Sub- enabling outcome-two
LAUNCHING A NEW BUSINESS VENTURE
Business venture
• What is a business venture?
• What are the characteristics of a business venture?
Categories of small businesses (MSMEs in
Tanzania)
According to Small and Medium Enterprise Development Policy 2003
Category Employees Capital Investment in
Machinery (TZS)
Micro enterprise 1-4 Up to 5 mil.
Small enterprise 5-49 Above 5 mil. To 200 mi.
Medium enterprise 50-99 Above 200 mil. to 800 mil.
Large enterprise 100+ Above 800 mil.
Types of Business
In general, businesses are divided into four broad categories, depending
on their primary function and the kinds of products they sell.
• Manufacturing Businesses
• Wholesaling Businesses
• Retailing Businesses
• Service Businesses
Manufacturing Businesses
• A manufacturing business (manufacturer) converts
materials into goods suitable for use and then sells those
goods to others.
• Manufactured products typically fall into two categories:
industrial and consumer. Industrial goods are sold to other
manufacturing businesses.
• Examples include metal and plastic parts, lumber, and
heavy machinery. Consumer goods are products that are
eventually bought by the public
Wholesaling Businesses
• A wholesaling business ( wholesaler) buys goods in large
quantities, typically from manufacturers, and resells them in
smaller batches to retailers.
• Wholesalers are also known as middlemen, go-betweens,
distributors, or intermediaries because they provide a link
between manufacturers and retailers, who sell goods to
consumers.
• Wholesalers do not generally sell directly to the public.
Retailing Businesses
• A retailing business ( retailer) buys goods, often from wholesalers, and resells
them directly to consumers, who are the end buyers.
• Retailing businesses are stores, shops, and boutiques. They sell groceries,
clothing, shoes, household goods, computers, CDs, sporting goods, cosmetics,
jewellery, and thousands of other consumer items directly to end buyers.
• Retailing businesses include traditional stores that people visit in person and
online stores that sell from the Internet. Some retailers also sell through
catalogs.
• In most states retailers must have a special permit (often called a reseller’s
permit) to purchase goods tax-free from wholesalers and collect sales tax from
the end buyers.
Service Businesses
• A service business provides services to customers for a fee. Service businesses
provide a wide variety of professional, technical, and everyday services that
people need and want.
• Examples include engineering, legal, medical, accounting, garbage pick-up,
package delivery, dry cleaning, auto repair, baby sitting, music lessons,
tutoring, house cleaning, and
Forms of Business Ownership
i) Sole Proprietorship
ii) Partnership
iii) Limited Liability Companies/ Corporations
iv) Cooperatives
Ownership Issues Sole General or Limited Limited Liability Cooperatives
Partnership Company
Who owns? Proprietor Partners members members
What is liability? Unllimited Limited in most cases Limited Limited
How is it taxed? Individual rate Individual rate Double taxation Income Tax
How are profits Proprietor receives all Partners receive Members receive Dividend shared by
distributed? profits according to profits per agreed- on members
partnership agreemen operating procedures
Who votes on policy? Not necessary Partners Members per agreed- Members
on operating
procedure
How long can Terminates on death Terminates on death Unlimited Unlimited
company exist? of owner of partner
Question
Explain common legal forms of organization
used by small businesses and the factors to
consider when choosing any form among
them.
Consideration factors for legal forms
of businesses
• Liability Protection
• Taxation
• Management
• Start-up cost
• Continuity of existence etc.
Importance of getting Financing or
Funding
Why most new ventures need funding?
• There are three reasons that most entrepreneurial ventures need to
raise money during their early life:
cash flow challenges,
capital investments
lengthy product development cycles.
Why most new ventures need funding?
• Cash flow challenges
Inventory must be purchased, employees must be trained and paid, and
advertising must be paid for befote cash is generated from sales
• Capital Investments
The cost of buying real estate, building facilities and purchasing equipment
typically exceeds a firm’s ability to provide funds for these needs on its own.
• Lengthy Product Development cycles
Some products are under development for years before they generate
earnings. Firms need to raise money to pay the up-front costs of lengthy
product development cycles.
Sources of Personal Financing
(Equity Financing)
• Typically, the seed money that gets a company off the ground
comes from the founders’ own pockets.
• There are three categories of sources of money in this area:
personal funds,
friends and family (informal investors),
Bootstrapping (own funds- no use of money from outside)
Debt Financing
• External sources of finance come from outside a business and are
more difficult to arrange than internal sources.
• Loans – Borrowing an amount of money from a bank and paying
it back in instalments. Interest is added to the loan
• Overdraft: Taking more money out of your bank account than
you have in it.
• Government grants – Applying to the government for an amount
of money to be used for a specific purpose. It is usually a loan.
• Interest on the loan is cheaper than a bank
• Issuing shares – only applies to public limited companies whose
shares are bought and sold on the Stock Exchange.
• Persuading members of the public to invest in the company
by buying shares.
• You need to be a PLC or LTD to do this
• No money to pay back, no interest to pay
• However, Ownership of the company is “shared” between
more people – danger of a possible takeover
• Venture capital – finance from a company which specialises in
lending to successful small businesses – often in exchange for
shares
Factors affecting the choice of
funding
• Amount required
• The cost of the money
• The risk involved
• The length of time for which the money is needed
• Loss of control
• Advice available
Forms of official support to small
business (Tanzanian perspective)
1. Policy framework:
In terms of policies, small businesses are governed largely by
SMEs Development policy (2003). The policy provides guidelines
in aspects such as legal issues, business infrastructures,
monitoring and evaluations of the businesses
2. Financial support:
Liberalized market provides financial framework which enable
small business to get support from various institutions. For
instance Banks, SACCOs, Donors, Government funded institutions
etc
3. Skills development programs
Business incubators: are programs designed to accelerate
the successful development of entrepreneurial
companies/business through an array of business support
resources and services.
Most common incubator services include, assistance on
business basics, networking activities, marketing assistance,
accounting/financial management, access to loans, loan
funds and guarantee programs. Others include, presentation
skills, links to higher education resources and strategic
partners.
Example; Tanzania virtual business incubator program
(supporting women),
Training programs: These are designed to give owners of
small business support in terms of knowledge and skills
to operate their businesses successfully. These are
offered by various public organizations such as SIDO,
VETA, and private institutions. Others are donors in
collaboration with local institutions as well as higher
learning institutions.
