Entrepreneurship Text Book Unit 2 Module 2

Fundamentals in Entrepreneurship: Module 2
Introduction to Module2: New Venture Planning and Creation
Introduction
It is important at this stage for the entrepreneur to engage in research and planning of the venture.
Proper research and planning will feed the business plan, so that, the documentation process will be
informed. Proper research and planning will also help the entrepreneur in accessing funding. Planning
enables the venture to pursue a course of action to achieve its vision and mission. Planning allows the
entrepreneur to create a frame of reference where by the venture can be monitored for changes and
strategies developed to deal with new situations. The following chapters highlight some key issues that
an entrepreneur should consider in planning and venture creation.
Module Outline
• Chapter 5: Market Research

• Chapter 6: Feasibility Analysis
• Chapter 7: Start-up Capital and Financial Statements.
• Chapter 8: Developing the Business Model
• Chapter 9: The Business Plan for a New Venture
• Chapter 10: Supplement of Activities
• Chapter 11: Module 2 Activities
Specific Objectives of Module
▪ comprehend the importance of market research

▪ understand the importance of feasibility analyses to venture planning
▪ understand elements of business finance for a venture
▪ create an awareness of a business model and its importance to planning
▪ create an awareness of elements of a business plan and its importance to planning
Chapter 5: Market Research (Venture opportunity screening)
Definition of market research
According to 'entrepreneurship.org', market research is 'the process of gathering, analyzing and

interpreting information about a market, about a product or service to be offered for sale in the
market, and about the past, present and potential customers for the product or service.' The term has
also been described as activities such as, information gathering and evaluation designed to link markets
to consumers. Additionally, market research is described as an 'investigation into aspects of the market'
(ABE). This will be used to inform decision making in planning. Moreover, in conducting market
research certain aspects of marketing such as market price, distribution channels, and promotion among
others will be researched. This sometimes lead to the terms, market research and marketing research
being used interchangeably. However, the terms are distinct and should be treated as such.
Consequently, marketing research deals with investigating how to best reach the customer, As, such it
deals with the aspects of the marketing mix.
Sources of data in market research
Data sources can be placed in two categories:
Secondary Research: This entails the researcher using information that has been published by other
sources. Secondary research sources can be:
o Internal to the organization e.g. reports and records on sales; customer buying history; return
on investment;
o External to the organization e.g. industry surveys, companies' annual financial reports, studies in
journals, trade magazines, books, trade associations, mass media, banks.
Secondary research is not necessarily new information and may not meet the objectives of the present
researcher or may be irrelevant. Further, it may have been collected under totally different market
conditions. However, conducting desk or secondary research can assist in reducing risk and cost of
decision making by pointing out unattainable or unsuitable segments.
Primary Research: This is new or primary research. It is collected by the organization or by an agent
hired by the organization. Data in field or primary research can be collected by site visits, questionnaires
focus groups, and surveys. Primary research can be time consuming as well as, expensive if using an
external company to conduct research. It may also suffer from personal bias. However, the researcher
can target specific groups and provide up to date information on the market.
Business researchers in contemporary settings are utilizing more online methods of collecting data. This
involves researching journals and studies online (secondary) and conducting focus groups, sending
online questionnaires and surveys (primary).
Benefits of conducting market research
Conducting market research is important to provide the venture with customer information, customer
information and industry trends. Moreover, market research can help the venture understand threats
and opportunities facing the business. The information from this type of research is important in
formulating and evaluating the venture's marketing strategies. This would include informing the
market segmentation process where there is need to identify different demographic groups. Further,
information provided can be a basis for product differentiation by understanding what the
competitors are providing. Market research is also important in assessing the feasibility of a venture
before extensive capital is invested into the start-up. Additionally, conducting market research can
identify opportunities to improve growth e.g. new markets. Also, information can feed into the
business plan development and reduce the risk in decision making.
Key Elements of Market Research
• Product characteristics: According to Kotler (2003), 'a product is anything that can be offered to
a market to satisfy a want or need.' He describes products as, 'physical goods, services,
experiences, events, persons, places, properties, organizations, information and ideas.' The
entrepreneur must have a clear understanding of the product features in order to formulate the
marketing strategy and meet the customer needs. It is important to understand how the
product is perceived on the market.
Levitt(1980), contends that there are four concepts that combine to give the idea of 'the total
product'. The entrepreneur needs to be aware of these concepts when finding out what the
consumer needs and wants. These are: (a) The physical product or service or the basic product
that provides the core benefit to be gained by the customer; (b) The expected product that
includes the attributes expected by the buyer e.g. packaging, after-sales services, pricing
information; (c) The augmented product that is differentiated from the competitor and offers
extra benefits. This 'exceeds customer expectation'; (d) The potential product is the definitive
product that the entrepreneur can provide to the market.
The entrepreneur needs to also be aware of the distinction between a good or service. The
good is tangible and can be stored for future use whereas, a service is intangible and cannot be
stored. A service that is not used is lost. Key features of a service are: (a) Intangibility, where
the service cannot be seen or touched before actual buying; (b) Inseparability, where the
service cannot be separated from the service provider and the activities are used at the time of
purchase; (c) Perishability, where the service cannot be stored for future use and : (d)
Heterogeneity, in that the service will vary with the service provider and the environmental
circumstances at the time.
The market researcher, should therefore be aware of what the target customer wants and
ensure that the product offering match the customer requirements. The market research
should inform as to who is the buyer and the needs of the buyer; who will influence the buying
decision and the trends in buying needs; competition product offering and the target market
size.
• Market definition: Kotler (2003), defines a market as, 'the set of all actual and potential buyers
of a market offer.' The entrepreneur can utilize the following market definitions in research
and planning. This is important in deciding on which market to measure in market research. The
following definitions are based on Kotler(2003), Marketing Management 11th Edition:
o Potential Market: The set of consumers who express a 'sufficient level' of interest in a
market offering.
o Available Market: The set of consumers who possess an interest, the income and access
to a particular market offer.
o Target Market or Served Market: The segment or part of the available market that the
company decides to pursue.
o Penetrated Market: This consists of the set of consumers who are purchasing the firm's
products.
• Expected sales trends: The researcher should be aware of fluctuating sales tends as this may
point to new trends in the market. Further, sales trends point to issues in customer retention.
The expected sales trend analysis will underscore which customer segments are experiencing
highest sales growth or decline in monetary terms; or how strong is the growth or decline trend.
Understanding sales trends is important for sales forecasting. That is projecting expected
customer demand for a specific company's good or service in a particular time period. This will
inform the entrepreneur of what products to pursue and how much to spend on marketing
efforts and the development of the marketing strategy. According to Kotler (2003), a sales
forecast can be developed based on past sales figures. This can be done by using :
o Time Series Analysis: This entails analyzing past time series. This would be done
according to elements such as trend, cycle, seasonal and erratic. The researcher will
then project the elements into the future.
o Exponential Smoothing: This deals with a projection of the sales for the next period.
This is achieved by using an average of past sales and most recent sales figures.
o Statistical Demand Analysis: This entails a measurement of the impact of factors
(causal) such as income and price on sales level.
• Customer analysis (acsbdc.org): This aspect of market research identifies the target customers
and the needs of the target segment. The research will indicate how the product offering will
satisfy the consumer. Two key element s of the customer profile is(a) Demographic analysis
which groups customers according to age, income, sex, race and education for example; (b)
Behavioural provides an assessment of the factors that cause consumers to choose among
alternatives in the market; (c) Psychographic entails analysing lifestyle and personality;
• Promotional strategy: This involves the use of sales promotion, personal selling, advertising and
public relations. Basically, it incorporates the marketing communication tools. The
entrepreneur will have to decide on the most appropriate promotional strategy.
• Nature and level of competition and market attractiveness: Porter identified forces that
determine the level of competition and market attractiveness. This is also termed an Industry
analysis. These forces pose certain threats to the business. These include:
a) The threat/force of segment rivalry: The target segment can be unattractive if it
is saturated or declining. Moreover, if the segment contains forceful and strong
competitors , it can be difficult to compete. There will be high advertising costs.
b) Threat/force of new entrants: If barriers to entry and exit are low and the
market is attractive then firms will tend to enter the market and profit potential
will be reduced. If for instance barriers to entry are low, but exit barriers are
high, this can result in over capacity in the market.
c) Threat/force of substitute: A market segment can prove to be unattractive if
there is the presence of strong substitutes. Substitute goods can reduce profit
potential.
d) Threat/force of buyers' bargaining power: if the cost of switching between
substitutes is low, then the buyer bargaining power is high. The buyer is more
forceful if the product represents a large part of their costs and if products are
undifferentiated.
e) Threat/force of suppliers' bargaining power: When suppliers are concentrated
and are few in number, they tend to be forceful. Moreover, when the cost of
switching is high and the raw material is an essential input, the supplier power is
greater. The greater the supplier power (ability to raise price and restrict
supply), the more unattractive the segment.
The Five Forces Model provides a base for strategy formulation and deciding whether to enter a market
for new ventures.
Cost-benefit analysis approach to market research
In assessing the cost of market research to a venture the entrepreneur has to consider the research
method to be used and the relative costs of each option available. The size of the sample population
should also be considered in costing market research. In considering a cost -benefit analysis approach
to market research the entrepreneur can look at examples of cost associated with market research:
▪ Time spent by research staff and consultants on research activities;

▪ Resources (of the firm) used in the process such as, electricity, accommodation;
▪ Cost of each research location;
▪ Cost per research participant;
▪ Cost of delaying a product entry into the market as a result of market research;
▪ Opportunity cost of market research in terms of using resources in another area;
Possible benefits of conducting market research entails:
• Lower the risk of product failure on the market

• Create a better profile of customers and market
• Provide a more detailed and up-to date understanding of the venture's environments;
• Identify opportunities in the market;
• Can benefit the organization's image of having a culture of research and learning;
Moreover, the cost of a market research programme is dependent by the research method to be used
e.g. a focus group may be more expensive in terms of location, time, cost of participant than a phone
survey.
After, estimates on cost and benefits of the market research process are done,, the venture can
calculate the return on investment. The return on investment quantifies or shows the dollar worth of
the project. Further, it can highlight additional advantages that may be more qualitative in nature.
Additionally, calculating the rate of return can lend support to the viability of a project. The formula for
calculating Return on Investment (ROI) is:
ROI = (Financial value - Project Cost) / Project Cost
Case Study:
Market Research. Is it necessary?
Stacy had a great passion for pastries and baked products. She decided to establish a small bakery in
her neighbourhood. After discussing her business idea with a friend, she was advised to conduct market
research. This would entail a detailed look into the baking industry to find out what baking products are
most popular and if small bakeries have a chance of survival. Further, she needed to consider the
customer demographics in her neighbourhood. This would inform whether products will meet customer
needs. Additionally, Stacy would have to consider sales trends, competitive forces and defining her
market among other elements. Stacy decided to conduct market research for her venture idea.
Questions:
(a) Define the concept of 'Market Research'.
(b)State TWO key benefits of conducting market research for Stacy.
(c) Outline THREE elements of market research.
(d) Why must Stacy consider the cost-benefit analysis of market research.
Chapter 6: Feasibility Analysis
Definition of Feasibility Analysis
According to Coulter (2003), a feasibility study is a 'systematic analysis of the various aspects of a
proposed entrepreneurial venture.' The aim is to determine the 'workability' of the proposed venture.
The feasibility analysis provides,' an overview of the main issues of the business idea. It is designed to
identify the issues that would hinder or prevent the venture form succeeding. Consequently, the
feasibility analysis is a study that determines whether the venture idea makes sense and can be realized
effectively.
Purpose of a feasibility analysis
Conducting a feasibility study can serve the following functions/purpose:
▪ The analysis of the proposed venture can provide a case for accessing funding from investors or
financial institutions for implementation of the idea;
▪ The feasibility analysis can be a base on which to formulate the business plan
▪ It questions the potential venture's ability to generate profit;
▪ It questions whether there is a target market for the good or service.
▪ It identifies alternative courses of action.
Benefits of a feasibility analysis
Key benefits of a feasibility analysis includes:
▪ It provides information that is necessary to formulate the business plan e.g. market analysis;
▪ It identifies the barriers that may prevent realizing the idea, so that he entrepreneur can be
warned before making major investments;
▪ It provides the basis for future action or discontinuation of the idea;
▪ It will entail an understanding of risk, cost, time and benefit associated with implementation of
the plan;
Key elements of a feasibility analysis
The feasibility analysis should contain the following elements:
• A needs analysis to identify what this venture aims to deliver and what is the expected
customer requirements. Also, the entrepreneur should evaluate his/her personal traits and
whether he/she has the capability to bring the idea to fruition.
• Describe the venture: This would include location, the product(s) being offered, how the
product will be made. Also included will be a description of the industry and economic trends.
Information should be provided on the strengths and weaknesses of the venture.
• Market Feasibility: This would include analyzing the need for the good or service. It will outline
what problem will be solved when using this product. Additionally, it will identify trends in the
market that will provide opportunities and identify challenges. The entrepreneur will also have
to describe the market structure, existing channels of distribution and barriers to entry.
• Marketing Feasibility: This would include:
o Detailed good or service description in terms of performance, cost, availability, social
factors, service(after-sale service), environment or physical evidence( location, layout
etc.).
o Employee requirements (people) in terms of service delivery.
o Target market identification: This is in terms of whether the venture will serve
consumer markets or business markets. consumer markets will be segmented according
to demographic, psychographic or social status bases. Whereas, the business market
will be characterized by the business organizations that purchase the product. the
criteria used by these businesses to effect buying will also be analyses in terms of what
the venture can deliver e.g. technical support, price, range of products.
o Placing of the product: Detail the channels that will be used to distribute the product
(direct or indirect); financial cost and time considerations.
o Pricing determination: Details of competition pricing , price lists from competitors,
pricing strategy for the venture e.g. market penetration pricing, price-skimming or cost-
plus pricing for example.
o Promotion: Assess the role of advertising, personal selling, sales promotion and public
relations to the venture. Consider target market reach and cost benefit factors.
• Financial Feasibility: This would include an assessment of the following:
o Costs: In terms of start up costs, equipment, building, fixed costs and variable costs
o Equity needs
o Funding from loans
o Collateral requirements
o Working capital
o Cash flow analysis
o Income and Profit and Loss analysis
o Revenues: estimate sales volume, price determination
o Costs of alternatives e.g. cost of internal manufacturing, cost of outsourcing or sub
contracting
o Direct labour cost, material cost
o Estimate depreciation expense
o Operating expense (sales and marketing, administrative etc.)
o Break even analysis
• Operational Feasibility: This aspect analyses the operations of departments or functional areas
or divisions in a business for effectiveness. It breaks down the efficiency of the venture's
operations.
• Time Feasibility: This seeks to understand whether the venture has the time to complete tasks.
• Industry Feasibility: This seek to understand trends in the industry in terms of attractiveness;
challenges such as legislation; trade cycles (boom and recession; and survival rates for firms for
example.
• Cultural Feasibility: This is a study of the venture's impact on the' local and general' culture.
The culture of the environment in which the venture hopes to operate is evaluated in order to
avoid potential cultural 'conflicts' between the business culture and the environmental culture.
Moreover, cultural feasibility can influence a venture's decision making in terms of its offering to
the environment.
• Economic Feasibility: This involves assessing the cost-benefit of a project. The entrepreneur has
to judge whether the benefits of an endeavour are worthwhile to pursue. This study will assess
whether the venture/project is justified and can be accomplish given cost constraints.
Review Questions
(a) Explain the concept of a 'feasibility study'.
(b) State TWO key purposes of a feasibility study.
(c) Outline THREE benefits of conducting a feasibility study.
(d) Describe THREE elements of a 'feasibility study' that is beneficial for the entrepreneur to conduct in
researching a venture's viability.

Chapter7: Start -up Capital and Financial Statements
Sources of Funding
In deciding the sources of funding the entrepreneur must first assess how much money will be needed
and in what time frame. This will depend on the type and size of the venture e.g. a retail business (less
capital needs) versus a capital intensive construction or manufacturing business. Sources of funding
include:
 Equity Financing: This is where the entrepreneur sells ownership in the venture to acquire
financial investment. Equity investment allows the investor to become a shareholder in the
enterprise and share in the profits of the business. Equity in a business can be in the form of
ordinary or preferred stocks or 'membership units' in a private company.
 Personal Savings: This can include life insurance policies where the owner can borrow against
the cash value of the policy; Home equity loans where the entrepreneur accesses a loan backed
by the value of the equity of the property; Family and Friends where the entrepreneur accesses
private financing from family and friends. This can take the form of equity financing in which
the family or friend becomes an owner in the business.
 Venture Capital: Venture capitalist are individuals or firms that finance or invest in start- up
ventures. Coulter (2003), describes venture capital as 'external equity funding provided by
professionally managed pools of investor money.' Venture capitalist tend to provide financing
in exchange for ownership stake in the venture. Venture capitalist prefer to invest in businesses
with a competitive advantage in the market.
 Angel Investors/Angel funding: Angel investors are private investors who tend to finance
ventures in the early stages of survival. They prefer 'high-risk/high-reward opportunities
(Coulter, 2003). Moreover, the angel investor is described as an equity investor who finances
the venture for an ownership stake.
 Government Grants: Government or institutions(foundation grants) can provide financing in the
form of grants to facilitate start up ventures in specific fields or to develop entrepreneurship.
 Bequest: According to investopedia.com, bequest is the 'act of giving personal property or
money such as stocks, bonds, jewellery and cash left to an individual or organization through the
provisions of a will or estate plan.' Ventures, especially non-profit can be the beneficiary of
bequest and can utilize as a source of funding.
Review Questions
(a) Outline THREE forms of financing that a start-up venture can access.
(b) Compare' venture capitalists' with 'angel investors'.

The Accounting Cycle
The accounting cycle deals with the steps the business goes through in accounting for all transactions
during the financial year or accounting period. The basic accounting cycle involves:
Step 1:
Analyze all
transactions
Step 10:
Step2: Prepare
Reverse
journal entries
entries
Step 9: Preparation
Step 3:Post to
of post closing trial
ledgers
balance
The Basic Accounting Cycle
Step 4: Prepare
Step 8: Close unadjusted trial
balance
Step 7: Prepare
Step 5: Adjust
financial
trial balance
statements
Step 6Prepare
adjusted trial
balance:
Source: acountingexplained.com; www.accounting.com; www.2.aku.edu

Step 1: This involves the entrepreneur analyzing the business transactions by examining the source
documents such as purchase orders, invoices, bank or financial statements.
Step 2: This entails journalizing the transactions using double entry (debit and credit). Also, each
transaction must be entered in at least two accounts ( debit and credit).
Step 3: Items from the journals (debits and credits) are posted or transferred to the ledger. This is a
collection of all the venture's accounts.
Step 4: Preparation of the unadjusted trial balance. The trial balance shows all the venture's accounts
and the ledger balances. It shows whether the debits equals the credits.
Step 5: Preparation of the adjusting entries in the general journal then to ledger. This is where the
entrepreneur or accountant brings the account balance for an asset or liability to the correct amount.
The relevant revenue and expense account are also updated. all adjusting entries are made at the end
of the accounting period.
Step 6: Preparation of the adjusted trial balance. This is so called because it is prepared after the
adjusting entries. This is important to show that the venture's debits equals credits.
Step 7: Preparation of financial statements: The entrepreneur should prepare a series of financial
statements. This should be systematically done. Firstly, the income statement, then a statement of
retained earnings followed by the balance sheet and the cash flows, respectively.
Step 8: Preparation of closing entries. This is necessary to prepare the accounts for transactions for the
next accounting period.
Step 9: Prepare a post-closing trial balance. This entails the debit and credit balance for the permanent
accounts remaining after the closing period.
Step 10: This is an optional step for ventures. This involves reversing entries. This reverses certain
adjustments made for the next accounting period.
Review Questions
(a) Outline THREE key steps in the Accounting Cycle that the entrepreneur needs to consider in
accounting for the venture's transactions.
(b) State ONE benefit that the entrepreneur can gain from knowledge of the Accounting Cycle.
Accounting Concepts
Accounting information are based on certain key concepts. These include:
• Dual Aspect or double entry principle: This specifies that total assets must equal total equity
(owner's equity plus liabilities). This is also called the accounting equation. Moreover, this
concept emphasizes that every transaction must affect at least two items and that a change in
total assets must equal a change in total equity.
Assets = Liabilities + Owner's Equity
Assets: Economic resources of a business such as property, machinery, stock of goods, vehicles;
Assets can be divided into (a) Fixed Assets: Assets kept for a long period of time and used over a
long period in the business e.g. furniture, building, machinery; (b) Current Assets: Assets which
are used up daily in the business or change daily e.g. raw -materials, cash in hand, cash in bank.
Liabilities: Deals with what the business owes to lenders for the assets; This includes Liabilities
which are debts or obligations which have to be paid in the near future e.g. goods bought on
credit.
Owner's equity: Deals with the claims of owners to the resources of the venture;
inputs/resources provided by owners/shareholders. Also referred to as capital and net worth.
• Entity Concept: The accounting records are done for a specific business entity, separate from
the owners of the business.
• Cost Concept: The assets are recorded at the cost to acquire them.
• Time Period: The lifetime of a business entity can be divided into discrete periods for
accounting purposes.
• Retained Earnings: These are the claims on the business assets that results from earnings that
has not been paid to shareholders as dividends.
• Accrual Concept: The net profit is the difference between the business revenues and expenses.
• Realization Concept: Profit should only be accounted for when buyers receive the products and
agree pay for the products. In this concept, a monetary value must be ascribed to the goods
and services and the buyer should have the facilities to pay the seller.
• Money Measurement Concept: The accounting aspect is mainly concerned with facts that can
be measured by money. It is quantitative rather than qualitative in nature.
• Going Concern Concept: This implies that there is a degree of permanence to the business and
that it will continue operations in the foreseeable future. Moreover, if this is the case for the
business, then the assets should be recorded at cost when valuing them.
Importance of Financial Information in Venture Decision Making
Managers and small business owners require accurate financial information to make key decisions since
most decisions have financial consequences for business. Financial information is important in tracking a
venture's profitability and in accounting for shareholders' value. The information provided in financial
statements provides information that is useful to present and prospective creditors and investors and
others who may be involved in decisions relating to investment and forms of financing.
Financial Statements
A. The Balance Sheet

The Balance Sheet gives a summary of assets, liabilities and equity of a business entity. This is
prepared as at a specific date. The basic aim is to facilitate decision making. It provides
information on the financial position of an entity and its ability to meet its debts and obligations.
Diagram 1: Shows the Balance Sheet outline for XYZ ... using a vertical style.
XYZ
Balance Sheet
as at December 31, 20XX
$ $
ASSETS
Current assets (short term)
Cash x
Accounts receivable x
Inventory x
Prepaid expenses x
Total current assets X
Long- term investments held for future use e.g. land x

Fixed assets (property, equipment)
Land x
Building x
Equipment x
Total fixed assets X
Total Assets _________
Liabilities and Owner's Equity
Current Liabilities
Accounts payable x
Salaries payable x
__________
Total current liabilities X
Long term liabilities
Mortgage payable x
Total Liabilities X
Owner's Equity
Capital x
Total liabilities and Owner's equity ________

B. The Income Statement
The income statement or profit and loss account is a financial statement that shows the
revenues and expenses of the venture. It results in the profit or loss over a specific period of time(
Coulter, 2003). Further, the income statement shows how good or poorly the venture did financially in
the year. The following is an example of a multistep income statement.
XYZ Start up
Income Statement
For the year ended December 31, 20XX
$ $
Revenues:
Sales (less returns and allowances) x
Less: Cost of goods sold (x)
Gross margin or profit on sales X
Less: Operating expenses:
Distribution expenses x
Administrative expenses x
_________
Total operating expenses (x)
____________
Income from operations X
Other revenues
Rent revenue x
Interest and dividend x
Gain on the sale of equipment x
___________ X
Other expenses
Interest expense x
Sales tax expense x
Loss on sale of investments x
___________ (X)
________________
Income before income taxes X
Less: Income tax expense (X)
_______________
NET INCOME X
_______________
C. CASH FLOW STATEMENT
The cash flow statement is a summary of the results of all cash transactions during the specific
reporting period. It shows how the business gets cash (inflow) and how the business spends
cash(outflow). A comprehensive cash flow statement incorporates the following:
o Cash Flows from operating activities: This refers to items related to the acquisition and
sale of goods and services e.g. payments of wages (outflow); collections from
customers(inflow); profits(inflow); loss (outflow)
o Cash Flows from investment activities: This refers to items related to acquiring or
disposing of long term assets such as, property, plant and equipment e.g. sale of
property, plant or equipment (inflow); capital expenditure(outflow);
o Cash flows from financing activities: Items related to the acquiring or liquidating of long
term financing (debt and equity capital) such as, resources/funds from owners or
payment of invested capital to owners e.g. owners' investment (inflow); issuing of a
bond(inflow); withdrawal made by owner (outflow).
Example of a Cash Flow Statement
Cash Flow Statement
XYZ Start up
For year ending 31 December 20XX
$ $
Cash flow from operating activities
Net profit x
Payment of wages (x)
Collections from customers x
________
Net cash flow from operating activities X

Break-even Analysis
Breakeven point is the quantity of output sold where the total revenues equals the total costs. At this
point the operating income is zero. It is described as the level of sales at which profit is zero. The
breakeven point is important to entrepreneurs as it shows the output level that must be sold to avoid
losses. the venture will have to cover its variable and fixed costs to avoid a loss. In explaining the
concept of break even, one must consider the following: a) Breakeven Point occurs where
Sales=Variable Costs + Fixed Costs b) Profit occurs when Sales is greater than( Variable Costs+ Fixed
Costs) c) Loss occurs when Sales is less than (Variable costs + Fixed Costs).
In calculating the breakeven point the entrepreneur can consider the following methods:
 Equation method
 Contribution margin method
Equation method can simply be done by considering the following:
Sales price per unit = $40
Variable cost per unit = $20
Fixed costs = $1000
Q is quantity
Breakeven point is where profit is zero
Breakeven point can be calculated by: Sales = Variable costs + Fixed Costs + Profit
$40Q = $20Q + $1000 + $0
$40Q- $20Q -$0 = $1000
$20Q = $1000
Q = 1000/20 = 50 units
Breakeven quantity is 50 units
Break even sales in dollars is 50 x $40 = $2000

Contribution Margin Method
Variable cost per unit = $20
Fixed costs = $1000
Q is quantity
Breakeven point is calculated by: Breakeven units = Fixed Costs/contribution margin per unit
Contribution Margin per unit= Sales price per unit- Variable cost per unit = $40 - $20 = $20
Therefore, Breakeven units = 1000/20 = 50 units
Benefits of using breakeven analysis includes:
• It highlights the minimum quantity to be sold to prevent losses;

• It shows the relationship among costs, price and sales volume;
• Help in goal determination and can help the start up venture understand what output is
required for profits;
• Help in understanding if a venture proposition is viable;
Limitations of using breakeven analysis includes:
• Not a suitable means of analysis for more than on product at a time

• May not reflect price changes at different output levels
Review Questions
(a) Define the concept 'break even analysis'.
(b) Outline ONE method of calculating 'break even'.
(c) State ONE benefit and ONE limitation of using break even analysis for the entrepreneur.
Savings and Investment Options
Investing is about taking risks, the entrepreneur has to consider how to achieve the short term, medium
term and long term goals of the venture. He/She has to diversify or spread the risk of savings and
investment. Savings usually bear lower risk and rates of return than investment.
Category: Savings
Objective: Meet short term needs
Instruments:
• Interest bearing checking and savings account which carries a low risk;
• Certificate of deposits which carries a low risk.;
• Treasury bills carries a low risk;
Category: Investments
Objective: Long term growth prospects
Instruments:
• Stock: Ordinary and Preferred Stock carry medium risk;

• Bonds are low risk;
• Mutual Funds tend to carry a medium risk;
• Money market funds which carries low risk;
• Futures which carries a high risk;
Group Activity:
Students go into groups (3 to 4) and each group takes an instrument, researches the instrument and
presents to the class. Criteria includes:
• Definition
• Objective
• Risk
Chapter 8: Developing the Business Model
Description of a business model
According to Osterwalder, Pigneur, Tucci (2005), 'A business model describes the value an organization
offers its customers and illustrates the capabilities and resources required to create, market and deliver
this value and to generate profitable, sustainable revenue streams.' According to MaRS: Fundamentals
of Entrepreneurial Management (2012), the above definition gives a 'holistic' of the venture rather than
simply focusing on the business model being described as 'how you make money'.
Components of a business model (refer to SBA component for additional

information)
• Value Proposition: It is important to show how you, the entrepreneur will create value. This is
central to the business model. The value proposition must be determined before making other
business decisions. The value proposition informs the business model of how the business will
generate money, the nature of main operations, how the business will acquire customers. The
value proposition entails :
o Making a connection with the target group. The type of communication
channels that will be used such as, personal contact, mass media (television,
radio, social media, smart phones). The communication channels should be
assessed to determine strengths and weaknesses and cost factors. Additionally,
sales channels must be determined. This would include direct channels such as
in person or indirect channels with the use of an intermediary. Intermediaries
include sales agents, wholesalers and retailers. Moreover, the entrepreneur
should consider the cost of choosing the channel and its geographic spread.
Logistics in terms of the physical delivery of the goods and services to the
customer is important in terms of the type of product e.g. Microsoft can deliver
some of its products over the internet while some products have to be
produced/manufactured close to the target market.
o Product offering is another aspect of the unique value proposition. The
entrepreneur should offer a good or service or a combination of both to meet
the needs of the target customer. He or she needs to detail the important
characteristics or traits of the product/s. A description should be given about
what the product does and the distinct features it possesses. The benefits or
the utility provided by the product to the target customer should be discussed.
The production method of the venture must also be included to show whether
the product will be mass produced to provide a standardized product. A
customized production method would mean that the entrepreneur is producing
to meet the individual needs of each customer.
o The entrepreneur should also state whether he/she intends to outsource any
aspect (core or peripheral) to an external party or engage in internal
manufacturing
o Competition must also be analyzed. This would detail the ventures competitive
advantage over the competition. There should be a listing of competitors and
the respective products and location.
o The brand should also be assessed in terms of its meaningfulness to the
customer, the uniqueness of the brand and market share.
• Beneficiary: This section of the business model describes for whom does the business create
value. This would include:
o Business to Business (B2B): This entails the transactions between a business
and its suppliers or other business entities.
o Business to Consumer (B2C): This entails the business retailing goods and
services to the final consumer.
o The business could be involved with both B2B and B2C types of transactions.
o Business to government: Transactions between the business and government
organizations.
o The beneficiaries should also be described in terms of whether the business is
targeting the local/domestic market; the regional or international market; or a
niche market.
• Operations or operational overview: This entails an overview of the internal capabilities of

business. This encompasses the following:
o Production activities: Entails a description of the processes that are necessary
to produce the good or service such as, production methods, quality control
procedures, purchasing and inventory controls, fixed and variable costs
breakdown.
o Human Resource Planning: All the skills and abilities needed to provide an
efficient labour force; training and developmental needs; demand for labour
forecasting and supply sourcing.
o Location advantages and disadvantages such as, proximity to target customers,
accessible transportation routes, zoning policies, access to low labour costs and
materials.
o Capacity planning and equipment requirements: Details on the physical facility
or plant layout and whether plant is leased or purchased. The costs should be
stated. Equipment needs must also be assessed along with costs and timing
factors.
• Product Differentiation: This details how the entrepreneur intends to differentiate his/her
product in the market. A description of how the differentiation strategy will lead to competitive
advantage. Details on whether the competitive advantage is clear and how significant it is in the
markets should be given e.g. good or service quality differentiation in terms of standard of raw
materials used or delivery of service; uses of the product. Competitive advantage determinants
include location advantages, technological know -how, patent, cost leadership advantage, brand
loyalty. Moreover, the business will describe the research and development processes to bring
about innovation. the business will assess its ability to innovate. Competitive advantage will lie
in the business having innovative leadership. Further, consideration will be given to the
networks developed by the business in terms of supply chain and distribution networks;
accessing funding and contractors for labour and services.
• Income generation: This outlines how the entrepreneur intends to make money. This would
entail:
o Access to funding for the business such as, owner's equity, source of funding.
o Describe gross profit margins whether high or low.
o Outline sales volumes such as high, medium or low.
o Outline credit policies and profit projections.
o Describe the operating leverage in terms of fixed and variable costs.
o State the main financial objectives in terms of profits and sales targets.
o Prepare financial statements and break even analysis.
o Describe the pricing strategy e.g. fixed pricing, flexible pricing, penetration
pricing, market skimming pricing etc.
o Revenue in terms of how it is generated e.g. from the sale of goods and services
or advertising based revenue. It is important to know what a business charges
the customers and how activities are built around customer satisfaction.
• Growth: This is in terms of the time line and venture ambitions. The Growth aspect has
implications for the venture's strategy, economic performance and resource management for
instance. It is important for a business model to the time, scope and size ambitions of the
venture or what is the aim of investing in the business. Models of venture ambitions include:
o Subsistence Model: The venture's aim is to basically survive and meet the
obligations of the venture e.g. financial obligations such as, paying workers,
paying creditors.
o Income Model: This type of 'investment model' is where the entrepreneur
invests in the venture so that it is able to generate a steady and consistent
income flow.
o Growth Model: The entrepreneur invests significantly at the start and there is
reinvestment in the venture with the aim to increase and grow the value of the
venture. this will be done until the venture can generate increased capital gains
or returns for investors.
o Speculative Model: The time frame for the venture is shorter and the
entrepreneur has to show the venture's potential for success before selling the
business.
Case Study
Business Model! What?
In 1999, Marco received a bequest from his late father's estate. He decided to weigh his options. Option
one was to invest on the stock exchange. Option 2 was to follow his dream of becoming an
entrepreneur. He wanted to establish a computer repairs, sales and services business venture. Marco,
researched the benefits and drawbacks of each option. He realized that to open the venture would
require more financing. Moreover, he had to consider different financing option such as going to the
bank, venture capitalist or angel funding. His research resulted in financing source requiring a detailed
business plan with a comprehensive business model. Marco knew what a business plan entailed.
However, he was surprised to find out about a 'business model'.
Questions
(a) Define the concept of 'a business model'.
(b) Explain what is a 'value proposition' .
(c) Outline TWO areas (other than the value proposition), that Marco needs to consider in writing the
detailed business model.
(d) Give the meaning of the term "bequest'.

Chapter 9: The Business Plan for a new venture
A business plan is a key result of the entrepreneurial planning process. This is a written document that
outlines what the entrepreneur intends to do in the venture and the key steps and requirements to
achieve the venture's mission and vision. According to Coulter (2003), the business plan 'becomes a
blueprint and road map for operating the ongoing business..'.
Purposes of a business plan
Coulter(2003), outlined five key purposes of a business plan to an entrepreneur. These are outlined
below:
❖ 'Development tool for organizational founders': Entrepreneurs are guided by the structured of
the plan, so while opportunities are assessed they must ensure key areas are addressed. It
allows the entrepreneur to strategically plan rather than an ad hoc approach to address ideas.
❖ 'Clarification of vision and mission': The business plan communicates to an audience what the
venture seeks to achieve. What the venture wants to become in the future and how the venture
will coordinate its functional areas to achieve the vision.
❖ 'Define planning and evaluation guidelines for venture management': The business plan guides
he entrepreneur beyond the startup of the venture. It engages the venture in planning and
evaluation at different stages of the venture cycle and helps in goal clarification and attainment.
However, while it clarifies a path, it should consist of scenarios that would help the
entrepreneur deal with uncertainties in the environment e.g. government regulations.
❖ 'Key tool for accessing funding for venture': The business plan will require the entrepreneur to
engage in projected income statements, cash flow analysis, cost analysis, break even analysis
and balance sheets for example. This will guide potential lenders as to the risk in investing in or
financing the venture.
❖ 'Tool for guiding venture growth': A business plan should provide some guidelines for taking
advantage of opportunities in the environment. It is important to plan for growth and provide a
foundation to build the venture.
Criticisms of planning
While planning the venture provides a rationale for action, criticisms have emphasized the point that
planning may create a lack of flexibility or rigidity in the organization making it difficult to respond to
changes in the external environment. Moreover, it is difficult to plan in uncertain or dynamic
environments. Theorists also contend that formal planning is not a substitute for innovation and
creativity and that the focus is on capitalizing existing opportunities. Further, planning may also lead to
the organization becoming complacent in the face of success. (Cited in Entrepreneurship in Action 2nd
Edition by Coulter (2003); Sources J. Moore (1996); G. Hamel and C.K. Prahalad (1994); Mintzberg
(1994)).
Characteristics of a successful business plan
According to P. Gallagher (2001) and L. Elkins (1996) in Entrepreneurship in Action 2nd Edition by
Coulter(2003), successful business plans possess ten characteristics. The business plan should provide
clear and realistic financial projections, detailed market research and competitor research, descriptions
of key decision makers, thorough summary, proof of vision, possess clear writing and good formatting.
Moreover, it should be brief and concise and show an understanding of the 'bottom line'. The business
plan should reflect the entrepreneur.
Benefits of a Business Plan
According to Kuratko(2011), constructing a business plan benefits internal and external stakeholders of
the organization. Entrepreneurs benefit by taking a critical view of operating strategies. Externally, it is
used as a tool to source financing. It provides key information to potential investors such as the
venture's ability to service debt and provide reasonable return on equity. Moreover, the business plan
can highlight risks and plans to deals with events that may occur. It provides information to evaluate
the business.
Key benefits of the business plan includes:
❖ Providing a framework for ensuring that key areas of the plan are thought through;
❖ Providing guidance to the entrepreneur as to the vision for the venture and what the
entrepreneur wants out of the venture;
❖ Provide scenarios and ideas to treat with market dynamics;
❖ Assist the entrepreneur in communicating the business idea to internal and external
stakeholders;
(Source: Elements of a Business Plan: First Step for New Entrepreneurs by Cole Ehmke and Jay
Akridge)
Key Sections of a business
Business Plan 1
Coulter(2003), contends that a good business plan should contain six areas. Namely, an executive
summary, opportunity analysis, analysis of context, business description, financial projections and
supporting documents. These areas are outlined below:
Table 1: Elements of the business plan.
I. The Executive Summary is the first element that the audience is introduced to. It points out key
information about the venture. The summary should be 'concise' yet 'comprehensive' (Coulter
2003). It contains brief statements on:
• Vision and mission
• Primary goals and objectives

• Venture history
• Possible time line
• Key persons
• Product (good/service) description
• Market
• Competitors
• Competitive Advantage
• Proposed Strategies
• Summary of Financial Information
II. Analysis of opportunity. This entails the following:

• Describe demographics of the target market e.g. customers, expectations;
• Describe and evaluate industry trends e.g. growth , stability, decline;
• Competitor analysis e.g. competitor strengths and weaknesses, competitive strategies;
• Feasibility study feedback
III. Analysis of the context (the wider context of the business).

• Description of broad external changes and trends in the macroeconomic environment
e.g. state of the economy, economic trends, inflation, interest rates;
• Evaluate government regulations;
• Assess technological trends;
• Describe global changes and trends as necessary
IV. Description of the business.

• Vision and mission statements;
• Description of the desired organizational culture;
• Marketing Plan i.e. marketing strategy, pricing strategy, sales strategy, service policies,
advertising and promotion policy;
• Product development plans including development status, risks and costs
• Operational plans which includes proposed geographic location; facilities management,
equipment, work flow analysis;
• Human Resource Plan which entails a description of core employees; board of directors;
human resource planning; compensation, training needs, time line of events
V. Financial Data and Projections: Financial plans should show projections for at least three years
and be as realistic as possible. This includes:
• Projected income statements
• Pro-forma cash flow analysis
• Pro forma balance sheets
• Break -even analysis
• Cost controls
VI. Supporting Documentation: There is need to support or provide evidence for items in the
business plan. This will be in the form of charts, graphs, tables, photographs, research data to
support descriptions.
Business Plan 2
Table 2: Elements of the Business Plan: Based on the work of Kuratko and McDonald, 'The
Entrepreneurial Planning Guide.'
Section 1: Executive Summary: This will capture the audience's attention. It summarizes the elements
of the business plan in for the most three pages.
Section 11: Business Description: Provide a general description of the business such as name, vision,
mission, what the business does; Provide a background of the industry to which the venture belongs
and a history of the business; Describe the goals and potential of the venture and the competitive
advantage in terms of its uniqueness.
Section 111: Marketing: Provide research and analysis to show target market that is identify customers;
Analyze market size and market share and trends; Engage in competitor analysis and establish how the
venture is different from the competitors. Show the pricing strategy and advertising plans with the
necessary cost estimates. Produce a marketing plan to show marketing strategy for distribution, price,
promotion etc.
Section 1V: The Operational Plan: This section describes and justifies location of the venture e.g. access
to raw materials, zoning, cost of labour and supplier relationships. It specifies the production area
requirements and describes how the venture will be operated. Human resource requirements are also
described as well as, an estimate of the operation costs.
Section V: Management of the venture: This section describes the management team in terms of
profiles and qualifications. The nature or legal structure such as whether will operate as a sole trader or
company will be detailed. The advice of consultants will be addressed in this area. Compensation issues
will also be outlined.
Section V1: Financial Plan: This section will provide pro forma financial statements or projections of the
income or profit and loss; cash flow; break even analysis; budgets and costing. Moreover, it will entail
sources of funding and uses.
Section V11: Critical Risks Analysis: The risk analysis will highlight any potential problems, obstacles and
critical risks the venture is likely to face, internally and externally. The entrepreneur will outline the
alternatives available to deal with such issues should they arise.
Section V111: Harvest Strategy: The plan will describe how to maintain liquidity such as an IPO( Initial
Public Offering or sale; A plan for leadership transition in the organization will also be described in this
section.
The business plan will also propose a time line to project the completion time for each part of the
venture. a bibliography and appendix will also be included to show supporting documentation for plans.
Case Study
My Idea Will Work
In the year 2000, Josh left secondary school with the dream of becoming a successful entrepreneur. He
had an idea of creating a punch shop. He conceptualized this idea by deciding that he liked to drink
punch and he had seen many people purchasing the product in other geographical areas. Josh had a
small savings but this was unlikely to be enough financial capital to start the business venture. He
discussed the idea with his former business teacher who advised him to visit a NEDCO office.
At NEDCO's office he told the officer he wanted to access a loan of $50 000 to open his punch business.
The officer outlined the basic requirements of loan financing. she told him that to become a client, he
needed to submit a series of documents. These include valid identification card; proof of address; letter
of permission to operate; recent utility bills; lease/rental agreement; two passport photos; business
plan; cash flow statement; invoices, quotations; business registration; resume; recommendations; trade
references; collateral; guarantor (job letter, financial statements, payslip) (nedco.gov.tt).
Josh left the office more knowledgeable and more than a bit concerned.
Questions
(a) Define the term 'business plan'.
(b) Outline THREE key areas of a business plan.
(c)Advise Josh as to the importance of the Cash flow Statement.

Chapter10: Supplement of Activities
Sample Survey Instrument
Objective of survey: To gather data for a needs assessment of student's venture idea.
Questionnaire
Section 1: Customer Demographics (the intention is to gather information on the potential target
market segment and to evaluate against the marketplace)
1. What is your monthly household income?

o Less than $ 5000
o Between $5000-$6000
o Between $6000- $8000
o Between $8000-$10000
o Between $10000-$15000
2. Where do you live?

o East /West corridor
o South
o Central
o North
3. Do you use or buy________________

o daily
o weekly
o monthly
o never
4. On average, how much do you spend on____________? $_________
5. When you think of ________, which brand comes to mind?______________
6. Which brand/s are you familiar with?_______________________
7. How likely are you to purchase____________?

o not likely
o very likely
o indifferent
o not at all
8. How much are you willing to pay for__________?

9. Given the information(provide information), do you think this product is expensive or
inexpensive?
o expensive
o inexpensive
o don't know
10. Are you likely to recommend this product to a family or friend?
o Yes
o No
11. How would you like to receive information on this product?
o Television
o Online
o Radio
o Newspaper
o Multi- media
o Other
The survey questionnaire will help the entrepreneur to ascertain who are the potential customers for
the idea, evaluate the competition and the unique features of the idea in relation to existing products.
Moreover, it highlights where the potential customers are located. Further, the survey should point to
how the entrepreneur intends to promote the product.
Section 2: Entrepreneur Self Assessment (for the entrepreneur)
The entrepreneur needs to ask himself/herself questions and respond honestly to ensure that he
venture idea is feasible from a personal perspective.
1. Do I have the skills and abilities to develop this venture idea?

2. Am I ready to undertake the risk of being an entrepreneur?
3. Can I deal with the challenges I will face in developing this idea?
4. Can I deal with failure?
5. What is my vision ?
6. Am I passionate about this idea?
7. Am I able to engage in the necessary market research and continuous assessment of the
environment to assess the viability of the idea?
8. Can I engage in the internal analyses of the venture e.g. financial accounting, developing the
marketing plans?
9. Am I aware of my training needs ?
10. I am emotionally ready for developing this venture idea?
11. Am I realistic about this venture's idea?
12. What input resources are necessary for this venture?
13. Do I have the means of accessing and acquiring resources?
SWOT Analysis
A SWOT Analysis describes the Strengths, Weaknesses, Opportunities and Threats facing an organization
or individual. Strengths and Weaknesses are internal factors that are present in the organization or
individual. Whereas, the opportunities and threats are factors in the external environment that can
impact the organization or individual.
The SWOT analysis gives the entrepreneur an understanding of the present situations in the business. It
highlights the organization's ability to use its strengths to overcome weaknesses and capitalize on
opportunities while minimizing threats. Moreover, the entrepreneur can use the SWOT analysis to
emphasize the core competencies (what the venture is good at and what is valued by the customer) that
can assist in creating a competitive advantage. These core competencies separates a business form the
competitors. In identifying strengths, the entrepreneur can identify the core competencies of the
business.
On a personal level, the SWOT analysis can help a person to reflect on factors that affect the
achievement of one's goals. It can help an individual to assess present capabilities and how to use
these capabilities to achieve one's best.
Weaknesses in the analysis deals with what is hindering the business from achieving its goals or what is
preventing the individual of excelling in life or work. These weaknesses needs to be corrected and
overcome. Weaknesses are within the control of the organization.
Opportunities present in the external environment allow the business or individual to improve internally
and grow the business. Threats in the external environment deal with challenges that the individual and
the firm will likely face. Threats are beyond the control of the firm.
Outline of a basic SWOT analysis for a business
Strengths:
• being a market leader

• patent
• strong leadership and management
• sound financial backing
• skills, attitudes and belief of the human resources
• employee loyalty
• strong brand name
Weaknesses:
• high costs
• low market share and image
• weak brand name
• lack of managerial expertise

• obsolete production facilities
• lack of strategic direction
• low employee morale
• weak leadership
• poor location
Opportunities:
• removal of barriers to new markets

• strategic alliances
• development of new technology for the industry
• new customers
• social trends
• improvement in standard of living
Threats:
• increased government regulation in the industry

• changes in buying habits and taste
• recession
• increased market presence of competitors
• political instability
The Entrepreneur's Personal SWOT Analysis model.
In conducting a personal SWOT analysis profile, the student/entrepreneur should ask critical areas
relating to strengths, weaknesses, opportunities and threats. It is important to be honest in order to
facilitate an accurate, meaningful and useful analysis.
Table 1: Model of a Personal SWOT analysis. Sample of questions for self assessment. After answering
questions students/entrepreneur can place into the relevant area of the SWOT analysis. Examples
include:
Strengths
• What are my special abilities?

• Do I have talents to harness?
• Have I developed a strong network?
• Am I motivated?
• Do I have the ability the set goals?
• Can I envision where I want to be in the future?
• What is my ethical stance on issues?

• How do my family and friends perceive my strengths?
• Am I up to a challenge?
Weaknesses:
• What are my negative traits?

• Am I adequately qualified?
• How do my close family and associates see my weaknesses?
• How accepting am I of change?
• What am I hesitant or afraid of?
• What type of negative feedback about my behaviour/personality/attitude have I encountered?
Opportunities:
• Is there growth in the industry of my choice?

• How can technology assist me?
• Is there a need/demand for my area of expertise?
• Are there new avenues for training and development?
• What avenues exist for me to improve myself?
Threats:
• What is there externally that will prevent me from achieving my goals?

• Is the market for my talents/capabilities saturated?
SWOT Analysis for an existing business venture.
Table 2 shows a model for a SWOT analysis for an existing business venture. These are typical questions
that the entrepreneur can ask. The answers can be mapped on a SWOT chart.
Strengths:
• What are the core competencies in the key functional areas( marketing, production, human
resources, finance, information technology)?
• What does the venture do well?
• What are the competitive advantage over competition?
• Does the venture have the necessary resources to aid the transformation process?
• Does the venture have key human resource capabilities?
Weaknesses:
• What aspects of the venture needs improving in order to achieve the goals?
• Does the venture have the necessary expertise, resources, funding and technology ?
• Is the business located within reach of the target market.
Opportunities:
• What opportunities exist in the external market that can be beneficial to the venture?
• Does the market have the potential to grow?
• Is there a removal of trade barriers that can positively impact the venture?
• Are there changes in customer taste and fashion that impacts positively on your venture?
Threats:
• What situations exists in the external environment that can threaten your business?
• Are there changing trends in fashion and taste that can impact negatively on your business?
• Are government regulations negatively impacting the business?
• Are there changes in the trade cycle such as recession?
Chapter 11: Module 2 Activities
Multiple Choice
Choose the most appropriate answer for each multiple choice question.
1. Market research is BEST described as

a) the process of dividing the market into potential segments.
b) the process of positioning the product in the minds of the target consumer or market.
c) the process of gathering, analyzing and interpreting information about a market, good
or service.
d) the process of targeting the most profitable segment in the market.
2. Which of the following are key methods in collecting secondary research?

I. information published by trade associations
II. internal company records
III. companies' annual financial reports
IV. interview with company CEO conducted by the researcher
a) all of the above
b) I, II and III
c) I, II and IV
d) I, III and IV
3. All of the following are ways of collecting primary research, EXCEPT

a) site visits
b) focus group
c) conducting surveys
d) researching online journals
4. Which of the following statements does NOT state a key purpose of a feasibility study?
a) A feasibility study identifies courses of action
b) A feasibility study points to whether there is a target market for the products
c) A feasibility study questions the venture's viability
d) A feasibility study outline the firm's ability to increase profits.
5. Key areas in a marketing feasibility study include:

I. description of good or service
II. identification of which markets the venture will serve
III. channels of distribution
IV. determination of pricing strategy
a) all of the above
b) I, II and III
c) I, II and IV
d) II, III and IV
6. A financial feasibility assessment will include all of the following except

a) equity requirements
b) collateral requirements
c) working capital
d) inflation rates
7. Investors who finance ventures in the early survival states are specifically
a) venture capitalist
b) business incubators
c) angel investors
d) government agencies
8. Key features of a venture capitalist include

I. finance start up businesses
II. provide financing in exchange for ownership stake in ventures
III. finance businesses that are declining in the market
IV. usually finance ventures with a key competitive advantage
a) I, II, III and IV
b) I, II and III
c) I, II and IV
d) I and II
9. Selling ownership in a venture is appropriately termed

a) venture capital
b) angel investment
c) personal financing
d) equity financing
10. Which of the following equations outlines the 'dual aspect or double entry principle' in
accounting?
a) assets = liabilities
b) assets = liabilities + owner's equity
c) liabilities= assets + equity
d) equity = assets + liabilities
11. Which accounting concept specifically states that profits should only be accounted for when
buyers receive products and agree to pay for the products?
a) Realization concept
b) Accrual concept
c) Money measurement concept
d) Cost concept
12. A description of the capabilities and resources needed to create, market and deliver the value
an organization seeks to offer its customers is specifically termed
a) A value proposition
b) A business model
c) A business plan
d) A business profile
13. Key aspects of the value proposition entails

I. communication channels to connect with the target group
II. details on the product offering to satisfy customer needs
III. competitive advantage
IV. transactions between a business and its suppliers
a) I, II and IV
b) I, II and III
c) II, III and IV
d) all of the above
14. All of the following are main models of venture ambitions, EXCEPT..
a) Growth Model
b) Speculative Model
c) Innovation Model
d) Income Model
15. A written document that provides an outline of how the business intends to achieve its vision
and mission is specifically
a) A business plan
b) A business model
c) A vision statement
d) A business charter
16. Typical sections of a business plan include

I. financial data and projections
II. business description
III. value proposition
IV. executive summary
a) I, II and III
b) I, II, III and IV
c) I, II and IV
d) II, III and IV
17. A key reason for determining the break -even point for an entrepreneur is
a) to determine profit maximization output
b) to determine how much output is to be sold to avoid operating losses
c) to determine operating leverage
d) to determine sales revenue
18. Short term securities that are set to mature in one year from the date of issue and on maturity
pay the par or face value is specifically
a) bonds
b) fixed deposit
c) treasury bill
d) fixed deposit
19. Which section of the business plan specifically outlines how the venture will plan to stay in or
exit the environment and how leadership transition will take place?
a) Management of the venture
b) Financial plan
c) Critical risk analysis
d) Harvest Strategy
20. Calculate the break even quantity given the following information:
Variable Cost/Expense = $10
Fixed Costs / Expense = $500
a) Q =100 units
b) Q = 50 units
c) Q = 25 units
d) Q = 10 units
21. A source of financing for a venture where a person or organization receives money, bonds or
jewellery for example, through the provisions of a will or estate is appropriately termed
a) grant
b) gift
c) subsidy
d) bequest
22. The set of consumers who possess an interest, income and have access to a good or service is
specifically
a) available market
b) potential market
c) served market
d) penetrated market
23. Which statements BEST reflect a SWOT analysis?

I. Strengths and weaknesses are internal to the business or individual
II. Opportunities and threats are external to the business or individual
III. Can be used to judge the profitability of an organization
IV. Can be used to assess the present state of the business or individual
a) all of the above
b) I, II and III
c) I, II and IV
d) II, III and IV
24. All of the following are main investment instruments with long term growth prospects, EXCEPT
a) Stock
b) Mutual Funds
c) Futures
d) Certificate of Deposit
25. All of the following investment instruments are considered low risk, EXCEPT
a) money market funds
b) treasury bills
c) certificate of deposit
d) futures
Module2: New Venture Planning and Creation
Case Study 1
The Road to Success
On a recent trip to Barbados, Shazan, learnt about some indigenous ways of cooking fish and chicken,
that were both healthy and delicious. On his return to Trinidad, he decided to open a small food
venture. Shazan, had a savings account as well as, shares in a credit union. However, he needed to
acquire more financing to purchase fixed capital. Before, investing in the venture, he decided to embark
on market research. He taught it necessary to find out what customers want. The food business is
popular, but, he needed to know if customers prefer the new methods he was building the venture
around. He was advised by a close friend to conduct a feasibility study.
Questions
(a) Outline TWO essential aspects of market research that Shazan should consider in researching the
venture. ( 4 marks)
(b) Define the term 'feasibility analysis'. (2 marks)
(c) Identify FOUR elements of a comprehensive feasibility study that Shazan should consider. (4 marks)
(d) Identify THREE benefits to be gained from conducting a feasibility study on the venture's workability.
(3 marks)
(e) Apart from his savings, state TWO alternative sources of financing that Shazan can consider.
(2 marks)
Total 15 marks
Case Study 2
Not as easy as 1, 2, 3!
After the closure of Mittal Steel in Trinidad, Boysie was left unemployed and without a severance
benefit to act as a buffer. He decided to open a small fruits and vegetable mini mart from his home.
Boysie lived in a housing development, where persons usually have to travel out of the neighbourhood
to buy such food items. Boysie approached NEDCO a venture funding institution in Trinidad and Tobago.
The institution required a business plan. He also sought information from another financing agency who
required a business model to accompany the business plan.
Question
(a)Explain the 'value proposition' component of the business model? (3 marks)
(b) Based on the case above, explain what is Boysie's likely value proposition. (3 marks)
(c) Define the term, 'business plan'. (2 marks)
(d) Identify FOUR key areas of business plan that Boysie must attend to. (4 marks)
(e) State THREE benefits of creating a comprehensive business plan for a venture. (3 marks)
Total 15 marks

Entrepreneurship Text Book Unit 2 Module 2

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Entrepreneurship Text Book Unit 2 Module 2

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Fundamentals in Entrepreneurship: Module 2

Introduction to Module2: New Venture Planning and Creation

• Chapter 5: Market Research

Specific Objectives of Module

▪ comprehend the importance of market research

Chapter 5: Market Research (Venture opportunity screening)

Definition of market research

According to 'entrepreneurship.org', market research is 'the process of gathering, analyzing and

Sources of data in market research

Data sources can be placed in two categories:

Benefits of conducting market research

Key Elements of Market Research

Cost-benefit analysis approach to market research

▪ Time spent by research staff and consultants on research activities;

Possible benefits of conducting market research entails:

• Lower the risk of product failure on the market

ROI = (Financial value - Project Cost) / Project Cost

Market Research. Is it necessary?

(a) Define the concept of 'Market Research'.

(b)State TWO key benefits of conducting market research for Stacy.

(c) Outline THREE elements of market research.

Chapter 6: Feasibility Analysis

Definition of Feasibility Analysis

Purpose of a feasibility analysis

Conducting a feasibility study can serve the following functions/purpose:

Benefits of a feasibility analysis

Key benefits of a feasibility analysis includes:

Key elements of a feasibility analysis

The feasibility analysis should contain the following elements:

(a) Explain the concept of a 'feasibility study'.

(b) State TWO key purposes of a feasibility study.

(c) Outline THREE benefits of conducting a feasibility study.

researching a venture's viability.

Chapter7: Start -up Capital and Financial Statements

(b) Compare' venture capitalists' with 'angel investors'.

The Accounting Cycle

Source: acountingexplained.com; www.accounting.com; www.2.aku.edu

Accounting information are based on certain key concepts. These include:

Importance of Financial Information in Venture Decision Making

A. The Balance Sheet

Total current assets X

Long- term investments held for future use e.g. land x

Fixed assets (property, equipment)

Total fixed assets X

Total Assets _________

Liabilities and Owner's Equity

Total current liabilities X

Long term liabilities

Total liabilities and Owner's equity ________

B. The Income Statement

For the year ended December 31, 20XX

Sales (less returns and allowances) x

Less: Cost of goods sold (x)

Gross margin or profit on sales X

Less: Operating expenses:

Total operating expenses (x)

Income from operations X

Interest and dividend x

Gain on the sale of equipment x

Sales tax expense x

Loss on sale of investments x

Income before income taxes X

Less: Income tax expense (X)

4. On average, how much do you spend on____? $_

5. When you think of , which brand comes to mind?______