according to attitude and qualification
 business should lay layout of job to avoid commotion
 proper training to enhance job

2
 iii) managers

Managers are the decision making organ in the organization. There leadership style, management
philosophies and attitude affect the performance of business activities.

How they affect the business activity

 Managers should regularly go for vocational training to keep them updated with current.
 pay workers on regular basis without delaying
 make decision that are beneficial to the business
 should give employees equal opportunities in terms of promotion
 managers should be honest and realistic
 they should be creative and innovative
 should set proper vision for the business

iv) government

All forms of business have to deal with government on all matters affecting the operation such as
product quality, safety specification or standard, trade practices, employer-employee
relationships, trade unions, taxation, consumer and environmental protection. the extend of
government involvement in business and its activities have a great influence on business
performance in terms of cost , revenues and profits.

How they affect the business activity

 When government increases the taxes then this lead to increase in prices.
 Government should protect local business from unfair competition.
 government set policies that affect business
 a source of security to business
 Can give financial assistance like subsidizing.
 protect warfare of the employees

3
  Improve infrastructure to promote business.
 government should link up the local business to international trade
 government should control the prices
 regulate business to avoid illegal business
 government should provide essential good at low prices like medical

v) publics

Business is a creation of the society and has a duty to serve it efficiently and effectively as much
as possible. Efficient business should alternatively benefit the society through benefit such as
reduced prices, employment and contribution to the community’s warfare.

The publics include: citizen action groups, affirmative group, employees, local communities,
churches, consumer group, and environmental protectionists.

How they affect the business activity.

 they reduce the prices

 create employment
 Can stop any business which they think is not beneficial.

Macro- environment

They include;

i) physical/Natural

Physical environment refers to such natural factors such as topography or relief climatic
condition, natural resources and infrastructure which influence business favorably or unfavorably
in achieving its objectives.

ii) demographic

4
Is the study of population and human characteristics in terms of size, age, sex, occupation,
marital status, migrations or mobility rates, birth rates and death rates. To business demography
is the market.

How it affects business

 When the population is small the business faces constrains.

 When death rate is high we will not have enough man power.
 Business should try to lower prices to suit the population.
 Mobility of people should be considered before locating business
 If we have more aged people it would lead to low labor power and also market.
 When people are not marrying there will be no market for wedding rings, cakes, shoes,
suits, gowns and certificates.
 When people are well educated u will be required to provide quality provide quality
products, magazines, newspaper.
iii) economic

This refers to the production, distribution, consumption and exchange of goods and services
in a country. Business people need to be concerned with economic that impact their business.
This includes; national/regional incomes, business cycles stages, inflation rates, interest rates,
government economic policies.

iv) technology

With improved technology there is high rate of production of high quality of good. Less man
power is required. It saves time and cost. Communication has been made easier eg mobile
phones. Informative that is consumers are well informed through Advertisements. Reduced the
world into a village global. If a business is not in a position to acquire source of information the
business might close down. Easier supervision for example in supermarkets use of cameras.
Promote small business like cyber café due to technology. It has promoted e-commerce or e-
business enabling business transaction. Has enhanced research on how consumers react on a
product. With technology you can manage your business from a certain point.

v) political/legal

5
One cannot be allowed to engage in illegal business. In a political instability business cannot
pick up. During politics there are business promotion eg caps, t- shirts. The procedure to follow
before starting a business affects much common citizens. Political differences affect resource
distributions. The government gives business licenses; get taxes, regulatory bodies like KEBS.
Government puts policies in terms of unfair competition, packaging, business practices. it is
encouraged to have a legal adviser for every business.

vi) social- cultural

Culture is the act of beliefs and values of people in the society. Culture is learnt and past on.
Culture affects business activities positively and negatively in that people tend to buy and
consumer as per their values. The elements of culture include; material wealth, social institutions
eg family status, religious beliefs and superstitions, language and color.

6
TOPIC: OPTIONS OF GETTING INTO BUSINESS

STARTING A NEW BUSINESS

most popular reasons for stating a business include; having a unique business idea, designing a
career that has the flexibility to grow with you, working towards financial independence, and
investing in yourself- it’s no wonder that small businesses are everywhere. but not every small
business is positioned for success. in fact only two-thirds of businesses with employees survive
at least two years and about half survive five years.

Steps that are required to start a business successfully include;

1. Do your research- after identifying a business idea it is time to balance it with a little
reality. Does your idea have the potential to succeed? you will need to run your business
idea through a validation process before you go any further. in order for a small business
to be successful, it must solve a problem , fulfill a need or offer something the market
wants. There are a number of ways you can identify this need, including research, focus
groups, and even trial and error. as you explore the market , some of the questions you
should answer include:
 Is there a need for your anticipated products/services?
 Who needs it?
 Are there other companies offering similar products/services now?
 What is the competition like?
 How will your business fit into the market?
2. Make a plan- you need plan in order to make your business idea a reality. A business plan
is a blueprint that will guide your business from the start- up phase through establishment
growth, and it is a must – have for all new businesses. The good news is that there are
different types of business plans for different types of businesses. If you intend to seek
financial support from an investor or financial institution, a traditional business plan is a
must. This type of a business plan is generally too long and thorough and has a common

7
 set of sections that investors and banks look for when they are validating your idea. If
you don’t anticipate seeking financial support, a simple one page business plan can give
you clarity about what you hope to achieve and how you plan to do it.
3. Plan your finances –starting a small business doesn’t have to require a lot of money, but
it will involve some initial investment as well as the ability to cover ongoing expenses
before you are turning a profit. Put together a spread sheet that estimates the one –time
start up costs for your business (licenses and permits, equipments, legal fees, insurance,
branding etc). As well as what you anticipate you will need to keep the business running
for at least 12 months (rent, utilities , marketing and advertising , production, supplies,
travel expenses, employee salaries etc. those numbers combined is the initial investment
you will need.
4. Choose a business structure- your small business can be a sole proprietorship, a
partnership, a limited liability company or a corporation. The business entity you chose
will impact many factors from your business name, to your liability, to how you file your
taxes. You may choose an initial business structure and then re evaluate and change your
structure as your business grows and needs change.
Depending on the complexity of your business, it may be worth investing in a
consultation from an attorney or CPA to ensure you are making the right structure choice
for your business.
5. Pick and register your business name- your business name plays a role in almost every
aspect of your business, so you want it to be a good one. Make sure you think through all
of the potential implications as you explore your options and choose your business name.
Once you have chosen a name for your business you will need to check if it’s
trademarked or currently in use. Then you will need to register it. a sole proprietor must
register their business name with either the state or county government.
6. Get licenses and permits-paper work is part of the process when you start your own
business. There are a variety of small business licenses and permits that may apply to
your situation, depending on the type of business you are starting and where you are
locating. You will need to research what licenses and permits apply to your business
during the start –up process.

8
 7. Choose your accounting system- small business run most effectively when there are
system in place. One of the most important systems for a small business is an accounting
system. Your accounting system is necessary in order to create and manage your budget,
set your rates and prices, conducts business with others and files your taxes.
8. Set up your business location-setting up your place of business is important for the
operation of your business, whether you will have a home office, a shared private office
place or a retail location. You will need to think about your location, equipment works
for the type of business you will be doing.
9. Get your team ready. - if you will be hiring employees now is the time to start the process
. Make sure you take the time to outline the position you need to fill and the job
responsibility that are part of each position.
10. Promote your small business- once your business is up and running you need to start
attracting clients and customers. once you have completed these business start up
activities you will have all the most important bases covered. keep in mind that success
doesn’t happen overnight.

NATURE OF A SUCESSFUL BUSINESS

Today the business has become very competitive and complex. This due to the changing tastes
preferences and fashions of the consumers and the introduction of substitutes and cheaper and
better competitive goods.

The old says ‘produce and sell has changed over time’ into ‘produce only what customers want’.

The important liquisites for a successful business in the modern business world are;

 Clean objectives- determination of objectives is one of the most essential liquisites for the
success of business. the objectives set forth should be SMART(Specific, Measurable,
Action, Result, Time bound)
 Planning- the accomplishment of objectives set depend upon planning. it is said that it
does not take time to do things but it takes time to decide, what it does not take time to do
things is a proposal based on past experience and present trends for future action.

9
  Sound of organization- an organization is the art or science of building up systematical
order by a number of various parts. Organization of business a harmonious combination
of men, machines, materials, money, management and methods.
 Research –the business needs to know and appreciate factors like culture , social,
personal and physiological. to do so it must be through a market research . Research is a
systematic search for new knowledge. Research enables a business to find out new
methods of production, ways of improving the quality of products and evolving new
products as per the changing wants and tastes of customers.
 Finance- is the life blood of a business enterprise. It brings together land, labor, machines
and raw materials into production. Proper arrangement should be made for securing
required finance for an enterprise.
 Proper plant, location, layout and size- location of a business should be convenient from
various points of view such as availability of required infrastructure, facilities, skilled
labor, and raw material and nearer to the market. Business men must take sufficient care
in initial stage to select suitable location for the business.
 Efficient management – one of the reasons for failure of business is attributed to poor
management or ineffective management.

BUYING AN EXISTING BUSINESS.

Buying an existing business is less risky than starting from scratch. When you buy a business,
you take over an operation that’s already generating cash flow and profits. You have an
established customer base, reputation and employees who are familiar with all aspects of the
business.

On the downside buying a business is often more costly than starting from scratch. However, it
is easier to get financing to buy an existing business than to start a new one. Bankers and
investors generally feel more comfortable dealing with a business that already has a proven track
record. in addition buying a business may give you valuable legal rights such as patents or copy
rights, which can prove very profitable. to make sure you get the best deal when buying an
existing business be sure of;

10
The right choice-buying the perfect business starts with choosing the right type of business for
you. the best place to start is by looking at an industry with when you’re both familiar and which
you understand.

Think long and hard about the type of business you are interested in and which best Match your
skills and experience. Also consider the size of business you are looking for, in terms of
employees, number of locations and sales. Next, pinpoint the geographical area where you want
to own a business. Assess labor pool and costs of doing business in that area, including wages
and taxes, to make sure of doing business in that to you. Once you have chosen a region and an
industry to focus on investigate every business in the area that meets your requirements. Start by
looking in local newspapers classified section under business opportunities or business for sale.
Contenting a business broker is another way to find businesses for sale. Most brokers are hired
by sellers to find buyers and help negotiate deals. Brokers can offer assistance in several ways;

 Prescreening businesses for you- good brokers turn down many of the businesses they are
asked to sell, whether because the seller won’t provide full financial disclosures or
because the business is overpriced.
 Helping you pinpoint your interest.
 Negotiating – the negotiating process is really when brokers earn their keep.
 Assisting with paperwork-brokers know the latest law and regulations affecting
everything from licenses and permits to financing and escrow.

a closer look- whether you use a broker or go it alone , you will definitely want to put
together an acquisition team- your banker, accountant and attorney – to help you . These
advisers are essential to what is called due diligence, which means reviewing and verifying
all the relevant information about the business you are considering. When due diligence is
done you will know just what you are buying and from whom. The preliminary analysis
starts with some basic questions; why is this business for sale? What is the general perception
of the industry and the particular business, and what is the outlook for the future? Does- or
Can – the business control enough market share to stay profitable? Are row materials needed
in abundant supply? You also need to assess the company’s reputation and the strength of its
business relationships. Talk to the existing customers, suppliers and investors about their

11
relationships with the business. To get an idea of the company’s anticipated returns and
future financial needs, ask the business owner and /or accountant to show you projected
financial statements. Balance sheets, income statements, footnotes and tax returns for the past
three years are all key indicators of a business health.

The following is a check list of items you should evaluate to verify the value of a business
before making a decision to buy;

 Inventory – refers to all products and materials inventoried for resale or use in
servicing a client. Important note – you or a qualified representative should be
personated during any examination of inventory.
 Furniture, fixtures, equipments and building – this includes all products, office
equipment and asset of the business. Get a list from the seller that includes the name
and model number of each piece of equipment. Then determine its present market
condition, market value when purchased verse presents market value and whether the
equipment was purchased or leased.
 Copies of all contracts and legal documents – contracts would include all lease and
purchase agreements, distribution agreements, sub contractors, employment
agreement and any other instruments used to legally bind the business. also evaluate
all other legal documents such as factious business name statements articles of
incorporation, patents etc.
 Incorporation – if the company is a corporation check to see what state it’s registered
in and whether it’s operating as a foreign corporation within its own state.
 Tax returns for the past five years- many small business owners make use of the
business for personal needs. they may buy products they personally use and charge
them to the business or take vacations using company funds, go to trade shows with
their spouses etc.
 Financial statements, for the past five years – evaluate these statements, you should
also evaluate the monthly sales records for the past 36 months or more.
 Customer patterns-if this is the type of business that can track customers, you will
want to know specific characteristics cornering current customers, such as how many

12
 are first – time buyers? How many customers were lost over the past year? when are
the peak buying seasons for current customer?
 Marketing strategies – how does the owner obtain customers? Does He or she offer
discounts, advertise aggressively, or conduct public - relations campaigns?
 Location and market area- evaluate the location of the business and the market area
surrounding it. This is especially important to retailers, who draw the majority of their
business from the primary trading area.

Advantages of buying a business

1. The difficult start- up work has already been done. the business should have
plans and procedures in place.
2. Buying an established business means immediate cash flow.
3. The business will have a financial history , which gives you an idea of what to
expect and make it easier to secure loans and attract investors.
4. You will acquire existing customers, contacts, goodwill, suppliers, staff, plant,
equipment and stock.
5. A market for your product or service is already established.
6. existing employees and managers will have experience they can share

Disadvantages of buying a business

1. The business might need major improvements to old plant and equipment.
2. You often need to invest a large amount up front and will also have to budget for
professional fees for solicitors and accountant.
3. The business may be poorly located or badly managed, with low staff morale.
4. External factors, such as increasing competition or a declining industry, can affect future
growth.
5. Under – performing businesses can require a lot of investment to make them profitable.
6. The seller personality and their established relationships may be a major factor for the
success of the business.

13
14