5.1.

1 Learning Outcome No 3: Identify Entrepreneurship Opportunities

5.3.4.1 Learning Activities
Learning Outcome No 3: Identify Entrepreneurship Opportunities
Learning Activities Special Instructions

3.1. Identify sources of business ideas as per business procedures

and strategies. Trainees should state
3.2. Generate business ideas and opportunities as per business business ideas.
procedures and strategies.
3.3. Analyze business life cycle as per business procedures and
strategies.
3.4. Identify legal aspects of business as per procedures and
strategies.
3.5. Assess product demand as per market strategies.
3.6. Identify and evaluate types of business environment as per
business procedures.
3.7. Explore factors to consider when evaluating business
environment based on business procedure and strategies.
3.8. Incorporate technology in business as per best practice.

5.3.4.2 Information Sheet No5/LO3: Identify Entrepreneurship Opportunities

Introduction
This learning outcome aims at equipping students with the knowledge on many opportunities
in entrepreneurship. It entails sources of business idea and its generation, analyzing life cycle
of a business, legal aspects, product demand and types of business environment, factors to
consider when evaluating business environment based on business procedure and strategies.

Definition of key terms

Sources of business: These are the origins of business idea that can be used for financial
gain that is centered on a product that can be offered money.

Product demand: A customer’s willingness to purchase a product or services at a given

price.

Business life cycle: They are phases that a business idea passes through from the time it is
formed in the entrepreneur’s mind to the time business rolls and expands or declines.

Business legal aspects: They are legal frameworks through which a business operates.
Content/Procedures/Methods/Illustrations
3.1 Sources of business ideas include:
 Customer surveys: Customer needs and wants to justify for the service or product
that you can offer them.
 Interests and hobbies: Most people have founded great successful businesses
while pursuing their interests and hobbies i.e. by doing what they love doing in
their leisure times.
 Brainstorming and dreams: This starts with identifying a problem statement or
question. Designing solution to these problems lead to business ideas.
 Franchising: It is a situation where sole traders mark distributor of a product
gives exclusive rights to independent retailers for local distribution.
 Mass media: Include T.V. newspapers, internet, radio, and magazines. They are
also a great source of ideas, information and opportunities.
 Personal experience and talents: Most of the ideas are also as a result of
experience in a workplace.
 Trade fairs and exhibitions: Attending such events regularly makes one discover
new services and products.

3.2 Generate business ideas and opportunities

To generate more business ideas and opportunities, one must be able to do the following:
 Meet new people
 Tap into your interests
 Keep “pain point” journal
 Travel
 Explore new ways of thinking
 Do your market research
 Go online
 Attending educational events
 3.3 Business life cycle

Stab ilization s tage

Innovation

Growth stage

Start-u p stage

Idea ge neration

Figure 23. Business life cycle

Business life cycle refers to the phases that a business passes through from time the idea is
formed in the entrepreneur’s mind to the time business rolls and expands or even declines.
Many businesses go through six stages in their life as shown below;
a) Idea generation: This is the preliminary stage for the business. Here, the
entrepreneur does a lot of groundwork to access the viability of the venture he is
about to get into.
b) Start – up stage: Activities may involve preparation of a formal business plan,
registration of the business, sourcing capital, recruiting and designing the product.
During this phase, sales are low but slowly increasing its sales as the time passes
by. At this phase entrepreneurship concentrates with marketing their product and
services to their target customers business are prone to incur losses in this phase.
c) Growth stage: at this stage of business common experiences may include:
 Increased sales and profit
 Wider market coverage in terms of geographical region
 A growing number of employees
 Variety of products and services
 Increased competition
 Need for additional expenditures
d) Stabilization stage: At this stage, business sales and profits stagnate. The
business may also experience intensified competition. Sales may go down due to
the presence of competitors in the market, profit margin starts to go down.
e) Innovation stage: Organizations that fail to innovate at stabilization stage are
likely to decline. To ensure come back to growth, the entrepreneur is required to
re-look
at the way’s businesses have been conducted. The cash generation is higher than the profit
on the income statement.
Among innovative attempts include:
 Change of management
 Repackage the product/service
 Change the technology
 New distribution methods
 Advertise and promote differently
f) Decline stage: This stage is not in normal plan of business. The entrepreneur does
not foresee business declining at the start-up stage. Sales and cash flow all
decline. Companies accept to extend their business venture by adapting to the
changing environment. Firms loses their competitive advantages and finally exits
the market.

3.4 Business Legal aspects

Businesses operate within a legal framework that for the most part, works. The legal aspects
include:
 Legal entity: All businesses are categorized as some sort of legal entity that
governs the way they are treated under the law. Some business structures are
considered free standing entities that have special rights and the owners have
limited liability. Others like sole proprietorship, the owner assumes all the liability
and rewards.
 Compliance: Compliance to local (city and county), state and federal laws will be
something that all businesses will need to deal with.
 Contracts: Most businesses will enter into a contract with a person or another
business at some point in their existence. These contracts are what define how the
working relationship will be carried out and who will be responsible for
deliverables and payments.
 Resolving disputes: The legal system is set up to solve disputes. These disputes
usually revolve around some sort of breach of contracts, violation of intellectual
property or breaking the law.
 A necessity that’s not the evil: Having good corporate counsel will make your
business better.

3.5 Product demand Assessment

This involves determining how many units of products will be sold over the course of a
year. Factors to include:
 Go over past sale records
 Use marketing projections to help estimate demand
 Use a competitor’s sales data
 Pay attention to the local and global economy
 Estimate sales on recent performance
 3.6 Types of business environment
Are factors that affect the function of the organization and how organization works directly
or indirectly? They include internal environment which affects operations of a company are
within the control of management and external environment which are beyond the control of
the organization.

Internal business environment:

 Financial: Finances determine whether your company survives or dies. When
money is limited it affects the operations of the business.
 Employees and managers: Employees are the major part of your company
internal environment. They should be good at their jobs. On other hand managers
should be good at handling lower-level employees and overseeing other parts of
internal environment.
 Resources: Availability of resources can also determine how the business
performs. Scarce resources will affect the number of sales made, quality of
products or services produced and even the period which the business will last.
 Company culture: This consist of values, attitude and priorities that your
employees live by. Your staff will infer your values based on the type of people
you hire, fire and promote

External factors:
 Competition: Unless a company has unique features, competition will always be
there. When you start a company, you will compete against more establishes and
experienced businesses. Competition can either make or break your business.
 Political: Changes in government policy can have a very huge effect on the
business in question. Example the tobacco industries have been on forced to put
warning labels on their product and lost the right to advertise on the television.
 Customers and suppliers: Next to the employees, customers and suppliers are
the second most important in your business. Suppliers have a huge impact on the
cost and customers depend on how good your products are and whether you’re
advertising makes customers want to buy from you among others.
 Economical factor: In a bad economy, even a well-run business may not survive.
High interest rates on banks and credit cards will discourage / limit the
entrepreneur and customers spending on your products or services.

3.7 Factors to consider when evaluating business environment

 Ability to manage cash: You need to look at the ability to manage cash flow. Is
there a start-up funding for your business? What about ways to keep funding your
business each month. Figure out how cash flows will be managed and take a look
at your business plan.
 Passion and persistence: Are you working with people who will get their jobs
done? Do you trust they have passion for the work assigned to them? How will
they
approach difficulties in case they face them in the future? You need to ensure that you have
the passion to be in that business and the desire to come out of challenges.
 Market size: It’s one of the most important factors when evaluating a business
opportunity. Researching the market and figuring out whether there we market for
your products and how big it is.
 Relationships: What is your relationship with the potential investors or
customers? When you have more relationships the chances for your business to
run smoothly is high.
 Management skill sets: What are the skills of those involved in your business?
When looking for the business opportunity to invest in or expand into, look at the
management. What skills do they have? Are they appropriate?

Incorporation of technology in business

 Provides for communication with customer: technology affects a firm’s ability to
communicate with customers. This is best achieved by use of internet.
 Efficiency of operations: Technology also helps a business understand its cash
flow needs and preserve precious resources such as time and physical space.
 Security: Most businesses of the modern era are subject to security threats and
vandalism. Technology can be used to protect financial data, confidential
execution decisions and other proprietary information.
 Business culture and relations: Technology creates a team dynamic within a
business because employees of different locations have better interactions.
 Research capacity: A business that has the technological capacity to research new
opportunities will stay a step ahead of its competition. For a business to survive, it
must grow and acquire new opportunities.

Conclusion
This learning outcome covered on how to identify sources of business ideas, generate
business ideas and opportunities and analyze business life cycle, identify legal aspects, assess
product demand, identify and evaluate types of business environment, explore factors to
consider when evaluating business environment based on business procedure and strategies
and demonstrate skill in incorporation of technology in business as per best practices and as
per business procedures and strategies.
 5.1.2 Learning Outcome No 4: Create Entrepreneurial Awareness
5.3.5.1 Learning Activities
Learning Outcome No 4: Create Entrepreneurial Awareness
Learning Activities Special Instructions

4.1. Explore Sole proprietorship, Partnership, Limited companies

and Cooperatives (forms of businesses) as per business Give examples of
procedures and strategies. sources of business
4.2. Identify sources of business finance are as per business finance
procedures and strategies.
4.3. Identify factors for selecting source of business finance as per
business procedures and strategies.
4.4. Determine governing policies such as; (Increasing scope for
finance, promoting cooperation between entrepreneurs and
private sector, reducing regulatory burden on entrepreneurs
and developing IT tools for entrepreneurs) on Small Scale
Enterprises (SSEs) as per business procedures and strategies.
4.5. Explore problems of starting and operating SSEs as per business
procedures and strategies.

5.3.5.2 Information Sheet No5/LO4: Create Entrepreneurial Awareness

Introduction
This learning outcome aims at equipping trainers with knowledge on making awareness on
entrepreneurship by identifying business forms, sources of finances and factors to consider
when selecting them, governing policies among others and problems that SMEs encounter.

Definition of key terms

Forms of Business: They are different business structures like sole proprietorship,
partnerships, limited companies, corporations among others.

Governing policies: These are written regulations and laws laid by the government that
businesses must comply with.

Small Scale Enterprises: This is a privately owned and operated business characterized by a
small number of employees, require small capital to start etc. A business is regarded as small
depending on the regulations of a country.
Content/procedures/methods/illustrations
4.1 Forms of businesses are explored as per business procedures and strategies
1. Sole proprietorship
This is a form of business that is owned by one person.
Advantages
 It needs no charter to establish it.
 There are few casts that are related to its establishment.
 All the profits go to the owner of the business without sharing with anyone.
 Easier to raise startup capital that is from the owner’s savings.
 You are your own boss.
 Flexible to start your business at any location, anytime of the day.
 Motivation because you get all the profits.
 One has a personal contact with customers hence can be able to respond to their
requests.
Disadvantages.
 In case of loses, the sole proprietor bears all the loses by himself/herself.
 The sole proprietor will have to work very hard to sustain the business hence
leaving less time for leisure/recreation.
 A sole proprietor has unlimited liability that is a creditor with a claim against a
sole proprietor would normally have a right against all of his/her assets whether
business or personal.
 Poor and uninformed decisions made by the owner of the business may lead to the
collapse of business completely.
 One has nobody to discuss the business problems with.
 One has limited finance or capital hence the business will remain small.

2. Partnership
It is a relationship that exists between two or more persons carrying on a business common
with a view to making profit. It is an agreement when two or more persons combine their
resources in a business with a view of making profit. When two or more persons wish to
form a partnership, then it is recommended that they agree on the terms upon which to form
a partnership. This is done in writing signed off as agreed by all the partners and therefore it
becomes a partnership deed or agreement.
Contents of partnership agreement
 Name and address (s) of the firm and the partners.
 Capital to be contributed by each partner.
 The profit-sharing ratios expressed as a fraction or percentage.
 Salaries to be paid to the partners.
 Any interest to be charged on drawings by the partners.
 Interests to be given on partners on their capital balances.
 Procedures to be taken on retirement or admission of a new partner.
 3. Membership
It has a minimum membership of two (2) and a maximum of fifty (50) except for professions
firms, e.g. lawyers, doctors whose maximum membership is twenty (20).
Types of partnerships
 General partnership: in this, all the members share the management of the
business and each is personally liable for all the debts and obligations of the
business. Each partner is responsible for and must assume the consequences of the
actions of the partner.
 Limited partnership: some members are general member who control and
manage the business and may be entitled to a greater share of profits. A legal
document setting out specific requirements must be drawn up for a limited
partnership.
Advantages
 Additional capital can be raised in case a sole trader is not able to raise sufficient
capital.
 There is increased expertise in certain areas of business because of existence of
many partners who are skilled differently.
 Informed decisions and judgments can be made since the partners are involved in
the decision-making process.
 It is a tax pass through entity.
Disadvantages
 Wastage of time in decision making since all the partners must be consulted which
takes time.
 All partners are liable to payment of all the losses that accrue in the business.
 Some members have limited liability while others have unlimited liability.
 Can be dissolved at any time either due to the exit or death of a partner.
 If one partner is inefficient or dishonest, everybody loses.

4. Limited companies:
It is a type of business structure that has been incorporated at company’s house as a legal
‘person’. It is completely separate from its owners. It can enter into contracts using its own
name and it’s responsible for its own actions, finances and liabilities.
Characteristics of a limited company
 Separate legal existence- It is its own separate legal person from the owners of the
business.
 Limited liability- Shareholders are legally responsible for the debts of the
company only to the extent of the nominal value of their shares.
 Flexibility in taxation- Members of the corporation have the ability to choose the
form of taxation that makes the most sense for the business i.e. can choose to be
taxed as Subchapter corporation or Subchapter corporation.
 Simplicity in operation- Does not require to have shareholders meetings, appoint
the board of directors to run the company i.e. Simplicity in operation while the
corporation with no shareholders meetings, therefore there is no attendant preparation of
filing of minutes of the meetings i.e. simplicity in documentation.
Advantages
 Protection of the company’s name- It is an entity separate from its owners, and its
own rights, responsibilities and liabilities, can file a lawsuit or can be sued in its
own name.
 A limited company is tax efficient i.e. tax flexibility
 Personal liability is limited. - Debts are only to the extent of the nominal value of
their shares.
 Perpetual existence – Owners of the entity can change without triggering the
dissolution of the company unless stated otherwise in the articles of the
organization. A member’s death, retirement, withdrawal etc. doesn’t mean that the
company must cease to operate.
 Less paperwork – Having limited company operating agreement to create rules
that govern your business hence less paperwork for compliance of rules of your
state.
 High status of the company will attract investors and customers.

Disadvantages
 Required to pay a registration fee to company’s house to incorporate i.e. legal
formalities.
 Company name is subject to certain restrictions.
 More complex and time-consuming accounting requirements.
 Strict procedures for withholding money from the business.
 Owners lose control when the original owners hold less than 51% of shares.
 Selling of shares is expensive because of the commission paid to banks to aid in
selling shares and costs of printing the prospectus.

5. Cooperatives
It is a group of individuals who have specific common needs. Its purpose is to improve the
economic status of the members.
Advantages
 Tax advantage: Exempted from income tax and surcharge on its earnings up to a
certain limit.it is also exempted from stamp duty and registration fee.
 Democratic management: Managing committee elected by members on the basis
of one member one vote irrespective of the numbers of shares held.
 State assistance: This is done by the government as they see cooperatives as an
effective socio-economic instrument of change therefore offered grants, loans,
financial assistance to make their work more effective.
 Open membership: Anyone can join irrespective of their color, age, religion,
economic status and there is no limit on maximum members.
 Limited liability: The liability is reduced to the extent of their capital in the
cooperative societies.
  Social service: The basic philosophy of cooperatives is self-help and mutual help.
Thus, cooperative foster fellow feeling among their members and inculcate moral
values in them for a better living.
Disadvantages
 Lack of mutual interest: All members are not imbued with a spirit of cooperation
and such absence breeds mutual rivalries among its members.
 Corruption: In a way, lack of profit motive breeds fraud and corruption in
management. This is reflected in misappropriation of funds by the officials for
their personal gains.
 There is slow decision making since all members of the managing committee have
to be consulted.
 Less capital incentives which does not appeal to long term investors.

4.2 Sources of business finance are identified as per business procedures and strategies
 Owner’s capital: It is the only source of capital for the sole trader starting
business. This type of capital through when invested is often quickly turned into
long term fixed assets which cannot be readily converted into cash.
 Ploughed back profit: It is the most basic source of funds for a company. Firms
profit by selling a product for more than it cost to produce.
 Borrowings: like individuals, companies can borrow money. This is done
privately through bank loans or publicly through a debt issue.
 Overdraft: Is a form of a loan from a bank. A business becomes overdrawn when
it withdraws more money than is available in the account. This leaves a negative
balance on the account. It is often a cheaper way of raising capital.
 Leasing: A business has the use of an asset but pays a monthly fee for its use and
will never own it. A business looking to purchase equipment may decide to lease
if it wishes to improve its immediate cash flow.
 Issue of shares: A company can generate money by selling part of itself in the
form of shares to investors which is known as equity funding.

4.3 Factors to consider in selecting source of finance of the business.

 Cost of capital: Every source of capital comes with a cost. The cost of getting
capital should not be extremely high. Most businesspeople prefer debt to equity
because its cost is low due to interest tax shield they are not taxed, which lowers
the cost of capital.
 Risk of the business: When choosing a source of finance, one should consider how
much risk the business will face when they acquire that source of capital. That
source of capital should not put the business at a very high risk.
 Control of the business: Owners of the business who do not want to lose the
control of the business would rather finance the business using debt rather than
equity which will dilute the ownership of the business.
  Purpose of the borrowing: If the reason for acquiring the source of finance is to
purchase noncurrent assets, the business would rather use long term sources of
finance to fund acquisition of non-current asset.
 The size, status and ability of the business to borrow: If the business has assets
which it can use as collateral, it can consider borrowing loans from financial
institution.

4.4 Governing policies on Small Scale Enterprises (SSEs) are determined as per
business procedures and strategies
All the state governments provide technical and other support services to businesses through
their directorates of industries. The government accords the highest preference to
development of the small scale enterprises by forming and implementing suitable policies
and promotional schemes. Thus, government play supportive role in developing
entrepreneurs. The following are common areas of support:
 Development and management of industrial estates.
 Suspension/deferment of sales tax.
 Power subsidies.
 Capital investment subsidies for new units set up in a particular area.
 Seed capital/margin money assistance scheme.
 Priority in allotment of power connection, water connection.
 Consultancy and technical support.

4.5 Problems of starting and operating SSEs are explored as per business
procedures and strategies
 Financial constraints: Finance has made it difficult to progress and provide
quality services. Financial institutions find it hard to consider lending loans to
them as they have little assets that could be used as collateral.
 Competition: The low comparative advantage in production of certain goods as
compared to our trading partners. This has restricted entry to the businesses as
production costs may be higher relative to the cheap imported goods.
 Lack of advanced technology: Technology is fundamental and a prerequisite to
higher output levels and reduced production costs. This has made them not to
flourish and participate in regional trading due to low quality output because of
the use of obsolete technology.
 Insecurity: Security poses a great challenge to small scale business owners in
Kenya. Many of the businesses suffer loss due to theft or thug’s invasion who
steal from them which lead to loss in terms of destruction.
 Hawkers: Pose a challenge to small scale businesses because they sell cheaper
and their goods are of high quality. Competing with hawkers on prices is
debatable since hawkers move from one place to another bargaining on price.
Since most of them don’t consider a lot of profit but sale of goods.
 Conclusion
This learning outcome was based on exploring the various forms of business,
identifying sources of business finance, critical factors to consider while selecting
business finance source, determine governing polices for small scale enterprises and
explore challenges for starting and operating SSEs.