STUDY Unit 5 BUSINESS INNOVATION AND INSURANCE

INTRODUCTION

Innovation can be defined as the development of systematic ways, methods, or techniques for making

and doing things. The concept encompasses a growing range of ways, processes and ideas in addition
to

tools and machines. Through innovation, an entrepreneur can manipulate his environment to
achieve

business successes. An entrepreneur should have a very vibrant insurer so as to give him a
proper

protection against uncertainties and misfortunes in future. The entrepreneur has to make a
careful

decision about premium he will pay, whether it will satisfy the entire or some of his business risks.

It can also be defined as a process of applying creative ideas to problems and coming up with
solutions.

LEARNING OUTCOMES

In this study session students will be thought definition of innovation, types transmission and others
as

follows;

 Reasons for Innovation

 Types of Innovation

 Transmission of Innovation

 Innovation in Deferent Sectors

 Decision Making Process in Innovation

 Benefits of Innovation

 Insurance and types of insurance

 Types of Business Insurance

 Legal aspect of Insurance

 Conditions for Business Insurance

5.1. Reasons for Innovation

a. Responding to customers’ needs.

b. Responding to increasing market shares.

c. To take advantage of being at the fore front of the industry.

d. If you want to establish a new market.

e. Improving the quality and speed of service.

f. Expanding product range.

g. Meeting government standard and regulations.

h. Reducing cost of production and processing.

5.2. Types of Innovation

Innovation can manifest it self in business organization in.

a. Product: it can be modification of a product or service or even complete development of new

product

or service in order to meet the needs of a target market.

b. Tool and equipments: this is change in tools or equipments use for production as a result of advent

of new product or service.

c. Skills: as result new ways of production, the skills of most entrepreneurs and employees
became

obsolete. Therefore, they have to acquire new skills that will be compatible with the new technology.

5.3. Transmission of Innovation

Innovation can be transmitted through the following:

 Activities of the printing media, e.g. news papers, text books, journals, articles, e.t.c.

 Electronic media, e.g. radio, television, internet, and computers.

 Movement of artifact from one place another may bring about innovation.

 Immigration of craft men into a society.

 Educational institutions.
5.4. Innovation in Different Sectors

a. Medicine: new improved medicine and drugs are now available in the market. On the other hand

because of innovation robot can carry out precise surgical operations, cosmetics surgery, and

telemedicine services.

b. Electricity: in some countries like Nigeria we still use water {hydro electricity} to generate

electricity. While other countries are utilizing solar and nuclear energy for their electricity generation.

c. Agriculture: more and more farms are being mechanized with the advent of modern equipments.

Making it possible for few farmers to sustain a county. New pesticide, herbicide, improved
seed

varieties and species and animal breeding.

d. Plastic: twenty years back in Nigeria people were using steel product in their houses, offices and

schools. But with coming on of plastic product into the market, most house utensils are plastics. e.g.

plastics chairs, tables buckets, plates, parker, e.t.c.

e. Communication: it is easier now than before to communicate to any one across the world. With the

coming of Global System Mobile [GSM] and internet the world is now a global table if not global
palm.

5.5. Decision Making Process in Innovation

1. Knowledge: an entrepreneur is exposed to the existence of innovation and gain understanding of

how it functions.

2. Persuasion: to form negative or positive attitude for the innovation.

3. Decision: an entrepreneur engages in activities that lead to a choice to adopt or reject the
innovation.

4. Implementation: an entrepreneur engages in activities of adoption or rejects the innovation.

5. Confirmation: an entrepreneur seeks reinforcement for the innovation decision but may reverse this

decision if exposed to conflicting messages about the product or service.

5.6. Benefits of Innovation

a. You will be the first entrepreneur into that market.

b. Gain premium prices for product or services.

c. You will get best customers.

d. You will get large market shares.

e. It will help increase the entrepreneur’s return on investment.

f. It will help in increasing employee motivation and morale.

g. It helps in reducing waste level.

h. It helps in improving product design and quality.

5.7 What is Insurance

It is where a person in consideration of a payment of money agrees to pay a certain sum of money to
another person upon the happening of an event uncertain to time. Insurance is a form of risk
management primarily used to hedge against the risk of a contingent, certain loss. Insurance can be
defined as equitable transfer of the risk of a loss, from one entity to another, in exchange of
for payment.

5.8. Types of Business Insurance

The entrepreneur should evaluate his business insurance needs before choosing an insurance policy.
The

insurance requirement varies depending on the type of business you operate.

An entrepreneur has a multi choice of choosing the type of insurance he which suits his
business

venture. Below are the types of business insurance:

1. General Liability Insurance: insurance cover includes very wide range of liabilities due to bodily

injury, property damage, medical expenses, cost of defending lawsuit, etc.

2. Product Liability: this is the insurance that covers the damage or injury occurred to the products.

Business is liable for negligence, breach of warranty and defective products.

3. Workers Compensation: it is payment made for employee’s medical expenses.

4. Internet Business Insurance: internet business like the cyber café may be covered by
insurance
company that offers such services. It is a compensation of liabilities as a result of damage done
hackers

and viruses attack.

5. Criminal Insurance: this covers areas where the entrepreneur experience vandalism, theft, burglary,

etc.

6. Business Interruption Insurance: some entrepreneurs may seek cover as a result of losses resulting

in interruption of operation e.g. during natural disaster such as flood, fire out break etc.

7. Auto mobile insurance: Key Person Life

Insurance designed to protect a business against the loss of income resulting from the disability or

death of an employee in a significant position.

9. Travel: Limited contracts covering accidents that occur only while an insured person is traveling
on

business for an employer, away from the usual place of business, and on named conveyances.

5.9. Legal aspect of Insurance

The insurance contract has to meet some basic prerequisites and conditions before it become legally

binding and valid. These are explained below;

1. Legal purpose: the purpose of the contract should be vividly described and unde rstood by
both

parties involved. The business to be insured by the entrepreneur most be a legal business that has been

made lawful by the Nigerian government.

2. Capacity: the parties involved in this process most meet the minimum age requirement approved
by

the Nigerian law, and most be competent to make the contract, e.g. the parties most be sane and sober
or

the entrepreneur is operating within its legal frame work as defined by the laws, and articles.

3. Evidence of meeting by all parties involved. For an insurance contract to be valid there most be

offer and acceptance. Usually offer is made in written application.

4. Consideration: this is made up of two components, the premium paid by the entrepreneur and

promise to adhere to all conditions mentioned in the contract.

5.10. Conditions for Business Insurance

From the insurer’s perspective the entrepreneur has to fulfill the following conditions

1. The business properties to be insured must be the one that the insurer can calculate the probable

severity of losses.

2. The possible losses must be beyond the control of the entrepreneur.

3. The business properties most have ways to determine specific and definite events that take place,

what constitute a loss and how to measure it.

4. The business property should not be subjected to a location predisposed to risks. e.g. citing
business

near petrol filling stations, river bank, illegal plots of land, near rail way lines, etc.

BUSINESS PLANNING

Snarkes [2016] defined planning as the systematic exercise in determining the total resources of the
organization for the achievement of it quantified objectives within a specified time frame. Gibson,
Ivan and Donnnely [2019] see planning as including those activities which lead to the definition of
ends and determination of appropriate means to achieve defined goals. Kempter [1978] defined
planning as the systematic study of long term company objectives and the strategies required to
achieve them.

There is no single format for designing or developing a business plan, but what ever format you use
the elements will remain common to all business plans.

1.0 GENERAL DESCRIPTION OF THE BUSINESS [hair and beauty salon]

Galaxy is a full-service beauty salon dedicated to consistently providing high customer

satisfaction by rendering excellent service, quality products, and furnishing an enjoyable
atmosphere at an acceptable price/value relationship. We will also maintain a friendly, fair,
and creative work environment, which respects diversity, ideas, and hard work.

Our Mission: To supply services and products that enhances our clients' physical appearance and
mental
relaxation.

Our Vision: "The Fashion Begins Here and Sky is the Limit!"

Aisha, Yusuf, Chukwudi, Bolaji and Jummai have worked in a prestigious salon in Maiduguri, for the
past

five years. Jummai has created a large client following through hard work and dedication. Yusuf, and
his

talented team of beauticians, has what it takes to make this venture an extremely successful one. We
expect our growing reputation to lead to new clients and beauticians to support our anticipated
growth.

To achieve our objectives, Galaxy salon is seeking additional loan financing. This loan will be paid
from the

cash flow from the business, and will be collateralized by the assets of the company, and backed
by the character, experience, and personal guarantees of the owners.

1.1 Keys to Success

The keys to success in our business are:

 Location: providing an easily accessible location for customers.

 Environment: providing an environment conducive to giving relaxing and professional service.

 Convenience: offering clients a wide range of services in one setting, and extended business hours.

 Reputation: reputation of the owner and other "beauticians" as providing superior personal service.

2.0 Company Summary

Galaxy will, upon commencement of operations, sell a wide range of beauty services and products.
We will provide quality hair, nail, and skin services, along with top lines of beauty products. What
will set Trend Setters apart from the competition is our commitment to providing all of these services
in one convenient location.

2.1 Capital Requirement [Start-up Summary]

After spending several months searching for a salon to purchase, the owner decided to start a salon
from the ground up. The start-up capital will be used for the design, leasehold improvements, and
equipment of the salon. Leasehold improvements will amount to approximately N32, 500, and
salon equipment will cost about N27, 000. The owner will invest N5, 000 for cash-on-hand at
starting date.
START-UP CAPITAL

Requirements xxxxxxxxx

Start-up Expenses xxxxxxxxx

Rent deposit xxxxxxxxx

Other xxxxxxxxx

Total Start-up Expenses xxxxxxxxx

Start-up Assets xxxxxxxxx

Cash Required xxxxxxxxx

Other Current Assets xxxxxxxxx

Long-term Assets

Total Assets

Amount (N)

Total Requirements

START-UP FUNDING

Start-up Funding

Start-up expenses to fund

Start-up asset to fund

Total funding requirement

ASSETS

Non cash assets from start

Cash requirement from start up

Cash balance on starting date

Total assets

LIABILITIES

Current borrowing

Short term liabilities

long term liabilities

Outstanding bills

Total liabilities

CAPITAL

Panned investment

Owner’s equity

Loans

Total planned investment

Total capital and liabilities

Total funding

2.2 COMPANY LOCATIONS AND FACILITIES

The salon will be located at Gidan Madara, opposite High Court of Justice. The salon will
utilize 1,540 square feet. The location is strategically situated on one of the busiest streets in
Maiduguri. It is a high profile area, with easy access from all parts of town.

3.0 PRODUCTS AND SERVICES

Galaxy is considered an upscale full-service beauty salon. We will offer a wide range of services that

include:

 Hair: cuts, relaxers, perms, colors, shampoo, conditioning, curling, reconstructing, weaving, and

waving.

 Nails: manicures, pedicures, polish, sculptured nails.

 Skin Care: European facials, body waxing, massage.

3.1 COMPETITIVE COMPARISONS

Galaxy Salon wants to set itself apart from other beauty salons that may offer only one or
two types of services. Having come from such a salon, Jummai has realized, from talking
with her clients, that they desire all of the services that we are proposing, but they remain frustrated
because they must get their hair done at one place, and nails done at another. Although the focus of
Galaxy is hair services, we do wish to offer our clients the convenience of these other services in one
location.
There are a number of salons like ours, but they are mainly in the very high income parts of
Maiduguri. We do not intend to compete with these so called "young star saloon." We wish to offer a
middle ground for those clients who can't quite afford those high-end luxury salons.Our business
atmosphere will be a relaxing one where clients can kick back and be pampered. Soft drinks will be
offered to clients as they enter for service. Televisions will be located in the waiting and hair-drying
area.

4.0 MARKETING STRATEGY

Our marketing strategy is a simple one: satisfied clients are our best marketing tool. When a client
leaves

our business with a new look, he or she is broadcasting our name and quality to the public. Most of
our

clients will be referrals from existing clients. No major advertising campaigns are anticipated. Our
research has shown that word of mouth is the best

advertising for this type of business. We will, however, run specials throughout the week. We will
also ask clients for referrals, and reward them with discounted or free services depending on the
number of clients they bring. We will also offer discounts to the new clients who have been referred.

4.1 SALES FORECAST

The following table and charts show our projected sales. We expect income to increase steadily over
the

next three years, as the reputation of the salon, its stylists and services become apparent to
the general

public. Second year revenues also anticipate the addition of one new stylist.

Note that we list no direct cost of sales here for services, only for products, since our service costs are
more

accurately tracked as regular monthly expenses for supplies in the Profit and Loss table.

SALES FORECAST

Barber

Style 1

Style 2
Nail

Skin care

Total product sales

Total sales

5.0 METHODS OF TRAINING AND DEVELOPMENT

Galaxy will be organized and managed in a creative and innovative fashion to generate very high
levels of

customer satisfaction, and to create a working climate conducive to a high degree of personal
development and economic satisfaction for employees. Training classes to help improve employee
product knowledge and skills will be conducted on a regular basis. As the business grows, the
company will consider offering an employee benefit package to include health and vacation benefits
for everyone.

5.1 MANAGEMENT TEAM

Jummai has been a beautician for five years. She has quickly developed the trade skills that have led
to her success. She loves dealing with people, and has the drive, ambition, and discipline to manage
the business and its employees. Alhaji Abubakar Kalu: is Managing Director and has a
Bachelor's degree in Finance from the BAUCHI STATE UNIVERSITY GADAU. He has
extensive experience managing people and businesses. He has worked as a business consultant
for trust consultancy.

5.2 PERSONNEL PLAN

The personnel plan calls for a receptionist who will greet customers and receive payments for services
and products. There will be five hair stylists, one barber, one nail technician, one facialist,
and a massage therapist. Everyone but the receptionist will be contract worker, and will be paid a
sliding commission scale based on the amount of revenue created. Future plans include the
hiring of a shampoo technician as the business expands.

In the first year, assumptions are that there will only be three hair stylists, a barber, and part time nail,
facial, and massage technician until the business can build a reputation that will attract others to work
there.

Personnel Plan

Owner (Stylist)
Receptionist

Shampoo Tech

Skin care specialist

Total People

6.0 FINANCIAL PLAN

Our goal is to be a profitable business beginning in the first month. The business will not have to wait
long

for clients to learn about it since the stylists will already have an existing client base.

The financials that are enclosed have a number of assumptions:

Revenues will grow at an annual rate of 15%, increasing 20% in November and December
2009 due to Sallah, Christmas. We anticipate this increase to stay steady throughout the following
year to account for the normal flow of new clients coming into the salon. Estimates for sales revenue
and growth are intentionally low, while anticipated expenses are exaggerated to the high side to
illustrate a worst case scenario.

We did not use cost of goods sold in our calculations of net service sales, but included all related
recurring

expenses, such as payroll and supplies, in the operating expenses area of the profit and loss table. The
only direct costs in the sales forecast are for projected product sales. Product sales are a minimal part
of our market. We are not quite sure how much revenue will be derived from products, so we took a
low-ball approach and estimated sales of N8, 000 a month. Also in the sales projections table are
services such as nails and massages. We are not quite sure how much revenue these two services will
generate. We are certain that in time these services will be a large part of our revenue, conservative
side, we estimate revenues from these services to be only N15, 000 a month for the first year.

To assure the start-up funds lender that the owners are financially stable, a personal financial
statement is enclosed illustrating other sources of income that include interest and dividend income
from investments (N2,840), salary income (N29,658), and commission income (N15,000).

6.1 Break-even Analysis

The break-even analysis shows that Galaxy has a good balance of fixed costs and sufficient sales
strength to remain healthy. This calculation is focused on service sales, and excludes costs related to
product sales. Our conservative forecast shows the salon just passing the break-even point throughout
most of the first year, but we expect actual sales to be higher.
6.2 PROJECTED PROFIT AND LOSS

The following table shows our very conservative profit and loss projections for the next three years.
The

table includes the payments for all independently contracted stylists and technicians, as well for all
regularlyoccurring supply expenses associated with service sales.

Profit and Loss

Sales xxxxx

Direct sales xxxxx

Others xxxxx

Cost of goods sold xxxxx

Gross profit xxxxx

Less expense

Marketing xxxxx

Depreciation xxxxx

Leased equipment xxxxx

Insurance xxxxx

Rent xxxxx

Telephone xxxxx

Total operating expenses xxxxxx

Profit before interest & taxes xxxxx

Less interest expenses xxxxx

Less tax incurred xxxxx

Net profit xxxxxxxx

6.3 PROJECTED CASH FLOW

We expect to manage cash flow over the next three years simply by the growth of the cash flow of the

business. The business will generate more than enough cash flow to cover all of its expenses.

Cash Received
Cash from Operations

Cash Sales

Subtotal Cash from Operations

Additional Cash Received

Sales Tax, VAT

New Current Borrowing

New Other Liabilities

New Long-term Liabilities

Sales of Other Current Assets

Sales of Long-term Assets

New Investment Received

Subtotal Cash Received

Expenditures

Expenditures from Operations

Cash Spending

Bill Payments

Subtotal Spent on Operations

6.4 Projected Balance Sheet

As shown in the balance sheet, we expect a healthy growth in net worth.

Assets

Current Assets

Cash

Other Current Assets

Total Current Assets

Short-term Assets
Long-term Assets

Accumulated Depreciation

Total Long-term Assets

Total Assets