ENTREPRENUERSHIP SKILLS

Entrepreneurship Skills course introduces students who are potential entrepreneurs to the
business world through mind-set change, equipping them with skills and competencies that
enable them to identify, analyse and seize business opportunities. The course is focused on
empowering individuals with skills; proficiencies and aptitude for business resource mobilization
to enable them to implement their business ideas. This course is relevant because it allows
personal start-ups since the individuals will have acquired key skills and capabilities required to
start up scalable and feasible enterprises for meaningful self-employment. Thus, the course is
designed in a way that activates the entrepreneurial mindset and action.

General Course objectives

The specific objectives of this course are to;
i. Develop the spirit of self-employment among young people to enable them to become
entrepreneurs that are able to develop small and medium enterprises.
ii. Inculcate the entrepreneurial skills to potential entrepreneurs and help develop the same
in existing entrepreneurs through effective marketing, human resources management, and
other functions.
iii. Equip the learners with tools and techniques of developing business plans for start-ups
and the growth of enterprises.
iv. Empower the learners with tools and techniques for managing business risks to minimise
business losses and learn how to identify opportunities in challenging environments and
times.
v. Empower the learners with business resource mobilization skills.
vi. Enable learners with abilities to work through entrepreneurial teams.
vii. Equip learners with financial management and procurement skills.
viii. Equip learners with flexibility, business resilience and change management skills

General Learning outcomes

At the end of the course, the learners should be able to;
i. Develop a business plan
ii. Identify business opportunities in different sectors.
iii. Have a positive mindset towards self-employment
iv. Have minimum competencies to start a business
v. Mobilise business resources, especially finance, information, technology, and human
resources.
vi. Market products and develop a brand.
vii. Be aware of micro economic challenges that may affect any business success
Entrepreneurship is the process of creating something new of value by devoting the necessary
time and effort, assuming the accompanying risks for personal satisfaction and independence
(Hisrich and Peter, 2002).

Schumpeter (1934) defined Entrepreneurship as a process of creative destruction that involves

restructuring a hither to stable market in order to create new and better systems. Austrian
economist Joseph Schumpeter’s definition of entrepreneurship placed an emphasis on
innovation, such as: new products, new production methods, new markets and new forms of
organization

Wealth is created when such innovation results in new demand. From this viewpoint, one can
define the function of the entrepreneur as one of combining various input factors in an innovative
manner to generate value to the customer with the hope that this value will exceed the cost of the
input factors, thus generating superior returns that result in the creation of wealth.
The fundamental “principle” of entrepreneurship as a field of study is that it deals with the
organization of knowledge in a particular subject in such a way that it commands more of the
hidden potential in the subject in the area of self-employment and job creation. It has to do with
system of ideas and values that are now given attention recently as part of the tertiary institution
curriculum (Mkpa, 2014).

An entrepreneur:

According to Caree and Thurik (2002) an entrepreneur is an enterprising individual who builds
capital through risk and /or initiative. Entrepreneur in English dictionary is a term applied to a
person who is willing to launch a new venture or enterprise and accept full responsibility for the
outcome.

An entrepreneur is a person who pays a certain price for a product to resell it at an uncertain
price, thereby making decisions about obtaining and using the resources while consequently
admitting the risk of enterprise. An entrepreneur is an economic agent who unites all means of
production including; land, labour and capital to produce a product for sale with an aim of
making a profit. By selling the product in the market he pays rent or land, wages to labour,
interest on capital and what remains is his profit, he shift economic resources out of an area of
lower and into an area of higher productivity and greater yield. The later definition is most
appropriate when viewed from the perspective of economic development. Entrepreneurship is the
act of identifying, initiating, organizing and bringing a vision to life, be it a new product, service,
process, organizational strategy, promotional strategy or a niche market (Akinwumi, 2012).

Characteristics of Entrepreneurship

 Economic Activity: Entrepreneurship is an economic activity, as it involves designing,

launching and running a new business enterprises in order to earn the profit, by ensuring
best possible use of resources.

 Creativity and innovation: It involves discovering new ideas and implementing it in

business. The entrepreneur continuously evaluates current modes of running a business
and identifies new methods and techniques for operating the business more efficiently
and effectively.

 Profit: The activity of entrepreneurship is undertaken with the sole objective of making
the profit. It is also the reward of the efforts made and risk taken by the entrepreneur.

 Risk Bearing: “Willingness to assume the risk” is the essence of entrepreneurship without
which he/she cannot succeed. It occurs due to the creation and implementation of new
ideas. Such ideas are often uncertain, and so the result may or may not be positive and
instant.

The role of different theories in explaining entrepreneurship:

As a further attempt in explaining entrepreneurs and entrepreneurship, various theories have

been advanced to explain:

 How entrepreneurs act (what is it they do).

 What happens when entrepreneurs act (what are the out-comes of their actions) and
 Why people choose to act as entrepreneurs.

The main theories are economic, social and psychological theories:

Economic theories:

Richard Cantillon (1751) was one of the first economists to critically analyze the role of the
entrepreneur. He argued that the entrepreneur working with existing products and in existing
markets bought at certain prices and sold at uncertain prices therefore assuming the role of a
risk taker. He argued that markets are always in a state of disequilibrium but it is the alertness
of entrepreneurs to profitable transactions that bring demand and supply into equilibrium.

However, this argument was overshadowed by Adam Smith (1776) who showed that even
selfish consumers and selfish producers each with their selfish interests, could always strike
acceptable bargains that could always move the market to equilibrium, this implying that
entrepreneurs were just players responding but never creating consumer needs.

However, Joseph Schumpeter (1934), developed a rule breaking theory of economists in

which he described a creative destruction of industrial cycles. He argued that a normal
healthy economy was not in equilibrium but one that is constantly being disrupted by
technological innovation.

Sociological theories:

The theories of Weber and Cocharan try to explain entrepreneurial behavior as a function of
the person and the environmental conditions or the reality individuals live in. the
environment and ideological values shape people’s attitudes and beliefs which in turn
influence the potential entrepreneur’s view, behavior and perspective.

The nature of populations influences the distribution of resources and indirectly shapes
entrepreneurial processes. This implies that entrepreneurship is situational and varies among
nations and regions and among individuals. Sociologists view environmental factors that
include culture, networks, access to capital, mobility and government policies as a key in
fostering entrepreneurship. Different sociological models have been developed to try and
explain entrepreneurship and they include:

The social development model, which tries to explain and understand entrepreneurial start
up decisions in terms of the situations encountered and the social groups to which individuals
relate.
The demographic approach. This uses demographic information and variables such as
family background, birth order, role model, marital status, age, educational level of parents
and self-socio-economic status, previous working experience etc

Social cultural dimensions ie cultural values, risk taking, hard work etc.

Psychological theories:

Joseph Schumpeter, McClelland, Hagen and Kunkal were the champions of these theories.
They look at how primary motivations of or needs may vary across individuals and how
these differences may influence entrepreneurial activity. It also considers various aspects of
the psychological make-up and problem solving style of the entrepreneurs. These ascribe
entrepreneurial tendencies to the individual’s personality, mental and physical make up.
Psychological theories include:

The traits approach, which suggests that individuals with certain characteristics always find
the path to entrepreneurship regardless of the environmental conditions. It observes that
personality patterns (characters) in individuals exert a dominant influence on the subsequent
success of their ventures and possessing a greater number of the right personality patterns
contributes a greater likelihood of success.

The cognitive approach: suggests that entrepreneurial success is closely related to the way
entrepreneurs perceive information, think and possess knowledge, and that this can be used
as a basis for distinguishing between entrepreneurs and other persons. This perspective
advises that different people think and process information differently and that such
variations may help different people.

Schumpeter believes that entrepreneurs are primarily motivated by an atavistic will to power,
will to found a private kingdom or will to conquer. According to McClelland it is the high
need for achievement which drives people towards entrepreneurial activities. This
achievement motive is inculcated through child rearing practices, which stress standards of
excellence, material warmth, self-reliance training and low father dominance. Individuals
with high achievement motive tend to take keen interest in situations of high rest, desire for
responsibility and a desire for a concrete measure of task performance.
 According to Psychologists, entrepreneurship is most likely to emerge when a society has
sufficient supply of individuals possessing particular psychological characteristics. The main
characteristics are: an institutional capacity to see things in new way (vision), energy of will
and mind to overcome fixed habits of thought, an urge to do something, to fulfill a dream, he
capacity to withstand social opposition; and the high need for achievement.

The different types of entrepreneurs where learners can choose to become one
The different types of entrepreneurs are classified according to; motivation to engage, Levels of
Creativity and Innovation, level of organization and consultation, level of technology, business
type, and others. Let us look at the different types of entrepreneurs under each category.

Motivation to engage in entrepreneurial activity

Here we look at the force that influences the efforts of the entrepreneur to achieve their
objectives.
i. Push Entrepreneurs: Push entrepreneurs are Forced entrepreneurs, those whose
dissatisfaction with their current position for reasons unrelated to their entrepreneurial
characteristics, pushes them to start business ventures. The common push factors here
include; dissatisfaction with current job, unemployment, lack of marketable job skills, loss of
a bread earner, forced migration, premature retirement, need to accumulate more money,
etc.Push entrepreneurs were found to be more successful than other types of entrepreneurs
since they are more determined and persistent because they normally have nothing to fall
back to in case of failure.
ii. Pull entrepreneurs: these are motivated entrepreneurs whose new business venture ideas
come because of the attractiveness of the business results. These include a promise of high
profits, prestige, conforming to group pressures, the need for independence, and the need to
put their ideas into practice.

Level of creativity and innovation

i. Innovative entrepreneurs: These have much research skills and have a variety of
information on business dynamics and combine a range of factors experimentally to
produce new possibilities in terms of markets, techniques, and products.
ii. Imitative (Adoptive) entrepreneurs: These cope with the level of technology and
techniques innovated by others. They are particularly important in underdeveloped
countries although not highly regarded in more developed economies.
iii. Opportunistic (Portfolio) Entrepreneurs start and have ownership of their enterprises,
and are constantly looking for any serial investment opportunities because of their wide
skills and knowledge accumulated from a wider educational background, experience,
research, and exposure.
 iv. Visionary Entrepreneurs have almost similar characteristics to opportunistic
entrepreneurs however, while opportunistic entrepreneurs pursue serial business
opportunities, visionary entrepreneurs concentrate on the unwavering pursuit of a single
powerful opportunity.
v. Drone Entrepreneurs: These entrepreneurs are stuck in the traditional way of operating
businesses and don’t adapt to new standards that come into business operations.
vi. Craftsman-entrepreneurs: These tend to restrict their business to their individual skills
and experiences usually accumulated from limited education and exposure.
vii. Fabian Entrepreneurs: These are also reluctant to change, but are sometimes forced by
circumstances to change. They respond very slowly to changes in the market, and this
affects their growth and competitiveness.

Level of organization and consultation

i. Under this category, we differentiate entrepreneurs who develop their own business ideas
(solo entrepreneurs) and those who get their ideas from their social networks and
develop them within their networks (network entrepreneurs).
ii. Co-preneurs: These are entrepreneurial couples that work together as co-owners of an
enterprise. Researchers have described this type of entrepreneurs as an exciting
proposition that involves nurturing and growing a business with someone you love –
much like raising a child.
iii. Intrapreneurs / Corporate entrepreneurs

Entrepreneurs in technical expertise.

Entrepreneurs can be broadly classified on the basis of their use of technical expertise as follows:
i. Technical Entrepreneurs are essentially compared to craftsmen. These develop the
improved quality of goods because of their craftsmanship. They tend to concentrate more
on production than marketing, sales generation, and promotional techniques. They
demonstrate their innovative capabilities in matters of the production of goods and
rendering of services using their technical skills in production. 3
ii. Non-technical Entrepreneurs are those who are not concerned with the technical
aspects of the product in which they deal. They are concerned only with developing
alternative marketing and distribution strategies to promote their business.
iii. Professional Entrepreneurs are interested in establishing a business but do not have an
interest in managing or operating it once it is established. A professional entrepreneur
sells out the running business and starts another venture with the sales proceeds. Such an
entrepreneur is dynamic and he conceives new ideas to develop alternative projects.

Entrepreneurs according to the type of Business

Business Entrepreneurs are individuals who conceive an idea for a new product or service and
then create a business to transform their ideas into reality.
 i. Trading Entrepreneur is one who undertakes trading activities and is not concerned
with the manufacturing work of the products
ii. Industrial Entrepreneur is essentially a manufacturer, who identifies the potential
needs of customers and tailors a product or service to meet the market needs.
iii. Agricultural Entrepreneur: Agricultural entrepreneurs are the ones who undertake
agricultural activities such as growing and marketing crops, fertilizers, and other inputs of
agriculture.

Other types of entrepreneurs include;

iv. Social entrepreneurs are individuals with innovative solutions to society's most pressing
social problems.
v. Novice entrepreneurs: These are individuals with no prior minority or majority business
ownership experience either as a business founder or as a purchaser of an independent
business who currently owns a majority or minority equity stake in an independent
business that is either developed from scratch or purchased.
vi. Habitual entrepreneurs: These are individuals who hold or have had a majority or
minority ownership stake in two or more businesses at least one of which was established
or purchased.
vii. Portfolio entrepreneurs: These are individuals who currently have minority or majority
ownership stakes in two or more independent businesses
viii. Serial entrepreneurs: An entrepreneur who continuously comes up with new ideas and
starts new businesses.
ix. Nascent entrepreneur: These are at the initial stage of either idea generation or have just
started.
Characteristics of entrepreneurs
There is a question that has puzzled so many people; “Are entrepreneurs born or made?” The
answers to this question are not very definite. Instead, what has been discovered is that some
aspects of entrepreneurs are born while others can be made or learned. The general consensus
has however been that we all have the capacity to learn how to become entrepreneurs.
Table 1: Characteristics of entrepreneurs and how they are used in business
Characteristics How to develop them How to use them
Creativity and Practice, Develop confidence, Problem solving, improve existing
innovation collaborations, experiment the ideas, products/services, challenge your thoughts,
and critical thinking improve new partnerships and relationships,
improve brand recognition and value, increase
turnover and profitability
Perseverance Recall past events, be patient and give Deal with discouragements, cultivate a
things time, set a reasonable pace, self- supportive network, handle setbacks, and create
regulate, and practice self-control a clear vision
Hard work Venture into a business you love, keep Teamwork, keep focused on the set goals
self-motivated, time management (SMART), promote personal and professional
skills, develop an action plan, set development, increase productivity and
 business goals, create positive revenue.
networks, remove distractions, find
mentors, plan for imperfection, track
progress, use your strength, think
positively, and keep self-discipline
Networking and Through good communication and Establish your goals, identify ways to practice,
interpersonal relations, building relationships, solicit feedback, reflect and modify, keep
relations keeping in contact, leverage on interactions focused, stay positive, negotiate
effectively, and practice active listening
influential connections, staying
positive, and focus on your efforts
Information seeking Initiation, problem definition, source Determine industry trends, be informed on the
selection, formulating queries, potential threats and opportunities in the
examining results, and extracting industry, improve collaboration, greater
useful information. business intelligence, increase productivity,
reduce risk and compliance Issues
Multiculturalism Encourage conversations with suppliers Develop talent and skills, improve problem-
and customers, celebrate diversity, role solving capabilities, increase productivity,
modelling, Leveraging multi- better financial results, creative and innovative
culturalism, maintain consistent thinking
communication, attain internships and
scholarships, attend diversity training,
actively seek out new perspectives and
ideas, and treat others how they want to
be treated
Trust and honesty Value long-term relationships, be Meet every commitment, provide consistency
honest, honor your commitments, in business dealings, improve flexibility in
Communicate effectively, know the
distributions and business operations, improve
business and the business intentions,
and be open to feedback self-awareness, avoid vague communication,
directly address issues, be flexible and patient,
and respect their time
Need for Set goals, get feedback and improve,Improve strategic focus on people, operations,
achievement seek out new projects, start each day, marketing, and finance
week and month with a plan, take risks
to pursue new opportunities, work hard
and be persistent, continue learning,
consider failures as new opportunities
Long-term Focus on production, product , Promote communication, more productivity,
orientation marketing, and sales orientation improved confidence on business operations
and direction
Persuasiveness Be curious, truly understand the end Increase clientele base, motivate employees,
goals of the business, believe in increase sales, gain investors, and negotiate
yourself and your product, be more purchasing deals, gain trust
knowledgeable and trustworthy, have
passion and confidence
and innovative, know your audience
and their interests, ask detailed
questions.
 Positive attitude and
internal locus of
control
Independence and
autonomy
In your group, think of any others characteristics and determine how they are developed and used in the business
world

Why develop a career in Entrepreneurship.

 Self-employment that can even be turned into family business
 Flexibility i.e Having personal control and freedom to make important decisions in your
businesses
Independence
 Gives an opportunity to create wealth
 Gives an opportunity to maximize the potential for your abilities in discovering and
growing yourself (Self-fulfillment).
 A sign of success in life and society (Recognition).
 Ability to influence important decisions within the business and in society.

Role of the Entrepreneurs in the economy:

 They create employment,
 Entrepreneurs create products and services.
 Value creation.
 Make use of idle resources.
 Entrepreneurs pay taxes to the gov’t
 Results in wider distribution of wealth.
 Leads to economic development by increasing the GDP..
 Leads to regional integration
 Stimulates innovation & efficiency

LIMITATIONS OF BEING AN ENTREPRENEUR

 Salary: Becoming an entrepreneur means you have to leave behind the security of having
a paycheck each month.
 Long hours of hard work: Although entrepreneurs benefit from a flexible schedule they
often have to work very long hours particularly in the start-up phase. Furthermore
entrepreneurs’ work schedules are never predictable and they must deal with emergencies
that may occur at any time.
 Sole decision maker: Being responsible for all decisions can be quite stressful and
handling such responsibility can be difficult since you have to depend on only a limited
number of people to make decisions and there is no input from other sources.
  There is also great risk attached to entrepreneurship. The success or failure of the
business rests with the entrepreneur.
 Competition. Staying competitive is critical as a small business owner. You will need to
differentiate your business from others like yours in order to build a solid customer base
and be profitable.
 Loneliness. It can be lonely and scary to be completely responsible for the success or
failure of your business.
 Lack of adequate skills to manage the business.

Challenges that entrepreneurs usually face in their business

While it is a great deal to get into the practice of entrepreneurship, it comes with challenges.
However, these challenges are not as hard to deal with as the challenges in the paid employment
market. In business, you deal with challenges that have benefits and you directly benefit when
you address these challenges. Some of these challenges are related to the management of the
business, managing customers, managing suppliers, managing business partners, managing
government agencies, and sometimes handling business processes.
Some of the commonest challenges include the following;
i. Limited business and entrepreneurial skills
ii. Financial constraints
iii. Dealing with human resources/workers in terms of productivity, trust, conflict
management, motivation, building capacity, etc.
iv. Conflict management with different stakeholders such as partners, suppliers, and the
public.
v. Unstable government policies and business operation laws and bureaucratic systems that
include monopoly power given to some businesses, registration bureaucracy, ever
changing business tax requirements etc.
vi. Managing customer relations such as complaints, negotiation, credit recovery and other
client issues.
vii. Handling competition and industry conflicts.
viii. Trust
ix. Technology advancements

THE NEED FOR ENTREPRENEURSHIP DEVELOPMENT:

Over the past decades, entrepreneurship has gained amazing popularity not only in Uganda
but also in the wider world. This is as a result of the significant changes in the work place
and the social and political environments that are funning the growth of entrepreneurship
worldwide the factors include both pull and push as seen below:
Pull factors i.e. factors that lure or attract one to join entrepreneurship.

 Technological advancements that have compromised technological processes and enabled

many things to be made and services to be delivered at a fraction of the original cost.
 Entrepreneurship Education. Since the 1980’s the countries that have invested in the
teaching of entrepreneurship have harvested a rich crop of high caliber entrepreneurs.
 Liberalization and globalization has enabled small entrepreneurial firms to access
international markets without the threat of protectionism and other trade barriers.
 Easier access to venture capital.
 Opportunity availability,
 External rewards i.e. how society recognizes successful entrepreneurs.
 Cultural influence , community or family background
 Motivation from biographies of successful entrepreneurs.
 Government policies like infrastructural development, capital availability
(bonabaggawale).
 Perceptions of advantage i.e. a person feels that he can earn better.
 A shift to the service sector that require personalized attention, smaller companies are
able to create profitable niches to compete with larger established firms.
 Property inheritance past experience from previous employment.
 Making use of idle resources.

Push factors or factors that compel of force one to go entrepreneurship:

 Current job dissatisfaction i.e. low salary scale, poor working conditions, transfers and
demotions etc
 Un employment
 Layoffs/ down sizing
 Retirements
 Boredom

ENTREPRENUERSHIP VITALITY:
This is the measure of a country’s level of entrepreneurial activity. Countries with a high
entrepreneurial vitality have high levels of business births.

PROGRAMS AND POLICIES FOR ENTREPRENUERSHIP DEVELOPMENT

 Sound and progressive micro economic policies for example expansionary policies where
the government releases money to the public, lower interest rates, accessibility to
financial institutions.
 A strong educational system should be introduced that it produces skilled and motivated
human resources for example training job makers not job seekers. There should be
teaching of vocational courses and practical things that avails students with the necessary
skills to perform.
 Accessibility to venture capital for example money set aside by the government to fund
business start-ups like bona bagagawale funds.
 Change of cultural and social norms for example change people’s mentality to encourage
and start viewing entrepreneurship positively.
 Promotion and building of entrepreneurial networks e.g. business broker to connect
entrepreneurs to ideas and markets.
 Government policy implications for example fiscal policies like tax holiday and
exemptions for new business start-ups, low taxation, subsidize and protect them.
 Reduce bureaucracy in the registration system so that entrepreneurs can easily register
and formalize their business.
 Encourage privatization and the role of its bodies like private sector foundation.
 Infrastructural development like repair and maintenance of roads, rural electrification.
 Inflation control.

Barriers to entrepreneurship development:

Personal barriers

 Poor entrepreneurial skills like being risk averse, low levels of creativity, not flexible etc.
  Poor business and technical skills. Like skills in marketing, accounting, management
which are highly required by all practicing entrepreneurs to effectively manage their
entrepreneurial ventures.
 Low mobility and exposure, this limits the on acquiring new creative and innovative
ideas that shape entrepreneurship.
 Few role models in entrepreneurship, this limits the number of people that aspire for a
career in entrepreneurship.
 Poor business ethics like unpaid loans, unpaid suppliers, and employees, selling
substandard goods, tax evasion, corruption, and smuggling.
 Complacency or lack of motivation, because of lack of role models most entrepreneurs
tend to be satisfied with the little they have.
 Lack of continuity, very few firms in Uganda tend to survive the death of their founders.
Very few entrepreneurs have the opportunity to pass on their enterprises to new
generations and watch from the side as the enterprise continues to prosper.
 Career dependency, Ugandans especially the educated have long been dependent on their
careers to provide for their livelihoods.

Barriers from the environment:

 Business administrative procedures like complex and burdensome regulations favoritism,

corruption and weak enforcement mechanisms and as a result businesses are forced into
the informal sector.
 Insensitive government institutions and departments, entrepreneurs blame government
institutions and departments for having little qualifications and a minimal appreciation
and understanding of the importance of business. This limits these entrepreneurs access
to these institutions for support and most of the laws are made with the aim of appeasing
the external investors.
 Poor infrastructural development like roads, hospitals, no power and water in most of
rural areas this limits business development in such places.

Economic environment:
  Limited access to finance. This is because the banking system in Uganda imposes
impossible demands to the entrepreneur for instance they have little incentive to the to
extend credit, the terms of credit are un reasonable requiring difficult collateral and
guarantees to secure the loan.
 Low purchasing power. Low income and high rates of unemployment limit the
purchasing power of relatively small Uganda’s population, this make it had for
businesses to acquire the necessary economies of scale.
 Economic instability, due to over reliance on donor support or funds, the import bill that
far overweighs the export earnings and over reliance on imports, the Ugandan economy is
very fragile and easily destabilized by any small shocks in the international environment.
 Excessive, complex and arbitrary taxation. The tax system in Uganda is complicated,
confusing, changes rapidly and in most case beyond comprehension of the entrepreneurs.

THE ENTREPRENEURIAL PROCESS:

The entrepreneurship process is a course of action that involves all functions, activities and
actions associated with identifying and evaluating perceived opportunities and the bringing
together of resources necessary for the successful formation of a new firm to pursue and seize the
opportunities. The birth of a new enterprise and its subsequent success or failure is not a hap hard
process but the art and science of entrepreneurship that can be taught and learnt. The process
involves a number of stages as seen below:
A. Idea generation Or opportunity identification:

A business idea is a concept that can be used to make money. Usually it centers on a product or
service that can be offered for money. An idea is the first milestone in the process of founding a
business. Every successful business started as someone’s idea. Although a business idea has the
potential to make money, it has no commercial value initially. In fact, most business ideas exist
in abstract form; usually in the mind of its creator or investor and not all business ideas, no
matter how brilliant they may seem, would end up being profitable. To find out about an idea’s
chances in the market and check its innovative content and feasibility, you need to conduct a
plausibility check. A promising business idea must have the following characteristics:
 Relevant (must fulfill customers’ needs or solve their problems)
 Innovative
 Unique
 Clear focus
 Profitable in the long run
The acceptability and profitability of a business idea hinges largely on how innovative the idea
is. Being innovative means using conventional production or distribution methods that have
rarely been adopted before. In fact, the entire business system could be innovated.
For example, FedEx revolutionized mail post services through 24-hour operation and very quick
delivery worldwide. The company therefore adopted an innovative system, which eventually
spurred it to becoming one of the world’s leading mail and parcel delivery services.
Business opportunity:
A business opportunity on the other hand is a proven concept that generates an on-going income.
In other words, a business opportunity is a business idea that has been researched upon, refined
and packaged into a promising venture that is ready to be launched.
While multiple business ideas may strike you on a daily basis, only few of them will be
profitable in the long run based on market research and feasibility study conducted. These few
are the real business opportunities. An opportunity is regarded as one after it has been found to
meet the following criteria:
 It must have high gross margins.
 It must have the potential to reach break-even cash flow within 12 months – 36 months.
 The startup capital investments must be realistic and within the range of what you can
provide.
 You must have the strength and ability needed to drive the business to success.
 Your level of enthusiasm for the business must be very high.
 It must have the potential to keep on improving with time.
 It must have a low level of liability risk.
After you have refined and packaged your business opportunity in your mind, you can have it
documented by writing a business plan. You can then either implement on your own or sell it to
someone else for profit (probably because you cannot afford the capital required to flag off the
business). The world is filled with brilliant ideas but the world lacks entrepreneurs who have the
capacity to turn such ideas to profitable business opportunities. It is one thing to develop an idea,
but it is an entirely different game to turn an idea into a business opportunity.
Sources of ideas include
 There are sometimes gaps between demand and supply (Apparent/Overt Demand)
 Prospective customers
 Developments in other nations,
 Study of government project profiles.
 Market surveys or relative demand for certain products
 Friends and family
 Licensing and franchising
 Media. (Tvs, Newspapers)

Once opportunities or ideas are discovered, screening and testing is carried out and involves
carrying out a feasibility analysis.

B. Feasibility analysis:

This is the process of determining whether the idea is a viable foundation for creating a
successful business. Its purpose is to determine whether a business idea is worth pursuing.

Feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an
existing business or proposed venture, opportunities and threats present in the environment,
the resources required to carry through, and ultimately the prospects for success. In its simplest
terms, the two criteria to judge feasibility are cost required and value to be attained

Importance of Conducting Feasibility Study before Starting a business:

 Helps to determine the profitability of the business. Before starting a business, seasoned
entrepreneurs and investors would want to know if the business would be worth their
time, effort and resources. It is worthwhile to know that many entrepreneurs have
 abandoned solid business ideas because the profitability could not be ascertained on
conducting a feasibility study on the business idea.

 It is used to determine the existence of the market. One is in position to know the target
market, their income levels, buying behavior, age group.

 Feasibility study will help you identify the flaws, business challenges, strengths,
weaknesses, opportunities, threats and unforeseen circumstances that might affect the
success and sustainability of the business venture.

 Feasibility study will enable you estimate the human and technological resources that
will be needed to ensure the successful launching of the business. Feasibility study helps
to reveal the number and level of skill or unskilled workers to be employed and their
salary scale.

 Feasibility study will help you to determine the amount of capital required to start the
business. It will also help you in establishing the budget plan, working capital and cash
flow projections of the business.

The feasibility study aspects include the following:

1. Product or service feasibility:

Once entrepreneurs discover that sufficient market potential for their idea actually exists, they
can now focus on the product or service to be offered. A product or service feasibility analysis
determines the degree to which a product or services appeals to potential customers.

2. Product Search and screening

After we come up with product ideas, we look at products presently available and products
related to those products ideas. Then pose the exploratory questions –
 Are customers satisfied with what they are getting?
 Can we identify a better method of production?
 Can the basic design be changed?
 What is the present demand, future demand likely to be?
 What are the skills needed?
  Can I handle the technical aspects?
 If not, is the expertise available for hire easily?
 Does the product idea generated match my competencies or do I have todevelop new
competencies?

3. Marketability
 Availability of market, Ease of After Sales Service, Product Variations, products that have
to be made available in a wide range of grade, size, shape,
 Uniqueness of Product etc.

4. Technical Feasibility
Study assesses the details of how you will deliver a product or service (i.e., materials, labor,
transportation, where your business will be located, technology needed, etc.). Think of the
technical feasibility study as the logistical or tactical plan of how your business will produce,
store, deliver, and track its products or services.
A technical feasibility study is an excellent tool for trouble-shooting and long-term planning. In
some regards it serves as a flow chart of how your products and services evolve and move
through your business to physically reach your market.

5. Economic Feasibility

The purpose of the economic feasibility assessment is to determine the positive economic
benefits to the organization that the proposed system will provide. It includes quantification and
identification of all the benefits expected. This assessment typically involves a cost/ benefits
analysis. Analyzing the economy will help you align your planned business with the economic
situation on ground. Economic feasibility should include analysis on government’s fiscal and
monetary policies, import and export rate, inflation rate, tax rate, and currency exchange rate and
so on.

6. Sensitivity and Risk Analysis

This is the last part of a feasibility study and probably the most important. After all other factors
have been analyzed and proven viable, sensitivity and risk analysis can come in. Building a
business without properly conducting a risk analysis is like flying a plane without regards to
weather condition. Before any business idea is taken to the marketplace, its risk to reward ratio
should be analyzed, the sensitivity to competition should be determined and the liquidation rate
of companies in the industry of your proposed business venture should be calculated. With
results obtained from sensitivity and risk analysis, growth and survival strategies can be
developed for your proposed business.

7. Financial Analysis / feasibility

Financial analysis will be dealing with the estimation of the total capital involved, capital
expenditures, working capital; profit and loss analysis, pricing of products, cash flow projections,
projected sales revenue and the entire project viability. Everything concerning finance should be
dealt with at this moment. If you are trying to raise venture capital for your small business
startup, then you have to do a clean job on the financial section of the feasibility report because
this is where investors focus on. All they are interested in knowing is how much is the
percentage return on investment and the payback period. Evaluation techniques include NPV,
IRR and Payback period.

8. Industry feasibility:

When evaluating a business idea, entrepreneurs find a basic analysis of the industry and targeted
market segments a good starting point. The focus here is twofold i.e. determine how attractive
the industry is and identify possible niches a small business can occupy profitably. Look at
things like , how large is the industry, how fast is it growing, is it profitable, what threats or
opportunities are facing the industry, how intense is the level of competition. Addressing these
questions helps to determine whether there exists the potential for sufficient demand for the
products or services.

A useful tool for analyzing the industry is by using the five forces model by Michael porter i.e.

 Rivalry in the industry: this looks the level of competition in the industry is it stiff or
not, what is the size competitors, their influence and market share.
 Bargaining power of suppliers. The greater the leverage that suppliers of key raw
materials have, the less attractive the industry is. An industry is attractive when; many
suppliers sell to the company, substitute items are available for the items suppliers
 provide, companies find it easy to switch from one supplier to another, items suppliers
provide account for a low proportion of the companies finished goods.
 Bargaining power of buyers. Just like suppliers these also have the potential to exert
significant power over a business making it less attractive. An industry is attractive if the
switching costs are high, customers demand for products that are highly differentiated.
 Threat of new entrants. An industry is attractive to join if there is restrictions on the
new entrants not free entry and exit.
 Threat of substitutes. An industry is attractive when quality substitute products are not
readily available, prices of substitute products are not significantly lower than those of
the company’s products and when substitute costs are high.

After surveying the power these five forces exert on an industry, the entrepreneur can evaluate
the potential for their company to generate reasonable sales and profits in a particular industry.

c. Idea selection and business planning:

The feasibility report is analyzed to finally choose the most promising idea and the following
considerations influence the selection of the idea. Products that can be exported easily and
profitably, products whose demand exceed their supply and therefore ready market, products in
which an entrepreneur has manufacturing and marketing experience, products favored by
country’s industrial policies and products for which incentives and subsidies are available. After
selecting the best idea then prepare a business plan.

B. Resource mobilization / Input requirements

Once the promoter is convinced with the feasibility and the profitability of the enterprise, he
assembles the necessary resources to launch it. Resources vary from tangible to intangible,
qualitative and quantitative. He has to choose partners, collect the required finances and he
should choose from both short term and long term source of funding like short term and long
term bank loans and acquire land and building, machinery, furniture, patents and employees.

C. Establish the enterprise/ Implement the business

The entrepreneurial process is incomplete until the idea is actualized in form of a business. The
firm is launched by assembling and organizing the physical facilities, developing operation and
production processes, recruiting required labor force advertising the product and initiating a sale,
promotion campaigns.

BUSNESS PLAN:

A business plan is a formal statement or set of business goals, reasons they are believed
attainable and the plans for reaching these goals. It may also contain background information
about the organization or team attempting to reach these goals. Or Is a document that
summarizes operational and financial objectives of a business and showing how they are to be
realized.

Why do we Prepare or write a Business Plan?

Your business plan is going to be useful in a number of ways.
 It will define and keep you focused on your objective using appropriate information and
analysis.
 For financing. You can use it as a selling tool in dealing with important relationships
including your lenders, investors and banks.
 Helps to estimate start-up costs.
 You can use the plan to solicit opinions and advice from people, including those in your
intended field of business, who will freely give you invaluable advice.
 Helps in determining the profitability of the business using the projected cash flows,
assets, liabilities, expenses and incomes.
 Helps to identify risks and uncertainties.
 It also helps in the process of registering the business.
The format of a business plan has got the following contents:
1. Title page:
This includes a company’s name, logo, address, telephone number, names and contacts of
the directors.
2. Table of contents:
 This includes page numbers and chapters so as to locate a particular section of the plan in
which one is interested in easily.
3. Executive summary:
It comes first though written last and should summarize all the relevant issues of the
business venture. It should be concise a maximum of two pages. It includes a company’s
name and addresses of the venture, names, addresses and contacts of all the key people,
brief description of the business, its products and services, brief overview of the market
for your products or services, strategies that will make your firm a success, managerial
and technical experience of the key people, statement of financial request and how they
will be used.
4. Vision and mission statement:
A vision is an orientation point that guides a company’s movement in a specific direction.
Where as a mission statement expresses in words an entrepreneur’s vision for what his or
her company is and what it is to become. It is a broad expression of a company’s purpose
and defines the direction in which it will move.

5. Company history for existing businesses:

A brief history of the operation highlighting the significant financial ad operational
events in the company’s life. It should describe when and why the company was formed,
successful accomplishments of past objectives, achieving market share targets.
6. Product /service
7. Marketing strategy:
Under here you describe a company’s target market and its characteristics. Creating a
successful business depends on an entrepreneur’s ability to attract real customers who are
willing and able to buy its products and services. Customer’s motivation to buy market
size and trends, is it growing or shrinking, sales advertising and promotional mix as well
as costs, pricing and channels of distribution.
8. Technical aspect:
this looks at the location of the business i.e. why did you choose that particular area, plant
lay out, manufacturing process, machinery and equipment required and their costs, raw
 materials required and accessibility, names of the suppliers, labour needs and supply,
wage rates.
9. Organizational aspect or plan of operation;
This includes the form of ownership chosen i.e. sole proprietorship, joint venture, a
company’s structure or organizational chart, decision making authority, compensation
and benefit packages, management team and background, roles and responsibilities,
experience, skills and expertise.
10. Financial aspect including the cash flow projections, projected income statement and
projected balance sheet.
11. Appendices. This contains any relevant additional information that you would like
people to know.
NATURE AND TYPES OF BUSINESSES:
There are three major types of businesses:
1. Service Business
A service type of business provides intangible products (products with no physical form).
Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks, accounting firms, and
law firms.
2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail price. They are
known as "buy and sell" businesses. They make profit by selling the products at prices higher
than their purchase costs.
A merchandising business sells a product without changing its form. Examples are: grocery
stores, convenience stores, distributors, and other resellers.
3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the intention of
using them as materials in making a new product. Thus, there is a transformation of the products
purchased.
A manufacturing business combines raw materials, labour, and factory overhead in its production
process. The manufactured goods will then be sold to customers.
Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of business. A
restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising), and fills customer orders (service).
Nonetheless, these companies may be classified according to their major business interest. In that
case, restaurants are more of the service type they provide dining services.
FORMS OF BUSINESSES:
Sole proprietorship:
Is the business owned and managed by one individual. Advantages include

 Simple to begin. One simply obtains the necessary resources and license and operates.
 Unshared profits. He owns all the profits of the business alone this motivates them.
 Easy decision making. Since there no a lot of people involved, it becomes to easy for him
to make decisions without interruptions.
 No government intervention.
 It is flexible in that one can exchange from one line of business to another as the
entrepreneur wishes.
 Sole proprietors have direct contact with their customers. This makes it easy for them to
understand their customers and can easily satisfy their needs.
 This form of business is easy to discontinue or to dissolve.

The disadvantages include:

 Un limited personal liability. This is the greatest disadvantage in that he is personally

liable for all the business debts and losses.
 Unlimited skills and capabilities. In most cases the owners lack the necessary skills,
knowledge and experience to run a successful business.
 Limited access to capital. If a business is to grow and expand, a sole proprietor often
needs an additional financial resource. However a sole proprietor has already put all his
resources to business and has personal resources as collateral. This makes it hard for
them to borrow again.
  Lack of continuity of the business. If he dies, retires, or becomes incapacitated the
business automatically comes to an end.
 They are unable to attract and retain highly skilled and qualified workers.

Partnerships:

A partnership is an association of two or more people who co-own a business for the purpose of
making profits. Here the co-owners share the business assets, liabilities and profits according to
the terms of a previously established partnership agreement. Characteristics include: existence of
the business, co-ownership of the business, contractual relationship usually by partnership deed,
profit motive, principal –agent relationship and un limited liability.

Ways of partnership include; by word of mouth (expression or oral agreement), in writing

(partnership deed), implied partnership or implied agreement and partnership by holding out.

Kind of partners include:

Active partners. Are involved in active management of the business and liable to third parties.

 Dormant partners. They are also known as sleeping partners and are liable to third parties.
 Nominal partners. Are also known as quasi partners. They do not have capital in the
business, he is known, he is liable to third parties too and gets something like good will
for using his name.
 Minor partner. he enjoys limited liability and his decisions are not legally binding .
 Partner in profit only. This one shares profits only but not losses.

Contents of a partnership deed includes:

 The nature of the business to be conducted.

 The capital of the firm and proportions to be contributed by each partner.
 The ratios in which profits or losses will be shared.
 Partners salary if any.
 Admissions of new entrants.
 Durations of the partnership.
  Names of partners and their legal addresses.
 The rate of interest to be allowed on capital or charged on drawings .
 Amounts if nay that partners may draw in advance before ascertainment of profits.

Advantages of partnerships include:

Ease of formation. Just like sole proprietorship, a partnership is also easy and inexpensive to
form. The owners must obtain the necessary license and submit a minimal number of forms.

Complementary skills. This is because the partners complement each other in terms of skills
and abilities strengthening the companies managerial foundation.

Division of profits. There are no restrictions on how partners distribute the companies profits as
long as they are consistent with the partnership agreement and do not violate the rights of any
partner.

Larger pool of capital. each partners asset base enhances the business’s pool of capital and
improves on its ability to borrow needed funds. Together each partners personal assets support
greater borrowing capacity.

Spread of risks.

Ability to attract limited partners. These do not participate in the day today management of
the business and have limited liability for the partnership debts.

Little government intervention. Just like sole proprietorships, partnerships are not burdened by
red tape.

Flexibility. They can easily react to changing market conditions because the partners can
respond quickly and creatively to new opportunities.

The disadvantages include:

Un limited liability of at least one partner. at least one member of every partnership must be a
general partner. he has un limited personal liability for any debts that remain after partnership
assets are exhausted.
Limited capital accumulation. Although a partnership form of ownership is superior to
proprietorship in its ability to attract capital, it is generally not effective as the corporate form of
ownership which can raise capital by selling shares of ownership t outside investors.

Difficulty in disposing of partnership interest without dissolving the partnership. Most

partnership agreements restrict how partners can dispose off their shares of the business. Often a
an agreement requires a partner to sell his or her interest to the remaining partners.

Lack of continuity. If one member dies, complications arise in that partnership interest is non
transferable through inheritance because the remaining partners may not want to be in
partnership with the person who inherits the deceased’s partners interest

Less secrecy.

Delays in decision making

Partners are bound by the law of agency. A partner is like a spouse in that decisions made by one
in the name of partnership binds all. Each partner is an agent for the business and can easily can
legally bind the partnership and hence other partners to contracts even without the remaining
partners knowledge or consent.

Corporations.

Is a voluntary association of persons incorporated into business having in capital divided into
transferable shares with limited liability, a common seal and perpetual succession. Corporations
are creations of the state, when it formed, it accepts the regulations and restrictions of the state in
which it is incorporated and any other state in which it chooses to do business. To create a
corporation, every state requires a certificate of incorporation or charter to be filled with the
secretary of state. The following information is generally required to be in the certificate of
charter.

The corporations name. it must not be similar to that of any company in that state that it causes
confusion. It must include a term such as corporation, “incorporated” company or limited to
notify the public that they are dealing with a corporation.
The corporation’s statement of purpose. Incorporators must state in general terms the intended
nature of the business. The purpose must be lawful.

The corporations time horizon. Most corporations are formed with no specific termination date.
These are formed for perpetuity though it is possible to incorporate for a specific duration like 50
years.

Names and addresses of the incorporators. These must be identified in the articles of
incorporations and are liable under the law to attest that all information in article is correct.

Place of business. The street and mailing addresses of the corporation’s principal office must be
listed. For domestic corporations this address must be in the state in which incorporation take
place.

Capital stock authorization. The articles of incorporation must include the amount and class of
capital stock the corporation wants to be authorized to issue. This is not the number of shares it
must issue, it must issue any number of shares up to the total number authorized.

Capital required at the time of incorporation. Some states require a newly formed corporations to
deposit in the bank a specific percentage of the stock’s par value prior to incorporating.

Advantages include;

Limited liability of stock holders. Because it is a separate legal entity, a corporation allows
investors to limit their liability to the total amount of their investment in the business. In other
words, creditors of the corporation cannot lay claim to share-holders personal asset to satisfy the
company’s un paid debts.

Ability to attract capital. Because of limited liability they offer their investors, corporations
have proved to be the most effective form of ownership for accumulating large amounts of
capital.

Ability to continue indefinitely. Unless a corporation fails to pay its taxes or is limited to a
specific length of life by its charter, it can continue indefinitely. Its existence does not depend on
the fate of single individual.
Transferable ownership. Unlike an investment in a partnership, shares of ownership in a
corporation are easily transferable. If stock holders want to liquidate their shares of ownership in
a corporation they can sell their shares to someone else.

Disadvantages.

Corporations are costly and time consuming to establish and maintain. Since the owners are
giving birth an artificial entity, the gestation period can be prolonged especially for a novice.

Double taxation. Because a corporation is a separate legal entity, it must pay taxes on its net
income at the federal level, in some states and to some local governments as well.

Potential for diminished managerial incentives. As corporations grow they often require
additional managerial expertise beyond what the founder can provide. Because they have most of
their personal wealth tied up in companies, entrepreneurs have an intense interest in making
them successful and are willing to make sacrifices for them.

Legal requirements and regulatory red tape. Corporations are subject to more legal reporting
and financial requirements than other forms of ownership. Corporate officers must meet stringent
requirements for recording and reporting management decisions and actions. They must also
hold annual meetings and consult the board of directors about major decisions that are beyond
day to day operations.

Potential loss of control by the founders, when entrepreneurs sell shares of ownership in their
companies, they relinquish some control. Especially when they need large capital infusions for
start-up or growth, entrepreneurs may have to give up significant amounts of control, so much in
fact the founder becomes minority shareholder.

Innovation and Entrepreneurship.

An innovation is gainful modification to the product or process. An existing product can be made
better by adding more features modifying design to make it safer or more user friendly. Or the
method may be modified to produce it in more cost effective way. Sometimes the raw materials
are substituted to bring down the cost. All these are examples of innovation. In short Innovation
is achieved by Value Analysis/Value Engineering. It’s never easy to compete against old players
in any walk of life. New entrant faces considerable odds in the beginning and only this battle.
Innovation is the best ally of an entrepreneur in this battle. It helps him to gain competitive
advantage in his business either due to cost advantage or due to differentiation of product.
Innovations in marketing and distribution help him gain the market share quickly.

Accounting:

Accounting is the process of recording financial transactions pertaining to a business. The

accounting process includes recording, analyzing, summarizing and reporting these transactions
to oversight agencies, regulators and tax collection entities. The financial statements used in
accounting are a concise summary of financial transactions over an accounting period,
summarizing a company's operations, financial position and cash flows.

The accounting cycle

Accounting begins the moment you enter a business transaction any activity or event that
involves your business’s money into your company’s ledger.

Recording business transactions this way is part of bookkeeping. And bookkeeping is the first
step of what accountants call the “accounting cycle”: a process designed to take in raw financial
information and spit out accurate and consistent financial reports.

The accounting cycle has six major steps:

1. Analyze and record transactions (looking over invoices, bank statements, etc.)

2. Post transactions to the ledger (according to the rules of double-entry accounting)

3. Prepare an unadjusted trial balance (this involves listing all of your business’s accounts
and figuring out their balances)

4. Prepare adjusting entries at the end of the period

5. Prepare an adjusted trial balance

6. Prepare financial statements

What are Accounting Principles?

Accounting principles are the rules and guidelines that companies must follow when reporting
financial data. The Financial Accounting Standards Board (FASB) issues a standardized set of
accounting principles in the U.S. referred to as generally accepted accounting principles.

Understanding Accounting Principles

The ultimate goal of any set of accounting principles is to ensure that a company's financial
statements are complete, consistent, and comparable. This makes it easier for investors to
analyze and extract useful information from the company's financial statements, including trend
data over a period of time. It also facilitates the comparison of financial information across
different companies. Accounting principles also help mitigate accounting fraud by increasing
transparency and allowing red flags to be identified.

Some of the most fundamental accounting principles include the following:

 Accrual principle

 Conservatism principle

 Consistency principle

 Full disclosure principle

 Going concern principle

 Matching principle

 Materiality principle

 Monetary unit principle

 Reliability principle

 Time period principle

Cost Accounting Systems
A cost accounting system (also called product costing system or costing system) is a
framework used by firms to estimate the cost of their products for profitability analysis,
inventory valuation and cost control. Estimating the accurate cost of products is critical
for profitable operations. A firm must know which products are profitable and which
ones are not, and this can be ascertained only when it has estimated the correct cost of the
product. Further, a product costing system helps in estimating the closing value of
materials inventory, work-in-progress and finished goods inventory for the purpose of
financial statement preparation.
There are two main cost accounting systems: the job order costing and the process
costing.
 Job costing is a cost accounting system that accumulates manufacturing costs separately
for each job. It is appropriate for firms that are engaged in production of unique products
and special orders. For example, it is the costing accounting system most appropriate for
an event management company, a niche furniture producer, a producer of very high cost
air surveillance system, etc.
 Process order costing is a cost accounting system that accumulates manufacturing costs
separately for each process. It is appropriate for products whose production is a process
involving different departments and costs flow from one department to another. For
example, it is the cost accounting system used by oil refineries, chemical producers, etc.
There are situations when a firm uses a combination of features of both job-order costing
and process costing, in what is called hybrid cost accounting system.
In a cost accounting system, cost allocation is carried out based on either traditional
costing system or activity-based costing system.
Cost Accounting Uses

 Cost control
 Budgeting
 Performance measurement
 Determining reimbursements
 Setting prices
Before making policy, strategy and technique of determining price of goods or services, a
marketer should consider both internal and external environmental factors of the firm that affect
the pricing. All the elements of marketing mix have close relationship with environmental
factors. Among them, pricing is perhaps a very sensitive as well as explosive power. Business
firm itself, consumers or customers, channel members, competitors, government and economy
are the major factors that play significant role at different stages in the process of pricing. These
factors can be discussed as follows:

Internal or controllable pricing factors

 Under the internal organization factors include the objective of the business firm,
production and distribution cost, marketing mix, nature of products, firm's expectations
and reputation, etc. They are called internal pricing determinants and can be controlled by
marketer.

 Cost of manufacturing and marketing

The manufacturing and distribution cost greatly as well as directly affects pricing. If the
cost for production and distribution is high, it becomes impossible to determine low
price.

 The other components of marketing mix i.e. product, place and promotion prepared by
a business organization all affect pricing. The nature of products does not only make it
possible bust also make it is essential to determine price of the product. Similarly,
reputation or goodwill of organization also affect price determination. Likewise
promotion cost also affects pricing decision.

 The external factors include customers, channel members, competitors, government,

economic condition of country etc. These are independent factors and cannot be
controlled by marketer.

 Consumers and market

 Consumers and target markets also affect pricing of products. Those who determine price
should pay careful attention to the elements of buying behavior and methods. More
attention should be given to the characteristics of target market, condition of the products,
consumers' perception, thought and attitudes towards the price and quality of the products
etc.

 Channel members
Pricing is also affected by the members of distribution channel. The necessity and
objective of channel members matching with pricing policy of the marketer can make
distribution possible. The discount given to wholesalers or retailers is the important
component in the profit to middlemen. So, the price determiner should get knowledge
about the distributors' attitude towards the price and what price will they sell the products
to consumers. Without written agreement, manufacturers cannot provide authority or
direct the middlemen to fix final price, but can give suggestions.

 Competition
Price of most of products is determined by considering the competition in market price.
The company with having large market share becomes the price leader. When it increases
or decreases price of its products, other company also do the same or adopt the same
policy. But if there is no domination or influence of any single company in the market,
the marketer analyses and evaluates the prices of all main competitor companies, collects
reactions and draws conclusion. In this way, competition among manufacturers affects
price determination.

 Government
Government policy and decisions also affect pricing. The government of each country
have their own policy, decisions, rules and regulations. Price should be determined
considering price control policy of government, sale tax, income tax policy etc. Prices of
some products are controlled by government direction and the government itself
determines prices of some products.
 The predetermined objectives:
 While fixing the prices of the product, the marketer should consider the objectives of the
firm. For instance, if the objective of a firm is to increase return on investment, then it
may charge a higher price, and if the objective is to capture a large market share, then it
may charge a lower price.
 Image of the firm:
The price of the product may also be determined on the basis of the image of the firm in
the market. For instance, HUL and Procter & Gamble can demand a higher price for their
brands, as they enjoy goodwill in the market.
 Product life cycle:
The stage at which the product is in its product life cycle also affects its price. For
instance, during the introductory stage the firm may charge lower price to attract the
customers, and during the growth stage, a firm may increase the price.
 Credit period offered:
The pricing of the product is also affected by the credit period offered by the company.
Longer the credit period, higher may be the price, and shorter the credit period, lower
may be the price of the product.
 Promotional activity:
The promotional activity undertaken by the firm also determines the price. If the firm
incurs heavy advertising and sales promotion costs, then the pricing of the product shall
be kept high in order to recover the cost.
 Economic conditions:
The marketer may also have to consider the economic condition prevailing in the market
while fixing the prices. At the time of recession, the consumer may have less money to
spend, so the marketer may reduce the prices in order to influence the buying decision of
the consumers.

What is Accounting:
Accounting is the systematic and comprehensive recording of financial transactions pertaining to
a business. Accounting also refers to the process of summarizing, analyzing and reporting these
transactions to oversight agencies, regulators and tax collection entities. The financial statements
that summarize a large company's operations, financial position and cash flows over a particular
period are a concise summary of hundreds of thousands of financial transactions it may have
entered into over this period.

Accounting Principles

There are general rules and concepts that govern the field of accounting. These general rules–
referred to as basic accounting principles and guidelines form the groundwork on which more
detailed, complicated, and legalistic accounting rules are based. For example, the Financial
Accounting Standards Board (FASB) uses the basic accounting principles and guidelines as a
basis for their own detailed and comprehensive set of accounting rules and standards.
The phrase "generally accepted accounting principles" (or "GAAP") consists of three important
sets of rules: (1) the basic accounting principles and guidelines, (2) the detailed rules and
standards issued by FASB and its predecessor the Accounting Principles Board (APB), and (3)
the generally accepted industry practices.

Basic Accounting Principles and Concepts

GAAP, is the framework and guidelines of the accounting profession. Its purpose is to
standardise the accounting concepts, principles and procedures.
Here are the basic accounting principles and concepts:
1. Business Entity
A business is considered a separate entity from the owner(s) and should be treated separately.
Any personal transactions of its owner should not be recorded in the business accounting
book unless the owner’s personal transaction involves adding and/or withdrawing resources from
the business.
2. Going Concern
It assumes that an entity will continue to operate indefinitely. In this basis, generally, assets are
recorded based on their original cost and not on market value. Assets are assumed to be held and
used for an indefinite period of time or during its estimated useful life. And that assets are not
intended to be sold immediately or liquidated.
3. Monetary Unit
The business financial transactions recorded and reported should be in monetary unit, such as
shillings, US Dollar, Euro, etc. Thus, any non-financial or non-monetary information that cannot
be measured in a monetary unit are not recorded in the accounting books.
4. Historical Cost
All business resources acquired should be valued and recorded based on the actual cash
equivalent or original cost of acquisition, not the prevailing market value or future value.
Exception to the rule is when the business is in the process of closure and liquidation.
5. Matching / Dual concept
This principle requires that revenue recorded, in a given accounting period, should have an
equivalent expense recorded, in order to show the true profit of the business.
6. Accounting Period
This principle entails a business to complete the whole accounting process over a specific
operating time period. Accounting period may be monthly, quarterly or annually. For annual
accounting period, it may follow a Calendar or Fiscal Year.
7. Conservatism
This principle states that given two options in the amount of business transactions, the amount
recorded should be the lower rather than the higher value.
8. Consistency
This principle ensures similar and consistent accounting procedures is used by the business, year
after year, unless change is necessary.
Consistency allows reliable comparison of the financial information between two accounting
periods.
9. Materiality
Business transactions that will affect the decision of a user are considered important or material,
thus, must be reported properly. This principle states that errors or mistakes in accounting
procedures, that which involves immaterial or small amount, may not need attention or
correction.
10. Objectivity
This principle states that the recorded amount should have some form of impartial supporting
evidence or documentation. It also states that recording should be performed with independence,
that’s free from bias and prejudice.
11. Accrual
This principle requires that revenue should be recorded in the period it is earned, regardless of
the time the cash is received. The same is true for expense. Expense should be recognized and
recorded at the time it is incurred, regardless of the time that cash is paid. This is to show the true
picture of the business financial performance.

According involves;

 Recording business activities requires keeping a chronological log of transactions and events
that are measurable, and classified and summarized in a useful format
 The huge amount of classified information is then summarised into accounting reports
designed to meet the information needs of decision-makers.
 Communicating business activities requires preparing accounting reports such as financial
statements. The type of information that a specific user will require depends on the kinds of
decision that person must make, e.g. Managers need detailed reports on operating costs for
purposes of controlling the operations of the business and setting reasonable selling prices
 The ultimate objective of accounting is the use of accounting information, its analysis and
interpretation.
Financial Accounting - A Definition
Financial accounting is the process of summarizing financial data, which is taken from an
organization’s accounting records and publishing it in the form of annual or quarterly reports, for
the benefit of people outside the organization. The central need for financial accounting is to
reduce the various principal-agent problems, by measuring and monitoring the agents'
performance and thereafter reporting the results to interested users.
In short, financial accounting is the process of summarizing financial data, which is taken from
an organization’s accounting records and publishing it in the form of annual or quarterly reports,
for the benefit of people outside and within the organization.
It is the original form of accounting. It is mainly confined to the preparation of financial
statements for the use of outsiders like creditors, banks and financial institutions etc. The chief
purpose of financial accounting is to calculate profit or loss made by the business during the year
and exhibit financial position of the business as on a particular date.

Other branches of accounting

 Cost accounting – primarily concerned with cost determination and allocation to the
different cost centers/cost units. Function of cost accounting is to ascertain the cost of the
product and to help the management in the control of cost.

 Managerial accounting – intended to address the information needs of management,

hence aiding them in planning, controlling and decision making. It is accounting for
management. i.e., accounting which provides necessary information to the management
for discharging its functions. It is the reproduction of financial accounts in such a way as
will enable the management to take decisions and to control various business activities

 Social responsibility accounting – still developing, it arises due to the growing concern
about by-products which degenerate the environment. It deals with how business
enterprises relate to society. There is increasing demand that enterprises be accountable
to society
At the end of a period (typically a year), the following financial statements are prepared to show
the performance and position of the business:

Profit and Loss

Account/Statement Also known as the income statement. Describing the trading performance
of Comprehensive of the business over the accounting period
income
Balance Sheet/the Statement of assets and liabilities at the end of the accounting period (a
statement of
"snapshot") of the business
financial position

Other financial statements

Cash Flow
Describing the cash inflows and outflows during the accounting period
Statement
Notes to the Additional details that have to be disclosed to comply with Accounting
Accounts Standards and the Companies Act
Description by the Directors of the performance of the business during the
Directors' Report accounting period + various additional disclosures, particularly in relation
to directors' shareholdings, remuneration etc

USERS OF ACCOUNTING INFORMATION

For accounting information to be useful, the accountant must be clear for whom the information
is being prepared and for what purpose the information will be used. There are likely to be
various groups of people (known as ‘user groups’) with an interest in a particular organization, in
the sense of needing to make decisions about it. These users are external and internal

External Information Users External users of accounting information are not directly
involved in running the organization. They include shareholders (investors/owners), lenders,
directors, customers, suppliers, regulators, lawyers, brokers, and the press. External users have
limited access to an organization’s information. Yet their business decisions depend on
information that is reliable, relevant, and comparable.

Internal Information Users internal users of accounting information are those directly
involved in managing and operating an organization. They use the information to help improve
the efficiency and effectiveness of an organization. External users includes; Managers, employee

For the typical private-sector business, the more important of these groups are shown below.
Other users
Donors – need accounting information to monitor the utilization of their monies. It helps them
decide on whether to make another donation

Activity 1
PI is a large motor insurance business. Taking the user groups identified suggest, for each
group, the sorts of decisions likely to be made about PI and the factors to be taken into account
when making these decisions.
Your answer may be along the following lines:
User group Decision
Whether to take further motor policies with PI. This might involve an
Customers assessment of PI’s ability to continue in business and to meet their
needs, particularly in respect of any insurance claims made.
Competitors How best to compete against PI or, perhaps, whether to leave the
market on the grounds that it is not possible to compete profitably with
PI. This might involve competitors using PI’s performance in various
 aspects as a ‘benchmark’ when evaluating their own performance.
They might also try to assess PI’s financial strength and to identify
significant changes that may signal PI’s future actions (for example,
raising funds as a prelude to market expansion).
Whether to continue working for PI and, if so, whether to demand
higher rewards for doing so. The future plans, profits and financial
Employees
strength of the business are likely to be of particular interest when
making these decisions.
Whether PI should pay tax and, if so, how much, whether it complies
with agreed pricing policies, whether financial support is needed and
Government
so on. In making these decisions an assessment of its profits, sales
revenues and financial strength would be made.
Whether to allow PI to expand its premises and/or whether to provide
economic support for the business. PI’s ability to continue to provide
Community employment for the community, the extent to which it is likely to use
representatives community resources and its likely willingness to help fund
environmental improvements are likely to be considered when arriving
at such decisions.
Investment analysts Whether to advise clients to invest in PI. This would involve an
assessment of the likely risks and future returns associated with PI.
Whether to continue to supply PI and, if so, whether to supply on
Suppliers credit. This would involve an assessment of PI’s ability to pay for any
goods and services supplied.
Lenders(Banks, Whether to lend money to PI and/or whether to require repayment of
creditors and other any existing loans. PI’s ability to pay the interest and to repay the
Financial Institutions) principal sum would be important factors in such decisions.
Managers Whether the performance of the business needs to be improved.
Performance to date would be compared with earlier plans or some
other ‘benchmark’ to decide whether action needs to be taken.
Managers may also wish to decide whether there should be a change
in PI’s future direction. For example, Purchasing managers need to
 know what, when, and how much to purchase, yet Production
managers depend on information to monitor costs and ensure quality
Whether to invest more in PI or to sell all, or part, of the investment
currently held. This would involve an assessment of the likely risks
and returns associated with PI. Owners may also be involved with
Owners/Shareholders
decisions on rewarding senior managers. The financial performance of
the business would normally be considered when making such a
decision.
Although this answer covers many of the key points, you may have identified other decisions
and/or other factors to be taken into account by each group.

DESIRABLE QUALITIES OF ACCOUNTING INFORMATION

To meet the users’ needs, it can be argued that accounting information should possess certain key
qualities, or characteristics i.e. Relevance; reliability; comparability and understandability.

Relevance. Accounting information must have the ability to influence decisions. Unless this
characteristic is present, there is really no point in producing the information. The information
may be relevant to the prediction of future events (for example, in predicting how much profit is
likely to be earned next year) or relevant in helping to confirm past events (for example, in
establishing how much profit was earned last year). To influence a decision, the information
must, be available when the decision is being made. Thus, relevant information must be timely.

Reliability. Accounting should be free from significant error or bias. It should be capable of
being relied upon by managers to represent what it is supposed to represent.

Though both relevance and reliability are very important, the problem that we often face in
accounting is that information that is highly relevant may not be very reliable. Similarly, that
which is reliable may not be very relevant.

When seeking to strike the right balance between relevance and reliability, the needs of users
should be the overriding consideration.
Comparability. This quality will enable users to identify changes in the business over time (for
example, the trend in sales revenue over the past five years). It will also help them to evaluate the
performance of the business in relation to similar businesses. Comparability is achieved by
treating items that are basically the same in the same manner for accounting purposes.
Comparability may also be enhanced by making clear the policies that have been adopted in
measuring and presenting the information.

Understandability. Accounting reports should be expressed as clearly as possible and should be

understood by those at whom the information is aimed.

Materiality. If the information is not regarded as material, it should not be included within the
reports as it will merely clutter them up and, perhaps, interfere with the users’ ability to interpret
the financial results. The type of information and amounts involved will normally determine
whether it is material.
Other qualities:
 Timely
 Comprehensive

Process of Book Keeping

These are systematic steps followed in book keeping from day one of recording business
transaction until the last day (end of period).
Steps:
i. Occurrence and recording of all business transactions from source documents
ii. Transfer this information to the books of accounts
iii. Prepare Profit & Loss and the Balance sheet
iv. Make decisions based on the results in the financial statements
a) Occurrence and Recording of all business transactions from source documents
Here, you record the occurrence of events in the business. For example, if a business placed an
order with a supplier to supply various goods, when the goods arrive at the premise of the
business, then you record the physical goods received in the stock book hence a physical
document must be written if required that goods have received called the goods received note.
The various documents must be kept and classified together to avoid mixing and wastage of time
when looking for them later.
Business source documents
 i) The bookkeeping process begins with accounting source documents– “paperwork”
ii) In most cases, when a business transaction is carried out, a document is produced
which contains the details of each transaction.
iii) These documents get their name from the fact that they are the origin of the
information that is recorded into the accounting books.
iv) Both businesses (and people) involved in the transaction will get a copy of the
accounting source document produced.
v) The documents come in all sorts of shapes, sizes, colours and types of paper. There is
no right or wrong format for these business source documents used by different
business.
These documents have a few things in common: -
i. The transaction date
ii. The amount
iii. The name of both businesses/people
iv. A reference number
v. A description of the transaction
Profit & Loss or income statement: A profit and loss statement is an official monthly, quarterly
or annual financial document showing earnings, expenses and net profits or losses. The profit
and loss statement can also be called the income statement and the earnings report
Profit: Revenue is more than the expenses
Loss: Expenses are more than revenue

 Assets: An asset is anything of monetary value to the business. There are two key types
of assets that is the Current assets and Non-current assets.
 A current asset only holds its value within a business for about one year of purchase,
while a Non-current asset brings value to your company for longer than one fiscal year.
 Examples of current assets include Accounts receivables, prepaid liabilities, Cash, Stock,
inventory, Short-term investments (treasury bills, high-yield savings accounts and
government bonds), prepaid insurance etc.
 Some Examples of non-current assets include Office furnishings, Equipment/plants, land,
Buildings, Motor vehicles, Intellectual property, Copyrights or trademarks, Patents,
Marketplace goodwill, Your company’s domain name, Customer lists, Relationships with
clients etc.
 You may also want to distinguish between intangible and tangible business assets. You
can touch tangible assets like products, vehicles, supplies and raw materials whereas on
the other hand, intangible assets can’t be touched, but they’re still quite real. Examples
that are common include the company’s recognition in the marketplace and copyrighted
intellectual property.
 Liabilities: Liabilities include all outstanding debts your business owes to consumers,
partners, vendors, supplies or financial institutions. Similar to assets, liabilities are also
divided into two key categories: 1) current liabilities and 2) non-current liabilities. The
 current liabilities must be repaid within one fiscal year, while non-current liabilities have
repayment terms longer than a single fiscal year.
 Examples of current liabilities include; Accounts payable, Dividends, Wages, Income tax,
Short-term bank loans, notes payable etc. on the other hand, examples of non-current
liabilities include; Bonds payable, Retirement payments, Debentures, Deferred taxes,
Outstanding contracts etc.
 Equity. This is also known as shareholder’s equity and this estimates the amount of
money that would most likely be left over if you liquidated all business assets to pay off
its liabilities. This amount also represents the money that shareholders would receive in
exchange for their original investment. Common examples of equity include; Retained
earnings Preferred stock, Common stock, Paid-in capital

Loss: Expenses are more than revenue

Income statement form for presentation

Profit and Loss Account For the Year Ended 2022
Income/ Revenue/Sales Amount (Ugx) Amount (Ugx)

Total Income
Expenses

Total expenses
Net profit/Loss
Balance sheet
 Definition: This is a statement of the assets, liabilities, and capital of a business at a
particular point in time, detailing the balance of income and expenditure over the preceding
period.
 Assets – Business resources categorized as fixed assets and current assets. This is discussed
earlier.
 Equity - Money invested by the owner of the business
 Liabilities – Debts or obligations of the Business

Balance Sheet as at 31/12/2022

Assets Amount(Ugx) Amount(Ugx)
Non-current Asset

Total Non - current Assets

Current Assets

Total current Assets

Total Assets
Equity and Liabilities

Total Equity
Non- current Liabilities

Current liabilities
 Total Current Liabilities
Total Equity and Liabilities

The following a summary of information extracted from is Hermellah’s Leisure Centre for the
year ended 31/12/2022.
Particulars Amount(Ugx)
Purchases of food & drinks 10,000,000
Share Capital 129,600,000
Furniture at cost 5,000,000
Buildings at cost 90,000,000
Machinery at cost 20,000,000
Other expenses 5,000,000
Stationery 2,000,000
Utilities 8,000,000
Salaries and wages 12,000,000
Accommodation fees 96,200,000
Sales from foods & drinks 10,000,000
Bank balance 22,000,000
Cash at hand 60,000,00
Debtors 3,000,000
Creditors 1,200,000
Closing stock 2,000,000
Utilities due 2,000,000
Salaries and wages still outstanding 3,000,000
Accommodation fees received in advance from 15,000,000
customer bookings
Depreciation amount for all fixed assets 11,500,000
(Furniture=500,000 Building 9,000,000 Machinery
 2,000,000)

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