Enterprenuership for for Engineers (1)
Transcript of Enterprenuership for for Engineers (1)
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Debre-Markos UniversityDebre-Markos UniversityCollege of Technology
Mechanical Engineering DepartmentMechanical Engineering Department
lecture note on Entrepreneurship for Engineers
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Contents
Part 1
Part 2
Part 3
Part 4Part 5
Part 6
Introduction toEntrepreneurship
Choosing The Legal Form O an
O!nership"etting a #usiness enterprise
$ar%eting in #usiness enterprises
Financing and accounting in
&usiness'is% and insurance o #usiness
enterprises
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Chapter oneEntrepreneurship
Entrepreneur
Entrepreneurship
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)hat is Entrepreneur*
Entrepreneurs are action-oriented, highly
motivated individuals who take risks toachieve goals
Entrepreneurs are people who have theability
to see and evaluate business opportunities,to gather the necessary resources to take
advantage of them! and
to initiate appropriate action to ensure success
$eaning o the terms Entrepreneur+Entrepreneurship+ O!ner,$anager
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Economists may view entrepreneurs as
those who bring resources together inunusual combinations to generate profits
Ps-chologists tend to view entrepreneurs inbehavioral terms as those achievement-
oriented individuals driven to seek challengesand new accomplishments
Peter .ruc%er states, as "Entrepreneur is
someone who always searches for changeresponds to it, and e#ploits it as anopportunity$
E#ample% &t is the entrepreneur who only
knows
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)hat is Entrepreneurship*
" Entrepreneurship is the dynamic process ofcreating incremental wealth This wealth is
created by individuals who assume the ma*orrisks in terms of e+uity, time and or careercommitments of providing value for some
product or service The product or service itselfmay or may not be new or uni+ue but value
must somehow be infused by the entrepreneur
by securing and allocating the necessary skillsand resources$ Robert Ronstadt
Entrepreneurship is very rarely a get rich-+uick
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What Is An Entrepreneur& Entrepreneurship ?
E/T'EP'E/E0'
ision,drien indiidual !ho assumessigniicant personal and inancial ris% to
start or epand a &usiness
E/T'EP'E/E0'"IP
The pursuit o opportunit- throughinnoation+ creatiit- and hard !or%
!ithout regard or
the resources currentl- controlled
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The Entrepreneurial rocess•
&t is opportunity/market opportunity/market driven• &t is driven by a lead entrepreneur lead entrepreneur
and an entrepreneurial teamentrepreneurial team
• &t is resource parsimonious parsimonious and creativecreative
• &t depends on the fit fit and balancebalance amongthese
• &t is integratedintegrated and holisticholistic
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The entrepreneur ersus the o!nermanager similarities and dierences7
Entrepreneur
a.Entrepreneurial function is theorganization of production% Entrepreneurship is an economic concept
Economics describes four factors ofproduction, namely, land, labor, capital andentrepreneurial ability .organizationalskill).
b. Decision-making and calculated riskbearing:
c. An entrepreneur has an all-round personality:
d. High leels of achieement
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O!ner $anager
They may or may not be entrepreneurs They own and manage a small enterprise, in a
way, which fits with their personalmotivations
They are more intent on survival than seekinginnovative change and growth/ 0imited scope for innovativeness, creativity and
imagination
1 Managerial *obs are transferable
-2s a manager in the businessorgani3ation, his *ob is transferable from officeto office, from one unit and location to anotherlocation4 Managers do not bear-risk
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Characteristics o Entrepreneurs
1 /eed or chieement8, ision
2 )illingness to ta%e ris%s8,inancial+ careers+
amil- +
3 "el,Conidence8, internal and eternal locus o
control6 Innoation8, The entrepreneurial manger is constantly
looking for innovations, not by waiting for a flash of
inspirations, but through an organi3ed and continuous
search for new ideas
5 Total Commitment
6 ll,rounders
9 need to see% reuge8, escape rom
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'ther types of " refugees$ mentioned are thefollowing%
$.!he parental %paternal) refugee7ho leaves a family business to show the parent that
"& can do it alone$
&.!he feminist refugee
7ho e#periences discrimination and elects to start afirm in which she can operate independently malechauvinist
'.!he house"ife refugee7ho starts her own business after her family is
grown or at some other point when she can freeherself from household responsibilities
(.!he educational refugee
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$otiation or starting a&usiness*
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$otiation or starting a &usiness
The reason for small firm formation can be dividedbetween "pull$ and "push$ influences
I:Pull; Inluence 8ome individuals are attracted towards small
business ownership by positive motive suchas a specific idea which they are convincedwill work $ull$ motives include%
a Desire for independence
b Desire to exploit an opportunity c urning a hobby or previous !ork experience in
to a business
d "inancial Incentive
The promise of long-term financial
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:Push; Independence
Many people are pushed into founding a newenterprise by variety of factors including%
#$%edundancy 99:;eing without a *ob .idleness<
1nemployment 'or threat of(
4Disagreement !ith previousemployer 99:Uncomfortable relation at work has
also pushed new entrants into small business
The dividing line between those "pulled$ andthose "pushed$ is often blurred
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'utcomes of Entrepreneurship
Economic growth=ew industry formation
>ob creation
"uccess actors or entrepreneurs
Most new ventures succeed because their founders are capableindividuals
/The entrepreneurial team
1&ncremental growth of product or
services
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Weakness of entrepreneurship
a imited resource%- entrepreneurshipmostly starts from small investment orcontribution of owners are more than oneindividual
b ack of e*perience%- most ofentrepreneurs have no e#perience and thismay lead to in efficiency
c .isagreement bet"een member % if theowner of entrepreneur is more than oneperson, disagreement between them can becreated This disagreement can limit the
operation of the business-
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e Risk %- starting or buying a new businessinvolves risk and the higher rewards the
greater the risk entrepreneurs usually face This is why entrepreneurs tend to haveevaluate risk very carefully
f Lo!er <ualit- o lie until the &usinessgets esta&lished%- the long hour and hardwork needed to launch a business can taketheir tall in the rest of the entrepreneurs life
g Complete responsibility%- it is great to be theboss but many entrepreneurs find they mustmake decision on issues about which they
are not knowledgeable 7hen there is no one
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Elements inoled inEntrepreneur
/5&8? %- 8imply stated risk is "acondition in !hich there is a
possibility of an adverse deviationfrom a desired outcome that isexpected or hoped from applied to a
business risk translates in to thepossibility of losses associated withthe assets and the earning potentialof the firm )
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;usiness risks can be classified in to twobroad category market risk and pure risk
Entrepreneurs face a number of differenttypes of risk These can be grouped in tobasic areas
a Political ris% %-
& #usiness ris%8,
c Economic ris% %-
d propert- ris%
e Personal ris%
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2Inormation
&nformation gives the following importance tothe businessmen)s
To know the position of their competitors
that is their strength and weaknesses,business strategy they use and their longterm plan
To know threats and opportunity in doing
business(elps to design long term ob*ectives and
goals indicate capital re+uirement .labor,
capital and machinery<
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,ources of information
&nformation are obtained from two main
methods of data collection That is primary datacollection and secondary data collection
/Collection of primary data%'bservation method
&nterview method Through +uestioner
'ther methods which includes warrantycards, consumer panels, etc
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1 Collection of secondary data%-8econdary
data are available inAarious publication of the central state and
local government
Aarious publications of foreign governmentor international bodies and their subsidiaryorgani3ation
Technical and trade *ournals
;ooks, maga3ines and newspapers5eports
ublic records and statistics, historicaldocuments
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;y way of caution, the entrepreneur beforeusing secondary data must see that the
process following characteristics
/5eliability of data a 7ho collected the dataB
b 7hat were the sources of dataB c 7ere they collected by using propermethodsB
d 2t what time they collected Etc
18uitability of data%- the data that aresuitable for one en+uiry may not be suitablefor another en+uiry, then the researcher hasto check the suitability of the data properly
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=inds o Entrepreneurship
/7omen Entrepreneurs
1ounders and other Entrepreneursa ounding Entrepreneurs ounders
beneral mangers and
cranchisees
4(igh-rowth and low-rowth irms
aMarginal irms
b2ttractive 8mall Companies and
c(igh potential ventures
ssignment One8 7hat is franchise franchiseein businessB Fma# /pageG
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8tarting Technology basednew venture
Introduction The innovative capacity of an entrepreneur and
more accurately, of companies operating in thatfield, is a key determinant of its capability to
enhance the economic development and toupgrade the standard of living of a country &t iswidely accepted that one of the indicators of thisinnovative capacity is the rate of creation of =ew
Technology-;ased firms .=T;< The nurturing of small firm formation and growth
has become increasingly important to the healthof developed economies in general, and to the
creation of new innovative industrial sectors in
C )d
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Cont)d Technology incubators, which play a role in
accelerating the commerciali3ation of 5D
outputs and the transfer of technology, havecontributed to startups of high technology-basedenterprises in the newly industriali3ingeconomies of developing and developed
economies of the world8trengthening and promoting technology based
ventures through incubation programmes for newtechnology based enterprises is necessary for
them to survive in a competitive society
o! to orm and deelop Technolog- &ased
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o! to orm and deelop Technolog- &asedentures*
overnment policies%Credit programmes with 8tate-subsidi3ed rates8hare programmes by overnment venture-capital
companies
rants by the overnment, especially for creating *obsand for research
8ecurity programmes by the overnment for taking overpart of the risk of the credit institutions for enterprises
2dvisory services
'ther support activities for enterprises with
both public and private sector involvement,
Cont)d
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Cont dTechnical consulting serices8 More
speciali3ed services are provided such asnetworking assistance between enterprisesand science and technology organi3ations,technology transfer, the e#change of similare#periences and the identification ofpotential for cooperation
Financing support actiities8 'fferoptimal conditions to enterprises, especially8MEs, in terms of rent and costs of spaces,infrastructure and services 'ffer also
assistance with accessing and using financialsources such as corporate financing, businessangels, venture capital, and so forth!
Intellectual propert- assistance8 2ssistance with developing and patentingnew and improved technology, including
Factors contri&uting to the "uccess o igh
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Factors contri&uting to the "uccess o ighTechnolog- &ased Enterprises
The main catalytic factors for the success of
high technology-based enterprises are %national policies,
research and development institutions
technological entrepreneur development
innovative finance support systems protecting intellectual property
science and technology parks
promoting and developing strategic businessalliances and networking
standardi3ation, +uality control andmarketing
Technolog- transer or &usiness
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Technolog- transer or &usinessdeelopment
Technolog- transer is the process by
which e#isting knowledge, facilities orcapabilities are utili3ed and marketed tofulfill public and private needs
&t is the process by which basic scienceresearch and fundamental discoveries aredeveloped into practical and commerciallyrelevant applications and products
Technology transfer processes constitutestechnology transfer* technology promotion*technology deployment* technologyinnovation* technology development*
technology research* technology
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technolog-
Cost8 Technology can cut costs in many ways%
reducing material, labor or distribution costsE#ample% material costs can be reduced byreplacing lower cost material or by reducing thematerial re+uired to make a product
"peed o delier-8 The key competitive priority
may be the speed of delivery, as measured by leadtime re+uired to deliver a product E#ample,2utomated guidance vehicle.2A<, Electronic Data&nterchange.ED&<
?ualit-8 Technologies help to improve the +uality and
reduce the production costs
Flei&ilit- and customi@ation8 The global market
place of /HHIs is characteri3ed by short product lifecycles,
increased product veriety, and e#tensive customi3ation Toretain and increase market share in such competitive
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rocess
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Change
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technology
=ew industries are born when technological
change produces a new opportunity that anenterprising entrepreneur sei3es
Disruptive or metamorphic technologies thatdestroy previous technologies and create new
industries display a different pattern ofbehavior
The pattern of growth, shakeout, stabili3ation,and decline of industry can be interrupted at
any time by the entry of another disruptivetechnology
5eading assignment>"teps in Technolog- Transer
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&n The ;eginningKK
The 7orld was roundKK
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2nd =owKKKB
• Companies worldwide are finding they must either convincingly justify theirprices or differentiate themselves with some kind of perceived recognizable
value.
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!echnology is al"ays eoling andcompanies not #ust search companies
can/t be afraid to take adantage ofchange.0-Eric ,chimdt
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!he use of technology as an integraland key element in the transformationof goods or serices.0 1 Randall ,tross
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DefinitionTechnopreneurship is the 5esult of uniting
"Technology$ with "Entrepreneurship$ This is not *ust the effect of technology on
businesses but rather the process whereprogression in the lives of the people happens
&t is the process of using the developmentsbrought about by speciali3ed knowledge to comeup with innovations in all the aspects of humanlife with the aid of a creative and skillful mind
;irth of this field provides every entrepreneur achallenge of e#ploring an untraveled pathtowards greater success
Technopreneurship can be
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Technopreneurship can bedefined as
2ntegration of !echnology 2nnoationand Entrepreneurship
Act of turning something0 into aresource of high alue by conerting
good ideas into business entures thatrelies heaily on the application ofhuman kno"ledge for practical purposes.
Entrepreneurship in the field oftechnology.
4irms in "hich technology plays a
critical role in their operations.
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Definition ContinuesK
Application of the ne"est inentionsand adancements in coming out "ithne" and innoatie products throughthe process of dissemination.
6anufacturing of hi-tech products ormaking use of hi technology to delier
product to consumers.
E*haustie use of and E*ploitation of
technology in making profit.
8ome Thoughts from Definition- The Meruvian
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8ome Thoughts from Definition The Meruvian5oadmap
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7ho (as ;eenB
8teve >obs ;ill ates
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7ho has ;eenKB
Mark Luckerberg 8ergey ;rin and0arry age
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?ey &deas
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Discovering aps
8 ki d C ti
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8eeking and Creating'pportunities
7hat do you 8eeBroblem or a
ChallengeB
2lways Distinguish;etween 5isk andUncertaintyUncertainty is an
opportunity for
&nnovation
'pportunities2bound, 8ee or
Create them
? i d 0 i
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?nowing and 0everaging your8trengths
2reas of E#perti3e7hat comes to you
=aturally
2reas you can
0everage in a8ynergy
8kills, ?nowledge,roven 2bilities
D fi i d 2 bli
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Defining and 2ssembling our2udience
Define your Market
8egment your2udience
2ssemble the2udience and Target the 8hareof Mind
Create Top ofMind 2wareness
d l
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Model
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Moneti3ing your Creation
5evenueModels8ubscription2dvertising'utright 8ales8ales and
8ervice
Aarious ossible unding
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Aarious ossible undingModels
i l h h
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inal Thoughts
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2f you really "ant it you/ll find a "ay 2fyou don/t you/ll find an e*cuse7
- 8im Rohn
2f 2 had asked people "hat they"anted they "ould hae said faster
horses.0
-Henry 4ord
P t t Ch i Th L l
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Part t!o8 Choosing The LegalForm O an O!nership
1/ orms of 'wnership and legalre+uirement
11 2dvantage and disadvantage foreach types of ownership
Forms o o!nership and legal
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p gre<uirements
Those forms have been modified over thecourse of time to keep pace with businessneeds and the custom of society
'wnership of business is represented by theright of individual or a group of individuals toac+uire legal title to property .assets< for thepurpose of controlling them and to en-oy the
gains of profits from such possession and use
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The most common forms currently in wideuse by small business are%,ole proprietorship5artnership9orporations and
9ooperatiesEach form of ownership has a characteristic
internal structure, legal status, si3e andfield to which it is best suited
/< 8ole proprietorship
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/< 8ole proprietorship
&t is an individual or single ownership
The sole proprietorship is a form of businessorgani3ation in whicho 2n individual introduces his capital,
o Use of his own skill and intelligence in the
management of its affairs ando &t is solely responsible for the results of itsoperation
This form is known also as indiidual or single
proprietorship, sole o"nership or indiidualenterprise
E#ample% hoto studio, bookshop, bakeries, small
town restaurants, retail stores, radio and watch
proprietorships
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p p p
a Ease and lo! cost o ormation and
dissolution8,there are no restrictions on eitherstarting or terminating small business operations
& .irect motiation and personal care
c Freedom and promptness o action
The sole proprietor can take his own decision andthere is none to +uestion his authority the soleproprietor can take prompt+uick decisionsespecially when an emergency arises
d #usiness conidentialit-e "ingle Ta8, The proprietorship does not pay ta#
as a business! the profits from the business arethe personal income of the owner and are declare
on his individual income ta# return
proprietorship
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proprietorship
a. imited resources and size:-the capacity and
skill are very limited 0ending institutions andsuppliers may not be willing to cooperate becauseit is neither safe nor dependable which results inmaking the business to remain limited in si3e
b imited 6anagerial ,kill:- in comple# anddifficult condition which re+uires differente#pertise knowledge
c +nlimited liability:- The sole proprietor will belegally liable for all debts of the business , a sourceof courage and real devotion, limit his activitiesonly in specified areas
d +ncertain futureDeath of the o"ner
2 P t hi >>
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2 Partnership>>
The association of t"o or more persons to
carry as co-o"ners of a business where therelationship is based on agreement iscalled partnership
This form of a business re+uires the e#istenceof two or more persons entering into acontractual relationship
This contract, which is an agreement betweenthe parties, is known as a memorandum ofassociation or article of partners/ deed
=inds o Partners
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ds o a e s
/2 general partner
2ssumes unlimited liability and is usually active inmanaging the business Most partners are generalpartners
12 limited or special partner
2ssumes limited liability, risking only his herinvestment in the business 0imited partners maynot be active in management, and their names arenot used in the name of the business
42 secret partner
Takes an active role in managing a partnership butwhose identities are unknown to the public ie thegeneral public does not know of this person)spartnership status
62 silent partner
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N.enior partners
2ssume ma*or roles in management because of the
long tenure .possession<, amount of investment inthe partnership, or age They normally receivelarge shares of the partnership)s profits
O unior partners
2re generally younger partners in tenure, haveonly small investment in the firm, and are note#pected to make ma*or decision They assumelimited role in the partnership)s management and
receive a smaller share of the partnership)s profits8ee othersK
dantages o partnership
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dantages o partnership
1 Ease of starting
2 2ncreased source of capital 01artnership canoffer creditors less risk than a soleproprietorship! it is often an attractiveinvestment
3 9ombined managerial skill 4 Definite legal status
Today)s partner can be assured that acompetent lawyer can answer virtually any+uestions heshe might have about this form ofownership ie lawyers can provide a soundlegal advice about partnership issues
O 2otivation of important employees
.isadantages o partnership
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.isadantages o partnership
/$nlimited liability
1$ %isk of implied authority The fault and miss *udgment made by a single
partner binds the firm and the remainingpartners Thus, they are liable for the debts
made by the partner4 4ack of harmony5agrmnt or synchroni,atn
6 4ack of continuity/instability/
&f any one of the general partners dies,withdraws because of mentally or physicallyincapable .in*ured<, the partnership ends
N Investment !ithdra!als difficulty
fro,en1investment
3 Corporation>>>
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3 Corporation>>>
2 corporation is an artificial person authori3edand recogni3ed by law, with distinctive name, acommon seal, comprising of transferableshares of fi#ed values, carrying limited liabilityand having a perpetual or continued or
uninterrupted succession
Characteristics o Corporation
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p
1 ,eparate legal entity
&t can sue or be sued&t has the right to manage its own affairs
8hareholders cannot be liable for the acts of thecorporation
&. imited liability8ince the corporation has separate legal entity its
debts are its own The assets and liabilities, rightsand obligations incidental to the company)s activities
are assets and liabilities, rights and obligationsrespectively of the company and not of its members
'.!ransferiablity of shares
&t is easy to transfer ownership in a corporation 2
( 5erpitual e*istence
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(.5erpitual e*istence
Death, insanity, retirement and withdrawal ofshareholders will not affect the company
;.9ommon seal
2 corporation has a common seal with thename of the company engraved on it, which isused as a substitute for its signature through itacts through its agents
<.,eparation of o"nership frommanagement
=.,uperision>.?ritten 9onstitution
'n the creation of a company, the promotersmust file certain documents with the 5egistrar
of Companies These include the Article of
corporation
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#$ "inancial strength
6$ 4imited liability
7$.cope of expansion Corporations have greater potential than sole
proprietorship or partnerships
8$ 2anagerial efficiency Corporations en*oy the advantage of efficient
management by hiring specialist)s skilledpersons to become members of the board of
directors to mange the corporation9$ Ease in transferring o!nership
:$ 4egal entity status
2 corporation can purchase property, make
contracts, sue and be sued in the corporate
sa an ages o a corpora on
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#$ Difficulty of formation
&t is time consuming and cumbersomenotmanagable to establish corporations unlike theother forms of businesses
6$ 4ack of o!ner;s/manager;s personal interest
These forms of organi3ations are managed bydirectors, hired officials, and employees whomay not be e#pected to have such an interestin the success of the business as the individual
owner or partner would have in his ownbusiness
7$ Delay in decision1making5it needs official meeting of
managers or board
8$4ack of secrecy5$openness5lack of privacy
4 Corporaties>7
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4Corporaties>7
&t is an organi3ation owned by
memberscustomers who pay an annualmembership fee and share in any profits .if it isprofit making organi3ation<
&t has to adopt the following principles%
2embers have an e<ual vote in decisions2embership is open to every one !ho fulfills
specified conditions .eg =umber of hour worked<
Assets controlled and usually o!ned -ointly by
members
=rofit shared e<ually bet!een members !ithlimited interest payment on loans made bymembers!
5 Other orms o &usiness
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5Other orms o &usiness
4ranchises
2 franchise is a business in which the owner ofthe name or method of doing business .calledthe franchisor< allows a local operator .calledthe franchisee< to set up a business under that
name
6anagement buy-outs and buy-ins
&n recent years the traditional separation of
shareholders and management has beeneroded by the growing popularity ofmanagement buy-outs/ This is where agroup of members pool their resources to buy
the business they have been running, usually
Part Three8 "etting a #usinessenterprise
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enterprise
4/ 8mall ;usiness as ;asiccomponents of Economy
41 7hat is basic business idea
44 8teps in business setting
46 Developing a ;usiness lan
7hat is small businessB
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7hat is small businessB
There are two approaches to define small;usiness They are%
/ ;y some measure of si3e
1 using an economic control definitions
…ዉ what r msr of si3eB
Kwt r economic criteriaB
1 "i@e Criteria
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1 "i@e Criteria
E#amples of criteria used to measure si3e are%
/ =umber of employees 1 8alesvolume
4 2sset si3e 6 &nsuranceenforce
N Aolume of deposits
2lthough the first criteria located above,employee, is the most widely used yardstick!the best criteria in any given case dependsupon the user)s purpose
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To provide a clear image of the small firms, thefollowing general criteria for defining a small
business are suggested%
2< inancing of the business is supplied by oneindividual or a small group
b< E#cept for its marketing function, the firm)soperations are geographically locali3ed
c< Compared to the biggest firms in the industryis small
d< The number of employees in the business isusually fewer than /II
Economic AControl Criteria
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Economic AControl Criteria
The economic control definition cover%
a7$ar%et share%- The characteristics of a smallfirm)s share of the market is that it is not largeenough to enable it to influence the prices ofnational +uantities of goods sold to any significant
e#tent
&7Independence8- Means that the owner has controlof the business himself
c7Personali@ed management8- &s the mostcharacteristics factor of all &t implies that the owneractivity participates in all aspects of themanagements of the business, and in all ma*ordecisions-making processes There is no delegationof authorit
T-pes o small &usiness
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T-pes o small &usiness
/ amily Enterprises
amily owned business varies widely and caninclude retail stores, contracting businesses,small manufacturing firms, and restaurantsamong others &n the absence of a successor,
the life of a venture is limited to the workinglife of its founder 8uccession is a seriousproblem
1 ersonal service irms.8<4 ranchise%-The franchisee may receiver
rancis help, training, a protected market, andtechnical assistance with matters such as site
selections, purchasing, accounting, and
to econom-*
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to econom-*
They make e#ceptional contributions as theyprovide
a=ew *obs as populations and economy grow,small business provide new *ob opportunity
b&ntroducing innovations-many scientificbreakthrough originated with small organi3ationhotocopies, etc
c 8timulating Economic competitions
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5easons for the more rapid growth of small firms in
most developed countries
/=ew technologies, such as numerically controlledmachine tools, may permit efficient production
on a smaller scale1reater fle#ibility is re+uired as a result of
increased global competitions
4Consumers may be coming to prefer personali3ed
products over mass produced goods
Causes or small &usiness ailure
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Incompetence- The owners simply do not know how
to run the enterprise0n&alanced eperience, do not have rounded
e#perience in the ma*or activities of businessproduction
Lac% o managerial eperience Do not know howto manage production
Lac% o eperience in the line, the owner hasentered a business field in which he or she has very
little knowledge/eglect, the owner does not pay sufficient attention
to the enterprise
Fraud, involves intentional misrepresentations or
deception .purchasing materials or goods for himher
The following are specific managerial causes of
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The following are specific managerial causes ofsmall business failure
&nade+uate records- unable to establish an
ade+uate record keeping system
E#pansion beyond resources
0ack of information about customer
ailure to diversify market
0ack of marketing research
0egal problems
=epotism- favoritism toward family members
'ne person management
0ack of technical competence
2bsentee management the owner stayed away
for long period
&usiness
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"trength
/ Independence
Most small business owners en*oy being theirown boss, they like the freedom to do things than
way1 Financial opportunities
Many small business owners make more moneyrunning their own company than they would be
working for someone else
3 Communit- serices
if the person has reason to believe the public will
pay for such output, heshe will start a company
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4 Bo& securit- when one owns a business, *ob security is
ensured
5 Famil- emplo-ment &eneits7
create the employment in the family
higher moral and trust occur in family-runbusiness
is times of server economic downturn6 Challenge
They want to win or lose on their ownabilities the challenge gives them
psychological satisfaction
)ea%nesses
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ea esses
1 "ales luctuations
in some months sales are very high, while inother they drop off dramatically The individualmust balance cash inflows with cash outflows
2 Competition, 'wning a business is the risk ofcompetition .eg 5estaurants<
3 Increased responsi&ilities, owner is often abookkeeper, accountant sales person, personnel
manager
4 Financial loses, when the owner makes allma*or decisions
,
)hat is &asic &usiness idea*
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)hat is &asic &usiness idea*
&t is logical to think of a goal for the unit in long
run rather than to look for the immediatetomorrow This long-term thinking is called basicbusiness idea
; i b i h ld thi k f
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;usinessmenbusinesswomen should think oflong-term goal and the profit when they start a
business The basic business idea, which is at the top of
the hierarchy, is to meet the broadest needs ofthe customers, and has the long life perhaps
from N-NI years
The basic business idea facilitates choice ofproduct under an overall plan
Thus, entrepreneur may think of being in theentertainment film, in automobiles, inmedicines, in services, in industries, etc
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d i b i h h
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&n a dynamic business scheme, one has tocarefully watch is one of the basic idea
degenerating as regards
Its ability to generate <uick returns$
Its ability to permit <uick changes in the products$
should hae*
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2 pro#ect is a comple# of economic activities in
which the key players commit scarcelimitedresources in the e#pectation that the benefitsgained will e#ceed these resources
2lso, a pro*ect, broadly defined, in a way ofusing resources% a decision betweenundertaking and not undertaking a pro*ect is achoice between attentive ways of using
resources The pro*ect should have to consider the ")OT
and should be designed accordingly
The ")OT approach compels individuals to
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"trength8 is an inherent capacity, which anorgani3ation can use to gain strategicadvantage over its competitors
)ea%ness8 is an inherent limitation orconstraint, which creates a strategic
disadvantageOpportunit-% refers to any factor that offerpromise or potential for moving closer or more+uickly towards the firms goal
Threat% is any factor that may limit or impedethe business in the pursuit of its goals
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To be a successful entrepreneur, one ma*or
determinant factor is the choice of a goodbusiness idea To select the best businessidea, the following steps needs to be pursued
R Identify your problemR Define your ob-ectives
R Identify* develop and analy,e the possiblealternative
R .elect the best alternative in light of thespecific criteria set to the better fulfillment ofthe ob-ective$
"teps in &usiness setting
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/ The first key to success in any
manufacturing activity is to select the rightproduct These must be e#amined with aview to assess%
Rhe marketing aspects
Rechnical aspectsR "inancial aspects
1 (aving selected a product a detailed
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1 (aving selected a product, a detailedpro*ect report to be prepared This will
cover the following aspectsR A detailed estimate of demand is to be made$
R echnical specifications of the process shouldbe carefully studied$
R he e<uipment re<uired and their sources areto be specified
R %e<uirement of space$
R he total cost of the pro-ect to be !orked out*
the means for financing it identifiedR he economics of the entire scheme at pro-ected operating level is to be assessed$
4 &mplementation of the detailed pro*ect report
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&ncludes%
a$Deciding on form of o!nership and registration
b$>btaining finance *>btaining license
c$ Establishing necessary infrastructures
6 'nce all the re+uired authori3ations and sanctions
have been obtained, simultaneous action is to betaken for the following re-commissioningre+uirement
R >rdering machinery from suppliers
R>btaining utilities like po!er and !aterconnections after constructions of shed* ifnecessary$
R %ecruitment of staff*
R Arranging supplies of materials
N ' th l t th l t i d f
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N 'nce these are complete, the plant is ready forcommissioning trial run may be made
Commissioning of plant, &ncludes%
a$rial run of machineries
b$=romotional activity for the product
c$ Introduce the product to the market and obtainfeedback
O The unit is then ready for commercial
productiona Commercial production
his is all about the feasibility study pre&after
implementation
.EDELOPI/ #0"I/E"" PL/
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)T I" #0"I/E"" PL/*2 business plan is a comprehensive set of
guidelines for a new venture
2 business plan is also called a feasibility planthat encompasses the full range of businessplanning activities, but it seldom re+uires thedepth of research or detail e#pected for an
establishment enterprise
2 business plan would present your basicbusiness idea and all related operating,marketing, financial and managerial
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7hat ever the name, it should lay out your
idea, describe where you are, point out whereyou want to go, and how you propose to gothere
The business plan may present a proposal forlaunching an entirely new business Morecommonly, perhaps! it may present a plan for ama*or e#planation of a firm that has already
started operation
PL/
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#$It can help the o!ner/manager crystalli,e andfocus his/her idea
6$ Although planning is a mental process* it mustgo beyond the realm of thought$ hinking about
a proposed business becomes more rigorous asrough ideas must be crystalli,ed and <uantifiedon paper$
7$It can help the o!ner/manager set ob-ectivesand give him a yardstick against !hich tomonitor performance
8$It can also use as a vehicle to attract any
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9$It can convince investors that theo!ner/manager has identified highgro!th opportunities
:$ It entails taking a long1term vie! of the
business and its environment$
@$ It emphasi,es the strengths andrecogni,es the !eaknesses of the
proposed venture$ $ he plan can uncover !eakness or alert
the entrepreneur to sources of possibledanger
7(E= T(E ;U8&=E88 02=8 25E5'DUCEDB
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t the start up o a ne!&usiness8
#usiness purchase%
On going8
$aor decisions%
)O P'O.0CE. TE #0"I/E"" PL/*
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o$anagers%, O!ners%, Lenders8
?H !HE B+,2CE,, 5AC, ARE5RD+9ED
Assessing the feasibility and viability of thebusiness/pro-ect % it is in every ones interests to makemistakes on paper, hypothetically testing forfeasibility, before trying the real thing
.etting ob-ectives and budgets% having a clearfinancial vision with believable budgets is a basicre+uirement of everyone involved in a plan
Balculating ho! much money is needed% a detailed
T(E '5M2T ' 2 ;U8&=E88 02=
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1 )here are !e no!*
2n analysis of the current situations of themarket place, the competitions, the businessconcept and the people involved &t will includeany historical background relevant to the
positions to date
2 )here do !e intend going*
Sualitative e#pression of the ob*ectives,
+uantifiable targets will clarify and measureprogress towards the intended goals
3 o! do !e et there*
C'M'=E=T8 ' ;U8&=E88 02= .'UT 0&=E ' 2;U8&=E88 02=<
I l i th t it ti h
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1 Identiication o the &usiness
a Introduction
- relevant history and background
- roposed date for commencement of trading
beginning of a plan& /ames
-name of the business and trading name
- name of the managersownersc Legal identit-
-companypartnershipsole-tradecooperative- details
of share or capital structure
Inal-sis o the current situation "hereare "e no"7
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2 The %e- peoplea Eisting management- 'utline of
background e#perience
, skills and knowledge
-=ames of the managementteam
& Future re<uirement -gaps in skills ande#perience and how they will be filled ,-
future recruitment intentions
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3The nature o the &usiness a Products7or serices7,Description and
applications
-?ey suppliers
-lanned developments ofproduct or service
& $ar%et and customers
Definition of target market,classification of customers
- Trend in market place
c Competition- description of competitors!
II F0T0'E .I'ECTIO/ !here do !e intendgoing*7
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III I$PLE$E/TTIO/ OF I$ ho! do !e getthere*7
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1 $anagement o resourcesa7 Operation8,premises, materials, e+uipment,
insurance, management information system
&7 People(uman resource- employment practices,recruitment, team management, training etc
2 $ar%eting plana7Competitie edge- uni+ue selling point of
business .Critical products or service characteristicsor uni+ueness in relation to competitors<
&7 $ar%eting o&ecties - specific aims for productor service in the market place
c7 $ar%eting methods- product, pricing, promotion,distributions96ps
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3 $one-8 inancial anal-sisa Funding re<uirement- start up capital,
working capital, asset capital, timing of fundsre+uired, security offered
& Proit and loss8,- 4 years forecast, salesvariable costs, profit, overheads, net profit
c Cash lo!8,- 4 years forecast, receipts,payments, monthly and cumulative cash flow
d #alance sheet - use of funds, sourcefunds
ssignment 28 !rite the difference b/n
feasibility study and business plan 'brief
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Part our8 $ar%eting in #usinessenterprises
6/ The Marketing erspective
61 Marketing Mi#-product, price, place,and promotion,
64 Marketing segmentation andmarket research,
66 actors affecting the ;usinessEnvironment
TE $'=ETI/PE'"PECTIDE
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.einition o $ar%et%Market is a group of potential customers
having needs to satisfy, ability to buy willingness to pay in order to satisfy these
needs'5
2 social F managerial process by whichindividuals groups obtain what they need want through creating e#changing products value with others
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The main concepts o mar%eting
Marketing activities are integrated
'rgani3ations are market oriented
Marketing focuses on selected markets
Customer satisfaction is the core of marketing
Marketing starts early before production continues after sellingKTKdiscussB
TE $'=ETI/ $I
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2 marketing organi3ation has to concentrate
on four important aspects known as the 4PGs of marketing
The marketing manager has to combine these6 )s .P'O.0CT, P'ICE, P'O$OTIO/ and
PLCE< in such a way that the combinationprovides satisfaction to the customer and profitto the manufacturer
7hen these elements .6 )s< are combinedtogether they are called as "The $ar%eting$i$
1The product mi8 Includes%=roduct planning and
3 Place miPh-sicaldistri&ution mi78
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=roduct planning anddevelopment
Cranding =ackaging4abeling
2The price mi8 Includes
=rice polices.kimming pricing '=ricing
above the market(
=enetration pricing '=ricingbelo! the market(
=remium pricing '=ricing!ith the market(
Discounts
uantity discount .easonal
distri&ution mi78 Bhannels of
distribution ransportation Warehousing
4 Promotion mi8
Includes Advertising =ersonal selling .ales promotion
=ublicity
I TE P'O.0CT $I
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5roduct % &s any commodity that satisfies the needs wants of customer
&t is a bundle of tangible intangible attributes, whichsatisfy the needs, wants of customers
&n today market, a product can be
o2 person .soccer players<, 'rgani3ation.privati3ed firms<,
olaces .leased land<, 'b*ects.items<,
o &dea .business plans or pro*ect proposal<,
o8ervices .medication or barber<, or mi#es ofthese elements
8o, a product can be defined as anything, which
$.5roduct planning and deelopment
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p g p
roduct planning includes three ma*or types ofdecisions%Development and introduction of ne! products
2odifications of existing products in keeping!ith the changing tastes and preferences ofthe target customers and
Elimination of unprofitable or obsolete
products
&. Branding
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• #rand name% the part of a brand, which consists ofword, letters andor numbers, which can be
vocali3ed Eg 'M', Coke
#rand mar%8 the part of a brand that can berecogni3ed but is not utter able &t can appear in theform of symbol, design, distinctive coloring orlettering
Trademar%8 a brand or part of a brand that hasbeen given legal protection so that the owner has
e#clusive rights to its use 2fter companies identifytheir trademark, they entail a term "V$ or "W$
!rade Came: Trade name is the name of the
business organi3ation 2 trade name may also
2mportance of a brand
he brand makes it easier for the seller to process
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he brand makes it easier for the seller to processorders and track do!n problems$
he seller;s brand name and trademark provide legal protection of uni<ue product features$
Cranding gives the seller the opportunity to attract a
loyal profitable set of customers and helps toincrease the control and share of the market$
Cranding helps the seller to segment markets andexpand the product mix$
ood brand help to build the corporate imagebecause it advertises the <uality and si,e of thecompany$
Crands make it eas for customers to identif
ReGuirements of a good brand
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Ce easy to pronounce* recogni,e and
remember
Ce distinctive$
.uggest something about the product;sbenefits or characteristics
.uggest about the product <ualities such asaction or use$
Ce large enough to be applicable to ne! products that may be added to the productline$
'.5ackaging
k i i k i d
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ackaging is a marketing process concernedwith the design and production of the
container or wrapper for a product
The container or wrapper or covering is calledthe package
2mportance of packaging
#$=ackaging serves several safety and utilitarian purposes
6$=ackaging may implement a company;smarketing program
7$Well1packaged products may increase profit possibilities in that it stimulates customers to
pay more -ust to get the special package
(.abeling
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1#rand la&el8 simply the brand alone applied tothe product or to the package
2 rade la&el8 a label, which identifies the+uality with, a letter, number or word
3 .escriptie la&el8 it gives ob*ectiveinformation about the use, construction, care,performance or other features of the product8ometimes it is called informatie label
Eg medicines
22. !HE 5R29E 62
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)T I" P'ICE*
&s the amount of money consumers have topay to obtain the product
rice has operated as the ma*or determinant
of user choice traditionally
2lthough non-price factors have become moreimportant in recent decades price still remains
one of the most important elementdetermining market share and profitability
Different companies set the price hapha3ardlyas based on cost
6E!HD, 4 5R292CI
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1Cost plus pricingA $ar% 0p pricingA
2 "%imming pricing The following conditions should be satisfied
#$ A sufficient number of buyers have a highcurrent demand$
6$he high initial prices do not attract morecompetition to the market$
7$he high price communicates the image of asuperior product$
3Penetration pricing8 &elo! mar%et price
6 Premium pricing8 !ith mar%et
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The ma*or ob*ectives of pricing are%
2chievement of target returnMa#imi3ation of profit&ncrease of sales volumeMaintenance or increase of market share
8tabili3ation of prices Meeting competition
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Direct channel
1 .oor to door selling
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1.oor,to,door selling
2$anuacturersG sales &ranches
3.irect mail
2ndirect channel
1$erchant $iddlemen8,
• 7hole seller%- Eg etram 0C and East 2frica Trading are wholesalers of consumer products
• 5etailer%- Eg (adiya supermarket, and several?iosks are found closer to sell the items to
residential houses1 gent $iddlemen
Commission agent, ;rokers, 8elling agents,
Eg -8ony lorious, is an agent to 8ony
Electronics products
9hannel leels
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Manufacturer
Consumer
Lero-levelManufact
urer
5etailer
Consumer
'ne-levelManufact
urer
5etailer
7holesaler
Consumer
Two-levelManufact
urer
2gent
7holesaler
5etailer
Consumer
Three-level
2J. 5R6!2C 62
& ti k k ti
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&s sometimes known as marketingcommunication
Means activities that communicate themerits of the product persuade targetcustomers to buy it
romotional ob*ectives%Informing the product Increasing sales.tabili,ing sales / profit
=ositioning the product
The promotional mi# consists of four ma*or
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The promotional mi# consists of four ma*ortools
Advertising0 such as informative 2d, ersuasive2d and 5eminder 2d
=ersonal selling 'ral presentation in
conversation with one more consumers for thepurpose of making sale
.ales promotion &ncludes% gifts, games,sampling, coupons, and window displays
=ublicity 2ny information about theorgani3ation, its personnel or its products thatappears in any medium on a non - paid basis
$'=ET "E$E/TTIO/
Market segment is a group of individuals or
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g g porgani3ations within a market that share one or
more common characteristics The process of dividing a market in to segments is
called market segmentation
#ases or mar%et segmentation$.Ieographic segmentation:- %egion rban*
.uburban* %ural* 2arket density* Blimate* errain'land* topography(* Bity si,e* Bountry si,e* .tate si,e
2Demographic segmentation:- Age* ender* %ace*Ethnicity* Income* Education* >ccupation* "amily si,e*"amily life cycle* %eligion* .ocial class
'.5sycho graphic segmentation:- =ersonality
$'=ET 'E"E'C
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/6arketing research is the systematicrecording and analysis of data about problems relating to marketing
American 2arketing Association
16arketing research is the application ofscientific method to the solution ofmarketing problems.
4uck* Wales* aylor
It is important for any business to conduct itbefore established *ongoing business andfuturity5$
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Part ie8 Financing andaccounting in &usiness
N/ inancial re+uirement
N1 8ources of finance,
N4 control of financial resource
N6 financial analysis and accounting'reading ass$$(
.EDELOPI/ FI//CIL PL/
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ro*ect implementation re+uires bringingtogether the inputs of land, labor,machinery, staff etc
inance is re+uired to assemble theseinputs
roper financing of business is essential for
success in both small and large enterprises
Financial planning is the process offormulating policies and strategies relating to
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the procurement, investment and
administration of funds for an enterprise7hile formulating a financial plan, the
entrepreneur has to answer the following+uestions%
(ow much money is neededB7here the money comes fromB7hen should the money be availableB
These three +uestions are concernedrespectively with the estimation of financialneeds, sources of finance, and the time ofraising funds
"O0'CE OF FI//CE
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Internal sources EGuity capital 7
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'wners capital or owners e+uity represent
the personal investment of the owner orowners in a business, and it is sometimescalled risk capital because these investorsassume the primary risk of losing their funds
if the business fails
&t re+uires no repayment in the form of debtand much safer for new ventures than debt
financing &t also re+uires sharing the ownership and
profits with the funding sources
"ource o e<uit- capital8
P l i
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1 Personal saings
• The first place entrepreneurs should take forstart up money is in their own pockets or ontheir pool of personal savings
• &t is the least e#pensive source of fundsavailable
• 2s a general rules, entrepreneurs should
e#pect to provide at least half of the start upfunds in the form of e+uity capital
• &f the entrepreneur is not willing to risk his
own mone otential investors re not likel
2 Friends and relaties%
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2 Friends and relaties%
• ;ecause of their relationships with thefounder, these people are most likely toinvest ;ut having them invest can lead to
controversy if their participation is not clear toeveryone
• To avoid such problems, and entrepreneurmust honestly present the investmentopportunity and the nature of risks involved toavoid alienating friends and family members ifthe business fails
3 ngels
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• These private investors .or angels< arewealthy individuals, often entrepreneursthemselves, who invest in business start upsin e#change for e+uity stakesin the companies
• Due to the inherent risks in start upcompanies, may venture capitalists haveshifted their investment portfolios away form
startups toward more established firms
• 2ngles will often finance the deals that noventure capitalists will consider most angles
have substantial business and financial
4 P t
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4Partners%
• 7henever an entrepreneur gives up e+uity inhisher business .through what evermechanisms<, heshe runs the risk of losing
control over it
• 2s the founder)s ownership is a companybecomes increasingly diluted, the probability
of losing control of its future directional andthe entire decision making process increases
5 Denture capital companies
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• venture capital companies are private, for profit
organi3ations that purchases e+uity positions inyoung businesses they believe have highgrowth and high profit potential
• They provide start up .seed money< capital tonew ventures,
• Development funds to businesses in theirearly growth stage, and
• E#pansion funds to rapidly growing venturesthat have the potential to go public or thatneed capital for ac+uisitions
•
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6 Pu&lic stoc% sale going pu&lic7
• This is an effective method of raising largeamounts of capital, but it can be an
e#pensive andtime-consuming process filled with regulatory nightmares
# Eternal source Debt capital 7
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• ;orrowed capital or debt capital is the
e#ternal financing that a small businessowner has borrowed and must repay withinterest
• 8mall enterprises have few choices than largefirm for obtaining debt financing
• 2lthough borrowed capital allowsentrepreneurs to maintain completeownership of their business, it must becarried as a liability on the balance sheet as
well as be repaid with interest at some point
1Commercial &an%s
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&n most cases commercial banks give
• 8hort-term loan .repayable with in one year orless< and
• Medium term loan .maturing in above one yearbut less than five years< as a working capital
• 0ong term loans .maturing in more than fiveyears< for the purchase of property or e+uipment
or as a pro*ect loan, with the purchased asset orthe pro*ect itself serving as collaterals
unsecured and secured loans
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2n unsecured loan is a loan in which collateral
is not re+uested
That is the loan is granted against personalguarantee or corporate customers of the bank
Unsecured loans will have high interestcharges but this may not be necessarilyapplicable by all banks
To secure a bank loan, an entrepreneurtypically will have to answer a number of
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yp y+uestion, together with descriptive
commentaries
)hat do -ou plan to do !ith the mone-credit acilit-7*
o! much do -ou need*)hen do the- need it*o! long !ill -ou need it*o! !ill -ou repa- the loan*
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1Trade credit
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• &t is credit given by suppliers who sellgoods on account
• This credit is reflected on the
entrepreneur)s balance sheet as accountpayable and in most cases it must be paidin 4I to HI or more days interest freebecause of its ready availability
• etting suppliers to e#tend credit in theform of delayed payments usually is mucheasier for a small business than obtainingbank financing
4E<uipment suppliers
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• Most e+uipment vendors encourage business
owners to purchase their e+uipment byoffering to finance the purchase
• &n some cases, the vendors will repurchasee+uipment for salvage value at he end of itsuseful life and offer the business owneranother credit agreement on new e+uipment
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N ccounts receia&le inancing
• 8hort term financing that involves eitherthe pledge of receivables as collateral for a
loan or the sale of receivables .factoring<
• 2ccount receivable bank loans are made ona discounted value of the receivables
pledged
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O Credit 0nions%
P Insurance Companies%
X #onds
H Treasur- &ill
(ow to prepare financial statement naccounting Kread
If time c sm pts abt accounting5$
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Part si8, 'is% and insurance o #usiness
enterprises
O/ Definition of 5isk,
O1 The process of 5isk
management,O4 Classifying risks by Type of
2sset,
O6 &nsurance of the 8mall
;usiness
.EFI/ITIO/ OF 'I"=
'is% eists !heneer the uture is
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'is% eists !heneer the uture isun%no!n ;ecause the adverse effects of risk
have plagued mankind since the beginning oftime, individuals, groups and societies havedeveloped various methods for managing risk"ince no one %no!s the uture eactl-+
eer-one is a ris% manager or himsel &e,not by choice but by sheer necessity
oE#ample% &n buying a tire, we may have achoice There is no sheer necessity
The term risk used in different ways Thef ll i d fi iti i b diff t h l
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following definitions given by different scholars
and practitioners in the field%%isk is the channel of loss%isk is the possibility of loss%isk is uncertainly%isk is the dispersion of actual from expected
result%isk is the probability of any outcome different
from the one expected
enerally, it has bad/negative connotation
#usiness ris%s can &e classiied into t!o &road
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categories%
1$ar%et ris% is the uncertainty associated with aninvestment decision 2n entrepreneur who invests ina new business hopes for a gain but reali3es that theeventual outcome may be a loss
2Pure ris% is used to describe a situation where onlyloss or no loss can occur-there is no potential gain
2 pure risk e#ists when there is a chance of loss butno chance of gainprofit E#ample% 'wner of anautomobile faces the risk of a collusion loss &fcollusion occurs, he will suffer a financial loss &fthere is no collusion, the owner will not gain
'I"= $/E$E/T
Th l it f th b i i t
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The comple#ity of the business environment
calls for or demand for a special attention to arisk%
The special task to&dentify
2naly3eCombat and the operating risks are referred to as
ris% management
…ዲስከስ below
8ome of the factors, which increase thecomple#ity of environment, are%&nflationrowth of internal operation
)hat is ris% management* 5isk
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)hat is ris% management* 5iskmanagement is a systematic way of protectingbusiness resources and income against lossesso that the organi3ation)s aims are reachedwithout interruption, creating stability andcontributing to profit
5isk management is broader than insurancemanagement in that it deals with bothinsurable and uninsurable risks &nsurance
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insurable and uninsurable risks &nsurance
management for most part it is restricted tothe area of those risks that are considered tobe insurable
The emphasis in the risk management conceptis on reducing the cost of safeguarding againstrisk by whatever means
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&.!o estimate the freGuency and size ofloss ie, to estimate the probability of lossfrom various sources &t is also called as risk
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from various sources &t is also called as risk
measurement 5isk measurement means
i Determination of the chance of an occurrenceor relative fre+uency
iiDetermination of the impact of losses uponfinancial affairs
iii The ability to predict the losses that willactually occur during the budget year
'.!o decide the best and most economicalmethod of handling the risk if loss
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method of handling the risk if loss.
i$e$ .election of the proper tool forhandling risk
(. 2mplementing the decision
;.Realuating the decision
Tools o 'is% $anagement
1 oidance
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'ne way to handle a particular pure risk is to avoid
the property, person or activity with which the riskis associated
Two approaches of risk avoidance%
i. Refusing eg or instance, a firm can avoid a flood loss by
not building a plant in a place where flood isfre+uently affecting &n case of refusing, we arediscontinuing the activity
ii Abandonment
eg 2 firm that produces a highly to#ic productmay stop manufacturing that product
2 'etention
;earing all the risk by that personorgani3ation
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Types of retention
i PlannedAconsciousA actie ris% retention&t is characteri3ed by the recognition that the
risk e#ists, and tacit agreement to assume the
losses involved The decision to retain a risk actively is made
because there are no alternatives moreattractive
8elf-insurance is a special case of activeretention 8elf-insurance is not insurance,because there is no transfer of the risk to anoutsider
oE g 2 firm may keep some money to retain
ii 0nplannedA0nconsciousA Passie'etention
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'etention
assive risk retention takes place when theindividual e#posed to the risk does notrecogni3e its e#istence
&n this case, the person so e#posed retains thefinancial conse+uence of the possible losswithout reali3ing that he does so
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4 "eparation A.iersiication
8eparation of the firm)s e#posures to loss instead ofconcentrating them at one location where they
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concentrating them at one location where they
might all be involved in the same loss8eparation99:Dispersion8cattering the e#posure
in different places
"Don/t put all your eggs in one basket $
E#ample% &nstead of placing its entire inventory inone warehouse, the firm may elect to separate thise#posure by placing e+ual parts of the inventory inten widely separated warehouses
5 Transer
&t is also called as shifting method
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s a so ca ed as s g e od
7hen a business organi3ation cannot afford tocover the loss by itself, it may look fortransferinstitutions
&nsurance is a means of shifting or transferringrisk
CL""IFHI/ 'I"= #H THPE OF ""ET
1Propert- ris%s
roperty oriented risks involve tangible and highly
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roperty-oriented risks involve tangible and highly
visible assets Many property-oriented risks areinsurable! they include%
"ire * Hatural disasters* Curglary* Cusinesss!indles 'or fraudulent transactions ( and*.hoplifting$
2Personnel ris%s
ersonnel-oriented losses occur through the actionsof employees The three primary types of
ersonnel-oriented risks are%Employee dishonesty* Bompetition from former
employees* 4oss of key executives
3Customer ris%s
Customers are the source of profit for smallbusiness, but they are also the source of an
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yever-increasing amount of business risk Much of
these risks are% >n1premises in-uries and =roductliability
>n1premises in-uries%
Customers may initiate legal claims as a result ofon-premises in*uries
7hen a customer breaks an arm by slipping on icysteps while entering or leaving a store!
&nade+uate security, which may result in robbery,
assault, or other violent crimes! Customers who arevictims often look to the business to recover theirlosses
=roduct liability0
2 roduct liabilit suit ma be filed when a customer
I/"0'/CE FO' TE "$LL #0"I/E""
1 #asic principles or a sound insuranceprogram
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program
;asic principles in evaluating an insuranceprogram include%Identifying insurable business risks
4imiting coverage to ma-or potential losses and
%elating premium costs to probability of loss
2'e<uierments or o&taining insurance
#$ here must be a sufficiently large number of
homogenous exposure units to make the lossesreasonably predictable$
o &nsurance is based on the operation of the law oflarge numbers
o There must be a large number of e#posures and
6$ he loss produced by the risk must be definite andmeasurable
The loss must have financial measurement or
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financial implication
The risk must be calculatedEample8 or instance a person may purchase
disability insurance (ow do we know that theperson is unable to doB Thus, the risk must be
definite and measurable
7$ he loss must be fortuitous or accidental$ie the loss must be the result of a contingency, ie,
it must be something that may or may not happen&t must not be something that is certain to happen
7ear and tear or depreciation, which is a certainty,should not be insured =o protection is given by
insurance
8$ he loss must not be catastrophic
2ll or most of the ob*ects in the group should not
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suffer loss at the same time because the
insurance principle is based on a notion ofsharing losses
Eample8 Damage which results from war,flood, windstorm and so on would becatastrophic in nature and hence do not haveinsurance
9$ he loss must be large loss$
The risk to be insured against must be capable ofproducing a large loss, which the insured could notpay without economic distress
&ncase the loss occurs, it must be severe that must
:$ %easonable cost of transfer
ie% the probability of loss must not be too highb th t f t f t d t b i
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because the cost of transfer tends to be e#cessive
To be insurable, the chance of loss must be small The more probable the loss, the more certain it is tooccur
The more certain it is, the greater the premium willbe ;ut to make insurance attractive, the premiumhas to be for less than the face of the policy orinstance, a life insurance company to issue a birr/III policy on a man aged HH The net premiumwould be about birr HXI
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The end
5isk management is the identification,measurement and treatment of liability, propertyand personal pure ris%s that the business
i ti i f i
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organi3ation is facing
&t is the science that deals with the techni+ues offorecasting future losses so as to plan, organi3e,direct and control the adverse effect of riskie, 5isk management is defined on the base of
managerial functions
&t is the reduction and prevention of the unfavorableeffects of risk at minimum cost through its
identification, measurement and control&t is a discipline a profession that systematically
identifies and analy3es the various loss e#posuresfaced by a firm or an organi3ation and employees
5 Com&ination
5isks are pooled when the number ofindependent e#posure units under observation
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independent e#posure units under observation
is increased
Unlike separation, which spreads a specifiednumber of e#posure units, combinationincreases the number of e#posure units underthe control of the firm
&n the case of firms, combination results in thepooling of resources of two or more firms The
new firm has more building, moreautomobiles, and more employees than eitherof the original companies This leads tofinancial strength, thereby minimi3ing the
adverse effect of the otential loss
6 /eutrali@ation
=eutrali3ation, which is very closely related tot f
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transfer
&t is the process of balancing a chance of lossagainst a chance of gain
Eg 2n e#cellent e#ample is the process of makingcommitments on both sides of transaction in such
a way the risks compensate each other The following matri# can determine which risk
management be used
CCO0/TI/ FO' "$LL #0"I/E""
fi i l d ti d k it
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roper financial and accounting records make it
possible for the owner to e#ercise effectivecontrol of funds and overall performance ofhisher business
8uch records also make it possible to knowwhether the firm is earning profits or loss
2ccounts also help to know the financialposition of the business at any time and at theend of the fiscal year
#0"I/E"" T'/"CTIO/ /. CCO0/TI/ E?0TIO/
b i i i h f
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2 business transaction is the occurrence of an
event or of a condition that must be recorded The payment of a monthly telephone bill, The purchase of merchandise on credit and The ac+uisition of land and a building are
e#amples of business transactions
2 particular business transaction may lead to anevent or a condition that result in another
transactionor e#ample, the purchase of merchandise on
credit will be followed by payment to thecreditor, which is another transaction
The accounting e<uation
2ssets are the properties owned by a businessenterprise or any thing of value owned by a
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enterprise or any thing of value owned by a
business enterprise
The rights or claims to the properties arereferred to as e+uities
The sum of assets is e+ual to that of the sum ofe+uities
E+uities may be subdivided into two principal
types%o the rights of creditors and
o the rights of owners
5ights of creditors represent debts of the
E#pansion of the e+uation to give recognitionto the two basic types of e+uities yields the
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yp + y
following, which is known as the accountinge<uation%
ossets e<uities
ossets creditorGs e<uities J o!nerGse<uit-
ossets lia&ilities Jcapital
&t is customary to place "liabilities" before"owner)s e+uity$ in the accounting e+uationbecause creditors have preferential rights tothe assets
ssets% any physical thing .tangible< or right.intangible< that has a monetary value is an
ssets
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.intangible< that has a monetary value is an
asset 2ssets are customarily divided into two%
9urrent assets% are cash and other assetsthat may reasonably be e#pected to be reali3ed
incase or sold or used up usually within oneyear or less, through the normal operations ofthe business
E#ample% cash, accounts receivable, notes receiva
ble, supplies, prepaid e#penses, stock .inventory<,etc
5lant assets% are tangible assets used in thebusinesses that are of a permanent or relatively
Lia&ilities%
Lia&ilities% are debts owned to outsiders
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.creditors< 0iabilities are fre+uently described onthe balance sheet by titles that include the word"5ayable$
/9urrent liabilities% are liabilities that will be due
within a short time .usually one year or less< andthat are to be paid out of current assets
E#ample% notes payable, accounts payable,salaries payable, interest payable, ta#espayable
1ong-term liabilities% are liabilities that will bedue for a comparatively long time .usually morethan one year< it is also known as fi*ed liabilities
O!ner e<uit-
O!ner e<uit-% is the residual claim against
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the assets of the business after the totalliabilities are deducted or a corporation,owner)s e+uity is fre+uently called stockholderse<uity , shareholder;s e<uity or stockholder;sinvestment
Capital% is the owner)s e+uity in a sole proprietorship.and partnership<
Capital stoc% % represents the investment of thestockholders
'etained earnings% represents the net incomeretained in the business
.iidends8 represents the distribution ofearnings to stockholders
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'eenue8 is the amount charged to customersfor goods or services sold to them &t is anincrease in capital that resulted from thenormal operation of the business E#ample%
rofessional fees, commissions revenue, faresearned, interest income, etc
Epense% costs that have been consumed inthe process of producing revenue are e#pired
costs or e#penses &t resulted in a decrease incapital E#ample% 7ages e#pense, rente#pense, supplies e#pense, utilities e#pense,etc
statements
Financial statements% 2fter the effect of theindividual transactions has been determined the
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individual transactions has been determined, the
essential information is communicated to users Theaccount statements that communicate thisinformation are called financial statements
The principal financial statements are the incomestatements the statement of owner)s e+uity, thebalance sheet and the statement of cash flow
The financial statements prepared for soleproprietorship, partnership and corporation are almost
the same
The ma*or difference is in the capital section of thebalance sheet
Income statement% a summary of the revenueand the e#penses of a business entity for aspecific period of time, such as a month or ayear
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y
#C trading
Income statement
For month ended .ecem&er 31+ 2KK4
"ales/I,III
Operating epenses%
7ages e#pense 4,III
5ent e#pense 1,III 8uppliers e#pense 1,III
Utilities e#pense PNI
Miscellaneous e#pense 1NI
,tatement of o"ner/s eGuity is a summary ofthe changes in the owner)s e+uity of a business
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entity that have occurred during a specific periodof time such as a month or a year
#C trading
"tatement o o!nerGs e<uit-For month ended .ecem&er 31+ 2KK4
&nvestment during the month/N,III
=et income for the month 1,III
0ess withdrawals NII
&ncrease in owner e+uity
/ NII
#alance sheet% is a list of the assets, liabilities andowner)s e+uity of a business entity as of a specificdate, usually at the close of the last day of a month or
year
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y
#C trading#alance sheet
.ecem&er 31+ 2KK4
ssets
Cash/I,III
8upplies/,III
0andX,III
Total asset/H,III
Lia&ilities
"tatement o cash lo!s
&t is a summary of the cash receipts and cashpayments of a business entity for a specific
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payments of a business entity for a specific
period of time, such as a month or a year
&t is customary to report cash flows .cashreceipts and cash payments< in three sections%
/ perating actiities
1 2nesting actiities, and
4 4inancing actiities
#C trading"tatement o cash lo!s
For month ended .ecem&er 31+2KK4
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Cash lo!s rom operating actiities8
Cash received from customers/I,III
0ess cash payments for e#pense and payments tocreditors .P,4II<
=et cash flow from operating activities1,PII
Cash lo!s rom inesting actiities8
Cash payments for ac+uisition of land.X,III<
Cash lo!s rom inancing actiities8
Cash received as owner)s investment
Banuar- Proections
/ 2;C pro*ects a beginning cash balance of Z1I,III
1 Cash receipts roduct manufacturing will not be
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1 Cash receipts roduct manufacturing will not be
completed until ebruary, so there will be no sales(owever, service income of Z6,III is pro*ected
4 &nterest on the Z1I,III will amount to about Z/II atcurrent rate
6 There are no long-term assets to sell Enter a 3eroN 2dding /, 1, 4, and 6 the Total Cash 2vailable will be
Z16,/II
O Cash payments roduct will be available from
manufacturer in ebruary and payment will not be dueuntil pickup (owever, there will be prototype costs ofZN,III
P Aariable .selling< e#penses Estimated at Z/,/6I
X i d d i i t ti E ti t d t / 1/N
// ayments on long-term assets 2;C plans topurchase office e+uipment to be paid in full at the
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time of purchase Z/,/4H/1 0oan repayments =o loans have been received
Enter 3ero
/4 'wner draws 'wner will need Z1,III for livinge#penses
/6 Total cash paid out 2dd O through /4 TotalZ/I,6H6
/N Cash balance 8ubtract Cash aid 'ut from TotalCash 2vailable .Z/4,OIO<
/O 0oans to be received ;eing aware of the Z4I,III tobe paid to the manufacturer in ebruary, a loan ofZ6I,III is anticipated to increase Cash 2vailable.This re+uires advance planning<
Fe&ruar- Proections
/ ebruary ;eginning Cash ;alance >anuaryEnding Cash ;alance .ZNX OIO<
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Ending Cash ;alance .ZNX,OIO<
1 Cash receipts 8till no sales, but serviceincome is Z1,III
4 &nterest income ro*ected at about Z/1I
6 8ale of long-term assets =one Enter 3ero
N Total cash available 2dd /, 1, 4, and 6 Theresult is ZOI,P1O
O Cash payments Z4I,III due tomanufacturer, Z6II due on packagingdesign
P Continue as in >anuary Don)t forget to
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Common ccounting Transactions0et)s suppose that 0ykun and elila have opened a localfeed and pet supply store During their first month ofbusiness several accounting transactions take place'wner &nvestments 0ykun and elila file articles of
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'wner &nvestments 0ykun and elila file articles of
incorporation and receive their charter and businesslicense and begin their business as 0M, &nc They haveZPN,III of cash to invest in their new business The firstbalance sheet of 0M, &nc would show the asset Cash
and the E+uity of the owners
2s of right now, 0M has no liabilities and assets e+uale+uity The labels Cash and =et 7orth are called
urchase of 2ssets with Cash 0M decides topurchase a small land for Z/I,III and buildingfor Z6I,III This transaction doesn)t change0M)s total assets liabilities or e+uity but it does
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0M s total assets, liabilities, or e+uity, but it doeschange the composition of the assets 2 key pointto remember is that the purchase of an assetdoesn)t affect owner)s e+uity The transactiondecreases Cash and increases two new accounts
called 0and and ;uildings%
urchase of 2ssets by &ncurring a 0iability 2ssetsmay be purchased with credit instead of with cash(owever, by using credit the business agrees topay the liability at a later date 0et)s suppose that
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pay the liability at a later date 0et s suppose that
0M buys pet supplies for Z/,III on credit Thetransaction increases the assets .et 8upplies< andincreases the liabilities of 0M, &nc 2ssetspurchased on credit are still recorded for the fullamount at the time of purchase &t should bepointed out that this type of transaction increasesboth sides of the accounting e+uation to ZPO,III
The liability creates a new account called 2ccountsayable%
ayment of a 0iability 8hortly afterpurchasing the pet supplies, 0M decides topay ZNII of the Z/,III owed for the supplies2s a result both assets .Cash< and liabilities
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2s a result, both assets .Cash< and liabilities.2ccounts ayable< decrease, but et 8uppliesis unaffected ayment of a liability doesn)taffect e+uity or the asset purchased withcredit ;oth sides of the e+uation are still e+ual
although they now have a new value ofZPN,NII%
5evenue 5evenues e+ual the price charged forthe sale of goods or services 0M, &nc earnsmoney .5evenue< by selling feed and pet supplies8ometimes these supplies are paid to 0M
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immediately in the form of cash and sometimes acustomer asks for a credit account and agrees topay within 4I days &n either case, the sale isrecorded when it is earned 8uppose 0M sellshorse feed to a customer for Z1,III and is paid in
cash This transaction increases both assets .Cash<and owner)s e+uity .=et 7orth<%
=ow suppose that 0M sells Z/,III of steer rationto a 6-( member and agrees to wait for thepayment until after the local youth show and sale;ecause the money has been earned now, a bill or
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ecause e o ey as bee ea ed o , a b o
invoice is sent to the youth and the transaction isrecorded now 5evenues are recorded when theyare earned, not necessarily when payment isreceived This revenue increases both assets andowner)s e+uity as before but a new asset account.2ccounts 5eceivable< is also created%
Collection of 2ccounts 5eceivable 0et)s saythat immediately after the youth show andsale the 6-( member comes in and pays ZNIIof the Z/,III that heshe owes The asset Cash
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of the Z/,III that heshe owes The asset Cash
increases and the asset 2ccounts 5eceivabledecreases The transaction doesn)t affectowner)s e+uity because the revenue wasalready recorded in transaction O above &t
should be noted that the balance for 2ccounts5eceivable is ZNII indicating that anotherZNII is still to be paid to 0M%
E#penses E#penses are recorded when they areaccrued *ust as revenue is recorded when earnedE#penses may be paid in cash immediately or lateron &f an e#pense is going to be paid later on, a
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liability .2ccounts ayable or 7ages ayable< iscreated &n either case, owner)s e+uity decreases8uppose that 0M, &nc pays Z/III to rent somee+uipment for their office and Z6II in wages to apart-time worker Each of these transactions reduce
assets .Cash< and e+uity .=et 7orth<%
0et)s also assume that 0M has not paid a Z6IIbill for utility e#penses incurred the previousmonth &n this transaction, the effect on owner)se+uity is the same as when the e#pense is paid in
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e+uity is the same as when the e#pense is paid in
cash, but instead of a decrease in assets there isan increase in liabilities .2ccounts ayable<%
#rea% een anal-sis
'ne of the most common tools used inevaluating the economic feasibility of a new
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evaluating the economic feasibility of a new
enterprise or product is the break-evenanalysis
The break-even point is the point at whichrevenue is e#actly e+ual to costs 2t this point,
no profit is made and no losses are incurred The break-even point can be e#pressed interms of unit sales or dollar sales That is, thebreak-even units indicate the level of salesthat are re+uired to cover costs
8ales above that number result in profit andsales below that number result in a loss Thebreak-even sales indicates the dollars of grosssales re+uired to break-even
;reak-even analysis is based on two types ofcosts% fi#ed costs and variable costs
i#ed costs are overhead-type e#penses that
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yp p
are constant and do not change as the level ofoutput changes
Aariable cost are not constant and do changewith the level of output ;ecause of this,
variable e#penses are often stated on a perunit basis
'nce the break-even point is met, assuming
no change in selling price, fi#ed and variablecost, a profit in the amount of the differencein the selling price and the variable costs willbe recogni3ed
'ne important aspect of break-even analysis isthat it is normally not this simple &n manyinstances, the selling price, fi#ed costs or variablecosts will not remain constant resulting in a
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change in the break-even2nd these changes will change the break-even
8o, a break-even cannot be calculated only once&t should be calculated on a regular basis toreflect changes in costs and prices and in order to
maintain profitability or make ad*ustments in theproduct line
There are three basic pieces of informationneeded to evaluate a break-even point%
2verage er Unit 8ales rice2verage er Unit Aariable Cost2verage 2nnual i#ed Costs
rofit 9 revenue-costrofit9.revenue<-.fi#ed cost .Cf< [ variable cost<
5evenue 9.selling price .<<J +uantity sold .S<<Aariable cost 9 .+uantity sold J variable cost per unit
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Aariable cost 9 .+uantity sold J variable cost per unit.Cv<<
&n break even point the profit is assumed to be 3eroI9 .JS<-.Cf [ .SJCv<< .JS<-.SJCv<9Cf S.-Cv<9Cf S9Cf-Cv The basic e+uation for determining the break-even units
is9 2verage 2nnual i#ed Cost .2verage er Unit 8ales rice - 2verage er Unit Aariable
Cost<
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Eample% 2 local livestock producer utili3escompost waste to develop an organic fertili3erproduct The fertili3er is prepared for retail salein NI pound bags The retail sales price is ZNII
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p g p Z
per bag The average variable cost per bag isZ1XI and average annual fi#ed costs areZOI,III These three pieces of information are%
2verage er Unit 8ales rice 9 ZNII per bag2verage er Unit Aariable Cost 9 Z1XI perbag2verage 2nnual i#ed Costs 9 ZOI,IIIII
The above assumption can be utili3ed tocalculate the number of bags that must besold in order to break-even as well as the totaldollar of sales needed to break-even Using
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g
the formulas e#plained earlier, the followingcalculations can be made%;reak-Even Units% ZOI,IIIII \ .ZNII -
Z1XI< 9 6@*6@7 bags
;reak-Even 8ales% ZOI,IIIII \ / - .Z1XI\ ZNII< 9 #7:*7:9
Therefore, no profits are made from the saleof this product until more than 1P,1P4 bags
are sold or more than Z/4O,4ON in gross salesis generated
ILL0"T'TIO/ 48 >ack)s rocery ismanufacturing a "store brand$ item that has avariable cost of 5s IPN per unit and a selling
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variable cost of 5s IPN per unit and a selling
price of 5s /1N per unit i#ed costs are 5s/1,III Current volume is NI,III units Therocery can substantially improve the product+uality by adding a new piece of e+uipment at
an additional fi#ed cost of 5s N,III Aariablecost would increase to 5s /II, but theirvolume should increase to PI,III units due tothe higher +uality product 8hould the
company buy the new e+uipmentB 7hat arethe break-even points .5s and units< for thetwo processesB Develop a break-even chart$
1/X
"OL0TIO/rofit 9 % J B
Option 8 Current E<uipment;E 8ales in value .5s <
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;E 8ales in value .5s<
;E 8ales in Suantity .Units<
Option #8 dding /e! E<uipment;E 8ales in value .5s<;E 8ales in Suantity .Units<rofit 9 NIIII J ./1N IPN< /1III 9 5s/4III
'ption ;% 2dd e+uipment%
rofit 9 PIIII J ./1N /II< /PIII 9 5sNII
Therefore, the company should continue as is withthe present e+uipment as this returns a higherprofit
1/H
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11I
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11/
FCTO'" FFECTI/ TE #0"I/E""E/DI'O/$E/T
/The macro enironment .far environment<
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i Economic orces
2 %ising income
; Inflation
C %ecession012 recession is a period ofeconomic activity when income, production, andemployment tend to fall-all of which reduce demand
Thus businesses are e#pected to design differentstrategies that enable them overcome the problems
of inflation and recession
ii Legal and political actors
2 "ederal and state la!s
iii "ocial orces
2 Demographic forces
i$ =opulation gro!th
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p g
ii Age distribution
; Bultural forces
C he consumer movement01&s a connectionof individuals, organi3ations and groupswhose ob*ective is to protect the rights ofconsumers
i Technological orces
1The microenironment .The nearenvironment<
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The microenvironment refers the competitivesituation of an industry
The competitive environment refers to thenumber of competitors a firm must face, the
relative si3e of the competitors, and the degreeof interdependence within the industry
Competition in an industry arises from
i$ he po!er of buyers
ii$ he po!er of suppliers
iii$ he threat of ne! entrants
iv$ he threat of substitutes
orter claims that five forces determinecompetitiveness These are shown in figurebelow%
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Economies o scale .ie the average si3e
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of business varies from industry toindustry or e#ample, the average si3e ofchemical firms is very large, where as theaverage si3e of retail firms is relatively
small The most fundamental reason forthese differences in the e#tent ofeconomies of scale in an industry ie ho"the total cost per unit produced
changes as more units are produced <
7here to invest to get profit, 7hat to do about an employee who is always late, 7hat sub*ect will have top priority in meeting, etc
Decision-making is not a separate, isolated function
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Decision making is not a separate, isolated functionof management but it is an integral component ofevery managerial function .ie in planning,
organi3ing, staffing, directing, controlling<
.ecision,ma%ing8,2t is the process of
selecting or choosing based on some
criteria the best alternatie amongalternaties
T-pes o .ecision
=rogrammed decisions 012re the decisions
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that managers make in response torepetitive routine problems
These decisions are "rogrammable$because they are based on organi3ational
established policies, procedures rulesE*amples8 i &n Collage Enrolment,
ii &n ayroll processing
Hon1programmed decisions0 2re those made by
managers in a naval, comple#, orand e#tremelyimportant problem situation
They are called non-programmed because established
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y p gpolicies, rules procedures can)t be employed it isdecision maker)s insights, *udgment creativity, whichhave paramount importance
They are going to deal with unusual types ofproblems or e#ceptional or special types ofproblems
They are time consuming in defining, identifying,
evaluating selecting one alternative They are broad, long-range made by
higher-level personnel The conditions for non-programmed decisions are
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"teps in the process o rationaldecision,ma%ing8
Identi- .eine the pro&lemroblem is anything that hampers the achievement of goals
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roblem is a necessary condition for a decision, ie, therewould be no need for decisions if problems did not e#ist
Esta&lish decision criteria &dentifying those characteristics that are important in
making the decision
.eelop lternatiesDevelop list as many possible alternatives solutions to the
problem as you can
Formulate
Goals
Evaluate
Decision
Situations
Analyze
Alternatives
Select
Alternatives
Implement
Decision
Evaluate &
Follow up
nal-@e the alternaties7hat are the advantages disadvantages of
each alternativeB
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"elect the &est alternatie8elect the best alternative that suits to solve
our decision problem &n selecting the bestalternative, factors such as risk, timing
limiting factors should be consideredade+uately
Implement the solution utting the decision into action
Esta&lishing a control Ealuation"-stem'ngoing actions need to be monitoredollowing up decisions
Conditions
a Decision under certainty
E*ample% &f you decide to invest your money in
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saving account in the Commercial ;ank of Ethiopia, ou are certain that you will earn ten percent
b Decision under uncertainty
E*ample% 2 corporation that decides to e#pandits operation in a strong country may know littleabout its culture, laws, economic environment, orpolitics The political situation may be so volatileth t t t di t ibl h