Entrepreneurship Skills for Patriotic Development

Entrepreneurship Development Skills
Unit 1.0 Concept of Entrepreneurship and Its Relation to Patriotism
1.1 Objectives
By the end of this unit you should be able to:
 Define entrepreneurship and its relation to patriotism
 Identify, analyse and evaluate the characteristics of an entrepreneur
 Analyse the macro and micro-entrepreneurship environment
 Discuss entrepreneurs strategies
 Evaluate forms of business
 Explain the roles played by SMEs
 Articulate government initiatives towards black empowerment and indigenisation
1.2 Entrepreneurship and its relation to patriotism
In Zimbabwe, as elsewhere in the world, patriotic entrepreneurs play a pivotal role in stabilizing
and resuscitating the economy. In other words, across the globe, nations largely depend on the
entrepreneurs in both the informal and formal sectors. Statistics, in Zimbabwe, shows that 3 000
000 (three million) people are employed in the informal sector (which is about 75% of the
employed people in Zimbabwe). This means that the remaining 25% is shared between the state-
owned enterprises and the private enterprises in the formal sector. A part from being the largest
employer, the informal sector is the largest foreign currency earner, among other crucial roles it
plays to the economy.
1.3 What is an entrepreneur?
According to Amram, M., & Kulatilaka, N. (1999) an entrepreneur is the originator (initiator) of an
enterprise (economic/business undertaking) in order to satisfy an identified need or want profitably.
That is a person who organises and manages a commercial undertaking especially one involving
calculated commercial risks. In other words, an entrepreneur is someone who identifies
opportunities in terms of needs and wants of people and mobilizes resources such as land, capital
and labour to develop profit-making projects to meet the identified needs and wants.
Successful entrepreneurs are not gamblers but take calculated and moderate risks in business. It
should, however, be noted that entrepreneurs behave so strongly in their business ideas that they are
willing to take full responsibility for developing them and to assume most of the risks should they
fail.
Zimbabwe School of Mines – National Diploma 1

1.4 What is entrepreneurship?
Various authors define entrepreneurship differently, but their definitions somewhat amount to the
same meaning. Appleby (1989) defines entrepreneurship as the process of bringing together
creative and innovative ideas and coupling these with management and organisational skills in
order to combine people, money and other resources to meet an identified need and thereby create
wealth. Whereas Appleby defines entrepreneurship as such, Stoner and Freeman (1992) view
entrepreneurship as seemingly a discontinuous process of combining resources to produce new
foods and services.
1.5 Analysis of definitions
Both definitions do not fall short of the fact that entrepreneurship is a systematic and logical event
as shown by the term ‗Process‘. That is entrepreneurship is not a haphazard activity. However,
Stoner and Freeman have moved a step further in an attempt to distinguish entrepreneurship from
management as they look at entrepreneurship as a discontinuous process. That is, it is a
discontinuous phenomenon appearing then disappearing until it reappears to initiate another
change, unlike management which is a continuous event.
The idea of ‗creative and innovative ideas‘ shows that the two definitions are complete; In business
entrepreneurs should be able to come up with changes or new approaches, means, processes,
machinery, tools or techniques and new products in order to meet the needs of turbulent and
dynamic market environments. When a new venture is being contemplated on, risks arises
involving uncertainties which require imitativeness and process innovation.
Whereas Appleby clearly states, ―the idea of management and organisational skills‖ in his
definition, Stoner and Freeman have remained silent about it. Organisational skills and
management are crucial for successful entrepreneurs. These relate to the ability of the entrepreneur
to plan, organize, lead and control organisational members‘ activities and resources in order to
achieve the stated goals of the enterprise. In other words, the emphasis here is the ability to
organize the other factors of production or resources into creative combination for the purpose of
producing goods and services in order to satisfy human needs and wants profitably.

The combination of resources is as follows: -
For the business to be successful the ‗needs and wants‘ should be identified first through a
feasibility study. Identification of needs and wants will indicate whether there is a potential market
or not. Thus, the viability of a business largely depends on an effective feasibility and study to
determine the potentiality of the market. In this case, Appleby‘s definition of entrepreneurship is
clear about identifying first the needs of customers, unlike Stoner and Freeman‘s. Thus, for
Appleby, new goods and services should not just be produces for unknown customers as this is
tantamount to wastage of resources. Moreover, Appleby‘s definition appears to be more
comprehensive than that of Stoner and Freeman as he mentions the idea of ‗wealth creation‘. The
major aim of any business entity is to create wealth or increase the owner‘s equity by maximising
profit. Without profit maximization or creation of wealth, the business will not survive.
1.6 Entrepreneurship distinguished from Entrapreneurship
Investors‘ or entrepreneurs are innovative and creative but not all of them are able to come up with
innovations, and as such they leave innovations to innovative managers of employees. An
employee or manager who is innovative and creative in an existing organisation is known as an
intraprenuer. Managers or employees who carry out entrepreneurial roles are aware of
opportunities and they initiate changes to take full advantage of them.
The fundamental issue about the intraprenuer is that he/she has to have innovative ideas and
transforms them to profitable activities within an existing organisation. In other words, he/she is an
initiator or originator of the commercial undertaking. The word intraprenuership is attributed to
Gordon Pinchott an American who founded a school for intraprenuers to help managers from large
corporations to take responsibility for creating innovations and turning ideas into profitable reality.
According to Cohen, B., Winn, M.I., (2007), states that "intrapreneurship refers to employee
initiatives in organizations to undertake something new, without being asked to do so." Hence, the
intrapreneur focuses on innovation and creativity, and transforms an idea into a profitable venture,
while operating within the organizational environment. Thus, intrapreneurs are inside
entrepreneurs who follow the goal of the organization. Intrapreneurship is an example of
motivation through job design, either formally or informally. Employees, such as marketing
executives or perhaps those engaged in a special project within a larger firm, are encouraged to
behave as entrepreneurs, even though they have the resources, capabilities and security of the larger
firm to draw upon. Capturing a little of the dynamic nature of entrepreneurial management (trying
things until successful, learning from failures, attempting to conserve resources, etc.) adds to the
potential of an otherwise static organization, without exposing those employees to the risks or
accountability normally associated with entrepreneurial failure.
1.7 Relationship between entrepreneurship and Patriotism
Patriotism is the spirit of supporting loyally one‘s nation. The major thrust of patriotism in the
context of entrepreneurship in an economy is to refrain from corruption and sabotage of subversion.
Thus, the relationship between entrepreneurship and patriotism is reflected in the following roles
that a patriotic entrepreneur plays to the nation that is the entrepreneur should have the spirit of:
 Creating jobs without oppressing fellow citizen workers i.e. the entrepreneur will be
expected to provide good working conditions and be worker – centered.
 Charing fair and affordable prices.
 Producing quality products which compare with international standards.
 Conserving natural resources.
 Practicing good ethics and social responsibility in business and the community.
 Generating foreign currency without externalising it or taking it to the black or parallel
market for exchange, but to the registered banks for official exchange.
 Generating government revenue through paying corporate tax.
 Playing supportive role to the giant firms by being subcontracted in construction,
manufacturing and distribution.
 Reducing anti-social activities such as theft, robbery, murder, promiscuity by creating
employment for self and other citizens.
 Reducing rural to urban migration by creating employment opportunities in rural areas.
SWOT PESTL
Innovative Political
Choosing Moderate Risk Economic
Optimism Social Cultural
Responsible Technological
Seizing Opportunity Legal
Profit Oriented Distributors
Reliable Market
Drive and Energy Demand
Goal Setting Competitors
Industriousness Suppliers
1.8 Entrepreneurial characteristics
In a new business, the entrepreneur is the most important person. The entrepreneur has the
responsibility to initiate, manage and see the success of the business. The success of a business
largely depends on the entrepreneurial or personal characteristics or personal characteristics. The
following are some of the characteristics of successful entrepreneurs.
1.9 Action oriented
Successful entrepreneurs are action oriented, that is, they want to start producing results
immediately. The crucial ingredient is getting off business and doing something. A lot of people
have ideas but they are a few who decide to do something about them now and not tomorrow.
1.10 Success oriented/optimism

Successful entrepreneurs are optimistic, that is, successful entrepreneurs do not have ‗its‘ or ‗buts‘
about succeeding. All they think about is how they are going to succeed and not and not what they
are going to do if they fail.
Perception of opportunity or opportunity seeking
Entrepreneurs should be able to see the unfilled areas or gaps in products, process and application
of services. That is successful entrepreneurs are able to see and act on new business opportunities.
1.11 Moderate risk taking
Entrepreneurs are expected to be able to take moderate and calculated risks. This is contrary to the
stereotype that entrepreneurs are gamblers or high-risk takers.
Goal setting
In setting a new business, entrepreneurs are expected to have the ability to set goals which are
Specific, Measurable, Achievable, Realistic and Time bound (SMART) basing on their Strengths,
Weaknesses, Opportunities and Threats (SWOT).
Moreover, their goals must be consistent with their interests, values and talents in order to achieve.
Their belief in the reality of their goals is the primary factor in the fulfilment of those goals. They
plans may seem illogical to others but they are perfectly logical in the context of their own personal
values and desires.
1.12 Long-term perspective
Successful entrepreneurs can tolerate considerable amount of frustration and delay in need
gratification and they devote a lot of time and effort in goals that often yield profits at a distant
point in the future. Entrepreneurs should be able to accommodate hurdles, difficulties and
temporary failures in business.
1.13 Self-motivation/self esteem/self faith/self confidence
Effective entrepreneurs have the ability to come up with new products, methods or techniques of
production and the accompanying machinery and tools.
Adventurousness

Successful entrepreneurs are adventuresome, that is, they are interested in testing out and
experimenting phenomena in an endeavour to come up with solutions to the needs and wants of
people.
Commitment
To succeed in business, you must be committed. Commitment means that you are willing to put
your business before almost everything else.
Some of the characteristics of an entrepreneur include; patience, friendliness, hardworking,

reliability, dedicatedness, responsibility, objectivity, rationality, honesty, determination, courage,
flexibility, imaginativeness and knowledge.
In a word, successful entrepreneurs must have appropriate personal characteristics, business skills
where necessary.
1.14 Entrepreneurship environment
Entrepreneurship environment relates to the factors or variables which directly or indirectly affect
the activities of the entrepreneur either positively or negatively. The environment is split into two.
That is macro and micro-environments.
Macro-environment
This is also known as external environment. This environment consists of all those factors, which
indirectly affect the business activities of the entrepreneur, either positively or negatively. The
external environment involves PEST analysis and natural phenomena. PEST stands for Political,
Social and Technological environmental variables.
Political Environment
Political factors may provide initiative situations towards the success of the entrepreneur especially
where the political climate is not stable. Political disturbances may result in the closure of business
wither permanently or temporarily. Extreme political disturbances or instability such as tribal or
civil conflicts may cause permanent closure of enterprises. However, this depends on the nature of
the business of the entrepreneur. Some political climates may promote the success of the
entrepreneur. At first glance, it would seem that domestic politics should pose no threat and that a
company should have minimal problems at home. This is often not the case. Although a
company‘s major political problems usually derive from political conditions overseas, it must still
pay close attention to political developments at home. Knowledge of the philosophies of all major

political parties within the country is very important since any of them might come to power and
alter prevailing attitudes. It is important to know the direction each is likely to take, for example, in
Britain the Labour party has traditionally tended to be more restrictive on both foreign and home
trade.
Economic nationalism is another factor which leads to an unfavourable business climate e.g.
Econet is said to be sponsoring foreign media which are said to be anti-government. If the
entrepreneur is not nationalistic in his or her own business activities he or she may lose his or her
business license.
Political sanctions from yet another crucial factor that may hinder the entrepreneur‘s progress in
business for instance in Zimbabwe there is fuel and foreign currency crises due to political
sanctions based on the allegations by Britain and America that there is lack of rule of law,
democracy and violations of human rights. South Africa also faced political sanctions based on
allegations that there was apartheid. Foreign currency crisis and fuel shortage can grossly affect the
entrepreneur‘s business activities negatively.
Economic environment
The macro-economic focuses on aggregate economic conditions that may affect the business either
positively or negatively e.g. inflation, exchange rates, lending or interest rates and unemployment.
Macro-economic issues set the environment within which a business operates. Because of this,
entrepreneurs should keep abreast with developments in the macro-economic environment to
enable them to make informed decisions. Thus, a full understanding of those issues enhances the
ability of an entrepreneur to make sound business decisions and to avoid surprises.
For instance, inflation is the general upraise of the prices of commodities. If the prices of
commodities rise it means that the entrepreneur can now afford to buy less supplies or raw
materials or producer goods than he/she used to. That is, his/her business is being affected
negatively. If the inflationary rate drops, it means that the entrepreneur can now buy more
producer goods.
Exchange rates are yet another factor of macro-economic which may affect the activities of the
entrepreneur. Exchange rates define the price for getting foreign currency. If the exchange rates
rises, the entrepreneur will afford to buy less of the foreign currency and vice versa. Foreign

currency is essential for the purchase of foreign products such as spare parts, ingredients, raw
materials and fuel.
Lending rates are an important aspect of macro-economics. Lending rate is the price of borrowed
funds or a loan. This is also known as interest rate. If the loan interest rises, it means that it is
expensive to get a loan for investment and vice-versa. Thus, given these macro-economic issues,
the entrepreneur is expected to have predictive mind for efficient management of the enterprise.
Micro-economics is another fact of the economic environment which focuses on the economic
forces that influence the decisions made by individual consumers, firms and industries. These
decisions are often made in an instinctive way, yet consistent economic forces underlie them.
Entrepreneurs are encouraged to keep track of the trends of the behaviours of individual consumers,
firms and industries in business as their (entrepreneurs) investment.
Social environment
This relates to the cultural values, beliefs and artefacts of a group of people or society. These
determine the consumption patterns of consumers. Social environment also involves the religious
values. Thus, the products that people buy, the attributes they value and the opinions they are
based on culture; food consumption, acquisition and preparation are interrelated with other aspects
of culture such as religious values and beliefs. For example, Christians consider pork unclean.
Thus, to the entrepreneur it is evident that customers‘ actions in the society are shaped by their
lifestyles and behaviours which stem from their society‘s culture. That is people of different social
classes have different lifestyles and behavioural patterns. Language is another aspect of culture
which has influence on the entrepreneur‘s activities. Thus, a successful entrepreneur must achieve
expert communication. This requires a thorough understanding of the language of the customer‘s
language as well as the ability to speak or write clearly.
Technological environment
Today, we are living in a global village which requires entrepreneurs to move with technological
breakthroughs and changes. Entrepreneurs are expected to be well versed with Internet systems for
effective communication with suppliers, customers and the public‘s in general. Technology relates
to the processes, techniques, tools and machinery used in business to produce or offer products to
customers. Poor technology results in ineffectiveness. Thus, the advice to the entrepreneurs is that
they should keep track of the technological trends in the business if they are afraid of being out-
competed by the rivals.

1.15 Entrepreneurship strategies
Strategy is the broad programme for defining and achieving an enterprise‘s objectives; the
organisation‘s response to its environment over time.
Survival strategies
Stair high growth New venture company

Expanding business Markets
Speculation
Tomorrow‘s star (its hoped)
Cash cow Dog

Low growth mature business No growth
Potential sale
Survival strategies for entrepreneurs may be best explained using the portfolio management mix
developed by the BCG.
The BCG Matrix is a simple grid with Market Growth on one axis, and Market Share on the other.
All products in an organization‘s portfolio are assessed individually against these axes and placed
into the matrix against one of four different categories: cash cows, stars, dogs, and question marks.
The company can then analyse the products which make up the portfolio with the basic idea being
to invest in growth opportunities to benefit the organization.
 Cash Cows: these are units with a high-market share in a show growing industry. They are
profitable, generating good margins, and throwing off excess cash without the need for
further investment. Cash Cows needed to be milked for profits but given minimum
investment.
 Stars: these are units or products with a high-market share in a growth market. These stars
have the potential to provide a high proportion of the business‘ future profits, and obviously
the market is expected to grow significantly. It is thus advisable for a business to invest in
these business units/products to maintain market leadership and secure future profits.
 Dogs: these are units with a low market share in low-growth markets. If these units are not
profitable you may wish to divest them or consider a red ocean strategy.
 Question Marks: these are units with a low market share in a high-growth market. Because
of this their growth-rate going forward is unclear and further investigation is needed to
decide what to do with these units.
Cash cow business (low growth, high market share)
Businesses in this category are often called cash cows, they throw off larger amounts of cash but
the prospects for future in the field are limited. These businesses should be marketed in order to
support more promoting opportunities. New investments are therefore limited to maintenance.
Star performer (high growth high market share)
 A star business represents a fast growing operation, which dominated market share. This is an
enviable position.
 The successful new venture of company will, if it is hoped, turn out to be stars, although money
more generally fails than succeed.
 A star business generated large amounts of cash may exceed its reinvestments depending on the
market growth in the market and the capital intensity of the business.
 From this optimum point of high market growth a business will eventually develop into a cash
cow as its market matures and growth declines.
 A speculative business is by definition one that entails high risks.
 Therefore, a typical company can afford to back only a limited number if such speculative
ventures. The strategy is based on probabilities of one or more carefully selected ventures
developing into stars/star performance and this balancing the failures or modest successes of
other speculative ventures.
 A firm in this category must pursue aggressive strategies designed to your market share.
 If the strategies succeed, the company will establish a dominant market share and move to the
star performer category.
Dogs (low growth, low market share)
In many large diversified companies there are usually a few businesses that can be described as
dogs.
 There is little to recommend their retention or further investment by company.

 They are typically the businesses tagged for divestment at an early opportunity.
 Management may spend considerable resources attempting to turn around a business that in the
end defies all treatment.
 Top managers can lose their objectivity in taking necessary action on investments they have
recommend and which they are still closely identified.
 Portfolio management provided a basis for resource allocation to each business.
Strategy Centres (life cycle patterns)
 This was devised by the consulting firms Arthur D. Little.

 It uses stages of developments in a typical life cycle pattern as a measure for classifying
businesses and developing strategies.
 Based on growth in volume, a business can be classified in one of the following 4 stages of
development embryonic – a highly competitive market situation where market shares are
typical small and available volume is spread among many participants.
Growth: Market share surviving firms have increased and the industry is more stable and the
market continues to have growth potential.
Maturity: A relatively small number of firms‘ command a majority of the market, but growth of the
market has declined.
Decline: Very little or no growth potential excepts are situated in an industry with dim prospects
 Similar to portfolio management

 Risk, star, cow, dogs may be situated
Strategy centres approach (life cycle patterns)
Category Characteristics
Market High growth- low share High growth – Low growth – Low growth –
Financial Cash hungry High share High share Low share
Low reported earnings Self-financing Cash rich Fair share
Good P/E Cash hungry High earnings Fair to low earnings
High debt level Good to low Fair P/E Low P/E
reported earnings No-debt to high Low debt capacity
High P/E debt capacity
Low to moderate
debt level
Stage Embryonic Growth Maturity Decline

Volume
Growth
Rate
Time
The entrepreneurships next task after plotting the BCG matrix is to determine whether its portfolio
is health. An imbalanced portfolio would have too many dogs or question marks and or too few
stars and cash cows. The tasks to determine what objective strategy and budget to assign each
strategic business unit (SBU)
 Build – increase SBU‘s market share.

 Hold – preserve SBU‘s market share especially for strong cash flow.
 Harvest – the object is to increase the SBU‘s short cash flow regardless of long term effects.
It includes:
 Withdrawing from business.

 Implementing a programme of continuous cost retrenchment and eliminating research and
development expenses.
 Not replacing the plan as it wears out.
 Not replacing staff.
Intensive Growth Strategies
According to Ansoff‘s product market expansion grid, a company is exposed to growing

dimensions under intensive growth.
Market penetration
 Gaining more market share with the current company market products in their current markets.
 The strategy can be implemented as follows:
 Promoting more usage of the product.
 Attracting competitors‘ customers.
 Convincing non users to use the existing product.
Market development strategy
 Company efforts to find or develop new markets for its current products.
 This can be done by identifying potential uses in the current sales area where interests for a
product or services can be stimulated.
 Selling new products to existing or current markets.
 Seeking additional distribution channels in its present location.
Product development
 In addition to penetrating and developing markets management should consider new product
possibilities.
 Company develops a product‘s new features: different quality levels and also tries to come up
with a technological breakthrough a potential product.
Integrative Growth
 Business sales and profits can be increased through:

 Backward integration
 Forward integration
 Horizontal integration
Ansoff’s Growth Strategies Grid
The Ansoff Growth matrix is a tool that helps businesses decides their product and market growth
strategy. Ansoff‘s product/market growth matrix suggests that a business‘ attempts to grow
depenon whether it markets new or existing products in new or existing markets.
The output from the Ansoff product/market matrix is a series of suggested growth strategies that set
the direction for the business strategy. These are described below:
Market penetration
Market penetration is the name given to a growth strategy where the business focuses on selling
existing products into existing markets. Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can be achieved by a
combination of competitive pricing strategies, advertising, sales promotion and perhaps
more resources dedicated to personal selling
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors; this would require a much more
aggressive promotional campaign, supported by a pricing strategy designed to make the
market unattractive for competitors
• Increase usage by existing customers – for example by introducing loyalty schemes
A market penetration marketing strategy is very much about ―business as usual‖. The
business is focusing on markets and products it knows well. It is likely to have good
information on competitors and on customer needs. It is unlikely, therefore, that this
strategy will require much investment in new market research.
Market development
Market development is the name given to a growth strategy where the business seeks to sell its
existing products into new markets. There are many possible ways of approaching this strategy,
including:
• New geographical markets; for example exporting the product to a new country
• New product dimensions or packaging: for example
• New distribution channels
• Different pricing policies to attract different customers or create new market segments
Product development
Product development is the name given to a growth strategy where a business aims to introduce
new products into existing markets. This strategy may require the development of new
competencies and requires the business to develop modified products which can appeal to existing
markets.
Diversification
Diversification is the name given to the growth strategy where a business markets new products in
new markets. This is an inherently more risk strategy because the business is moving into markets
in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it
must have a clear idea about what it expects to gain from the strategy and an honest assessment of
the risks.
Diversification Growth-is the most favourable growth strategy if good opportunities can be found
outside the present business. An opportunity is one in which the industry is highly attractive and
company has the mix of business strength to be successful.
Types of Diversification strategies

Concentric diversification-holds that the company could seek new products that have
technological and or marketing synergies with the existing product lines even though the new
products themselves may appeal to different groups of customers.
Horizontal Diversification- holds that a company can produce totally unrelated products using
different manufacturing methods or processes.
Conglomerate Diversification-holds that a company seeks new businesses that have no
relationship to the company‘s current technology products or market suppose a company is
producing fax machines and now seeks to produce furniture.
OTHER ENTREPRENEURSHIP STRATEGIES
A strategy is a method used to achieve a goal.
Franchising
Is a system of distributing products/services through associated resellers. The franchiser gives

rights to the franchisee to perform or use something that is the property of the franchiser. The
objective is to achieve efficiency or profitable distribution of products/services within a specific
area. Both parties contribute a trademark reputation, known products, managerial knowhow
produces or equipment.
Advantages to the franchiser Advantages to the franchisee

Increased distribution Less risk with market tested products
Some operating costs are transferred Pre-established promotion and advertising programmes
Marketing/distribution costs shared provided
Production accepted by locals when local franchise Financial may be provided
ownership is held Credit available in buying inventory and supplies
Retains quality control of products is a franchise Decision making assistance, management procedure and
agreement training
Disadvantages to the franchiser Gives up freedom in management decisions
Control of franchisees are far away Obligatory purchases franchiser even if better prices
Expenses of training and keeping on travelling for elsewhere are available
supervisor Have become expensive

Risk in credit extensions Disadvantages
Buying an established business The buyer inherits any ill will of the existing firm
Advantages Certain employees may be inherited which are not assets to
A business with a goodwill increases the likelihood the firm
of successful operation Procedures of the former may be difficult to follow
Has a proved location for successful operation Renovation expenses
Has an established clientele Purchase price may not be satisfying
Its inventory is already on the shelves
Inherited clientele may not be the most desirable
and changing the firms image is usually difficult
Its equipment is already available and its resources
and capabilities are known
FORMS OF BUSINESSES
Sole Proprietorship
This is a form of business owned and run by one person although many people may be employed
by the business.
Capital Contribution
Capital may be raised from the owner‘s personal savings or borrowed from friends or relatives.
Liability
The liability is unlimited.
Formation
It is simple to form and there are few legal requirements. One needs to develop the mission or
purpose of the business license to the local authority stating the purpose of the business. Once the
business license is issued, one needs to get registered with the relevant ministry e.g. if one wishes
to set up and run a micro-finance enterprise he/she is required to register with the ministry of
finance.
Management
The business is managed by the sole trader himself/herself although he/she may hire someone.
Advantages
 Decision making is done quickly as the sole trader does not have to consult anyone
 Profits are not shared, all projects accrue to the sole trader
 The business requires small capital to start
 The sole trader enjoys privacy
 The sole trader has personalised service or specialised product and a small market
 It is very simple to form as there are few legal requirements.
Disadvantages
 It may be difficult for the sole proprietor to expand because of lack of capital
 The sole proprietor suffers from lack of continuity due to incapacitation or death
 It can be difficult for the sole proprietor to leave the business e.g. to take a holiday, visit the
bank or a supplier as there is no one left to run the business
 Decision making and management may be inefficient and ineffective due to lack of
consultations as it is a one-man band business.
Private Limited Company

It is one of the joint-stock companies where at least two but not more than fifty people come
together to run a business with the main aim to make a profit.
Capital is raised by selling shares privately e.g. to family and friends. Shares are not advertised for
sale or traded on the Stock Exchange. The owners of the business are called shareholders.
Liability
Shareholders enjoy limited liability that is the liabilities of the business are limited to the amount of
capital (shares) that the owners have contributed to the business. The shareholders do not pay
business debts from their personal or private property if the business fails.
Management
Shareholders appoint directors who run the company on their behalf. The directors are responsible
for making day-to-day decisions, but the shareholders may be involved in the major decisions that
affect how the company operates. Directors are accountable to the shareholders so if they make
bad decisions, they can be dismissed. In smaller firms, the Directors are very often the
shareholders themselves.
Formation
To become a Private Limited Company the shareholders must undertake business name search with
the registrar of companies. In order to become a legally registered private limited company, the
owners must prepare the following legal documents and send them to the registrar of companies. If
the shareholders are not informed about this, they may engage a solicitor or other expert to do the
documents. The documents are Memorandum of Association and Articles of Association.
Memorandum of Association
These sets out the company‘s constitution that is how the firm should relate to the outside world
and the document should include:
 Company name
 Purpose for which the company has been formed (i.e. what activities it will carry
out/objective clause)
 Statement of limited liability
 Maximum number and value of shares available
Articles of Association
This spells out the rules for running the company. The rules will be for:
 Appointment f Directors
 Conduct of Directors Board meetings
 Increasing and decreasing total number of shares available
 Procedures for selling shares
 Keeping of records e.g. financial records, records of meetings
 Distribution of profits
Registration
Once the business name search (done to find out if there is a similar name) is undertaken and the
memorandum of association and articles of association is developed, an application including these
two documents may be made requesting a certificate of incorporation. As soon as the certificate of
incorporation is issued by the registrar of companies, the shareholders need to register with the
relevant ministry to start operation e.g. in mining shareholders need to register with the Ministry of
Mines.
Advantages
 There is continuity of the business even if one of the owners dies, therefore, a company
enjoys an unlimited life
 More capital may be raised from the shares sold to at least two persons
 With limited liability the company two persons attract capital from people who would not
otherwise be prepared to invest
 The company enjoys its independent status and hence the limited liability enjoyed by its
shareholders
 In private company the founders of the business can usually keep control of it by holding a
majority of the shares

 The risks of the business are spread.
Disadvantages
 A private limited company is more difficult to begin as a lot of formalities are involved
 The owners have less direct control over the business as professional managers may run the
business and are in charge of the firm‘s operations
 The shareholder can only transfer his shares to someone else with the consent of the company
 The company is not allowed to appeal to the public for extra capital
 The accounts of the company must be filed annually with the registrar of companies. They are
then available to anyone on payment of a nominal fee.
1.16 Public Limited Company

It is a joint stock company where at least two persons associate to form a common stock (capital)
for profit. Unlike a private limited company which may or may not appoint an auditor, a public
limited company must appoint an auditor. It must keep a register for directors‘ shareholdings
unlike the Private Company which does not. Shareholders in Public Limited Companies are free to
transfer their shares unlike Private Company where the transfer is under the control for the
directors. Companies have to meet certain conditions in order to be regarded as Public Limited
Company.
 It must be stated in the memorandum of association that the company is public
 The name of the company must end with the words public limited company
 The issued capital of the company must be at least 50 000 pounds
 The company must have at least two persons and no upper limit
Advantages
 Like the Private Company, the Public Limited Company has the advantage of independent
legal existence, limited liability, continuity of the business
 Individual members lose their independence as they are bound by the rules and decisions of the
cooperative
Selecting the best form of business

 Risk level
If more money is required to form the business, it means that risk level is high especially if the
funds are to be borrowed. High-risk ventures require a limited ability clause. If none, or very little
of capital is borrowed then it may be easier to start as a sole proprietor of partnership.
Market or industry requirements

Many customers prefer to deal with a formally registered company as they feel more confident that
is a serious business.
 Number of owners
A small number of people may be able to form a successful partnership whereas several owners
attract private or public limited companies where owners may not be held accountable for the debts
of the others.
Partnership
It is a commercial undertaking set up and run by at least two people but not more than twenty, with
the object of making profits and shares the profits and losses equally or according to an agreed
ratio.
Advantages
 Better decisions than the sole trader may be made as partners will always consult each other,
hence a greater expertise.
 Liability, losses and risks are shared unlike in sole proprietorship.
 More capital may be contributed from partners since ownership vests in a group of persons.
 It is easy to form since formalities are few.
 There may be division of labour due to the diversity of expertise.
Disadvantages
 Partners have unlimited liability except for the limited partners or sleeping partners
 Decisions may take long before they are implemented as partners need to consult one another.
 There may be lack of continuity if one partner dies or incapacitated.
 Profits are shared.
 One partner can make contracts on behalf of the others which may lead to all partners losing
their money or capital.
 They may be conflicts of interests between the partners.
Partnership Deed
It is an agreement in writing between setting out the following: -
 The names of the partners.
 The capital contributed by each partner.
 How profits and losses will be shared amongst the partners.
 How decisions will be made e.g. by majority vote.
 How participants will terminate.

 Any other formal agreement about how the business will operate.
The partners who are the owners of the business contribute capital from each their personal savings
or borrow from relatives, friends and banks. Partners may agree that their capitals earn interest.
Management and Decision-Making
 Each partner is a manager of the business although the partners may choose a partner with
managerial expertise or hire an outsider to manage the business.
 Each partner is expected to keep records of the business.
 Partners consult each other when it comes to management and decision-making.
 The Public Limited Company can raise more capital than the Private Company as it enjoys the
extra benefit of being allowed to appeal to the public for funds, whereas the Private Company
has to rely on friends and relatives for capital.
 The Public Limited Company has no restriction on the transfer of shares.
 The Public Limited Company enjoys large-scale production and benefits from economies of
scale.
Disadvantages
 A lot of formalities are involved.
 Management may be difficult due to large scale operations.
 There is no secrecy or privacy about the affairs of the firm.
 The owners are not directly in charge of the operations as professional may be hired to run the
business.
NB: - Informing the Public Limited Company, the similar of Private Company are followed except
that the Public Limited Company will need to further get a trading certificate to start operations.
Cooperatives
This is a form of business where at least ten members have a voluntary agreement to work together
as equals for a common goal. All members are equal owners of the business.
Every member contributes capital; therefore, it is possible to raise large amounts of capital.
Membership is open to anyone prepared to buy a share in the society and he/she will receive
interest on his capital.
Liability

The members enjoy limited liability. Note, however, that a cooperative remains in informal group,
unless it is properly registered and as such if informal owners do not have limited liability.
Management
The members of the cooperative elect a committee to manage the operations of the cooperative.
The committee is responsible for decision making on behalf of the group.
Formation and Registration
Members wishing to form a cooperative society need to carry out business name search. In
Zimbabwe, the cooperatives must register with the Ministry of Youth Development Gender and
Employment Creation. The registrar is interested in the following aspects: -
 The purpose of forming the cooperative.
 The object clause of the business.
 Feasibility of the proposed activities.
 That there are at least ten members who are motivated and willing to work together.
 That the members are committed to the objectives of the business.
 That there are committed to the objectives of the business.
 That there are sufficient financial resources to be invested by the members.
 The education levels of the members, including entrepreneurial skills and other skills,
especially those members who will be the leaders of the cooperative. It may be necessary for
the leader to attend a special training course in cooperative management before the cooperative
can be registered.
Advantages
 Losses are shared amongst the members unlike in sole proprietorship.

 Cooperatives enjoy limited liability if they get registered formally.
 Effective and efficient decisions may be made as members consult each other.
 More capital is raised than in the sole proprietorship business.
Disadvantages
 Cooperatives often fail because the management committee lack business management
knowledge and expertise.
 There may be personal differences and conflicts of interests between committee members.
 Profits are shared amongst members.
Liability

The issue of liability varies according to the type of partnership. There are two types of
partnership, which is ordinary and extra-ordinary partnership.
1.19 Ordinary Partnerships

In ordinary partnerships, the liabilities of partners are unlimited. This is the most common form of
partnership consisting of ordinary partners only. Each partner is liable jointly and severally for all
the debts of the partnership. By jointly and severally, it meant that the creditor has the right to sue
all the debts of the business to the full extent of his private assets or belongings. The effect of this
is that the creditor may choose to sue the partner who is most likely to be able to pay and then leave
that partner to recover a proportion from the other partners.
1.19.1 Extra Ordinary Partnerships

These are usually called special or limited partnerships. They are of two forms:
 Partnership encommandite
 Anonymous partnership
In both types of extra-ordinary partnerships the sleeping partners must not take any part in the
running of the enterprise. This should be left to the disclosed partners. If the sleeping partner does
not take any active part in the running of the business, all protection is forfeited or lost and the
sleeping partner is then liable to the same extent with the disclosed partner. Where the sleeping
partner becomes known to the public, he/she does not automatically incur the liability of an
ordinary partner unless he/she has acted like a partner.
1.19.2 Partnership Encommandite

In this case, the business is carried out by the disclosed or active partners in their own names alone
and the liability of the commanditarian or undisclosed partners is limited. The undisclosed partners
contribute a fixed sum of money in return for specified share of profits or losses. The disclosed
partners are liable in full to the creditors but the commanditatian partners are not liable to creditors
but only to the disclosed partners. In business, there are two kinds of business liability that is
unlimited liability and limited liability.
Unlimited liability is where the business owner is personally responsible for business debts.
Specifically, it means that if the business fails and cannot repay its debts; the organisations that the
business owes money can take the owners personal belongings to settle those debts.
Limited liability is where the business owner is not personally responsible for business debts. In
real terms, this means that if the business fails, the business owner will only lose the money that
he/she has invested into the business. The organisations that the business owes money can only
take assets which belong to the business. Even if the business cannot repay all of its debts, they
cannot take the owner‘s personal belongings. This kind of liability that a business has will depend
on the legal form of business. Most formally, registered businesses have limited liability, while
most informal businesses have unlimited liability.
1.19.3 Anonymous Partnership

Anonymous partners contribute their agreed shares to the business capital but take no part in the
running of the business leaving that to the disclosed partners. However, the liability of the
anonymous partner is not limited in the same way as the commanditarian partner. Anonymous
partners are not liable to creditors but only to disclose partners. In other words, the creditors will
proceed against the disclosed partners who will then have to reclaim from anonymous partners.
Formation
Persons wishing to form a partnership may agree verbally or orally to form the business. However,
it is a good idea to develop articles of partnership or partnership deed in case of future disputes.
After the partners have agreed the partners may proceed to apply to the local authority for business
license. Once the business license is issued, the partners need to register with the relevant ministry
e.g. if partners wish to form a phone shop, they need to register with the Ministry of Transport and
Communication. As soon as the permission is granted by the relevant ministry the business can
commence.
 Small firms contribute in the production of quality and affordable products by being in
competition with giant businesses.
 Small firms contribute to government revenue through payment of business and employment
taxes.
 Small businesses contribute to the national of the country (GDP – Gross Domestic Products)
and to the improvement of the balance of payment.
1.17 Roles of Small and Medium Enterprises

What is a small business?
A small business is generally a business that has low annual sales, few assets such as buildings,
equipment, and vehicles, serves local markets rather than national and international markets, ahs
small number of employees and usually the owner is solely responsible for the success or failure of
the venture. There are two kinds of small businesses that is survival and growth business.
 Survival businesses are small businesses which allow owners to make a living but the focus is
on keeping the business alive e.g. backyard businesses/home based businesses.

 Growth businesses are larger and allow owners to make more money e.g. manufacturing
operations in the industry.
Reasons for continued survival of small firms

 Small businesses are able to be more flexible, innovative and can react to changes much
quicker.
 Small businesses play a supportive role to the giant firms by being subcontracted in
construction, distribution, service and manufacturing sectors
 Small businesses serve small markets (market riches) where large firms do not have interest
 Small firms receive government support through the Ministry of Small to Medium Enterprises,
Ministry of Youth Development Gender and Employment Creation and Ministry of Higher and
Tertiary Education that is they receive support in form of training and funds. Small firms also
pay lower taxes
 Small firms supply their goods and services in smallest lots than giant firms which usually
supply in bulk.
 Small firms offer specialized and personalized services to customers‘ e.g. electrical businesses.
 Small firms remain small usually during the initial phases of new technology or innovation or
product introduction as the firms will be studying market reactions and modifying the products.
Roles played by small firms to the economy

 Small businesses create employment for the business owner as well as the other fellow citizens
(employment creation).
 Small businesses increase the range of goods and services available to the local community
(provision of goods and services) especially in rural areas where goods and services were
previously unavailable.
 Small businesses reduce anti-social activities such as theft, robbery, promiscuity and burglary.
 Small businesses reduce rural-urban migration as more goods and services and employment
opportunities become available in rural areas. This will help to decrease the pressures on urban
in terms of sanitary problems, theft, robbery and promiscuity.
 Small firms contribute in the improvement for the standard of living of the community.
 Small firms contribute in stabilizing the economy through increased employment, reduced
prices and improved standard of living.
 Small business helps in indigenising the economy. If the economy is in the hand so indigenous
people, resources are not expatriated.
 Small firms help in the generation of foreign currency.

These are the situations or conditions which can adversely or positively affect the entrepreneur‘s
activities. These may include natural disasters such as road accidents, fire outbreaks, floods,
drought, earthquakes, and good rains and provide threats or opportunities to the business.
Micro-environment
This relates to those conditions which directly affect the entrepreneurial investment activities either
positively or negatively. The micro-environment is made up of employees, providers of finance,
suppliers, customers and government among others.
Employees
These are the people who work for the entrepreneurs and those who are likely to work for him/her
(potential employees). People today have wider expectations of the quality of working life
including; justice in treatment, democratic functioning of the organisation and opportunities for
consultation and participation, training in new skills and technologies effective personnel and
industrial relations policies and practices and provision of social and satisfaction, make every
reasonable effort to give security of employment. If employees are not treated well, the
entrepreneur will lose them to his/her rivals.
Providers of finance
These are the financial institutions which supply financial services to the entrepreneurs.
Entrepreneurs need to consider the interest or lending rates together with the accompanying finance
changes fixed on them by the financial institutions as these costs of financial services have adverse
effect on their investment activities. Apart from that, the entrepreneurs also need to consider return
on investment in terms of the funds which they may need to invest with the financial institutions.
On the other hand, the entrepreneurs are expected to prove their credit worthiness and credibility by
paying back the borrowed funds (loans) within the contractual time frame as this will enable the
entrepreneurs to even receive preferential treatment and favour in times of need.
Customers
To many entrepreneurs, responsibilities to customers may be seen as no more than a natural of
good business. Customers are people who make the business successful. The entrepreneurs need
to understand the needs and wants of customers first before , production activities take place in
order to avoid wastage of resources by producing goods and services for unknown customers.
Customers must be put first by providing:
 Good value for money
 The safety and durability of products
 Prompt and courteous attention to queries and complaints
 Long term satisfaction e.g. serviceability, adequate supply of products and replacement of parts
 Full and unambiguous information to potential customers
If customers feel that they are ill treated the entrepreneur losses them to the customer-driven
enterprises.
Suppliers
There are firms that supply the entrepreneur with raw materials. There can affect the
entrepreneur‘s activities adversely or positively in terms of prices, reliability, quality, delivery
services and convenience among others. Thus, a supplier of competitive prices, quality, delivery
services and convenience must be chosen. On the other hand, the entrepreneur should also prove
creditworthiness by settling accounts within the contractual time frame if future deferred payment
business transactions are to be upheld.
Government
Entrepreneurs should of course, respect and obey the law even where they regard as not in their
best interest. If certain laws are not followed the entrepreneurs‘ business may be forced to close
down but what is debatable is the extent to which organisations should co-operate with actions
requested by the government. Some examples are restraint from trading with certain overseas
countries and the acceptance of controls over imports or exports, price controls designed to combat
inflation e.g. limits on the level of wage settlement and assisting in the control of potential social
problems such as advertising and display of health warnings.
Competitors
These are the rivals of the entrepreneurs who produce substitute products or the same products.
The entrepreneur must keep track of the price levels, technology, quality and delivery services
among others of the competitors as these may pose negative impact on the acceptability of the
entrepreneur‘s products by customers.
1.18 Entrepreneurship Strategies
Growth Strategies
Reducing advertising expenses i.e. the hope is to reduce costs at a faster rate than any potential
drop in sales thus resulting in an increase in the company‘s positive cash flow. The hope is to

reduce costs at a faster rate than any potential drop in sales thus resulting in an increase in the
company‘s positive cash flow.
Divest – dogs and question marks
Here the objective is to sell or liquidate the business because the resources can be better used
elsewhere. The strategy is appropriate for dogs and question marks that are acting as a drag on
company‘s profits.
1.20 Government Entrepreneurship Initiatives

Government entrepreneurship initiatives are efforts by the government to promote self-sustenance,
entrepreneurship and indigenisation in order to stabilise the economy. In an effort to promote
entrepreneurship self-sustenance, the government established the Ministry responsible for
employment creation since 1980, i.e., Ministry of National Affairs and Employment creation now
Ministry of Youth Development, Gender and Employment Creation. Moreover, the following
institutions were introduced by the government to enable potential entrepreneurs to establish
themselves: -
 Small Enterprise Development Corporation (SEDCO)
 Development Bank of Zimbabwe
 Agricultural Finance Corporation (AFC) (Land Bank)
 Affirmative Action Group (AAG)
 Zimbabwe Cross Boarders Association
 Zimbabwe Tuck-shop Association
The government has recently introduced the Ministry of Small and Medium Enterprises to ensure
that small businesses succeed. Black empowerment and indigenisation policy was also put in place
to promote entrepreneurship initiatives to promote self-sustenance and the development of the
country.
Activity
Analyse the government initiatives to promote entrepreneurship in Zimbabwe since 1980. Discuss
the roles of the following in promoting entrepreneurship in Zimbabwe: -
a) AAG
b) Development Bank
c) AFC/Land Bank
d) Ministry of Small and Medium Enterprises
e) Zimbabwe Cross Boarders Association

UNIT 2.0 CUSTOMER CARE
Objectives
By the end of this unit students should be able to:
 Define customer care.

 Outline ten tips of good customer care.
 Explain the importance of customer care.
 Discuss the prerequisites of meeting customer‘s expectations.
 Explain how to build customer trust.
2.1 Definition
 Is the manner in which customers are treated by the business?

 Customer care creates a new orientation in an organisation with and increasing focus on
improving the delivery of the needed services by the customers.
 This should always be viewed as the clientele having rights and expectations that must be
fulfilled.
 As an entrepreneur, one need to appreciate that customer care should be part and parcel of
his/her business operations if you intend to achieve success.
 The customer care vision by organisation embraces employees that put its customers first
and that is open transparent, accountable and responsive.
 The customer is king and always right as a way of doing business.
 The customer is always observed as having a right to demand quality services from the
organisation.
 In the modern business world, there is an increasing focus on enhancing service delivery
and on ascertaining that they are delivered as promised.
 An entrepreneur should be responsible, accessible and quick to help source problems.
 Should be reliable and deliver what he/she promises on time.
 Should be knowledgeable and courteous.
 Should be empathetic and should understand the needs of customers.
 Work area should be clean and organised.
2.2 Ten Tips of Customer Care

Reliability
This refers to consistency of performance and dependability.
Perform the service right the first time, fulfil promises.
Be impartial and avoid favouritism.

Be firm with friends and relatives as far as business transactions are concerned.
Responsiveness
This refers to the willingness as well as readiness of the entrepreneur or his employees in providing
the services within reasonable time immediately if not sooner.
Competence
This refers to the possession of the required skills and knowledge by those who deliver the services
to the customer. This will create confidence.

Accessibility
This refers to the degree of approachability and ease of contact of the entrepreneur or his
employees. Drop what you are doing to greet and serve a customer.
Courtesy
This refers to politeness, respect, consideration and friendliness or your organisation‘s contact such
as receptionists, secretaries, telephonist, etc, they must be polite and courteous at all times –
remember, a smile goes a long way.
Communication
Keep your customer well informed in language and style they understand. It is important to hear
and understand what your customers are saying. Communicate effectively with your suppliers as
well.
Credibility
This refers to being trustworthy and faithful. Put customers at heart. They should feel that he/she is
given priority and should have the trust that any order will be executed and received when
expected.
Security
Customers should be protected from danger, risk or doubt within the premises.
Knowledge of Customer
The entrepreneur should know the clients specific requirements. Be able to recognize clients. Strive
to provide individualised attention. Understand what makes them buy it is price.
Tangibles
This could include the physical evidence (i.e. building, good handling, tools, equipment, packages
etc). This could also include the appearance of your personnel. Employees must be neat, orderly
and clean.
2.3 Benefits or Importance of Customer Care

 If customers are put first, the entrepreneur will be rewarded with new business and increased
profit margins and sales.
 Customer care creates new customers.

 Construction consumer dialogue enables the entrepreneur to know and understand what the
customers‘ needs and wants.
 It builds good relationships and loyalty with customers.
 Can make passive customers become in violated participants (i.e. loyalty)
 Creates corporate excellence.
 Build good reputation and good image i.e. it is a tool for good corporate image building.
 Business can become a market driven entity as you get information on what your customers
need and want.
2.3.1 Perquisites of meeting customer expectations

 Be courteous and tactful
 Be friendly and helpful
 Deal promptly and decisively with customers
 Rectify faults quickly and keep promises
 Listen to customers attentively and respond promptly.
 Avoid being sarcastic when dealing with customers
 Present information logically and comprehensively
 Stick to your commitments
 Always inform your customers on what happens at your business, it may affect them (i.e.
sale, new product/services)
 Be fair and honest when dealing with customers
 Demonstrate the right skills at the right time
 Always give customers professional treatment
 Know the customers‘ business needs and wants
2.3.2 Why get to decide if a customer service is good?

 Customer service is a function of your perceptions not your standards in other words, the
customers gets to decide if he/she has received good services. Even though all your
standards may have been met, if the customer does not feel well served, your customer
service is poor.
 Customer satisfaction is ultimately the result of the sum total of the customer‘s experience
at your establishment. Customers come back to a place that has provided a pleasant

experience for them. Thus, owners and managers need to focus not on tangibles as ends
themselves but on how all the particulars combine to create a certain experience.
2.3.3 Prime examples of poor customer care
 Poor delivery and accessibility of services

 Poor quality and state of merchandise
 Existence of long queues of customers waiting to be served
 Dirty environment of business
 Failure in meeting client expectations
2.3.4 Dealing with unprincipled customers
 Never show that a customer is wrong and behaving badly.
 Always take it that he/she is right.
 Appreciate and understand at there should be some customer‘s who visit your business with
hidden agenda and ulterior motives (i.e. competitors of those interested in policing have
price control monitors).
 Make every attempt to deter their bead intentions by being upright in your dealings.
2.3.5 You can defeat unprincipled customers by taking the following steps: -
 Continue to show a good image of your business.
 Smile when talking to customers.
 Accept blunders where you can realise them, promise to improve and make an apology.
 Avoid arguing with customers.
 Always hold you composure and avoid losing your temper in front of your customer.
2.3.6 Building Customer Trust

From a customers‘ point of view, there is probably no concept more important than trust. How can
you strengthen trust?
 Keep your promises.
 Make promises that you can keep.
 Do everything to keep the commitments you make.
 If you cannot fulfil the promises let the customer know.
 Call back if you promise even if you do not have the information the customer is expecting.
 Following up on an order to be sure everything is okay.
 Properly hold complaints all the time.
 Make recommendations that are best for the customers.
 Recommend a competitor when there‘s a need that you cannot satisfy.
 Make yourself available after the sale.
Activity
Discuss the benefits of good customer care for a business you are familiar with.
2.3.7 Creating customer comfort

Customer care is also defined as meeting needs and creating comfort. Meeting needs is a given,
creating comfort is a function of enabling the customer to feel a sense of control when he/she is at
your business. Customers feel in control when they know the drill i.e. when they know how things
work and hoe to get things done.
2.3.8 Develop and maintain a customer charter

Make sure that there is availability and visibility of both a mission statement and customer charter.
The customers‘ charter will remind your workers always to abide by its contents and will assure
customers of the expectations of the services and what move to take if they are not met. Your
customers‘ charter should indicate the standards of services to be delivered and the way in which
the worker will perform their duties.
Telephone
 Number of rings before the telephone is answered are given
Enquiries
 Short turn- around time
 Follow up
 Courtesy options offered to caller
Correspondence
 Correct
 Short turn-around time
 Acknowledgement of receipt
Delivery deadlines met

 Delays explained and apology given
Outgoing services
 Automatic follow-up
 Customer feedback

 Be sure that your customers‘ charter informs clients about the availability of a system of redress
in case of grievances
UNIT 3.0 STAFF MOTIVATION
3.1 Objectives
By the end of this unit, you should be able to:-

Activities
 Explain the theories of motivation and show their implications on the performance
of workers and the organisation as a whole
 Explain the importance of motivation to the entrepreneur
3.2 Motivation – Definition

According to Appleby (1994), motivation refers to the way urges, aspirations, drives and
needs of human beings direct/control/explain their behaviour. Maslow (cited in Stoner and
Freeman 1989) defines motivation as those inner and outer factors which cause, channel and
sustain the behaviour of a person in order to achieve specific organisational or personal goals.
Managers and entrepreneurs are tasked with ensuring that things are done through people.
For the work to be done efficiently and effectively, employees need to be motivated.
Motivation is concerned with including people to work to the best of their ability. Motivation
refers to those schemes designed to influence and encourage workers to perform
outstandingly. It is therefore very important to take a closer look at theories of motivation
and consider motivation of workers seriously.
3.3 Theories of motivation and their implications to the enterprise

There are many theories of motivation and any theory or study which aids an understanding
of how best to motivate people at work must be useful. All entrepreneurs have a duty to
motivate their employees for the success of their enterprise. Motivated workers take more
pride in their jobs and work better. But many entrepreneurs do not know how to motivate
their staff. Entrepreneurs must know how to apply the theories of motivation in particular
work situations. There are two contrasting approaches that is the content theories and process
theories (cognitive theories).
 Content theories attempt to explain those specific things which actually motivate the
individual at work. These theories are concerned with identifying peoples‘ needs and
their relative strengths and the goals they pursue inorder to satisfy these needs. Content
theories place emphasis on the nature of needs and wants motivates.
 Process theories attempt to identify the relationship among the dynamic variables which
make up motivation. These theories place emphasis on the actual process of motivation.
3.4 Major content theories of motivation include: -

 Maslow‘s hierarchy of needs model
 Alderfer‘s modified need hierarchy model

 Herzberg‘s two factor theory
 McClelland‘s achievement motivation theory
3.4.1 Maslow’s hierarchy of needs theory
Maslow‘s theory claims that human motives develop in sequence according to five levels of
need arranged in a hierarchy of importance. Maslow‘s basic proposition is that people want
things, they always want more, and what they want depends on what they have already.
The hierarchy begins with the lowest level i.e. physiological needs to the need for love
(social), esteem needs to the need for self-actualisation at the highest level. Below is the
pyramid to show the hierarchy: -
Physiological (i.e. shelter, clothing, food)

Love needs that is social needs which include affection, sense of belonging, friendships and both
the giving and receiving of love. Esteem needs are also referred to as ego needs which relate to
self-respect which involves the desire for confidence, strength, independence and freedom and
achievement. Esteem of others involves reputation or prestige, status, recognition, attention and
appreciation. Self-actualization needs that is the desire to become more and more what one is
capable of becoming simply means that one wants to realise his/her potentialities and capabilities.
3.4.2 Implications of Maslow’s Hierarchy of Needs to the Entrepreneur

Once a lower need has been satisfied, it no longer acts as a strong motivator and only unsatisfied
needs motivate a person. This hierarchy of needs implies that entrepreneurs need to consider
seriously the lower level needs if workers or staffs are to cooperate at work. That is the
remuneration (salary, wage, fringe benefits) should meet decent or exclusive physiological needs
(shelter, food, clothing). Pleasant working conditions must also be ensured.

Successful entrepreneurs must consider the safety and security issues such as safe working
conditions like danger warning signs, clean work environment and good healthy facilities. It is also
important to employees and social security after employment i.e. pension and other related
company benefits. Social needs of workers have impact on the performance. Workers need to be
loved and as such entrepreneurs need to instil a sense of belonging in workers. Entrepreneurs also
need to employ friendly supervision, cohesive work group, and team spirit and general sound
relations with employees. Workers also need professional associations to meet their professional
associations to meet their professional problems. Another area of concern is self-esteem. In this
case entrepreneurs should make use of social recognition, job title, high status job and feedback
from the job itself if employees are to be motivated in their work. Self actualisation is one aspect
that does motivate employees i.e. workers are motivated by challenging job, opportunities for
creativity, achievement in work and advancement in the organisation and as such entrepreneurs
should not that.
3.5 Alderfer’s Modified Need Hierarchy Model

This model condenses Maslow‘s five levels of need into only three levels based on the core needs
of existence, relatedness and growth (ERG theory). Existence needs are concerned with sustaining
human existence and survival and cover physiological and safety needs of material nature.
Relatedness needs are concerned with relationships to the social environment and cover love,
meaningful interpersonal relationship of esteem nature. Growth needs are concerned with
development of potential and cover self-esteem and self-actualisation. NB:Alderfer‘s Model has
the same implications with Maslow‘s hierarchy.
3.5.1 Herzberg’s Motivation-Hygiene Theory

He presents his tow facto theory of motivation which elaborates the difference between higher and
lower needs. This theory states that factors which create satisfaction at work are those stemming
from the intrinsic content of job e.g. recognition and responsibility, meaning and challenge. These
satisfy higher needs. These are called satisfiers or motivators or growth factors. Another set of
factors which entrepreneurs must take cognizance of its dissatisfiers or hygiene factors. These
factors stem from the extrinsic job context e.g. working conditions, pay and supervision. These
satisfy lower needs. An important point to note in this theory is that as dissatisfaction stems from
lower needs not being satisfied, when these are satisfied, this only removes dissatisfaction and does
not increase motivation.

If hygiene factors do not reach a certain standard, for example, salary, working conditions, job
security, poor supervision. They felt bad about their jobs and were unhappy. Hygiene factors are
also called preventive factors. Positive motivation and a feeling of well being could only be
achieved, not by just improving these hygiene factors but improving genuine motivators such as
recognition, achievement responsibility, advancement and the work itself. Below is a representation
of Herzberg‘s two factor theory
3.5.2 Hygiene or Maintenance factors

These factors include salary, job security, working conditions, level of quality of supervision,
company policy and administration, interpersonal relations, the dissatisfiers.
3.5.3 Motivation and job satisfaction

The satisfiers:
These include sense of achievement, recognition, responsibility, nature of work, growth and
advancement, opportunity of creativity.
3.5.4 Mc Clelland’s Achievement Motivation Theory

In his acquired-needs theory, which draws on Murray's model, David McClelland proposed that an
individual's specific needs are acquired over time and are shaped by one's early life experiences.
Most of these needs can be classed as:
 Achievement
 Affiliation
 Power
A person's motivation and effectiveness in certain job functions are influenced by these three needs.
McClelland's theory sometimes is referred to as the three-need theory or as the learned needs
theory. Later work indicated that motives are actually quite stable over long periods of time. This
theory focuses on the relationship between hunger needs and the extent to which imagery of food
dominated thought processes. From the research or study that McClelland carried out in relation to
the relationship between hunger needs and how food dominated thought processes, four main
aroused based and socially developed motives were identified. These are:
The achievement motive

People with a high need for achievement (nAch) seek to excel and thus tend to avoid both low-risk
and high-risk situations. Predominantly Achievement-motivated individuals avoid low-risk

situations because the easily attained success is not a genuine achievement. In high-risk projects,
the Achievement-motivated see the outcome as one of chance rather than one's own effort. High
nAch individuals prefer work that has a moderate probability of success, ideally a 50% chance.
Achievement-motivated individuals need regular feedback in order to monitor the progress of their
achievements. They prefer either to work alone or with others like themselves.
The power motive

A person's need for power (nPow) can be one of two types - personal and institutional. Those who
need personal power want to direct others, and this need often is perceived as undesirable. Persons
who need institutional power (also known as social power) want to organize the efforts of others to
further the goals of the organization. Managers with a high need for institutional power tend to be
more effective than those with a high need for personal power. Work by Abigail Stewart indicated
that this motive can interact with emotional maturity; at Stage I, one feels powerful by being
associated with the powerful, whereas at Stage IV one sees oneself as a channel to empower others.
The affiliative motives

Those with a high need for affiliation (nAffil) need harmonious relationships with other people and
need to feel accepted by other people. They tend to conform to the norms of their work group. High
nAff individuals prefer work that provides significant personal interaction. They enjoy being part of
groups and when not anxious make excellent team members, though sometimes are distractible into
social interaction. They can perform well in customer service and client interaction situations.
The avoidance motives

The first three motives relate to Maslow‘s self-actualization esteem and love needs. The
implication of this theory to the entrepreneur is that the entrepreneurs must identify the motives of
workers and try to satisfy them e.g. workers with high achievement motives prefer task difficulty
and goals as an achievement incentive i.e. if the task is too difficult or too risky, motivation is little
and it is too easy there is little satisfaction and motivation.
Motivation

Is the ability to change behaviour. It is a drive that compels one to act because human behaviour is
directed toward some goal. Motivation is intrinsic (internal); it comes from within based on
personal interests, desires, and need for fulfilment. However, extrinsic (external) factors such as
rewards, praise, and promotions also influence motivation. As defined by Daft (1997), motivation
refers to "the forces either within or external to a person that arouse enthusiasm and persistence to
pursue a certain course of action".
3.6 Process Theories of Motivation

The major process theories include: -
 Expectancy model – Vroom, Potter and Lawler
 Equity theory – Adam
 Goal theory – Locke
 Attribution theory – Heider and Kelley
3.6.1 Expectancy Theories of Motivation

These theories state people are influenced by the expected results of their actions. That is
motivation is a function of the relationship between: -
 Effort expanded and perceived level of performances and
 The expectation that rewards (desired outcomes) will be related to performance
 The expectation that rewards (desired outcomes) are available
Performance depends upon the perceived expectation regarding effort expanded and achieving the
desired outcome e.g. the desire for promotion will result in high performance only if the person
believes there is a strong expectation that this will lead to promotion. The choice of behaviour is
based on the expectancy of the most favourable consequences. The proponents of the expectancy
theory are Vroom and Porter and Lawler.
3.6.2 Vroom’s expectancy theory

Vroom‘s theory was based on three by key variables that is valence, instrumentality and expectancy
(VIE) (VIE theory/expectancy/valence theory). The theory is founded on the idea that people
prefer certain outcomes from their behaviour to others. That is they anticipate feelings of
satisfaction should the preferred outcome be achieved.
Valence is the feeling about specific outcomes that is the anticipated satisfaction from an outcome.
Vroom distinguishes valence from value that is valence is as to anticipated satisfaction and value is
as to the actual satisfaction and value is as to the actual satisfaction provided by an outcome e.g.
money as a reward. Instrumentality – this relates to the distinction between first level outcomes.
The first-level outcomes are performance related which refer to the quantity of output or to the
comparative level of performance. That is other people may seek to perform well for its own sake
and without thought to expected consequences of their behaviour.
All the same, performance outcomes acquire Valence because of the expectation that they will lead
to other outcomes as an anticipated source of satisfaction i.e. second level outcomes. The second
level outcomes are need related derived from achievement of first level outcomes that is through
achieving high performance. Many need related outcomes are dependent upon actual performance
rather than for effort alone or through trying hard e.g. salesperson (commission). Expectancy is the
probability that choice of a particular action will actually lead to the desired outcome i.e. the
relationship between a chosen course of action and its predicted outcome.
3.6.3 Student’s Exercises

 Research on ―The porter and Lawler expectancy model and explain its implications to the
entrepreneur.
 Discuss the implications of the Equity theory by Adams, Goal theory by Lock and Attribution
theory by Heider and Kelley in the entrepreneurial world.
3.7.0 Reward options to entrepreneurs

3.7.1 Importance of motivating employees
 Increased productivity
 Increased efficiency and effectiveness
 Good corporate image building
 Increased sales and profits
 Good customer relations
 Promotes team spirit (team work) or cooperation and support by employees
 Promotes intraprenuership by employees that is innovativeness, creativity and imitativeness
resulting in the growth or expansion of the enterprise.
Activity
Giving examples of the theories of motivation, discuss the advantages of motivation to the
entrepreneur.

UNIT 4.0 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
4.1 Objectives
By the end of the unit you should be able to:

 Define ethics
 Analyse the ethical positions
 Explain the importance of ethics to entrepreneurs
 Define social responsibility
 Explain social responsibility principles
 Explain the importance of social responsibility to the entrepreneur
4.1.1 Definition of Ethics

Ethics refers to the rules/principles that define right and wrong conduct in business or at work to
the public‘s or the organisation. Publics ate the interested parties e.g. existing workers or potential
workers, pressure groups (i.e CCZ, ZCTU, ZFTC, AAZ etc), suppliers government departments,
shareholders/stockholders etc.
4.3 Examples of ethical issues

 Using telephone for personal long distance calls
 Using company postage for personal mail
 Showing favouritism in selection decisions/disciplinary practices
 Playing politics in the organisation
 Unfair business practice/transactions
 Unfair dismissal
4.4 Ethical positions

Three different ethical positions that can provide guidance in evaluating ones‘ own ethical
standards at work or in business.
4.4.1 Utilitarian view of ethics

 This relates to decisions made solely on the basis of their outcomes or consequences
 The goal of utilitarian is to provide the greatest number. This view tends to dominate business
decisions making. It is consistent with goals like efficiency, productivity and high profits. By
making profits, a business executive can argue that he is securing the greatest good for the
greatest number.

4.4.2 Rights view of ethics
This calls upon individuals to make decisions consistent with fundamental liberties and privileges
as set forth, documents like the bills of rights. The rights view of ethics is concerned with
respecting and protecting the basic rights of individuals such as the right to privacy, to free speech
and to take industrial action since this position will protect employees who report unethical or
illegal practices by their organisation to the press government agencies on the grounds of their right
to free speech.
4.4.3 Justice view of ethics

This requires individuals to impose and enforce rules fairly and impartially so there is an equitable
distribution of benefits and costs. Union members typically favour this view. It justifies paying
people the same wages for a given job regardless of performance differences and its uses seniority
as the criterion in making lay off decisions.
4.4.4 Each of these perspectives has advantages and liabilities

The utilitarian view promotes efficiency and productivity, but it can result in ignoring the rights of
some individuals particularly those with minority representation in the organisation. The rights
perspective protects individuals from injury and is consistent with freedom and privacy but it can
create an overly legalistic work environment that hinders productivity and efficiency. The justice
perspective protects the interests of the underrepresented and less powerful but can encourage an
overly legalistic work environment that hinders productivity and efficiency. The justice perspective
protects the interests of the underrepresented and less powerful but can encourage a sense of
entitlement that reduces risk-taking innovation and productivity.
4.4.5 Codes of ethics and decisions
Codes state the organisations primary values and the ethical rules it expects its employees to follow
Examples of codes include the following: -
Demonstrate courtesy, respect, honesty and fairness
Maintain confidentiality of records
Do not propagate false or misleading information
4.4.6 Importance of goods ethics

Corporate image is built or improved
Efficiency and productivity is enhances
Sales and profits are boosted

Sound relations and mutuality between the entrepreneur and the publics are established and
sustained
4.4.7 Social responsibility

Is a boarder concept that also covers business ethics? Social responsibility defines the obligation
that the business community or entrepreneur has for the well being of the society. The
entrepreneurs are expected to have the society at heart in all their operations. A good and patriotic
entrepreneur needs to develop ‗giving back to the community schemes‘. These are arrangements or
programmes designed to give back to the community in terms of assisting the less fortunate
sponsoring social institutions e.g. schools, colleges, old people‘s homes, street kids and the
orphans. Social responsibility also includes taking care of harmful waste products, dangerous
emissions. Social responsibility also includes paying tax to the government. The money is used
utilities and consumptions such as public water facilitating public toilet road construction, social
welfare facilities and services etc.
Social responsibilities also include taking care of harmful waste products, educating customers on
responsibilities further cover informing the public‘s about the side effects of products, educating
customers on proper usage of products such that accidents or harm are avoided or minimized e.g.
Sedan Benz is designed in such a way that it minimizes chances of accidents. Some critics hold the
business community responsible for unemployment, crime in the streets, ill clothed, ill housed and
ill fed. Others believe that it is the responsibility to the business world to create jobs and pay taxes
to the government so that it can employ express to solve social problems.
4.4.8 Importance of social responsibility to the entrepreneur
Productivity and efficiency may be enhanced as workers will be motivated with fair business
practices. There is also corporate image building and maintenance of sound mutuality and relations
with the society. Besides, sales, market and profits may be increased etc.
NB: Large and small firms are urged to practice honest social responsibility and business ethics
and to become good community citizens expressing interest in social problems-should be
concerned with the welfare of the society.
4.4.8 Social responsibility principles

Other critics encourage that the entrepreneurs should use the following social responsibility
principles for social corporate integrity and image building.

Charity principle
The doctrine of social responsibility requiring more fortunate individuals or entrepreneurs to assist
less fortunate members of the society including the unemployed, the handicapped, the sick, the
elderly, street kids, orphans etc.
Stewardship principle
Is the biblical doctrine that requires businesses and wealthy individuals to view themselves as
stewards or caretakers holding their property in trust for the whole society? The idea is that the rich
hold their money in trust for the rest of the society and can use it for any purpose that society deems
legitimate.

UNIT 5.0 COSTING AND PRICING
5.1 Objectives
By the end of this unit you should be able to:
 Define the following costing terms: -

 Costing
 Costs
 Direct costs
 Direct labour
 Direct expenses
 Indirect costs
 Calculate total costs per item
 Discuss the importance of costing to the entrepreneur
 Define pricing
 Calculate prices of products
 Discuss the pricing factors
5.2 Definition of costing terms
5.2.1 Costing
This is the method or way of calculating the total costs of making or selling a product or providing
a service
5.2.2 Costs
These are all the moneys that the business spends to make and sell its products or services
5.2.3 Direct Costs

These relates to all costs that are directly related to the products or services that the business makes
or sells. There are two types of direct costs namely direct material cost and direct labour costs.
5.2.4 Direct Material Costs

These are all the money that the business/entrepreneur spends on the parts and materials that
become part of or are directly related or linked to the final product or service that it/he/she makes or
sells. NB: for a retailer‘s or wholesalers, the costs of buying goods to resell are the direct material
costs. To be considered or counted as direct material costs, the amount of material must be easy to

calculate and the cost of the material must be big enough to add a considerable amount to the total
direct material costs.
5.2.5 Direct Labour Costs
These are all the money that the business or entrepreneurs spends on wages, salaries and benefits
for the people who are directly involved in the production of its or his/her products or services. The
time spent on making the product must be easy to calculate and the cost of the direct labour must be
big enough to add a considerable amount to the total direct labour costs. Retailers and wholesalers
do not have employees working directly in making products, so they do not have any direct labour
costs. For retailers and wholesalers, all salaries and wages are indirect costs.
5.2.6 Direct expenses

These are any expenses directly related to the production of the final product e.g. delivery costs
which relate only to delivery or raw materials used in production of one product, hiring of a
machine which is only used on one product.
5.2.7 Indirect costs

These are all other costs that the entrepreneur/business incurs in running the business e.g. rent,
interest, electricity, and salaries of supervisor, managers, accounts clerks, secretary and other
administration expenses. Indirect costs are also known as overheads or expenses.
5.3 Calculate total costs per unit

Costing for a manufacturing or service operator
When calculating the cost of producing an item, the entrepreneur should ensure that all costs are
included. That is direct and indirect costs. The entrepreneur must therefore, calculate the direct
maternal cost, direct labour and direct expenses of producing the item and then add a proportion of
the indirect costs to find the TOTAL COST of producing the item.
Formula: Total Cost = Direct Cost + Indirect Cost
Before we calculate the total cost per item, it is important to have the costing processes:
Costing Process Where More Than One Product Is Produced
STEP 1

P
ublic relations and customer care will also be considered seriously in redressing unexpected
customer queries, complaints, suggestions and grievances. Publicity statements are also going to be
given in local press to create awareness of the existence of the existence of the enterprise and its
products on the market.
Production procedures
The following procedures will be followed in the manufacture of office desks:
The above diagram shows that the project will take 5 hours to make one desk. Working the normal
8 hours a day, the project can produce 8 desks per week for 40 hours. This is a considerable
production capacity given that the firm will be an infant.
Costing
The office desk will cost as follows: -
1st calculate Direct Cost
(a) Direct Material Cost
Timber $2 000.00
Hinges $1 000.00
Screws $ 500.00
Varnish $1 000.00
Paint + $2 000.00
DMC $6 500.00
(b) Calculate Direct Labour Cost:
Formula: number of workers x number of hours/item x wage/hour/worker
DC= $6 500.00 + $1 000.00 + $5 000.00 = $12 500.00
NB: - It is assumed that the firm will hire a machine (Direct Expenses = $5 000.00)
2nd Calculate Indirect Cost/Item
(a) Indirect cost/yr
Rent 5 000.00
Electricity 10 000.00
Salaries 15 000.00
Transport 5 000.00
35 000.00
(b) Calculate Indirect Cost/Item
Formula: Indirect Cost/item = Indirect cost/year

Number of items/year
I/C item = $35 000.00
400 desks
= $87.50
NB:- It is assumed that the firm will operate for 50 weeks/yr. Therefore, the hours per year are 2
000. See Production Procedures for hours spent to produce each desk.
3rd Calculate Total Cost
Formula: TC = DC + IC
= $12 500.00 + $87.50
= $12 587.50
In our project the mark up shall be 35%
NB:- In both costing processes, costs per item may be calculated using a month as the time factor
instead of a year that is ―instead of Indirect cost per year divided by Total number of items per
year‖ the Entrepreneur may use, ―Indirect cost per month divided by number of items per month.
Costing calculations in detail (Manufacturer or service operator)

Stage 1: Calculate Direct Material Costs
The entrepreneur should calculate the costs of all material
That become part of or is directly related to the product or service.
That is easy to calculate and have a big enough cost to be counted.
Stage II Calculate Direct Labour Costs
That is work out the costs of wages, salaries and benefits for the employees who work
directly in the production of the product or service.
Stage III: Calculate Indirect Costs

These are all other costs that the business incurs per month such as rent, electricity,
insurance, depreciation, water and so on.
Costing calculations were not more than one product is produced.
Exhibit
The entrepreneur – carpenter specialises in the manufacture of tables and has the following details
for costing. Calculate the total cost of one table.
Material used: Timber 2 000.00
Nails 1 000.00
Varnish 500.00
Glue 500.00
One (1) worker takes 5 hours to produce one item. The carpenter is paid $1 000 per hour
Other costs per month: Rent $5 000.00
Electricity $ 500.00
Other wages $10 000.00
Telephone $2 000.00
Transport $2 000.00
100 items are produced each month
Answer
Direct Materials: Timber $2 000.00
Nails $1 000.00
Varnish $ 500.00
Glue $ 500.00
$4 000.00 (Direct Material/Cost)
Direct labour: 1 x 5 hours/item x $1 000.00/hr=$5 000.00
Indirect Cost/item Rent $5 000.00
Electricity $ 500.00
Other wages $10 000.00
Telephone $ 2 000.00
Transport $ 2 000.00
Indirect Cost/item $19 500.00
100 items/month = $195.00/item
Total cost of one item: Direct material cost + Direct Labour Cost + Direct Expenses + Indirect Cost
= $4 000.00 + $195.00 = $4 195.00
NB: There are not direct expenses
Further Questions
(i) The entrepreneur uses the following to make a garment:
Materials: Fabric $2 000.00
Thread $ 500.00
Elastic $ 500.00
A tailor takes 4 hours to produce the garment and charges $500.00/hr. Other costs per year are as
follows:
Rent $100 000.00
Transport $20 000.00
Electricity $30 000.00
2 000 items are produced each year. Calculate the total cost per item.
(ii) The entrepreneur produces desks and uses the following: -
Materials: Timber $10 000.00

Nails $ 1 000.00
Varnish $ 500.00
Paint $2 000.00
1 000 desks are produced each year. Calculate the total cost per item
(iii)The entrepreneur has the following to make a product item:
Materials $50 000.00/item
Indirect costs $2 000 000/year
40 000 items are produced per year
3 workers take 2 hours to produce 1 (one) item. Calculate the total cost of product item
Calculation of total cost of 1 (one) item where several different products are produced.
If the entrepreneur produces several different types of products, it is not appropriate to allocate the
same amount of costs as in the case of one product type. This is because more time may be spent in
the making of one product and little in the other. As such, one product has a greater proportion of
the indirect costs than the other. This is achieved by calculating the indirect cost per item and
multiplying by the number of hours to produce one item. This enables the entrepreneur to be able
to calculate a different cost for each different cost for each different product which reflects the
amount of time taken to produce that product.
Exhibit:
The entrepreneur used the following in making the dress and a trouser
Material Dress Trousers

Fabric $800.00 $1 000.00
Thread $300.00 $ 400.00
Zip $100.00 $ 100.00
Button $100.00 $ 100.00
2 workers are each paid $2 000.00/hour. Working together they take 4 hours to produce one dress
and 6 hours to produce one pair of trousers. Other costs each year

Rent $600 000.00
Electricity $240 000.00
Transport $240 000.00
The 2 workers each work for 40 hours a week and 50 weeks a year. Calculate total cost per each
item.
Answer
Direct costs:
1st calculate direct material cost:
Materials Dress Trousers
Fabric $800.00 $1 000.00
Thread $300.00 $ 400.00
Zip $100.00 $ 100.00
Buttons $100.00 $ 100.00
$1 300.00 $1 600.00 per item
2nd Calculate direct labour cost
Dress: 2 workers x 4 hrs x $2 000.00
= $16 000.00 per dress
Trousers: 2 workers x 6 hrs x $2 000.00
=$24 000.00 per pair of trousers
3rd Total Direct Cost:
Dress: Direct material cost + Direct Labour
=$1 300.00 + $16 000.00
=$17 300.00/dress
Trousers: $16 000.00 + $24 000.00

=$25 600.00/pair of trousers
4th Calculate indirect costs: Rent $6 000 000.00
Electricity $ 240 000.00
Transport $ 240 000.00
$1 080 000.00 /year
5th Calculate production hours/year
2 workers x 40hrs/week x 50 weeks/year = 4 000hrs/year
UNIT 6.0 RECORD KEEPING AND STOCK CONTROL
6.1 Objectives
 Discuss the importance of record keeping
 Identify source documents in business
 Identify and explain the purpose of books of accounts
 Carryout effective buying and stock control procedures
6.2 Importance of record keeping

 Basis of financial projections i.e. projected manufacturing, trading, profit and loss account and
the balance sheet
 Basis or future decisions and plans in terms of corporate growth and investment
 Basis for the analysis of expense and revenue and profit
 Basis for the control of cash flow
 Basis for showing who owes the business and how much and to whom the business owes
money and how much
 Record keeping tells the entrepreneur how much money in the bank and how much you have in
cash
6.3 Source document

 Source documents from which original information to the books of primary entry is obtained
e.g. receipts, invoices, debit note, credit note and statement of account.
 Consignment note is used with or instead of a delivery note where the goods are delivered by
someone other than the supplier e.g. for goods delivered by sea or rail

 Entrepreneurs should consider the following when choosing a supplier: prices, quality, delivery,
customer service, location, and terms of payment, discounts and business hours.
6.4 Appreciation of Books of Accounts

In business the entrepreneur should be able to appreciate books of accounts. These include the
books of original entry or prime entry and the ledger book. The books of prime entry include the
cashbook, purchases journal book, purchases returns book and the sales returns book and the
general journal book. The ledger book is in the main book of accounts.
Cashbook
This is the book of original entry used to record all cash transactions that is all money that comes
into and goes out of the business on a daily basis. A cashbook can be used to determine the amount
of money left over at the end of the month. Below is a layout of a cashbook:
Debit side (Receipts side) Dr Credit side (Payments side)Cr
Date Details Cash Bank Date Details Cash Bank

(Receipts) (Payments
Notes
The cashbook is divided into two halves that is Debit (Dr) and Credit (Cr) payment side. This
means that when money comes into the business, it is recorded on the left hand side (Receipts) and
on the right hand side (Payment) for money going out of the business.
 Capital refers to the money being invested by the entrepreneur into the business
 Purchases refers to the money being invested by the entrepreneur into the business
 Purchases refer to goods bought by the business for resale
 Drawings relates to money taken out of business for personal use
 Transfer from Bank to Cash refers to money taken out of bank account to be kept as cash in
business. This transaction has to be recorded in the cashbook to show that the money has been
moved from one place to the other, otherwise the totals for the money left in the bank and in
cash at the end of the month will be incorrect.
 When money is withdrawn from the bank account, money has gone out of the bank as such
there is need to record it in the bank column on the Payments side of the cashbook. This
money is added to our supply of cash in the business and a record has to be made on the cash
column on the Receipts side of the cashbook. The reverse is true when the business transfers
cash from business into the bank.
 Balance carried forward (c/f) is determined at the end of the month by subtracting the total
payments (money out) from the total receipts $25 000.00 and total cash payments are $20
000.00, therefore $5 000.00 is left at the end of the month $25 000.00 has come in and $20
000.00 has gone out. $5 000.00 is the balance carried forward because it is the amount that
will be starting the next month and will be recorded as balance b/f (balance brought forward).
Purchase Journal
This is a book of primary entry where goods on credit for re-sale are recorded. The transactions are
recorded as follows: -
Example: Mutsvedu (Pvt) Ltd
10 February bought goods $5 000.00 stock on credit from E. Gobvu
18 February bought $5 000.00 stocks on credit from T. Timothy
Mutvedu D Purchase Journal for the month of February 2004
Date Details Folio Dr Cr

10/02 E. Gobvu $10 000.00
18/02 T. Timothy $ 5 000.00
Dr Purchases a/c $15 000.00
Sales Journal
This is a book of primary entry where goods returned by customers are recorded.
Example:
Mutsvedu D sales returns journal for the month of February 2004
20/02 B. Sali returned goods $2 000.00
22/02 T. Tom returned goods $5 000.00
20/02 B. Sali $2 000.00
22/02 T. Tom $5 000.00
Dr Sales Returns $7 000.00
General Journal

This is used to enter all transactions which cannot conveniently be entered into one of the other
subsidiary books e.g. fixed assets bought on credit such as furniture.
Example: Mutsvedu (Pvt) Ltd

01/02 Received an invoice of $100 000.00 for office furniture bought on credit from M. Pienaar
02/02 Bought stationery on credit from M. Pienaar $10 000.00
01/02 Office furniture $100 000.00
02/02 M. Pienaar $100 000.00
Stationery $10 000.00
M. Piennar
The Ledger Book

This is the main book of account. All other books of account are subsidiary to the ledger and are
not used to record transactions as they occur, prior to their entry or posting to the ledger.
The ledger is ruled as follows: -
Dr
Date Details Folio Amount Date Details Folio Amount
Notes:
 The ledge is divided into two halves, that is, the left-hand side called debit side and the right
hand side called the credit side. The abbreviations Dr and Cr used respectively at the top of
each account as shown above.
 The first column if for dates, the second for particulars of the transactions, the third a folio
column (referred to hereafter) and the fourth or money column for the amount of each
transaction.
 The two sides of the account (sometimes contained on two pages facing each other) are
numbered alike and are together called a folio.
 The universal rule is entering or posting transactions to the ledger is that credit the giver and
debit the receiver.
Example: Mabinge M (Pvt) Ltd

February 1 Mabinge M starts his business with a capital of $500 000.00
2 Pays cash for shop equipment by cheque $300 000.00
Pays cash for goods (purchases) by cheque $100 000.00
3 Sells goods for cash and deposits the money $ 8 000.00
4 Pays cash for stationery by cheque $ 1 000.00
5 Pays rent in cash by cheque $ 2 000.00
Bank Account
Dr Cr
Date Details Foli Amount Date Details Foli Amount

o o
Feb 1 Capital 500 Feb 2 Shop equip 300

000.00 2 Purchases 000.00
3 Sales 8 4 Stationery 100
000.00 5 Rent 000.00
Bal c/d 1
000.00
2
Bal b/d 508 000.00
000.00 105
000.00
105 508
000.00 000.00
As is seen by the entries in the ledger a/c (bank account), the bank a/c received $500 000.00 from
Mabinge M (the owner) that transaction has been debited i.e. written on the left hand side of the
Bank a/c. Conversely, the capital a/c has given out to the Bank a/c. This is shown as follows: -
Dr Capital a/c Cr
Bank 500 000.00

The rest of the transaction in the above to be posted to their respective a/c to complete the double
entry system i.e. credit the giver and debit the receiver.
6.5 Stock Control
 Involves the management of stock levels and ensuring that the best stock level is sustained.
 Maintenance of the best stock level is important to avoid too much stock which may result in
tying up capital. Tying up capital means that money that could be used in other parts of the
business is held in unused stock resulting in the business failing to pay its creditors.
 Another disadvantage of keeping too much stock it may lose its value. Too much stock is
associated with high costs of storage and security. Too much stock is also susceptible to
deterioration, perishing, theft and damage. Moreover, too little stock may mean turning away
customers. Too little stock also means bad reputation and that the entrepreneur may suffer
losses resulting in being unable to pay creditors. As such, stock control is ensuring that the
correct amount of stock.
Minimum and maximum stock levels
 The greatest amount of stock that the entrepreneur must keep to satisfy its customers is known as
the maximum stock level and the lowest level that stock can be allowed to fall to while the business
is waiting for a new order or delivery is called minimum stock level and the business is not
expected to go out of stock completely.
 The point that the stock is allowed to full to before an order for more stock is placed is re-order
level.
 To determine the reorder level, the entrepreneur needs to know the time it takes to receive the stock
after the order has been placed. Secondly, there is need to calculate the items that may be sold in
that time. Thirdly, the entrepreneur needs to add an allowance in form of the minimum stock level
to the amount and that gives the entrepreneur the reorder level. For instance:
 If the time between order and delivery is 30 days and the quantity to be sold is 30 items, and
the minimum stock level is 5 items. The reorder level is 30 + 5=35 items.

The stock book
 For effective management of stock, entrepreneurs are encouraged to keep stock books or cards
which are used to record the day to day movement of stock that is in and out of the business.
Below is the layout of a stock card.
Mutsvedu D Private Limited
Stock Card
Item Description:___________________________________________________________
Cost Price:_________________________________________________________________
Selling Price:_______________________________________________________________
Recorder Level:_____________________________________________________________
Date Details Stock in Stock out Total/Balance
Example
Prepare a stock card from the following details:

Item: Eversharp blue pens; cost price $500.00, selling price $600.00, reorder level 140
02/02/04 Bought 1000 pens
03/02/04 Sold 500 pens
04/02/04 Sold 200 pens
05/02/04 Sold 100 pens
06/02/04 Sold 50 pens
07/02/04 Bought 1000 pens
On 8 February 2004, you carry out a stock take and find 850 items (pens). Enter the details on the stock
card and determine the re-order date.
Mutsvedu D Private Limited
Stock Card
Item Description: EVER SHARP BLUE PEN

Cost Price: $500.00
Selling Price: $600.00
Recorder Level: 140
Date Details Stock in Stock out Total/Balance

02/02 Purchases 1 000 1 000
03/02 Sales 500 500
04/02 Sales 200 300
05/02 Sales 100 50 150
07/02 Purchases 1 000 100 1 050
 Receipts are used by the entrepreneur or supplier when the transactions involve cash e.g. where
a customer tenders cash, a receipt may be written out. Below is a sample of a receipt.
Books of primary entry obtained
Receipt 0023
Date:
25/02/04
Gobvu Manufacturing (Pvt) Ltd

P.O. Box 22
CHEGUTU

Telefax: 703301
Purchases Amount
5 x 2l Mazoe Orange Crush $30 000.00
Sub Total $30 000.00

Less discount $ 3 000.00
Signature…………………………………….. Total $27 000.00
Thank You
Date of payment
 Invoice number
 Seller‘s name, address, telephone, fax, email (not all of this information may be applicable)
 Buyer‘s name, address, telephone, fax, email (not all of this information may be applicable)
 Goods or services bought
 Amount to be paid
Terms of sale
Amount of discount if any
Application message (e.g. Thank you for doing business with us)
The following in an invoice
Invoice 00214
Date: 26/02/04
Gobvu Manufacturing (Pvt) Ltd

P.O. Box 39
KWEKWE
Telefax: 055 50221
To: Makayepuva (Pvt) Ltd

Chuma Street
MASVINGO
Tel: 039 62043
Item purchased Quantity Unit Cost Total

500ml super stick glue 500 $100.00 $50 000.00
Less 5% discount if paid Total $50 000.00

Within 30 days

Debit Note
Supplier‘s Name & Address

Supplier Ref:_____________________
Date:___________________________
Customer‘s Name & Address
Debit Note No:____________
Item description Quantity Unit Cost Total
Total to be debited:
Reasons for debit:
Credit note is used to correct an overcharge e.g. if 25 items are sent, but only 20 were requested on the
order, then credit note will be prepared to reduce the bill by the value of those 5 items. The extra 5 items
would be returned to the supplier. A credit note can also be used where goods or services are
unsatisfactory e.g. goods are damaged or wrongly priced.
The following is a layout of a credit note
Credit Note

Customer Ref:_____________________
Date:___________________________
Credit Note No:____________
Item description Quantity Unit Cost Total
Total to be credited:
Reasons for credit:
Below is the layout and a specimen of a statement
Statement
From…………/…………./…………. To ……………./………………/…………….

Customer Ref:___________________
Date: __________________________

Date Details Amount Balance
Balance remaining
NB: The balance column shows a running total of how much is owed at each date. Invoices and Debit
Notes are added to the balance as they increase the amount which is owed; credit notes and payments are
subtracted from the balance as they decrease the amount which is owed. The other documents used by the
business are enquiry, quotation, price list, delivery note and consignment. Enquiry letter is a letter from the
customer asking about prices, range of goods, specifications etc. Quotation is a reply to the enquiry giving
details about the specific items or services that the customer has enquired about. Price list is a list showing
all the items for sale together with their prices. Order note is a letter requesting goods from the supplier.
Order
Supplier‘s Name & Address Customer‘s Name & Address

Customer Ref: ____________________
Date: ___________________________
Items Description Quantity Unit Price Total
TOTAL
Delivery Note is a list of items sent and the quantities of each item. It is sent by the supplier for the
customer to check carefully that the correct items and quantities have been delivered and then sign. The
delivery note only shows items and quantity. The delivery note should be given a special number so that
he/she can find his/her copy easily.
Delivery is a layout of a Delivery Note
Delivery Note

Customer Ref: ____________________
Date: ___________________________

Delivery Note Number:_____________
Items Description Quantity
Customer‘s Signature__________________
08/02/04 Received $200 000 worth of ―Sales Returns from Maturure H
07/02/04 Sales (Cash) $100 000
10/02/04 Telephone bill paid by cheque $20 000
11/02/04 Pay cash into the bank $10 000
12/02/04 Sold goods cash $200 000
Sold goods (cheque) $100 000
13/02/04 Paid wages (cash) $50 000
13/02/04 Cash deposit $250 000

UNIT 7.0 GENERATE YOUR BUSINESS IDEA
7.1 Objectives
By the end of this unit students should be able to:-
 Define business idea
 Carryout needs survey
 Explain how to start a business
7.2 Definition of business idea

 Every business emerges from an idea
 Stocktaking is an essential tool in checking that the stock records are accurate. There are
several reasons why the actual amount of items fails to tally or agree with the stock records.
 Stock taking is simply defined as the physical counting or checking of the stock items. The
physically counted stock items may fail to agree with the stock records because:
(a) The items were stolen or damaged and a record was not made
(b) Goods were bought/sold but a record was not made
(c) Sales/purchases have been recorded incorrectly
How to carry out a stock take
STEPS
1st Set a date for a stock take and inform the public‘s if business hours are interrupted
2nd Organise the stock to facilitate easy counting

3rd Develop a stock list
4th Physically count every item as per stock list and enter the figure in the ‗stock take‘ column
5th Enter the last balance figure from the stock cards in the stock card column for each item
6th Deduct the stock card figure from the stock take figure and enter this amount in the
difference column
7th Find out the reasons if there is a difference i.e. there is more or less stock than shown on the
stock card
Below is a specimen of a stocktaking list
Stock taking list
Item Stock take Stock card Difference
Eversharp pen 1 000 1 150 -150

Pencil sharpener 200 200 0
Ruler 300 350 +50
Exercise book (A4) 1 000 1 000 0
Activity
(i) Discuss the importance of stock control in small enterprises

(ii) Prepare a stock card from the following details
Item Description: T-shirt
Cost Price: $20 000.00
Selling Price: $30 000.00
Re-order level: 1 000 units

02/02/04 bought 10 000
03/02/04 sold 500
04/02/04 sold 2 000
05/02/04 sold 4 000
06/02/04 sold 3 000
06/02/04 bought 10 000
(iii)Prepare relevant subsidiary books for Dzomira S using the following details
01/02/04 Dzomira S started business with $500 000 Bank
02/02/04 Bought stock with cheque $300 000
03/02/04 Bought stock from Makaye P on credit $200 000
04/02/04 Bought goods on credit from Mapuva J $ 50 000
05/02/04 Sold goods on credit to Maturure H $400 000
06/02/04 Returned goods to Makaye P $ 50 000
07/02/04 Returned good to Mapuva J $ 5 000
08/02/04 Received $200 000 worth of ‗sales returns from Maturure H
07/02/04 Sales (cash) $100 000
10/02/04 Telephone bill paid by cheque $20 000
11/02/04 Pay cash into the bank $10 000
12/02/04 Sold goods for cash $200 000
Sold goods (cheque) $100 000
13/02/04 Paid wages (cash) $50 000
13/02/04 Cash deposit $250 000

UNIT 8.0 GENERATE YOUR BUSINESS IDEA
8.1 Objectives
 Define business idea
 Carryout needs survey
 Explain how to start a business
8.2 Definition of business idea

 Every business emerges from an idea
 Businesses get started when people (customers) manifest their needs and wants. Entrepreneurs
develop business ideas out of the needs and wants of people. Usually entrepreneurs exploit the
weaknesses of the existing providers of goods and services to start their own ventures.
 A business idea is a short and precise description of the basic operations of the business. Thus,
a business idea must show the following:
(a) The product of service to be offered
(b) Potential customers/target market
(c) Selling approach
(d) Need to be fulfilled for the customers
8.3 Needs survey

 This is undertaken to determine the needs of the potential customers. Entrepreneurs need not
just produce products and services for unknown customers. There is need to determine the
socio-economic needs of customers if the products to be offered are to be accepted.
 The needs survey is crucial in ensuring that the business idea has the customer and the customer
needs in mind.
 As such it is important to find out what customers wand and listen to prospective customers in
working out a business idea.
 A product or service must offer something special for the customers as it is difficult to attract
customers to a new business.
 Needs survey enable the entrepreneur to decide whether to specialise or offer different
products?
 Specialisation is, however, advantageous, as it is easier to be special and attract customers.
 Entrepreneurs should ensure that there is demand for their product is not or does not guarantee
that there is demand for them.
8.4 Important questions to be answered when developing a business idea
 What product/service will your business sell?

That is, the business idea should be based on what one is good at, but she be what
customers require.
 Who will buy your product/service?
This is all about defining the target market.
 How are you going to sell your product/service?
That is selling approach should be defined e.g. selling either direct to customers/non
personal selling
 Which need will your product / service fulfil for customers?
Consider special attributes of product/service.
8.5 Probability and Feasibility of the Business Idea

 A business idea must be profitable and feasible.
 To determine the profitability and feasibility of a business idea one needs to carry out a
feasibility study and SWOT analysis.
 Feasibility study relates to a detailed investigation of all aspects of a business idea in order to
determine if it is likely to be successful.
 Before starting a business, it is essential to research that business idea to find if it is feasible.
 A business idea should be practical and profitable.
 In terms of feasibility the entrepreneur needs to consider availability of market, competition,
location, infrastructure and facilities, raw materials, machinery and equipment, labour and other
costs such as electricity, insurance, water, security etc.
8.6 SWOT Analysis

 SWOT analysis is very crucial in the formulation of the business idea.
 SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
 In formulating the business idea one needs to identify his/her strengths, weaknesses,
opportunities and threats.
 For strengths and weaknesses consider for internal environment of the organisation that can
affect your organisation.
 Strengths are those things that the business will be good at e.g. location of the business, better
product than competitors, skilled workers.
 Weaknesses are those things that the business will not be so good at e.g. expensive products,
insufficient funds for advertising.
 For opportunities and threats, consider the external environment of the organisation.
Opportunities are things around the business in the community that will be good for the success
of the business e.g. lack of competitors, market niche.
 Threats are things around the business in the community that will be good for the success of the
business e.g. lack of competitors, market niche.
 Threats are things around the business in the community that will be bad for the business e.g.
sales tax will be going up, new technology.
 When one has done a SWOT analysis, the next step is to evaluate the business idea and decide
whether to continue with the idea, adjust the business idea/give up the idea completely.
8.7 Starting the Business
The procedures to start a business depend on the form of business that the prospective entrepreneur
wants to start. For the procedures refer to Unit 10.
Activity: Explain the procedures that you would go through to set up a Private Limited
Company and Partnership.

UNIT 9.0 BUSINESS PLANNING

A Business plan is a document that shows the arrangement in advance of business activities
the commercial undertaking and how they will be implemented.
9.1 Importance of a business plan:
 Shows SWOT
 Provides insight into the strategies to be used to outcompete rivals
 Acts as the pointer of solutions to business weaknesses
 Provides information on the viability and profitability of the business project
 Prevents the organisation from wasting the resources as it shows the opportunities in
advance
9.2 Four major components for the Business Plan see the Model Business Plan below:
Model Business Plan
9.3 Executive Summary
Business name: Kenshell Furnitures
Business address: Kwekwe Poly, Box 399 Kwekwe
Business owners/directors NC MARKETING

Business idea: To provide furniture
Business form: PRIVATE LIMITED COMPANY
Business type: Manufacturing
Own contribution: $11 500.00
Loan amount required: $22 500.00
Total project cost: $34 000.00
Details of own contribution: The owner will contribute
9.4 Mission Statement
To provide quality furniture to the community at affordable prices and generate income for the
stakeholders through whose efforts profits are gathered.
9.5 Project aims

 To provide quality furniture to the community
 To maximise the owners equity and profitTo be the leading customer driven enterprise
9.6 Vision
 To become a high quality, innovative and customer focused furniture enterprise.
9.7 Project background

Kenshell is a newly established project. The project‘s core business will be office desk
9.8 Manufacture
The owner of the business is Masora S. Kenshell Furniture is based at Stand Number 6 Spathodia
Avenue, Msasa Park Kwekwe. What has prompted the Inception of the project is the unexploited
opportunities in terms of lack of furniture manufacturers in Kwekwe specially manufacturers of
office desks. The mission statement of the project is, ―To provide quality furniture to the
community at affordable prices and generate income for the stakeholders through whose efforts
profits are gathered‖. The vision is, ―To become a high quality, innovative and customer focused
furniture enterprise‖.
The aims of the project are derived from the mission and vision of the enterprise which (aims) are
furnished as follows: -
 To provide quality furniture to the community

 To be the leading customer driven enterprise by being responsive to customer‘s needs
 To maximise the owner‘s equity and profit
9.9 Business Location

The business will be located in Msasa Park about 3km outside Kwekwe City along Mvuma road at
number 6 Spathodia Avenue. The area is envied by many, owing to its strategic nature in terms of
convenience to both customers and suppliers of raw materials. That is raw materials (timber) can
easily be ferried from Fair-fields through Mvuma road and customers can easily access the firm
through road or rail. Customers can as well use rail to ferry their goods as the project is about a
kilometre to the railway station.
9.10 Benefits of the Project to the owners

 The owners will enjoy psycho-socio-economic emancipation
 The owners will enjoy vertical social mobility that is the owner‘s status will rise from lower to
middle/upper class
 The owner and his/her family members can afford better health and educational services
9.11 Benefits to the economy

 Improved standards of living of the community
 Creation of employment to the unemployed citizens
 Generation of foreign currency for the country
 Increased government revenue (payment of tax)
 Project acts as source of new technology
9.12 Project Industry

The project falls under the furniture manufacturing industry. Although the firm aims to be the
leading office desk specialist manufacturer, other furniture pieces will be produced as secondary
business.
9.13 Organisation and Management

Owing to the fact that the business will be an infant firm, the owner shall assume the
responsibilities of the manager and the supervisor as shown on the following organisation chart:

The organisational chart above shows that the project will not employ many employees at cutting
down cash flow. However, with growth, the project will create employment for many people. The
project will employ 2 carpenters and a receptionist counter sales person. An outside accountant
will be used to prepare books of the project. The project will strive to meet the following
objectives:
 To provide quality furniture

 To extend the product
 To maximise the profit
 To have high staff retention
 To have high customer retention by practicing good customer care
The following table shows position, responsibilities, qualifications and salaries of organisational
members.
Position Responsibilities Qualifications Salary/month

Owner Policy formulation Entrepreneurial skill, $200 000.00
Mobilisation of resources HND/B Tech (Wood)
New project initiation
Human resources planning and recruitment
Opportunity identification
Manager Policy implementation Management certificate $150 000.00
Allocating resources to business units
Marketing Class 1 (carpentry)
Cash flow management
Supervisor Staff motivation and task allocation Class 1 (carpentry & NC $100 000.00
Resource allocation to workers Carpentry
Solving novel technical problems at
operational level At least 2yrs exp
Receptionist/cou Receiving and making calls Salesmanship Certificate $80 000.00
nter sales person Advertising & selling products
Recording business transactions
Carpenter Making furniture Class 1 (carpentry) $90 000.00
Maintaining tools, equipment & machines
Responding to customers‘ needs by At least 2yrs exp
producing prescribed products by customers
9.14 Feasibility Study

The owner carried a feasibility study to determine the suppliers, customers, competitors and
distributors. The feasibility study was carried out through the use of Internet, personal interviews
and questionnaires. The owners also used the press and electronic media to gather information on
competition, supply, customers and distribution channels.
9.15 Target Market

The target customers for the project are made up of the upcoming small businesses, medium
businesses and large firms. The project also targets schools and households for general furniture.
Kwekwe city has a household population of. Whereas the number of schools in Kwekwe is, the
number of businesses is. This population related information and statistics show that the target
market size is large and that there is likelihood of enjoying high demand for the products.
9.16 Products to be offered

The project will offer office desks, dining tables, kitchen tables, room dividers, and kitchen units
among others. The products will be of different styles, designs and features according to customer
specifications.
9.17 Competition
In Kwekwe there are no manufacturers of office desks and other furniture pieces but sales outlets
such as Pelhams, Zimbabwe Furniture‘s, TV Sales and other Indian shops. Kenshell Furnitures
feels that it will out-compete these rivals given that the project is going to be set up in the market.
This explains that the project is not going to incur distribution costs as the target market will always
conveniently get their furniture at manufacturer‘s price. Pelham‘s and others do not have
competitive advantages in terms of price as they offer their products at retail price. In addition,
Kenshell has an added advantage in terms of being able to customize and practice local marketing
as well as nichemanship.
PAYMENTS/CASH
OUTFLOW
Purchases (raw materials) $208 000 $300 000 $600 000
Rent $5 000 $5 000 $50 000
Electricity $10 000 $10 000 $20 000
Salaries $15 000 $15 000 $200 000
Transport $5 000 $10 000 $100 000
Equipment & Machines $24 000 $- $300 000
Loan repayment $1 875 $1 875 $1 875
TOTAL PAYMENTS B $4 268 875 $347 875 $1 271 875
Bal c/d (Net Income) $1 174 917 $5 534 542 $9 549 667
NB: January figures have been
drawn from ‗Project
Requirements‘ on page 14 and
‗Costing‘ on page 12 & 13. For
February and March figures are
based on estimates
9.18 Project Profit and Balance Sheet
Projected Manufacturing, Trading Profit and Loss a/c
January February March

Manufacturing a/c
Production cost
Direct Materials $208 000 $300 000 $600 000
Direct Labour $32 000 $200 000 $200 000
Direct Expenses $- $- $-
Product cost of goods finished $240 000 $500 000 $800 000
Sales $1 409 792 $4 000 000 $6 000 000
Less: Production cost on goods sold
Opening stock of finished goods
Add: production of cost of finished goods $240 000 $500 000 $600 000
$1 169 792 $3 500 000 $5 400 000
Less closing stock of finished goods $169 792 $500 000 $400 000
Gross Profit $1 000 000 $3 000 000 $5 000 000
Less indirect cost(Admin/selling/distr)
Rent $5 000 $5 000 $5 000
Electricity $10 000 $10 000 $20 000
Salaries $15 000 $15 000 $200 000

Transport cost $5 000 $10 000 $100 000
NB: Research on SWOT analysis for the above business and include it
UNIT 10.0 COMPUTERS IN BUSINESS
10.1 Objectives
By the end of this unit you should be able to
 Define a computer
 Discuss the use of computers in business areas such as record keeping, stock control,
accounts, production control
10.2 Definition of a computer

Is a machine that is used to collect, store, process, retrieve and communicate data in business.
10.3 Use of computer in

Record keeping
 Computers are used to keep records such as daily sales, employee records, memos and minutes
of meetings. Computers can also be used to store customer records in the banking sector and
other organisations that deal with customers. Special programmes are developed for the
purpose of capturing and storing the information into databases that can later be retrieved and
used as and when required. Also used in libraries to store book records and facilitating
payments for overdue books.
 Computers are also used in schools to keep student records such as name, address and age (for
those in education business e.g. private colleges).
10.4 Stock Control

Risk management
Risk management involves identifying, analyzing, and taking steps to reduce or eliminate the
exposures to loss faced by an organization or individual. The practice of risk management utilizes
many tools and techniques, including insurance, to manage a wide variety of risks. Every business
encounters risks, some of which are predictable and under management's control, and others which
are unpredictable and uncontrollable.
Risk management is particularly vital for small businesses, since some common types of losses—
such as theft, fire, flood, legal liability, injury, or disability—can destroy in a few minutes what
may have taken entrepreneur years to build. Such losses and liabilities can affect day to day
operations, reduce profits, and cause financial hardship severe enough to cripple or bankrupt a
small business. But while many large companies employ a full time risk manager to identify risks
and take the necessary steps to protect the firm against them, small companies rarely have that
luxury. Instead, the responsibility for risk management is likely to fall on the small business owner.
10.5 Principles of risk management

Risk management should:
 create value - resources expended to mitigate risk should generally exceed the consequence of
inaction, or (as in value engineering), the gain should exceed the pain
 be an integral part of organisational processes
 be part of decision making
 explicitly address uncertainty and assumptions
 be systematic and structured
 be based on the best available information
 be tailorable
 take into account human factors
 be transparent and inclusive
 be dynamic, iterative and responsive to change
 be capable of continual improvement and enhancement
 be continually or periodically re-assessed
10.6 Enterprise Risk Management

The main focus of enterprise risk management is to establish a culture of risk management
throughout a company to handle the risks associated with growth and a rapidly changing business
environment. Writing in Best's Review, Tim Tongson recommended that business owners take the
following steps in implementing an enterprise wide risk management programme:
 incorporate risk management into the core values of the company,

 support those values with actions,
 conduct a risk analysis,
 implement specific strategies to reduce risk,
 develop monitoring systems to provide early warnings about potential risks, and
 Perform periodic reviews of the programme.
Finally, it is important that the small business owner and top managers show their support for
employee efforts at managing risk. To bring together the various disciplines and implement
integrated risk management, ensuring the buy in of top level executives is vital. Luis Ramiro
Hernandez wrote in Risk Management. "These executives can institute the processes that enable
people and resources across the company to participate in identifying and assessing risks, and
tracking the actions taken to mitigate or eliminate those risks."
10.7 Risk in business

Means of measuring and assessing risk vary widely across different professions The various means
of doing so may define different professions, e.g. a doctor manages medical risk, a civil engineer
manages risk of structural failure, etc. A professional code of ethics is usually focused on risk
assessment and mitigation (by the professional on behalf of client, public, society or life in
general).
10.8 Risk sensitive industries

Some industries manage risk in a highly quantified and numerate way. These include the nuclear
power and aircraft industries, where the possible failure of a complex series of engineered systems
could result in highly undesirable outcomes. The usual measure of risk for a class of events is then
Risk = Probability (of the Event) times Consequence.
(The total risk is then the sum of the individual class risks)

In the nuclear industry, 'consequence' is often measured in terms of offsite radiological release, and
this is often banded into five or six decade wide bands.
The risks are evaluated using Fault Tree/Event Tree techniques. Where these risks are low they are
normally considered to be 'Broadly Acceptable'. A higher level of risk (typically up to 10 to 100
times BA) has to be justified against the costs of reducing it further and the possible benefits that
make it tolerable these risks are described as 'Tolerable‘. Risks beyond this level are of course
'Intolerable'.
10.9 Risk in finance

Risk in finance has no one definition, but some theorists, notably Ron Dembo, have defined quite
general methods to assess risk as an expected after the fact level of regret. Such methods have been
uniquely successful in limiting interest rate risk in financial markets. Financial markets are
considered to be a proving ground for general methods of risk assessment.
However, these methods are also hard to understand. The mathematical difficulties interfere with
other social goods such as disclosure, valuation and transparency. In particular, it is often difficult
to tell if such financial instruments are "hedging" (decreasing measurable risk by giving up certain
windfall gains) or "gambling" (increasing measurable risk and exposing the investor to catastrophic
loss in pursuit of very high windfalls that increase expected value).
As regret measures rarely reflect actual human risk aversion, it is difficult to determine if the
outcomes of such transactions will be satisfactory. Risk seeking describes an individual who has a
positive second derivative of his/her utility function. Such an individual would willingly (actually
pay a premium to) assume all risk in the economy and is hence not likely to exist. In financial
markets one may need to measure credit risk, information timing and source risk, probability model
risk, and legal risk if there are regulatory or civil actions taken as a result of some "investor's
regret".
10.10 Business risk analysis

Figure 1 Business Risk Analysis Tool
10.10.1 Description of the Model

The concepts of closeness to the core business and market attractiveness can be combined to
analyze the risk of investing in new offerings. The proximity of the new offering to the core
business is measured by its proximity to current offerings and current markets.
 Characterize Your Enterprise
The expert system will position your enterprise on the chart based upon your description of:
 technology
 familiarity with the materials
 special finishes
 quality standards
 suppliers bargaining power
 threat of substitutes
 threat of new entrants
 competitive rivalry
 bargaining power of the buyers
You can trace through the supporting analysis and its conclusions, adjusting your input until you
are satisfied your description accurately characterizes your enterprise.
Analysis of Your Enterprise Position
Ideal Risky Low Potential Poor Prospect

Close to Core Distant from Core Business Close to Core Business Distant from Core Business
Business High Market Attractiveness Low Market Low Market Attractiveness
High Market Attractiveness

Attractiveness
Offerings in this Offerings in this quadrant are risky to The decision to proceed Offerings in this quadrant are poor
category develop since they stray from the should be based on the prospects. They depart from the core
represent the least core business. They will need a high evaluation of the market business and offer low market
risk and will be level of investment, both in terms of potential. The low attractiveness
ideal candidates resources and expertise. Proceed only attractiveness of the
for development. if the long term corporate strategy is market may be a benefit
intended to develop in this way. since it will be less
lucrative for
competitors.
Figure 2 Results based on the Outcome of Risk Analysis Tool

10.11 Every Business faces the same 5 Key Risks
 Development Risk
Can the original product or service idea actually be created?
 Manufacturing Risk
If the product can be developed, can it actually be produced in appropriate volume?
 Marketing Risk
If the product can be made, can it be sold effectively?
 Financial Risk
If the product can be sold effectively, will the resulting company be profitable and can the
profits actually be realized in a form that allows investors to receive cash
 Growth Risk
If the company can achieve operating profitability at one level, can profitability be
maintained as the company grows and evolves?
10.12 Risk and uncertainty in international business

Risk, uncertainty, and volatility
The universe of uncertainty that each company faces is comprised of endogenous and exogenous
dimensions. Endogenous uncertainty arises from the nature of the internal (i.e. project and
organization level) environment. Exogenous sources of uncertainty, in turn, arise at three levels:
industry, competition and external environment.
Industry level uncertainties originate primarily from technological innovation and changes in the
relative prices of inputs and outputs. Competitive risk represents the degree to which competitors'
actions cannot be predicted, and may therefore bring about unanticipated consequences.
Uncertainty in the external environment refers to the risk present in the operating environment of a
given country.
Environmental uncertainty arises from the prospect of political, macro economic, social, natural,
and financial and currency volatility, and is often represented by the term country risk (Clark and
Marois, 1996, Howell, 1998 and Robock, 1971). Academic usage of the terms risk and uncertainty
has been shaped by Knight's (1921) assertion that the former entails uncertain outcomes of known
probabilities, while the latter entails uncertain outcomes of unknown probabilities. Volatility, in
turn, is typically equated with the statistical measure of variance (or standard deviation), and as
such is an ex post measurement of risk and/or uncertainty.
Among practitioners, however, the most important aspect of all three terms is the unpredictable
nature of potentially detrimental outcomes, or in more colloquial terms ―the future is no longer
what it used to be‖ (Hausmann et al., 1995). For instance, in a survey of financial analysts, Baird
and Thomas (1990) found the most common definitions of risk used by the analysts were;
 size of loss,
 probability of loss,
 variance, and
 Lack of information.
In the same survey, the item that was least associated with risk was the Knightian definition of risk
as known probabilities and outcomes. Unlike gambling, business strategy entails outcomes of
unknown or uncertain probabilities, and the nature of the outcomes themselves may be
unknowable. Also, drawing from real options thinking (e.g. Amram and Kulatilaka, 1999, McGrath
and MacMillan, 2000 and Trigeorgis, 1996),
10.13 Country risk measures and the minimization of downside risk

The analysis of country risk is a well established field within international business research which
demonstrates a clear relevance to practice. Country risk analysis is intended to isolate idiosyncratic
sources of potential volatility in a country's political, economic, or social environment. In line with
the manner in which most practitioners conceptualize risk, the principal objective behind country
risk analysis has been the minimization of downside risk.
10.14 Assessing the track record of established country risk measures
The conceptual concerns with country risk measures outlined in Section 1.2 are corroborated by
empirical research evaluating the extent to which country risk measures are effective predictors of
macro level volatility. In a recent study, Oetzel et al. (2001) examined the performance of 11
widely used measures of country risk during a 19 year period across 17 countries. The authors

found that none of the sampled measures was effective in predicting periods of significant
volatility.
10.15 Steps in the Risk Management Process

According to C. Arthur Williams Jr. and Richard M. Heins in their book Risk Management and
Insurance, the risk management process typically includes six steps. These steps are
 determining the objectives of the organization,
 identifying exposures to loss,
 measuring those same exposures,
 selecting alternatives,
 implementing a solution, and
 Monitoring the results.
The primary objective of an organization, growth, for example will determine its strategy for
managing various risks. Identification and measurement of risks are relatively straightforward
concepts. An Earthquake may be identified as a potential exposure to loss, for example, but if the
exposed facility is in New York the probability of an earthquake is slight and it will have a low
priority as a risk to be managed.
Businesses have several alternatives for the management of risk, including avoiding, assuming,
reducing, or transferring the risks. Avoiding risks, or loss prevention, involves taking steps to
prevent a loss from occurring, via such methods as employee safety training. As another example, a
pharmaceutical company may decide not to market a drug because of the potential liability.
Assuming risks simply means accepting the possibility that a loss may occur and being prepared to
pay the consequences. Reducing risks, or loss reduction, involves taking steps to reduce the
probability or the severity of a loss, for example by installing fire sprinklers.
Transferring risk refers to the practice of placing responsibility for a loss on another party via a
contract. The most common example of risk transference is insurance, which allows a company to
pay a small monthly premium in exchange for protection against automobile accidents, theft or
destruction of property, employee disability, or a variety of other risks. Because of its costs, the
insurance option is usually chosen when the other options for managing risk do not provide
sufficient protection. Awareness of, and familiarity with, various types of insurance policies is a
necessary part of the risk management process. A final risk management tool is self retention of
risks—sometimes referred to as "self insurance." Companies that choose this option set up a special
account or fund to be used in the event of a loss.

Any combination of these risk management tools may be applied in the fifth step of the process,
implementation. The final step, monitoring, involves a regular review of the company's risk
management tools to determine if they have obtained the desired result or if they require
modification. Nation's Business outlined some easy risk management tools for small businesses:
maintain a high quality of work, train employees well and maintain equipment properly, install
strong locks, smoke detectors, and fire extinguishers, keep the office clean and free of hazards,
back up computer data often, and store records securely offsite.
10.16 Strategies to Manage Risk
Risk management decisions can be individual or made by groups.

The amount of risk a company or an individual is willing to accept varies based on the risk
management strategy accepted by that company or individual. Risk management strategies range
from avoiding all risk whenever possible, to accepting most risks and doing everything possible to
eliminate those risks. When accepting risk, the company or individual must make sure it is a
potentially profitable decision. Once the level of risk that is acceptable is determined, a strategy
matching that level can be chosen.
10.17 Risk Avoidance

Risk avoidance means avoiding projects or investments that offer a higher level of risk than the
company or individual is willing to accept. Each individual or company should determine the level
of risk that is acceptable in an investment or company activity. If the level of risk of the potential
activity is higher than the acceptable amount, that opportunity is declined under the risk avoidance
strategy.
10.18 Risk Transfer
Risk transfer is used to eliminate the risk in exchange for consideration given to the company that
accepts the risk. According to C-risk.com, this consideration is commonly in the form of money
paid to the company that accepts the risk. The company accepting the monetary payment then
insures the company making the payment by accepting the risk and covering any expenses
associated with that risk if they occur.
10.19 Risk Allocation
Risk allocation involves sharing the risk with another party. In business, this can be done by having
another organization work in partnership with your company on a project. The companies agree to
share the expense associated with the risk. This can also be done with private investments. This is
done by having multiple investors contribute into the total investment, each sharing a portion of the
risk based on their investment and any written clauses in their investment agreement.
10.20 Risk Retention
Sometimes the cost to either share a risk or transfer the risk is too high. An example of this would
be that the premiums paid to the insurer are higher than the cost of taking the risk itself in the view
of the company. In a private investment, an example could be if the other investors are asking for
clauses in the investment contract that the original investor feels could cost it more money than the
financial risk of the investment.
10.21 Risk Abatement
Risk abatement refers to accepting the risk involved in an action, but doing everything possible to
limit the amount of risk involved. An example for a company installing a new employee review
system would be to contact other companies using that review system. They would ask that
company about legal issues and issues that arose with employee relations based on that new review
system, and how that company reduced them. The company would implement those
recommendations, as well as having outside resources such as an attorney review the policy for
possible problems. The company then implements any recommendations from the attorney to
reduce the risk as much as possible.
10.22 Five characteristics of a strong risk management programme

Senior management champions the programme
As with so many business initiatives, the success of a risk management programme depends on the
active support of senior management.
They are inclusive

Effective risk management programmes do not rely on the work and resources of any single person
or group within the organization. While often led by a risk management officer, the best
programmes draw on the input and co operation of every part of the organization.
They are transparent

Risk management programmes work best and companies reap the greatest possible benefit from
them when their goals, processes and results are shared with all the company‘s stakeholders.

They are holistic

The best risk management programmes not only address all the risks to which modern corporations
are susceptible, they also consider how these various risks can affect the company‘s stakeholders
and operations.
They are proactive

Effective risk management programmes do not merely insure companies against downside risks,
they also include proactive systems and processes to maximize the opportunities the opportunities
presented by variable risks.
Retention Management
The workforce planning for Wisconsin State Government (2005) defines retention management as
―a systematic effort by employers to create and foster an environment that encourages current
employees to remain at the same employer having policies and practices in place that address their
diverse needs‖.
In a time of demographic change the binding of employees is especially important for the survival
of companies. Today firms should recognize that the number of workers in absolute terms is
falling. Companies should take measures in advance and set up a systematic retention management,
which is becoming a major issue for many businesses. A manager should keep in mind: "getting
good staff is only half of the battle; the other half is keeping them".
10.23 Objectives and Principles of Retention Management

Retention management focuses on the effective system of measures that lead to retention of
employees. It includes all activities that systematically influence the binding, performance and
degree of loyalty of staff. David J. Forrest (1999) defines 5 basic principles of retention
management, that lead to successful employee performance and satisfaction, and therefore to their
retention.
First of all, employees need to feel they are appreciated, valued and trusted. It is about respecting
people and their contributions to the company effort.
The second principle is development. Employees who participate in their own growth and
development plans are going to stay with the company because they know their company wants
more for them.

The third principle is growth in responsibility. Most people want to grow and to feel more
competent and more responsible, at any level. A good company helps people manage themselves
by consistently focusing on performance and results. The manager teaches the employee what they
are good at, what else they need to know and how to get it. As they grow they receive higher levels
of responsibility and accountability. This attitude also encourages innovation and creativity.
The fourth principle is a good relationship with the manager. The supervisor represents the
personal experience of a corporation of employees and therefore reflects, for better or for worse, its
underlying attitudes toward them.
The fifth principle is success. The valued and successful employee stays. This implies, of course,
that the work is meaningful to the corporate enterprise. The strong employer rewards employees for
helping to make others successful as well.
As a result a company expects from its staff power, loyalty and willingness to stay in the company.
Employees expect a fair treatment and a personal appreciation, which lead to the efficiency of
retention management.
10.24 The procedure of Retention Management

The procedure of retention management consists of six steps:
 Identification of the target and actual needs of the staff
 Analysis of the fluctuation risk of the staff
 The Analysis of factors of Motivation / Demotivation of the retention group
 Identification of the targeted measures
 Implementation of the measures
 Evaluation of the measures
Step 1
Identification of target and actual needs of the staff- The starting point is the corporate strategy
and business objectives. The product, market or organisational goals of the company can help to
identify strategic staffing needs and the strategic relevant skills of employees.
Step 2
Analysis of the fluctuation risk of staff In step 2, the HR manager is interested in the degree of
the fluctuation risk. First, it is important, to analyse the common portfolio of the potentials and
performance of the employees. In large companies, this could be done through a management audit.
In small businesses this can be clarified with an employee interview. This gives the manager
information about the power structure in the relevant group. But this information is not enough to
estimate the probability of fluctuation. It is also necessary to consider the demand for the relevant
skills in the labor market. When a manager combines the results of the analysis he can identify
three risk categories, which would cause a priority for the retention management:
 Those employees, who are in great demand in the labour market and who have a high
capacity, are the key target group for retention management measures.
 Those employees, who perform well and whose skills are somewhat in demand in the
labour market, have a mean fluctuation risk. Depending on the corporate strategy they are
the second important target group for retention management measures.
 Employees that have skills that exist in large numbers in the labour market and who also
who perform well are currently not a relevant retention target.
Step 3
Analysis of factors of Motivation/Demotivation of the retention group Now motivators and
demotivators must be found in the identified retention target group. The motivators must be taken
into account and demotivators must be removed with the help of appropriate measures, to ensure
that the employees develop affective commitment. Motivators and demotivators can be estimated
from the outcome of questionnaires. Subsequently a Motivation / Demotivation profile of the
retention target group should be formed.
Step 4
Identification of the targeted measures The various measures of human resource management
relate to different motivational factors. These connections can be used to create a specific matrix in
which the action areas of personnel management and appropriate measures will be brought together
with the motivational factors.
Step 5
Implementation of the measures after the analysis measures will be implemented. Here are some
important aspects:
 Conceptual foundations: The measures must be defined and applied according to clear rules,
in this context ad hoc measures lead only to short-term success with negative cultural
impact.

 Cultural fit: Measures must be in accordance with the corporate culture and the existing
Management tool system For example, a variable compensation system makes little sense
without a performance appraisal system!
 Marketing personnel action: The application of the measures must be accompanied by
internal communication. Only then the efforts of a retention manager will be perceived!
 Retention factors: By the design and implementation of retention management policies
respect and transparency must be taken into account. Only when these measures convey
these values, they will have great influence!
Step 6
Evaluation of the measures after the implementation of the measures it is necessary to assess the
success of the activities. This can be achieved by comparing the results to the objectives that were
set in the retention management strategy. After the expiry of the defined period and after
application of the retention policies the manager can check how the objectives were achieved. For
example, if the objective was that 80% of the defined strategically relevant staff should be in
business at time X, then the manager can determine whether this ratio was reached at time X, and
whether it was exceeded or not exceeded. From this statement the manager can derive new
measures and draw conclusions about the practice of the concept of retention management.
Important conditions for the success of retention management are on the one hand, human resource
management in the company, and on the other hand project management of the implementation of
retention management.
10.25 Marketing Mix Strategy

A marketing mix strategy is a strategy that has been formulated after taking into consideration the 4
P‘s of marketing: product, price, place and promotion.
Launching a product in the market and winning consumers in the initial period is not enough.
Sustaining market share even when competitors are on the rise is crucial for long-term profit. We
all know consumers have short concentration spans. It doesn't take long for a competitor to come
and dangle a similar product, thereby snatching away one's consumers. Thus, a company has no
time to be complacent. In this world of 'survival of the fittest', one cannot afford to be happy with
today's sales rates and relax. Instead one needs to analyze the product life cycle and the marketing
mix strategy and come up with ways to keep consumers lured.
Product
A 'Product' is anything that satisfies a customer's need. The product may be a tangible commodity
like cars, accessories, gadgets, etc. or may be an intangible service like health care service, hotel
service, etc. The product is the first P of the marketing mix and is by default the most important
aspect of the marketing mix. This is because the product is the bait of the company, without which
it cannot get the fish. A bad, stinky bait will not lead to hooking soda cans. So this explains how
crucial a good, innovative and impressive the product has to be. A useless, unimpressive product
can never succeed no matter how good the other three P's of the marketing mix are. Thus,
companies need to conduct thorough market research, to check if consumers need this product and
then need to come up with a product that has a cutting edge above other products sold by
competitors.
Price
Second place in the marketing mix goes to 'Price'. According to the management stalwarts; Philip
Kotler and Gary Armstrong, the concept of price refers to the amount of money a consumer has to
pay to attain a product. Price determination is not child's play. It is a popular belief that low prices
lure large number of customers, thereby resulting in high sales ratios. However, this is not true.
Price alone will not attract consumers. Before arriving at a price, the company needs to consider the
prices of similar products sold in the market. Moreover, depending on the features provided by the
product they will have to raise or lower the price. It doesn't end here! Price administration is also
required, wherein the company needs to consider factors like geographic location, times for special
sales, distributors, etc. to determine the price at special situations. For example a product in the
United States may vary in price from the one sold in India. Depending on the demand for a product
at a particular place, price determination can vary.
Place
The third P in the marketing mix stands for 'Place'. This refers to the methods of distributing
finished products from the manufacturing unit to the final consumer. This would involve
transportation and storage of goods, till they are availed by the customer. It's all about 'providing
the right product to the right place at the right time' with the help of an efficient distribution system.
The type of distribution channel chosen by manufacturers will depend on whether they find it
convenient to sell it to wholesalers or directly to retailers or consumers via specific dealers. The
company will focus on making products available to the consumer as fast as they can.
Promotion
The fourth P in the marketing mix stands for 'Promotion', which refers to a company's
communication line with the end consumer. Just like how, having talent is useless till one actually
uses it and lets the world see it, same is the case with a product. No matter how good the product is,
if it remains in the factory, it will never rope in profits. It needs to be publicized among people who
need it, who will buy it and come back to make more purchases.
Various marketing promotion methods can be used to advertise the product and generate
awareness. Promotional costs are usually very high in the introduction stage of the product life
cycle, however, as the product gains market share, the promotional costs reduce. Later when the
product sale begins to decline, it again undergoes vigorous advertising using various marketing
tools.
Thus, marketing strategy and marketing mix are interdependent concepts. Depending on the current
situations, a marketing strategy is formulated using the appropriate proportions of the 4Ps. After
analyzing the stage in the product life cycle, the company needs to formulate a marketing mix
strategy.
11.0 Marketing Plan (For “The Tool” Offered By the Internet Tool Company, Inc. (ITC)
11.0 Summary
Internet Tool Company, Inc. (ITC) has been formed to create Internet development tools. The
market for Internet tools is growing very rapidly. ITC‘s first development tool, ―The Tool,‖
provides a major technical breakthrough by virtue of its ―intelligent agent‖ feature. The intelligent
agent makes it very easy to create documents and at the same time offers great flexibility in
changing documents and other graphic material.
―The Tool‖ will be positioned as the premier Internet development tool for heavy computer users.
ITC will target its marketing efforts narrowly at the core heavy user market. Because the product‘s
ease of use is of less importance to highly experienced computer users, ITC will give more
marketing emphasis to the product‘s other key benefit: flexibility.
ITC will completely avoid the retail store marketplace, where its lack of ability to fund expensive
national and co-op advertising campaigns and its lack of presence in this marketplace would make
it very difficult to compete or even gain entrance. Wholesalers and retailers are often more
interested in the marketing support and name recognition that products enjoy than the product‘s
functionality and features. Instead, the product will be sold direct and via catalogues in a carefully
targeted marketing campaign. ―The Tool‖ will be placed at the very high end of the consumer

segment at $100 to further emphasize the product‘s superiority and take advantage of the fact that
consumers buying direct are less price sensitive than retail buyers.
11.1 The Market

Over 30 million people are currently using the Internet. Internet users are expected to grow in
number by at least 25 percent each year for the next five years. The potential number of consumers
for our Internet development tools is at least 20 million now with the potential for 30 million in two
or three years. Recent trends indicate that, while Fortune 500 businesses will continue to seek out
the Internet, faster growth will be seen in the home and small business market.
11.2 Market Segmentation

The market is divided into three relatively distinct segments: the corporate/professional segment,
the small business segment, and the consumer segment.
11.3 Corporate/Professional Segment

This market includes large corporations, institutions, government agencies, and professional
developers. Internet development tools aimed at this market are expensive, costing upwards of
$500; may take some time to master, even for seasoned technical developers; but provide the
maximum number of options and flexibility in site design. Small Business Segment:
Internet development tools aimed at this market are mid-priced, typically costing from $100 to
$500. They are designed to be used by people without development experience, although ease of
use is a secondary feature to the ability to create the broad range of functionality likely to be
required by a small business.
Consumer Segment
This segment is driven by low price (under $100) and ease of use, with breadth of functionality
typically being sacrificed. The consumer segment is the segment that ITC is positioning its product
for.
11.4 Consumer Analysis

The target group of consumers for this product is heavy recreational computer users. They typically
have used computers for three or more years. They have already used a commercial on-line service
and have used at least several software packages extensively. They also tend to buy new software
from time to time, if not regularly.

While the target group is increasingly buying software at retail outlets, many (especially those that
tend to use their computers the most) buy their software through mail-order catalogues and quite a
few order at least some software directly from the publisher. Even when buying software in retail
outlets this group tends less to buy on impulse and are more apt to be looking for a specific item on
which they are pre-sold. This group is most likely to be pre-sold by editorial coverage in computer
publications such as reviews and product announcements and by word of mouth. Because this
audience is exposed to so much information about so many competing products, it is most likely to
decide on a particular item as a result of multiple exposures to information about a product—often
from different types of sources.
Members of the target group tend to live in suburban or urban areas. They are typically male; aged
thirty to forty-five; college educated; have a household income range between $40,000–$100,000;
are homeowners; and hold professional jobs. Many belong to computer clubs.
They read two or more computer publications, a major metro newspaper, and one or more
consumer magazines. While they watch television several hours per week their viewing tends to be
less than average. They tend to listen to radio stations while they commute in their cars—tuning
into a broad variety of formats.
11.5 Product Features and Benefits

Several products are already in the marketplace in the under $100 price range that offer similar
functionality. These products offer powerful editing capability for text-only documents as well as
for graphics. They give users the capability of moving large amounts of text or graphics into a form
translatable into a language understood by the Internet.
ITC‘s main distinctive feature is its intelligent agent. The benefit to consumers is that the product is
easier to use and more flexible than competing products. The intelligent agent ―walks‖ users step
by step through the process of creating a document. The most similar competing product offers
more passive help by using ―placeholders‖ where the user places objects on a layout page. While
the placeholder approach also gives users the ability to quickly assemble creative material, it does
not give the user the flexibility of moving objects about.
11.6 Strengths
Engineering: As shown by the features of its first product, ITC has a strong competitive edge in its
engineering capabilities. The intelligent agent is a leap ahead of its competitors. This strength
should help ITC keep ahead of its competition in the future as well.

11.7 Fast Development Cycle: Even with a product offering superior capabilities, ITC was able to
create its first product from scratch in a very short period of time. This ability coupled with superior
engineering skills, should give ITC the ability to stay on the leading edge of product design over a
sustained period of time.
11.8 Closeness to Market: Almost all key employees have a long experience of personal Internet use
and keep in close touch with many in the industry and at different computer clubs who are also
heavy Internet users. This gives ITC the ability to keep abreast of the marketplace and strong
insight into the changing demands of its core customers.
11.9 Weaknesses
Financial: Even after raising the additional planned funding, the company will be substantially less
well capitalized than some of its competitors. This would make it particularly difficult to finance
the national advertising and promotion campaign that would be important if the company were to
try to obtain shelf space at computer retailers nationwide.
No Market Presence: the Company currently has any other products in the market or coming to
the market soon. It has no relationship with any resellers. This contrasts with several competitors,
who are already selling product through many outlets, including retailers, and competitors who
have other offerings in their product line.
Weak Marketing and Sales Staff: The Company has one marketing manager and no sales staff.
The marketing manager has several years of experience in selling hardware add-ons direct to major
corporate customers but no experience selling software or selling products to consumers.
11.20 Sales
ITC will sell the product via established direct-mail catalogue and through promotional efforts with
computer clubs.
Direct-mail catalogues will be chosen on the basis of how closely the demographics of the
catalogues match the demographics of ITC‘s target market.
To prompt consumers to order direct, ITC will accept orders on the Internet and via a toll-free 800
line.
11.21 Advertising and Promotions

Because ITC‘s budget is very limited, it will keep its message simple, emphasizing its product‘s
flexibility and ease of use. With the company‘s very limited budget, initial ads in direct mail
catalogues will be small—typically no larger than 1/8 page. Ad copy will contrast with competitive
products that are shrink-wrapped and sold at lower prices to less experienced computer users.
Press releases will first emphasize the company‘s two key benefits. But they will also offer a lot of
technical detail that will appeal to the editors and publications most important to effectively
reaching the core target market. The company‘s top technical people will give talks at computer
clubs, again to help position ITC on the leading edge. Packaging will be subdued and professional-
looking to further contrast ITC‘s product with the competitor‘s offerings.
11.22 Competitive Reaction

By positioning ITC‘s product as the premier product at the top end of the price range, any price
cutting by competitors will only help reinforce ITC‘s premium positioning. While deep pocketed
competitors may trumpet their products with expensive, colourful magazine ads, these ads will be
unlikely to have much impact on ITC‘s core audience of highly experienced computer users.
11.23 The Future

Because ITC has relatively weak marketing and financial strengths; it must rely upon continued
product innovation to remain viable. Sooner or later competitors will mimic ITC‘s features.
However, ITC‘s engineering and fast- to-market capabilities should allow it to stay one step ahead
of competitors. And each new product feature will help ITC gain more publicity for its product.
12.0 Tax and Customs Requirements For New Businesses
One of the best ways of ensuring success and continuity in any business is to ensure that all statutory
obligations are met in time. This article seeks to alert our valued clients who are about to start new
business ventures on some of the basic requirements relating to tax and customs legislation.
12.1 Income Tax

 All clients, including individuals, companies, partnerships and cooperatives who want to
venture into any business venture are required to register with ZIMRA and comply with all
obligations as stipulated in the legislation. To register, you are required to have a bank
account among other requirements.
 Once you have a bank account, you can then approach ZIMRA for registration. You will
be required to complete registration forms depending on the nature of your business
operations. All clients will be required to complete the REV 1 form, which can be obtained
from ZIMRA offices or can be downloaded from this website. Once registered, you will be
issued with a Business Partner Number (BP) which acts as the business‘ identification

number and is used for all transactions with ZIMRA, including remittances of tax.
 After commencing operations, you are required to keep records of all your business
operations and pay Provisional Tax on the stipulated dates (as shown below). The dates are
referred to as Quarterly Payment Dates (QPDs). The Provisional Tax payable is based on
the respective percentage of estimated annual tax due. The annual estimated tax due should
be revised to update the estimate every quarter.
 The form ITF 12B, which is a return for provisional tax payments, has to be completed in
respect of these payments.
 The payment dates and the percentage of tax due for each tax year are listed below:
Due Date Instalment Due

QPD
(on or before) (as a % of the annual tax payable)
1st QPD 10%

25th March
25th June 25%

2nd QPD
3rd QPD 30%

25th September
4th QPD 20th December 35%
• Some businesses, operators are required to pay Presumptive Taxes and this includes operators of
omnibuses, taxi-cabs, driving schools, goods vehicles, hairdressing salons, informal traders,
operators of restaurants or bottle stores, small scale miners, cottage industry operators
,operators of commercial waterborne vessels used for the carriage of passengers for profit and
fishing rigs.
 A tax return is required after the end of each tax year. The tax year runs from 1 January to 31
December of each year. Clients who have been specified in terms of Section 37A of the Income
Tax Act [Chapter 23:06] as being on Self-Assessment are required to furnish Self-Assessment
Returns in duplicate by 30th April of the following year.
 Operators will also require a Tax Clearance Certificate - form ITF 263 which is issued by
ZIMRA once you have met all the stipulated obligations which include submission of tax
returns and remittances of tax due. If you do not have this clearance, anyone who pays you any
amounts in excess of US$250.00 are required to withhold and remit to ZIMRA 10% of the
amounts paid.
 There is need to strictly observe the requirements in Section 80 of the Income Tax Act [Chapter
23:06]. It requires that all registered business taxpayers who enter into any contracts which
result in an obligation to pay any amounts whose total or aggregate is US$250.00 or more to
withhold 10% of each amount payable to payees who fail to furnish valid tax clearance
certificates.
12.2 Value Added Tax (VAT)

Any person who carries on trade in taxable supplies and whose annual taxable turnover exceeds
or is likely to exceed US$60 000.00 must apply to register for VAT on Form VAT1.
Responsibilities upon registration include:
 Keeping accounting records for a period of at least six (6) years after the tax period to
which the period relates.
 Completing and submitting VAT returns even if you do not owe ZIMRA. ZIMRA will
advise you of the frequency of submitting the returns though most clients submit returns
either monthly or after every two months.
 Calculating and remitting the VAT due to the Commissioner on or before the due date.
 With effect from 1st January 2012, the due date for the submission of VAT returns and
payment has been extended from the 20th to the 25th of the month following the end of the
tax period.
 Issuing tax invoices for any taxable supply whose value is more than US$10.00.
 Record transactions electronically. With effect from 1 st of October 2011, all registered
operators are also expected to comply with fiscalisation regulations .This is a requirement
where registered operators under category ―C‖ and whose annual turnover exceed US$240
000.00 are expected to record transactions electronically.
 Advising ZIMRA of any change in business details, including address, addition of/or
change of partner, cessation of trade, etc.
 Allowing ZIMRA officials to enter your business premises and examine goods and all
business records.
12.3 PAYE
 Every business person who becomes an employer is required to apply to the Commissioner
General for registration within 14 days of becoming an employer.
 The employer will be given the relevant tax deduction tables and informed of his/her
obligations as an employer. Some of the obligations include:
 Calculation and deduction of PAYE in accordance with the tax deduction tables

 Remittance of PAYE to ZIMRA within 10 days after the end of the month during which the
amount was withheld. Please note that with effect from 1st September 2010, the remittance
of PAYE was moved from within 10 days after the end of the month during which the
amount was withheld.
 Keeping accounting records for a period of at least six (6) years.
 Submission of the ITF 16 return which contains details on annual earnings, deductions,
credits and PAYE for each employee within 30 days after the end of the year.
 You will note that failure to withhold any amounts which you are required to withhold
renders you liable to the amounts due as well as penalties and interest. Observing these
basic requirements will assist you in running your business professionally and helps avoid
the anxiety and stress associated with noncompliance and having to pay arrears, interest,
fines and penalties
12.14 Customs and Excise

• In the event that you intend to import goods, you are still required to have registered
with ZIMRA so that you have the BP number that will identify you as an importer. You
will need a clearing agent approved and registered with ZIMRA to handle your
importations or you may register with ZIMRA to do your own clearances.
 For exports, you will also need an agent to handle the exports or register on your own
with ZIMRA.
 You are required to keep reasonable and proper records and books of accounts for all
transactions and maintain records of all the bills of entry, bills of lading, rail notes,
invoices and all other documents required to be accounted for in terms of the Customs
and Excise Act. Retain all records for at least six (6) years.
12.15 Corporate tax

Corporate tax or company tax refers to a tax imposed on entities that are taxed at the entity level in
a particular jurisdiction. Such taxes may include income or other taxes. The tax systems of most
countries impose an income tax at the entity level on certain type(s) of entities (company or
corporation). Many systems additionally tax owners or members of those entities on dividends or
other distributions by the entity to the members. The tax generally is imposed on net taxable
income. Net taxable income for corporate tax is generally financial statement income with
modifications, and may be defined in great detail within the system. The rate of tax varies by

jurisdiction. The tax may have an alternative base, such as assets, payroll, or income computed in
an alternative manner.
Most income tax systems provide that certain types of corporate events are not taxable
transactions. These generally include events related to formation or reorganization of the
corporation. In addition, most systems provide specific rules for taxation of the entity and/or its
members upon winding up or dissolution of the entity.
In systems where financing costs are allowed as reductions of the tax base (tax deductions), rules
may apply that differentiate between classes of member-provided financing. In such systems, items
characterized as interest may be deductible, subject to interest limitations, while items
characterized as dividends are not. Some systems limit deductions based on simple formulas, such
as a debt-to-equity ratio, while other systems have more complex rules.
Some systems provide a mechanism whereby groups of related corporations may obtain benefit
from losses, credits, or other items of all members within the group. Mechanisms include combined
or consolidated returns as well as group relief (direct benefit from items of another member).
Most systems also tax company shareholders on distribution of earnings as dividends. A few
systems provide for partial integration of entity and member taxation. This is often accomplished
by "imputation systems" or franking credits. In the past, mechanisms have existed for advance
payment of member tax by corporations, with such payment offsetting entity level tax.
Many systems (particularly sub-country level systems) impose a tax on particular corporate
attributes. Such non-income taxes may be based on capital stock issued or authorized (either by
number of shares or value), total equity, net capital, or other measures unique to corporations.
Corporations, like other entities, may be subject to withholding tax obligations upon making certain
varieties of payments to others. These obligations are generally not the tax of the corporation, but
the system may impose penalties on the corporation or its officers or employees for failing to
withhold and pay over such taxes. Many countries impose corporate tax or company tax on the
income or capital of some types of legal entities. A similar tax may be imposed at state or lower
levels. The taxes may also be referred to as income tax or capital tax. Entities treated as
partnerships are generally not taxed at the entity level. Most countries tax all corporations doing
business in the country on income from that country. Many countries tax all income of corporations
organized in the country.

Company income subject to tax is often determined much like taxable income for individuals.
Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may
differ significantly from rules for taxing individuals. Certain corporate acts, like reorganizations,
may not be taxed. Some types of entities may be exempt from tax.
Many countries tax corporate entities on income and also tax the owners when the corporation pays
a dividend. Where the owners are taxed, a withholding tax may be imposed. Generally, these taxes
on owners are not referred to as corporate tax.
12.16 Corporation defined

A corporation is a juridical person organized under the corporate or company laws of some
jurisdiction. The jurisdiction may be a country or a subdivision of a country. For example, in
Canada, a corporation may be organized under either Federal or provincial laws. Most jurisdictions
recognize as corporations entities organized under the corporate or company laws of other
jurisdictions. Under many tax systems, any entity providing limitations on the liability of all
members for the actions of the entity is considered a corporation. Characterization as a corporation
for tax purposes is based on the form of organization in most taxing jurisdictions. One notable
exception applies for United States Federal and most state income taxes within the United states
under which an entity may (with exceptions) elect to be treated as a corporation and taxed at the
entity level or taxed only at the member level. Governments may impose tax on corporations as
separately from their owners. Most jurisdictions tax companies or corporations at the entity rather
than the member level. Members of the corporate entity are generally not subject to tax on the
entity's earnings until such earnings are distributed. By contrast, most jurisdictions tax partnerships
at the member level and not the entity level. Members of a partnership are generally subject to tax
on the partnership's earnings as they are earned rather than when they are distributed.
12.17 Taxation of corporations

Corporations may be taxed on their incomes, property, or existence by various jurisdictions. Many
jurisdictions impose a tax based on the existence or equity structure of the corporation. For
example, Maryland imposes a tax on corporations organized in that state based on the number of
shares of capital stock issued and outstanding. Many jurisdictions instead impose a tax based on
stated or computed capital, often including retained profits.
Most jurisdictions tax corporations on their income. Generally, this tax is imposed at a specific rate
or range of rates on taxable income as defined within the system. Some systems have a separate
body of law or separate provisions relating to corporate taxation. In such cases, the law may apply
only to entities and not to individuals operating a trade. Such laws may differentiate between broad
types of income earned by corporations and tax such types of income differently. Generally,
however, most such systems tax all income of a corporation in the same manner.
Some systems (e.g., Canada and the United States) tax corporations under the same framework of
tax law as individuals. In such systems, there are normally taxation differences related to
differences between the inherent natures of corporations and individuals or unincorporated entities.
For example, individuals are not formed, amalgamated, or acquired, and corporations do not
generally incur medical expenses except by way of compensating individuals.
Many systems allow tax credits for specific items. Such direct reductions of tax are commonly
allowed for foreign taxes on the same income and for withholding tax. Often these credits are the
same as those available to individuals or for members of flow through entities such as partnerships.
Most systems tax both domestic and foreign corporations. Often, domestic corporations are taxed
on worldwide income while foreign corporations are taxed only on income from sources within the
jurisdiction. Many jurisdictions imposing an income tax impose such tax income from a permanent
establishment within the jurisdiction.[7]
Corporations are also subject to property tax, payroll tax, withholding tax, excise tax, customs
duties, value added tax, and other common taxes, generally in the same manner as other taxpayers.
These, however, are rarely referred to as ―corporate tax.‖
12.17 Taxable income

Most systems impose income tax at a specified rate of tax times taxable income as defined in the
system. Many systems define taxable income by reference to net income before income taxes per
financial statements prepared under locally accepted accounting principles. Such income may be
decreased for income subject to tax exemption. Other adjustments often apply.
Some systems define taxable income within the system. The United States system defines taxable
income for a corporation as all gross income (sales plus other income minus cost of goods sold and
tax exempt income) less allowable tax deductions, without the allowance of the standard deduction
applicable to individuals.
Principles for recognizing income and deductions may differ from financial accounting principles.
Key areas of difference include differences in the timing of income or deduction, tax exemption for
certain income, and disallowance or limitation of certain tax deductions. The United States system
requires that these differences be disclosed in considerable detail for non-small corporations on
Schedule M-3 to Form 1120.
Most systems tax resident corporations (generally those organized within the country) on their
worldwide income, and nonresident corporations only on their income from sources within the
country. A few systems, such as Hong Kong, tax resident and nonresident corporations only on
income from sources within the country.
12.18 Corporate tax rates

Corporate tax rates generally are the same for differing types of income. However, many systems
have graduated tax rate systems under which corporations with lower levels of income pay a lower
rate of tax. Some systems impose tax at different rates for different types of corporations. Tax rates
vary by jurisdiction. In addition, some countries have sub-country level jurisdictions that also
impose corporate income tax. Some jurisdictions also impose tax at a different rate on an
alternative tax base (see below). Note that some entities may be eligible for tax exemption on part
or all of their income in some jurisdictions.
Examples of corporate tax rates for a few English-speaking countries include:
 Australia: 30%, however some specialized entities are taxed at lower rates.
 Canada: Federal 11% or 16.5% plus provincial 1% to 16%. Note: the rates are additive
 Hong Kong: 16.5%
 Ireland: 12.5% on trading (business) income, and 25% on non-trading income.
 New Zealand: 30%
 Singapore: 17% from 2010, however a partial exemption scheme may apply to new
companies.
 United Kingdom: 21% to 26% for 2009–2011
 United States: Federal 15% to 35%. States: 0% to 10%, deductible in computing Federal
taxable income. Some cities: up to 9%, deductible in computing Federal taxable income.
The Federal Alternative Minimum Tax of 20% is imposed on regular taxable income with
adjustments.

Example
The following illustrates the dual level of tax concept:
C Corp earns 100 of profits before tax in each of years 1 and 2. It distributes all the earnings in year 3,
when it has no profits. Jim owns all of C Corp. The tax rate in the residence jurisdiction of Jim and C Corp
is 30%.
Year 1 Cumulative Pre-Tax Income Taxes
Taxable Income 100 100
Tax 30 30
Net After Tax 70
Year 2
Taxable Income 100 200
Tax 30 60
Net After Tax 70
Jim's Income & Tax -0-
Year 3:
Distribution 140
Jim's Tax 42 102
Net After Jim's Tax 98
Totals 200 102
51%
13.0 Labour Legislation

Industrialisation creates a number of social and economic problems like employment of women and
children, minimum wages, trade unions, insanitary living quarters and deplorable working
conditions in the factories, etc. Labour laws are, therefore, enacted to facilitate their solutions, as
ordinary civil laws are inadequate to meet them. The State has adopted a progressive policy, and is
keeping pace with the labour policy of the Government of India and the standard laid down by the

International Labour Organisation. This has produced a plethora of legislation and their
administration. These laws also deal with the regulation of industrial relations between the
management and the workers.
The salient features of the Central and State Labour Acts in force in the district are given
hereunder: The Indian Factories Act of 1948 provides for the health, safety and welfare of the
workers. The Punjab Shops and Commercial Establishment Act, 1958, regulates the conditions of
work and terms of employment of workers engaged in shops, commercial establishments, theatres,
restaurants, etc. The Punjab Maternity Benefit Act, 1943, provides for the grant of cash benefits to
women workers for specified periods before and after confinements. The Employment of Children
Act, 1938, prohibits the employment of young children below the age of 15 years in certain risky
and unhealthy occupations. The payment of wages Act, 1936, regulates the k\timely payment of
wages without any unauthorized deductions by the employers. The Minimum Wages Act, 1948,
ensures the fixation and revision of minimum rates of wages in respect of certain scheduled
industries involving hard labour. The Industrial Disputes Act, 1947, provides for the investigation
and settlement of industrial disputes by mediation, conciliation, adjudication and arbitration. There
is scope for payment of compensation in cases of lay-off and retrenchment. The Industrial
Employment (Standing Orders) Act, 1946, requires employers in Industrial establishments to define
precisely the conditions of employment under them and make them known to their workmen. These
rules, once certified, are binging on the parties for a minimum period of six months. The
Workmen‘s Compensation Act, 1923, provides for compensation to injured workmen of certain
categories and in the case of fatal accidents to their dependants if the accidents arose out of and in
the course of their employment. It also provides for payment of compensation in the case of certain
occupational diseases. The Indian Trade Unions Act, 1926, recognizes the right of workers to
organise into trade unions, when registered, has certain rights and obligations and function as
autonomous bodies. The Employees‘ State Insurance Act, 1948, provides for sickness benefit,
maternity benefit, disablement benefit and medical benefit. The Employees‘ Provident Fund Act,
1952, seeks to make a provision for the future of industrial worker after he retires or in case he is
retrenched, or for his dependents in case of his early death. The Punjab Industrial Housing Act,
1956, provides for the administration allotment, realization of rent, etc., in connection with quarters
constructed under the Subsidized Industrial housing Scheme.
The labour welfare work, thus, covers a wide range of activities and in its present form is widely
recognised and is regarded as an integral part of the industrial system and management.

The labour laws in the State are administered by the Labour Department headed by the Labour
Commissioner, Punjab. The Employees‘ State Insurance Act, 1948, and the Employees‘ Provident
Fund Act, 1952, are however, operated under the direction of the Employees‘ State Insurance
Corporation and the Regional Provident Fund Commissioner, Punjab, respectively. The Labour
Commissioner is assisted in his work by the Chief Inspector of Factories at the State headquarters,
Labour Officers at circle level, and Factory Inspectors and Labour Inspectors and other staff at
district below:
13.1 Industrial Relations

The relations between the employees and the employer are governed by the Industrial Disputes Act,
1947, and the machinery provided under it is two-fold one is for the prevention of disputes by
providing internal machinery in the form of Works Committee and Welfare Officers, and the other
consists of a permanent Conciliation Officer, Conciliation Board, Court of Inquiry and Industrial
Tribunal./ the Conciliation Officer, Ludhiana, is responsible for enforcing the provisions of the Act.
He fosters good relations between the two sides of industry by removing, as far as possible, the
causes of friction and by timely redress of grievances of the parties.
Even though the functions of the Conciliation Officer are purely advisory and he has no direct
power to make or vary awards or agreements, he has been successful in bringing about a large
number of agreements between the parties.
13.2 Works Committees

Under the Industrial Disputes Act, 1947, the factories or industrial establishments employing more
than 100 persons are required to constitute a works committee for securing and preserving amity
and good relations between the employers and the workmen. A works committee consists of
representatives of employers and workmen engaged in the establishment, so that the number of
representatives of workmen in the committee shall not be less than the number of representatives of
the employers. Accordingly, 26 factories in the district come under the purview of this clause.
13.3 Trade Unions

Trade unions are voluntary organisation of workers formed to promote and protect their interests by
collective action. As the trade unions are the most suitable organisations for adjusting relations
between the employers and the employees, they have acquired an important place in the economic,
political and social life of the community. Ever since the attainment of Independence, trade union
movement in the district has gained considerable momentum and there has been a constant increase

in the number of registered trade unions. The particulars of the trade unions, registered under the
Indian Trade Union Act, 1926, which functioned in the district at the end of 1966, are given in
Appendix at pages 610-12.
13.4 Collective bargaining

Collective bargaining is a process of negotiations between employers and the representatives of a
unit of employees aimed at reaching agreements that regulate working conditions. Collective
agreements usually set out wage scales, working hours, training, health and safety, overtime,
grievance mechanisms and rights to participate in workplace or company affairs.
The union may negotiate with a single employer (who is typically representing a company's
shareholders) or may negotiate with a group of businesses, depending on the country, to reach an
industry wide agreement. A collective agreement functions as a labour contract between an
employer and one or more unions. Collective bargaining consists of the process of negotiation
between representatives of a union and employers (generally represented by management, in some
countries] by an employers' organization) in respect of the terms and conditions of employment of
employees, such as wages, hours of work, working conditions and grievance-procedures, and about
the rights and responsibilities of trade unions. The parties often refer to the result of the negotiation
as a collective bargaining
13.5 Employment contract

A contract of employment is a category of contractor used in labour law to attribute right and
responsibilities between parties to a bargain. On the one end stands an "employee" who is
"employed" by an "employer". It has arisen out of the old master-servant law, used before the 20th
century. Put generally, the contract of employment denotes a relationship of economic dependence
and social subordination. In the words of the influential labour lawyer Sir Otto Kahn-Freund,
"The relation between an employer and an isolated employee or worker is typically a relation
between a bearer of power and one who is not a bearer of power. In its inception it is an act of
submission, in its operation it is a condition of subordination, however much the submission and
the subordination may be concealed by the indispensable figment of the legal mind known as the
'contract of employment'. The main object of labour law has been, and... will always be a
countervailing force to counteract the inequality of bargaining power which is inherent and must be
inherent in the employment relationship."

13.5.1 Contract Details
An employer is supposed to write a contract to the employee and the letter is supposed to have the
following particulars:
 Name and address of the employer
 The period of time for which the employee is engaged
 The terms of probation (if any)
 The terms of an employment code
 Information of the employees remuneration, its manner of calculation and the intervals at which
it will be paid
 Information on benefits receivable in the event of sickness or pregnancy
 Hours of work
 Information of any bonus or incentive production scheme
 Information of vacation leave or vacation pay
 Information of any other benefits
The law states that if a contract of employment does not specify the date of termination, other than
a contract for casual work, seasonal work or for the performance of some specific service, it is
deemed to be an indefinite contract. This provision is however conditional for casual workers.
13.6 Termination of Employment

According to the Code of Conduct, a contract of employment can be terminated if the employer and
employee mutually agree to it in writing. This is also the case if an employee is engaged in a fixed-
term contract or for performance of a specific task and the contract has expired after the mandated
period or the task is completed.
13.7 Contracts can NOT be terminated on:
 Death of the employer.

In a situation where the employer has died the contract continues to have effect until it expires.
 Contracts can also not be terminated on the grounds of race, place of origin, sex, religion,
political opinion, and tribe.
 Contracts cannot be terminated without notice from the employer with strong reasons.
13.7.1 However employers CAN terminate contracts on the following grounds:
If an employee:
 Is guilty of theft or fraud
 Wilfully destroys employers property
 Is absent for a period of five days or more working days without giving a reasonable excuse
 Lacks a skill that he or she implicitly said they was capable of
 Is substantially negligent in his or her duties
 Is drunk to the extent that it makes him/her fail to perform their duties
13.7.2 Notice periods of termination
Notice of termination of the contract of employment to be given by either party shall be:
 Three months in the case of a contract without limit of time or a contract for a period of two years
or more
 Two months in the case of a contract for a period of one year or more but less than two years
 One month in the case of a contract for a period of six months or more but less than one year
 Two weeks in the case of a contract for a period of three months or more but less than six
months
 One day in the case of a contract for a period of less than three months or in the case of casual
work or seasonal work
13.8 Retrenchment
There are certain procedures that have to be followed if a employer wants to retrench workers.
The law states that the employer has to notify the appropriate worker‘s committee or trade union
giving graphic reasons as to why he wants to retrench. In his or her proposal for retrenchment he
should include names of those who are going to be retrenched and submit financial statements.
A copy of the proposal should also be sent to the labour investigation officer for investigation to
see whether retrenchment should be allowed and that all procedures of retrenchment according to
labour law are followed. However, if the labour relations officer sees the reason for retrenchment as
unclear and not in terms of which retrenchment has been agreed upon, it cannot be granted.
13.9 Lease
A leas' is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of
an asset. A rental agreement is a lease in which the asset is tangible property. Leases for intangible
property could include use of a computer program (similar to a license, but with different
provisions), or use of a radio frequency (such as a contract with a cell-phone provider). A gross
lease is when the tenant pays a flat rental amount and the landlord pays for all property charges
regularly incurred by the ownership from lawnmowers and washing machines to handbags and
jewelry.

13.9.1 A cancellable lease
Is a lease that may be terminated solely by the lessee or solely by the lessor. A non-cancellable
lease is a lease that cannot be so terminated. Commonly, ―lease‖ may imply a non-cancelable lease,
whereas ―rental agreement‖ may connote a cancellable lease. The lease will either provide specific
provisions regarding the responsibilities and rights of the lessee and lessor, or there will be
automatic provisions as a result of local law. In general, by paying the negotiated fee to the lessor,
the lessee (also called a tenant) has possession and use (the rental) of the leased property to the
exclusion of the lessor and all others except with the invitation of the tenant. The most common
form of real property lease is a residential rental agreement between landlord and tenant. [4] The
relationship between the tenant and the landlord is called a tenancy, and the right to possession by
the tenant is sometimes called a leasehold interest. A lease can be for a fixed period of time (called
the term of the lease) but (depending on the terms of the lease) may be terminated sooner.
A lease should be contrasted to a license, which may entitle a person (called a licensee) to use
property, but which is subject to termination at the will of the owner of the property (called the
licensor). An example of a licensor/licensee relationship is a parking lot owner and a person who
parks a vehicle in the parking lot. A license may be seen in the form of a ticket to a baseball game.
The difference would be that if possession is subject to ongoing, recurrent payments and is
generally not subject to termination except for misconduct or nonpayment, it is a lease; if it's a one-
time entrance onto someone else's property, it's probably a license. The seminal difference between
a lease and a license is that a lease generally provides for regular periodic payments during its term
and a specific ending date. If a contract has no ending date then it may be in the form of a perpetual
license and still not be a lease.
Under normal circumstances, owners of property are at liberty to do what they want with their
property (for a lawful purpose), including dealing with it or handing over possession of the
property to a tenant for a limited period of time. If an owner has surrendered possession to another
(i.e., the tenant) then any interference with the quiet enjoyment of the property by the tenant in
lawful possession is itself unlawful.
Similar principles apply to real property as well as to personal property, though the terminology
would be different. Similar principles apply to sub-leasing, that is the leasing by a tenant in
possession to a sub-tenant. The right to sub-lease can be expressly prohibited by the main lease,
sometimes referred to as a "master lease".
13.10 Lease Contract

_______________________ (hereafter "Lessor") and ___________________________ (hereafter
"Lessee") hereby enter into a lease agreement under the following terms:
Lessor shall convey to Lessee full possession and use of the following property:
____________________________________________________________________________
The term of this lease shall be from MM/DD/YYYY until MM/DD/YYYY at midnight on each date.
The Lessee is obliged to pay Lessor a total of $XX for the rights conveyed under this lease.
Upon expiration of this lease, Lessee shall have the option to purchase the property for the price of $X. If
Lessee exercises this option to buy the property, X percent of all monthly payments made by Lessee shall
be applied towards the purchase price.
Lessee shall pay to Lessor $X upon or before taking possession of the property. Thereafter, Lessee shall
pay Lessor the sum of $X on or before the Nth day of each month until the expiration of this lease.
If Lessee fails to make a payment on or before its due date, a late fee of $X shall be due and payable
immediately to Lessor.
If Lessee fails to pay all amounts due within X days of their due dates, then Lessor may terminate Lessor's
obligations under this lease and take back possession and control of the property. In the event of
termination for non-payment, Lessee shall remain liable for the balance due under this lease.
Lessee shall be responsible for maintaining the property in clean working order at Lessee's expense during
the term of this lease. Upon expiration or termination of this lease, Lessee shall return the property to
Lessor in substantially the same condition in which the property was received by Lessee, taking into
account normal wear and tear. In witness to their agreement to the terms of this contract, the parties affix
their signatures below:
____________________________________ _________________________________
Lessor, signature & date Lessee, signature & date
Address_____________________________ Address___________________________
City, state, ZIP________________________ City, state, ZIP _____________________

14.0 Insolvency
Insolvency means the inability to pay one's debts as they fall due. Business insolvency is defined in
two different ways:
o Cash flow insolvency-Unable to pay debts as they fall due.
o Balance sheet insolvency-Having negative net assets – in other words, liabilities exceed
assets.
A business may be 'cash flow insolvent' but 'balance sheet solvent' if it holds illiquid assets,
particularly against short term debt that it cannot immediately realize if called upon to do so.
Conversely, a business can have negative net assets showing on its balance sheet but still be cash
flow solvent if ongoing revenue is able to meet debt obligations, and thus avoid default: for
instance, if it holds long term debt. Many large companies operate permanently in this state.
Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a
court of law with resulting legal orders intended to resolve the insolvency.

15.0 BUSINESS ETHICS
15.1 Fiduciary
From the Latin fiducia, meaning "trust," a person (or a business like a bank or stock
brokerage) who has the power and obligation to act for another (often called the
beneficiary) under circumstances which require total trust, good faith and honesty. The
most common is a trustee of a trust, but fiduciaries can include business advisers,
attorneys, guardians, administrators of estates, real estate agents, bankers, stockbrokers,
title companies or anyone who undertakes to assist someone who places complete
confidence and trust in that person or company. Characteristically, the fiduciary has
greater knowledge and expertise about the matters being handled. A fiduciary is held to a
standard of conduct and trust above that of a stranger or of a casual business person.
He/she/it must avoid "self-dealing" or "conflicts of interests" in which the potential
benefit to the fiduciary is in conflict with what is best for the person who trusts him/her/it.
For example, a stockbroker must consider the best investment for the client and not buy
or sell on the basis of what brings him/her the highest commission. While a fiduciary and
the beneficiary may join together in a business venture or a purchase of property, the best
interest of the beneficiary must be primary, and absolute candor is required of the
fiduciary. 2) adj. defining a situation or relationship in which a person is acting as a
fiduciary for another.
15.2 Employees
Employees are the group most responsible for a company's success, since a business is
essentially nothing more than a collection of individuals gathered together for a common
purpose and with a certain amount of infrastructure and capital. Without employees (and I
include management in this category), a business literally could not exist. Profitable

companies do not spontaneously form out of piles of equipment, software, and money.
An important caveat, however. Companies owe an ethical responsibility to employees

only insofar as the employees contribute to the success of the company. It is not unethical
to fire an underperforming employee. It is also important to keep in mind that changing
industry or economic conditions may force a company to do things (like lay people off)
which hurt employees, but are necessary to the survival of the business.
15.3 Customers
Nearly as important as employees are customers. No company can be profitable
without them, and the customers provide purpose and direction (and money) to a
company.
Just as with employees, however, not all customers contribute to the success of a
company. Some customers are too demanding, abusive to employees, or insist on doing
business in a way which is unprofitable. When this happens, a company will normally
be better off in the long run by politely refusing to do business with the problem
customer. Of course, if the problem customer is, for example, Wal-Mart, this may be
easier said than done. Management has to keep in mind that it cannot afford to ignore
the needs of the profitable customers in order to satisfy the demands of the problem
customer.
15.4 Community
By "community" I mean the cities, states, and countries in which a business operates. It
isn't as obvious as with employees and customers, but the community is vitally
important to the success or failure of a business. A healthy community provides many
things which a business needs to function:
* A pool of potential employees with the necessary skills and experience.
* Customers who want or need what the business produces.
* Infrastructure, including things like roads, power, water, phone, Internet, and other
necessary services.
* Food, shelter, education, a safe environment, and other elements needed for people to

focus on the business, rather than basic needs of themselves or their families.
* Social and cultural opportunities which keep people stimulated and productive.
* Mechanisms for resolving disputes (laws, courts, regulations, etc.) in a fair,
predictable, and reasonable fashion.
Most of these things are invisible when present, and we tend to take them for granted.
Nevertheless, the communities a company operates in are important to its success: just
look at how hard it is to do business in a war zone, or in a country where the laws are
uncertain. As a result, companies bear an important ethical responsibility to improve
their communities. When successful, this benefits the company by giving it a better
environment to operate in.
16.0 BUSINESS STATISTICS
TIME VALUE OF MONEY

Most financial decisions such as the purchase of shares or procurement funds affect the firm‘s cash
flows in different time periods. Source decision requires that the firm‘s cash flows expected to be
given our period should be logical Comparable. Cash flows become logically comparable when
they are approximately adjusted for their differences in timing and Risks. If the inventor believes
rationally then would not value the opportunity to receive a specific amount of money now equally
with the opportunity to have the same amount at some future date. Individual time preferences for
money are influenced by risk.
Factors that determine time value of money
Inflation – reduces purchases power to money

Opportunity costs – Interest elements for gone.
Default Risk – Risk that money expected in the future might not be received
Liquidity – Risk that the investor might not be able to liquidate investment into cash at
a fare market price.
The Future Amount to Obtain From Investment
Simple interests (1)
I=Pxrxt

FVn = Principal x Interest
=PxPxrxt
Interest Rate per Annum:
FVn = PO [1+ r] n
Sometimes interest can be paid semi-Annually
FVn = Po [1 + r ] n x 2
2 Ans. $ 81.44m
If interest is paid monthly

FVn = Po [1 + r ] n x 12 Ans. $ 82.26m
12
If interest is paid quarterly

FVn = Po [1 + r ] n x 4 Ans. $81.93m
4
Investors would prefer investment, which pay compound interest. That is where interest earns
interests.
FVn = Po [1 + r] n Ans. $80.5 m
Where [t] / [n] = period of investment
r = Rate of interest
Po = Principal Amount
FVn = Future Amount in period n
EXAMPLE:
An investor has financial security worth $50 000 000 paying 10% interest per annum for a
period of 5 years.
 Calculate the future value in 5 years time.

 Calculate the future value of interest is paid monthly, quarterly etc.
If the interest is paid daily
FVn = Po [1 + r ] n x 365 Ans. $82.43
365
If the interest is paid continuously
FVn = Po x er t
e = 2.71
In some cases an investor may commit a constant amount of money for a specific period of such
payments are called an Annuity. The future value of Annuity [FVA] can be calculated as follows:
FVn Annuity = A [1 + r] 1 + A [1 + r] 2 + A [1 +r] 3 ……A [1 +r] 4
Where A = Annuity [Constant amount than you are paying]
The above expression reduces to:
FVnA = A [1 +r] n – 1
r
[1 +r] n – 1
r = FVIFA (Future Value Interest factor Annuity
The future value interest factor (FVIF) in the expression:

FVn = Po [1 + r] n
r = 10%
FVn = Po [ 1+r] n
r =25%
Using 10% and 25% calculation:
Period (10%) Period (25%)
1 = 1,1000 1 = 1,2500
2 = 1,2100 2 = 1,5625
3 = 1,3310 3 = 1,9531
4 = 1,4641 4 = 2,4414
Investors may want to know how much money must be invested now in order to obtain a given future
5 = 1,6105 5 = 3,0518
value. Such a process is called Discounting
But FVn = Po [1 +r] n
Pn = FVn
[1+r] n
Pn = FVn x 1
[1+r] n
Po = FVn x [1+r]-n
The expression 1
{1+r} n is called the Present Value Interest factor. (PVIF) e.g. 10%, 20% 25%
PVIF = 1
[1 +r] n
n = 1 year
r = 10% (0,1)
1
= [1 + 0,1] 1
1
[1 +1,1]
= 0,9091
NB. As the interest Rate Increases the amount invested becomes les. Also the value of the dollar
decreases because of opportunity costs that are widening.
YEAR 10% 20% 25%
1 0,9091 0.8333 0.8000
2 0,8262 0.6944 0.6400
3 0,7513 0.5787 0.5120
4 0,6830 0.4823 0.4096
5 0,6209 0.4019 0.3277
Zimbabwe School of Mines – National

[0,6209 * Diploma
80,5M] [04019 x $80.5m] [0.3277 x $80.5m] 123
$49 982 450 $32 352 950 $26 379 850

If an investor has an annuity, its present value of an Annuity is given by:
PVA = A x {[1- [1 + r]_--n }

r
Then the term:
{1-(1 + r)-n} = PVIFA
r
EXAMPLE
Year (n) r =10%
r = 15%
1 ?
1-(1+0,1)-1 = 0,9091
2 0.1
1-(1 +0,1)-2 = 1,7355

0.1
3
1-(1 +0,1)-3 = 2,4869

0.1
4
1_(1+0,1)-4 = 3,1699
0.1
1 – (1 + 0.1) = 3.7908
5
0.1
Present Value of a Growing Annuity
This is where by the constant cash flow paid may have a growth element and the present
t value of a growing annuity:
PVA = A 1 -(1 +r)-n

1 +g r
Where g = the growth Rate
Present Value of Perpetuity

Perpetuity is defined as an annuity that occurs indefinitely. Perpetuities are not very common in
financial decision-making.
PVA = Annuity
Interest Rate
NET PRESENT VALUE
Investors need to compare the value of initial investment with the present value of the future cash
flows e.g.
ABC Limited Company has identified a project to manufacture plastics. A project requires a piece
of equipment that costs $185 000 000. The Company has estimated the following cash flows:
Year
1 $92m
2 $61m
3 $43m
4 $33m
If the required rate of return (Discount factor) by investors is 25%. Advise the company whether to
undertake the project or not. 5 $26m
Answer
Period Cashflow Discount PVCF

1 92m 0.800 73600000
2 61m 0.6400 39040000
3 43m 0.5120 22016000
4 33m 0.4096 13516000
5 26m 0.3276 8520200

∑ PVCF 156700000
Amount invested 185000000
Therefore the project is rejected
INVESTMENT APPRAISAL TECHNIQUES

Investors need to have techniques of determining which investments will maximize shareholders
value. The basic techniques used are:
 Pay Back Period
 Net Present Value
 The Internal rate of Return
 A modified internal Rate of Return
 Accounting Rate of Return (Not important)
PAY BACK PERIODS
Defines the period it takes to recover the initial investment from cash flows generated. A firm
determines the range of acceptable payback period. Projects falling within the PB (PAY BACK
PERIOD) period are accepted and those exceeded the P B are rejected.
For even cash flow the payback period
Pay Back Period = Initial investment

Annual cash flows
Uneven cash flow the payback period
PB = t + Io – Cumulative Cash Flows x 12

Cash Flow t +1 1
Where
t = is the number of full years when all cash flows are needed
Io = initial investment in the year 0
CumCashflow = Cumulative Cash flow in year t
Weakness of Pay Back Period

 Failure to consider the time value of money as it uses nominal cash flows.
 No consideration of cash flows after pay back.
EXAMPLES ON PAY BACK PERIOD

If a firm is considering the following projects whose cash flows are:
Initial Investment (Io) = $50 000
Year 1 = $11 300
Year 2 = $12 769
Year 3 = $14 429

Year 4 = $16 305
Year 5 = $ 18 421
Calculate the Pay Back Period for the Company?
Compute or Tabulate Data first

CF1-n
PERIOD Cum CF BALANCE
0 - - [50 000]
1 11 300 11 300 38 700
2 12 769 24 069 25 931
3 14 429 38 498 11502
4 16 305
5 18 421
Therefore, P. B. A. = t + {Io – Cum CFt} x 12

CFt + 1 1
Where Io = 50 000
t=3
CumCFt = 38 498
C/Ft +1 = 16 305
=3+ 50 000- 38 498 x 12

16 305 1
=3 + 11 502 x 12
16 305
=3 + [0.7054] x 12
=3+8.46
=3.8 months
EXAMPLE 2:
A firm whose payback period is 2 years 8 months has identified a project with the following cash
flows:

Initial Investment (Io) = $850 000 000
1 = $316 000 000
2 = $285 000 000
3 = $187 000 000
4 = $ 460 000 000
5 = $ 412 000 000
Calculate the payback period and make a recommendation?
Period C/f-n Cum/Cf Balance

0 - - (850 000 000
1 316 000 000 316 000 000 534 000 000
2 285 000 000 601 000 000 249 000 000
3 187 000 000 788 000 000 62 000 000
4 460 000 000
5 412 000 000
Io = $ 850 000 000
t =3
CumCFt = 788 000 000
C/Ft + 1 = 460 000 000
Therefore:
PBP = t + I0 – CumCFt 12
CFt + 1 1
= 3 + (850 000 000 – 788 000 000)

460 000 000

= 3 years 16 months
3 ,13 years
= 3,2 years (Reject the Project)
Net Present Value:
Falls under the discounted method
Strengths of the DCF (Discounted Cash Flows) are that they:
a) Control over the disbursement of funds to the condition under which funds have to be procured.
b) Can be related directly to the goal of maximising shareholder wealth
LIMITATIONS /WEAKNESSES
Ignore the potentially negative impact that investments may have on financial statements. Ignore
non – economic aspects that may be important.
NET PRESENT VALUE (NPV)
Is the sum of all C/F generated by a project with each cash flow discounted back to the present.
NPV = Initial after tax cash investment + present value after tax C/F
(-) NPV – Indicates the projects fall short of providing necessary return
(+) NPV – Indicates the projects return is greater than the necessary return.
n
NPV=∑ Ct –Io
t=0 (1+k)t
Where Ct = the net after tax C / F
k =the discount rate used by the firm
Io =Initial investment
n =number of periods comprising the expected life of Investment.

(+) NPV Accept the project
(-) NPV Reject the project
NPV is a superior method to the Bay Back Period
Example
A has the following projects whose cash flows are:
Io (Initial Investment} - $50 000
Year 1 -$11 300
Year 2 -$12 769
Year 3 -$14 429
Year 4 -$16 305
Year 5 -$18 421
Calculate the NPV of the Project if the Required Rate of Return is 15%.
Stage 1
Calculate the discount factor first
PVIF = 1
(1+ r) n
Year 1 = 1
(1+ 0,15) 1 =0,8696
Year 2 = 1
(1+ 0,15) 2 =0,7561
Year 3 = 1
(1+0,15) 3 =0,6575
Year 4 = 1
(1+ 0,15) 4 =0,5718
Year 5 = 1
(1+ 0,15) 5 =0,4972
Discounting
CF Factor @ 15 % PV
Period
1
(50 (50 000)
0 000) 0,8696
9826,48
1 11300 0,7561
9654,64
2 12 769 0,6575
9487,08
3 14 429 0,5718
9323,20
4 16 305 0,4972
9158,92
5 18 421 ∑ NPV =
47 450,32
-2549,68
Recommendation: Reject the project
Discounting at 10 %
Discounting
PVIF = 1
(1+ r) n
Year 1 = 1
(1+ 0,1) 1 =0,9091
Year 2 = 1
(1+ 0,1) 2 =0,8264
Year 3 = 1
(1+ 0,1) 3 =0,7513
Year 4 = 1
(1+ 0,1) 4 =0,6830
Year 5 = 1
(1+ 0,1) 5 =0,6209

Disc.10 %
Period C/F PV
0 (50 000) 1 (50 000)
1 11 300 0,9091 10 272,83
2 12 769 0,8264 10 552,30
3 14 429 0,7513 10 840,51
4 16 305 0,6830 11 136,32
5 18 421 0,6209 11 437,60
∑ NPV = 54 239,56
+4 239,56
Recommendation: Accept the Project.
Internal Rate of Return (IRR)
Is the Rate of Discount that when applied to the cash flows of an investment will yield an NPV of
zero.
n
IRR =∑ Ct =0
t=0 (1 + r)t
IRR is the hurdle Rate accepted for a Project. Investors will accept projects whose rate returns are
greater than the cost of capital.
Returns > Cost Of Capital
Another formula:
NPV1
IRR = R1 + PV1- NPV2 R2- R1
Where R1 =is the first Discount Rate estimate
NPV1 = is obtained using R1
R2 = Is second Discounting Rate estimate

Using the above example:
NPV1 = -2 549,68
NPV2 = +4 239,56
R2 = 10 % (0,1)
R1 = 15 % (0,15)
NPV1
IRR =R1 + NPV1 – NPV2 R2 - R1
=0,15 + -2 549,68 0,1 – 0,15

-2 549,68 – 4 239,56
= 0,15 + -2 549,68 -0,05

789,24
= 0,15 +[0,3755] [-0,05]
= [0,15 + -0,018775]
=0,131 or 13,1%
IRR differs from Net Present Value in only the way the problem is analysed. Both Criteria usually
produce the same investment decision
The purpose of the Discounted Cash flow Criteria is to measure economic gains. They may ignore other
non- economic objectives that a firm may have as well as short run effects of new Investments on reported
financial statements in particular on reported earnings.
Proper Identification of Cash flows include the choice of an appropriate time horizon, and the
incorporation anticipated price level changes. The effects on operating profits and net profits stem are
viewed from this context. The IRR measures the effective yield of a project, which is then compared to the
cost of funding the Investment. It relies on Concepts of Discounting and explicitly recognizes the five
values of money.

PROFITABILITY INDEX
Another time-adjusted method of evaluating Investment proposed is the benefit Cost Rates or
Profitability Index. It is the ratio of the present value of Cash Inflows Discounted at the required
ratio of Return to the initial Cash flow of the Investment.
Profitability Index (PI) = PV Cash flow (PVCF)
Initial Outlay
Modified Internal Rate of Return

Investors may want to know the IRR on the initial investment that would be equal to the future
value of Cash flows.
Example: @ 10% discount
$50 000
$11 300
$12 000
$13 000
$14 000
$16 000
$18 000
Cash flow estimations:
Several issues that arise from deriving each flow include:

 Relevance of marginal or incremental cash flow
 Time horizon
 Intangibles
 External effects
 Effects of price level changes
 Financial changes taxes
 Assumptions

Cash flow estimations is based on incremental basis
 Most critical pre-requisite for successful capital budgeting

 Variable forecasts must b made several years with the future for new products or services such
as facility expenditure, sales and product prices and operating expenditure.
Initial investment for new projects
Is equal cost of production plus installation cost and customs (if imported) plus working capital)?
Working capital
Is the finance required to finance Debtors, raw materials and other start up costs. Is required
initially but will be recovered at the end of the Project, e.g. Initial capital- $300 000 000
Special initial allowance

 Capital cost allowance (CCA) is referred to as the initial allowance. Is the depreciation claim
for tax proposes.
 Depreciation is the economic determination of an asset as a consequence of its product life.
 Net operating revenue from operations minus all operations expenses excluding taxes and CCA
deductions
The Government provide an incentive to encourage investment in new areas for example firms that
invest new machinery are allowed to recover the costs of machinery by offsetting taxable income
by the Annual Special initial allowance.
Depreciation
Is not a taxable expense and therefore must added back to the net operating income for tax
purposes. In Zimbabwe the special initial allowance rates are as follows:
Yr 1-50%
Yr2-25%
Yr3- 35%
It is the assumed that they would have finally recovered the cost of their machinery. It reduces the
taxable income. The tax served is called S.I.A. (Special income allowance) tax shield is equal
S.I.A. * tax rate.
Alternative 1:
Net operating Revenue:
Less: Special Initial Allowance (S.I.A)
Less: tax payable
Add: CCA
Net cash flow
Net Profit – if given
 Calculate earnings before tax

 Add back depreciation
 Deduct annual S.I.A.
 Apply taxation
 Net cash flow
Alternative 2:
Net Operating Revenue
Less: tax on operating revenue
After tax operating revenue
Add: tax savings from CCA
Earnings before tax $100 000 000
Less: S.I.A.(4%) $ 20 000 000
$ 80 000 000
$ 32 000 000
Net $ 48 000 000
served $ 8 000 000
$ 56 000 000

Opportunity cost
Where a company losses money as a result of the project, the full loss (Cost) must be recovered
from the project.
Fixed costs: which are incurred irrespective of the project must not be charged to the project; only
variable incremental costs are charge to the project.
Initial Investment for a Replacement Project
Io = cost of new machines + installation costs + working capital – sale proceeds of old machines +
tax on terminal value + distributing costs of old machines if there are any. Where a company has
fully recovered S.I.A. it is liable to the recoupment Tax = Cost of Machines S.I.A. claimed – sale
proceeds of machines * tax rate
Recoupment Allowance
Recoupment Allowance = cost of machines- S.I.A. claimed – sale proceeds of machines * tax rate.
If a company has not fully recovered its initial investment it will claim recoupment allowance but
where a company has been allowed 100% cost of machinery it will pay tax on the salvage value. If
an asset is expected to be sold at the end of n years Sn the salvage value is deducted from the UCC
Un claimed cost of capital) of the asset at the time of the disposition.
The present value of the cost CCA tax shied due to salvage value is equal to:
Sn dT 1
n
(d + K) (1 + k)
Present value of the tax shield from declining – balance CCA is equal to:
Cd T 1 + 0.5 * k
(d + K) (1 + K
Concept of Valuation of Business of Project

 Book valuation
 Replacement value
 Market value/realisable vale
Topic explored and discussed includes:
 Valuation of bonds and common share
 Rates at which debt instruments are discounted and determined through the financial markets
 Valuation of bonds and common shares without explicit considerations of risk
 Risk premium associated with interest rates.
Compiled by
Gibson Owen Manhuru

(HBSc/MSc-Havana Cuba and MBA-NUST Zimbabwe)
REFERENCES
Amram, M., & Kulatilaka, N. (1999): Real options. Harvard Business School Press.
Barnett, M.L. (2005): Paying attention to real options. R&D Management Blackwell Publishing Ltd
Chapman, C., & Ward, S. (1997): Project risk management. JOHN WILEY & Sons.
Cohen, B., Smith, B., Mitchell, R., 2008. Toward a sustainable conceptualization of dependent
variables in entrepreneurship research. Business Strategy and the Environment.
Cohen, B., Winn, M.I., 2007. Market imperfections, opportunity and sustainable entrepreneurship.
Journal of Business Venturing

Courtney, H., Kirkland, J., and Viguerie, P. (1997): Strategy under uncertainty. Harvard Business Review.
November/ December
Dean, T.J., McMullen, J.S., 2007. Toward a theory of sustainable entrepreneurship: reducing
environmental degradation through entrepreneurial action. Journal of Business Venturing
Ephraim Clark, E., Marois, B. (1996): Managing Risk in International Business. Intl Thomson Business
Press.
Hausmann, R., Sturzenegger, F. (2007): The Valuation of Hidden Assets in Foreign Transactions: Why
―Dark Matter‖ Matters. The Journal of the National Association for Business Economics, Volume 42,
Number 1
Johanisova, N., 2007. A Comparison of Rural Social Enterprises in Britain and the Czech Republic,
Masaryk University, Brno, Czech Republic.
Kagan, C. B. and Ford, D.N. (2002): Using Options to Manage Dynamic Uncertainty in Acquisition
Projects. Acquisition Review Quarterly Fall 2002
Knight, F. H. (1921): Risk, Uncertainty, and Profit. Houghton Mifflin Company.
Oetzel, J.M., Bettis, R.A. and Zenner, M. (2001): Country Risk Measures:
How Risky Are They? Journal of World Business
Parrish, B.D. 2008. Sustainability Entrepreneurship: Design Principles, Practices, and Paradigms, PhD
thesis, University of Leeds, UK.
Parrish, B.D., 2007. Designing the sustainable enterprise. Futures 39(7): 846–860.
Parrish, B.D., 2008. Sustainability-driven entrepreneurship: A literature review. SRI Working Paper
No. 9, Sustainability Research Institute, Leeds, UK.
Peter Romilly, P. (2007): Business and climate change risk: a regional

time series analysis. Journal of International Business Studies.
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Entrepreneurship Skills for Patriotic Development

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Entrepreneurship Skills for Patriotic Development

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Entrepreneurship Development Skills

Unit 1.0 Concept of Entrepreneurship and Its Relation to Patriotism

1.2 Entrepreneurship and its relation to patriotism

1.3 What is an entrepreneur?

Zimbabwe School of Mines – National Diploma 1

1.4 What is entrepreneurship?

1.5 Analysis of definitions

Zimbabwe School of Mines – National Diploma 2

The combination of resources is as follows: -

1.6 Entrepreneurship distinguished from Entrapreneurship

1.7 Relationship between entrepreneurship and Patriotism

1.8 Entrepreneurial characteristics

1.9 Action oriented

1.10 Success oriented/optimism

Zimbabwe School of Mines – National Diploma 5

Perception of opportunity or opportunity seeking

1.11 Moderate risk taking

1.12 Long-term perspective

1.13 Self-motivation/self esteem/self faith/self confidence

Zimbabwe School of Mines – National Diploma 6

Some of the characteristics of an entrepreneur include; patience, friendliness, hardworking,

1.14 Entrepreneurship environment

Zimbabwe School of Mines – National Diploma 7

Zimbabwe School of Mines – National Diploma 8

Zimbabwe School of Mines – National Diploma 9

Stair high growth New venture company

Cash cow Dog

Cash cow business (low growth, high market share)

Star performer (high growth high market share)

Dogs (low growth, low market share)

 There is little to recommend their retention or further investment by company.

Strategy Centres (life cycle patterns)

 This was devised by the consulting firms Arthur D. Little.

 Similar to portfolio management

Strategy centres approach (life cycle patterns)

Zimbabwe School of Mines – National Diploma 12

 Build – increase SBU‘s market share.

 Withdrawing from business.

Intensive Growth Strategies

According to Ansoff‘s product market expansion grid, a company is exposed to growing

Market development strategy

 Business sales and profits can be increased through:

Ansoff’s Growth Strategies Grid

Zimbabwe School of Mines – National Diploma 14

Types of Diversification strategies

OTHER ENTREPRENEURSHIP STRATEGIES

A strategy is a method used to achieve a goal.

Is a system of distributing products/services through associated resellers. The franchiser gives

Advantages to the franchiser Advantages to the franchisee

Zimbabwe School of Mines – National Diploma 16

Private Limited Company

Zimbabwe School of Mines – National Diploma 19

1.16 Public Limited Company

Selecting the best form of business

Zimbabwe School of Mines – National Diploma 20

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 Losses are shared amongst the members unlike in sole proprietorship.

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1.19 Ordinary Partnerships

1.19.1 Extra Ordinary Partnerships

1.19.2 Partnership Encommandite