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4.1 Market
Five W’s of market
1. Who: Identify the customers and target audience for your product or service. Understand their
demographics, preferences, and buying behavior.

2. What: Determine what products or services are offered in the market. Identify the features,
benefits, and unique selling points of your offerings compared to competitors.

3. Where: Identify the geographical locations where your target customers are located.
Understand the distribution channels and where your products or services will be sold.

4. When: Consider the timing and seasonality of demand for your products or services. Understand
when customers are most likely to purchase and how external factors may impact buying
behavior.

5. Why: Understand the motivations and reasons behind customer purchases. Identify the needs,
problems, or desires that your product or service fulfills for customers.

Competitors, assessment of market size and demand

For competitors, assessment of market size, and demand:

1. Competitors: Identify who else is offering similar products or services in the market. Analyze
their strengths, weaknesses, and market positioning to identify opportunities and threats.

2. Assessment of Market Size: Estimate the total market size for your product or service, including
the number of potential customers and their purchasing power.

3. Assessment of Demand: Understand the level of demand for your product or service by
analyzing consumer trends, market research, and customer feedback. Identify factors that drive
demand and potential barriers to adoption.

4.2 Business Location

Importance and selection of site:
1. Accessibility: A prime location ensures easy access for customers, suppliers, and employees,
leading to increased foot traffic and convenience.

2. Visibility: A prominent location increases brand visibility and awareness, attracting more
potential customers and enhancing marketing efforts.

3. Demographics: The surrounding area should match the target market demographics, ensuring a
ready customer base with relevant purchasing power and preferences.

4. Competition: A strategic location allows businesses to position themselves near competitors or

in areas with complementary businesses, fostering healthy competition and collaboration.

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5. Cost-effectiveness: A well-chosen location balances cost considerations with potential benefits,

maximizing return on investment and minimizing overhead expenses.

6. Infrastructure: Access to necessary infrastructure such as utilities, transportation, and

telecommunications facilitates smooth business operations and supports growth.

Legal forms of business

Proprietorship:
 Advantages:

 Easy to set up and operate with minimal formalities and paperwork.

 Complete control and decision-making authority rests with the proprietor.

 Direct ownership of profits and full flexibility in business operations.

 Disadvantages:

 Unlimited personal liability for debts and obligations, putting personal assets at
risk.

 Limited access to capital and financing options compared to larger business

structures.

 Limited potential for growth due to reliance on owner's resources and expertise.

Partnership:
 Advantages:

 Shared management, resources, and expertise among partners, leading to

better decision-making and risk management.

 Potential for greater access to capital, skills, and networks compared to sole
proprietorship.

 Flexibility in business structure and operations, with fewer regulatory

requirements than corporations.

 Disadvantages:

 Unlimited liability for general partners, exposing personal assets to business

debts and liabilities.

 Potential for conflicts and disagreements among partners regarding decision-

making, profit-sharing, and management.

 Partnership agreements may be complex and require legal assistance to draft

and enforce effectively.

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Limited Company (Corporation):

 Advantages:

 Limited liability protection for shareholders, separating personal assets from

business debts and obligations.

 Access to a wider range of financing options, including equity financing through

the sale of shares.

 Potential for greater credibility, stability, and longevity compared to other

business structures.

 Disadvantages:

 More complex and costly to set up and maintain, with stricter regulatory
requirements and compliance obligations.

 Shareholders may have limited control over management decisions and may
face conflicts of interest with management.

 Double taxation on corporate profits, with taxes paid at both the corporate and
individual shareholder levels.

Cooperative:
 Advantages:

 Democratic control and ownership structure, with each member having an

equal vote regardless of investment.

 Shared risks, costs, and benefits among members, fostering collaboration and
mutual support.

 Potential for increased bargaining power and market influence compared to

individual businesses.

 Disadvantages:

 Potential for slower decision-making and conflicts among members due to

consensus-based decision-making processes.

 Limited access to capital and financing options compared to corporations,

limiting growth opportunities.

 Challenges in maintaining member participation, engagement, and commitment

over the long term.

Costing of product

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Direct cost
 Direct costs are expenses that can be directly attributed to the production of a specific
product or service.

 These costs are easily traceable and vary with the level of production.

 Examples of direct costs include:

 Raw materials: The cost of materials used directly in the production process.

 Labor: Wages and salaries of workers directly involved in manufacturing or

producing the product.

 Direct overhead: Costs directly associated with production activities, such as

utilities for manufacturing equipment or specific production-related expenses.

Indirect Costs (Overheads):

 Indirect costs, also known as overhead costs, are expenses that cannot be directly
attributed to a specific product or service.

 These costs are incurred for the overall operation of the business and are not easily
traceable to individual products.

 Examples of indirect costs include:

 Factory rent: The cost of renting or leasing the production facility.

 Utilities: Expenses for electricity, water, and heating used in the production
facility.

 Depreciation: The allocation of the cost of fixed assets over their useful life.

 Administrative expenses: Costs related to general administrative functions, such

as salaries of administrative staff, office supplies, and general maintenance.

Break even analysis

Break-even analysis is a financial tool used by businesses to determine the point at which total revenue
equals total costs, resulting in neither profit nor loss. This break-even point helps businesses understand
the level of sales or production needed to cover all expenses.

Fixed Costs:
 Fixed costs are expenses that do not change with the level of production or sales
volume.

 These costs remain constant regardless of the level of output.

 Examples of fixed costs include rent, salaries of permanent staff, insurance premiums,
and depreciation.

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Variable Costs:
 Variable costs are expenses that vary directly with the level of production or sales.

 These costs increase or decrease in proportion to changes in output.

 Examples of variable costs include raw materials, direct labor, utilities, and sales
commissions.

Calculating Break-Even Point: The break-even point can be calculated using the following formula:

¿ Cost
Break−Even Point (¿ units)=
Selling Price per Unit −Variable Cost per Unit
Alternatively, the break-even point can be calculated in sales revenue by multiplying the break-even
point in units by the selling price per unit.

Significance and Applications:

1. Decision Making: Break-even analysis helps businesses make informed decisions regarding
pricing, production levels, and investment in new products or services.

2. Profit Planning: Understanding the break-even point allows businesses to set sales targets and
develop strategies to achieve desired profit levels.

3. Cost Control: By identifying fixed and variable costs, businesses can focus on controlling
expenses and improving cost-efficiency.

4. Financial Forecasting: Break-even analysis provides insights into the financial health of a
business and helps forecast future performance.

5. Risk Assessment: Businesses can use break-even analysis to assess the impact of changes in
costs, prices, or market conditions on profitability.

6. Evaluation of Projects: Break-even analysis is used to evaluate the feasibility of new projects or
investments by comparing expected revenues to costs.

Finance and Sources of Financing:

Finance refers to the management of money and other assets in order to achieve the financial objectives
of an individual or organization. In the realm of business, finance plays a crucial role in decision-making
processes, resource allocation, and long-term sustainability. Businesses rely on various sources of
financing to fund their operations, investments, and growth initiatives.

Equity Financing:
Equity financing involves raising capital by selling ownership shares (equity) in the business to investors.
This can be done through the issuance of common or preferred stock. Equity financing offers several
advantages, such as no repayment obligations and potential access to expertise and networks of
investors. However, it also dilutes ownership control and may result in a loss of autonomy for the
business owner.

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Loan Financing:
Loan financing, on the other hand, involves borrowing funds from external sources, such as banks,
financial institutions, or private lenders, with the promise of repayment over time with interest.
Businesses can obtain various types of loans, including term loans, lines of credit, and asset-based loans.
Loan financing provides businesses with access to capital while allowing them to retain ownership
control. However, it also entails the obligation to repay the borrowed amount with interest, which can
increase financial risk.

Initial Capital and Working Capital Estimation:

Initial capital refers to the amount of money required to start a business venture and cover initial
expenses such as equipment purchases, lease payments, and marketing costs. Estimating initial capital is
crucial for business planning and securing financing from investors or lenders. Working capital, on the
other hand, refers to the funds needed to cover day-to-day operational expenses, such as inventory
purchases, payroll, and utilities. Estimating working capital requirements is essential for maintaining
liquidity and ensuring smooth business operations.

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