Entrepreneurship Managing a Small Business

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MANAGING A SMALL BUSINESS ENTERPRISE

ROLES OF AN ENTREPRENEUR IN THE MANAGEMENT OF A SMALL BUSINESS ENTERPRISE

An entrepreneur plays a number of roles in a small enterprise. Among these are:

(a) Decision making

Decision making is the process of choosing the best alternative from among different alternatives to maximize the achievement of business goals and objectives. The decision-making role can be seen in resolving conflicts, resource allocation and in negotiations. The entrepreneur makes decisions concerning:

• Identifying markets and business opportunities
• Making available the necessary resources, such as capital, labour, raw materials, etc., for the identified business opportunities
• Translating the business idea into a real business that produces goods and services
• Searching for new ideas and innovations to meet changing customer needs, tastes and preferences
• Conducting regular meetings with business employees, staff involved in research and development, etc
• Solving conflicts among employees, other business competitors
• Allocation of resources such as money, time, equipment, etc
• Negotiating business contracts with suppliers, customers, etc

(b) Information processing

Under information processing, an entrepreneur acts as a monitor as well as an information disseminator.

• In his/her role as a monitor, the entrepreneur regularly scans the internal and external environment which affects the business. He/she collects information on changes in customer’s needs, tastes and preferences. This information can be collected from newspapers, magazines, and other media.
• In his/her role as a disseminator of information, an entrepreneur finds possible solutions to the changes in the internal and external environment and disseminates the changes in company policies to employees. This information is disseminated through memoranda, telephone calls, electronic mail, etc.

(c) Interpersonal relationships

An entrepreneur can maintain good interpersonal relationships by playing a leadership role, network officer and figure head.

• As a leader, an entrepreneur must lead by example. He/she should guide other employees, treat them with respect and be dedicated to the business. This will motivate the employees to perform their duties.
• As a network officer, an entrepreneur should have contacts outside of the business. This helps in assessing changes in the business environment, social changes and changes in government policy.
• As a figure head, an entrepreneur receives company visitors; signs legal documents, gives public speeches, and attends workshops and conferences, etc on behalf of the enterprise. Within the enterprise, an entrepreneur plays the figure head role by attending employees’ functions such as weddings, funerals, etc. This helps to build rapport and shows a good image to the outside world.

Students' Activity

1. What are the different roles that an entrepreneur is expected to play?

2.  Describe in detail the manager as a decision maker.

3. How do manager’s different work roles affect his/her ability to perform as an effective manager?

Importance of management in a small business enterprise

Management is important to different stakeholders such as owners of the business or the shareholders, employees, customers, government and the community.

(a) Shareholders

The shareholders are the owners of the business who invest capital in the business. The main purpose of investing capital in the business is to generate profits. Management therefore plays an important role of investing the shareholder’s resources (capital) into projects that can yield satisfactory rate of return and produce quality products and services that can meet customer’s needs.

(b) Employees

The importance of management to employees can be seen in:

• Assigning employees the right jobs as per their knowledge, experience, attitudes and interest
• Communicating to employees the business policies, procedures and objectives and the strategies to be used to achieve the objectives
• Ensuring that the working conditions of employees are conducive
• Provision of social activities and additional benefits to boost the employees’ morale and dedication
• Involvement of employees to participate in business affairs like how to improve on business performance, etc
• Provision of fringe benefits in addition to salary, medical insurance, sick leave, etc

(c) Consumers

Management tries to ensure that a customer is their business lord and is always right. Management thus produces quality products and services at fair prices with guaranteed satisfaction to meet the interests/needs of their customers.

(d) Government

Management ensures that its business operates within the legal system abiding by all the laws and regulations of the state. This is important to the government in that;

• There is payment of taxes and on time
• Environmental laws are respected
• Provision of employment by hiring/employing people on merit

(e) Community interests

Management is important to the community in the following ways:

• Providing jobs for the people within the community
• Raising funds for public activities like hospitals, roads

• Provision of products and services needed by the community

(f) Inter-business relations

Management helps to maintain the inter-business relations through fair trade practices like fair prices, good quality products, and fast mode of delivery and quality services. This is because businesses are interdependent on each other in terms of products produced by them.

Students' Activity

1. Discuss the importance of management to the following stakeholders:

(a) Shareholders

(b) Employees

(c) Consumers

(d) Government

(e) Community

FUNCTIONS OF MANAGEMENT IN A SMALL BUSINESS ENTERPRISE

Management carries out a number of functions in a small business enterprise. These functions include planning, organising, staffing, leading, controlling, communication, motivation, and budgeting.

(a) Planning

Planning involves the establishment of business goals and objectives, and determining the ways in which they will be achieved. In planning, an entrepreneur is envisaged to:

• Set business goals and objectives
• Determine different courses of action to achieve the business goals and objectives
• Select the best option
• Formulate business strategies to translate the chosen option into action

Planning aims at reducing future uncertainty. Planning answers questions like: what should be done? When will it be done? Where will it be done from? Who will do it? How will it be done?

(b) Organising

This refers to identifying the activities to be done, categorising them into sections/departments and assigning the activities to particular people to carry them out. In order to organise efficiently, an entrepreneur should:

• Identify the tasks to be performed and group them into departments, for example, sales and distribution under the marketing department
• Assign tasks/activities to individuals and define their responsibility and authority, for example, a sales manager can be assigned marketing tasks
• Delegate the authority to the chosen employees, for example, heads of departments, managers, etc
• Co-ordinate the activities to ensure that they are done as scheduled

(c) Staffing

This involves the process of recruiting, training, developing, compensating and evaluating employees. It also involves maintaining employees with incentives like good salaries, housing and medical facilities or allowances, etc. This is likely to result in commitment to work on part of the employees.

(d) Leading

This involves motivating and guiding the employees about business procedures and methods. There should be open communication such that employees receive information and also give feedback. An entrepreneur should lead by example and employees should be motivated either verbally or through other rewards like money, promotion, recognition, etc.
  
(e) Controlling

Controlling in a small business enterprise is concerned with monitoring purchases and sales, money received and paid out, stock and other business property. It consists of those activities which are undertaken to ensure that the activities done are not different from the pre-planned ones. An entrepreneur should look at the original set goals, and find out whether or not they have been achieved as planned.

(f) Communication

This is the process of receiving and sending messages. It is the process of passing information from one individual to another. An entrepreneur should transmit and share messages, ideas, facts and information with his/her suppliers, employees, customers, etc.

(g) Motivation

This is the process of encouraging employees to do their best towards the desired goals of the business. Employers should aim at getting their employees to willingly pursue company objectives. Motivation can be through fair payments/salaries, allowances, promotion, fringe benefits like free housing, medical care, etc.

(h) Budgeting

A budget is a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flows. It is a financial plan outlining how funds will be spent in a given period of time and how these funds will be obtained. The process of preparing a budget is known as budgeting.

Types of budgets

1. Master budgets
               
This is a comprehensive summary budget, incorporating all the functional and operational budgets, generally including sales, production, material and labour costs, any overhead costs, profit, etc.

2. Materials and utilities budget

This budget also known as operations budget includes budgeting for raw materials required for production, spare parts for maintenance, labour time, machine time, energy consumption, etc. Labour time and machine time is the output per unit of time.
 
3. Control of liquidity

This involves cash flow and is very important in controlling and meeting current financial obligations. This budget forecasts cash receipts and outlays in a set time basis and is necessary to control the income and expenses, so that there is no shortage of cash to pay bills, and also no excessive unused cash which may be unproductive.

4. Revenue and expenses budgets

The revenue budgets should show anticipated sales by product or by geographical area or department, etc. The expense budgets should cover all necessary and relevant areas such as rent, utilities, supplies, security, etc.

5. Capital expenditure budgets

These budgets plan for long term investments and include expenditures for new plant and equipment, major installations, replacement of existing equipment, building, etc.

6. Sales budget

The sales budget is the direct outcome of sales forecast and is based on the consideration of the following factors: demand and supply, competition, past sale trends, future prediction of sales, seasonal changes that affect sales, etc. The sales forecasting is based on such factors as population trends, consumer’s purchasing power, disposable income, price trends of the products, inflation rate and the general business economy, etc.

7. Production budget

The production budget contains manufacturing program for future operations and is based upon the sales forecasts and sales budgets. It aims at obtaining maximum utilization of manufacturing methods and facilities.

8. Balance sheet

It is a composite budget and reflects anticipated assets, liabilities and owner’s equity or net worth at the end of a given period in the future. It provides a forecast of the anticipated financial status of the company at a future date.

9. Flexible budget

Flexible or variable budget reflects and combats the changes in expenditure as a result of changes in volume of production and revenues. These expenditures are primarily variable costs since the fixed costs are not generally affected by changes in revenues.
 
Benefits of budgeting

Budgets are produced in all organizations, whether they are small, large, private or public sector. They are important and are produced for the following reasons:

• To compel planning – by having a formal budgeting procedure, managers are forced to consider business objectives and ways in which those objectives can be achieved
• To co-ordinate the activities of the various parts of the business and to ensure that the parts are working together
• To communicate plans to the various responsibility managers within the enterprise
• To motivate managers to work towards the business objectives
• To control activities – the budget provides a yardstick against which the performance of the business can be compared
• To evaluate the performance of the managers
• The budgeting process helps management learn from past experience. Management can critically look at the success or failure of the past budgets and isolate errors and analyse their causes and establish steps to avoid repetition of the same errors
• Budgets help in the just measurement of performance. Due to quantification of budgets, the measurement is more objective, thus eliminating biases that might be introduced due to subjective evaluations
• The budgeting process induces the management to shift attention to the future operations. It forces managers to anticipate and forecast the trends and changes in the external environment

 Limitations of budgeting

Some of the problems associated with budgeting are:

• Budgets are often too rigid and restrictive and supervisors are given little free hand in managing their resources. The budgets may either be changed too often or not at all, making it difficult for employees to meet performance levels
• Budgets are used to evaluate the performance and results, but the causes of failures and successes are not thoroughly investigated
• Budgets may be used punitively. The employees may regard budgets simply as rating tools or as a device for catching their mistakes. This will lower their morale and dilute their sense of dedication
• Budget goals may be conceived as too high. A high production level or sales level may be resented as un realistic and may create tension and pressures which could very well result in worker inefficiency and create conflict between workers and the management

Students' Activity

1. (a) List seven functions of management in a small business enterprise.

(b) For any four functions chosen, describe the activities managers must perform to achieve a desired goal.

(c) List two problems managers might encounter in performing any one of the functions chosen in part (a).

(d) Describe one way in which any one of the problems chosen in part (c) might be eased or solved.

2. Define budgeting and a budget.

3. List six types of budgets.

4. Why is budgeting important to an entrepreneur?

5. What are some of the problems associated with budgeting? 

THE RESPONSIBILITIES OF MANAGEMENT Management is responsible and answerable to many groups. Sometimes the interests of these groups conflict with each other. Hence, management must conduct its affairs in a manner so as to be fair and equitable to all parties who have a vested interest and claim on management. These parties include the government, shareholders, the community, employees, customers and board of directors. These responsibilities are discussed in more detail as follows: (a) Responsibilities to government Management responsibilities towards government are to maintain the law of the land, not to flout trading practices, to pay taxes such as (corporation tax and value added tax). Managers must operate within guidelines established by the National Bureau of Standards. (b) Responsibilities to shareholders These responsibilities include calling annual general meeting, inviting shareholders to attend, declaring the dividend and making profits for the company. (c) Responsibilities to society and the environment Management should use environmentally friendly practices and every board of directors should be fully aware of the disastrous consequences of environmentally damaging actions. (d) Responsibilities to employees These responsibilities include the provision of adequate facilities and amenities for workers, such as a clean working environment, proper toilet, canteen and health facilities, and the provision of essential work-wear. Managers should also ensure that workers receive pensions and gratuities on time. Managers’ responsibilities also include the protection of female employees against sexual harassment and discrimination. (e) Responsibilities to customers Individuals, wholesalers, retailers, other companies, importers and exporters and even the government may be customers of a business. To all of these managers have many different responsibilities. Managers must, for instance, ensure that goods coming off the production line are of good quality and fit for the purpose for which they are intended. (f) Responsibilities to the board of directors Some mangers may be members of the board of directors and may deal with one another directly. However, managers have certain specific responsibilities towards board members and these may include: maintaining a close working relationship with board members working towards a common goal or objective working within a framework of harmony and co-operation for the common good of the entire business promoting the aspirations of board members in trying to achieve company objectives making frequent reports to the board of directors preparing research materials, statistics, data and other important information needed by board members for use in preparing results for presentation at an annual general meeting Students' Activity 1. (a) Outline, briefly, five responsibilities of management.     (b) For any three responsibilities chosen give two activities for each to show how managers operate.     (c) Explain one problem for any one responsibility chosen in part (a) that might hinder the performance of managers.     (d) Explain the role of workers in the solution of the problem outlined in part (c). 2. What are the management’s responsibilities towards employees? Should the return on investment be the primary concern of the shareholders? 3. Are the management’s responsibilities towards employees applicable in all situations or in the democratic style of management system only? 6. Management tasks  A task refers to activities organised in units for particular purposes. In a small enterprise, the management tasks include production, marketing, personnel and financial management. (a) Production management Production management is the process of taking a set of inputs and turning them into outputs. The inputs are the factors of production while the outputs are the goods and services. Production management is the process of effectively planning and regulating the operations of that part of an enterprise which is responsible for the transformation of materials into finished products. Production management deals with planning and controlling production activities, which include: acquisition of inputs such as land, capital, raw materials, human resources and information Transformation of the inputs into output. Output refers to products that have been processed from raw materials into finished or semi-finished goods. (b) Marketing management Marketing management concentrates on marketing products (outputs) produced by the production management of the business with an aim of satisfying the customers with a view of making profit. The aspects of marketing include: providing the products which customers need setting prices that customers are willing to pay but are still profitable to the enterprise getting products within the reach of the customers informing and persuading customers to buy the goods/services selling the products to the customers (c) Personnel management This is also referred to as human resource management. It is that part of management which deals with the effective control and use of employees to do all the activities involved in the business. Human resource is the most significant factor which contributes to the success of a business because it is people who have to acquire factors of production (inputs), manage them, transform or process raw materials into finished products, market them and collect and manage the finances. Personnel management deals with: manpower planning, which is concerned with assessing the manpower requirements of an enterprise in terms of both quality and quantity recruitment, which refers to the process of attracting and identifying suitable workers for a given job selection, which is the process an entrepreneur follows to pick out the most suitable candidate for a particular job placement, induction, training and termination, which involves assigning a worker tasks to be done in the enterprise, introducing the new employee to the enterprise and laying off a worker from the job human resource development, which is concerned with improving the skills of employees through further training, study tours, etc determination of employee remunerations and terms of employment and standards of working conditions communication, which deals with putting in place formal and informal communication channels and procedures for the business Human resource management is important for the proper functioning of an enterprise in the following ways: human resource management enables an entrepreneur to get the right type of workers with the necessary training and skills Human resource management helps in staff development and training. Employees acquire needed skills through various training programmes personnel management improves working conditions and provides a good working environment which motivates employees to work hard eliminates wastage or improper utilization of resources since it allows employees to put together their efforts and properly use the materials and resources to achieve business objectives personnel management plays a vital role in attainment of business objectives as it provides motivation and helps to instil commitment in the employees personnel management helps to promote good relations between employees and management or between fellow employees Personnel management promotes good image of the business to the public. The good will created can enable the business to meet the demands of the community personnel management aids in evaluating the performance of employees in all departments of the business (d) Financial management Financial management refers to the routine functions, which are performed within the enterprise to ensure efficient use of funds. Examples of routine functions of financial management include: supervising daily cash receipts and expenditures banking of surplus cash balance settling debts of suppliers of goods/services and funds on time record-keeping Students' Activity 1. Examine the various management tasks in a small business enterprise. 2. Define personnel management. 3. What is the importance of personnel management? 4. Ask students to visit any business of their choice and find out how the roles, functions and tasks of management are being performed. 5. Ask students to write a report of their findings and include a list of the aspects which they think are missing and should be done to enable the business to perform better. References: Abiraj, B.M.C. 1998. Higher Level Business and Economics for Caribbean Students. Hodder Headline Group. pp.258-260. Broadbent, M. and Cullen, J. (eds). 2003. Managing Financial Resources. Third Edition. Butterworth-Heinemann. pp.116-117. Chandan, J.S. 2005. Management Theory and Practice. Vikas Publishing House PVT Ltd. pp3-23. Kabatire, S. and Mutyaba, S.V. 2007. Entrepreneurship Skills. Net soft Publishers. Kampala, Uganda. P.114-126. National Curriculum Development Centre (NCDC). 2002. Entrepreneurship for Secondary Schools. Book 3. National Curriculum Development Centre, Kampala, Uganda. P.1-9. Tayebwa, K. 2007. Entrepreneurship Education Skills. First Edition. Bagah Printers and Stationers. Kabale, Uganda. Pp.26-27

Teachers' guide Scheme of work Lesson plan Learners' activities USEFUL WEB LINKS Management Management help Managerial roles Management excel Managerial

LEARNERS' ACTIVITIES

Activity one

Brainstorm

Managing a product-based small business: Mix-a-fruit

Use the idea generation technique to analyze the concept of producing and marketing a low-calorie mixed fruit product called Mix-a-fruit. Discuss various assortments of fruits and toppings that could be used.

In small groups, solicit the expert opinion of fast food restaurant managers and/or home economics teachers to verify the merit of the proposed food product.

Individually, discuss the importance of your research (environmental scan, expert opinion survey, the planning and development of Mix-a-fruit).

In small groups, conduct an environmental scanning by examining the social, political, competitive, legal, and economic environment as they pertain to production and marketing of Mix-a-fruit.

Report your findings to the class.

Activity two

Class Project

As a class project, find out how many ‘Mix-a-fruit products’ you would sell during the year in the school canteen or a local community event.

Develop a monthly sales projection.

In view of these production needs, delegate the following responsibilities for the project to small groups:

1. organize tasks, and identify job responsibilities;
2. design an organization chart indicating the relationship between management and staff;
3. design a new-hire and professional development training program;
4. develop an incentive program;
5. create a rotating employee work schedule;
6. develop quality assurance procedures.