Entrepreneurship Income and its Uses

INCOME AND ITS USES

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The Meaning of Income

Income is the total additional money an individual receives during a year from all sources.

In contrast, wealth is the value of the total stock of assets that a person owns at the end of the year (or at a particular time). Wealth can be held in the form of cash, savings in banks and "tangible" assets in the form of possessions, buildings, land and any loans or capital owed to them by others. Wealth can provide income in the future.

As far as individuals are concerned, income may be in the form of:

1. wages or salaries from work they undertake in a job

2. rents they receive from hiring out land or buildings they own

3. profits made by entrepreneurs from taking the risks involved in running a business, once all other costs have been paid.

4. interest or dividends on savings and loans they make to other businesses.

Interest is a reward for sacrificing the use of your money by lending it to others.

The various payments can also be seen as the rewards received by the owners of the key Factors of Production (labour, land, capital and entrepreneurship):

1. Owners of Labour, i.e. workers, receive reward for their efforts as wages and salaries

2. Owners of Land receive rental from their tenants

3. Owners of Capital receive interest and dividends

4. Entrepreneurs receive profits or incur losses if their businesses are unsuccessful.

Sources of Income A source of income refers to the base on which an individual or institution earn its income. Farming activities, such as growing of crops and rearing animals, provide cash income when the produce is sold. When the products are consumed by the farmer and his family, it saves them have to buy the products from someone else. In this case we say the products provide income in kind. The total value of the income in kind that is consumed by subsistence farmers is used to measure the contribution of the subsistence sector to the gross domestic product of the nation. Trading refers to the process of buying and selling with an aim of making profits. When traders sell their products and sales revenue exceeds the cost value plus other administrative expenses incurred in the business, then traders realize profits, and profits constitute income for entrepreneurs. Other entrepreneurs earn income from manufacturing goods. This includes weaving baskets, mats, producing household consumables like bread, etc. When these products are sold at a price higher than their cost of production, the entrepreneurs earn profits which are an income to them.     People get income through providing services which other people are willing to pay for, e.g. teaching, driving, hair dressing, medication. People in paid employment earn income commonly known as wages or salaries depending on the nature of job being done. Activity 1 Learners are requested to make up groups of 10 students to do sanitary work at school after classes e.g. slashing the compound. This will enable students to experience earning a wage for their labour. Activity 2 Request students to form groups of three to clean the staff vehicles at lunch time and after classes. As a result of the labour offered, these students will be paid a wage hence income for their school needs. The above activities help the learners know how rendering services and paid employment result into earning income. Activity 3 Ask students to think of ways in which they could earn a profit. Discussion: For a sole trader is their a real difference between a wage and a profit? Ways of using income Income can be used in the following ways: Consumption Income earned from different sources is normally used for consumption by the one who earned it. Consumption is buying household goods and services, such as food and drinks, clothing and paying children’s school fees. Savings Saving is when people put aside part of their income for future use. The choose to sacrifice current consumption in order to have more to consume in future. They may also choose to invest in measures which could raise their income and consumption in the future. Can you think of an example of this? Sometimes people make short-term savings e.g. when they want to buy new clothes. At other times they may make long-term savings e.g. when they put aside some of their income to meet some anticipated future needs like old age, sickness, or building a house. People may use the savings from their earned income for investment purposes. They may invest by starting their own business, buying productive resources e.g. land, houses, buying shares in other businesses.  Ways of increasing savings and investments For investment to take place, people and businesses must have saved a bigger part of their income. Therefore if we are to make bigger investments, then we have got to make bigger savings. Savings and investments can be increased in the following ways: 1.Reduction of consumption If one consumes more of his income, then s/he will have less left to save. Likewise if one saves more of his/her income, then s/he will have less income to consume (presently but more in future).  2.Provision of banking facilities If secure banking facilities are provided to people, they will feel confident and keep some of their income in there. For example, Microfinance Institutions encourage people to make deposits which accumulate and enable them to expand credit to the savers to meet their investment plans.   3.Improvement of investment factors Savings and investments can be encouraged and increased of the lives of savers and values are secure. This will give them confidence about the future and encourage them to save more. 4.Creation of investment opportunities There are services and businesses which when provided or established in an area will create further investment opportunities for other different services like metal fabrication, food processing, refrigeration services, etc. 5.Develop attitudes of saving If investment is to be increased then a savings culture needs to be developed among the people. This could be done through intensive sensitisation through the media, workshops and other avenues.    Importance of savings and investment Sir Arthur Lewis is famous throughout the world for his contribution to economics. He was born on the island of St Lucia in the Caribbean and was Professor of Economics at the universities of Manchester, UK, Princeton, USA and the University of the West Indies. He studied countries throughout the world and found that the ones where people saved more raised their living standards faster than other coutries with low savings. Countries that saved less than 5% of their annual income stayed poor. Those that raised their savings to more than 13% of their incomes grew richer. The same applies to families. Why is saving so important? Saving takes resources away from current consumption and allows them to be used for investment. Investment is the purchase of equipment, machines and improved ways to do things which raises output and incomes. In rural farming investment allows people to pay for better ways to do things. They can use their savings to invest in better stores for their food, so less is lost to rodents, damp and disease. This frees up time for them to do other things that increase their incomes. They can invest in better tools and equipment to raise their productivity. They can buy higher yielding seeds, fertiliser and improve their land so that crop yields rise. They can also diversify and start to grow a wider range of crops, rear animals and start their own businesses. In the manufacturing industries investment allows firms to build better factories and employ more efficient machines and methods of production. Firms are able to invest by borrowing the savings of other people. The banks and other financial intermediaries play an important part in this because they take the savings of individuals and lend the money to firms. The money the banks earn from this allows them to pay interest to savers, so everyone benefits. Governments also invest. The money they raise in taxes is used to build schools, provide health care and improve roads and other transport infrastructure. Schools provide important skills which allow workers to be more productive - this is investment in human capital. Health workers keep people fit and able to play their full part in the workforce. Transport infrastructure is essential to allow producers and consumers to get to market. Forms of savings By opening bank accounts and depositing our money there. Buying properties like animals, houses, etc. Investing in businesses. Buying land. Buying shares from other businesses.  Activity Encourage learners to keep 50% of their pocket money (especially those attending boarding schools) by the school bursar; this will enable them learn how to save for the future. Afterwards, encourage them to think of ways in which they could use their saved money to start up a small business e.g. a stationery shop catering for the needs of their fellow students. This will help them learn saving and investing of the money saved and hence entrepreneurial skills and income. Are you a consumer or a saver and investor? 1)Characteristics of people who prefer to consume most of their income a)They are very extravagant. They spend any income that comes their way in things they need or may not need immediately. b)They live a luxurious life by purchasing luxury and expensive goods and services that they come across, some of which may not even be necessary but they just want to show off. c)They have low desire to save. Such people rarely save and invest their income. d)They have got no investment plans for the future. This is because their income is always spent as soon as they get it. e)Their incomes normally tend to be used for paying debts that were incurred prior to being earned. f)Whenever they have any money that they have earned, they become unstable all the time waiting to go out and spend it. They become stable when the money has been exhausted. 2)Characteristics of people who prefer to save a)They are very careful in their spending. Every expenditure has to be justified in terms of need. b)They normally tend to live a simple life. They do not engage in spending their income on luxury goods and services. c)They have high motivation to save and invest. They tend to give priority to saving most of earned income. d)They tend to look at and take up every opportunity that is available for them to save. e)They tend to prefer foregoing a lot of things at the beginning (at times even necessities of life) performing to save for increased future consumption. 3)Characteristics of people who prefer to invest a)They are always on the lookout for investment opportunities that may be available in their communities or elsewhere for them to invest. b)They tend to give priority to investment and much of their income is reserved and used for investment. c)They normally tend to live a simple life as they spend most of their income on capital goods and services that will lead to further investment.  d)Such people work longer at hard hours to earn more income so that they can increase their savings and subsequently investment. Making plans for saving This requires one to forecast how, when and how much income s/he will receive during a given period. This will require the person to be through in making how to counteract them. The next step is to develop a budget and in so doing, prioritise his/her needs. This will entail in doing the following: Identification of needs. Setting saving targets. Prioritising the needs. Find out how the cost of each need. Finding out the total cost of the needs to income and establishing whether the balance meets the saving costs. Carrying out a review of prioritising needs their costs and savings targets to ensure that they can also be accommodated within income packages. Choosing how the savings of income can be done. Making the saving. Spending part of the income on the priority list items that have been provided with the budget.

Entrepreneurship Business Enviroment

http://www.elateafrica.org/elate/entrepreneur/businessopportunities/intro.html

EXPLORING BUSINESS OPPORTUNITIES

 

Entrepreneurs use a number of criteria in selecting good business opportunities:

• There should be a demonstrated need for the product or service by buyers being willing to pay a price higher than the cost of producing the product.

• The number of the willing buyers should be large enough to ensure that the quantities of the product to be bought will create a large enough turnover to make the business profitable.

• The business to be started should be able to access factor inputs required for its operations. These include capital, labour/human resources, raw materials, energy, transport and communication facilities.

• There should be appropriate technology and skilled manpower to start and operate the business.

• The business to be started should be legal and compatible with the social norms of the community where it is located. For example, if the community is predominantly Muslim, a business opportunity of selling pork or alcohol would not be appropriate.

• The business should be acceptable in the community. For example, though a disco and video business may be a profitable business within a school’s neighbourhood, it may not be acceptable by the community.

Activity One

A school canteen as a business opportunity

Procedure
In groups of 5 to 8, ask learners to

• Find out what fellow learners and staff might need from the canteen and show how they can intervene to take care of those needs.
• Carry out a market survey to establish a market philosophy and consumer profile and, most importantly, consumer demand.
• Establish whether there is a viable or potential market and formulate a strategy on how to maximise opportunity and monitor competition.
• Draw a plan showing how the business will be developed and how the unexpected events will be counteracted.  
• Determine the product mix that will satisfy the consumer demand after analysing the market.
• Show how financial records will be kept or maintained.
• Assess the opportunity cost of the venture.

Note:

• Let each group have a team leader and a secretary.
• Give time to each group to present their findings to the class.
• Interpose where necessary to rectify possible mistakes and/ or make more elaborate explanation.

Activity Two

Identifying business opportunity

Discuss with the learners the nature of business opportunity in Uganda and its relevance to the country’s economy. Develop a list of local opportunities that could develop into a business venture.

Sources of business Ideas

Business ideas are a starting point in the journey to starting a business. Entrepreneurs can develop or generate business ideas in a variety of ways:

• The technical skills and experience they possess. These give them opportunities to exploit what they know and can do.
• Personal contacts which give them access to advice, capital and markets.
• Observing new developments and changes taking place around them and identifying emerging trends of the demand for goods and services.
• Studying the press - newspapers and magazines, radio, television, internet etc., where most developments, policies and priorities are communicated and publicised.
• Conducting surveys to find out what is happening, the latest thinking and preferences of customers.
• Discussions and/or interviews with other entrepreneurs on business issues, to seek their views and suggestions.
• Going into the market to observe the products that are being sold, gaps in what is available and products that can be improved.
• Trends of changes taking place e.g. population growth, people’s income, upcoming major players in different areas, topical/key issues in the community or the country.

Activity Three

Present the following scenario to the learners and ask them to provide answers to the questions that follow:

Students are coming back to school from their holidays. They are expected to arrive between 11.00 a.m. and 6.00 pm and the school is about 800 metres from the stage where taxis drop them. Tired as they are, they wonder how to carry their luggage to the dormitories. They have suitcases, mattresses, bags, etc. Most of them have travelled long distances and are already hungry or very thirsty yet the school does not start serving meals until 7.30 p.m..

1. Suggest business opportunities that can be generated out of the above school situation.
2. Rank your business ideas.
3. Describe what you would need to get your preferred business idea running.
4. What are the likely challenges you may face in your business?

Creativity

Creativity is the power or ability which enables entrepreneurs to come up with exciting business ideas even in situations that may look hopeless, for example, setting up a lucrative business in a refugee camp or turning people’s problems into business opportunities. In any situation, entrepreneurs are able to dream up business ideas, which they can develop into opportunities and eventually turn them into profitable businesses.

Areas that provide business opportunities

An entrepreneur can generate business ideas for different types of businesses, for example, agribusinesses, manufacturing, trading or service businesses. He/she can do this by:

• Observing the available raw materials and finding what products can be made from them.
• Knowing the available human resources and, especially, where people with the necessary specialised skills can be found.
• Finding out peoples’ needs and examining how best they could be met by a new business.
• Checking on those things other people/institutions consider useless and finding out what business could come out of them. Such may include farm wastes (which can be used to make biogas), manure which can be turned into mulch and compost.
• Examining existing businesses to find out those which do not satisfy peoples’ needs, then figure out how to satisfy those needs. This could be done through increasing the quantity, improving the quality of the products, better customer service, packaging, branding, etc..

The Market

An entrepreneur begins the journey into business formation by generating as many ideas as possible from different situations. S/he subjects them to a ranking process and selects the best idea which becomes his/her business opportunity. The best business opportunity is the one where there are many buyers willing to buy the products or services in sufficient quantities at prices that are higher than the costs of production.

The existence of buyers, the quantities of the business products they are willing to buy and the prices at which they are willing to buy them are therefore crucial in the whole process of business selection. Put together, these constitute what is called market.

a) Meaning of a market

A market for any business means all the potential buyers (people, institutions, businesses, etc) within a specific geographical area, who need the business products and are willing and able to buy them. For example a market for products of a trading business consists of people or institutions that exhibit the following characteristics:

i)  They need or want the products being sold by the trading business.
ii) They have sufficient money to buy the products.
iii) They are willing to buy the products.

(b) Meaning of potential market

A potential market for a business is made up of people, businesses or institutions that need its products and are able but are not yet willing to buy. The potential market of a business is very important because it is from here that it can get new customers to expand its market and operations.

(c) Meaning of market assessment

Market assessment is the process of determining the market for the products of a business. Through market assessment, the entrepreneur is able to find out the ‘real’ and potential market of the product. After starting their businesses, entrepreneurs also need to carry out regular market assessment to ensure that they know the size of the market for their products and what they need to do to sustain or expand it.

Factors for assessing market potential of a business

As seen in section (b) above, the market potential for a business is the number of people or institutions which need its products and are able but not yet willing to buy them. It is therefore important that an entrepreneur knows the size of his/her potential market before and after starting his/her business because it is from it that the business will get new customers to sustain or expand its market.

The following factors are used in assessing market potential for a business:

i) Demand

This is the amount of the business products that the people are willing to buy at any given price. The higher the demand, the higher the potential market and therefore the better the prospects for the business.

ii) Competition´

Businesses selling similar products or services to the same customers share them. Customers will have more options to choose to buy from. Businesses will therefore be at pains to try to keep their customers as well as attract those of others. This is known as competition in business. A business which faces high competition has a low market potential market because the would-be customers have already been taken by other businesses.

iii) Prices

Although there may be many people and institutions who need or wish to buy the business products, their ability to buy them is affected by the prices at which they are being offered. For example, the potential market for new designer clothes in a rural area shall be very low because the people cannot afford them yet the potential market for cheap second hand clothes shall be very high because people are able to buy them.

iv) Substitutes

Substitutes are alternative products that buyers can go for to satisfy the same need. For example a bottle of soda and a glass of juice. A business which produces products with no close substitutes has a higher potential market than the one which has many substitutes. This is because customers will choose only its products to meet the same need.

v) Income levels

A potential market depends on the ability or capacity of the target people and institutions to purchase the business products at profitable prices. The higher the income level, the higher the potential market.

vi) The location of the business

A business which is strategically located in relation to its target customers will have a higher potential market than the one that is not.

vii) The number of people, businesses and institutions operating from the target area

A potential market of any business will depend on the number of people, businesses and institutions operating from the business’ target area. The higher the number, the higher the business’ potential market.

viii) Government policies

Government policies may affect operations of businesses. For example, the opening and closing hours for business, the licensed customers that the business can serve, taxation policies, etc

Activity Four

Students assess a market potential for a business opportunity of their choice

The following exercise is a procedural process through which an entrepreneur can assess the potential market for a business. Carry out one.

Name of the business _______________________________________________ Nature of business__________________________________________________

Location and why you chose this particular business?_____________________ Is it nearer to the customers? ________________________________________

Who are the customers? _____________________________________________ Are they new or those that have always bought the products?____________ How often do they come back? _______________________________________

Are there similar businesses in the same locality? ______________________ How does their presence affect your clientele? _________________________ What other competitive commodities are being sold in the area?

Are there many people in the area? ___________________________________ Do they have families? ______________________________________________ Do they have many young children? ___________________________________ Is the population growing or decreasing? ______________________________ Is it a rich or poor population/neighbourhood? ________________________ Who comes to buy; the rich or the poor? _____________________________ How do the customers react to small price changes? ___________________

What government policies affect the business operations and how? ___________________________________________________________________

Conducting a market assessment

(a) Factors to be considered when conducting a market assessment

As seen in Section (c) above, market assessment is a process through which an entrepreneur finds out how much market his/her products will have once produced. To conduct a market assessment for business products, an entrepreneur would have to consider the following factors:

i) The target market for the products

This refers to people, businesses or institutions the business intends to serve. Since a business may have a geographical focus, this also provides a boundary within which the assessment is to be done. When looking at the target group, the entrepreneur may wish to look at the age, sex, income levels, education, etc. 

ii) The nature of the products to be produced and what the market wants

Under this factor, the entrepreneur looks at the product variety, quality, design, features, brand name, and packaging, range of sizes, services, warranties and returns. All these are checked against what the customers would wish to have.

iii) The competition and substitute products the business products will face and how this affects their market

Most businesses have competitors making products (goods or services) that perform functions similar to what the entrepreneur would wish to produce. This means that the competitors’ products can be substituted for the ones the entrepreneur wishes to make.

This therefore, requires the entrepreneur to check on the competitors he/she will face in the market and establish the level of competition his/her products are going to face. If the competition is too high, implying that few of his/her products will be sold, then the entrepreneur would better not go into such business. In such a case the entrepreneur would go back to his/her list of business ideas and get an alternative opportunity that can be turned into business.

iv) The target market trends and their implications on the business market

Target market trend is an important factor to be considered when conducting a market assessment for a business. The entrepreneur would wish to know how the market he/she intends to join has been behaving in the recent past. This will affect the total number of products he/she will be able to sell now and in the future. The market trend issues that the entrepreneur would wish to know include the following:

• Is the market expanding or contracting?
• Is the market stable or volatile?
• How does the market treat new entrants?
• What are the major factors that are driving the market trend; is it the prices, seasons, population, income, government policies? 

Activity Five

Group activity

• In groups of 5-8, conduct a market assessment for a business of your choice.
• Write a group report of not more than 1,000 words of your findings.
• Present to the class.

Information to look out

Customers. Identify their; Age Occupation Family size Marital status Residence Income Interests and hobbies Special interests, etc b) Customer needs Is the product needed for a limited time? How often are the products or services required? Will customers come frequently or seldom? Are customers looking for wider distribution or more convenient locations? What product variety, quality, design, features, brand name, packaging, and range sizes are they looking for? Do customers often want to return the product? Are customers looking for a quicker service? c) Competition Who are the competitors? (i.e., names of businesses, their owners, managers and type of ownership. ) Where are they located? What are their weaknesses? What are their strengths? How do their products compare with yours? (i.e., in terms of function, appearance, quality and any other criteria.) What are the company’s marketing activities? (i.e., how does it market its products? What is the company’s price structure? Who supplies the company with goods, raw materials, etc? What are the strengths and weaknesses of its sales literature? Is the company expanding or cutting back? What is the competitor’s market share? How much sales volume do they do?  d) Trends – Are there: Population shifts, e.g., are more people coming to live in the area? Legal or regulatory developments that may affect the market in the future? Positive or negative changes in the economic growth or situations e.g., are more people getting employed now than before? Are there cheaper and more fashionable goods coming on the market than before? Do people now have more disposable income than before? Are the peoples’ lifestyles changing? Is the market expanding or contracting? Is the market stable or volatile? How does the market treat new entrants? What are the major factors that are driving the market trend; it is the prices, seasons, population, income, government policies, etc?

Using SWOT analysis in determining the competitive advantage of a business

SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is used as a tool to enable an entrepreneur to check the chances of success of his/her business in a market. Once the entrepreneur has caried this out he/she will be able to reach a decision as to whether to go ahead with their business plan. SWOT analysis enables the entrepreneur to check on his/her business strengths, weaknesses, opportunities and threats. This helps him/her to determine whether his/her business is in a position to compete.

	Strengths	Weaknesses	Opportunities	Threats
Potential competitors	What are the competitors’ strengths in the market when compared to the entrepreneur?	What are the competitors’ weaknesses in the market when it comes to competing with the entrepreneur?	What are the competitors’ opportunities in the market when compared to the entrepreneur?	What are the competitors’ threats in the market when compared to the entrepreneur?
The entrepreneur	What are the entrepreneur’s strengths in the market?	What are the weaknesses of the entrepreneur’s business in the market?	What are the entrepreneur’s business opportunities in the market?	What threats does the entrepreneur’s business face in the market?

The following are examples of the issues that the entrepreneur will have to consider when carrying out self-assessment using SWOT analysis with a view to determining his/her competitive advantage.

Strengths

These are the things, features and qualities that put the entrepreneur’s business products at an advantage when compared to the competitors. They include the following:

• High quality products
• Customer friendly but profitable prices
• Ability of the product to meet the customers’ tastes
• Efficiency and effectiveness at serving customers
• Ability to attract customers
• Good location of the business
• Good and trained marketing staff
• High and effective entrepreneurial spirit

Weaknesses

These are the limitations/constraints that the business products may face in the market.

• Being new in the market and having a weak market image
• Weak distribution image
• Marketing skills that are below average
• Higher overall unit costs relative to key competitors
• Inability to finance needed marketing changes
• Too narrow a product line
• Location not being close or easily accessible to customers

Opportunities

These are external possibilities or chances that may happen and benefit the business. The business has no control over such happenings and they may not happen. Such possibilities may include the following:

• Possibility of landing big orders say from the government arising out of policy changes
• Sudden shift in tastes and fashions of customers in favour of the entrepreneurs products
• Change in the market trend due to new developments, for example, a new school being opened up in the neighbourhood, a large business being established in the area, etc.
• Falling trade barriers in attractive foreign markets, for example, the Unites States of America’s Growth Opportunity Act (AGOA), which removed import duties on goods manufactured in Africa and enables African countries to export to America.
• Faster market growth
• Complacency among rival enterprises

Threats    

These are undesirable happenings that may occur in the market to the disadvantage of the business.

• Entry of lower cost foreign companies
• Rising sales of substitute goods
• Adverse shifts in foreign exchange rates and trade policies
• Costly regulatory requirements
• Growing bargaining power of customers or suppliers
• Changing buyer needs and tastes
• Adverse demographic changes
• Sudden negative changes in the government policies
• Competitors reducing their prices

After checking his/her own position, the entrepreneur should make a similar check for his/her immediate competitors. S/he should compare his/her position in all the above areas against those of his/her close competitors. If the comparison is not favourable, i.e. if the competitors are in a better position, then s/he has a competitive disadvantage. This would imply that if put on the market, his/her products will not be able to compete with those of the competitors. The entrepreneur will therefore make losses and fall out of business.

On the other hand, if his/her position is stronger than that of his/her competitors, it means he/she has a competitive advantage. This means that if put on the market, his/her products would attract more buyers/customers than those of the competitors. The entrepreneur would sell more of his/her products at profitable prices, make more profits and his/her business will expand.

Further, the results of the analysis exercise will enable the entrepreneur find out whether his/her position can be improved or not. If it cannot be improved, then the entrepreneur should not start that business, rather, he/she should go back to the list of his/her business ideas and choose the second best and subject it to a similar analysis. This process should be continued until the one that promises him/her the best competitive position in the market is found.
 

Activity Six
              
SWOT analysis – Identifying the strong and weak points of a company

1. Organise learners into four groups

          Group 1: Soft Drinks Company
          Group 2: Dairy Milk Company
          Group 3: Mobile Telephone Company
          Group 4: Bread Making Company
         
2. Explain to learners that a SWOT analysis is a common way in business to get a very quick ´snapshot´ of a company and its market.

3. Ask learners to think of four items for each box in the Table below for their company.

                                                              

	Positive	Negative
Company	Strengths	Weaknesses
Market	Opportunities	Threats

4.  Ask learners to present their findings to the rest of the class.

5. Learners discuss and compare their ideas.

Variation

Learners can do a personal SWOT analysis for learning Entrepreneurship Education.

1. What are your strengths in Entrepreneurship Education?
2. What are your weaknesses in Entrepreneurship Education?
3. What are your opportunities for learning Entrepreneurship Education?
4. What stops you getting better?

Entrepreneurship Success in Bussiness

http://www.elateafrica.org/elate/entrepreneur/successinbusiness/successinbussinessintro.html

SUCCESS IN BUSINESS

Meaning of Success in Business

Success is the realisation of a worthy intention. This means that one becomes successful each time he/she takes a step towards achieving a predetermined goal, objective or target. For example a business can be said to be successful if it is expanding its market share and increasing its profits.

 The indicators of success in business are the signs or measures that can be used to show the level of achieving the business goals. They enable an entrepreneur to measure or assess the achievement of the set objectives of the business. Some of the indicators that can be used to measure or assess the success of a business include:

• Increase in assets

A successful business will have its production or volume of operations increasing significantly overtime. The increase in the volume of business operations calls for additional assets to handle the increased volume of operations.

• Increased profits

If the profits of a business have been persistently increasing, it shows that a business is successful. A business whose volume of operations is increasing is likely to have its profits also increasing (if the expenses are not increasing).

• Expansion of business

A business that is successful will have the volume of the business operations and profits growing and expanding overtime. The following may reflect the expansion of business operations:

• Market share
• Production lines e.g. number of products being produced
• Quality of products
• Increased number of employees
• Number of assets e.g. in case of a farmer, number of cows on the farm

• Recognition in the business community as well as the community in general

How much respect and recognition an entrepreneur and his/her business receive from the community, other entrepreneurs, government, customers etc., reflects how well the business is doing.

ACTIVITY 1: - Field Study

Learners may be grouped into 8-10 and send them out in the field to visit from at least 3 businesses of their choice near the school to find out the following information;

1. What is the name of your business?
2. When did you start this business? OR when did it start?
3. With whom did you start this business?
4. How much money (Seed Capital) did you use to start this business?
5. How did you raise this capital?
6. How much is your working capital today?
7. How much are your average sales per day OR per a month?
8. How much are your monthly expenses?
9. Can you be able to list down your expenses? If Yes what are they? If No why?
10. What control measures have you put in place to control expenses?
11. Why do you think you are successful in business? Or your business is successful?
12. What have you gained from this (your) business since its inception?
    
13. Why do you think your business has failed to succeed?

NB:

• Learners should be taught how to make self introduction and causing rapport with their respondents before embarking on to information gathering.
• Ensure that learners take notes of all the information gathered from the field in respect to the above questions.
• Each group should have a team leader (chair person) and a secretary
• Each group would be given time to make a presentation to their classmates
• The teacher would come in finally after all groups have made their presentation to elaborate more on key issues and the weak areas.

Factors Leading to Success in Business.

There are a number of factors that lead to success of a business. These are:

(a) Personal and entrepreneurial qualities of the business owners and senior management staff

For any business to be successful, the owner and the senior management staff must possess certain entrepreneurial qualities or characteristics. Qualities or Personal Entrepreneurial Characteristics (PEC) of successful entrepreneurs refer to the desired traits, which enable an entrepreneur to do what is expected of him/her and succeed in business. It is the combination of these characteristics that is required to enable any one to perform effectively as an entrepreneur. It is possible for people to develop these characteristics and succeed in their careers as entrepreneurs. Successful entrepreneurs have common characteristics, which are divided into three clusters namely achievement, planning and power.

i) Achievement Cluster

• Opportunity seeking

This refers to the quality that enables the entrepreneur to see and act upon new business opportunities even in situations where other people see nothing but problems/hopelessness only. It also encourages him/her to seize unusual opportunities for obtaining the necessary resources such as financing, equipment, land, workspace, technical assistance, etc, which will enable him/her to implement his/her business ideas.

• Commitment to the work contract

This is the ability to accept final responsibility for completing a job for the customers. Customers expect entrepreneurs to perform and honour their commitments. It follows therefore that the entrepreneur should do everything possible to ensure that he/she fulfils the commitment with his/her customers. If it means joining the workers to work with them to ensure that contractual commitments are fulfilled, the entrepreneur will do it.

• Persistence

This is the quality, which enables the entrepreneurs to develop determination to have a thorough job done at any cost in terms of personal sacrifice. By doing this, the entrepreneur remains working towards the achievement of his/her set goals.

• Risk taking

Entrepreneurs are people who prefer taking moderate risks. Before they commit themselves and their resources, they assess the risks that are associated with a business opportunity that they have selected, and their ability to manage them, the benefits that they will realise and the challenges that they will face from the venture to be undertaken.
Entrepreneurs can earn profits as a result of taking risks and the higher the risks, the higher the profits. However, entrepreneurs will always prefer to take on those risks that they can manage.

• Demand for efficiency and quality

This is the quality that enables an entrepreneur to do things that meet or surpass existing standards of excellence or improve on performance by striving to do things faster, better and cheaply. By doing this, the entrepreneur remains ahead of others, makes more profits and retains a growing market share.

ii) Planning Cluster

The planning cluster is made up of the following characteristics:

• Goal setting

This refers to the ability of an entrepreneur to set clear and specific goals and objectives. These goals and objectives are normally high and challenging but at the same time, realistic and can be attained, given the resources that one has got at his/her disposal.

• Information seeking

This is having the urge to look for the required information in order to make an informed decision, for example, selecting, starting and successfully managing the desired business. This calls for the concerned person to personally seek and obtain information regarding customers, suppliers, competitors as well as any other relevant information that is required to enable the entrepreneur make decisions and improve knowledge on his/her business.

• Systematic planning and monitoring

This is the ability to develop plans that will be used in monitoring and evaluating the progress of the business. This helps the entrepreneur to carefully monitor his/her business’ actual against desired performance and turn to other alternatives whenever the need arises, so as to achieve his/her set goals.

iii) Power Cluster

• Persuasion and networking

This is the ability to link, convince and influence other individuals, agencies and other groups in order to maintain business contacts at a high level. This will help or work for the cause of the business in a positive manner to accomplish own objectives.

• Self-confidence

This refers to having a strong belief or confidence in oneself and the ability to complete a difficult task or meet a challenge.

By possessing and practicing the above entrepreneurial qualities, business owners and senior management staff will be able to provide their businesses with good, efficient and effective leadership and management, which will enable their businesses to succeed.

(b) Clear objectives

If a business is to be successful, it is necessary that it should have clear and definite objectives. Once set, the entrepreneur should ensure that the business is operating and management guidelines set to achieve objectives are closely followed.

(c) Efficient and effective business planning

Planning is a very important factor for successful operation of a business. This is because planning enables a business to set its targets, methods of achieving them and resources to use in the process. This therefore enables it to operate within a known and provided framework, which saves it from crisis, straying off course and the associated losses.

(d) Proper location and plant layout

The success of a business may depend to a great extent on its location and layout. Appropriate location helps a business in securing the required inputs, for example, materials, labour, power, etc., at minimum possible costs. The location also helps it to secure and access markets at low costs.

(e) Availability of business support services

Businesses thrive and succeed in an environment where there are business support services such as financial services, business information, transport, communication, water, power, etc. For example, where there are banks that can lend entrepreneur money to expand his/her business, then such a business is likely to succeed.

(f) Availability of market

Production of goods and services is meaningless unless there are customers who will buy them at prices that will yield profits to the enterprises. Enterprises produce their goods and services to meet the needs of their customers. Where the volume of the customers is large and growing, and the customers can, and are willing to buy the enterprises’ products at profitable prices, then the enterprises will have a very good market and high chances of succeeding.

(g) Conducive government policies

If the government policies are conducive for business growth, then businesses will thrive and succeed. Examples of conducive government policies include fair taxation, controlled inflation, a well functioning financial system (i.e., banks that can lend businesses money at fair interest, liberalised prices and foreign exchange rates), good security and political stability, etc.

ACTIVITY

You may invite a resource person (business proprietor) from any of the recognised successful business around the school or in the country to class to share his/her experience with the learners.

Ensure that the learners take notes of what the resource person is presenting and freely interact with him/her through question and answering.

Benefits of a Successful Business to an Entrepreneur.

By running a successful business, an entrepreneur gets a lot of benefits, which include:

a) Self reliance and fulfilment

When an entrepreneur operates a successful business, he/she gets to do things for him/herself, maintain self-confidence and make independent decisions. The entrepreneur will also be in a position to produce or meet some if not all of his/her basic needs.

b) Increased income and further investments

A successful business generates more/increasing profits part of which the entrepreneur can use for personal purposes. The entrepreneur can also use part of the increasing profits to make further investments.
 
c) Recognition in the community

A successful business and its owner are highly respected in the community because of the goods and services being provided. This will further help to attract more customers to the business.

d) Improved standards of living

A successful business generates a lot of profits, which is the entrepreneur’s income. With this, the owner may be in position to meet most of his/her needs such as improving on the standards of living.

e) Permanent address for the entrepreneur and the workers

A successful business is one well established and permanent. It therefore provides a permanent address for the owner and the workers.

ACTIVITY

1. Visit a successful entrepreneur in your community.

2. Interview him/her on the benefits he/she gets from running a successful business.

3. Write a report of not more than 500 words on your findings.

Factors Which Lead to Business Failure.

It is common that the majority of businesses that are started in a given period fail and disappear before they celebrate their first anniversaries. This business failure is due to a number of factors which include:

a) Lack of market for the business products

If nobody wants to buy the products (goods and services) of a business then the business will fail and close. While there are several reasons for the lack of market, the most common ones include competition, changing customer tastes, uncompetitive prices, etc.

b) Poor handling of customers

A dissatisfied customer will tell between five and ten people about the negative experience while a positive customer will tell between one and five people about his/her positive experience. This therefore underpins the importance of satisfying a customer. No business can afford to survive with dissatisfied customers. A business whose owner or employees are rude to customers and do not bother to listen to them and attend to their individual needs cannot take long before it collapses. Customers will simply withdraw from the business and go to its competitors. Without a market, the business will fail.

c) Poor management of business stocks

Failure to maintain the adequate quantities of stocks in the shop will drive away customers, since other competitors will always be more than ready to serve them. When customers miss to get a particular kind of commodity more than once, from a business, which used to supply them, they will look elsewhere for alternatives, and with time, such customers will be attracted to those businesses from which there is always ready supply of commodities.

d) Misuse of business funds

One very big factor that can lead to the failure of a business is the diversion of the business funds to other purposes that may not necessarily be in line with the operations of the business. This will inevitably reduce the working capital, which is the lifeblood of the business. As a result, there will either be little or no funds left to finance the business operations like purchasing raw materials, and meeting the daily expenditure of the business enterprise.

e) Poor or low quality of products for sale

Another possible factor that may lead to the failure of a business enterprise could be poor or low quality of the products in terms of customer’s expectations as well as the competing products. This will reduce the number of customers as they withdraw and go to other businesses, which are producing better quality products. Faced with a declining number of customers and increasing competition, the business will inevitably fail and close.

f) Unsuitable business location

A lot of importance is attached to the location of the business if that business is to succeed. This is particularly true if the nature of the business products is sensitive to the location of the business visa a vie its market. When choosing the location for a business, the following factors should be taken into consideration:

• Nearness to the source of raw materials especially if the raw materials are too expensive to transport or are perishable
• Nearness to the market particularly if the products are expensive to transport
• Availability of land or business premises at cheaper rates
• Availability of labour, i.e., if the business requires a lot of labour
• Availability of transport and communication facilities such as water, electricity, etc.

g) Poor management of the business

Businesses which are poorly managed for example when they are inefficient in the use of their resources, do not keep proper records, use wrong costing and pricing methods, will inevitably make big losses and in the end fail and close up.

h) Mistakes made by the entrepreneur

In some instances, entrepreneurs loose interest in business because it does not suit their personal characteristics and as such, they slacken in their commitment to it in terms of supervision, funding, initiative and creativity. As a result, the business looses direction and collapses.

ACTIVITY

Read the following case study and answer the questions that follow:

John, the shopkeeper

John, lives in Makindye one of the five divisions of Kampala city. He trained as a carpenter but later decided to open up a shop in one of the busy markets in his area. John was initially very successful in his business and many people wondered how he had made his riches.

John used to wake up at 5:00 am in the morning and go to buy products to stock in his shop. He stocked a variety of high quality goods and he was always the first to open his shop, which gave him an advantage over his competitors. John had many customers whom he handled very well and they often refereed others to his shop.

As time went on, John became arrogant, probably because he was very rich. He stopped waking up early in the morning and he would open his shop after 10:00 am. He started stocking low quality goods and was no longer good at handling customers. John also used business funds to entertain his friends every evening at a local club.

It was not long before John closed his shop. By this time the shop shelves were empty, he had no customers and he did not have money to re-stock the business. The friends whom John used to entertain every evening had abandoned him and his relatives could not assist him because he never helped them while he was still rich.  

Answer the following questions

1. Why was John initially successful in his business?
2. What attributes did John possess which enabled him to succeed?
3. What factors led to John’s business to fail?
4. What lessons do you learn from John’s story?

Common Management Mistakes that Cause Business Failures

Most businesses have failed because they have not been managed well by their owners and employees. It is therefore important that one becomes aware of the most common management mistakes that lead to business failures. This will enable one to avoid them and therefore save his/her business from failing due to similar reasons. The following are some of the common management mistakes which cause most businesses to fail:

a) Mistaking cash for profit

Some business owners at times tend to mistake the cash received from the sale of goods and services to be profit. Under this mistaken belief, they take and use it for purposes that may not be related to the business. As they do this for a long time, the business funds get used up and the business fails to meet its financial obligations, including purchasing raw materials, stocks, paying salaries, etc. As a result, the business fails and is closed.

b) Uncontrolled credit being given to customers

A business needs a regular flow of funds if it is to finalise its operations and succeed. If friends and relatives are allowed to take goods at will with only a promise to pay in future, the business will soon run out of cash. Unless an entrepreneur can find additional cash to put into the business, the business will fail and close.

c) Lack of record keeping

Without proper records, it is difficult for an entrepreneur to tell whether the business is in trouble or not. In such circumstances, he/she will know it when it is too late. The entrepreneur will not know who owes him/her what, how much money is in his/her business, how much profits he/she is making, etc. In effect, the business becomes chaotic and in the end fails.

d) Poor customer care

Businesses fail as a result of poor customer care by their owners or employees. If customers are not handled well, they will go to other businesses where they are treated better. As a result, the business loses its market, its products do not get bought while expenses continue being incurred, the goods get spoilt, the business runs out of cash and within a short time the business collapses.

e) Neglect

Some other businesses fail due to the little attention that is given to them by their owners. This may result because of some factors such as loss of personal interest, bad habits, poor health, change of priorities, etc. As a result, there is no supervision and guidance to business employees, the business loses direction and fails to take advantage of opportunities, experienced and good workers leave and customer care collapses. Eventually employees begin helping themselves to business funds, stock and in the end, the business collapses.

f) Incompetence

This is simply the inability of the business owners and employees to manage the business operations efficiently and effectively. This may be due to either of the following:

i) Lack of requisite technical skills that may be required to manage the business operations particularly if the business cannot hire the required staff.

ii) The entrepreneur may have chosen a business, which is too technical for his/her technical capacity.

iii) The owner passing away and his heirs not having the requisite technical capacity to manage the business.

g) Theft of business funds, stocks and assets

The business may suffer from loss of its assets (e.g., cash, stocks, etc) through theft either by employees, thieves from without, etc.

h) Interference of the family members in the running of the business

An example of family interference is with drawing business funds, taking credit, which they do not pay, chasing away business workers, etc.
i) Death of the business owner

If the owner dies and there is no one to take over the business or the business is subjected to family wrangles.

1.6 Indicators of a business that is not doing well

There are many indicators or signs, which can show that a business is not doing well. Taking an example of a shop, the following indicators may show that a business is not doing well:

a) Empty shop shelves

This indicates that the business does not have cash to buy fresh stocks to replace the ones sold.

b) Expired or obsolete goods

This means that the business has lost market and cannot sell the goods. It also does not have cash and cannot replace the expired or obsolete goods.

c) Low sales

This means that the business has lost market either because its products do not meet the needs of customers or it is being out competed or it has poor customer relations.

d) Low profits

This means that either the operating costs are very high or the prices have declined and business cannot do anything about it. Low profits mean that the business cannot re-invest to expand or replace old plant or pay income to its owners.

e) High expenses

The effect of high expenses is to reduce profits particularly so if business cannot increase the selling prices. This makes the business products uncompetitive and it looses market.

f) Incompetence

This is simply the inability of the business owners and employees to manage the business operations efficiently and effectively. This may be due to either of the following:

i) Lack of requisite technical skills that may be required to manage the business operations particularly if the business cannot hire the required staff.

ii) The entrepreneur may have chosen a business, which is too technical for his/her technical capacity.

iii) The owner passing away and his heirs not having the requisite technical capacity to manage the business.

g) Theft of business funds, stocks and assets

The business may suffer from loss of its assets (e.g., cash, stocks, etc) through theft either by employees, thieves from without, etc.

h) Interference of the family members in the running of the business

An example of family interference is with drawing business funds, taking credit, which they do not pay, chasing away business workers, etc.

i) Death of the business owner

If the owner dies and there is no one to take over the business or the business is subjected to family wrangles.

Indicators of a Business that is not Doing Well

There are many indicators or signs, which can show that a business is not doing well. Taking an example of a shop, the following indicators may show that a business is not doing well:

a) Empty shop shelves

This indicates that the business does not have cash to buy fresh stocks to replace the ones sold.

b) Expired or obsolete goods

This means that the business has lost market and cannot sell the goods. It also does not have cash and cannot replace the expired or obsolete goods.

c) Low sales

This means that the business has lost market either because its products do not meet the needs of customers or it is being out competed or it has poor customer relations.

d) Low profits

This means that either the operating costs are very high or the prices have declined and business cannot do anything about it. Low profits mean that the business cannot re-invest to expand or replace old plant or pay income to its owners.

e) High expenses

The effect of high expenses is to reduce profits particularly so if business cannot increase the selling prices. This makes the business products uncompetitive and it looses market.

ACTIVITY

Use resources like magazines e.g. Business week e.t.c. and News papers like The Daily Monitor, New Vision e.t.c. which usually have plenty of information about success in businesses or why some of these businesses fail or collapse.

Alternatively avail a radio to learners to listen to talk shows Or recorded information about business success to enable the learners learn more. And ensure that each learner takes notes of the various issues being discussed over the radio. You may also use this talk show as an assignment where by you would award marks for such work presented by each learner. Examples of these may include the famous CBS and Simba radio talk shows commonly known as:

• Secrets of rich people “Ebyama bya baggagga”
• Where do rich people get money “Wa a baggagga gye bajja sente”

BY
Pastor Evans Mayambala

ACTIVITY

The teacher may also organise a play entitled or on a theme “SUCCESS IN BUSINESS” This will enable the learners act out the conceptualised knowledge and put it more to reality (Bringing theory to practice). It may even be presented to the entire school community or parents say on a school special day.