CAT 1 AND 2

UNIT CODE BUCU 004 UNIT TITLE: ENTREPRENEURSHIP

NAME: MUGO DUNCAN WAWERU REG NO: BEDA/2020/67026

INSTRUCTION: ATTEMPT ALL THE QUESTION

a) Retained earnings are a major source of capital in a business. Explain the

advantages of using this method (10 marks

 Retained earnings (RE) is the amount of net income left over for the
business after it has paid out dividends to its shareholders.

i. largest internal source of finance

It is the largest internal source of finance which the business will use
without paying any costs since the earnings are readily available

ii. Increases the equity base of the business

The use of retained earnings increases the equity base of the business
making it possible to generate more debt finance.

iii. Help finance new fixed assets

Retained earnings are used to finance new fixed assets whose value cannot
be met by other sources

iv. Cheaper Source of Financing

It is used without pre-conditions or restrictions making it the most flexible
source of finance. The use of retained earnings does not involve any
acquisition cost. The business has no obligation to pay anything in respect of
retained earnings

v. Financial Stability
 Retained earnings strengthen the financial position of a business and thereby
give financial stability to the business. This in return boosts confidence
among the business creditors.

vi. Reliable for long term investments

it is a permanent source of finance to the business which can be used on
long–term investments. These earnings are readily available, and the firm is
not required to seek help from the shareholders or lenders in case of urgency
of funds.

vii. Stable Dividend

Shareholders may get stable dividend even if the business does not earn
enough profit.

viii. Market value

Retained earnings strengthen the financial position of a business and
appreciate the capital which ultimately increases the market value of shares.

ix. Reduces the cost of issuing the external equity

The use of retained earnings reduces the cost of issuing the external equity
and also eliminates the losses incurred on underpricing.

b) Explore the entrepreneurial challenges faced by Kenyan hardworking

citizens engaging in business (10 marks)

i. Lack of business skills and experience

Lack of business skills is one of the major challenges facing entrepreneurs.

Sometime back, I talked to my uncle who was a business development service
provider with an NGO. his work focused on training and mentoring micro-
enterprise owners in basic business management skills. He told me that the
project’s baseline data revealed that almost three-quarters of the target group did
not have any financial records. None of the members had a business plan, and the
majority had not registered their businesses.

This is not an isolated case. Many entrepreneurs are in this same boat. Someone
comes up with an idea or copies a business idea that they feel they can execute
well. They implement it without researching the market to understand if there’s
even a need for it. Things like market trend research, competitor analysis, financial
projections, or marketing strategy are barely considered.

Most entrepreneurs do not have basic business accounting skills, and therefore all
the financial decisions are purely based on intuition. Without a coherent plan, it’s
obvious that the business will barely take off.

Experience comes with know-how. Starting a business with no experience is a

brave act, but there are high chances of failure. Most people give up on the first
trial, depriving themselves of the opportunity to learn and do better next time.

ii. The age stereotypes

The late Chris kirubi, Bob Collymore, Michael joseph (Safaricom former CEOs),
Joshua oigara (commercial bank), s. k Macharia (royal media CEO). all these
names belong too prominent business people in Kenya and they are aged. Age
comes with wisdom, or so we’ve been told, which relatively translates to the
younger you are, the less wise you are. Because of this perception, some investors,
directors, and institutions reject young people with grand ideas in the belief that
they don’t have what it takes to nurture a business.

Most recently, I attended an entrepreneurship mentorship program. Part of the

program required participants to share their entrepreneurship experiences. One
participant narrated how she presented a proposal to the manager of a company to
help in their campaign to reach young people. The manager confirmed that the idea
was great but couldn’t trust a 21-year-old to implement the project. How do you
write a proposal to its completion without an idea on how to implement it?

The assumption has always been that young people are irresponsible, unsure of
what they want, and will probably quit during tough times. This could be true, but
we all have a quitting tendency during tough times. The only thing that sets us
apart is our mindset. A quitter will quit, whether young or old.

iii. High taxation levels for business and personal incomes

High taxation in effect reduce profits earned making it unattractive to engage in

business. A good example is seen when it comes to electricity in our country which
is very expensive compared with electricity from our neighbouring countries. This
is a result of high taxation and this in the end challenges the Kenyan entrepreneur.

iv. Taxation of raw materials and other inputs

It raises cost of production. This makes locally made products expensive making
Kenyans opt for foreign made products.e.g sugar from Uganda is cheaper than
sugar from Kenya, eggs from Uganda are cheaper too. A Kenyan entrepreneur may
fail to compete with an outsider in this kind of circumstances.

v. Corruption and official harassment

Occurs where entrepreneurs are forced to bribe officials in various government

departments to allow operation or start up. Hawkers at Gikomba, one of east
African leading open-air market are arrested, beaten and sometimes killed because
of failing to pay bribes of 50 shillings or much more bribes of 100-2000 shillings
depending with how much the business makes

At my village, local officials conduct raids under one pretext or another which tend
to be very harassing. Even if your business is inoder, they threaten to arrest you
unless you give them a handout which might have been one’s profit.

vi. Unregulated competition from the outside world

It occurs due to Liberalization which opens importation hence competing locally

produced goods. These imports are usually cheaper e.g. eggs, sugar from Uganda
vii. The high cost of finance

The cost of borrowing is high in our banks tends not favour small businesses hence
it leads to Business collapses because they lack ability to repay loans.

viii. Poor transport and communication network

roads are an important infrastructure. Some roads have potholes. Some are muddy
and others are congested. Nairobi which is our capital city usually experience
traffic jam which makes business difficult, Inconveniencing consumers. This also
leads to High energy costs.

c) Often a time people use the term creativity and innovations synonymously
unfortunately the two are different. Distinguish between creativity and
innovations (10 marks)

i. Creativity is an act of creating new ideas, imaginations and possibilities

while Innovation is the introduction of something new and effective into the
market.
ii. creativity is not at all risky as it’s just an idea. Creativity is when a potential
mind is being released to conceive new ideas. These ideas are capable of
demonstrating in any number of ways but mostly they are the thoughts
which we are being able to feel, see, smell, touch, etc.. In the matter of
innovation, risk can occur regarding the fact that it has already become a
reality from an idea.

iii. Creativity is imaginative.it acts by delivering unique ideas while innovation

is productive.it acts by putting those new ideas in reality.
iv. Creativity is hard to measure while innovation is easy to measure.
v. Creativity doesn’t carry liability as it is just a thought or idea while
Innovation can cause liability as the idea becomes reality.
vi. Not every creativity conforms to innovation but every innovation is a result
of creativity.
vii. If an individual has brought a new thing into existence, it can be known as
someone who has created it. In other cases, if one has made particular
improvements to something which has been existing already then it is okay
to say that the particular individual has made an innovation.

viii. If an individual has brought a new thing into existence, it can be known as
creativity since someone has created it. In other cases, if one has made
particular improvements to something which has been existing already then
it is okay to say that the particular individual has made an innovation.

ix. The term “creativity” has come from the Latin word “Creo” which means
“to create”. On the other hand, the term “innovation” has come from the
Latin word “Innovationem”, meaning noun for the action of the term
innovates.