BUSINESS / BUSINESS ENTERPRISE
Business encompasses a wide range of activities involving the production, distribution, and exchange of goods and services for profit.
Business can refer to an individual’s regular occupation, profession, or trade, an organization engaged in commercial, industrial, or professional activities, or the organized efforts of individuals to produce and sell goods and services.
The entrepreneur here looks at options of how to start a business. There are several ways on how a business can be started as discussed below.
1. Starting from scratch; This calls for starting a business from nowhere to somewhere. This involves starting a business from the ground up. This requires collecting all the factors of production and put them together to have a business started. Most entrepreneurs go this way to start small businesses and they grow them into large businesses.
2. Inheriting an existing business; Some entrepreneurs inherit businesses from their parents or other relatives. This can be a great way to get started in business, as the entrepreneur may already have a customer base and a team of employees in place. For instance the current owner of Madhivan group is a grand son of the first Madhivan who started the business. He there inherited business from the father.
3. Buying an existing business; Entrepreneurs can also purchase existing businesses from other owners. For instance someone may be selling out a failed business or with other prospects of changing line of business and someone with money goes ahead and buys the business facility and start his entrepreneurial career from their onwards
4. Franchise; A franchise is a business that is operated under the name and trademarks of another company. The franchisee pays a fee to the franchisor for the right to use the franchisor’s brand, products, and services. This requires the entrepreneur to start a business in the same line with that of the parent company. He may have to get rights from the owner and he runs the business elsewhere. For example the Baroda Bank of Uganda is a franchise of Baroda bank of India
5. Business Incubation. This is where existing entrepreneurs, organizations or government agencies provide facilities to help new entrepreneurs get started, trained and provided with operating tools, facilities and land or space. Organizations like Uganda Industrial Research Institute (UIRI), FINAfrica at UMA Logogo, and Global Labs Uganda.
Features of a Business:
- Exchange of Goods and Services: All business activities involve the exchange of goods or services for money or its equivalent. This exchange is the core of business transactions.
- Deals in Numerous Transactions: Businesses regularly engage in multiple transactions, not just one or two. This ongoing exchange of goods and services is a defining characteristic of business activity.
- Profit is the Main Objective: Businesses are driven by the profit motive, aiming to generate revenue that exceeds expenses. Profit is the reward for the services provided by the business owner or entrepreneur.
- Business Skills for Economic Success: Running a successful business requires specific skills and qualities. A good businessman or entrepreneur needs experience, knowledge, and the ability to make sound decisions in a dynamic and often uncertain business environment.
- Risks and Uncertainties: Business activities are subject to various risks and uncertainties. Some risks, such as loss due to fire or theft, can be managed through insurance. However, other uncertainties, such as changes in demand or price fluctuations, cannot be insured and must be borne by the business owner.
- Buyer and Seller: Every business transaction involves at least two parties: a buyer and a seller. Business is essentially a contract or agreement between these parties, where goods or services are exchanged for money or other forms of compensation.
- Connected with Production: Business activities can be related to the production of goods or services. When a business is involved in the production of goods, it is referred to as an industrial activity. Industries can be classified as primary (extracting raw materials) or secondary (transforming raw materials into finished goods).
- Marketing and Distribution of Goods: Business activities can also involve the marketing or distribution of goods. This is known as commercial activity. Businesses engaged in marketing and distribution focus on connecting producers with consumers, ensuring that goods reach their intended markets.
- Deals in Goods and Services: Businesses deal in both goods (tangible products) and services (intangible offerings). Consumer goods are those used directly by consumers, while producer goods are used in the production of other goods. Services are intangible but can be exchanged for value, such as transportation, warehousing, and insurance services.
- To Satisfy Human Wants: Businesses aim to satisfy human wants and needs through their products and services. By producing and supplying various commodities, businesses contribute to consumer satisfaction and well-being.
- Social Obligations: Modern businesses recognize their social responsibility and strive to operate in a manner that benefits society as a whole. This includes ethical business practices, environmental sustainability, and contributing to the community.
Basics of a Business:
- Business Concept: Every business starts with an idea or concept that addresses a market need or opportunity.
- Market Research: Depending on the business type, extensive market research may be necessary to evaluate the viability of the concept and identify target customers.
- Business Name: Selecting a suitable business name is essential, considering factors such as memorability, relevance to the business, and legal availability.
- Legal Structure: Businesses can choose from various legal structures, such as sole proprietorship, partnership, corporation, or limited liability company (LLC), each with its own advantages and disadvantages.
- Financing: Starting and operating a business requires financing, which can come from personal savings, loans, or investors.
- Operations: Businesses must establish efficient systems and processes for production, distribution, marketing, and customer service.
- Marketing: Businesses need to develop and implement marketing strategies to promote their products or services and attract customers.
- Customer Service: Providing excellent customer service is crucial for building customer loyalty and maintaining a positive reputation.
- Financial Management: Businesses must manage their finances effectively, including revenue, expenses, profits, and cash flow.
- Compliance: Businesses are required to comply with various laws and regulations, such as tax laws, employment laws, and industry-specific regulations.
Types of Business
- Service Business: Service businesses provide intangible products, such as professional skills, expertise, advice, and other similar offerings. Examples include salons, repair shops, schools, banks, accounting firms, and law firms.
- Merchandising Business: Merchandising businesses buy products at wholesale prices and sell them at retail prices. They make a profit by selling the products at prices higher than their purchase costs. Examples include grocery stores, clothing stores, and electronic stores.
- Manufacturing Business: Manufacturing businesses purchase raw materials and transform them into finished goods through a production process. They combine raw materials, labor, and factory overhead to create products that are then sold to customers. Examples include automobile manufacturers, food processing companies, and pharmaceutical companies.
- Hybrid Business: Hybrid businesses combine elements of two or more types of businesses. For instance, a restaurant may provide dining services (service), sell food and beverages (merchandising), and prepare meals using raw ingredients (manufacturing). Hybrid businesses are classified according to their primary business activity.
Entrepreneurial Decisions in Setting up a Business
An entrepreneur has to take the following decisions in order to establish a business:
1. Selection of Line of Business:
- Choose the type of business (manufacturing, trading, or service)
- Select the specific goods or services to produce and distribute
- Analyze profitability, conduct market research
- Make decisions on product design, pricing, marketing, and distribution
2. Assessment of Risk and Return:
- Consider the expected rate of return and associated risks
- Ensure the business is technically feasible
- Evaluate the acceptability of the risk level
3. Determination of Business Size:
- Aim for the optimum size for minimum average cost per unit
- Consider factors like product nature, production technique, market extent, finance availability, and management competence
- Weigh the advantages and disadvantages of large-scale and small-scale operations
4. Selection of Business Location:
- Choose the region based on access to raw materials, labor, transportation, and banking facilities
- Select the site considering land cost, soil conditions, and development costs
5. Choice of Form of Ownership:
- Decide on sole proprietorship, partnership, or joint stock company
- Consider factors like business nature, size, risk level, capital requirements, and managerial needs
- Evaluate the implications of each ownership form on authority, liability, profit sharing, business continuity, and transferability of interest
6. Financial Planning:
- Determine the total capital required for the business
- Decide on the types of securities to issue to raise the estimated capital
- Plan for the administration of funds
7. Provision of Physical Facilities:
- Select machines, equipment, building, plants, and other physical facilities
- Consider factors like business nature, firm size, production process, and fund availability
- Evaluate factors like relative costs and productivity, repair and maintenance services, spare parts availability, and worker skills
8. Plant Layout:
- Arrange physical facilities to optimize material flow and minimize bottlenecks
- Ensure flexibility to adapt to changing business conditions
9. Personnel Management:
- Estimate the quantity and quality of personnel required for different jobs
- Conduct manpower or human resource planning
- Recruit, select, and develop managers and workers with the necessary skills, experience, and aptitude
10. Procedural Formalities:
- Observe procedural formalities required for starting a new enterprise
- Register the business as required
- Obtain necessary licenses and permits
11. Launching the Business:
- Acquire necessary resources (men, material, machinery, money, management)
- Develop an organizational structure and assign tasks
- Create departments and coordinate their work towards achieving organizational objectives
Benefits of a Successful Business to an Entrepreneur
- Increased income and further investment: A successful business generates profits to the owner, some of which is used for consumption purposes. The other part can be used by the entrepreneur to make more investments.
- Self-reliance: Someone becomes his/her own boss; he/she gets to do things for himself/herself and maintains self-confidence by making independent decisions. He/she will be in a position to provide and meet his/her needs.
- Reputation in society: A successful business and its owner are highly respected in society because of the products being provided. This will further help to woo more customers to the business.
- Improved standard of living: Due to income generated by the successful business, the owner can get what he/she wants at any time he/she wants it and as such the standard of living is improved. And in addition to that above the entrepreneur of a successful business can reserve some time, delegate work and enjoy leisure.
- Permanent address for the entrepreneur and identification: A successful business is one that is well established and permanent. Therefore it provides a permanent address for the entrepreneur and workers and at times.
Challenges Faced by Business Entrepreneurs
- Time-consuming: One is subjected to long and irregular working hours, this leads to fatigue and exhaustion. It leads to living a low lifestyle due to too much hard work.
- Uncertainty of income: Someone is not sure of his/her income at the end of a given period. For example: monthly, annually, weekly, etc. Income may not be as secure or regular as it would be working for someone else.
- Low standards of living: An entrepreneur experiences very low standards of living especially in the initial stages when the business has not taken off and still realizing less income which in most cases is ploughed back in the business thus the owner experiences a low standard of life.
- Chance of business failure: There is a risk of losing the money invested in the business if the business fails to succeed.
- Responsibility: There are many different responsibilities and roles you will need to assume.
- Sacrifices: There are so many sacrifices to be made by the entrepreneur, for example; may not have as much family time, may have to make financial sacrifices, etc., in order to succeed.
Factors Leading to Success in a Business
Some businesses succeed while others fail; the following are some of the factors that lead to success in business:
- Clear objectives: The targets of the business to be achieved in a given period of time must be laid out clearly or properly, if the business is to be successful.
- Personal attributes/qualities of the business owner and the employees: The owner, managers, and other workers must have skills if the business is to succeed. Such attributes may include; hard work, initiative, self-confidence, persistence, ability to seek advice from other well-established businesses. Etc.
- Proper planning: If any business is to succeed the owner must operate it effectively following a clear definite plan and putting in efforts to make sure that it is implemented.
- Proper organization: The business must be well organized in order to succeed. This involves putting in place proper structures and systems to ensure that the business runs smoothly and efficiently.
- Effective leadership: The business owner must be an effective leader who can motivate and inspire employees to work towards the achievement of the business’s goals.
- Financial management: The business owner must have good financial management skills in order to ensure that the business is profitable and financially sustainable.
- Marketing and sales: The business must have a strong marketing and sales strategy in place in order to attract and retain customers.
- Customer service: The business must provide excellent customer service in order to keep customers satisfied and coming back for more.
- Innovation: The business must be innovative and constantly looking for new ways to improve its products or services in order to stay ahead of the competition.
- Adaptability: The business must be adaptable and able to change and adjust to new market conditions and customer needs in order to survive and thrive.
Types of Business Records
1. Accounting Records:
- Accounting records document a business’s transactions, including information about income, expenses, and equity.
- The government requires businesses to keep financial documents that show income and expenses.
- Accounting records help businesses file their income tax returns accurately.
2. Bank Statements:
- Bank statements are records of all accounts with a bank, including savings, investments, and credit cards.
- Reconciling bank statements with accounting records helps businesses identify any mistakes in their books.
- Comparing bank records to financial records helps businesses see if there are any discrepancies.
3. Legal Documents:
- Depending on the type of business structure, there are different legal documents that businesses need to keep track of.
- For example, if a business is an incorporated company, it should keep track of its articles of incorporation.
- Other legal documents that businesses may need to keep include partnership agreements, sole proprietorship agreements, and LLC agreements.
- Keeping legal documents in business records serves as proof of ownership of the company.
- Contractual agreements are also considered legal documents and should be kept in business records.
4. Permits and Licenses:
- Depending on the location and industry, businesses may be required to have certain permits or licenses.
- For example, a business may need a permit from the city to ensure that its parking area meets specific codes.
- Or, if the city restricts the size of business signs, the business may need a sign permit.
- Businesses need to keep up-to-date records of all their permits and licenses.
- Documentation of permits and licenses shows that the business is following regulations.
5. Insurance Documents:
- As a small business owner, you may need insurance for different aspects of your company.
- General business liability insurance protects your business from losses.
- You may also need other policies, like auto or renters insurance.
- To use your insurance, you need proof that you are covered.
- For example, you may need to prove your coverage if your business is damaged by fire.
- Insurance can also protect you during legal disputes.
- Your insurance documents include information needed to report incidents, such as your policy number.
6. Business Loans:
- If you have a business loan, it is crucial to track it. You should track the following information: Amount of the original loan, Loan approval date, Disbursement date, Expected pay-off date, Loan payment due dates, Interest rate changes (if applicable)
- Benefits of Tracking Your Business Loan:
- Avoid missed payments and late fees
- Manage risks associated with the loan
- Increase your chances of receiving loans in the future
- Improve your business credit score( credit score tells lenders that you are a responsible borrower with lower risk)
Insurance refers to a fund into which an organization or individual exposed to a certain risk pays a contribution from which those who actually suffer the loss from the risk stated receive compensation.
Principles of Insurance
1. The principle of Insurable Interest: Insurable interest refers to the interest one has in the property or business he is insuring and it is this interest in the property that the person insures not the property itself, i.e The insured must have an insurable interest in the property or business being insured. This means that the insured must suffer a financial loss if the property or business is damaged or destroyed.
2. The principle of Utmost Good Faith: This principle requires the person applying for the insurance to disclose all relevant and material facts about the property or business being insured when applying for insurance policy or when claiming for compensation. This includes any factors that may increase the risk of loss. This helps the insurance company to calculate preminim to be paid and also assess the suitability of the insurance.
3. The Principle of Indemnity: This principles states that insurance doesn’t aim at benefiting the insured but to restore the insured to his/her original position before the occurrence of the risk insured. In other words, The insurance company will only pay the insured up to the actual cash value of the property or business that was damaged or destroyed. The insurance company will not pay for any profits that the insured would have made if the loss had not occurred.
4. The Principle of Subrogation: This principle states that in the event of total loss, after the insurance company has fully settled the compensation claims, the insurer has full rights that the insured had in the destroyed property, meaning, If the insurance company pays a claim to the insured, the insurance company has the right to pursue the party that caused the loss. This is known as the principle of subrogation.
5. The Principle/doctrine of Proximate Cause; This principle states that there must be a fairly close connection between the cause of the loss and the actual risk insured against to enable the insured to seek compensation.
NB The insured means the individual or organizations applying for insurance policy seeking to be covered against a certain risk or risks while the Insurer means the Insurance company that undertakes to protect the other businesses.
Importances of Insurance:
- Peace of Mind: Insurance can give entrepreneurs peace of mind knowing that their business is protected against financial losses.
- Increased Confidence: Insurance can increase the confidence of entrepreneurs to engage in business activities.
- Collateral Security: Insurance policies can be used as collateral security when applying for loans from banks and other financial institutions.
- Customer Confidence: Insurance can also give customers confidence in a business, knowing that the business is protected against financial losses.
Competition refers to the rivalry between companies selling similar products and services with a goal of achieving revenue, profit, and market share growth.
Competition is a fundamental economic force that benefits customers as firms or businesses are under pressure to constantly improve products and offer attractive prices.
Types of Competition:
- Product and Services Competition: This type of competition focuses on the features and quality of products and services. For example, solar panels that have a higher energy conversion rate may be preferred by customers.
- Customer Experience Competition: This type of competition focuses on the intangible elements of products and services, such as diligent customer service at a hotel.
- Price Competition: Similar products and services compete intensely on price. Firms with superior products and services in the eyes of the customers may be able to charge premium prices.
- Cost Competition: A producer with lower unit costs can choose to compete on price to drive competition out of the market. Alternatively, a producer with lower costs can invest in their business to create superior products and customer services. Either way, a lower unit cost tends to be a significant advantage.
- Brand Awareness Competition: Customers tend to choose products and services they know or that they recognize. As such, establishing and sustaining brand awareness is a basic type of competition. For example, we have Plascon Paint and Sadolin Paint on the Ugandan market.
- Sales Competition: A sales force that can close sales can be a significant competitive advantage.
- Location: Location-based competition, such as the only coffee shop at an airport, can be a significant advantage.
- Technology and Standards Competition: Competition to establish a technology or standard can be fierce. For example, the competition between electric and fuel-powered cars.
- Reputation Competition: Here, a firm looks to build a reputation in areas of reliability, quality, and sustainability.
Importance of Competition
- Benefits Customers: Competition benefits customers as firms are under pressure to constantly improve products and offer attractive prices.
- Drives Innovation: Competition drives innovation as firms look for new and better ways to compete.
- Promotes Efficiency: Competition promotes efficiency as firms look for ways to reduce costs and improve productivity.
- Encourages Entrepreneurship: Competition encourages entrepreneurship as new firms enter the market to compete with existing firms.
- Economic Growth: Competition can lead to economic growth as firms invest in new products, services, and technologies.
HANDLING OF COMPETITION
The following are different strategic ways of handling competition in a business setup:
- Find Your Niche: If you truly want to combat competition, you need to build a reputation of excellence in one specific niche. Focus on meeting a specific customer need (or small set of needs) to the very best of your ability and do it better than your competitors.
- Capitalize on the Competition: One of the most effective strategies of handling competition is to look for ways to turn your competitors into clients. Not all your competitors may be targeting the same clients you do and so by learning about what your competitors specialize in, you can network and refer clients to them.
- Study Larger Campaigns: You can examine the past experiences of big companies and learn from their mistakes and adopt their successful strategies as your own. Learning from bigger companies with greater revenues streams and workforce can give you a renewed perspective on handling competition.
- Develop a Joint Venture Relationship: Building a network of synergistic relationships can also help you combat competition. For example, if dealing in a drug shop, consider partnering with pharmacies around you.
- Start Local: The best way to curb competition is to begin by building confidence and trust among your immediate neighbors before thinking of supplying the neighboring communities.
- Get Involved in Your Local Community: Participating in Community groups, activities, and initiatives is very key and can help you to develop a more competitive business strategy.
POSITIVE AND NEGATIVE EFFECTS OF COMPETITION:
- Competition Leads to Innovation: If you are the only player in your field, it can be difficult to improve and if you are working in a crowded market, you won’t succeed by doing what everyone does.
- Healthy Competition Encourages Change: Which distinguishes your business from others in the same market.
- It Leads to Better Customer Satisfaction: Since they have a variety of choices before them.
- Competition Comes with More Efficient and Effective Production: Which leads to reliability.
- It Also Leads to Reduction of Prices: Which benefits the customers most.
- Competition Also Leads to Production of High-Quality Products
- Customers Become Fewer and Lesser: Because you have to share them amongst all players in the market.
- There Will Be Limited Resources: Like skilled manpower which will increase the cost of producing goods.
- It May Lead to Emergency of Monopolies in the Future: When weaker businesses are kicked out of the market.