BUSINESS ENTERPRISE AND SKILLS NOTES

ENTERPRISE
Enterprise is another name for business.
Enterprise may also means the driving force of business, provided by risk-taking individuals, which combines the other factors of
production into a unit that is capable of producing goods and services.
It provides a managing, decision-making and co-ordinating role.

Enterpriser
 Enterpriser is also called entrepreneur
 Is someone who shows some initiative by taking a risk, by setting up, investing in and running a business with the aim of
making profit.

Enterprising
.this is the use of entrepreneurial skills to combine factors of production into a unit that is capable of producing products or
services.

Initiative- starting new things and makes things happen

Risk – is the chance or probability that things will go wrong
Risk of an enterprise might mean the person making investments loses all his or her money or becomes personally liable for the
debts of the business.

NB “Enterprising people always see the future in the present. Enterprising people always find a way to take advantage of a
situation, not be burdened by it”

ATTRIBUTES OF GOOD ENTERPRISER

Risk taker
 Surrounding yourself with other risk-takers.
 To break out of your comfort zone, and start taking more risks with your business, spend more time with people who
encourage you, not the ones who think you will fail

Perseverance
 A successful entrepreneur knows that failures and rejections are not signs for stopping but instead signs to keep pushing
forward and persevering.
 Begin looking at failures and roadblocks as learning experiences and stepping stones.
 Persevering despite the struggle is one of the most rewarding experiences for entrepreneur.
 Remember that if it were easy, everyone would do it.

Self-Improvement and Always Learning

 Successful entrepreneurs strive to learn more.
 A part of this is realizing that no matter how successful you are or how much you think you might know, there’s always
an opportunity to learn more and work on your personal growth.

Leadership
 Leadership means being decisive and executing on the things that lead to the growth and betterment of your business
 Taking initiative and taking responsibility (and ownership of problems) are two things you can start doing now to work to
develop your leadership skills.
 The entrepreneur has strong communication skills to sell the product and motivate employees.
 Most successful entrepreneurs know how to motivate their employees so the business grows overall.
 A good enterpriser are very good at highlighting the benefits of any situation and coaching others to their success.

Confidence
 The entrepreneur does not ask questions about whether they can succeed or whether they are worthy of success.
 They are confident with the knowledge that they will make their businesses succeed.
 They exude that confidence in everything they do.

Determination
  Entrepreneurs are not thwarted by their defeats.
 They look at defeat as an opportunity for success.
 They are determined to make all of their endeavors succeed, so will try and try again until it does.
 Successful enterpriser does not believe that something cannot be done.

Creativity
 To see what’s out there and to shape it to your advantage.
 You need creativity to look at the world a little differently.
 You need creativity to take a different approach—to be different

Open Minded
 Entrepreneurs realize that every event and situation is a business opportunity.
 Ideas are constantly being generated about workflows and efficiency, people skills and potential new businesses.
 They have the ability to look at everything around them and focus it toward their goals.

Self Starter
 Entrepreneurs know that if something needs to be done, they should start it themselves.
 They set the parameters and make sure that projects follow that path.
 They are proactive, not waiting for someone to give them permission.

Hustle and Tremendous Work Ethic

 Success requires a little bit of grit and hustle.
 Success came from how you built up your personal brand. Get active and use the channels available, to bring awareness
to your brand.

“Go out there and work for it. Don’t be passive or wait for the traffic to come to you. You need to go out there and proactively
market your product and proactively make a name for yourself. Nobody is responsible for your success besides you”

Focus
Successful enterpriser know the importance of focusing and not spreading themselves out too thin or allowing their business to
lose focus from its’ original vision

“Focus on making the best one product instead of making 10 “okay” products

Competitive
 Many companies are formed because an entrepreneur knows that they can do a job better than another.
 They need to win at the sports they play and need to win at the businesses that they create.
 An entrepreneur will highlight their own company’s track record of success.

Strong work ethic

 The successful entrepreneur will often be the first person to arrive at the office and the last one to leave.
 They will come in on their days off to make sure that an outcome meets their expectations.
 Their mind is constantly on their work, whether they are in or out of the workplace.

Passion
 Passion is the most important trait of the successful entrepreneur.
 They genuinely love their work.
 They are willing to put in those extra hours to make the business succeed because there is a joy their business gives which
goes beyond the money.
 The successful entrepreneur will always be reading and researching ways to make the business better.

Courage
To be creative, you need courage to see things differently, courage to go against the crowd, courage to take a different approach,
courage to stand alone if you have to, courage to choose activity over inactivity.
THE ROLE OF ENTERPRISER IN AN ENTERPRISE
There are several roles played by enterpriser in an enterprise and the following are chief among all:-

Conceiving and Initiating:

It is the entrepreneur who conceives the plan of a business. Either alone or with the help of friends he puts it into execution. He
thus gives the business a start.

Scanning the business environment

 Scanning the business or operating environment helps to provide the decision makers with the context within which to
make an informed decision.
 Often in business we look in-wards, we undertake a SWOT analysis and then make a decision based upon that. In reality,
success or failure is more likely to be understood when we know what our competitors are doing, what our customers
want, what is driving our suppliers and what is happening in the environment in which we all operate.

Mobilizing resources
 Having decided which industry to enter, where to start it, what and how much to produce, and how and where to sell, the
entrepreneur must now tackle the practical part of the problem.
 First of all he must make the necessary financial arrangements.
 Then he must buy machinery and get it installed; he must hire labour, and assign them suitable jobs.
 he must buy the raw materials and organise each process of manufacture; and finally, he must make satisfactory arrangements
to market the produce.

Proper allocation of resources

The entrepreneur has to direct production into most profitable channels. He has to supervise every little details so as to ensure
maximum production.

Setting up the business.

when starting a business, it's important to choose the business structure that best suits your needs. Your business structure, also
known as the applicant or entity type, refers to the way you will operate your business. Types of business structures include: Sole
trader: an individual trading on their own.

Control
The enterpriser may have assistants to help him to control the running of the business but he must keep the final control in his own
hands. Being the promoter or initiator and owner of the business he cannot leave his destiny in the hands of anybody else.
Risk taking
The enterpriser has to take consequence of his enterprise. He has to pay all the other factors of production. It may be that he is
rewarded by good profit or it may be that he suffers heavy loss. Whatever the consequences, he must bear them.

BENEFITS OF ENTERPRISING
Rewards.
The benefit of enterprising is in form of profits, business growth, ownership of assets. However not everyone defines reward the
same way. For some it might be seeing a new venture grow and succeed.

Being your own boss.

When you start a business and are self-employed, you are your own boss and ultimately control your own destiny.
Income.
Whether you view starting a business as an economic necessity or a way to make some additional income, you might find it
generates a new source of income.
Flexible hours.
Owning your own business is hard work and often requires long, odd hours. In some cases, having your own business may allow
you to have more flexible hours.
You Choose the People You Work With
When you work for someone else, you rarely get to choose whom you work with. If you don't like your co-workers you'd better
start sending our resumes. That's not the case when you own your own business, since you get to make the decisions about who to
hire or fire.
You Take on the Risk – And Reap the Rewards
There's no question that owning your own business is a risky proposition. But, with risk comes reward. Said another way, the
better you are at managing risk, the more rewards you can reap.
 You Can Challenge Yourself
some people thrive on the routine of their job – performing the same tasks day after day. As an entrepreneur, you can bet that each
day will be filled with new opportunities to challenge yourself, be creative and learn something new.
You Can Follow Your Passion
Many entrepreneurs say the long hours they invest in growing their business doesn't feel like work because they're actually having
fun in what they're doing. "
You Can Get Things Done – Faster
Entrepreneurs as a whole seem to have an allergy to red tape. Rather than wait for approval – or for the guidebook to be written
about how to do something – small business owners salivate at the chance to get things done.
You Can Give Back to Your Community
Many entrepreneurs love the idea that in building their business, they can give back to the community or communities they operate
in the form of the products and services they offer, by donating to charities and especially the ability to create jobs, which is
particularly important these days.

You Feel Pride in Building Something of Your Own

One of the biggest differences in owning your own business as opposed to working for someone else is the sense of pride you
establish in building something of your own.

DISADVANTAGES OF ENTERPRISING
Time commitment.
When someone opens a small business, it’s likely, at least in the beginning, that they will have few employees. This leaves all of
the duties and responsibilities to the owner. Small-business owners report working more than eighty hours a week handling
everything from purchasing to banking to advertising. This time commitment can place a strain on family and friends and add to
the stress of launching a new business venture.
Risk.
Even if the business has been structured to minimize the risk and liability to the owner, risk can’t be completely eliminated. For
instance, if an individual leaves a secure job to follow an entrepreneurial dream and the business fails, this financial setback can be
hard to overcome. Beyond financial risk, entrepreneurs need to consider the risk from product liability, employee disagreements,
and regulatory requirements
Uncertainty.
Even though the business may be successful at the start, external factors such as downturns in the economy, new competitors
entering the marketplace, or shifts in consumer demand may stall the businesses growth. Even entrepreneurs who go through a
comprehensive planning process will never be able to anticipate all of the potential changes in the business environment.
Financial commitment.
Even the smallest of business ventures requires a certain amount of capital to start. For many people starting small businesses,
their initial source of funding is personal savings, investments, or retirement funds. Committing these types of funds to a business
venture makes them unavailable for personal or family needs. In most cases where a small business receives start-up funding
through a loan, the entrepreneur must secure the loan by pledging personal assets, such as a home. Risking the equity in one’s
home is a financial commitment not all entrepreneurs are willing to make.

DRIVERS TOWARDS ENTERPRISING

Government policies
Government policies that encourage entrepreneurship. Government policies and principles are important for entrepreneurship to
succeed in any country. Governments that support entrepreneurs typically develop and implement growth oriented structures that
allow enterprise development. Some people get into business because government is supporting newly established
business with capital.

Demographics and economic changes

By pursuing policies that can help increase entrepreneurship rates, it may be possible to offset the coming declines caused by
aging populations. There's a clear and robust link between the quality of a country's economic policies, its economic performance
and rate of entrepreneurship.

Self- actualisation
is the state that comes when you do what you were put here to do. When you’re on your heart’s path.
If you believe that you were born to be an investor or an entrepreneur, then you probably feel that you’re *driven* to
your own self-actualisation. It’s extremely important but seems like it may be just out of reach.
Self-actualisation is the true road to personal independence and freedom... just like entrepreneurship and
investing is the road to financial independence and freedom.

Community – the community may encourage you to venture into the business by demanding you to supply goods and services
they need.

Enterprising heroes- Some people get into the business simply because they want to be considered pioneers of certain type of
business.

Money.
You can deny it all you want, but the vast majority of entrepreneurs get into the game at least partially because of the potential to
make lots and lots of money. There’s nothing wrong with pursuing money, but if the allure of wealth is the only thing driving you,
you risk becoming frustrated if you don’t turn a profit in the first few years.

Flexibility.
Some entrepreneurs venture out on their own because they’re tired of the demands of traditional work. In a high-level position, the
demands are exceptional -- working long hours, catering to the whims of your bosses and clients, and being stuck in the same old
rut of responsibilities. Being your own boss in the world of entrepreneurship frees you from those restraints. You can work your
own hours, wherever you feel like working, and set your own goals and responsibilities.

3. Control.
The desire for control drives many entrepreneurs who aspire to attain a leadership position. When you’re the boss of your own
organization, you’ll get to call all the shots, from who gets hired and at what salary to what new strategic directions your business
heads down.
.

5. Legacy.
Some entrepreneurs aren’t in it for the money or the experience as much as they’re in it for a lasting legacy. They might want to
become the face of a brand and earn a taste of fame along the way. They might want to leave behind something that appreciates
them. They might even want to pass the business on to a future generation. The point is, they want to create something meaningful
that’s going to outlast them. This motivation is one of the strongest for entrepreneurs, because it can’t be achieved in any other
application, and it lasts a lot longer than money or experience.

BUSINESS ENVIRONMENT
Business environment is a set of external factors that affects the business decisions.

Stakeholders:- people or groups of people who can be affected by, and therefore have an interest in, any action by an organisation
stakeholder concept the view that businesses and their managers have responsibilities to a wide range of groups, not just
shareholders

TYPES OF STAKEHOLDERS
there are two types of stakeholders namely:-

INTERNAL STAKEHOLDERS
The main three internal stakeholders include employees, managers and shareholders or owners of the business, each with their
own set of interests in the business’s activities.
● Employees –employees are interested in employment security, wage levels, conditions of employment, participation in the
business.
● managers – managers are concerned on employment security, salary and benefits offered, responsibilities given.
● shareholders –these are the owners of the business. They are interested on profitability, annual dividends, share price, security
of investment, business growth and increase in wealth.

EXTERNAL STAKEHOLDERS
The external stakeholders and their interests include:
● suppliers –suppliers are concerned on ability of the business to pay its debts, speed of payment, level and regularity of orders,
fairness of treatment.
● customers – interested on value for money, product quality, service level and availability of products.
● government –greatly interested on jobs created by the business, taxes paid, value of output produced, business impact on the
nation at large.
 banks and other creditors – concerned on security of their loans and the ability of the business to repay them.
 Regulatory authorities:- are concerned on compliance to sector specific regulations e.g EMA for environment, ZINWA for
water usage, NASSA for health and safety at workplace.
Community: action groups concerned about the local impact of business activity. Impact on living standards , creation of
employment, availability of goods and services.
 competitors – fairness of competitive practices, strategic plans of the business.
 pressure groups that want to change a business’s policy towards pollution or testing of chemicals on animals.

INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT

Plans and policies

The plans and policies of the firm should be properly framed taking into consideration the objectives and resources of the firm.
Proper plans and policies help the firm to accomplish its objectives.
The higher authority must analyse the internal environment to foresee the changes and frame appropriate policies well in time.
For example: the personnel policy in respect of promotion should be based on merit rather than seniority.
2. Human Resource:
The survival and success of the firm largely depends on the quality of human resources. The social behaviour of the employees
greatly affects the working of the business. The characteristics of human resource like skill, quality, morale, commitment can
contribute to the success of the organisation.

If the employees of the organisation are skillful and committed, it can take the firm to a great height. Neglecting the human
resource by the management can hamper the success of the organisation.

3. Financial Resources:
Capital is the lifeblood of every business. Finance relates to money. A firm needs adequate funds to meet its working capital and
fixed capital requirements. There is a need to have proper management of working capital and fixed capital.
Financial factors like financial policies, financial status (position) and capital structure ‘a/so influence the internal environment of
a firm affecting its performance- If the firm enjoys sufficient financial resource, it can spend on research and promotional
activities.

4. Corporate Image:
A firm should develop, maintain and enhance a good corporate image in the minds of employees, investors, customers etc. Poor
corporate image is a weakness of the firm.

Constant research and development activities should be undertaken by the firm to enhance the quality of the brand. This helps in
creating a corporate image and strengthens the standard of the firm in the market.

5. Plant and Machinery:

Plant and machinery is the internal part of the business firm. If the machines are obsolete or outdated, they should be replaced by a
new one, or that adversely affects the business firm.
 6. Labour and Management Relationship:
There should be smooth labour and management relationship. The management should understand the problems of their workers
and gain confidence in them. The labours should be motivated by providing with monetary and non-monetary incentives
(benefits).
Better Labour- Management relationship helps in increasing the morale of the employees and motivates them to put efforts in the
business. Such strong relationship enhances organisations development.
7. Promoters vision:
The promoter should have far sight vision to forecast opportunities and threats in the business so that the opportunities are
properly grabbed and threats are diffused off in time.

SWOT ANALYSIS
Strengths (internal, positive factors)
Strengths describe the positive attributes, tangible and intangible, internal to your organization. They are within your control.
 What do you do well?
 What internal resources do you have? Think about the following:
o Positive attributes of people, such as knowledge, background, education, credentials, network, reputation, or skills.
o Tangible assets of the company, such as capital, credit, existing customers or distribution channels, patents, or technology.
 What advantages do you have over your competition?
 Do you have strong research and development capabilities? Manufacturing facilities?
 What other positive aspects, internal to your business, add value or offer you a competitive advantage?

Weaknesses (internal, negative factors)

Weaknesses are aspects of your business that detract from the value you offer or place you at a competitive disadvantage. You
need to enhance these areas in order to compete with your best competitor.
 What factors that are within your control detract from your ability to obtain or maintain a competitive edge?
 What areas need improvement to accomplish your objectives or compete with your strongest competitor?
 What does your business lack (for example, expertise or access to skills or technology)?
 Does your business have limited resources?
 Is your business in a poor location?
Opportunities (external, positive factors)
Opportunities are external attractive factors that represent reasons your business is likely to prosper.
 What opportunities exist in your market or the environment that you can benefit from?
 Is the perception of your business positive?
 Has there been recent market growth or have there been other changes in the market the create an opportunity?
 Is the opportunity ongoing, or is there just a window for it? In other words, how critical is your timing?

Threats (external, negative factors)

Threats include external factors beyond your control that could place your strategy, or the business itself, at risk. You have no
control over these, but you may benefit by having contingency plans to address them if they should occur.
 Who are your existing or potential competitors?
 What factors beyond your control could place your business at risk?
 Are there challenges created by an unfavourable trend or development that may lead to deteriorating revenues or profits?
 What situations might threaten your marketing efforts?
 Has there been a significant change in supplier prices or the availability of raw materials?
 What about shifts in consumer behaviour, the economy, or government regulations that could reduce your sales?
 Has a new product or technology been introduced that makes your products, equipment, or services obsolete?

External Environment:
To run the business successfully, it is necessary to understand the environment with in which the business operates. The
environment, which lies outside the organisation, is known as external | environment. External factors are unpredictable and
uncontrollable. They are beyond the control of the company.

In environment there are several factors which constantly bring opportunities and threats to the business firm. It includes social,
economic, technological and political conditions

External environment is further classified as:

I. Micro Environment
II. Macro Environment
I. Micro Environment:
Micro environment is also known as operating environment. It consists’ of company’s immediate environment that affect its
performance. It includes customers, suppliers, intermediaries, competitors etc. The micro environment consist the elements that
directly affects the company.
Micro environment consist of the factors in the company’s immediate environment which affects the performance of the business
unit. These include suppliers, market intermediaries, competitors, customers and the public

1. The customers:
Consumer is the king of the market. They are the centers of the business. They are one of the most important factors in the external
environment. Customer satisfaction has become more challenging due to globalisation.

Nowadays, consumer expectations are high. Therefore the firm must keep in mind the customer’s expectations, their requirements
and accordingly make market decisions. The success of the business depends upon identifying the needs, wants, likes and dislikes
of the customers and meeting with their satisfaction.

.
2. The competitors:
The company has to identify its competitor’s activities. Information must be collected about competitors in respect of their prices,
products, and promotion and distribution strategies. World is becoming a global market.
Business firm has to face tremendous competition not only from zimbabwean business firm but also from foreign firms. To
achieve growth and success they have to monitor various activities of their competitors.
Liberalisation, privatisation and globalisation have promoted competition that has created threats to domestic units. The business
must understand the strategies framed by the competitors to respond in an effective manner.

3. The Suppliers:
Suppliers supply raw material, machines, equipment’s and other supplies. The company has to keep a watch over prices and
quality of materials and machines supplied. It also has to maintain good relations with the suppliers.
It is necessary to have reliable source of supply for the smooth working of the firm. Uncertain supplies compel the firm to
maintain high inventories resulting into increase in the cost. The business should not only rely on the single supplier but also have
relations with multiple suppliers.
4. Society:
Society affects company’s decisions. The expectation of the society from the business is increasing. Therefore the business firm
maintains public relations department to handle complaints, grievances and suggestions from general public. The members of the
society include:
i. Financial institutions
ii. Shareholders
iii. Government
iv. Employees
v. General public

5. Marketing intermediaries:
Market intermediaries include agents and brokers who help the business firm to find the customers. They help the firm to promote
and distribute the goods to the final consumers.
They are the link between the firm and the final customers. Market intermediaries include wholesalers, retailers, advertising firm,
media, transport agencies, banks, financial institutions etc. They assist the company in promoting and targeting its product to the
right market.

II. Macro Environment:

The macro environment consists of the larger societal factors that affect the working of a firm. Macro environment is also known
as general environment. The macro factors are generally uncontrollable.
:
Macro environment create forces that creates opportunities and pose threats to the business unit. It includes economic,
demographic, natural, technological, political, political and cultural environments.”

1. Demographic Environment:
Demographic Environment relates to the human population with reference to its size, education, sex ratio, age, occupation,
income, status etc. Business deals with people so they have to study in detail the various components of demographic
environment.
Demographic environment differs from country to country. Demographic factors like size of the population, age composition,
density of population, rural-urban distribution, family size, income level, status etc. have significant implications on business.
For example: If the population is large, then the demand for goods and services will be more. It will have favourable effect on the
business. In the same way educational level is also an important factor affecting business.

2. Economic Environment:
i. Economic environment consists of economic factors that influence the functioning of a business unit. These factors include
economic system, economic policies, trade cycle, economic resources, gross national product, corporate profits, inflation rate,
employment, balance of payments, interest rates, consumer income etc. Economic environment is dynamic and complex in nature
A business firm closely interacts with economic environment that consist of:
a. Economic conditions in the market i.e. demand and supply factors
b. Economic policies of the government: monetary policy, fiscal policy, industrial policy, trade policy, foreign investment policy
etc.
ii. Economic system prevailing in the country also affects the business growth. Every country has different economic system. The
economic system includes capitalism, socialism, and mixed economy. Business depends upon economic environment for their
inputs and also for market. Changes in the economic factors can adversely affect the working of a business firm.

3. Technological Environment:
Technology has brought about far reaching changes in the methods of production, quality of goods, productivity, and packaging.
There is a constant technological development-taking place.
The business firm must constantly monitor the changes in the technological environment, which may have a considerable impact
on the working of a business. It also indicates the pace of research and development and progress made in introducing modern
technology in production.
Technology provides capital intensive but cost effective alternative to traditional labour-intensive methods. In a competitive
business environment technology is the key to development. Technology helps to run the business better and faster.

4. Cultural Environment:
Culture involves knowledge, values, belief, morals, laws, customs, traditions etc. Culture passes from one generation to another
through institutions like family, schools, and colleges. Business is an integral part of the social system.
Society is largely influenced by the culture and in turn culture influence the business firm. Culture shapes the attitude and
behaviour of the society. Any change in the cultural factor affects the business in large. Business should be organised and
governed, taking into consideration various values and norms of the society.

5. Political Environment:
The political environment in a country influences the legislations and government rules and regulations under which a firm
operates.
Political environment means influence exerted by:
a. Legislature:
This includes parliament, legislative assemblies. They are the law making bodies that frame rules and regulations.
b. Executives:
They include government beurocracy who implements the decision.
c. The Judiciary:
It includes Supreme Court, High Court who sees whether the decisions taken and implemented by the executive are within the
constitutional framework. They are also known as dispute settlement bodies.
Legislature, executives and judiciary are the important pillars of political environment. A stable progressive and healthy political
environment is very necessary for the growth and development of business.
6. Natural Environment:
Resource availability like land, water and mineral is the fundamental factor in the development of business organisation. It
includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc.
Every business unit must look for these factors before choosing the location for their business.
The natural environment largely determines the functioning of a business firm. Natural environment has a great influence on the
working of a business. The business organisation should consider the natural factors before starting their operations.
Natural calamities like flood, drought, cyclone, Tsunami etc. can also affect the business environment.

Resources and capabilities

Resource:- assets that can be drawn on by a person or organization in order to function effectively. In short a resource is a
productive input or competitive asset. Resources can be tangible can tangible such as material, money supply, buildings,
machinery, mineral, farm produce, equipments etc and also resource can be intangible such as patents, brand, trade
mark, skills
Resource can be also defined as …. something which human society attaches value to due to its usefulness.

Resource is an economic or productive factor required to accomplish an activity, or as means to undertake

an enterprise and achieve desired outcome. Three most basic resources are land, labour, and capital; other
resources include energy, entrepreneurship, information, expertise, management, and time.

Capability- Capabilities refer to a company's ability to make use of its resources in a highly productive
manner. Capability can be also defined as the capacity of the firm to perform some internal activity competently.

The difference between resources and capability

The difference between a resource and a capability is that:-

 a resource refers to a company's most strategically important asset, whereas a

capability refers to the basis of a company's competitive advantage over rivals.
 a resource is a competitively relevant internal activity that a firm performs especially
well relative to other internal activities, whereas a capability is a competitively
important activity performed by key strategic allies.
 a resource represents a competitive asset that is owned or controlled by the company,
whereas a capability is a competently performed internal activity that is developed
through the deployment of the company's resources.
 a resource refers to a company's best-executed functional strategy, and a capability
refers to a company's best-executed business strategy.
 a resource usually resides in a company's technology and physical assets (state-of-the-
art plants and equipment, attractive real estate locations, and so on), whereas a
capability usually resides in a company's human capital, information capital, or
organizational capital.

Business constraints
Are the forces that every organization must contend with in order to execute its strategy.
Business constraint
Is anything that interferes with the profitability of a company. Improving profitability requires the removal or reduction of
business constraints. Common business constraints include time, financial concerns, management and regulations, assets
The business constraints can be fiscal limitations, physical limitations (for example, network capacity), time limitations (for
example, completion before significant events such as the next annual meeting), or any other limitation you anticipate as a factor
that affects the achievement of the business goal.

Time Constraints
Time constraints include not only the amount of time required to complete a task, but also the amount of time needed to obtain
supplies, hire employees and drive to meetings. Once identified as a primary constraint, management can take steps to address
time factors and improve business performance. For example, larger supply orders might reduce time constraints imposed by long
wait times. Similarly, allocating office space to meeting rooms might allow more meetings to be held in house, thereby reducing
travel time between clients.
Financial Constraints
Financial factors are often limiting constraints for businesses. They can range from inadequate budget allocations to excessive
salaries or overhead expenditures. For example, if a store does not have the money to buy more inventory, its ability to sell is
constrained. Similarly, if more employees are needed, but the budget cannot accommodate additional salaries, growth is limited.
Corrections for financial constraints are often complicated; however, shifts within the existing budget are often possible in the
absence of increased overall allowance.

Company Policies
Company policies -- either cultural or management-driven -- sometimes act as constraints to growth or profitability. For example,
a policy that establishes a dress code that is too formal for the business climate might contribute to a public perception that the
company is old-fashioned, which can limit growth.
Management and Staffing
As businesses grow and change, their staffing and management needs change, as well. This can constrain business growth and
productivity when employees cannot adapt to new demands or when additional employees are needed but the capitol to pay them
is not yet available. Management needs also change over time and sometimes poor management constrains growth by fostering
low employee morale or allocating resources inappropriately.
Regulations
Regulations sometimes constrain profitability. These can range from governmental restrictions to import and exports to
environmental restrictions regulating the materials used. While regulations must be followed, their impact on growth can often be
mitigated. For example, exceeding environmental restrictions can be used in marketing as a selling feature that can enhance
growth and offset the expense incurred in meeting the initial regulation.

Assets
Assets are anything physical or intangible that you own that contributes to the future cash flow of your business. An example of an
asset related constraint is a slow piece of equipment on a production line. Any asset including property, plant, equipment,
intellectual property or brands can represent a constraint.

Liquid Assets/ working capital

Liquid assets such as cash and investments that are easily turned into cash are a special constraint. Cash is critical to paying
for day to day operating expenses such as wages and rent, electricity etc. If the business run out of it, everything tends to fall
apart.
.
Knowledge
Knowledge is a common constraint that's often underestimated. For example, an organization may try to emulate the products or
services of a top competitor but lack the know-how to achieve the same level of success.
Regulatory Compliance
In some industries, compliance with regulations and laws is a major constraint. Products, services, processes and practices that
don't comply with the law can represent an significant risks to an organization.

BUSINESS RISKS AND OPPORTUNITIES

Risk means that there is a chance that you won’t receive a return on your investment. It is an exposure to danger to your bottom
line. When you are in business, you need to consider the kinds of events that could pose a risk to your business and take steps to
mitigate them.

A business risk is a future possibility that may prevent you from achieving a business goal. The risks facing a typical business are
broad and include things that you can control such as your strategy and things beyond your control such as the global economy.

There is a strong relationship between risk and reward. It's generally impossible to achieve business gains without taking on at
least some risk. Therefore, the purpose of risk management isn't to completely eliminate risk. In most cases, risk management
seeks to optimize the risk-reward ratio within the bounds of the risk tolerance of your business. The following are common types
of business risk.

strategic Business Risk

Strategic risks result directly from operating within a specific industry at a specific time. So shifts in consumer preferences or
emerging technologies that make your product-line obsolete – eight-track, anyone? – or other drastic market forces can put your
company in danger. To counteract strategic risks, you’ll need to put measures in place to constantly solicit feedback so changes
will be detected early.

Legal Compliance Risk

Risks associated with compliance are those subject to legislative or bureaucratic rule and regulations, or those associated with best
practices for investment purposes. These can include employee protection regulations like those imposed by the Occupational
Safety and Health Administration (OSHA), or environmental concerns like those covered by the Environmental Protection Agency
(EPA) or even state and local agencies.
Financial risks
Direct financial risks have to do with how your business handles money. That is, which customers do you extend credit to and for
how long? What is your debt load? Does most of your income come from one or two clients who might not be able to pay?
Financial risks also take into account interest rates and if you do international business, foreign exchange rates.

Internal Operational Risks

Operational risks result from internal failures. That is, your business’s internal processes, people or systems fail unexpectedly.
Therefore, unlike a strategic risk or a financial risk, there is no return on operational risks. Operational risks can also result from
unforeseen external events such as transportation systems breaking down, or a supplier failing to deliver goods.
Reputational and Publicity Risks
Loss of a company’s reputation or community standing might result from product failures, lawsuits or negative publicity.
Reputations take time to build but can be lost in a day.

Competitive Risk
The risk that your competition will gain advantages over you that prevent you from reaching your goals. For example, competitors
that have a fundamentally cheaper cost base or a better product.

Economic Risk: The possibility that conditions in the economy will increase your costs or reduce your sales.

Country Risk: Exposure to the conditions in the countries in which you operate such as political events and the economy.
Quality Risk: The potential that you will fail to meet your quality goals for your products, services and business practices.

Credit Risk: The risk that those who owe you money to fail to pay. For the majority of businesses this is mostly related
to accounts receivable risk.

Exchange Rate Risk: The risk that volatility in foreign exchange rates will impact the value of business transactions and assets.
Many global businesses have high exposure to a basket of currencies that can add volatility to financial results such as operating
margins.
Interest Rate Risk: The risk that changes to interest rates will disrupt your business. For example, interest rates may increase
your cost of capital thus impacting your business model and profitability.
Taxation Risk: The potential for new tax laws or interpretations to result in higher than expected taxation. In some cases, new tax
laws can completely disrupt the business model of an industry.
SETTING UP A NEW ENTERPRISE

Reasons for starting forming businesses:

People start /form businesses for many reasons. These include:
(i) The profit motive – the motivation is to create wealth for themselves and their families.
(ii) Pursuit of hobbies- some pple go into certain forms of economic activities because they are just
passionate about the activity as a pastime.
(iii) Self-sustenance – the motive for going into business is to create wealth that is adequate satisfy needs
such that they don’t not depend on other people including government
(iv) To supplement employment income – some businesses are created because entrepreneurs need to
supplement income which might be inadequate to satisfy needs.
(vi) Belief in a particular cause – some businesses are born out of a strong belief in a particular cause e.g
someone starting a college because they believe so much in education as a form of empowerment
(vii) To satisfy higher level needs e.g esteem and self actualization needs.
(viii) Need for control over their working life
(viv) Need to survive after losing their job
(X) Strategic reasons – businesses form other businesses for strategic reasons e.g forming a transport
business to support the family of businesses with transport services.
(X) Achievement of government objectives: gvts start businesses to achieve support the achievement of
certain objectives in the economy such as employment creation, satisfaction of citizen needs at reasonable
prices, enhance economic growth etc
* For most of these businesses, the above reasons for starting the enterprise are usually summarized in the
organisation `s mission statement.

BUSINESS ORGANISATIONS
Business organization is an entity aimed at carrying on commercial enterprise by providing goods or
services, to meet needs of the customers.

Forms of Business enterprises

Businesses enterprises can be grouped according to its status at law. Thus creating two classes of businesses
i.e
a) Unincorporated businesses
-These are businesses that do not possess a separate legal identity from its owner(s).
The owner(s) bear full liability for any action or inaction of the business (unlimited liability)
Unincorporated enterprises include sole proprietorships & partnerships.
b) Incorporated businesses
-Incorporated businesses have a separate legal existence from their owners.
-They can sue or be sued in their own name (business)
-They have limited liability and examples include parastatals as well as private and public limited
companies.

1. Sole Traders
Is a one man concern business, all business decisions are made by the owner. In most cases the is no
separation of ownership and control of the business. The owner has no legal formalities required by
him to start his business and capital raised is from personal savings and family members leading the
business with no room for expansion.

Advantages
 The owner has freedom of flexibility in decision making.
 Decision making is faster.
 Owner has total control of his business.
 Has personal contacts with customers
 There is personal enjoyment of all profits generated.
 Less hectic since no legal requirements are needed to set up the business.
 There is personal satisfaction of good performance

Disadvantages
 There are limited sources of finance.
 The owner bears the burden of all losses made by the business.
 There is unlimited liability since personal assets are vulnerable to takeover in the event the
business fails to pay creditors.
 There is restricted growth of the business because of lack of finance and management.
 There is limited scope of economies of scale.
 There is lack of continuity of existence.

2. Partnerships
A partnership is a business owned by 2-20 persons who contribute resources into the entity with
the aim of making and sharing profit. The conduct of the partnership business is governed by the
Partnership Deed.

Partnership deed is board of rules and regulations that govern the contact of the partnership business
and its owners. It is also called partnership agreement.

Contents of the Partnership Agreement

  Objectives to make profit
 Amount of capital to be contributed by each partner
 Duties of each partner
 Responsibilities and rights of each partner.
 Interest to be paid on their capital
 Interest on drawings
 Salaries and bonuses paid to each partner managing the business.

Advantages of Partnership
 Management of business is shared amongst the partners.
 More capital is raised which allows for the expansion of the business.
 Wider experience/more skills are brought to the partnership, this allows for some degree of
specialization.
 Decision making is consultative i.e shared so as to reduce the burden on management.
 More ideas and initiative creates greater efficiency.
 There are few legal formalities required to set this form of business.
 Losses are shared by the partners

Disadvantages
 Disputes may lead to the partnership dissolution.
 Consultative decision making delays implementation of ideas.
 There is no continuity of existence of this form of business due to change and even death of
partners.
 Decision made by one partner is binding to all partners this can be costly to the organization.
 Sharing of profits with lazy partners might discourage honest, resourceful and hard workers.
 There is unlimited liability for members.
 Partners can be sued severally.
 Profits generated are shared.

Incorporated businesses

LIMITED COMPANIES
A company is a body corporate or an incorporated business organization registered under
the companies act. It is also called join stock companies
There are two types of companies namely
a) Private limited company pvt (ltd)
b) Public limited company PLC

Characteristics of public companies

 Liability of members is limited
 Capital is raised by selling shares to the external world.
 There is separation of ownership and control of the business.
 The company is a legal person on its own which can sue or be sued on its own rights.
 The day to day activities of the firm is in the hands of the board of directors of the business.
 The board of directors of the business is elected by the shareholders at an annual general
meeting.
 The company prepares the memorandum of association together with the articles of association
and submits them to the registrar of companies for approval.
 The registrar of companies then issues a certificate of incorporation.
a. PRIVATE LIMITED COMPANIES
Characteristics of private companies
 Is formed between 2-50 members.
 It is governed by the companies act.
 Involves complex legal formalities required to set up the business.
  Must be registered through the issue of certificate of incorporation by the registrar of
companies.
 Name of the company ends with PVT LTD.
 The business is a separate legal entity i.e.it exists as a legal person independent of its owners.
 It is owned by shareholders.

CONTROL AND MANAGEMENT

It is controlled and managed by the board of directors elected by shareholders at an annual
general meeting. The managing director is elected from the board of directors

Directors report back to shareholders at least once per year by statements of accounts and
Directors reports. Ordinary shareholders vote at the annual general meeting.
Annual accounts of the private company are not published to the public but are filed with the
registrar of companies for tax purposes.
There is strictness on the transfer of company shares. However the company may or may not
appoint an auditor.

Advantages
 There is enjoyment of limited liability
 Can raise more capital compared to Sole traders and Partnerships
 There is continuity of existence
 Founder members can retain control of the company by holding a majority of its shares.
 Financial affairs are not published.
 There is efficiency in operations.

Disadvantages
 Too many legal formalities are required for set up of the business activity.
 Shares cannot be traded on the Zimbabwean stock of exchange
 Can be expensive to set up
 There is a lot of inefficiency
 Inefficient or not flexible.

PUBLIC LIMITED COMPANIES

Characteristics
Formation
Membership is open to the public; membership is by invitation through a prospectus. It is formed
by at least 2 people and no upper limit.
However governance is done as per the stipulation of the companies act. Promoters of the
company draft and submit to the registrar of companies the prospectus , Articles of Association and
Memorandum of Association.
The registrar of companies having approved the documents will issue a certificate of incorporation.
After the company issue of shares the company is granted a certification of incorperation.

Raising of capital
 It is done through the selling of shares to the general public
 Issuing of debentures to members of the public.
  Loans overdrafts mortgage finance from banks
 Hire purchase and ploughing back of profits.
 Factoring /selling debts to finance houses.
 Leasing of equipment
 Buying of goods on credit for resale.

Control and Management

It is controlled or regulated by the board of directors elected at an Annual General meeting. The
board of directors decides on the company’s policy and also chooses a Managing Director.
Managing Director is in charge of the day to day running of the business.

Registration of Joint Stock Companies

 When a joint stock company is established, certain documents must be submitted to the
registrar of companies.

1. Memorandum of Association
 This governs the firm’s external relationship with other people and organisations and
provides the world at large with certain basic information about the company. It contains
several items:
1. Name of company.
2. Address of the registered office.
3. Objectives clause. This states the type of business in which the company will be
involved in, for example, retailing or building services.
4. Limitation clause. This is a statement that shareholders have limited liability.
5. Capital clause.

2. Articles of Association
 These are rules governing the internal affairs of the company.
 It covers matters such as:
1. Voting rights of shareholders.
2. Election of directors.
3. Buying and selling of shares.
4. Payments of dividends.
5. Detailed procedures to be followed at meetings.

3. Statutory Declaration
 This is a statement that the company has been set up within the regulations of the
companies act. It is sent to the registrar of companies along with the memorandum and
articles of association.

4. Certificate of Incorporation
 This is issued by the registrar of companies and is necessary before the company starts
trading. It is the company’s “birth certificate”.
 A private limited company can start immediately upon receipt of the certificate of
incorporation.

5. Certificate of Trading
 It is also issued by the registrar and must be obtained by a public limited company before
it can start. To obtain this document, the PLC must have raised a minimum amount of
money. This is to ensure that the company will have sufficient funds to trade.
Cooperatives
Features of cooperatives:
 All members can contribute to the running of the business, sharing the workload,
 responsibilities and decision making.
 All members have one vote at important meetings.
 Profits are shared equally among members.
 Shares keep the same value.
Advantages of Cooperatives
 Bulk buying.
 Working together to solve problems and make decisions.
 Good motivation of all members to work hard as they will benefit from shared profits.

Disadvantages of Cooperatives
 Poor management skills unless professional managers are hired.
 Capital shortages because there is no sale of shares to non-members, that is, the general
 public.
 Slow decision making since all members are to be consulted.

Franchises
 A franchise is a business that uses the name, logo and trading systems of an existing
 successful business.
 It is a legal contract between two firms.
 It allows one firm, the franchisee to use name, logo and marketing methods of the other firm, the
franchiser.

Benefits of Opening Franchised Businesses

 Fewer chances of new businesses failing, as established brands and products are used.
 Advice and training offered by the franchiser.
 National advertisements paid for by the franchiser.
 Supplies obtained from established and quality-checked suppliers.
 Franchiser agrees not to open another branch in the local area.
Limitations of Franchised Businesses
 Share of profits or sales revenue has to be paid to the franchiser each year.
 Initial franchise license fee can be expensive.
 Local promotions may still have to be paid for by the franchisee.
 No choice of supplies or suppliers to be used.
 Strict rules, over pricing and layout of outlets reduce owner’s control over his business.

3. Joint Ventures
 Two or more businesses agree to work closely together on a particular project and create
 a separate business division to do so.
 They are not the same as a merger but they can lead to mergers.

Reasons for Joint Ventures

1. Costs and risks of a new business venture are shared. This is a major consideration when
the cost of developing new products is rising rapidly.
2. Different companies might have different strengths and experiences and they therefore fit
well together.
3. They might have their major markets in different countries and they could exploit these
with new products more effectively than if they both decided to go for it on their own.
Drawbacks of Joint Ventures
 Style of management and culture might be so different that the two teams blend well
 together.
 Errors and mistakes might lead to one blaming the other for mistakes.
 The business failure of one of the partners could put the whole project at risk.

Public Corporations
 Are organizations owned by the central or local government
 Have no profit objective Are in the public sector

Advantages
they are managed with social objectives rather than solely with profit objectives
loss making services might still be kept operating if the social benefit is great enough
finance raised mainly from the government

Disadvantages
tendency towards inefficiency due to lack of strict profit targets
subsidies from government can also encourage inefficiencies.
Government may interfere in business decisions for political reasons, e.g. opening a new branch in
a certain area to gain popularity.

Purpose of business enterprise

 Creation of employment to the society
 Provision of goods and services
 Infrastructure development

BUSINESS SIZE AND BUSINESS GROWTH

Businesses vary in size from sole traders to established multinationals. Information on business
size is of importance to both investors and the government.

Measuring the size of business

There are several different ways of measuring and comparing the size of business, however a firm
might appear large by one measure but quite small by another.

a) Number of employees
A firm that employs many staff is likely to be large and one that employs few staff is likely to be
small.
Problems crops up when a large firm employs few people because of highly automated machines
that will be in use.

b) Sales Turnover
Is also often used as a measure of size in business structure especially when comparing firms in
the same industry.
It is less effective when comparing firms in different industries since some might be engaged in
high value production and the other in low value production e.g. jewel production and cleaning
services.
c) Capital employed
This measure the total value of all long term finance used in the business. Generally the larger the
business the greater the value of capital needed for long term investments.
Misleading results are seen when two firms employ the same number of staff but having different
capital equipment needs e.g. Hairdresser and optician (needs diagnostic and sophisticated) machines.

d) Market capitalisation
Is applicable to businesses ‘quoted’ on the stock of exchange (public co.)

Market capitalization = current share price x total number of shares issued. Share prices tend As
share prices tend to change everyday, this form of comparison is not a very stable one eg. A
temporary but sharp drop in the share price of a company could appear to make it much smaller than
this measure would normally suggest.
e) Market share
It is equal to: Total sales of business/Total sales of industry x 100
This is a relative measure, If a firm has a high market share it must be among the leaders in the
industry and comparatively large. However when the size of the total market is small, a high market
share will not indicate a very large firm.

Factors that influence business growth

1. Capital – capital influences access to resources. The availability capital enables the business to
acquire long term assets such as machinery, building that are used for the production of goods and
services. Availability of capital enable the business to acquire enough raw material that are needed
in the ,production of goods to meet available demand.
2. Business structure and Management – how the business is structured, its goals and the
performance of its management team, in particular their ability to make rational decisions about its
operations, will highly impact the success of the business.
3. Competition- competitiveness of the business’s products influence business growth. If the
business is offering competitive products in the market the business will grow. On the other hand if
the business is out competed the business will not grow.

4. Labour – availability labour force with stills and competences required for the productions of
goods and services of the business impact on business growth. If the labour is available the
business produce enough goods to meet demand as a results the business grow.

5. Location – variation in size, scope and buoyancy of demand in local market is likely to affect
growth opportunities.
6. Personal traits- business leader’s characteristics such as behaviour, personal attitude can
certainly have an impact of the growth of the business . the capabilities, including education and
training create higher expectations in some industry sectors.

Growth of Firms
Reasons for growth include:
1. Increased profits. If the main aim of the owner is profit, then expanding the business and
achieving higher sales is one way of becoming more profitable.
2. Increased market share. This will give the business a higher market profile and greater
bargaining power.
3. Increased economies of scale.
4. Increased power and status of the owners.
5. Reduced risks of being a takeover target.
6. Motivation of staff as job security increases.
Internal Growth
Expansion of a business by means of opening new branches, shops and factories. It is
also known as organic growth. This can be quite slow. It avoids the problems of
excessively fast growth, which tend to lead to inadequate capital (overtrading) and
management problems associated with bringing two businesses together.

External Growth
Business expansion achieved by means of merging with or taking over another business
from either the same or different industry.
External growth is often referred to as integration as it involves bringing together two or
more firms.
This form of growth can lead to rapid expansion which might be important in a
competitive and expanding market.

Ways of business growth

 A takeover is when one company acquires another company. The acquired company will
lose its identity completely.

 A merger or integration occurs when two or more firms agree to join their operations
into a single entity.

1. Horizontal Integration
 Is the joining of firms in the same line of business and at the same stage of production,
for example, a bakery merging with another bakery.
Advantages of Horizontal Integration
 Eliminates competition.
 Possible economies of scale.
 Increased power over supplier.
 Similar skills of employees.
 Less likelihood of failure caused by moving into a totally new area.
Disadvantages of Horizontal Integration
 Rationalization may bring bad publicity.
 May lead to monopoly investigation if the combined businesses exceed certain market
share limits.
Effects on Stakeholders
 Consumers now have less choice.
 Monopolies can charge high prices.
 Workers may lose job security due to rationalization.
 High dividends to shareholders due to high profits.

Vertical Integration
 It takes the form of forward integration and backward integration.
. Forward integration
 It is integration with a business in the same industry by a customer of the existing
business.
 It is merging with a business at the next stage of production, for example, manufacturing
firm merges with a retail firm.

Advantages of Forward Integration

1. Business is able to control the promotion and pricing of its own products.
2. Secures outlets for the firm’s products may now exclude competitors’ products.
Disadvantages of Forward Integration
1. The business might lack the necessary experience in that stage.
2. A successful manufacturer does not always make a good retailer.
Effects on Stakeholders
 Workers may have greater job security because their business has a secure outlet.
 Consumers may resent lack of competition in the retail outlet because of the withdrawal
of competitor products.

Backward-Vertical Integration
 Integration with a business in the same industry by a supplier of the existing business.
Advantages of Backward-Vertical Integration
1. The business will control suppliers of raw materials.
2. It encourages joint research and development into the quality of supplies.
3. It gives control over quality, prices and delivery.

Disadvantages of Backward-Vertical Integration

1. Suppliers may become relaxed as a result of having guaranteed customer.
2. The business may lack experience in managing a supplier.
Effects on Stakeholders
 Greater opportunities for career advancement for workers.
 Customers may get improved quality products and innovated products.
 Control of suppliers from competitors reduces competition and limits consumer choice.
Lateral Integration
 Involves the merging of two firms with related goods which do not compete directly with
each other.
 Production techniques or distribution channels may be similar.
 Cadbury and Schweppes is an example since the two firms used similar raw materials and
had similar markets but do not compete with each other directly.

Conglomerate (Diversifying Merger)

 Firms producing unrelated products merging. This is also known as diversification.
 The business is diversified away from its core business.
 It is a combination of two or more corporations engaged in entirely differently business.
 A firm might fear a loss of market share due to greater competition and as a result it may
try to explore near and different opportunities.

Advantages of Conglomerate
1. This spreads risks over more products and markets.
2. A fall suffered by one subsided part can be counterbalanced by stability or even
expansion by another.
Disadvantages of Conglomerate
1. Lack of managerial experience in the acquired business.
2. There could be lack of clear focus and direction since the business is spread across more
than one business line.
3. Cultural clashes may occur.
4. It also increases the overall expenses of the business.

Importance of Small Firms to the Economy

 Employment is created, each one of them will not employ many people but collectively
 they employ a significant proportion of the working population.
 They produce a wide variety of goods, increasing consumer choice.
 Small firms create competition for large ones leading to improved quality, efficiency and
 low prices.
  Small firms widen the tax base for the government.
 Small firms contribute to the national output (GDP).
 Small firms also contribute to exports bringing in the much needed foreign currency.
 They could become the large firms of tomorrow.
 They provide raw material to large firm
 Flexibility of operations. This allows the owner to switch easily from one business to
 another
 Management and control is retained by the owner reducing possible conflicts common
 with large companies between managers and shareholders.
 Personal contact of the owner with workers.
 Low capital is needed to set up small businesses.
 Face fewer legal formalities.
 They are likely to get assistance from the government.

Problems faced with Small Firms
 Problems in raising both short-term and long-term finances due to lack of collateral
 security
 Lack of management expertise. Owner performs all functions.
 Difficulty in finding suitable and reasonably priced premises.
 Marketing risks arising from a limited product range.
 Do not enjoy economies of scale.
 They face stiff competition from large firms
 They lack continuity if the owner dies
 Lack of skilled personnel
 Suffer from heavy taxation from the government
 They lack reasonable premises

Government Assistance for Small Firms

 The government can assist small firms in the following ways
 Providing information, advice and management support through departments and
 agencies. In Zimbabwe, ZIMTRADE and the ministry of small and medium scale
 enterprises.
 Low interests through the small enterprise development corporation (SEDCO).
 Trade exhibitions such as the Zimbabwe International Trade Fair (ZITF) to promote
 exports.
 The government often urges commercial banks to provide low interest loans to small
 businesses. In Zimbabwe the Commercial Bank of Zimbabwe (CBZ) provides
 community banking. Standard Chartered bank limited in 2005 introduced a scheme for
 small enterprises at favorable interest rates.
 Trade attaches (consular officials) based in foreign countries promote goods produced by
 both small and large firms.
 The government should expose small firm to alternative mergers and takeover
 The government should provide training facilities through universities and polytechnic
 colleges
 Provision of reasonable premises such as Glen View 8 home industries and gulf complex

Survival of Small Firms

Small firms survive despite competition from large firms. This due to the following:
1. Joint Ventures – Small firms may agree to do business jointly so as to enjoy
economies of scale.
2. Supporting Role – Small firms supply large firms with components and spares.
3. Specialist Services – Services such as accountancy, legal advice and consultancy
cannot be mass produced. Small firms can supply such services.
4. Personalized Services – The need to give personal attention to customers who
demand unique products best suits small firms. The market is too limited for large
operations. In addition the need to address individual taste can only be served by
small firms.
5. Niche Marketing – Through market segmentation, small firms might discover a gap
that will be exploited to earn greater profits. The size of the market may be too small
for consideration by large firms.

Why Small Firms Remain Small in Size

 Remaining small reduces the business’ overall costs, for example, labour costs and rental
 costs.
 Small firms usually get support from the government in terms of training, subsidies,
 grants, tax holidays etc.
 Market for goods and services might be small, unless the market grows, the firm will
 remain small.
 To avoid the problem of diseconomies of scale as a result of excessive growth.
 The owners of some small firms do not have the necessary management or technical
 skills needed for large businesses.
 Lack of capital.
 To avoid payment of huge taxes to the government.
 To avoid over trading

.
BUSINESS PLANNING
The business plan is a useful and versatile tool. It is a guide that can also be described as the businessman’s best
friend. In today’s global and highly competitive business environment, enterprises, whether large or small, cannot
hope to compete and grow without proper planning.

The Importance of Business Planning

 Business plans and other planning documents are vital to winning agreement and support.Writing a strong,
clear proposition can mean the difference between a project going ahead or surviving or not. Developing a
business plan requires a lot of time and energy, but it’s invaluable for one primary reason - it forces you to
come to terms with your
 business idea.
 Think about what sets your business apart before approaching potential investors and lenders. Develop a
fallback plan and consider other options and contingencies. Decide what your basic business strategy is,
whether to develop a solid customer base, go for growth or seek to constantly re-shape the business to attract
new customers chasing new
 products or ways of selling; then try to decide what this will take, whether it plays to your strengths and what
resources will be required, especially those you don’t already have.
 Growth-based strategies require the group to be experts on the market, on industry features and the products
and services being sought by customers. You can’t rely on other people to do it since it’s this knowledge that
can make or break a business.
 Once in business, key personnel can be overwhelmed by the day-to-day demands of managing. Yet there are
many strategic decisions that have to be made as well. Periodic business planning and review can help to
avoid sudden crises in the business, expensive problems developing, and under-performance at critical times
or over long periods that
 will kill the business.

When do you do Business Planning?

Business planning obviously takes place in a variety of ways and for a variety of reasons.
Businesses generally plan when they find themselves in the following situations:
 Starting a new business or activity or launching a new product.
 Developing new strategies to defend an existing market position.
 When attempting to grow the business or maintain growth rates in changing situations.
 Fighting back against new competitors or adverse market conditions.
 Regular review of activities and forward-planning.
 Risk and contingency planning to cope with unforeseen eventualities.
 Preparing things likely to occur in the short-term: a recession, take-over or campaign by a
 competitor.
 Coping with other events.

The Business Plan

Business planning can be a highly beneficial exercise for the entrepreneur. In order to derive the desired benefits from
business planning it is important to take full ownership of the process, and make it your own from beginning to end.
While this does not mean that you should not seek professional advice when needed, you should be careful, not to
commit the common mistake of asking others to write the plan for you or being influenced by unqualified opinions
even if well intentioned.

Who Writes the Business Plan?

 The chief executive, manager or a small executive group of the business’ management group should take overall
responsibility. In some businesses smaller units will need to write their own development or business plans, in which
case the chief executive will delegate responsibility to the service team while shaping its overall approach and
conclusions.
 The best approach is top down, bottom up, where the management group decides the strategy, the manager develops
the plan in line with that strategy and the whole process is reviewed, changed, corrected and improved, then re-
approved.
 The key will be in how well ideas, strategies and proposals are communicated. A joint effort combining the strategic
with the operational and between management and operational personnel, is a good way to get cooperation,
understanding and commitment.
 There is no point to planning if the people charged with implementation have no confidence in the plan, do not
understand it or have different priorities, leading them to implement the plan in the wrong way. This means planning
should involve everybody who will be involved in implementation, even if it’s only to hear objections which can be
incorporated before the final version is produced. It should be your plan. If you do use outside experts, look for
someone who understands your business, your abilities, the resources available to it, its aims and operating
environment.

The Process of Business Planning

 Business planning begins by deciding what you are trying to achieve and the outcomes you are seeking or the
problems you are trying to solve. Having identified these, planning proceeds by a series of steps, as follows:
 Describe your business activities or plans.
 Outline the current status of the business or its planned activity in Year 1.
 Describe the external market, any competition and where you place yourself in the market.
  Decide the objectives of the plan over a given period of time.
  Develop strategies for achieving these objectives.
  Identify risks and opportunities of various strategies.
  Develop coping strategies that limit risks and exploit opportunities.
  Develop a series of working plans.
  Calculate costs and income as part of an overall financial plan.
  Ensure the strategy is set down clearly and concisely.
 Be flexible. Particularly when estimating likely risks and opportunities you may be forced to go ’back to
the drawing board’, selecting different strategies that might be less good but contain fewer risks.
 The planning process and writing a business plan are almost the same thing. Document your plans and
the planning process will have written most of the business plan for you.

The Business Plan Format

 In reality there is no standard format for the presentation of a good business plan. Business plans vary in content and
size according to the nature and size of the business concerned and on the emphasis that is placed on certain critical
areas as opposed to others.

Useful Points
 Table 2.1 lists the important elements of a business plan and offers some simple points that need to be taken into
consideration in regard to each section. It is worth noting that these points are by no means exhaustive and are meant
to serve only as examples. The table is intended to provide you with a simple framework/format upon which to base
your business plan.

A Simple Format
 The format provides you with a framework for presenting your thoughts, ideas and strategies in a logical, consistent
and coherent manner. In other words the business plan format helps you to clarify your own ideas and present them
clearly to others.

Table 2.1 – Essential Contents of a Business Plan

Contents Useful Points
1. Executive Summary
This section is a brief overview of the whole Business Plan.
 Highlight the attractions of your business.
 Show that your plan is well researched with figures to back up your forecasts.
 Demonstrate your management ability.
 Show that your product has a market.

2. Enterprise Description
It is important that you demonstrate a clear understanding of the business you
would like to be in. You should also explain your business
concept and the reasons why you think it will be a success.
 Provide an overview of your business idea.
 State why you chose to go into this particular business.
 Show any personal skills and/or experience that will help you in your business.
 State why you believe the business will be a success.
3. Product or Service Description
This section helps you to think about your product or service which reflects
on your ability to understand and cater for your clients’ expectations.
 Describe your range of products or services.
 Mention plans for new additions to your range.
 Speak about innovative ideas.
 What value would the clients place on your products?
 What will your clients expect from your product?
 Example: Quality, Design, Reliability, Innovation, Reasonable Price, Customer Care.

4. Industry Analysis
This section helps you to understand the industrial environment you intend to be working in and through it you can
identify important changes that are likely to take place in your market.
 How big is your sector?
 How many companies operate this
 sector?
 What are the general trends?
 How is your industry changing?
 How will these changes affect you?
 Are you aware of legislation and/or regulations that could affect your business?
 Have you thought about any other changes – political, economic or technological – that could affect your
business?

5. Competition Analysis
In order to compete successfully in any business you need to know your competitors. It is useful to study how and why
they achieve success. Also you need to be aware of their failures to avoid committing the same errors.
 Who are your competitors (local and foreign)?
 What are their strengths and weaknesses?
 How can you be different?
 How can you become more
 competitive?

6. SWOT Analysis
S = Strengths
W = Weaknesses
O = Opportunities
T = Threats
This section enables you to look closely at the internal strengths and weaknesses of your business, and to identify
external threats and potential opportunities.

 Internal
What are your strengths?
What are your weaknesses?
 External
What are the opportunities?
What are the threats?

7. Marketing Sub-Plan
It is no use having the greatest product in the world if you cannot sell it. This section focuses on your potential
customers and allows you to see whether your products can satisfy their needs.
 Is the market Static, Growing or Declining?
 What market segment/s do you wish to operate in?
  Who are your target clients?
 Do you have niche or mass market products?
 What is your pricing policy?
 How do you compare with the competition?
 How do you intend to sell your product?
 Where do you intend to sell your product?
8. Operations Sub-Plan
This section helps you to look at your internal operations in detail to see if your business can be run efficiently
and effectively. It draws attention to your team and allows you to develop strategies for good and effective
management.
 How strong are your management systems?
  general management
  marketing management
  financial management
 How will you ensure an efficient production system?
 Have you thought about quality certification?
 How important are health & safety standards for your product?
 Do you intend to invest in product development?
 Will you invest in new or second hand equipment?
 Has consideration been given to where the equipment was manufactured?

10. THE BUDGET

The budget provides the financial planning detail for every aspect of the business, for example, employee costs, rent,
IT investments, machinery costs, sales value, direct material costs, shipping and freight charges, etc. The
ultimate target that should result from the budget is the budgeted net profit. It is a key tool for operating the business,
and by facilitating comparison of actual performance versus budgeted performance, it highlights the operating
variances to management. The budgeted net profit, after taxation, when expressed as a percentage of the net
investment in the business, give the Return On Investment – ROI – the single most important piece of
 financial data and the reason for being in business in the first place
 How will you go about setting up the budget?
 How often will you review actual performance against budget?
 How will you carry out the task of looking into the reasons for the variances and taking corrective action?
 On what basis will you set the ROI that you wish the business to give you?

11. Liquidity
Liquidity is fundamental to every business in relation to being able to trade and meet obligations.
Management monitors the risks in liquidity by tracking cash movements with a Cash Flow Forecast ensuring
adequate cash or facilities to raise money to carry out the business.
 How will you keep control of your
 cash flow?
 How will you finance the changes you
 may need to make in your business?

12. Financial Sub-Plan

Business is all about the management of products, services and money. To enable management to do their job, the
tool they need is management information. Information relating to business performance is transmitted via
management accounts. These are therefore a very powerful and essential reporting mechanism requiring high
priority attention. Successful businessmen understand how money works but need to have the information
to support the decision making.
 Keep management accounts and produce them with regular frequency.
 Will you provide the resource to develop the contents of the management accounts to provide\
quality information, both within the business and with external information
that would best assist and support management to do their job efficiently?
ENTERPRISE FINANCE AND SECURING INVESTORS

NEEDS FOR FINANCE

 Setting up a business will require start-up capital of cash injections from the owner(s) to purchase
essential
capital equipment and, possibly, premises.
 Businesses need to finance their working capital – the day-to-day finance needed to pay bills and
expenses and to build up stocks.
 Business expansion needs finance to increase the capital assets held by the firm – and, often,
expansion will involve higher working capital needs.
 Expansion can be achieved by taking over other businesses. Finance is then needed to buy out the
owners of the other firm.
 Special situations will often lead to a need for greater finance. A decline in sales, possibly as a result
of economic recession, could lead to cash needs to keep the business stable; or a large customer could
fail to pay for goods, and finance is quickly needed to pay for essential expenses.
 Apart from purchasing fixed assets, finance is often used to pay for research and development into
new products or to invest in new marketing strategies, such as opening up overseas markets.

SOURCES OF FINANCE
It is useful to classify these into:
a) internal
b) External

Internal money raised from the business’s own assets or from profits left in the business (ploughed-back or
retained profits)

External money raised from sources outside the business. Loans, high purchase, leasing, sale of share, issue
of debentures.

Internal sources of finance

Retained profit- this refers to net profit that remain after paying tax and dividends. If any profit remains, it is
kept in the business and this retained profit t becomes a source of finance for future activities.

Sale of assets
Established companies often find that they have assets that are no longer fully employed. These could be
sold to raise cash. In addition, some businesses will sell assets that they still intend to use, but which they do
not need to own. In these cases, the assets might be sold to a leasing specialist and leased back by the
company.

Please note:- Internal sources of finance – This type of capital has no direct cost to the business, although
there may be an opportunity cost and if assets are leased back after being sold, there will be leasing charges.
Internal finance does not increase the liabilities or debts of the business. There is no risk of loss of control by
the original owners as no shares are sold.
EXTERNAL SOURCES OF FINANCE
Short-term finance
There are three main sources of short-term external
finance:
● bank overdrafts
● trade credit
● debt factoring.

Bank overdrafts
A bank overdraft is the most ‘flexible’ of all sources of finance. The amount of finance can vary from day to
day, depending on the needs of the business. The bank allows the business to ‘overdraw’ on its account at
the bank by writing cheques to a greater value than the balance in the account.

Trade credit
By delaying the payment of bills for goods or services received, a business is, in effect, obtaining finance. Its
suppliers, or creditors, are providing goods and services without receiving immediate payment. The
downside to these periods of credit is that they are not ‘free’ – discounts for quick payment and supplier
confidence are often lost if the business takes too long to pay its suppliers.

Debt factoring
When a business sells goods on credit, it creates a debtor. The longer the time allowed to this debtor to pay,
the more finance the business has to find to carry on trading. One option is to sell these claims on debtors to
a debt factor. In this way immediate cash is obtained but not for the full amount of the debt. This is because
the debt-factoring company’s profits are made by discounting the debts and not paying their full value.
When full payment is received from the original customer, the debt factor makes a profit. Smaller firms who
sell goods on hire purchase often sell the debt to credit-loan firms, so that the credit agreement is never with
the firm but with the specialist provider

MEDIUM-TERM FINANCE
There are two main sources of medium-term external finance:
● hire purchase and leasing
● medium-term bank loan.

Hire purchase and leasing

These methods are often used to obtain fixed assets with a medium life span – one to five years. Hire
purchase is a form of credit for purchasing an asset over a period of time. This avoids making a large initial
cash payment to buy the asset.

Leasing
involves a contract with a leasing or finance company to acquire, but not necessarily to purchase, assets over
the medium term. A periodic payment is made over the life of the agreement, but the business does not have
to purchase the asset at the end. This agreement allows the firms to avoid cash purchase of the asset. The
risk of using unreliable or outdated equipment is reduced as the leasing company will repair and update the
asset as part of the agreement.

LONG-TERM FINANCE
The two main choices here are debt or equity finance. Debt finance increases the liabilities of a company.
Debt
finance can be raised in two main ways:
● long-term loans from banks
● debentures (also known as loan stock or corporate
bonds).

FINANCE FOR SOLE TRADERS AND PARTNERSHIPS

Unincorporated businesses – sole traders and partnerships– cannot raise finance from the sale of shares and
are most unlikely to be successful in selling debentures as they are likely to be relatively unknown firms.
Owners of these businesses will have access to bank overdrafts, loans and credit from suppliers. They may
borrow from family and friends, use the savings and profits made by the owners and, if a sole trader wishes
to do this, take on partners to inject further capital.
An owner or partner in an unincorporated business runs the risk of losing all property owned if the firm fails.
Lenders are often reluctant to lend to smaller businesses, which is what sole traders and partnerships tend to
be, unless the owners give personal guarantees, supported by their own assets, should the business fail.
Grants are available to small and newly formed businesses as part of most governments’ assistance to small
businesses.

FINANCIAL STATEMENTS
Financial statement are end of year statements prepared by the business to measure performance and
financial position of the business. The financial statements are made up of: -
 Income statement
 Statement of financial position

Importance of keeping accurate accounting information

 Accounting information provide information for decision making.
 Accurate accounting information enable the business to see if they are making a profit or a loss;
 what the entity is worth;
 what a transaction was worth to them;
 how much cash they have;
 how wealthy they are;
 how much they are owed;
 how much they owe;
 enough information so that they can keep a financial check on the things they do.


Income statement
It prepared to calculate profit or loss made during the period. Income statement is prepared using incomes
and expenses

Incomes: these are gains earned by the business from ordinary business activities e.g sales, interest received,
commission earned
Expenses – these are cost incurred in running day to day business activities e.g salaries, wages , rent,
electricity, insurance etc
Layout of income statement

Income statement for the year ended 31 December 2018

Sales 100000
Less cost of sales
Opening stock 20000
Purchases 70000
90000
Less closing stock 30000
60000
Gross profit 40000
Expenses
Rent 1000
Salaries 4000
Electricity 3000
Sundry expenses 2000
10000
Net profit 30000

Please note:
If incomes are more than expanse we get a profit.
If incomes are less than expenses we get net loss.

Statement of financial position

Is a statement that shows the list of assets owned by the business and liabilities owed by the business at a
given date.

The difference between the assets and liabilities is called capital or net assets. It represents the owner’s
investments in the business. It is also called the net worth of the business.

CAPITAL = ASSETS – LIABILITIES.

Please note: the value of business is measured by net assets of the business.

Components of the statement of financial position.

Non current assets
Non-current assets are assets that:
1. were not bought primarily to be sold; but
2. are to be used in the business; and
3. are expected to be of use to the business for a long time.

Examples of non current assets are:- land and buildings, furniture, plant and machinery, shop fixtures,
equipment, vehicles

Current assets
Current assets are assets that are likely to change in the short term and certainly within twelve months of the
date of the statement of financial position. They include items held for resale at a profit, accounts
receivable, cash in the bank, and cash in hand.

Liabilities
These are obligations to third parties:
There are two types of liabilities that are non current liabilities and current liabilities

Non current liabilities

Non-current liabilities are items that have to be paid more than a year after the date of the statement
of financial position. Examples: bank loans, loans from other businesses.

Current liabilities
Current liabilities are items that have to be paid within a year of the date of the statement of financial
position.
Examples: bank overdrafts, accounts payable resulting from the purchase on time of goods for resale.

Cash budgeting

The managers of most businesses will prepare a cash budget. A cash budget shows estimates of future cash
income and expenditure. It is usually prepared monthly and include both capital and revenue transactions.

Purpose of cash budget

Cash budget it is drawn up to help the management be aware of any potential shortages or surpluses of cash
resources that could occur thus allowing management to make necessary financial arrangements.

It is important to note that:-

1. Availability of cash is important or short term survival of all businesses, without it, resources
required for the business to function cannot be a acquired.
2. On the other hand holding excessive cash will results in a less profitable business since cash held
does not in itself yield profit.

Therefore preparation of cash budget:-

 Help to ensure that there is always sufficient cash surpluses to allow the normal activities of the
business to take place.
 Will highlight times when the business will have cash surpluses, thus allowing the management
time to arrange short term investments of these surpluses in order to gain maximum return.
 Will highlight times when the business might have deficits thus allowing management to arrange
short term alternative sources of finance.

Preparing cash budget

Cash budget is has three parts that are:-
Part 1: Cash receipts
Part 2 : Expenditure
Part 3 : Summary of cash flow
Cash receipts: are transaction that bring in cash into the business E.G. cash sales, receipt from customers,
sale of assets, cash from loan, cash capital from the owners, cash from issue of shares,

Expenditure: these are payment. It include payments of wages and salaries, rent, electricity, insurance,
rates, stationery, purchases of goods by cash, buying of non current assets such as plant and machinery,
furniture, motor vans etc.

WORKING CAPITAL MANAGEMENT

Working capital management is the management of all aspects of both

current assets and current liabilities, to minimise the risk of insolvency while
maximising the return on assets

working capital: the capital needed to pay for raw materials, day-to-day running costs and credit offered to
customers.
In accounting terms: making capital = current assets − current liabilities
Working capital is often described as the ‘lifeblood’ of a business. All businesses need finance to pay for
everyday
expenses such as wages and the purchase of stock Without sufficient working capital a business will
be illiquid – unable to pay its immediate or short-term debts. Either the business raises finance quickly –
such as
a bank loan – or it may be forced into ‘liquidation’ by its creditors, the firms it owes money to.

Liquidity: the ability of a firm to be able to pay its short-term debts.

.
Elements of working capital
1. Current assets
2. Current liabilities

WORKING CAPITAL CYCLE

The period of time between spending cash on the production process and receiving cash payments from
customers.

Importance of working capital management

  Ensure current assets are sufficiently liquid to minimise the risk of insolvency
 Maximising the return on capital employed. Hence minimising investment in working capital

WAYS OF MANAGING WORKING CAPITAL

Method to increase cash inflow.

METHOD TO REDUCE CASH HOW IT WORKS POSSIBLE BACKDRAW

INFLOW
Overdraft Flexible loans can be arranged on  Interest rates can be high –
which the business can draw as there may be an overdraft
necessary up to an agreed limit arrangement fee.
 Overdrafts can be withdrawn
by the bank and this often
causes insolvency.

Short-term loan A fixed amount can be borrowed  The interest costs have to be
for an agreed length of time paid.
 The loan must be repaid by the
due date.

Sale of assets Cash receipts can be obtained  Selling assets quickly can
from result in low price.
selling off redundant assets, which  The assets might be required at
will boost cash inflow. a later date for expansion.
 The assets could have been
used as collateral for future
loans.

Sale and lease Sale and leaseback Assets can be  The leasing costs add to
sold, e.g. to a finance company, annual overheads.
but the asset  There could be loss of
can be leased back from the new potential profit if the asset
owner rises in price.
 The assets could have been
used as collateral for future
loans.

Reduce credit terms to Cash flow can be brought forward  Customers may purchase
Customers by reducing credit terms from, products from firms that offer
say, extended credit terms.
two months to one month
Debt factoring Debt factoring companies can buy the  Only about 90–95% of the
customers’ bills from a business debt will now be paid by the
and offer immediate debt factoring company – this
cash – this reduces the risk of bad reduces profit. The customer
debts too. has the debt collected by the
finance company – this could
suggest that the business is in
trouble
.

Methods o reduce cash outflow

METHOD TO REDUCE CASH HOW IT WORKS POSSIBLE BACKDRAW
OUTFLOW
Delay payments to suppliers Cash outflows will fall in the short  Suppliers may reduce any
(creditors) . term if bills are paid after, say, discount offered with the
three months instead purchase.
of two months.  Suppliers can either demand
cash on delivery or refuse to
supply at all if they believe the
risk of not being paid is too
great.

Delay spending on capital By not buying equipment, vehicles  The business may become less
equipment and so efficient if outdated and in
on, cash will not have to be paid to efficient equipment is not
suppliers. replaced.
 Expansion becomes very diff
cult
Use leasing not outright purchase The leasing company owns the  The asset is not owned by the
of capital asset and no large cash outlay is business. Leasing charges
Equipment required. include an interest cost and
add to annual overheads.

 Cut overhead spending that  affect output, e.g. promotion  Future demand may be
does not directly costs reduced by failing to promote
 These costs will not reduce the products effectively
production
capacity and cash payments will
be reduced

Financial institutions

What are financial institutions

Explain the functions of the following
a) Building societies [5]
b) Commercial banks [5]
c) Merchant banks [5]
d) Finance houses [5]
e) Discounting houses [5]
f) People’s serving bank [5]

Explain the role of the central bank in the economy of the country of your choice [20]

BUSINESS COST
Types of costs.
Fixed costs – these remain fixed no matter what the level of output, Fixed cost are also called period costs
as they are time based e.g rent of factory, supervisor’s salary etc

Variable costs – these vary as output changes. Variable cost vary in direct proportion to level of activities.
E.g the direct cost of materials, direct labour.
Direct cost- are those expenses which can be traced directly to the product being manufactured. E.g direct
material, direct labour, royalties etc. direct cost is also called prime cost
Direct cost = direct material +direct expenses+ direct labour

Indirect cost – are also called factory overheads. The cost are not directly attributable to unit of production.
Indirect cost ca e also defined as items of expenditure that connot easily be identified with a specific
saleable cost unit e.g Rent for factory.

Marginal costs – these are the additional variable costs of producing one more unit of output.

BUDGETING
Budgeting known as financial planning. Budgeting is the processing of making a detailed financial plan for
a future period of time.
A budget is a detailed, financial plan for a future time period.

Importance of budgeting

 Planning – the budgetary process makes managers consider future plans carefully so that realistic
targets can be set.
 Effective allocation of resources – budgets can be an effective way of making sure that the business
does not spend more resources than it has access to. There will be priorities to discuss and to agree on
since what can be done is always likely to be greater than resources will permit.
 Setting targets to be achieved – most people work better if they have a realisable target at which to
aim. This motivation will be greater if the budget holder or the cost- and profit-centre manager has
been given some delegated accountability for setting and reaching budget levels. These then become
delegated budgets.
 Co-ordination – discussion about the allocation of resources to different departments and divisions
requires co-ordination between these departments. Once budgets have been agreed, people will have
to work effectively together if targets set are to be achieved.
 Monitoring and controlling – plans cannot be ignored once in place. There is a need to check
regularly that the objective is still within reach. All kinds of conditions may change and businesses
cannot afford to assume that everything is fine.
 Modifying – if there is evidence to suggest that the objective cannot be reached and that the budget is
unrealistic, then either the plan or the way of working towards it must be changed.