Entrepreneurship - Nurses Revision

SUPPORT SUPERVISION

Support supervision is the process of helping, guiding, teaching and learning from staff at their places of work and helping them to improve performance in a joint problem solving manner.

Support supervision is a way of helping people learn and grow in their work. It combines two important elements: support and supervision.

Support means providing someone with the resources and encouragement they need to succeed. This could include things like:

Training and guidance: Helping someone learn new skills and knowledge.
Feedback: Providing constructive criticism and praise to help someone improve.
Encouragement: Boosting someone’s confidence and motivation.
Resources: Providing access to tools, materials, and information.

Supervision means watching over someone’s work to ensure it is done correctly and safely. or Supervision means overseeing what is being done by a subordinate. This could include things like:

Monitoring: Keeping track of someone’s progress and performance.
Providing feedback: Identifying areas where someone needs to improve.
Taking corrective action: Addressing problems and ensuring they are fixed.
Ensuring safety: Making sure someone is working in a safe and healthy environment.

Together, support and supervision is a combination for helping people learn, grow, and succeed in their work.

Qualities of a Support Supervisor:

1. Knowledge: Possesses a deep understanding of the relevant field and the specific needs of the supervisees and can provide accurate and reliable information to supervisees.

2. Patience: Remains calm and understanding even when faced with challenging situations or difficult supervisees. Avoids getting frustrated or impatient with supervisees.

3. Ability to Listen: Actively listens to supervisees’ concerns, ideas, and feedback. Avoids interrupting or dismissing supervisees’ thoughts.

4. Ability to Motivate: Inspires and encourages supervisees to achieve their goals. Creates a supportive and encouraging environment.

5. Attitude to Learn: Is always open to learning new things and improving their skills. Seeks feedback from supervisees and others to identify areas for improvement.

6. Ability to Teach and Demonstrate: Can effectively communicate knowledge and skills to supervisees. Uses clear and concise language, as well as visual aids when appropriate.

7. Planning Skills: Can effectively plan and organize supervision activities. Sets clear goals and objectives for supervision sessions.

8. Ability to Mobilize: Can effectively gather and utilize resources to support supervisees. Connects supervisees with other professionals or organizations that can provide assistance.

Empathy: Can understand and relate to the feelings and experiences of supervisees.
Respect: Treats supervisees with dignity and respect, regardless of their background or experience.
Professionalism: Maintains professionalism at all times.
Ethical: Adheres to ethical principles and standards of practice.
Flexibility: Can adapt their approach to meet the needs of individual supervisees and changing circumstances.

Skills of a Support Supervisor:

1. Conceptual Skills: Ability to analyze situations and identify underlying issues. A nurse supervisor analyzes data on patient satisfaction to identify areas where the nursing team can improve.

2. Communication Skills: Effectively communicates with supervisees, colleagues, and other stakeholders. A pharmacy supervisor clearly explains new medication protocols to their team of pharmacy technicians.

3. Human Relations Skills: Builds strong relationships with supervisees based on trust and respect. A physical therapy supervisor mediates a conflict between two physical therapists who have different approaches to treating a patient.

4. Demonstration Skills: Can effectively demonstrate skills and techniques to supervisees. An occupational therapy supervisor demonstrates a new therapeutic technique to their team.

5. Problem Solving Skills: Can identify and analyze problems and develop and implement effective solutions to problems. A pharmacist identifies a potential drug interaction for a patient and works with the doctor to find a safe alternative medication.

6. Technical Skills: Possesses the necessary technical skills and knowledge to provide support to supervisees. A nurse supervisor has technical skills in operating oxygen concentrators.

7. Listening Skills: Actively listens to supervisees’ concerns, ideas, and feedback. Shows genuine interest in what supervisees have to say. A nursing supervisor actively listens to a nurse who is expressing concerns about burnout.

8. Leadership Skills: Inspires and motivates supervisees to achieve their goals. A department supervisor empowers their team to make decisions and solve problems by providing them with the resources and support they need to succeed.

Process of Support Supervision.

Planning:

Develop a supervision plan and schedule for the year.
Create a budget for the supervision activities.
Set specific objectives for the year and for each supervision visit.
Communicate the supervision program to the staff.
Review previous reports and data to identify areas for improvement.
Form teams of staff members for specific tasks.
Prepare logistical arrangements, including transportation, fuel, supplies, and allowances.
Adopt supervision tools, such as checklists, to facilitate the process.
Brief the teams on the visit’s objectives and key areas to cover.

Conducting a Supervision Exercise:

Explain the purpose of the visit to the staff.
Discuss the overall state of health services in the unit.
Follow up on issues identified during the previous visit.
Present tools for observation and assessment, emphasizing their use for improvement, not criticism.
Allow staff to return to their work while you observe and gather information.
Identify strengths and weaknesses, analyzing the causes of any weaknesses.

Giving Feedback:

Express appreciation for everyone’s participation.
Begin by highlighting the unit’s strengths.
Discuss areas for improvement, focusing on specific examples.
Welcome staff comments and suggestions.
Demonstrate best practices where appropriate.
Facilitate return demonstrations by staff to reinforce learning.
Prepare a group report and leave a copy at the unit or summarize it in their support supervision book.

Making a Follow-up:

Revisit the actions agreed upon during the previous visit.
Consult with responsible staff members or the unit in-charge to assess progress.
Identify actions that were not implemented and investigate the reasons.
Encourage accountability and commitment for the next visit.
Emphasize that the supervision process is ongoing and requires continuous follow-up.

Hospital Support Supervision Scenario:

Planning:

Mary, Head of Supervision plus her team, begins the support supervision process by developing a plan and schedule for the year. She collaborates with relevant stakeholders to create a budget for the supervision activities. They set specific objectives for the year and for each supervision visit. They communicate the supervision program to the hospital staff, emphasizing the importance of their participation.

To prepare for the upcoming supervision visit, They review previous reports and data to identify areas for improvement. Mary plus her team form teams of staff members for specific tasks, ensuring that each team is well-equipped to address the identified objectives. Mary also takes care of logistical arrangements, including transportation, fuel, supplies, and allowances for the supervision visit. She adopts supervision tools, such as checklists, to facilitate the process and briefs the teams on the visit’s objectives and key areas to cover.

Conducting a Supervision Exercise:

On the day of the supervision visit, Mary explains the purpose of the visit to the hospital staff, emphasizing the importance of their involvement in the process. She engages in discussions with the staff to understand the overall state of health services in the unit and follows up on issues identified during the previous visit. Mary presents tools for observation and assessment, emphasizing their use for improvement rather than criticism. She allows the staff to return to their work while she observes and gathers information, identifying strengths and weaknesses and analyzing the causes of any identified weaknesses.

Giving Feedback:

After the supervision exercise, Mary expresses appreciation for everyone’s participation and begins by highlighting the unit’s strengths. She engages in discussions with the staff, focusing on specific examples to address areas for improvement. Mary welcomes staff comments and suggestions. She facilitates return demonstrations by staff to reinforce learning and prepares a comprehensive group report, leaving a copy at the unit or summarizing it in their support supervision book.

Making a Follow-up:

Following the supervision visit, Mary revisits the actions agreed upon during the previous visit. She consults with responsible staff members or the unit in-charge to assess progress and identify actions that were not implemented. Mary investigates the reasons for any unimplemented actions and encourages accountability and commitment for the next visit. She emphasizes that the supervision process is ongoing and requires continuous follow-up to ensure sustained improvements in patient care and outcomes.

Importance of Support Supervision:

1. Monitoring Service Delivery: Support supervision provides a framework for monitoring the quality of services delivered by healthcare workers. Through regular observations and feedback, supervisors can identify areas where performance can be improved and ensure that patients receive the best possible care.

2. Collecting Data for Planning: Support supervision allows for the collection of data on service delivery, staff performance, and patient outcomes. This data can be used to inform planning and decision-making.

3. Providing On-the-Job Training: Support supervision provides an opportunity for on-the-job training and mentorship. Supervisors can guide and coach staff members, helping them develop their skills and knowledge to deliver high-quality care.

4. Identification of Training Needs: Through regular interactions with staff, supervisors can identify specific training needs and gaps in knowledge. This allows for targeted training programs to be developed and implemented.

5. A Tool for Performance Management: By providing regular feedback and guidance, supervisors can help staff members improve their performance and identify areas where they excel. This contributes to a culture of continuous improvement and professional development.

6. Improving Staff Motivation: By recognizing and appreciating staff members’ contributions, supervisors can create a positive and supportive work environment. This creates a sense of ownership and accountability, leading to increased motivation and job satisfaction.

7. Assessing the Impact of Training: Support supervision provides a mechanism for assessing the impact of training programs on staff performance and patient improvements. By monitoring changes in knowledge, skills, and behaviors following training, supervisors can evaluate the effectiveness of training programs and make necessary adjustments.

8. An Opportunity for Inducting New Employees: Supervisors can provide training, support, and mentorship to new staff members, helping them adapt to their roles and responsibilities effectively. This contributes to a smooth transition.

9. A Basis for Designing Quality Intervention Programs: The information gained through support supervision can inform the design and implementation of quality intervention programs. By identifying areas where service delivery can be improved, supervisors can develop interventions to address specific challenges.

10. A Basis for Resource Allocation: Support supervision provides data on resource utilization and needs. Supervisors can advocate for appropriate resource allocation to ensure that healthcare facilities are adequately equipped to meet the demands of the population.

Constraints to Support Supervision:

1. Logistical Problems: Logistical challenges, such as limited time, inadequate resources, and scheduling conflicts, can hinder the effective implementation of support supervision. Supervisors may struggle to find dedicated time for observations, feedback sessions, and follow-up activities. Also, a lack of necessary resources, such as transportation or communication tools, can further complicate the process.

2. Organizational Problems: Organizational factors, such as unclear roles and responsibilities, lack of clear guidelines, and inadequate support from leadership, can create barriers to effective support supervision. When roles and responsibilities are not clearly defined, confusion and inefficiency can arise.

3. Failure to Follow Scheduled Programs: Failure to adhere to scheduled supervision programs can significantly undermine their effectiveness. This can occur due to various reasons, such as staff shortages, unexpected events, or a lack of commitment from supervisors or staff members.

4. Incapacity by Supervisors: Supervisors may lack the necessary skills, knowledge, or experience to effectively conduct support supervision. This can include a lack of understanding of supervision principles, inadequate communication skills, or difficulty providing constructive feedback.

5. Lack of Interest by Both Teams: A lack of interest or motivation from both supervisors and staff members can hinder the effectiveness of support supervision. This can be attributed to factors such as a perceived lack of value in the process, competing priorities, or a negative attitude towards supervision.

6. Lack of Coordination Among Different Actors: Support supervision often involves multiple stakeholders, including supervisors, staff members, and program managers. Lack of coordination among these actors can lead to confusion, duplication of efforts, and inefficiency.

7. Lack of Cooperation by Supervised Staff: Resistance or lack of cooperation from supervised staff can pose a significant challenge. This can be due to various factors, such as fear of criticism, a lack of trust in the supervisor, or a perceived lack of relevance of the feedback provided.

8. Failure to Take Action by Those Concerned: Following supervision sessions, it is important to take concrete actions to address identified issues and implement agreed-upon improvements. Failure to do so can lead to a perception that support supervision is merely a formality, undermining its effectiveness.

9. Tendency to Perceive and Implement as a Routine Activity: Support supervision should not be perceived as a routine activity or a box-ticking exercise. When it becomes routine, it loses its effectiveness and fails to achieve its intended purpose. Supervisors and staff members must actively engage in the process, reflecting on observations, providing meaningful feedback, and continuously seeking improvement.

10. Too Much Expectation from Both Sides: Unrealistic expectations from both supervisors and staff members can set the stage for disappointment and frustration.

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CUSTOMER CARE

Customer care refers to the practice that enables an organization to deliver services or products in a way that allows the customer to access them in the most efficient, cost-effective, and humanly satisfying and pleasurable manner possible.

Customer care is when companies treat their customers with respect and kindness and build an emotional connection with them.

The Manifestations Of Good Customer Care

Honesty: Being honest with customers in business transactions, whether with customers, suppliers, financiers, or competitors.
Handling Customers’ Objections and Complaints: Effectively addressing customer objections and complaints, such as issues with underweight or overpriced products, wrong sizes, or contaminated products.
Offering Prompt and Excellent Services: Providing quick and excellent service to customers whenever they show interest or demand goods or services.
Availability: Being available to meet customer demands and assist them at all times.
Listening to Customers: Listening to customer suggestions and opinions to understand their needs and preferences better.
Providing Basic Product Knowledge: Offering basic knowledge to customers about how to use the product effectively.
Pleasant Interaction: Maintaining a pleasant demeanor and attitude when serving customers to create a positive experience.
Technical and After-Sales Services: Offering technical assistance and after-sales services, such as packaging, transportation, and free gifts, to enhance customer satisfaction.
Improving Product Quality: Regularly improving the quality of products based on market demands and customer feedback.
Price Reductions and Discounts: Offering occasional price reductions or discounts to customers to increase customer loyalty and satisfaction.
Providing Credit Facilities: Extending credit facilities to customers who may not have ready cash to facilitate their purchases.
Clear Communication: Ensuring clear and transparent communication with customers to avoid misunderstandings and build trust.

Indicators Of Good Customer Care In Business

Increase in sales and profits due to satisfied customers who are likely to make repeat purchases.
Decrease in advertising costs as satisfied customers are likely to recommend the business to others through word-of-mouth.
Increase in the number of customers attracted to the business due to positive reviews and recommendations.
Repeat purchases by customers who are satisfied with the quality of products and services offered.
Availability of after-sales services and support to address any issues or concerns customers may have.
Use of suggestion boxes to gather feedback from customers and improve products or services.
Offering discounts or promotions to loyal customers as a token of appreciation for their continued patronage.
Honesty and transparency in business transactions to build trust and credibility with customers.

Benefits Of Good Customer Care In Enterprise

Improvement of the business’s image and reputation in the eyes of the public.
Promotion of good relationships between the business and its customers, leading to increased customer loyalty.
Increase in sales revenue due to satisfied customers who are more likely to make repeat purchases and recommend the business to others.
Act as a marketing technique by attracting new customers through positive word-of-mouth and referrals from satisfied customers.
Provide a platform to address and resolve customer complaints and issues promptly, thereby preventing negative publicity.
Help the business outcompete its competitors by offering superior customer service and satisfaction.
Prevention of customers from being exploited or mistreated by unethical business practices.
Retention of existing customers and attraction of new ones through exceptional customer care and service.

Promotion Of Good Customer Relations In A Business

Customer relations refer to the ways in which a business deals with its customers.

Proper handling of customer complaints and queries to ensure prompt resolution of issues and maintain customer satisfaction.
Showing genuine respect and appreciation for individual customers to build positive relationships and trust.
Honesty and transparency in business transactions to build credibility and foster long-term relationships with customers.
Providing prompt services to customers to demonstrate reliability and efficiency in meeting their needs.
Maintaining politeness and using appropriate business language when interacting with customers to create a positive impression.
Demonstrating care and empathy towards customers by addressing their needs and concerns with sincerity and compassion.
Continuous improvement of product quality to meet or exceed customer expectations and enhance their satisfaction.
Offering credit facilities to trustworthy customers to facilitate their purchases and build loyalty.
Providing gifts and samples to customers as tokens of appreciation and to encourage repeat business.
Offering discounts and after-sales services to reward loyal customers and incentivize future purchases.

CUSTOMER SATISFACTION SURVEY

A customer satisfaction survey is a study conducted to determine whether customers are satisfied with a product or service.

Face-to-face interaction to gather direct feedback and insights from customers.
Phone calls to follow up with customers and address any concerns or issues they may have.
Mailed surveys sent to customers to gather their opinions and feedback on their experience with the product or service.
Email surveys distributed to customers to collect their feedback and assess their level of satisfaction.

Measures to Ensure Customer Satisfaction:

Offering good quality products that meet or exceed customer expectations.
Providing timely responses to customer concerns and inquiries to demonstrate responsiveness and care.
Ensuring good packaging of products to protect them during transportation and enhance their presentation.
Charging fair prices or offering discounts to provide value for money and attract price-conscious customers.
Ensuring a constant supply of products to meet customer demand and prevent stockouts.
Being honest and transparent in business dealings to build trust and credibility with customers.
Providing sufficient information about the use of products or services to educate customers and enhance their experience.
Being courteous, sincere, and attentive when interacting with customers to create a positive and memorable experience.
Offering a variety of products or services to cater to diverse customer needs and preferences.
Ensuring clear and effective communication with customers to avoid misunderstandings and build trust.

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MARKETING

Marketing management involves the performance of activities necessary to get goods or services from the producer to customers, resulting in customer satisfaction and profits for the entrepreneur.

It includes identifying, anticipating, and satisfying customer needs effectively and profitably.

Marketing is the action or business of promoting and selling of products or services.

Marketing refers to the activities a company undertakes to promote the buying or selling of its products or services.

The main objective of marketing is to ensure that the customer’s needs or wants are satisfied and at the same time enabling the entrepreneur to make profits.

Objectives of Marketing:

To recover cash quickly
To target a new market
To penetrate the market, especially for new products
To increase or maintain market share
For product line promotion
To increase sales revenue and profitability
For functional satisfaction
To maintain or improve the image of products or a business.
To achieve the four utilities: possession, time, form, and place utilities
To develop new products or improve existing products.

Conditions of Exchange:

At least two parties involved
Each party has something of value to the other
Both parties are capable of communication and delivery
Both parties are free to accept or reject the exchange offer
Both parties believe it’s appropriate or desirable to deal with the other

SELLING FUNCTION

Selling is a two-way communication between the buyer and seller, aimed at persuading the buyer to accept a product at a stated price.

It involves informing the customer how the product meets their needs, its price, usage instructions, and benefits.

Differences between Selling and Marketing:

Feature	Marketing	Selling
Focus	Customer needs	Seller needs
Importance	Customer	Product
Approach	Integrated, long-term	Immediate gains
Conversion	Customer needs to product	Product to cash
Emphasis	Customer satisfaction	Sales volume
Orientation	External market	Internal business
Mindset	Customer-oriented	Product-oriented

Marketing focuses on customer’s needs while selling focuses on the seller’s needs: Marketing aims to understand and fulfill customer needs, while selling is focused on meeting sales targets and generating revenue for the seller.
In marketing, a customer enjoys supreme importance, while in selling, the product enjoys supreme importance: Marketing prioritizes customer satisfaction and long-term relationships, whereas selling often prioritizes closing deals and achieving short-term sales targets.
In marketing, there is an integrated approach to achieve long-term goals, while in selling, there is a fragmented approach to achieve immediate gains: Marketing strategies are designed to achieve long-term growth and sustainability, while selling tactics may focus on short-term results without considering broader business objectives.
In marketing, an entrepreneur converts customer needs into a product, while in selling, they convert the product into cash: Marketing involves identifying and developing products that meet customer needs, while selling involves persuading customers to purchase existing products.
In marketing, there is caveat venditor (let the seller be aware), while in selling, there is caveat emptor (let the buyer be aware): Marketing promotes transparency and ethical business practices, while selling may sometimes involve aggressive tactics or incomplete disclosure.
In marketing, profits are realized through customer satisfaction, while in selling, profits are realized through sales volume: Marketing strategies focus on building customer loyalty and repeat business, while selling may prioritize achieving sales targets regardless of customer satisfaction.
Marketing aims at external market orientation, while selling aims at internal business orientation: Marketing strategies are outward-focused, considering market trends and customer preferences, while selling activities are often internally focused on meeting sales quotas and targets.
Marketing is based on a customer approach, while selling is based on a product approach: Marketing starts with understanding customer needs and preferences, while selling starts with promoting the features and benefits of a product.
Marketing is a series of activities an entrepreneur does to find out who his customers are and what they need or want, while selling is a two-way communication between the buyer and seller aimed at persuading the buyer to buy the product: Marketing involves market research, product development, and promotional activities, while selling focuses on direct interaction with customers to close sales transactions.

Marketing Concepts

Marketing concepts refer to the approaches that guide businesses in their marketing activities. These concepts represent different perspectives on how companies should understand and fulfill customer needs, manage their products, and achieve their marketing objectives.

1. Production Concept:

The production concept emerged during the early stages of capitalism until the mid-1950s. Businesses operating under this concept prioritized production, manufacturing, and efficiency. They believed that customers mainly sought products that were affordable and readily available. The core idea behind the production concept is that companies can lower costs and increase supply through mass production, thereby maximizing profits. For example McDonald’s, which revolutionized the fast-food industry by implementing assembly-line production methods to serve customers quickly and affordably.

2. Product Concept:

The product concept operates on the assumption that customers value quality and features above all else, and are willing to pay a premium for superior products. Companies following this concept continuously strive to improve product quality and innovation. A modern example is the technology industry, where companies like Apple and Samsung invest heavily in research and development to enhance product features and performance. Despite higher prices, customers are attracted to these brands for their reputation of offering high-quality products. Another example is luxury fashion brands like Louis Vuitton and Gucci, which focus on crafting premium products with superior craftsmanship and exclusive designs, catering to customers seeking luxury and prestige.

3. Selling Concept:

Unlike the production and product concepts which focus on production and product quality respectively, the selling concept prioritizes making sales regardless of customer needs or product quality. This approach relies on aggressive sales tactics to push products onto customers. For instance, When retailers offer extended warranties on products such as electronics or appliances, they are implementing the selling concept. Rather than emphasizing the quality or suitability of the product for the customer’s needs, the focus is on persuading customers to add an extra layer of protection to their purchase.

4. Marketing Concept:

The marketing concept revolves around putting the consumer at the center of the organization’s activities. It emphasizes understanding and meeting customer needs and wants through market research and customer-centric strategies. An example is Coca-Cola’s marketing strategy, which focuses on creating emotional connections with consumers through storytelling and personalized experiences, leading to brand loyalty and repeat purchases.

5. Societal Marketing Concept:

The societal marketing concept is a relatively new approach that not only considers the needs and wants of target markets but also emphasizes the well-being of society as a whole. In addition to company profits and customer satisfaction, societal marketing incorporates ethical and social considerations into marketing practices. For example, a local supermarket organizing food drives for homeless shelters or sponsoring educational programs for underprivileged children demonstrates a commitment to societal welfare beyond profit generation.

MARKETING MIX

Marketing mix is a combination of factors that can be controlled by a company to influence consumers to purchase its products.

The marketing mix is a strategic framework that consists of four key components, often referred to as the 4 Ps of marketing. These components are product, price, place, and promotion. The marketing mix helps businesses create plans to differentiate their products or services from competitors and create value for customers .

Product:

The product component focuses on the item or service being sold. It should satisfy a consumer’s need or desire.
Questions to consider: What is the product? Does it fulfill a need or provide a unique experience? Who are the target customers? What differentiates the product from the competition?.

Product

A product is anything offered to the market, which can be a good or a service.

Types of Product

Products can be categorized as goods or services:

Goods: Tangible items with utility that are sold by businesses.
Services: Intangible offerings where one party provides something to another, resulting in satisfaction but not ownership. These may include performances, acts, deeds, or efforts.

The Product Life Cycle

The product life cycle refers to the period during which a product remains appealing to customers. Some products last for centuries, while others may only endure for months. Investing in product development and promotion is important to prolonging a brand’s life cycle.

Stages of the Product Life Cycle:

Development: The initial idea is developed and tested, involving significant expenses for the business.
Introduction: The product or service is launched for sale, with slow initial sales as consumer awareness grows through informative advertising.
Growth: Sales start to increase rapidly, requiring persuasive advertising. Profits begin to emerge as revenue surpasses costs, and competition intensifies with new market entrants.
Maturity: Sales growth slows down, and the market becomes saturated with high competition. This stage can endure for years.
Decline: Sales steadily decrease as new products emerge or the product loses its appeal. Eventually, the product may be withdrawn from the market due to low sales and profitability.

Price:

The price component refers to the cost of the product that the consumer pays. It should reflect market trends, be affordable for consumers, and be profitable for the business.
Questions to consider: How much do competitors charge for similar products? What is the affordability and price range of target consumers? What is the best price fit for the target market?.

PRICING OF GOODS AND SERVICES

Pricing refers to the activity of assigning monetary values to goods and services offered by an entrepreneur.

It’s part of business operations as it directly impacts the entrepreneur’s profit and the purchasing power of consumers.

Methods Used By Entrepreneurs When Pricing Their Products:

Penetration Pricing: This involves setting a low price combined with persuasive advertising to capture a large market share quickly. A new streaming service launches with a low introductory price of $5 per month for the first three months to attract a large number of subscribers quickly.
Target Pricing: The firm pre-determines a target level of profits and sets a price to achieve those profits. A clothing company aims for a 20% profit margin on its new line of jeans. They calculate the production cost per pair of jeans and set a price that will achieve their desired profit target.
Skimming Method: Suitable for top-quality versions, targeting a distinct class of customers with higher prices. A luxury car manufacturer releases a limited edition model with a high price tag, targeting wealthy customers who are willing to pay a premium for exclusivity.
Price Discrimination: Charging different prices in different markets for the same good for reasons unrelated to production costs, An airline charges different fares for the same flight depending on the day of the week, time of day, and whether it is booked in advance or last minute.
Auctioning: Prices are determined by the highest bidder. A rare piece of art is auctioned off to the highest bidder, potentially fetching a much higher price than its estimated value.
Demand-Oriented Pricing: Prices are set based on the level of demand for the product. Higher prices may be charged where demand is high and vice versa. A concert venue charges higher ticket prices for a popular artist than for a lesser-known artist, reflecting the higher demand for the popular artist.
Bargaining: Prices are negotiated between the customer and seller until a final agreement is reached.
Government Pricing Policy: Government dictates prices, especially for essential products. The government sets a price ceiling on essential goods like salt to ensure affordability for consumers.
Cost-Oriented Method: Prices are determined by the production costs incurred by the entrepreneur. A bakery calculates the cost of ingredients, labor, and overhead expenses to determine the price of its bread.
Fashion-Oriented Pricing: Prices are based on prevailing fashion trends. Higher prices for attractive fashion, lower for less trendy. A clothing retailer charges a higher price for a trendy designer dress than for a more basic dress.
Competition-Oriented Pricing: Prices are influenced by competitors for the same products. A grocery store matches the price of milk offered by its competitor across the street to remain competitive.
Limit Pricing: Existing firms collectively charge lower prices to discourage new entrants. A dominant boda company sets low prices to discourage new competitors from entering the market.
Forces of Demand and Supply: Prices are set based on customer demand and product supply in the market. The price of tomatoes increases during the planting months when supply is low and demand remains high.

Objectives for Pricing the Products:

Target the return on investment.
Target the market share.
Discourage new entrants.
Maximize short-run profits.
Determine the distribution of goods and services.
Stimulate business growth.
Establish market presence.
Maintain price leadership arrangement.

Factors Affecting Price Decisions of a Product / Factors Considered When Determining Price of a Product:

Nature of Customers: Prices vary based on customers’ income levels.
Government Policy: Government regulations may influence price decisions.
Cost of Production: High production costs lead to higher prices.
Level of Competition: High competition results in fair prices.
Main Objective of the Enterprise: Profit-maximizing enterprises charge higher prices.
Quality of Products: Higher quality products command higher prices.
Level of Demand: Higher demand justifies higher prices.
Seasonal Factor: Prices may fluctuate seasonally for certain products like school materials.

Place:

The place component focuses on where and how the product or service is purchased by customers. It includes distribution channels, physical locations, and online platforms.
Questions to consider: Which places or venues do buyers frequent for similar products? Where is the competition selling its products? What are the shopping habits of the target audience?.

Place

Place refers to the channels of distribution used to deliver products from manufacturers to consumers. Channel members, including manufacturers, wholesalers, retailers, and consumers, participate in the distribution process.

Types of Marketing Intermediaries:

Middlemen: Independent businesses acting as intermediaries between producers and consumers.
Agent: Wholesalers or retailers who facilitate buying and selling without owning the goods.
Wholesaler: Merchants engaged in bulk buying, storing, and selling goods to retailers.
Retailer: Merchants buying from wholesalers and selling to final consumers.
Broker: Facilitators arranging deals between buyers and sellers.

Channels of Distribution:

Businesses decide where and how to sell their products, considering factors like cost and efficiency.

Producer to Consumer: Direct sale from manufacturers to consumers, feasible for some products like agricultural goods.
Producer to Retailer to Consumer: Manufacturer sells to retail outlets, which then sell to consumers, common for expensive or large retailers.
Producer to Wholesaler to Retailer to Consumer: Involves wholesalers breaking bulk for small retailers who can’t buy large quantities.
Producer to Agent to Wholesaler to Retailer to Consumer: Manufacturers may use agents in other countries for exporting, allowing control over sales methods.

Promotion:

The promotion component involves reaching the target audience with the right message at the right time. It includes advertising, sales promotions, and other marketing communication strategies.
Questions to consider: When is the right time to reach the target audience? Which channels or mediums will the target audience get their information from? What advertising approaches will be the most fruitful?.

Product Promotion

Product promotion involves informing, persuading, and influencing customers’ decisions to buy goods or services.

Objectives of Promotion

Increase and stabilize sales: By promoting products, entrepreneurs aim to boost sales and maintain a stable revenue stream.
Expand market share: Promotional efforts help in capturing a larger portion of the market, leading to increased market share.
Increase business profits: Ultimately, the goal of promotion is to drive profitability by generating more sales and revenue for the business.
Inform the public about available products: Promotional activities are used to raise awareness among consumers about the products or services offered by the business.
Remind consumers of product availability: Continuous promotion serves as a reminder to existing and potential customers about the availability of the entrepreneur’s products in the market.
Outcompete other firms: Effective promotion strategies can help the business stay ahead of competitors by attracting more customers and increasing market share.
Retain existing market: Promotions can also help in retaining loyal customers by offering them incentives to continue purchasing from the business.
Introduce new products or designs: When launching new products or designs, promotion plays a crucial role in creating awareness and generating interest among consumers.
Inform new customers about product availability: Promotional efforts target not only existing customers but also potential new customers who may not be aware of the entrepreneur’s products.
Promote enterprise publicity and acquire goodwill: Promotion contributes to building the brand image and reputation of the enterprise, leading to positive perceptions among consumers.
Create direct contact between businessmen and customers: Certain promotional activities, such as events or direct marketing, facilitate direct interaction between entrepreneurs and customers, fostering relationships and trust.

Methods of Sales Promotion:

Giving free samples: Distributing free samples allows customers to try out new products, leading to potential future purchases.
Offering premium or bonus products: Including extra products as a bonus or premium incentivizes customers to make a purchase.
Exchange schemes: Offering exchange schemes encourages customers to upgrade to newer products by trading in their old ones.
Price-off offers: Discounting products encourages customers to make immediate purchases by offering them savings.
Coupons: Providing coupons entitles customers to discounts on products, incentivizing them to make purchases.
Trade fairs and exhibitions: Participating in trade fairs and exhibitions provides an opportunity to showcase products to a wider audience and generate leads.
Scratch and win offers: Interactive promotions like scratch and win offers engage customers and create excitement around the brand.
Money-back guarantees: Offering money-back guarantees reassures customers about the quality of the product, leading to increased confidence and sales.
Selling goods on credit: Providing credit options makes products more accessible to customers who may not have immediate funds available.
Window displays: Attractive window displays attract the attention of passersby and entice them to enter the store and make purchases.
Cash and trade discounts: Offering cash or trade discounts incentivizes bulk purchases and prompt payments from customers.
Donations: Making donations to charitable organizations or causes enhances the reputation of the business and builds goodwill in the community.
Organizing competitions or games: Hosting competitions or games related to the products creates engagement and excitement among customers.
Employee training: Training employees to provide excellent customer service and product knowledge enhances the overall customer experience and leads to increased sales.
Maintaining communication links: Regular communication with customers, wholesalers, retailers, and other stakeholders keeps them informed about the latest products and promotions.
Offering after-sales services: Providing after-sales services such as delivery, maintenance, and repairs enhances customer satisfaction and loyalty.
Giving out free gifts: Offering free gifts with purchases incentivizes customers to buy and creates a positive shopping experience.
Intensive advertising: Promoting products through various advertising channels increases visibility and attracts customers’ attention.

Types of Marketing

Paid Advertising: This includes paying for ads to promote products or services. For example, a clothing brand may invest in TV commercials, social media ads, or Google Ads to reach potential customers.
Cause Marketing: This involves associating a company’s offerings with a social cause. For instance, a coffee chain might donate a portion of its proceeds to support education in underprivileged communities with each cup of coffee sold.
Relationship Marketing: This focuses on building strong connections with customers to foster loyalty. An example would be a local bakery that remembers customers’ days and offers or thank-you notes or birthday messages.
Undercover Marketing: Also known as stealth marketing, promotes products without advertising. An example is a popular video game character wearing branded clothing during a movie scene, stealthy exposing viewers to the brand without directly marketing it.
Word of Mouth: This relies on satisfied customers spreading positive experiences to others. For instance, if a friend recommends a restaurant based on their enjoyable dining experience, it may prompt others to visit the restaurant.
Internet Marketing: Internet marketing leverages online platforms to promote products or services. For example, an online bookstore may use social media advertising, email newsletters, and content marketing to attract book lovers to its website.
Transactional Marketing: This strategy offers incentives to encourage immediate purchases. An example is a retail store offering limited-time discounts or buy-one-get-one-free deals to entice shoppers to make on-the-spot purchases.
Diversity Marketing: This involves tailoring marketing strategies to diverse audience segments. For instance, a beauty brand may create inclusive advertising campaigns featuring models from various ethnic backgrounds or body sizes to appeal to a wider range of consumers.

MARKETING SURVEY / RESEARCH

Market research is a systematic process of collecting and analyzing information relating to markets and opinions of the public about the products of a firm to enable present and future decision making.

Market research is the process of collecting and analyzing information relating to demand for a good or service in order to identify market opportunities and problems.

Market research is an organized effort to gather information about target markets or customers.

A target market refers to a fairly similar group of customers to whom a business product or service is aimed at.

Potential customers are a group of people sharing common needs and characteristics that a business decides to serve.

Aims / Objectives Of Carrying Out Market Research Of A Product

1. Understanding Customer Preferences: This involves researching what kind of products people want, what features are important to them, what quality they expect, how much they are willing to pay, and where and when they want to buy. This helps businesses develop products and marketing strategies that meet the needs and desires of their target customers.

2. Assessing the Market: This involves analyzing the size of the market for a particular product, the level of competition, the strengths and weaknesses of competitors, and the effectiveness of current marketing and sales strategies. This helps businesses identify opportunities for growth and make informed decisions about how to compete effectively.

3. Making Informed Decisions: This involves using market research data to make decisions about product development, pricing, marketing, distribution, and other business strategies. This helps businesses make data-driven decisions that are likely to lead to success.

4. Reducing Risk: Market research helps businesses identify and mitigate potential risks associated with new products or markets. This can save businesses time, money, and resources.

5. Identifying Opportunities: Market research can help businesses identify new opportunities for product development, market expansion, and other growth opportunities. This can help businesses stay ahead of the competition and achieve their long-term goals.

6. Testing and Improving: Market research can be used to test the effectiveness of marketing campaigns or product designs. This helps businesses improve their products and marketing strategies over time.

7. Gaining a Competitive Advantage: By understanding the market and its customers better than competitors, businesses can gain a big advantage. This can lead to increased sales, market share, and profitability.

8. Boosting Sales and Distribution: This involves identifying the best ways to distribute products to reach the most consumers, and understanding how to increase sales and turnover. This helps businesses optimize their distribution and sales strategies for maximum impact.

9. Increasing Profitability: By improving product development, marketing, and distribution based on market research data, businesses can maximize their efficiency and profitability. This then leads to increased revenue.

10. Understanding Market Trends: Market research helps businesses identify emerging trends and anticipate future changes in the market. This allows them to adapt their strategies and stay relevant.

15. Building a Strong Brand: Market research helps businesses understand how consumers perceive their brand and identify opportunities to strengthen their brand image. This leads to increased brand awareness, loyalty, and big market share.

Methods / Tools Of Market Research

Observation method. This is where the entrepreneur watches the behaviour and attitudes of the public towards his product and products of competitors. It involves making an informal survey by observing business activities in the community. It reveals the need for the particular business.
Experimental method. This is where an entrepreneur sells his products within a small selected area before selling on a large scale. If the product is liked within a small selected area, then the entrepreneur can distribute nationwide.
Interviewing method. Under this method, the entrepreneur asks oral questions either face to face or by telephone to obtain response from people towards his products. It is a formal discussion which can identify the shortcomings of the business.
Telephone surveys. Under this method, an entrepreneur calls different groups of customers to obtain information about aspects of the product to establish the market stand.
Questionnaire method. Under this method, an entrepreneur carefully designs questions which are printed on paper then sent to possible respondents to give answers. It is a formal survey which obtains market information.
Personal contacts. This involves making an informal survey by talking to family members and friends. These provide information about the best business to set up and the best products to be purchased in the locality.
Surfing / use of the internet. This is where information is gathered through surfing from different websites from the internet.
SWOT analysis. This method involves collecting data by a business through gathering information about its strengths, weaknesses, as well as information about opportunities and threats from the outside environment.

Steps Taken In Carrying Out Market Research / Survey

Imagine you’re a hospital administrator looking to improve patient satisfaction and attract new patients. You decide to conduct market research to understand your target audience’s needs and preferences.

Define the Problem: You want to know what factors influence patients’ choice of hospital, what services they value most, and what areas of improvement they see.
Define the Sample: You decide to survey 200 patients who have recently been discharged from your hospital, as well as 100 patients who have chosen to receive care at a competitor’s hospital.
Collect Data: You create a survey with questions about patient satisfaction with various areas of care, including wait times, communication with staff, cleanliness, and hospital experience. You also ask about patients’ reasons for choosing your hospital or a competitor’s.
Analyze the Results: You analyze the survey data to identify trends and patterns. For example, you might find that patients value attention, clear communication from doctors and nurses, and a comfortable environment. You might also discover that some patients choose competitors due to shorter wait times or more specialized services.
Make the Research Report: You create a report summarizing the findings of your survey. You clearly present the data. For example, you might recommend investing in additional staff to reduce wait times, improving communication, and trying new service offerings to better meet patient needs.
Make Decisions: Based on your research, you decide to implement several initiatives to improve patient satisfaction. You hire additional nurses to reduce wait times, conduct training for staff on effective communication, and invest in new equipment to offer more specialized services. By understanding patients’ needs and preferences, you can make informed decisions that will improve their experience and attract new patients to your hospital.

Sources Of Data For Conducting Market Research

Competitors / competition. This is where data is collected by monitoring the activities of competitors in the same line of business. This may provide important information about customers’ demands that were overlooked and they may be capturing part of the market by offering something unique.
Customers. The entrepreneur should talk to customers to get their feelings and ask them where improvement can be made. Encouraging and collecting customers’ comments is an effective form of research which involves asking customers to explain how the product could be improved to satisfy their needs.
Employees (workers). This is one of the best sources of information about customers’ feelings, likes and dislikes, usually employees work more directly with the customers and hear their complaints that may not reach the owner. They are in most cases aware of the items customers request for that the business does not offer.
Company records and files. Examining company records and files can be very informative e.g looking at the sales records, complaints, receipts or any other records can show an entrepreneur where his customers live and work, what their preference is, amount purchased etc. Using suggestion boxes can also be a source of information.

Problems Faced When Conducting Market Research Of A Given Product

Language difference. Given that Uganda lacks a national language, researchers sometimes miss the information they desire to get due to inability to communicate in the languages understood by the different respondents / consumers.
Inadequate financial resources. It is very expensive to carry out market research. Small firms with limited capital may not be able to undertake it and this greatly affects their planning.
Inadequate skills to handle data collection due to limited man power to effectively and efficiently handle market research. This leads to inaccurate interpretation of information from the public.
Inadequate communication facilities. Accessibility of some areas of the country is difficult due to poor road networks. Therefore, information from such areas cannot easily be obtained by researchers.
Inadequate co-operation from the customers or public. Some people refuse to answer the questions; others give wrong answers while some chase away the researchers. All these distort research findings and conclusions.
Insecurity / hostility in some areas which hinder effective data collection.
Bias. There is also a possibility of getting information from a biased sample / source.
Wrong target group. Choice of wrong sample target group of customers or people from where to get information.
Inaccurate data. Most people or customers do not keep records of their sales or purchases and therefore not being able to get accurate information from them.
Political instabilities also affect research as the researchers may not be able to go to the areas of their choice.

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FRANCHISING

WAYS OF EXPANDING A BUSINESS:

Franchising: Franchising involves granting another party the right to operate a business under your brand and using your established business model.
Joint Ventures: A joint venture involves partnering with another company to create a new business entity.
Distributorship: Distributorship involves partnering with another company to distribute your products or services to a wider market.
Organic growth: Growing your business through internal means, such as increasing sales, expanding your product or service offerings, or entering new markets.

FRANCHISING

Franchising involves granting another party the right to operate a business under your brand and using your established business model.

A franchise is the agreement or license between two legally independent parties which gives:

A person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor).
The franchisee the right to market a product or service using the operating methods of the franchisor.
The franchisee the obligation to pay the franchisor fees for these rights.
The franchisor the obligation to provide rights and support to franchisee.

FRANCHISOR

Owns trademark or trade name
Provides support (sometimes) financing with franchisor’s support, advertising & marketing, training
Receives fees

FRANCHISEE

Uses trademark or trade name
Expands business
Pays the fees

TYPES OF FRANCHISES

There are two main types of franchises:

Product distribution.
Business format.

Product distribution franchises simply sell the franchisor’s products and are supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logo to the franchisee but does not provide them with an entire system for running their business.

Business format franchises, on the other hand, not only use a franchisor’s product, service, and trademark but also the complete method to conduct the business itself, such as the marketing plan and operations manuals. Business format franchises are the most common type of franchise.

TYPES OF FRANCHISE ARRANGEMENTS/AGREEMENTS

These arrangements define the relationship between the franchisor (the owner of the business concept) and the franchisee (the individual or entity purchasing the rights to operate a franchise).

Two types of franchising arrangements:

Single-unit (direct-unit) franchise
Multi-unit franchise

Single-unit (direct-unit) franchise is an agreement where the franchisor grants a franchisee the rights to open and operate ONE franchise unit. This is the simplest and most common type of franchise.

Multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate MORE THAN ONE unit.

There are two ways a multi-unit franchise can be achieved:

An area development franchise
A master franchise

Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, within a specified area. For example, a franchisee may agree to open 5 units over a five-year period in a specified territory.

A master franchise also known as sub-franchising, a master franchise agreement grants the franchisee the rights to develop and sell franchises within a specific territory. The master franchisee assumes many of the responsibilities of the franchisor, such as training and support, and receives a portion of the franchise fees and royalties from the sub-franchisees they recruit.

In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties, and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties.

A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem. The term (duration) of a franchise agreement is usually limited, and the franchisee may have little or no say about the terms of a termination.

LEGAL ISSUES OF FRANCHISING

A good relationship between the franchisor and franchisee is critical for the success of both parties.

Since franchising establishes a business relationship for years, the foundation must be carefully built by having a clear understanding of the franchise program. Franchising is governed by federal and state laws that require franchisors to provide prospective franchisees with information that describes the franchisor-franchisee relationship.

The two main franchising legal documents are the:

Franchise Disclosure Document (FDD)/Uniform Franchise Offering Circular (UFOC).
Franchise agreement

Franchise Disclosure Document (FDD)/Uniform Franchise Offering Circular (UFOC).

The Uniform Franchise Offering Circular (UFOC), now known as the Franchise Disclosure Document (FDD), is a document required by the Federal Trade Commission (FTC) for franchisors to provide to potential franchisees. It contains important information about the franchise opportunity and helps potential franchisees make informed decisions before investing in a franchise.

Key information disclosed in the UFOC/FDD includes:

Business Description: The document provides a description of the franchise business, including its history, founders, and incorporation dates.
Franchise Fees and Royalties: The UFOC/FDD discloses the upfront franchise fee, ongoing royalties, and any additional advertising royalties.
Officers and Executives: The document includes a summary of the officers, directors, and other executives involved in the franchise.
Litigation History: The UFOC/FDD provides information about any major civil, criminal, or bankruptcy actions involving the officers, executives, or the franchise company itself.
Franchise Agreement Terms: One of the most important parts of the UFOC/FDD is the section that outlines the terms of the franchise agreement. This includes the initial term, renewal options, and any conditions for termination.
Initial Costs and Financial Projections: The UFOC/FDD approximates the initial costs of starting the franchise, including equipment, inventory, operating capital, and insurance.
Termination and Territory: The document lists the reasons a franchisor may terminate the franchise before the contract expires.
Franchisor’s Responsibilities: The UFOC/FDD describes the franchisor’s obligations to the franchisee, including training, location selection, assistance with advertising, and ongoing support.

Franchise Agreement:

The Franchise Agreement is a legally binding contract between the franchisor and franchisee that governs their relationship.

It outlines the rights and obligations of both parties, including the use of trademarks, territory rights, compliance with standards, ongoing fees, and support provided by the franchisor.
The Franchise Agreement ensures that all franchisees within the organization are treated equally.
It is important to have a well-drafted Franchise Agreement that clearly defines the expectations and responsibilities of both parties.

ALTERNATIVES TO FRANCHISING

In addition to franchising, there are two other popular methods by which businesses expand their market and distribution channels:

Distributorships
Licensing

DISTRIBUTORSHIPS

In a distributorship, the distributor usually:

Has a contractual relationship with the supplier.
Buys from the supplier in bulk and sells in smaller quantities.
Is familiar with local markets and customers.
May do business with many companies, more than just the supplier/producer.
May not receive contractual support and training from the supplier/producer like a franchisee.

Some distribution arrangements are similar to franchises, and vice versa. A franchisee with a great deal of leeway in how to run the business may look like an independent distributor. A distributor may be subject to many controls by the supplier/producer and begin to resemble a franchise.

LICENSING

Licensing, on the other hand, allows a licensee to pay for the rights to use a particular trademark. Unlike franchises, in which the franchisor exerts significant control over the franchisee’s operations, licensors are mainly interested in collecting royalties and supervising the use of the license rather than influencing the operations of the business.

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BUSINESS START-UPS

Startup refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand.

These companies usually start with high costs and limited revenue, which is why they look for capital from a variety of sources such as venture capitalists, crowdfunding, and loans.

Advantages and Disadvantages of Startups

Advantages	Disadvantages
More opportunities to learn	Risk of failure
Increased responsibility	Having to raise capital
Flexibility	High stress
Workplace benefits	Competitive business environment
Innovation is encouraged	Long hours
Flexible hours

WHAT ARE YOUR OPTIONS WHEN YOU BEGIN YOUR BUSINESS?

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.

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.
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 grandson of the first Madhivan who started the business. He inherited business from his father.
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
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
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.

BUYING A NEW BUSINESS

When it comes to business ownership, some entrepreneurs choose to bypass the process of starting from scratch or acquiring a franchise by opting to buy an existing business.

The route to acquiring a business demands thorough due diligence, a process as demanding as creating a business plan for a new venture. This due diligence is important as it uncovers both the strengths and weaknesses of a business; skipping it can lead to unforeseen problems that may doom the business to failure.

Advantages of Buying an Existing Business:

Proven Success: A thriving business with a solid track record offers a higher chance of continued success. It comes with an established customer base, supplier relationships, and operational systems.
Prime Location: Buying a business ensures you start at the right location, avoiding the risk of second-choice locations that might not attract the same customer traffic.
Experienced Workforce: Existing businesses come with knowledgeable employees who can guide through the transition and contribute to continuous revenue generation.
Operational Equipment: The necessary equipment is already in place, and its capacity and condition can be assessed prior to purchase, saving on initial investment costs.
Inventory and Trade Credit: Successful businesses have already figured out the right balance of inventory and have established trade credit relationships, which new owners can benefit from.
Immediate Operation: Buying an existing business allows owners to start earning immediately without the delays of setting up a new venture.
Leveraging Past Owner’s Experience: Even if the previous owner is not present, their records and decisions provide valuable insights for the new owner.
Easier Financing: It’s often simpler to secure financing for an existing business, especially one with a good relationship with lenders.
Potential Bargains: Sometimes businesses are sold at a low price due to various reasons, offering a good deal for the discerning buyer.

Disadvantages of Buying an Existing Business:

Risk of a Failing Business: Some businesses are on sale because they’re struggling.
Unsuitable Employees: Inherited staff may not align with the new owner’s vision, necessitating difficult decisions.
Deteriorating Location: Changes in demographics or competition could render a previously ideal location unsuitable.
Outdated Equipment: Unforeseen costs can arise if the existing equipment or facilities are found to be outdated or inefficient after purchase.
Resistance to Change: Implementing new policies or innovations can be challenging due to established practices and customer expectations.
Tangible limitations:

Design problems: The business’s physical layout, branding, or website may be outdated and require costly renovations or updates.
Location problems: The business may be located in an inconvenient location, making it difficult for customers to access.
Merchandise problems: The business may have outdated inventory, that is no longer in demand, limited product selection, or may sell products of poor quality, leading to customer dissatisfaction.

Intangible limitations:

Customer or employee ill will: The business may have a negative reputation among customers or employees, making it difficult to attract new business or retain staff, Key employees may leave too.
Pricing problems: The business may be overpriced, making it difficult to recoup the investment.

Potentially higher costs to buy: There may be hidden costs associated with the business, such as environmental liabilities or outstanding debts.
Legal liability in inheriting lawsuits: The business may be facing existing lawsuits that the buyer will inherit.

STEPS IN ACQUIRING/BUYING AN EXISTING BUSINESS

Buying an existing business can be risky if approached without following the steps.

1. Self-Assessment: Identifying the Right Business

Begin with introspection. Assess your skills, preferences, and aspirations to pinpoint the type of business that aligns with your strengths and interests. Questions to consider include:

What business activities captivate or repel you?
Which industries hold the promise of growth and pique your interest?
What are your expectations from owning a business?
Evaluate your readiness in terms of time, energy, financial investment, and risk tolerance.
This self-audit lays the groundwork for identifying businesses that not only match your criteria but also promise fulfillment and success.

2. Prepare a list of potential candidates.

Once you know what your goals are for acquiring a business, you can begin your search. Do not limit yourself to only those businesses that are advertised as being “for sale.” The hidden market of companies that might be for sale but are not advertised as such is one of the richest sources of top-quality businesses. Many businesses that can be purchased are not publicly advertised but are available either through the owners or through business brokers and other professionals. Although they maintain a low profile, these hidden businesses represent some of the most attractive purchase targets a prospective buyer may find.

3. Investigate and Evaluate Candidate Businesses and Evaluate the Best One

Patience is key in this phase. Thoroughly investigate each candidate by examining their financial health, market position, competitive landscape, and operational strengths and weaknesses. This helps in shortlisting the most promising businesses. This process also will make the task of valuing the business much easier.

4. Explore Financing Options

The next challenging task in closing a successful deal is financing the purchase. Although financing the purchase of an existing business usually is easier than financing a new one, some traditional lenders shy away from deals involving the purchase of an existing business. Those that are willing to finance business purchases normally lend only a portion of the value of the assets, and buyers often find themselves searching for alternative sources of funds. Fortunately, most business buyers have access to a ready source of financing: the seller, Seller financing often is more flexible, faster, and easier to obtain than loans from traditional lenders.

5. Ensure a Smooth Transition

Once the parties strike a deal, the challenge of making a smooth transition immediately arises. No matter how well planned the sale is, there are always surprises. For instance, the new owner may have ideas for changing the business that cause a great deal of stress and anxiety among employees and the previous owner.

To avoid a bumpy transition, a business buyer should do the following:

Concentrate on communicating with employees. Business sales are fraught with uncertainty and anxiety, and employees need reassurance.
Be honest with employees. Avoid telling them only what they want to hear. Share with the employees your vision for the business in the hope of generating a heightened level of motivation and support.
Listen to employees. They have first-hand knowledge of the business and its strengths and weaknesses and usually can offer valuable suggestions for improving it.
Consider asking the seller to serve as a consultant until the transition is complete. The previous owner can be a valuable resource, especially to an inexperienced buyer.

Evaluating an Existing Business

Buying an existing business can be a great opportunity, giving you an established brand, customers, and immediate income. But finding the right business to buy isn’t easy—it’s a time-consuming, costly, and sometimes frustrating process.

Evaluating a business means assessing and analyzing various areas of a business to determine its value, potential risks, and viability. It involves thoroughly examining factors such as financial performance, market position, operations, assets, liabilities, reputation, and legal compliance.

The purpose of evaluating a business is to gain a clear understanding of its strengths, weaknesses, opportunities, and threats before making a decision to buy or invest in it.

Ways of evaluating an existing business before purchase include;

1. Personal Assessment and Criteria: First, consider if the business aligns with your interests, resources, and skills. Evaluate if it’s the right fit for you in terms of cash, credibility, skills, and contacts.

2. Perform due diligence: This involves researching and confirming the details of the business to ensure you are buying what you expect and to assess its value. Create a team of experts including a banker, industry-specific accountant, attorney, and possibly a small business consultant to perform due diligence. During due diligence, focus on five critical areas:

Owner’s Reason for Selling: Understand the true motive behind the sale.
Physical Condition: Assess the state of physical assets like equipment and inventory.
Market Potential: Find out market demand, customer base, and competition to gauge growth opportunities and risks.
Legal Aspects: Thoroughly vet legal considerations such as collateral, contract assignments, and ongoing liabilities.
Financial Health: Analyze financial records with an accountant’s help to assess profitability, stability, and develop future projections.

3. Ask for the Business Plan: Does the seller have a business plan? This document (or lack thereof) can reveal a lot about the business’s history, future plans, and the owner’s commitment to selling.

4. Assess the Seller: Your relationship with the seller is important, as you’ll depend on them for information. Pay attention to your interactions during the initial investigation—signs of difficulty now could mean trouble later.

5. Get a picture of operations: Understand how the business operates by assessing its working capital, manufacturing and operations processes, supply chain, and capital expenditures. Ensure that the business is running smoothly and efficiently.

6. Evaluate the assets involved: Determine what assets are included in the transaction and their value. This includes intellectual property, brand names, trademarks, patents, and other important assets. Assess how these assets are protected and their significance to the business.

7. Consider the firm’s reputation: Research the company’s reputation by checking review sites, media outlets, and any past incidents that may have affected its reputation. A strong reputation can positively impact the business’s value.

8. Verify business licenses and permits: Ensure that the business has all the necessary licenses and permits to operate legally. Check if the required permissions are up-to-date to avoid any potential interruptions or fines after the acquisition.

9. Confirm the business’ entity status: If the business is a partnership, corporation or limited liability company (LLC) or joint stock company, review entity documents and related records to ensure the business is registered and in good standing. Verify that the owner has the legal rights to sell the business.

Protecting Your Idea

1. Intellectual Property: Business ideas, inventions, logos, and unique product names can be considered intellectual property if recorded in written, audio, or video format.

2. Legal Forms of Protection:

Patents: Exclusive rights granted for a fixed period to inventors of new and useful products or processes.
Trademarks: Names or symbols used in trade that are subject to government regulation.
Copyright: Exclusive rights regulating the use of original creations, including text, video, audio, and multimedia formats.

3. Importance of Secrecy: Be cautious about disclosing your idea to others, especially those you don’t trust.

4. Written Documentation: Place your idea in writing, including a detailed description and sketches if applicable.

5. Registering Patents and Trademarks:

Patents: File a patent application with the appropriate government agency.
Trademarks: Register your trademark in the relevant country or region.

6. Applying Copyright: Copyright protection is automatic in most countries and does not require registration. However, adding the copyright symbol (©) to your work is recommended.

7. Notarization: Consider having your written description of your idea notarized for added legal protection. Notarization is the official act of verifying the authenticity of a signature on a document and confirming the identity of the signer.

Protecting a business

Protecting a business involves safeguarding its assets, reputation, and future viability from various threats.

This includes ways encompassing legal, financial, operational, and strategic measures.

Ways of Protecting a business

1. Legal Protection:

Intellectual Property Protection: Registering trademarks, patents, copyrights, and trade secrets to protect your unique creations and brand identity. This prevents unauthorized use and provides legal recourse against infringement.
Contractual Agreements: Developing and enforcing robust contracts with suppliers, customers, and employees to clearly define responsibilities, obligations, and liabilities. This minimizes disputes and protects against breaches.
Business Structure: Choosing the right legal structure (sole proprietorship, partnership, LLC, corporation) impacts liability and tax obligations. Consult with legal professionals to determine the best structure for your specific business and risk tolerance.
Insurance: Obtaining comprehensive insurance coverage, including general liability, professional liability (errors and omissions), property insurance, and business interruption insurance, safeguards against financial losses from unforeseen events.
Compliance: Adhering to all relevant laws and regulations (environmental, labor, consumer protection, etc.) minimizes legal risks and prevents penalties.

2. Financial Protection:

Diversification: Don’t rely on a single revenue stream or customer. Diversify products/services and customer base to mitigate the impact of market fluctuations or loss of a major client.
Financial Planning & Budgeting: Developing detailed financial plans and budgets helps track expenses, manage cash flow, and identify potential financial vulnerabilities.
Credit Management: Implementing effective credit policies and procedures minimizes bad debts and ensures timely payment from customers.
Fraud Prevention: Establishing robust internal controls and procedures to prevent fraud, embezzlement, and other financial misconduct. Regular audits can also help.
Emergency Funds: Maintaining sufficient reserves to handle unexpected expenses or economic downturns ensures business continuity during challenging times.

3. Operational Protection:

Data Security: Protecting sensitive business data (customer information, financial records, intellectual property) from cyberattacks, data breaches, and unauthorized access through strong cybersecurity measures.
Risk Management: Identifying, assessing, and mitigating potential risks to the business (operational disruptions, supply chain issues, natural disasters, etc.) through proactive planning and contingency measures.
Physical Security: Protecting physical assets (equipment, inventory, premises) from theft, vandalism, and damage through security systems, access controls, and insurance.
Disaster Recovery Planning: Developing a comprehensive plan to recover from disruptions caused by natural disasters or other unforeseen events.
Redundancy & Backup: Implementing backup systems and procedures for critical systems and data to ensure business continuity in case of failure.

4. Strategic Protection:

Brand Management: Building a strong brand reputation through consistent quality, excellent customer service, and ethical business practices protects against negative publicity and reputational damage.
Competitive Advantage: Developing and maintaining a competitive advantage through innovation, efficiency, and superior customer service protects against market competition.
Strategic Partnerships: Collaborating with strategic partners can provide access to resources, expertise, and markets, enhancing the business’s resilience and competitiveness.
Market Research & Analysis: Continuously monitoring market trends, competitor activities, and customer preferences helps identify potential threats and opportunities.
Adaptability: Being adaptable and responsive to changes in the market and business environment is crucial for long-term survival.

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Negotiation Skills

The word “negotiation” originated from the Latin expression, “negotiatus“, which means “to carry on business”.

Defined:

Negotiating is the process of communicating back and forth, for the purpose of reaching a joint agreement about differing needs or ideas.
It is a collection of behaviors that involves communication, sales, marketing, psychology, sociology, assertiveness and conflict resolution.

A negotiator may be a buyer or seller, a customer or supplier, a boss or employee, a business partner, a diplomat or a civil servant. On a more personal level negotiation takes place between a spouse’s friends, parents or children.

Features of Negotiation

Minimum two parties
Predetermined goals
Expecting an outcome
Resolution and Consensus
Parties willing to modify their positions
Parties should understand the purpose of negotiation

In a hospital setting, there’s a negotiation taking place between the nursing staff and the hospital administration regarding staffing levels and workload management.

Minimum two parties:

The two parties involved are the nursing staff, represented by their union or elected representatives, and the hospital administration, represented by the hospital management team.

Predetermined goals:

The nursing staff’s primary goal is to ensure adequate staffing levels to provide safe and quality patient care. They also aim to address issues related to workload management, such as overtime and burnout. On the other hand, the hospital administration’s goal is to maintain operational efficiency while managing costs effectively.

Expecting an outcome:

Both parties expect to reach an agreement that balances the needs of the nursing staff with the hospital’s operational requirements and financial constraints.

Resolution and Consensus:

Throughout the negotiation process, representatives from both sides engage in discussions and negotiations to find common ground. They explore various staffing models, workload distribution strategies, and potential compromises to achieve a mutually acceptable resolution. They aim to reach a consensus on staffing levels and workload management practices that prioritize patient safety and staff well-being while maintaining the hospital’s efficiency.

Parties willing to modify their positions:

Both the nursing staff and the hospital administration demonstrate willingness to modify their initial positions based on the information and perspectives shared during the negotiation. They recognize the importance of flexibility and compromise in finding solutions that address the needs of all stakeholders.

Parties should understand the purpose of negotiation:

Both parties approach the negotiation with a clear understanding of its purpose: to address staffing and workload issues in a collaborative manner that ensures optimal patient care outcomes and staff satisfaction. They recognize that negotiation is essential for resolving conflicts, improving working conditions, and fostering a positive work environment in the hospital.

Why Do We Negotiate?

Negotiation is a process of communication in which two or more parties with different interests try to reach an agreement.

To Reach an Agreement: The primary goal of negotiation is to reach an agreement that is acceptable to all parties involved. This may involve finding a solution that meets the needs of all parties. Negotiation aims to find a mutually acceptable solution that satisfies both parties’ interests. In healthcare, this could involve negotiating treatment plans, medication dosages, or discharge plans between patients, families, and healthcare providers.(Win-Win)
To Beat the Opposition: In some cases, people negotiate to beat the opposition. This may involve using aggressive tactics to force the other party to accept their terms or using deception to gain an advantage. However, this approach is not always effective and can damage relationships. While not always a primary goal, negotiation can be used to achieve a more favorable outcome or gain an advantage. In healthcare, this may involve negotiating lower prices for medical supplies or equipment. (Win-Lose)
To Compromise: Compromise is a common goal in negotiation. This involves finding a solution that meets the needs of both parties, even if it is not ideal for either party. Negotiation involves finding a middle ground between two opposing positions. In healthcare, this could involve agreeing on a discharge date that accommodates both the patient’s needs and the hospital. (Lose-Lose)
To Settle an Argument: Negotiation can be used to settle an argument or dispute. This may involve finding a solution that both parties can agree to or finding a way to resolve the underlying conflict. In healthcare, this could involve mediating a disagreement between a patient and a nurse.(Lose-Win)
To Make a Point: Negotiation can also be used to make a point or to influence the other party. This may involve using persuasive tactics to convince the other party of your position or using negotiation to build a relationship with the other party. Negotiation can be used to communicate a specific perspective or advocate for a particular outcome. In healthcare, this could involve negotiating for additional resources for a patient or advocating for changes in hospital policies or procedures.(Neutral)

Principles of Negotiation

Define the Goals of Both Parties — Listen carefully to each person, repeating their words to make sure you understand exactly what they want.
Establish a Neutral Position — Find out what each party feels would be a fair solution. Ask open-ended questions, like “Can you be more specific,” and “How important is meeting your goal?” Focus on helping both sides get as close as possible to meeting their intended goals, while suggesting alternatives.
Encourage Mutual Understanding — Encourage both parties in the argument to understand the other person’s viewpoint. Gather feedback from each party, so we can see where things are progressing.
Provide More Than One Acceptable Solution — Provide options that encourage flexibility and leads to a win-win conclusion. Provide more than one solution, while focusing on both sides of the conflict.
Reach an Acceptable Agreement -—Make certain that the real needs of both parties are met, along with clear agreements of how each party will proceed in the future.

Two departments within a healthcare organization, the nursing department and the finance department, are engaged in a negotiation regarding budget allocation for staffing and equipment procurement.

Define the Goals of Both Parties:

The nursing department’s goal is to secure sufficient funding for hiring additional nursing staff to address patient care needs and to procure necessary medical equipment for improved patient outcomes. On the other hand, the finance department aims to allocate funds in a manner that ensures financial sustainability and adherence to budgetary constraints.

Establish a Neutral Position:

The negotiation facilitator, who is impartial and neutral, begins by listening carefully to the concerns and goals of both parties. They ask open-ended questions to clarify each party’s position, such as “Can you provide more details about your staffing needs?” and “How critical is it for you to acquire this specific equipment?”

Encourage Mutual Understanding:

The facilitator encourages both departments to understand each other’s perspectives. They facilitate dialogue by allowing each party to express their viewpoints and concerns without interruption. Feedback is gathered from both sides to identify areas of agreement and areas needing further discussion.

Provide More Than One Acceptable Solution:

The facilitator suggests multiple options for budget allocation that accommodate the needs of both departments. For example, they propose allocating a portion of the budget for hiring additional nursing staff while also earmarking funds for equipment procurement. By presenting alternative solutions, the facilitator encourages flexibility and creativity in reaching a mutually beneficial agreement.

Reach an Acceptable Agreement:

Through collaborative discussions and negotiations guided by the facilitator, the nursing and finance departments work towards reaching an acceptable agreement. The facilitator ensures that the final agreement addresses the real needs of both parties and outlines clear commitments on how each department will proceed in the future regarding budget allocation and resource management.

Types of Negotiation:

Day to Day Negotiation at workplace– Every day we negotiate something or the other at the workplace either with our superiors or with our fellow workers for the smooth flow of work. These are called day to day negotiations.

Example: Negotiating Work Schedule

Sarah needs to attend her child’s school event during work hours. She negotiates with her supervisor to adjust her work schedule for that day, offering to make up the missed time later in the week. Her supervisor agrees to her request, understanding the importance of balancing work and personal commitments.

Commercial negotiations– Commercial negotiations are generally done in the form of a contract. Two parties sit face to face across the table, discuss issues between them and come to conditions acceptable to both the parties. In such cases; everything should be in black and white. A contract is signed by both the parties and they both have to adhere to its terms and conditions.

Example: Supplier Contract Negotiation

ABC Corporation is negotiating a contract with a supplier for the procurement of raw materials. Both parties sit down to discuss pricing, delivery schedules, quality standards, and payment terms. After thorough negotiations, they agree on the terms and conditions outlined in the contract, which is signed by both parties.

Legal Negotiation– Legal negotiation takes place between individual and the law where the individual has to take by the rules and regulations laid by the legal system and the legal system also takes into account the needs and interest of the individual.

Example: Divorce Settlement Negotiation

John and Mary are going through a divorce and need to negotiate the division of assets, child custody, and spousal support. They engage in legal negotiations with their respective lawyers to reach a settlement agreement that addresses their individual needs and interests while complying with legal requirements and regulations.

Distributive Negotiation — Distributive negotiation ends up in a win-lose situation where some parties stand at an advantage and the others lose out.

Example: Salary Negotiation

Jane is negotiating her salary with a potential employer for a new job position. During the negotiation, both parties aim to maximize their own gains. Jane seeks a higher salary and better benefits, while the employer aims to keep labor costs within budget. Eventually, they agree on a salary package that satisfies both parties, although Jane may have negotiated for a higher salary than initially offered.

Integrative Negotiation– To find mutually beneficial solutions that meet the interests of all parties. (Win-Win)

Example: Staffing Company

A staffing company and the employer negotiating a new contract that balances employee benefits with company profitability.

Process or Stages of Negotiation

Preparation: One of the keys to effective negotiation is to be able to express your needs and your thoughts clearly to the other party. It is important that you carry out some research on your own about the other party before you begin the negotiation process.

Exchanging Information: The information you provide must always be well researched and must be communicated effectively. Do not be afraid to ask questions in plenty. That is the best way to understand the negotiator and look at the deal from his/her point of view. If you have any doubts, always clarify them.

Bargaining: The bargaining stage could be said to be the most important of the four stages. This is where most of the work is done by both parties. This is where the actual deal will begin to take shape. Terms and conditions are laid down. Bargaining is never easy. Both parties would have to learn to compromise on several aspects to come to a final agreement.

Closing and Commitment: The final stage would be where the last few adjustments to the deal are made by the parties involved, before closing the deal and placing their trust in each other for each to fulfill their role.

Common Mistakes in the Negotiation Process

Failing to prepare effectively for negotiation.
Underestimating your own power and assuming the other party knows your weaknesses and strengths.
Being intimidated by the status of the person with whom you are negotiating.
Concentrating on your problems rather than those of the other party and forgetting that the other side has things to gain from agreement as well.
Having low expectations for yourself.
Giving too much credence to time deadlines set by the other side.
Talking too much and failing to listen effectively.
Believing everything the other side says about you, your service, your competition, etc.
Being forced into discussing price too early in the negotiation.
Accepting the first offer and giving away concessions for nothing.
Conceding on important issues too quickly.
Making concessions of equal size to those on offer.
Paying too much attention to ‘price’ rather than ‘value’.
Discussing issues for which you are not prepared.
Being inflexible.
Losing sight of the overall agreement when deadlock is reached over minor issues.
Feeling deadlock is only unpleasant for you and not the other party.
Being intimidated by statements like “This is my final offer!” or “If you don’t agree to my terms, we will not reach an agreement.” These are well-known negotiating tactics.

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SMALL BUSINESS IN THE ECONOMY

A small business is one that is independently owned and operated and not dominant in its field of operation.

A small business is a business that uses small capital and it can be owned by one person or few people. The capital contribution is therefore from these few individuals who often control the decision-making process. In addition to this, small businesses have few employees.

Small Businesses are privately owned corporations, partnerships or sole proprietorships with fewer employees & revenue than regular-sized businesses.

A business which functions on a small scale level involves less capital investment, less number of labour and fewer machines to operate is known as a small business.

Characteristics of Small Business

Independent Management: Small businesses are managed independently, meaning that they are not subsidiaries or divisions of larger companies. This independence allows for more flexibility in decision-making.
Closely Held Ownership: Small businesses often have closely held ownership, meaning that the ownership is concentrated in the hands of a few individuals or families rather than being publicly traded on the stock market.
Local Operations: Small businesses usually operate on a local scale, serving a specific geographic area or community. They may have one or a few locations rather than a widespread presence.
Small Size: Small businesses are characterized by their small size, which can be measured in various ways:

Number of Employees: Small businesses have a limited number of employees, often fewer than 500 according to the U.S. Small Business Administration. In Uganda, employing fewer than 5.
Fixed Assets: They have relatively small amounts of fixed assets such as property, equipment, and machinery.
Annual Sales Volume: Small businesses have lower annual sales volumes compared to larger corporations.
Capital Investment: They require less initial capital investment to start and operate compared to larger enterprises.

Types of Small Business Activities

Manufacturing: This type of small business involves producing goods through various processes, such as fabrication, assembly, or production. Examples include small-scale factories that manufacture clothing, furniture, food products, or electronics.
Wholesaling: Wholesaling small businesses purchase goods in bulk from manufacturers or producers and then sell them in smaller quantities to retailers or other businesses. These businesses act as intermediaries in the supply chain, distributing products to a broader market.
Retailing: Retail small businesses sell goods directly to consumers through physical storefronts, online platforms, or both. These businesses operate in various sectors, including clothing, Pharmaceuticals, electronics, groceries, cosmetics, and household goods, catering to the end consumer’s needs and preferences.
Service: Service-based small businesses offer intangible services to individuals or other businesses, addressing specific needs or requirements. Some common types of service businesses include:

Professional Service: These businesses offer specialized expertise or skills in fields such as law, accounting, consulting, marketing, or graphic design.
Financial Service: Financial service businesses provide assistance and expertise in managing money, investments, insurance, loans, or financial planning.
Transport Service: Businesses in this category offer transportation services, such as taxi companies, courier services, shipping companies, or logistics providers, facilitating the movement of goods or people from one place to another.
Repair Service: Repair service businesses specialize in fixing or restoring various items, equipment, or appliances, such as automotive repair shops, electronic repair services, appliance repair technicians, or home maintenance services.
Construction Service: Construction service businesses engage in building, renovating, or repairing structures, infrastructure, or facilities, including contractors, plumbers, electricians, carpenters, and landscapers.

Importance of Small Business

Encourages Innovation and Entrepreneurship: Small businesses often serve as stages for innovation and entrepreneurship. With fewer bureaucratic issues, they can quickly adapt to changing market trends, introduce new ideas, and pioneer innovative products or services.
Complementary to Large Business: Small businesses complement the activities of large businesses by offering their products or services to the consumer market, then providing personalized customer experiences and choices back to big businesses.
Flexibility in Operations: Small businesses have the advantage of being more flexible in their operations compared to larger ones. They can quickly respond to market demands, adjust their strategies, and implement changes without the burden of organizational structures.
Job Creation: Small businesses play a big role in job creation, particularly in local communities. They serve as reliable sources of employment, offering opportunities for individuals with varying skill levels and backgrounds. By hiring locally, they contribute to reducing unemployment rates and stimulating economic growth.
Maintains Close Relationship with Customers and Community: Small businesses often maintain strong relationships with their customers and communities. They provide personalized services, engage in direct communication, and actively participate in local events or initiatives. This closeness builds trust, loyalty, and a sense of belonging within the community.
Stimulates Competition: Small businesses introduce competition into the market, driving efficiency, innovation, and quality improvements. Their presence encourages larger firms to improve their offerings, and provide better value to consumers.
Higher Financial Rewards: While small businesses may face initial financial challenges, successful ones can gain rewards for entrepreneurs. With ownership comes the opportunity for greater financial independence, wealth accumulation, and long-term prosperity.
Supports Economic Diversity: Small businesses contribute to economic diversity by diversifying revenue streams, creating alternative sources of income, and reducing dependence on a few large corporations. This diversity strengthens the economy against shocks in specific industries.
Preserves Local Culture and Identity: Small businesses reflect the unique culture, traditions, and identity of their local communities. They showcase indigenous products, support local craft, and preserve the culture of society.
Promotes Social Responsibility: Small businesses engage in social responsibility initiatives, such as supporting local charities or adopting environmentally friendly practices. They contribute to the well-being of society and the environment.

Challenges of Small Business

Serving a Well-Defined Market: Small businesses often struggle to identify and reach their target market effectively. Understanding customer needs and preferences is important for success.
Acquiring Sufficient Capital: Limited access to funds is a common challenge for small businesses. Securing financing for startup costs, expansion, or day-to-day operations can be difficult, especially without a solid financial track record.
Acquiring and Using Human Resources: Finding and retaining skilled employees within budget constraints can be challenging for small businesses, managing and utilizing human resources is essential for productivity and growth.
Staying Informed: Keeping up with industry trends, market changes, and technological advancements is great for small businesses to remain competitive. However, staying informed requires time and resources that may be limited.
Managerial Know-How: Small business owners often face the challenge of acquiring the necessary management skills to run their businesses effectively. This includes financial management, marketing strategies, and operational planning.
Time Management: With limited resources and personnel, small business owners must juggle multiple responsibilities and tasks. Proper time management is essential to prioritize activities and maximize productivity.
Coping with Government Regulations: Small businesses must comply with various regulations and legal requirements, which can be complex and time-consuming to navigate. Failure to comply can result in fines or legal consequences.
Adapting to Technological Changes: Using new technologies can improve efficiency and competitiveness, but small businesses may struggle to adopt and integrate these changes due to cost constraints or lack of expertise.
Managing Cash Flow: Maintaining a healthy cash flow is important for small businesses to meet financial obligations and sustain operations. Issues such as late payments from customers or unexpected expenses can disrupt cash flow and impact business continuity.
Balancing Growth and Stability: Small businesses face the challenge of balancing growth opportunities with the need for stability and sustainability. Rapid expansion can strain resources and infrastructure, while staying too conservative may limit potential growth.

Small Business in Ugandan Economy

Small businesses are part of the backbone of the Ugandan economy, after Agriculture and Industry. Throughout Uganda’s history, small businesses have played a significant role, particularly in sectors such as agriculture, trade, and services.

During periods of colonial rule and subsequent independence, small businesses emerged as crucial drivers of economic activity, contributing to employment and income generation. Since the early days of independence, Uganda has recognized the importance of small businesses in driving economic growth and development.

Definition of Small Business in the Face of Uganda

According to the latest census data from 2019/2020, approximately 80% of establishments in Uganda are classified as small businesses, with fixed assets valued at less than 100 million Ugandan Shillings. These small businesses collectively employ over 70% of the country’s workforce, highlighting their significant contribution to job creation and livelihoods. More than 60% of Uganda’s economically active population is engaged in self-employment, with a considerable portion involved in small business activities, including agriculture, trade, and services.

Importance of Small Business in Ugandan Economy

Economic Backbone: Small businesses form the foundation of Uganda’s economy, contributing to GDP growth, innovation, and economic resilience.
Employment Creation: Small businesses are major contributors to job creation, particularly in rural areas where formal employment opportunities are limited.
Entrepreneurship Development: Small businesses foster entrepreneurship by providing opportunities for individuals to start and grow their ventures, driving innovation and economic dynamism.
Complementary: Small businesses complement larger industries by providing goods and services made to local needs and preferences.
Exports: Small businesses contribute to Uganda’s export sector, especially in areas such as handicrafts, agricultural products, and artisanal goods.

Challenges Facing Small Businesses in Uganda

Management: Many small businesses in Uganda struggle with issues related to management, including access to skilled personnel and managerial expertise.
Employees: Finding and retaining qualified employees remains a challenge for small businesses, particularly in competitive sectors.
Technology: Limited access to technology and inadequate technological infrastructure hinder the growth and competitiveness of small businesses.
Market: Small businesses face challenges in accessing markets, both domestically and internationally, due to barriers such as transportation costs and market information access.
Finance: Access to finance is a big problem for small businesses in Uganda, with limited options for credit and high borrowing costs.
Information: Small businesses often lack access to timely and accurate market information, hindering their ability to make informed business decisions.
Strategic Alliances: Collaboration and strategic partnerships can be challenging for small businesses due to issues such as trust, resource constraints, and competition.
Government Policies: Inconsistent policies, regulatory barriers, and bureaucratic red tape pose challenges for small businesses, limiting their growth and productivity.

Reasons for Survival of Small Businesses in Uganda

Large Number: The big volume of small businesses in Uganda contributes to their resilience, as they collectively form a vibrant economic ecosystem.
Simplicity: Small businesses often operate with simplicity, allowing them to adapt quickly to changing market conditions and customer preferences.
Market: Uganda’s growing population and expanding consumer market provide opportunities for small businesses to thrive and expand their customer base.
Flexibility: Small businesses exhibit flexibility in their operations, allowing them to adjust to market demands, and explore new opportunities.
Quality: Many small businesses in Uganda focus on delivering high-quality products and services, building trust and loyalty among customers.
Inter-relationships: Small businesses rely on networks and relationships within their communities, fostering collaboration and support.
State Patronage: Government support programs, incentives, and initiatives aimed at promoting small business development contribute to their survival and growth.
Low Operating Costs: Compared to larger enterprises, small businesses in Uganda have lower operating costs, making them more adaptable and resilient, especially during economic downturns.

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BUSINESS PLANNING

When one has identified a business Opportunity to execute, one is not advised to immediately execute the businesses, a thorough process of planning for how the business will be done (Process of Production/Operation), where will it be done from (Location), to whom will it be done for (Customers), who will do it (workers) when will it be done (Commencement) among others.

At idea generation and idea assessment, you only answer one question of the business problem which is (Which business to do) but the rest of the questions listed above can only be answered in the business planning process which is later compiled in a business plan.

Business Plan

A business plan is a document prepared to help and guide the business owner in the running of the business.

A business plan is a written document that summarizes the operational and financial objectives of a business and contains the detailed plans and budget showing how the objectives are to be realized.

It shows why the business was formed, where it is going, what to be done and how it should be handled or managed among other things

Reasons for writing a Business Plan(Objectives, Aims or Purpose)

1. It’s a guiding tool for the running of the business. A business plan is a roadmap for your business. It outlines your goals, strategies, and how you plan to achieve them. It helps you stay on track and make informed decisions about your business.

2. It is a document of reference whenever they need to seek direction after losing track of business. A business plan can help you get back on track if you lose sight of your goals. It can remind you of your original vision for the business and help you develop new strategies to achieve your goals.

3. A business plan is also used to seek funding for business. Some banks and possible granting organizations ask for a business plan. A business plan is essential if you are seeking funding for your business. It shows lenders and investors that you have a well-thought-out plan for your business and that you are a good risk.

4. It acts as a time table for business implementation. A business plan can help you develop a timetable for implementing your business goals. It can help you identify the steps you need to take and the resources you need to achieve your goals.

5. A business plan is a very helpful tool in monitoring, evaluating and controlling business operations. A business plan can help you monitor, evaluate, and control your business operations. It can help you identify areas where you are succeeding and areas where you need to improve.

6. To convince oneself that the new business is worthwhile before making a significant financial and personal commitment. Writing a business plan can help you assess the feasibility of your business idea. It can help you identify potential risks and challenges and develop strategies to overcome them.

7. To assist management in goal-setting and long-range planning. A business plan can help management set goals and develop long-range plans for the business. It can help management identify the resources and strategies needed to achieve the goals.

8. To monitor the performance of the business overtime. A business plan can help management monitor the performance of the business over time. It can help management identify trends and patterns and make adjustments to the business plan as needed.

9. In order to calculate and pay the exact amount of tax to the government. A business plan can help you calculate the amount of tax you owe to the government. It can help you identify the deductions and credits you are eligible for and make sure you are paying the correct amount of tax.

10. To develop a timetable for implementation of various business activities in a sequenced way. A business plan can help you develop a timetable for implementing various business activities in a sequenced way. It can help you identify the dependencies between different activities and make sure that the activities are completed in the correct order.

11. To attract investors and get financing. A business plan can help you attract investors and get financing for your business. It can show investors that you have a well-thought-out plan for your business and that you are a good risk.

12. To explain the business to other companies with which it would be useful to create an alliance or contract. A business plan can help you explain your business to other companies with which it would be useful to create an alliance or contract. It can help you identify the benefits of working with your business and make it easier to negotiate a deal.

13. To attract employees. A business plan can help you attract employees by showing them that you have a well-thought-out plan for the business and that you are a good employer. It can also help you identify the skills and experience you need in employees and make it easier to find the right people for your business.

14. Control future risks. A business plan can help you identify and control future risks to your business. It can help you develop strategies to mitigate risks and make it more likely that your business will be successful.

15. Prepare for future uncertainty. A business plan can help you prepare for future uncertainty by identifying potential risks and challenges and developing strategies to overcome them. It can also help you develop a contingency plan in case of unexpected events.

16. Control business environment. A business plan can help you control the business environment by identifying factors that could affect your business and developing strategies to mitigate the impact of these factors. It can also help you develop relationships with key stakeholders who can help you control the business environment.

17. Control business growth. A business plan can help you control the growth of your business by identifying the resources and strategies you need to achieve your growth goals. It can also help you avoid overextending yourself and make sure that your business grows at a sustainable pace.

18. Avoid sales crises. A business plan can help you avoid sales crises by identifying potential sales challenges and developing strategies to overcome them. It can also help you develop a sales plan that will help you achieve your sales goals.

19. Ensure work space is available. A business plan can help you ensure work space available by identifying the space you need and developing a plan for acquiring or developing the space. It can also help you create a work environment that is conducive to productivity and makes it easier for employees to do their jobs.

20. Avoid stock buying crises. A business plan can help you avoid stock buying crises by identifying potential stock shortages and developing strategies to overcome them. It can also help you develop a stock management plan that will help you manage your inventory and avoid stock shortages.

21. To test the feasibility of the business idea. Writing a business plan enables the entrepreneur to establish whether or not an idea for starting a business is feasible other than going out and doing it.

22. To give the business the best possible chance of success. Business planning encourages the entrepreneur to pay attention to both the broad operational and financial objectives of his new business and the details such as budgeting and marketing planning.

IMPORTANCE OF PREPARING A BUSINESS PLAN

It helps in adequate preparation for the business; it encourages an entrepreneur to think through his business thoroughly in order to prepare for identified sensitive areas which will need more attention.
It helps an entrepreneur in defining specific goals and objectives which serves as a benchmark to measure the progress of the business in implementing the plan.
It facilitates business monitoring based on the set goals and objectives as a standard of measurement such that any deviation from the set plans can be detected from and corrected in time.
It encourages an entrepreneur to be and remain focused by thinking about the business he/she is in now and the business he wants to have in future.
It acts as a time table for implementing business activities in a logical manner.
A business plan helps an entrepreneur in accessing financial assistance from the , it is through the business plan that lenders will determine whether to fund the project or not and how much it will inject in.
It eases the work of an entrepreneur as his employees will use it to know the business objectives or targets in terms of production, profitability, it will also clearly state their duties and responsibilities plus their related remuneration.
It facilitates easy decision making as it clearly spells out the expected cash inflows and outflows of the designed business.
It shows the feasibility and viability of the business thereby enabling an entrepreneur to determine whether to carry on with the opportunity or try other business alternatives.
Enables the government and local tax authority to determine the tax revenue to be paid by the business and likely effects of the business to the environment.

Steps in Preparing a Business Plan

1. Select a Business Type: Choose the type of business you want to engage in, such as trading, manufacturing, agribusiness, service business, or any other suitable option. Consider your skills, interests, and market opportunities.

2. Conduct Market Survey: Conduct thorough market research to assess the demand for your chosen business type. Analyze customer needs, preferences, and buying habits. Identify your target market and understand their demographics, psychographics, and pain points.

3. Gather Other Relevant Data: Collect data related to your chosen business type, including:

Cost of equipment and machinery
Environmental protection regulations
Raw material requirements
Selling and administrative expenses
Zoning laws and regulations

4. Draft a Business Plan: Create a comprehensive business plan that outlines your business concept, target market, products or services, marketing and sales strategies, operational plan, management team, and financial projections.

5. Discuss with Experienced Individuals: Share your business plan with experienced entrepreneurs, industry experts, or mentors who have knowledge or experience in a similar business. Seek their feedback and insights to identify areas for improvement and strengthen your plan. Incorporate the feedback and suggestions you received into your business plan. Revise and refine your plan until you are satisfied with its completeness and accuracy.

6. Create a Business Plan for Implementation: Develop a detailed action plan that outlines the steps you need to take to implement your business plan. Include timelines, milestones, and responsibilities for each task.

Components / Elements of a business plan

A good business plan must be complete, meaning that it should cover all the major aspects of a business and must be based on complete and accurate data. It should cover the following;

Title Page
Table of Contents

Executive Summary
General description of a business
Statement of mission, goals and objectives
Production plan
Marketing plan
Organization plan
Financial pan
Action

1. Executive summary

An executive summary is a brief overview of the entire business plan in one or two pages. It is the basis upon which people decide to pursue your idea or not. It is written last because it is a summary of all the other sections. This means that you pick the most important parts of all the other sections to make the executive summary.

The executive summary highlights the following:

A brief description of the business. What will your product be?
Description of the market in terms of size and growth potential. Who will your customers be?
Marketing strategies.
Key personnel in the business. Who are the owners?
Key strength and opportunities of the business.
Historical and forecasted financial data like profits, revenues, and so on.
Funds required for the business and how the required funds will be used.
What investors will get from the business.

Please note that the Executive Summary is The “hook” of your business plan. This section concisely explains your product, the market size and need, and the company’s unique qualifications to fill those needs. The best executive summaries quickly make busy investors want to read the rest of the plan. It must be enthusiastic, professional, complete, and concise.

If applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment.

2. General description of a business

This section helps the reader to get a general view and understanding of the nature of business you are planning to operate.

This section summarizes the following:

Name of the business.
Location of the business.
Contact address of the business (telephone, email, fax, and so on).
Legal form of the business.
Services/goods to be supplied or produced (needs of the market it will seek to fulfill).
Uniqueness of the business from existing businesses. What makes the business different from the others?
SWOT analysis of the business

Strengths of the business (advantages your business has over other businesses).
Weaknesses of the business (limitations of your business in relation to its competitors).
Opportunities of the business (benefits to the business outside its operations)
Threats to the business (negatives to the business outside its operations).

3. Statement of mission, goals and objectives

a. Vision: Vision is where you see yourself in a specified period of time. What will your business become in five years? The vision statement describes a business based on best outcomes.The vision statement should motivate and inspire you to work towards achieving your goal. It should therefore be short and inspirational.

Look at the vision statement below:“

The number one provider of quality medication to the next generation of Uganda:

b. Mission Statement: A mission statement differs from the vision statement. It explains why your business exists, that is, what it does and what it hopes to achieve in the future.

Look at the mission statement below:

‘To provide high quality health services for private and general patients in Uganda.’

c. Goals and Objectives

Goals are the targets that you want the business to achieve in the medium and long term period. The goals must be based on the mission statement of the businesses.

Objectives are the specific targets that a business man sets. Objectives enable one to move into the direction of achieving the set goals and mission.

An entrepreneur can develop several goals from his/her mission and also several objectives from each goal. Examples of business goals may include;

To increase patient turn up by 40% annually for the next 5 years.
To maximize profits by 15% annually for the next 5 years.

4. Production plan

Production plan is an analysis of the projected needs for manufacturing or producing the proposed products or services.

The production plan describes how production will be carried out in the business, the goods or services that will be produced in the business.

In your production plan, you should show the following:

Location of the business. Show the intended physical location of the proposed business premises, and reasons to justify the desired location for your business. Do not forget to show a brief status of the cost whether rented, leased or own premises and the costs associated with it.
Quality control. Describe how quality will be controlled to avoid defects and poor quality products released on the market.
Brief explanation of the production process and plant layout.
Equipment and machinery to be used in the business: You should show the type, nature and capacity of equipment and machinery required. Do not forget to indicate the possible sources of these equipment and their cost.
Production planning. Describe the stages of production from start to finished product.
The production staff: Describe the kind of staff required in the production process, the skills they should possess, their availability and how much they should be paid.
The required raw materials and their sources.
Production utilities required. Describe the utilities the business will require such as electricity, water, telephone and so on. Show their suppliers and costs.
Required inputs and raw materials. You should show the raw materials your business needs, their sources, amount required, reorder level, costs and how they will be transported to the business premises.
Quality management. Explain how quality management will be ensured in the production process. Will you employ quality controllers? Will the production process go through quality certification by international certification organizations?
Packaging. Describe how the products will be packaged, the required technology to package and so on.
Technical skills required to produce and manage the equipment. Is there a need to hire experts to run the equipment? Do you need to train your staff to be able to use the equipment properly? What costs are involved in retraining workers?
Training needs and costs: Indicate if you will need to train the workers and the costs involved.
Labour and safety requirements and how they will be implemented at the production premises.
Backup plan. Do you have technical backup for your machinery in case of breakdown during the peak production process?
Expected output. Depending on the machinery and equipment, what is the expected output per period of time? Will this output fully make use of the machinery or will the machines operate at less than full capacity? If the business will be producing different kinds of products, indicate what quantity of each product will be produced.

5. Marketing plan

A marketing plan is a statement of market objectives, strategies and activities to be followed in the business. It will describe the following in detail,

Marketing is everything you do to find out who your customers are and what they need and want, the price they are willing to offer for a service or product.

The marketing plan describes the general marketing strategy of the business.

The marketing plan should be based on correct and researched information. It shows the plans and arrangements made on how to price, promote and distribute the products so as to attract and retain customers. You must do a good market survey to be able to prepare a good marketing plan.

In your marketing plan, you are required to write down:

Business idea: Businesses in any economic sector are based on an idea. For example, identify needs, who are the customers, type of products or services to satisfy the needs, how to reach the customers and so on).
Marketing objective: The marketing section should clearly indicate the objectives to be achieved. Specify the specific, measurable, achievable, relevant, and time-bound (SMART) objectives that the marketing plan aims to achieve. For example, to achieve a 10% market share within the first year.
Market research: Starting from your business idea you must now learn more about your customers and competitors through market research. Conduct thorough market research to gather information about customers, competitors, and the overall market landscape. This can include surveys, interviews, focus groups, and secondary research.
Target Market: Identify and define the target market for the business. This includes demographics, psychographics, and buying behavior.
Marketing Mix: Develop a marketing mix that includes the following elements:
Product: Detailed description of the product or service, including its features, benefits, and unique selling proposition (USP).
Price: Pricing strategy and the factors that influence pricing decisions, such as cost, competition, and market demand.
Place: Distribution channels and methods used to make the product or service available to customers.
Promotion: Advertising, public relations, sales promotion, and other methods used to communicate with customers and create awareness and interest in the product or service.
Marketing Budget: Allocate a budget for marketing activities, including advertising, promotions, market research, and other expenses.
Expected sales quantity and expected growth of sales during the year. You can use a graph to show these expected trends.
Market share of your competitors. Use SWOT analysis to know your strengths, weaknesses, opportunities and threats.

6. Organizational Plan

This is an organization around which people, machines, equipment and other physical parts of the plan are put together to have a moving organization.

The organization plan shows how the business will be organized.

An organizational plan contains the following:

State the legal structure of the business. Whether it will be managed as a partnership or limited liability company.
State the size and composition of a Board of Directors. Identify the proposed board members and include a short statement about each member’s background. This should show how relevant they are to the business.
The people in the organization. Present the key management roles in the business and the individuals who will fill each position. State the current or past jobs that the key personnel of the business have worked in before.
Describe the exact duties and responsibilities of every manager. For each individual, include a brief statement of career highlights that focuses on his or her ability to perform the assigned role.
Explain how the business will be managed. Use an organization chart to explain the organization structure.
Which people will supervise or manage other people?

Tasks and responsibilities of each worker.

Skills and experience required of each worker.
Staff costs (salary and any other cost attached to each employee).

Motivation of workers. State the salary that is to be paid to each employee.
Management budget. Include an outline of the management budget. This should show the category of employees, number, salary or wage per employee per month and the yearly estimate. This depends on the nature of the business because different businesses have different categories of employees.
If there are external consultants, advisors and helpers, they should be indicated and their payments explained.
Organizational business premises. The way the business premises will be organized. How offices and workstations will be arranged.

7. Financial plan

The financial plan is one of the most important sections of a business plan. It shows if the business will make profit, how much profit it will make and when it will make it.

Most users of a business plan are interested in knowing that. The financial plan shows the revenues and expenditures of the business. The financial plan section of the business plan covers all financial necessities and projections of the business. It shows what the business expects to spend (expenditures/ payments) and what it expects to earn (incomes/revenues).

The financial plan should contain the following:

a. Start up budget: Start up capital is the amount of money you need to start your business. You need money for equipment, materials, rent, wages, salaries and so on.

Possible sources of funding include: own savings, partners, family, friends, money lenders, credit co-operatives, government schemes and bank loans.

b. Business operation and costs: To be able to set your prices and make financial plans, you need to calculate the costs of your products or services.

c. Monthly sales plan: You should know the monthly sales of all products, product range or services.

d. Monthly operational cost plan: Planning is based on the monthly sale plan.

e. Cash Flow Statement: The cash flow statement shows how finances come in and out of the business. Using the cash statement, you can project and foresee shortages in time and find solutions so that your business does not get a cash crisis. Under cash flows, we have the cash revenues (incomes/cash in) and cash payments (expenditures/cash out). These are further explained below:

Cash revenues: This is a list of all of the expected cash in (incomes) for each month in your financial year. Revenues differ from business to business. Take a case of a hospital, revenues may include: treatment of dental payments, children, maternity, surgeries, optical, outpatient departments and so on.
Cash payments: This is a list of cash out (expenditures) for each month in a financial year. This includes all expenditures the business may encounter such as rent, electricity bills, salaries and wages, professional services and advertising.

For you to get the total cash flows, you get the total cash in (revenue/incomes) and subtract total cash out (payments/expenditures). The balance is your total cash flows.If your total payments are higher than total incomes in other-wards you get a negative number after reconciliation, it means that you don’t have enough cash flow to run the business in that particular month. In other words, your working capital is not adequate. You are receiving less money than you need for your operations. You need more start up capital.

Look at the cash flows of Nurses Revision general hospital.

8. Action plan

An action plan is a document that involves designing a series of sequential steps that enables an entrepreneur to meet set targets. It follows a logical and linear approach.

Uses of an action plan:

It helps the business to remain focused during implementation.
It helps to locate sources of information and resources needed for the business.
It acts as a timetable for implementation of a business plan.
It helps to identify business barriers in advance.
It helps to obtain information on the progress of the business.
It helps to identify the strength, weaknesses, opportunities and threats of the business format of an action plan.

Limitations to the successful implementation of the business plan:

Inconsistencies in business plan preparation.
Underdeveloped infrastructure/utilities.
Resistance from competitors in the market when carrying out market surveys.
In adequate resources such as capital, land, labour land, raw materials etc.
Natural calamities which hinder movement and supply of the required materials.
Personal weaknesses of the entrepreneurs
Preparation of unfeasible/ unrealistic action plans which are difficult to implement.
Failure to involve stakeholders in business plan preparation
Threats like executive competition in the target area of the plan.

When implementing a business plan, you undertake different activities each taking a defined time. For you to properly control and monitor the sequence of all these activities, you need to use a Gantt chart.

A Gantt chart shows all planned activities and their expected time span. For example, a new publishing firm to be set up:

Activity A, buying of premises and equipment done from January to June.
Activity B advertising and recruitment of staff taking place from June to August.
Activity C development of reading materials taking place from September to November.
Activity D printing of reading materials taking place from October to December.
Activity E distribution of reading materials to different schools, taking place from December to February of 2018.

On the Gantt chart, activities should be presented in a logical order, that is, the first activity presented first. For example, buying of premises should come first before advertising and recruitment of employees because the time for buying of premises is before that of recruitment.

Activities that use the same resources or done by the same people should not be planned to be done at the same time. For example, if a business uses designers to develop reading materials and at the same time printing, then printing should not be planned to occur at the same time with development of reading materials because they both require designers. Some activities can be carried out at the same time. This is possible if the activities do not need the same resources or are not supervised by the same man power.

Common Mistakes in Preparing a Business Plan:

Many entrepreneurs make mistakes when preparing a business plan, which can lead to losing out on funding or business plan competitions.

Here are some of the most common mistakes to avoid:

1. Being Unrealistic with Financial Projections: Avoid making overly optimistic or unrealistic financial projections. Lenders and investors will be skeptical of a business plan that promises unrealistic profits or growth. Be realistic and conservative in your financial projections, and make sure they are based on sound research and analysis.

2. Not Defining the Target Audience or Customers: Clearly define your target audience or customers. Who are they? What are their needs and wants? What are their buying habits? Without a clear understanding of your target market, it will be difficult to develop effective marketing and sales strategies.

3. Hiding Your Weaknesses and Exaggerating Your Strengths: Be honest about your business’s weaknesses and challenges. Investors and lenders want to see that you are aware of the risks and challenges involved in your business and that you have a plan to address them. Don’t try to hide your weaknesses or exaggerate your strengths.

4. Quoting Wrong Statistical Figures Based on Bad Research: Make sure the statistical figures and data you include in your business plan are accurate and reliable. Conduct thorough market research to gather relevant data and statistics. Using incorrect or outdated information can undermine the credibility of your business plan.

5. Not Focusing on the Current and Future Competition: Analyze your competition thoroughly. Identify your direct and indirect competitors, and assess their strengths, weaknesses, and market share. Understand how your business will compete in the market and what strategies you will use to gain a competitive advantage.

6. Not Knowing the Distribution Channel: Clearly define the distribution channels you will use to reach your target customers. Will you sell your products or services online, through retail stores, or through distributors? Make sure you have a clear understanding of the distribution channels available and how you will use them to reach your customers effectively.

7. Including Too Much and Uncalled-for Information and Leaving Out the Most Relevant: Keep your business plan concise and focused. Avoid including unnecessary or irrelevant information. Focus on the most important aspects of your business, such as your business idea, target market, marketing and sales strategies, and financial projections.

8. Being Inconsistent, Especially When It Comes to Financial Plans Against the Other Plans with Financial Implications: Ensure consistency throughout your business plan, especially when it comes to financial plans and other plans with financial implications. Make sure the financial projections are aligned with the marketing and sales strategies, and that the overall plan is financially feasible.

9. One Writer, One Reader: Don’t rely on just one person to write and review your business plan. Get feedback from multiple people, including potential investors, lenders, and business advisors. This will help you identify any weaknesses or areas that need improvement in your business plan.

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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.

BUSINESS STARTUPS

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)

BUSINESS INSURANCE

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.

BUSINESS COMPETITIONS

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:

Positive Effects:

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

Negative Effects:

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.

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COOPERATIVES

A cooperative is a business organization that is owned and controlled by its members.

Cooperatives are often formed to provide goods or services to their members at a lower cost than they would be able to obtain from a traditional business.

It is an association of persons who have voluntarily joined together to meet their economic, social and cultural needs and aspirations through a jointly and democratically controlled enterprise.

Example:

A farmers’ cooperative that sells agricultural products to its members.
A consumer cooperative that sells groceries and other household goods to its members.
A housing cooperative that provides affordable housing to its members.

Features of Cooperative Organizations:

Democratic Management, Election, and Control: Members have equal voting rights and participate in the decision-making process.
Separate Legal Entity: Cooperatives are legally recognized as separate entities from their members.
Voluntary Membership: Individuals are free to join or leave a cooperative voluntarily.
Service Motto or Driven by a Fundamental Objective: Cooperatives are driven by a desire to serve their members and achieve a common goal.
Government/State Control: Cooperatives are subject to government regulation and supervision.
Members’ Economic Participation: Members contribute to the cooperative’s capital and share in its profits and losses.
Disposal of Surplus: Surplus funds are distributed among members based on their patronage or participation.

Types of Cooperatives:

Market / Sales Cooperatives: These cooperatives help farmers and producers sell their products collectively to get better prices.
Savings and Credit Cooperatives: These cooperatives provide financial services to their members, such as savings accounts, loans, and insurance.
Producers / Industrial Cooperatives: These cooperatives are owned and operated by workers who share the profits and losses.
Consumers Cooperatives: These cooperatives are owned and operated by consumers who pool their resources to buy goods and services at lower prices.
House Cooperatives: These cooperatives provide housing for their members.

Merits of Cooperative Societies

Continuity or Long-Term Survival: Cooperatives are often more resilient than other types of businesses due to their democratic structure and member loyalty.
Democratic Management: Members have a say in the management of the cooperative, which promotes transparency and accountability.
Limited Liability: Members’ liability is limited to the amount of capital they have contributed to the cooperative.
Government Assistance: Cooperatives often receive government support and assistance, such as tax breaks and subsidies.
Reduce Inequalities: Cooperatives can help to reduce income inequality by providing equal opportunities for all members.
Ease of Formation: Cooperatives are relatively easy to form and operate, especially compared to other types of businesses.

Demerits of Cooperatives

Lack of Secrecy: Due to the democratic nature of cooperatives, there may be less secrecy compared to other types of businesses.
Government Interference: Cooperatives are subject to government regulation and supervision, which can sometimes be burdensome.
Limited Capital: Cooperatives may have limited access to capital compared to other types of businesses.
Lack of Harmony and Innovation: Decision-making in cooperatives can be slow and bureaucratic, which may stifle innovation.
Poor Management: Cooperatives may suffer from poor management due to the lack of professional expertise among members.

Reasons for Failure of Cooperative Societies:

Government Interference: Excessive government interference can affect the autonomy and flexibility of cooperatives.
Poor Infrastructure: Lack of adequate infrastructure, such as transportation and communication networks, can hinder the operations of cooperatives.
Price Fluctuations: Cooperatives may be vulnerable to price fluctuations in the market.
Political Instability: Political instability can create an uncertain and risky environment for cooperatives.
Liberalization of the Economy: Liberalization of the economy can increase competition and make it difficult for cooperatives to compete with larger, more established businesses.
Poor Financing: Cooperatives may have difficulty accessing financing, especially in developing countries.
Lack of Harmony of Members: Disagreements and conflicts among members can weaken the cooperative and hinder its progress.
Poor Methods of Production: Cooperatives may use outdated or inefficient methods of production, which can lead to lower productivity and profitability.
Poor Management Systems: Poor management systems and practices can lead to mismanagement and financial problems.
Natural Calamities: Natural disasters, such as floods, droughts, and earthquakes, can disrupt the operations of cooperatives and cause financial losses.
Lack of Diversification: Cooperatives that rely on a single product or service may be vulnerable to changes in market demand.
Substitute Influence: The emergence of substitute products or services can reduce the demand for the products or services offered by cooperatives.

Reasons for Revival of Cooperatives:

Improves on the Standards of Living: Cooperatives can help to improve the living standards of their members by providing access to essential goods and services at affordable prices.
Strengthen the Private Sector: Cooperatives can strengthen the private sector by providing employment opportunities and stimulating economic growth.
Eradicate Poverty: Cooperatives can help to eradicate poverty by providing access to financial services and economic opportunities for marginalized communities.
Equip Members with Practical and Theoretical Skills: Cooperatives can provide members with practical and theoretical skills through training and education programs.
Mobilize Special Interest Groups: Cooperatives can mobilize special interest groups, such as the youth, farmers, and women, to work together for their common benefit.
Provide Employment to Society: Cooperatives can provide employment opportunities for people who may have difficulty finding work in the formal sector.
Reduce on Income Inequality: Cooperatives can help to reduce income inequality by providing equal opportunities for all members.
Reduce on Regional Imbalance: Cooperatives can help to reduce regional imbalance by promoting economic development in rural and underserved areas.

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