Professional Documents
Culture Documents
Entrepreneurship
Entrepreneurship
1.0 Introduction
important to understand what is it and how important it can be for our personal development
2.0 Objectives
3.1.1 Entrepreneurship
There are many definitions for the word entrepreneurship by different people from different
perspectives. Irrespective, there has been the agreement that entrepreneurship is a dynamic
growth, taking calculated risk, as well as the ability to plan and manage projects in order to
achieve objectives. It also refers to an individual’s ability to turn ideas into action and is
For the purpose this course we would stick to the definition by Hisrich and Peters (1998).
Entrepreneurship - It is the process of creating something new with value by devoting the
necessary time and effort; assuming the accompanying financial, psychological, and social
risks; and receiving the resulting rewards of monetary, personal satisfaction and
independence.
It is important to note that the process does not make mention of business. That means the
new jobs alone. It helps individuals to be more creative and self-confident in whatever they
undertake.
ii. social entrepreneurship where the focus is on the greater well- being of society
3.1.2 Entrepreneur
Over the years, the process has been differentiated from the person who actually initiates the
process. The person has been known as the entrepreneur. The individual who takes risks and
Alternatively, the individual who takes the risk to provide a motivation for change,
ii. Social entrepreneur as the person whose focus is on the serving the need of
structure. Existing organisations have the structures and the resources, business skills, and
3.1.4 Intrapreneur is the person who focuses on innovation and creativity and who
transforms a dream or an idea into a profitable venture, by operating within the organizational
environment. Thus, Intrapreneurs are inside entrepreneurs who follow the goal of the
organization. They engaged in a special project within a larger firm by drawing on the
and for any process to be called entrepreneurship, the four elements must exist:
ii. It requires the devotion necessary resources (time, money, energy, and effort).
The reward is the reason why people choose to become entrepreneurs. It is the ‘whatever it
means to a person to be successful at whatever you do. The reward must be such that it does
not discourage. If there is no reward, then the process cannot be termed entrepreneurship.
are motivated by the prospects of the profit they will make. Starting one’s own
business is a way to earn money. Indeed, some entrepreneurs earn a lot of money.
ii. Independence -Power to make own business decisions and be your own boss. Many
people have a strong desire to make their own decisions, take risks, and reap the
rewards.
Some may wish to leave an unpleasant job situation, while others may seek change
out of necessity.
iv. Personal Satisfaction- Enjoyment of a satisfying way of life. The reward can be a
aspect of the business. For many entrepreneurs, the life satisfaction they receive is
an entrepreneur.
Entrepreneurship is all about value creation. Without value created, the process, be it business
or social becomes meaningless. If you create something that has no value for anyone then
Two main types of values are associated with the entrepreneurial process.
Economic value
Social value
i. Economic value is created when entrepreneurs take resources or set of inputs through
processes that increase the value of those inputs, thereby generating a product or
ii. Social value is created when entrepreneurs combine resources, inputs, processes or
whole.
The table below shows how different stakeholders in society can create value for others.
created
shareholders
shareholders products
Social entrepreneur Society and By offering novel social Financial, Social and
learning of students
members
Student Future employers, By preparing for work life; Financial, social and
citizen
3.5 Types of Entrepreneurs
Entrepreneurs are found in every economy and in every type of economic activity.
can classify entrepreneurs into different types based on what they do and how they do it.
i. Type of business
v. Bases of Motivation
viii. Gender
NOTE: If you review the attached material titled Entrepreneurs- Types and functions, you
would understand how entrepreneurs are classified using the criteria above.
There can be as many characteristics associated with entrepreneurship and the list would
differ depending on the perspective of the writer. However, these characteristics are
purpose. This could be for profit, or for humanitarian purposes or to make a difference
in the society.
iv. Involves Risk: Entrepreneurship is a very risky venture and without the willingness
i. They perform work and keep all the profit for themselves and their families
ii. They start a business expand it very quickly in order to be able to hire others as
workers
iii. They design better products, create companies, develop products and sell them for
profit.
iv. They buy large volume of good from others and sell them while operating at very
low overheads
v. They take over businesses started by other people and use their own ideas to make
it successful
vi. They buy companies/ properties from other people improve on them and sell them
for a profit.
vii. They create new ideas and new ways of doing things and turn struggling
viii. They create new ideas within existing organisations to be able to change them into
successful ones.
In so doing, entrepreneurs contribute to national development in the following ways:
directly or indirectly.
entrepreneurs pay on their profit. The revenue could be used in many ways: to generate
economic activities which in turn can give rise to employment of more people,
provision of infrastructure such as schools, hospitals, roads, safe water, etc. for the
populace.
3. Conservation of foreign exchange: When entrepreneurs are able to produce goods and
offer services which do not require any or little imported components, the country is
able to conserve foreign exchange for the acquisition of very essential goods and
services.
4. Increased Productivity: The many new ideas that entrepreneurs come up with result
in situations where existing goods and services are improved. Thus, better quality of
goods and services may end up on the market at lower cost of production. In this way
the country benefit in terms of less cost of production, lower prices, use of new and
5. Export promotion: The goods and services produced by local entrepreneurs could be
exported to earn foreign exchange. This money could be used to buy essential goods
and services abroad hence enhancing the state of the nation’s economy.
7. Flexibility in the economy: Large organizations are often rigid when comes to making
changes due to heavy capital involvement. But small entrepreneurial firms are flexible
as to be able to switch and adapt to changing market conditions in their field of
operations.
8. Keep Monopoly in check. Entrepreneurial firms keep large firms competitive in that
they introduce new products and services and in so doing no firm can maintain monody
of the market.
living of people is measured by the ability of populace to buy goods and services.
When there are employment and people earn, there are able to provide for their needs;
when productivity is high and government revenue is high the social needs of the
10. Encourage investigation and research. Since the main function of the entrepreneurs
economy and research, investigations and inventions. That way, the interests of the
12. Change in social framework. Entrepreneurship leads the society towards progress,
industrial ventures, generating new employment opportunities, and building new and
progressive environment.
4.0 Conclusion
course will not be limited to starting a small-scale business but can be applied to all
3. The number of entrepreneurs a country has, what they do and their level of
competence has the potential to affect the economic growth rate of the country. It is
therefore important for all citizens especially the youth to heighten their
the nation.
UNIT TWO
3.0 Introduction
variety of environmental factors. In areas where these factors are present, entrepreneurial
drive is strong.
Economic
Social
Psychological
Environment
These factors may have both positive and negative influences on the emergence of
entrepreneurship. Positive influences constitute facilitative and conducive conditions for the
emergence of entrepreneurship.
A. Economic Factors
Economic factors have the most direct and immediate influence on entrepreneurship. The
1. Capital: Capital is one of the most important factors of production for the
development.
2. Labour: Easy availability of the right type of workers affect entrepreneurship. The
quality rather than quantity of labour influences the emergence and growth of
entrepreneurship.
3. Raw Materials. The necessity of raw materials influences the emergence of
4. Market: The role and importance of market and marketing is very important for the
entrepreneurship.
B. Social Factors
Social factors can go a long way in encouraging entrepreneurship. The social setting in which
a person grows up shapes their basic beliefs, values and norms. The main components of
1. Family Background: This factor includes size of family, type of family and
influenced mobility. There are certain circumstances where people would have to
vogue, those members of joint family who gain wealth by their hard work are
denied the opportunity to enjoy the fruits of their labour because they have to
2. Education: Education enables one to understand the outside world and equips
him with the basic knowledge and skills to deal with day-to-day problems. In any
and thus approve entrepreneurs’ actions and rewards like profits. In such societies,
making wealth through business is the right thing to do. Certain others do not
tolerate changes and in such circumstances, entrepreneurship cannot take root and
grow.
where people are not economically motivated and monetary incentives are less
C. Psychological Factors
Several researchers have tried to explain the link psychological roots of entrepreneurship.
1. Need for Achievement: This is social motive to excel that tends to characterise
successful entrepreneurs. It has been found that certain kinds of people, especially
those who became entrepreneurs, have this characteristic which stimulate them to
entrepreneurship.
2. Locus of control: This refers to an individual’s perception about the causes of their
life conditions. External locus of control describes an individual that believes that
most of their life conditions are determined by forces outside of their control, such as
like deities, governments, power structures, institutions, fate or luck. Internal locus of
control describes an individual that believes that they are their own master and can act
to change their own life conditions. Internal locus of control is associated with
associated with calculated or moderate risk rather than no risks at all or extravagant
risks
4. Motives. There are theories of entrepreneurship that stress the motives or goals of the
D. Other environment factor: Some other factors in the environment that will affect
The factors that motivates entrepreneurs to starts enterprises could be grouped into external
Intrinsic Factors: These include characteristics that are personal and the entrepreneur has
3. Locus of control
4. Self-efficacy
6. Drive
7. Egoistic passion
Extrinsic factor: These are the environmental factors that drive the entrepreneur with the
d. availability of information
e. financial assistance
f. political climate
g. legal system.
Factors influencing people’s entrepreneurial decision could also be categorised into push and
pull factors.
PUSH FACTORS: They are the elements that force people to become entrepreneurs. In such
a. job insecurity
b. unemployment
f. job dissatisfaction
a. independence
b. achievement
c. recognition
d. personal development
e. personal wealth
f. self-fulfilment
h. financial rewards
Although reasons for venturing into entrepreneurship vary greatly among people, the number
one reason mostly cited is independence. Beyond this, there are theories that suggest that men
a. money
b. job satisfaction
c. achievement
b. job dissatisfaction
c. achievement
d. money
3.3. PERSONAL ENTREPRENEURIAL COMPETENCIES
knowledge, and behaviour that a person must possess to become a successful entrepreneur.
Although there is no single set of characteristics, there is a package of traits that, in varying
forms, tends to support entrepreneurial initiatives. These are term the 14 Personal
Entrepreneurial Competencies (14 PECs). There can be grouped into three clusters of
a. opportunity seeking
b. taking initiative
c. being persistent
a. seeking information
c. goal setting
d. monitoring
a. self-confidence
b. independence
c. persuasiveness
d. networking
3.4 SKILLS
Skill is the ability to do something. The potential entrepreneur needs 3 different set of skills in
a. Technical skills
Expertise in technical trade areas such as sewing, baking, cooking, caking decorating,
b. Entrepreneurial skills
This is the know-how or ability to tactfully respond positively to a given situation and
enable you to start and operate an enterprise. It includes being able to scan the
advantage of that opportunity and taking action to utilize the opportunity, being a risk
Those abilities that enable you to run the enterprise. These skills include: managing
money and people, directing business operation and sales operations, marketing,
dealing with difficult people, planning, goal setting, decision making, finance and
Role models influence entrepreneurs a great deal in their career choice. Role models could be
parents, brothers, sisters’ other relatives or other successful entrepreneur in the community who
advice, guidance, financial assistance, information throughout the various phases of the
process.
Which could be families and friend and well-wishers. They normally offer
Who could be other business owners, business associate, trade associations, mentors
PRACTICE ACTIVITY
Activity One
1. Do you understand that owning your own business may entail working 12–16 h a
4. Are you prepared to lower your standard of living for several months or years?
6. Do you know which skills and areas of expertise are critical to the success of your
project in mind?
8. Does your idea effectively utilize your own skills and abilities?
9. Can you find personnel that have the expertise you lack?
Activity two
Do you think all students who wants to be self-employed need to be taught Entrepreneurship?
Explain
UNIT THREE
1.0 Introduction
The term entrepreneurship is not only limited to small businesses alone. However, the two
terms are often connected because small businesses serve as proxy for entrepreneurial
potential entrepreneurs to understand the issues and challenges associated with small business
2.0 Objectives
Small businesses are a key to the economic development of a country and no country can
develop without them. They help to raise the social and the living standard of individuals and
communities. Their importance is emphasised by the quantity and the variety of them that
occur in our environment. They are more than the bigger businesses. They comprise
processing.
There is no single definition for small -scale business. However, there are two main
a. qualitative measures
b. quantitative measures.
a. ownership
b. source of finance
d. geographical location.
iv. It has limited influence compared with the largest competitors in same industry
On this based we can then define small business as a business that is independently owned
c. total assets
stage of growth of the economy determines what ‘small’ means (quantitatively) in different
economies. For example, in Ghana any business that employ up to 30 people will be
considered a small-scale enterprise while in the UK the cut-off for small- scale enterprises are
249 persons and 500 persons in the USA. Again, in Ghana the value of asset (plants and
machinery) of a small -scale enterprise does not exceed US $100,000. But in the UK small -
The following hold true for small-scale enterprises in the Ghanaian economy:
3. They employ more labour per unit of capital than large enterprises
5. They use mainly local resources; thus, have less foreign exchange requirements
10. They are a source of freedom for people to try out their ideas. They can enter and
leave at will.
3.3 Disadvantages of small – scale enterprises
1. There is high rate of failure, often causing untold hardship for owners
5. Neglect by owners.
3.4 Issues and challenges of starting and operation small -scale business in Ghana
The following are identified as some of the factors that constraints small-scale business
operations in Ghana.
1. Bad business idea. Like any idea, a business idea can be flawed, either in the
4. High taxes
Starting a business involves a lot of time, money and effort. As such, the last thing that any
business owner would want to happen to their business is for it to fail. It is very important
that business owners make sure that their businesses thrive and grow. To avoid a business
There is a popular notion that entrepreneurship is the same as small business ownership.
Therefore, people tend to use the terms interchangeably to describe a business with limited
resources seeking to achieve a certain objective. This may be true to some extent, but in
reality, entrepreneurs and small business owners tend to have different and sometimes
opposite views on their objectives and approach. For small business owners, usually the
principal purpose for setting up a business is to make profit and achieve a personal goal of
meeting family needs and desires. In fact, a small business owner may never want the
business to grow large as he/she usually prefer a more relaxed and less aggressive approaches
to running the business. They would manage the business in a normal way, expecting normal
On the other hand, the other hand the entrepreneur starts and manages a business with the
principal objectives of profitability and growth. He /she usually seeks rapid growth and
immediate high profit. They therefore employ strategic management practises and innovative
behaviours.
The figure below would summarise the key similarities and differences between small and
Source: Okyere (2016). Differences and similarities between SMMEs and entrepreneurship.
4.0 Introduction
The decision on whether one will start your own business must be preceded by whether you
will want to own any small business or an entrepreneurial business or venture. In the former,
you require a more relax and less aggressive approach to running the business. However, the
latter is characterized by innovative strategic practices. The owner’s principal objectives are
to have rapid growth, high profit, quick sell-out and possibly large capital gains.
This implies that one needs to assess their abilities and capabilities and also understanding the
Sometimes, other writers say the process is divided into three parts.
b. the promotion
c. the operation.
Every entrepreneurial project starts with an idea. An idea is a product or service concept in the
mind of the potential entrepreneur. It can come from many sources. A personal interest can be
developed into a business. It is possible to make hobbies, volunteer experience, and leisure
activities into business. Any specialised knowledge or skill can be turned into a business. It is
possible to write a newspaper column, write recipes, write a book, present workshops, and
conduct seminars in your area of expertise. An understanding of the internet can lead to a
business of designing, creating, monitoring, and updating web sites. This same knowledge can
The fact that something is a good idea does not mean it is a good opportunity. It is very critical
to determine whether an idea for a new venture actually represents a good opportunity. A
business opportunity is an attractive project idea, which an entrepreneur accepts as a basis for
an investment decision.
The entrepreneur needs to scan the environment and its resources to determine how it would
be supportive to the idea. An entrepreneur must process a good idea against the realities of the
environment using his/her creativity. The type of venture you end up with must be consistent
with your interest, knowledge, skills acquired from training, work experience family and
friends and hobbies etc. This resulting venture is what is termed an entrepreneurial opportunity.
Factors that can create or guide you to entrepreneurial opportunities are as follows:
1. Market factors: changing needs or lifestyles of consumers, gaps in consumer goods
and services.
2. Social and demographic factors in terms of population composition (size, age, sex,
3. Technological changes
4. Economic factors
It must be noted that for an entrepreneur to seize an opportunity, the window must
remain open for a sufficient length of time. Even when the concept is good, success
requires an opportunity window that remains open long enough for an entrepreneur to
take advantage of it. If the window closes before the enterprise can get established, it is
You are likely to come up with so many potential entrepreneurial ideas. It is then up to you to
select the one that has the potential to yield the amount and the kind of satisfaction that you
When you make a decision on the ideas you would want to launch, it is very important of
further evaluate your ideas to establish its feasibility. The study is a detailed analysis of the
1. You can assess a business opportunity in terms of how it will affect or impart on
your life. This can be done by considering the satisfaction you expect to gain form the
business, your acceptance of the time you have to allocated to the business and the work
the skills, raw materials, time, money, risk, location and resources (human &
physical).
3. Assess the market for your products in terms of its size and composition.
5. Consider your strength in the opportunity and see if you can make your business
different from those that already exist. This is important because it is the differences
6. Consider the profitability of your business. Can this business idea bring you
enough to support your life style and help you build a future?
All the physical resources (assets) you need to set up and operate an efficient business need to
be assessed. Exactly what you would need and how much of its will be needed will be
b. Equipment, machinery.
In identifying the resources, you also need to evaluate them in a way. For instances, the location
or site of the business should be looked at in terms of ease of access availability of partaking
space, accessibility to clientele and the image of the business. Facilities should be considered
in terms of its availability, adequacy, distribution and target. The stock/ raw materials should
be considered in terms of ready access, cost and affordability as well as the consistency of the
supply.
Costing is a method you use to calculate how much each product, group of products or each
service you offer will costs you to produce to the satisfaction of your customers. As a business
owner, you need to know in details what it cost to make the product you are selling or to provide
a service you have made available to customers for the following reasons:
1. It helps the entrepreneur decides which products or service is the best one to
offer.
2. It helps find out which of your product or services are most costly to produce
3. It enables the entrepreneur plan for money so that he/ she does not run into
4. It helps set prices or give estimate of prices to customers and know that you,
The process of costing involves estimating the quantities of the resources needed, unit cost of
the quantities, their total cost and adding a percentage to cater for inflation.
In any business there are two types of cost: direct cost (variable expenses) and indirect cost
(fixed cost). The type of cost it is will influence how it is treated in the process of accounting.
Direct Cost: It is the cost of items, which become part of the product or service you produce
or offer. Direct cost rises in direct proportion to increases in sales volume and drop as sales
volume drops. It is made of two inputs: direct labour cost and direct materials cost. The
direct labour cost consists of the wages, benefits, meal expenses etc., paid to the workers for
the time they spent making the product or providing the service. The direct materials cost is
made of the raw materials, power/energy used, transport fee for carrying the raw materials,
Indirect Cost: This is the cost of the other items, which you need in running your business.
They cannot be directly attributed to any specific job or product. It does not vary when values
of sales volume rise or fall. It is also sometimes called overhead expense: Examples are:
c. Owner’s salary
f. Insurance
g. Depreciation
i. Professional fees,
There are many sources of funds for those who wish to start-up a new enterprise. However,
when seeking funding for business, one needs to explore all possible sources and then decide
on the most suitable. In deciding on which of the available sources one must selected out of
c. How long it will take from require day till you receive the money
e. Repayment capacity
Basically, there are two-types of financing sources available: internal and external.
Internal Sources: These are sources close to or within the operation of the venture. Examples
are:
a. Own savings
b. Sale of assets
External Sources: These are sources of funds external to the venture. Here are some examples:
e. Equity placement
h. Debentures
i. Hire purchase
j. Leasing
The three most important factors that need to be considered when evaluating alternative sources
These are two forms of external financing for start – up businesses. These are debt financing
Debt financing. With this type, the payment of the principal and the interest are legally
enforceable and are only indirectly related to the sales and profit of the business. Repayment
is done within and agreed upon time span and does not vary with the success of the business.
It also requires that some asset such as car, house, land, machine etc. is available as collateral.
For this Equity financing: With this type, no collateral is required but the lender is given some
form of ownership position in the business, he or she shares in the profit as well as any
disposition of asset on a pro rata basis and may have a vote as well. It is very important for
potential entrepreneurs to note that no business can be financed entirely with debt finding.
1. The cost of interest paid on debt is lower than cost of obtaining outside equity.
2. An entrepreneur may be able to raise more total capital form debt financing the
3. Since debt payment is a fixed cost, any remaining profit belongs to the owner.
As a general rule, small business’ fixed assets should be financed with equity funds or with
debt funds having maturity approximately equal to the productive life of the asset. This means
that long lived asset as such as building, machines and other facilities, should be financed with
long term loans, while short-lived assets, such as inventory or accounts receivable, cash should
Again, potential entrepreneurs must know that your ability to attract a loan from a lender will
depend on the lenders’ perception on your character as well as your ability to return the money.
The lender will like to know how long you have lived in a given residence or neighbourhood
and how long you have worked at a particular job. They may want to know your income, how
much you know about the business you are about to enter and whether you will be able to repay
A business plan is a formal statement of a set of business goals, which are believed to be
attainable, and the plan for reaching those goals. It may also contain background information
about the organisation or team attempting to reach those goals. Business plans may also
target changes in perception and branding by the customer, client, tax-payer, or larger
community. When the existing business is to assume a major change or when planning a new
venture, a 3 to 5-year business plan is required, since investors will look for their annual
return in the 3 to 5-year time. Whatever the length, business plans address three mail area:
For the entrepreneur starting a new venture, a business plan has these basic objectives:
1. To identify the nature and the context of the business opportunity i.e., why does
2. To present the approach the entrepreneur plans to use to exploit the opportunity
3. To recognise factors that will determine whether the venture will be successful.
5. To provide the basis for comparing actual performance against your projected.
No enterprise can operate in a market economy without a carefully prepared business plan.
The business plan explains in convincing details how the enterprise’s management intends to
manage the business to that it will produce acceptable rate of profitability and returns on
investment. In addition, because the plan requires constant evaluation and refinement to
reflect changing conditions, there must exist a process within the enterprise that involves a
broad mix of management personnel in the ongoing development and revision of the business
plan.
1. It should be clear that the business planning itself is in fact a test of the
deficiencies in its own capabilities. Thus, the discipline required in development good
produced, subsequent plans require less upfront data collection since must of the
historical and descriptive data can be received over from one version of the plan to
another.
3. The values of the business plan depend on the quality of the information is
contains and the validity of any assumptions made. It is critical that the plan be
prepared with an objective, open mind and not reflect exaggerated or biased views of
reality. While a well-prepared business plan is also a highly effective marketing tool,
it must strive to prove to be credible and useful. Its credibility over time is directly
4. The plan demonstrates the viability and potential of the business, as well as
accommodating corporate objects. It also provides the financier with a basis upon
which to evaluate both the potentials for return on the investment and the individuals
who will manage the business. Since the business plan is the first manifestation of
prepared.
The differences in the scope of the business plan may be dependent on whether the business
is a service, manufacturing, consumer good or industrial product. The size of the market,
competition, and potential growth may also affect the scope of the business plan. Whatever it
may be, a business plan addresses three main areas of the business:
a. The What component of the business. This section describes the nature of the
business, its ownership, structure, mission, vision, objectives, the history of the
business, the product or services, the industry and the future development in the
industry.
b. The How component of the business. This section outlines the strategic actions that
(strategies for distribution, promotion, pricing, and sales). It also describes the
organisational structure and the workforce that will implement the plan, as well as the
c. The projected Outcomes of the business. This outlines the estimated cost, profit
margins, projected income and cash flow, financial needs, financial status, and
projected growth.
i. A business may be defined as an organisation of people who use their skills and
talents to produce goods or services that are sold to other people at a price that is
ii. A small business is any business that is independently owned and operated and is not
which generally employs up to 30 people. Irrespective of location, certain criteria such as the
total assets, the total cash, inventory, land, machinery are used to classify the scale of
understand, count and collect from businesses and it is an indicator that freely allows
comparisons to be made.
The National Board for Small-Scale Industries (NBSSI) of Ghana defines a small-scale
business as one with a labour strength of not more than 29 persons and with plants and
It is posit that in Ghana; almost all the small-scale business activities take place in the
informal sector. They are usually family-owned production and service enterprises usually
dominated by women.
h. Skills of the business owners in the informal sector are acquired mostly
employment;
The urban informal sector is more difficult to describe and according to Dixon-Mueller and
Anker (1988), it is not surprising that women’s economic contribution in this sector remains
undefined. It is very difficult to define the extent of the labour force participation of women
and the earnings they generate in the informal sector. They can be categorised into
permanent premise. They are often occupational segregation expressed in the extreme forms
of specialization. Yam, fish, cloth and tomatoes sellers’ associations epitomize the
2. The unorganized SSEs are usually run by artisans in temporary premises, such as
open air, mobile kiosks, and homes of the business owners. They often employ few people.
PRACTICE ACTIVITY FOR UNIT 4
General Instruction:
Having finished your reading in this unit spend some time to should reflect on what you
have learnt by completing the activities below. Write down your responses in your note
1. Write down five business ideas that keeps coming to mind when you think of
starting a business
2. List the resources that will be required to launch and operate each of these
3. Prioritise the ideas and give about 3 reasons for the prioritised order.
UNIT 5
PLANNING A BUSINESS
Before you jump into starting a business, you need to have a plan. Putting together a business
plan will help you create a solid framework around your business idea, and take it from idea to
a real business. Writing out a business plan from scratch can seem daunting, but it’s just about
A business plan therefore is a guide a roadmap for your business that outlines goals and
While every business has huge benefits to gain from going through the business planning
process, only a small subset needs the formal business plan document required for seeking
investors or supporting a commercial loan. Most of us need just a Lean Business Plan, for
internal use, with just bullet point lists and important projections. Good businesses always
These days, business plans are simpler, shorter, and easier to produce than they have ever
been. Gone are the days of 30- and 40-page business plans—modern business plans are
If you’ve ever jotted down a business idea on a napkin with a few tasks you need to
accomplish, you’ve written a business plan—or at least the very basic components of one.
At its heart, a business plan is just a plan for how your business is going to work, and
Typically, a business plan is longer than a list on a napkin (although, as you’ll see below, it is
possible—and sometimes ideal—to write your entire business plan on one page). For me in
practice, and for most real businesses, it can be as simple as the Lean Plan that has a few
bullet points to focus strategy, tactics, milestones to track tasks and responsibilities, and
the basic financial projections you need to plan: cash flow, budget, expenses.
A note on format: business plans should only become printed documents on select occasions,
like when you need to share information with outsiders or team members. Otherwise, they
The plan goes on forever, meaning that you’re constantly tweaking it, because you’re
regularly evaluating your business health, so the printed version is like a snapshot of what the
If you do need a formal business plan document, then that includes elements like:
An executive summary
A company overview
Some information about each member of the management team and their role in the
company
These are often called the “sections” or “chapters” of the business plan, and I’ll go into much
In all cases, the most important element of business planning is the review schedule—set
specific times to review your progress toward your goals. That’s as simple as “the third
Specifically, it’s the time to review your progress on milestones and to compare your actuals
against your financial projections. A real business plan is always wrong—hence the regular
review and revisions—and never done, because the process of review and revising is vital.
Who needs a business plan?
If you’re just planning on picking up some freelance work to supplement your income, you
can skip the business plan. But, if you’re embarking on a more significant endeavour that’s
likely to consume a significant amount of time, money, and resources, then you need a
business plan.
If you’re serious about business, taking planning seriously is critical to your success.
Unfortunately, many people think of business plans only for starting a new business or
applying for business loans. But business plans are also vital for running a business—
businesses should have business plans that they maintain and update as market conditions
Every business has long-term and short-term goals, sales targets, and expense budgets—a
business plan encompasses all of those things and is as useful to a start-up trying to raise
1. Start-up businesses
The most classic business planning scenario is for a start-up, for which the plan helps the
founders break uncertainty down into meaningful pieces, like the sales projection, expense
The need becomes obvious as soon as you recognize that you don’t know how much money
you need, and when you need it, without laying out projected sales, costs, expenses, and
timing of payments. And that’s for all startups, whether or not they need to convince
investors, banks, or friends and family to part with their money and fund the new venture.
In this case, the business plan is focused on explaining what the new company is going to do,
how it is going to accomplish its goals, and—most importantly—why the founders are the
right people to do the job. A start-p business plan also details the amount of money needed to
get the business off the ground, and through the initial growth phases that will lead
(hopefully!) to profitability.
2. Existing businesses
Not all business plans are for start-ups that are launching the next big thing. Existing
businesses use business plans to strategically manage and steer the business, not just to
address changes in their markets and to take advantage of new opportunities. They use a plan
to reinforce strategy, establish metrics, manage responsibilities and goals, track results, and
manage and plan resources including critical cash flow. And of course, they use a plan to set
Business plans can be a critical driver of growth for existing businesses. Did you know that
businesses that write plans and use them to manage their business grow 30 percent faster than
For existing businesses, a robust business planning process can be a competitive advantage
that drives faster growth and greater innovation. Instead of a static document, business plans
in existing businesses become dynamic tools that are used to track growth and spot potential
Considering that business plans serve many different purposes, it’s no surprise that they come
Before you even start writing your business plan, you need to think about who the audience is
and what the goals of your plan are. While there are common components that are found in
almost every business plan, such as sales forecasts and marketing strategy, business plan
formats can be very different depending on the audience and the type of business.
For example, if you’re building a plan for a biotech firm, your plan will go into details about
government approval processes. If you are writing a plan for a restaurant, details about
location and renovations might be critical factors. And, the language you’d use in the biotech
firm’s business plan would be much more technical than the language you’d use in the plan
Plans can also differ greatly in length, detail, and presentation. Plans that never leave the
office and are used exclusively for internal strategic planning and management might use
more casual language and might not have much visual polish.
On the other end of the spectrum, a plan that is destined for the desk of a top venture
capitalist will have a high degree of polish and will focus on the high-growth aspects of the
business and the experienced team that is going to deliver stunning results.
Here is a quick overview of three common types of plans:
A one-page business plan is exactly what it sounds like: a quick summary of your business
delivered on a single page. No, this doesn’t mean a very small font size and cramming tons of
information onto a single page—it means that the business is described in very concise
A one-page business plan can serve two purposes. First, it can be a great tool to introduce the
business to outsiders, such as potential investors. Since investors have very little time to read
detailed business plans, a simple one-page plan is often a better approach to get that first
meeting. Later in the process, a more detailed plan will be needed, but the one-page plan is
This simple plan format is also great for early-stage companies that just want to sketch out
their idea in broad strokes. Think of the one-page business plan as an expanded version of
jotting your idea down on a napkin. Keeping the business idea on one page makes it easy to
see the entire concept at a glance and quickly refine concepts as new ideas come up. Learn
A Lean Plan is more detailed than a one-page plan and includes more financial information,
but it’s not as long as a traditional business plan. Lean Plans are more likely to be used
externally for a loan or investment and focuses almost exclusively on business strategy,
These lean business plans skip sections like company history and management team since
everyone in the company almost certainly knows this information. You don’t do an exit
strategy section of your business plan if you’re not writing for investors and therefore you
The simplest lean business plan uses bullet points to define strategy, tactics, concrete specific
dates and tasks, and essential numbers including projected sales, spending, and cash flow. It’s
just five to 10 pages when printed. And few Lean Plans need printing. Leave them on the
computer. Review and revise them at least once a month. The first Lean Plan takes just a few
hours to do (or less), and a monthly review and revision can take only an hour or two per
month.
Lean business plans are management tools used to guide the growth of both start- ups and
existing businesses. They help business owners think through strategic decisions and measure
External business plans, the formal business plan documents, are designed to be read by
outsiders to provide information about a business. The most common use of a full business
plan is to convince investors to fund a business, and the second most common is to support a
loan application. Occasionally this type of business plan is also used to recruit or train or
Plan. It’s mostly a snapshot of the internal plan as it existed at a certain time. But while an
internal plan is short on polish and formality, a formal business plan document should be very
well-presented, with more attention to detail in the language and format. See example
business plans in our sample plan library to give you an idea of what the finished product
In addition, an external plan details how potential funds are going to be used. Investors don’t
just hand over cash with no strings attached—they want to understand how their funds will be
Finally, external plans put a strong emphasis on the team that is building the company.
Investors invest in people rather than ideas, so it’s critical to include biographies of key team
members and how their background and experience is going to help grow the company.
While we just discussed several different types of business plans, there are key elements that
appear in virtually all business plans. These components include the review schedule, strategy
summary, milestones, responsibilities, metrics (numerical goals that can be tracked), and
basic projections. The projections include sales, costs, expenses, and cash flow.
These core elements grow organically as needed by the business for the actual business
purpose.
The order doesn’t matter a whole lot, so don’t sweat having the “right” outline as long as you
Just like the old adage that you never get a second chance to make a first impression,
the executive summary is your business’s calling card. It needs to be succinct and hit the key
highlights of the plan. Many potential investors will never make it beyond the executive
The executive summary should provide a quick overview of the problem your business
solves, your solution to the problem, the business’s target market, key financial highlights,
While it’s difficult to convey everything you might want to convey in the executive
summary, keeping it short is critical. If you hook your reader, they’ll find more detail in the
body of the plan as they continue reading. You could consider using your one-page business
plan as your executive summary. And Live Plan offers an excellent alternative with what it
The opportunity
One often useful section of a formal plan describes the market, including market analysis,
Target market
As critical as it is that your company is solving a real-world problem that people or other
businesses have, it’s equally important to detail who you are selling to. Understanding your
target market is key to building marketing campaigns and sales processes that work. And,
beyond marketing, your target market will define how your company grows.
Market trends
Describe the most important changes happening in your target market right now. Are the
Ideally, explain how those trends will favour your products or services over those of your
competitors.
For example, if people in your market are increasingly using their smartphones for tasks that
they used to do on a computer, perhaps the mobile app you are developing is well-positioned
Market growth
Explain how your target market has been growing or shrinking in recent years. Research is
key here, obviously. You can use Internet searches, trade associations, market research firms,
journalists who cover your market, or other credible sources to gauge market growth. A
growing market is encouraging since it suggests a stronger demand for your solution in the
years to come. That said, you can still be successful in a weak or contracting market. It’s just
Competition
What other options do your customers have to address their needs, and what makes your
The products and services section of your business plan delves into the core of what you are
trying to achieve. In this section, you will detail the problem you are solving, how you are
solving it, the competitive landscape, and your business’s competitive edge.
Depending on the type of company you are starting, this section may also detail the
technologies you are using, intellectual property that you own, and other key factors about the
products that you are building now and plan on building in the future.
The marketing and sales plan details the strategies that you will use to reach your target
market. This portion of your business plan provides an overview of how you will position
your company in the market, how you will price your products and services, how you will
promote your offerings, and any sales processes you need to have in place.
Operations
Depending on the specifics of your business, include plans related to locations and facilities,
Plans are nothing without solid implementation. The milestones and metrics chapter of your
business plan lays out concrete tasks that you plan to accomplish, complete with due dates,
your business. This could include the number of sales leads generated, the number of page
views to your web site, or any other critical metric that helps determine the health of your
business.
Company overview
For external plans, the company overview is a brief summary of the company’s legal
structure, ownership, history, and location. It’s common to include a mission statement in the
company overview, but that’s certainly not a critical component of all business plans.
Team
The management team chapter of a business plan is critical for entrepreneurs seeking
investment but can be omitted for virtually any other type of plan.
The management team section should include relevant team bios that explain why your
management personnel is made up of the right people for the roles. After all, good ideas are
not difficult to come by; it’s a talented entrepreneur who can take those ideas and turn them
Business plans should help identify not only the strengths of a business, but areas that need
improvement and gaps that need to be filled. Identifying gaps in the management team shows
The financial plan is a critical component of nearly all business plans. Running a successful
business means paying close attention to how much money you are bringing in, and how
much money you are spending. A good financial plan goes a long way to help determine
If you are a start-up and/or are seeking funding, a solid financial plan helps you figure out
how much capital your business needs to get started or to grow, so you know how much
Sales forecast
Personnel plan
Balance sheet
I mentioned earlier in this article that businesses that write business plans grow 30 percent
faster than businesses that don’t plan. Taking the simple step forward to do any planning at
all will certainly put your business at a significant advantage over businesses that just drive
But just writing a business plan does not guarantee your success.
The best way to extract value from your business plan is to use it as an ongoing management
tool. To do this, your business plan must be constantly revisited and revised to reflect current
conditions and the new information that you’ve collected as you run your business.
When you’re running a business, you are learning new things every day: what your customers
like, what they don’t like, which marketing tactics work, which ones don’t. Your business
This all sounds like a lot of work, but it doesn’t have to be.
Tips to extract the most value from your plan in the least amount of time
1. Use your one-page business plan to quickly outline your strategy. Use this document
to periodically review your high-level strategy. Are you still solving the same problem
2. Use a Lean Plan to document processes that work. Share this document with new
3. Set milestones for what you plan to accomplish in the next 30 days. Assign these
tasks to team members, set dates, and allocate part of your budget if necessary.
4. Keep your sales forecast and expense budget current. As you learn more about
5. Compare your planned budgets and forecasts with your actual results at least
6. The final, most important aspect of leveraging your business plan as a growth engine is
to schedule a monthly review. The review doesn’t have to take longer than an hour, but
accomplish, set new milestones, and do a quick review of your overall strategy.
The outline below has been proposed for your use for the purpose of this course
d. Statement of confidentiality
III. Description of the Business and the Industry profile. This section should address the
following:
c. Business strategy
d. Size of business
e. Business’ advantage
a. Type of ownership
b. Identification of partners
c. Authority of principals
V. Production plan
a. Production process
a. Pricing
b. Promotion
c. Distribution
d. Quality control
e. Product Forecast
a. Costing
b. Break –even
c. Source of funding
b. Contingency plan.
As an entrepreneur thinks through developing a business venture, one issue that has to be
resolved is deciding on the type of ownership. There are several forms of business ownership
that can be considered. All of them have their advantages and disadvantages.
6.1 Sole proprietorship: This is where the business is owned and usually managed by one
1. Ease of starting and ending the business. All you have to do to start is to acquire the
needed equipment and generate some form of announcement that you are in business. It is
equally easy to stop. There is no one to consult or to disagree with about the decision.
2. Being your own boss. You work for yourself, make you own mistakes and so are the
3. Pride of ownership. People who own and manage their own businesses are rightfully
4. Retention of profit: Other than the joy of being your own boss, there is nothing like the
pressure of knowing that you can make as much as you can and do not have to share that
5. No Special taxes: All the profit of a sole proprietorship are taxed as the personal income
of the owner and he/she pays the normal income tax on that money.
Disadvantage of Sole Proprietorship
1. Often it is hard to save enough money to start a business and keep it going. The
2. Unlimited Liability-the risk of losses. When you work alone, any debt or damages
incurred by the business are your debt and you must pay.
3. Limited financial resources: Funds available to the business are limited to the
everything.
5. Overwhelming time commitment: The owner must spend long hours working.
6. Few fringe benefits: it you are your won owner you lose the fringe benefits that
7. Limited growth: If the owner becomes incapacitated, the businesses often come to a
standstill. Expansion is often slow since a sole proprietorship relies on its owner for
8. Limited life span: if the sole proprietor dies or retires, the business no longer exists
6.2. Partnership
It is a legal form of business with two or more owners. There are three key elements in any
general partnership. These are: common ownership shared profits and losses; and the right to
participate in managing the operations of the business. There are two basic types of this form
of ownership.
a. General partnership where all the owners share in operating the business
agree to enjoy limited liability and can legally help manage the company.
Limited liability means that the partners are not responsible for the
Advantage of partnership
1. More financial resources; Naturally when two or more people pool their money and
2. Shared management and pooled knowledge; Its simply much easier to manage the
3. Longer survival: having a partner to watch over you make people succeed and
Disadvantages of Partnership
1. Unlimited liability: Each general partner is liable for the debts of the firm, no matter
2. Division of profits: Sharing the risk means sharing the profit and that can cause
conflict.
assets. Because of such problems, all terms of partnership should be spelt out as
easy to get and of its. There are always questions of who gets what.
6.3. Corporation
Most people are not willing to risk everything to go into business. Yet for businesses to grow
and prosper and create abundance, many people would have to be willing to invest their
Advantages
1. More money for investment. To raise money, a corporation sells ownership (stock)
to anyone who is interested. Through this, they are able to raise large amount of
3. Size. Because they have large amount of money to work with, corporations can build
large and modern factories with the latest equipment. They can also hire experts or
4. Perpetual life: Because corporations are separate from the people who own them, the
offering such benefits as stock options (The right to purchase shares of the
1. Initial cost: Incorporation may cost huge amount of money and involve expensive
2. Paper work: the papers to be filled to start a corporation are many Tax law demands
that a corporation prove all its expenses and deductions are legitimate.
3. Tow tax returns: If an individual incorporates, he she must file both a corporate tax
return and an individual tax. The corporate return can be quite complex.
4. Size: size may be one advantage of corporations but it can be a disadvantage as well.
6. Double taxation: corporate income is taxes twice. First, the cooperation pays tax on
shareholders pay tax on the income (dividends) they receive form the corporation.
6. 4 Franchising
Buying a franchise can be a quick way to set up your own business without starting from
scratch. There are two types of franchise methods - business format franchising and product
6.4.1 Business format franchise: This is the most common form of franchising. A true
business format franchise occurs when the owner of a business (the franchisor) grants a
licence to another person or business (the franchisee) to use their business idea - often in a
The franchisee sells the franchisor's product or services, trades under the franchisor's trade
mark or trade name, and benefits from the franchisor's help and support. This help and
support usually takes the form of a turn-key system in order to assist the franchisee with
business issues such as site selection, store layout and design, staff recruitment and training,
marketing and supplier contacts. In return, the franchisee usually pays an initial fee to the
franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they
run. But the franchisor keeps control over how products are marketed and sold and how their
There are many examples of business format franchising opportunities such as fast food
franchises, retail franchises, coffee shop franchises, gymnasium franchises and environmental
6.4.2 Product and trade name franchise: This type of franchising involves no
upfront initial fees. The most important thing in product and trade name
a. the franchisee sells goods which are supplied by the franchisor or person
c. within six months of opening the business, the franchisee must pay the
a proven idea. You can check how successful other franchises are before
committing yourself.
2. Products and services will have already established a market share. Therefore,
3. You can use a recognised brand name and trade mark. You benefit from any
training, help setting up the business, a manual telling you how to run the
5. No prior experience is needed as the training received from the franchisor should
ensure the franchisee establishes the skills required to operate the franchise.
than an independent small business, due to the pool of support from the
7. You usually have exclusive rights in your territory. The franchisor won't sell any
8. Financing the business may be easier. Banks are sometimes more likely to lend
9. You can benefit from communicating and sharing ideas with, and receiving
1. Costs may be higher than you expect. As well as the initial costs of buying the
franchise, you pay continuing management service fees and you may have to
2. The franchise agreement usually includes restrictions on how you can run the
business. You might not be able to make changes to suit your local market.
3. You may find that after some time, ongoing franchisor monitoring becomes
intrusive.
5. Other franchisees could give the brand a bad reputation, so the recruitment
6. You may find it difficult to sell your franchise - you can only sell it to
7. All profits (a percentage of sales) are usually shared with the franchisor.
A business cooperative is formed when a group of small businesses opt to pool their
resources to benefit all members. This is not the same as multiple brands operating under a
fee and share in any profits accrued. Although being part of a business collective can increase
a company’s purchasing power and cut its costs, joining a cooperative can also have
drawbacks.
Advantages of cooperatives
organization makes the cooperative business a lot more stable than a regular
business. Members will come and go without necessarily disrupting the way
things work. In fact, whenever change is necessary, it will take the entire group
2. This equitable type of organization makes the cooperative business a lot more
stable than a regular business. Members will come and go without necessarily
disrupting the way things work. In fact, whenever change is necessary, it will
Members who also happen to be employees of the cooperative are also entitled to
discounts on merchandise.
4. Cooperative businesses are owned and controlled by the members, so they are
factor that leads to more control within a cooperative is the fact that all the
members of the cooperative need to be active within the cooperative so they can
The members will only be taxed based on the income they receive from the
services.
6. Cooperatives also receive financial assistance in the form of loans and grants
7. Cooperative businesses are based on the philosophy of mutual help. They aren’t
just about uplifting the members economically, but also morally and socially.
Disadvantages of a Cooperative?
1. Cooperative businesses have fewer incentives for large investors when attracting
capital. As a result, they aren’t that appealing to those wealthy investors. They
will mostly attract smaller investors, while the larger ones generally stay away
after knowing that the size of their investment does not determine the size of
their influence.
2. Cooperatives also sometimes experience problems when they try to get debt
capital from banks and other financial institutions. This makes cooperative
businesses an ideal business model for those with low start-up costs.
cooperative may run into some issues. Because everyone has equal authority,
just too expensive. Co-ops do not attract skilled professionals unless those
resources to support the high salaries. For this reason, the co-op can eventually
isn’t a problem because the profit incentive is there. With a cooperative, the lack
of a profit incentive may lead to lack of interest, which renders the cooperative