LECTURES 3

THE ENTERPRISE ENVIRONMENT

Introduction
The entrepreneur must be familiar with the business environment and
its opportunities and threats
This is of primary importance for the growth and continued existence of
the enterprise.
The impact of the business environment on an enterprise plays a
significant role into the success or failure of the enterprise.
For this reason, the entrepreneur should study the business
environment thoroughly as, without such knowledge, it is impossible for
the management of an enterprise to achieve its pre-determined
objectives.
The Business Environment
The business environment is usually divided into three components namely;
Micro-environments,
Meso-environments and
Macro-environments
Each of these three components of the business environment has a variety of
variables which influence the enterprise positively or negatively.

A. The Micro-environment
This is the enterprise itself.
We distinguish between the following variables in this environment:
Mission and objectives of the enterprise
Functions of the enterprise
Production factors
B. The Meso environment
This surrounds the enterprise and is part of the external environment.
The main variables in the environment are:
The consumer and his or her needs
Competitors
Suppliers of resources and services without which the enterprise would not
be able to manufacture and market in products and/or provide services.
C.

The Macro-environment
Economic conditions
Social and cultural forces
Technological changes
Physical variables such as limited and expensive resources and the
influence of environmentalism
Political and statutory variables.
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 International forces.
Characteristics of the Business Environment
The following are characteristics of the business environment:
The business environment changes constantly:
Factors which influence the enterprise today will not necessarily have the
same influence tomorrow.
The enterprise must be in step with the changing environment:
Environmental issues must be taken care in any business undertaking.
There are other opportunities and threats in the business environment:
New opportunities and threats must be considered
The establishment, growth and continued existence of the enterprise
are directly influenced by the business environment
The business environment influences the future of the enterprise

FORMS OF BUSINESS OWNERSHIP

Introduction
Basic Business Structures
o Sole proprietorship
o Partnership and
o Limited company
A. Sole proprietorship
o One person ownership
Advantages

Easiest and least expensive

Total control

The owner receives all income/profit

Easy to dissolve.
Disadvantages

Unlimited liability, legally responsible for all debts against the

business

Business and personal assets are at risk

Difficulty in raising funds

Difficult to attract high caliber employees/investors

Some employees benefits such as medical insurance are not deducted

from business income

B. Partnership
o
o
o
o
o
o
o
o
o
o

Two or more people share ownership of a single business

The law does not distinguish between owners and the business
Partners must have a legal agreement on;
Decision making
Profits sharing
Disputes resolution
Future partners
Buying out partners
Dissolution
Time and capital from each other
Advantages
Relatively easy to establish
More ability to raise funds
Employees may be attracted to the business if given incentives to
become partners
Complementary skills
Disadvantages

Joint and individual liability for the actions of the other partners
Profit sharing
Occurrence of disagreements
Some employees benefits such as medical insurance are not deducted
from business income
Death due to withdrawal or death of a partner
Types of partnerships

1. General partnership
o Partners divide responsibility for management, liability and profit/loss
according to their agreement
o Equal shares are assumed unless there is a written agreement that state
differently
2. Limited partnership with limited liability
o Limited liability and inputs regarding management decisions
o More complex and formal than general partnership
3. Joint venture
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o Like general partnership, but is for limited period of time or a single

project
o If the partners in JV repeats the activity, they will be recognized as an
ongoing partnership and will have to file as such and distribute
accumulated partnership assets upon dissolution of the entity
C. Limited liability company
o Unique entity, apart from those who own it
o A company can be taxed, sued, and can enter into contractual
agreements
o Owners are shareholders
o Shareholders elect a board of directors to oversee the major policies and
decisions
o The company has a life of its own and does not dissolve when ownership
changes
Advantages
o Shareholders have limited liability for the companys debts or judgments
against the company
o Shareholders can only be held accountable for their investments in
stock/shares of the company
o Staff can be held personally liable for their actions, such as failure to
withhold and pay employment taxes
o Easier to raise funds through sale of shares
o Easier to attract new employees due to job security
o A company may deduct the cost of benefit it provides to officers and
employees
Disadvantages
o The process of incorporation requires more time and money than other
forms of organization.
o More paperwork is needed, to comply with regulations
o The process of incorporation may result into higher taxes
o Dividends paid to shareholders are not deductable from business
income; thus it can be taxed twice
LICENSING AND REGISTRATION OF A COMPANY
o See business registration and licensing agency of Tanzania (BRELA):
o COMPANIES ACT, 2002
According to the companies Act, 2002 of Tanzania, there are four main
types of companies as follows;
o Private companies
o Non-private (public) companies
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o Foreign companies (incorporated outside Tanzania)

o Parastatal (state owned) companies
A. Private companies
o Formed by persons with prior relationships other than only business
relationship e.g. Father and Sons and/or Daughters
o Minimum number of membership is 2 and maximum is 50, by virtue of
being employees
o Shares are not freely transmissible. May not necessarily be listed in the
Stock Exchange
o Are supposed to submit annual returns and any other statutory filable
documents to the registrar
B. Public companies
o Open ended (no restrictions on the maximum number of members), while
the minimum number is seven.
o Any person may subscribe and buy shares in the company, which may
be listed in the Stock Market and Traded in Shares
o A private company may be converted to Publi company by amending its
articles of association, increasing the minimum number of shareholders
and issuing a prospectus
C. Foreign companies
o Their offices in Tanzania are treated as branches of foreign companies,
even if all subscribers and/or shareholders are nationals of Tanzania
D. Parastatal companies
o These are normally private companies which have more than 50% stake
in the government
ORGANIZING AND MANAGING A TECHNO-BASE ENTEPRISE
Designing an organogram
The Organization and Management (O&M) study aims at drawing up an
effective organization and management plan to achieve the entrepreneurs
objectives.
The O&M study generally encompasses the following aspects:
a)
b)
c)
d)
e)

form of organization*
organogram (organizational structure)
staffing pattern
pre-operating activities
schedule of pre-operating activities
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f) pre-operating costs
Form of Origination
o The choice of organization depends on the objectives and capabilities of
the entrepreneur, such as his managerial and technical expertise, size of
investment, desire for financial and management control, ability to
attract financing, protection of confidential information.
o It also depends on the entrepreneurs view of the liabilities associated
with each type of organization.
Organizational Structure (Organogram)
This consists of the following elements:
a) identification of the major and key activities to be done to meet project
objectives
b) grouping of these activities into related functions
c) assigning of various functions to specific positions
d) determination of relationships of the various activities to achieve coordination and unity of effort
e) fixing of responsibility and authority for each task
To illustrate the organizational structure, an organization chart is drawn
showing the chain of command, relationship and positions.
Owner-Manager

ADMINISTRATION

Personnel

FINANCE

Treasurer

MARKETING

PRODUCTION

Marketing Manager

Production Manager

Bookkeeper

Supervisor

Collector

Foreman

Supervisor

Salesmen

Workers

Staffing Pattern
o This indicates the personnel requirement (skills required and number of
personnel) by function (marketing, production, administration, finance)
and an estimate of compensation.

o The personnel requirement in terms of the position titles, necessary

qualification, and number of personnel for each position can be based on
the study of the organizational structure.
o It is common in small-scale industries that one man holds dual
positions, or in the case of the entrepreneur multiple roles as General
Manager, Marketing Manager and Production Manager.
Pre-operating activities
o Before the business can start actual operation, there are many
preparatory steps that have to be taken.
o The entrepreneur must be aware of these and plan their execution so
that he can save on cost, time and energy.
o Some of the preparatory activities include; attendance at a training
programme (whether skill-related, management or entrepreneurship),
preparing a business plan, doing a market survey, making trips to
machinery and raw materials suppliers, registering the business, hiring a
consultant, etc.
Pre-operating expenses
o Pre-operating expenses are those expenses which are needed in order to
plan and to prepare for the business operation.
o These include; worker training, market survey, testing, travel to source
suppliers of raw materials and machinery, or to negotiate with potential
market outlets, etc.
o It also includes administrative costs, such as; the salary of the office
secretary, bookkeeper, driver, security guard, depreciation of fixed assets,
furniture and fixtures used in the office, communications, etc.
Fixed assets
o Aside from the fixed capital needed to manufacture the products or to
facilitate and maintain the production operation, the business needs
other fixed assets to maintain the administrative aspects of the business.
o These assets include; a typewriter, furniture and fixtures, cabinets, electric
fans, calculator, computer, vehicle, etc.
o These fixed assets have also to be depreciated according to their useful
life.

MISSION, VISION AND GOALS/OBJECTIVES OF AN ENTREPRENEURIAL

VENTURE
1.0

INTRODUCTION
Business vision and mission are key to business success
Companys mission describes what the business does and what
customers it intends to serve
A mission is more specific than vision in that it establishes the guidelines
on how the business fulfills its mission
These are key elements of strategic planning

2.1 VISION STATEMENT

Comprises the following key elements;

A core ideology; contains a statement about the firms value and reason
for being
An envisioned future; a statement that describes what the business
would be like, if it achieves its most important goals
Recognition of service to stakeholders; How the business serves its
stakeholders, including owners/creditors, employees, and customers, as
well as the community and society.

Sample vision statement;

2.2

MISSION STATEMENT

Business mission outlines

Who we are
What we do
For whom we do
Mission statement must be very specific about selected key information
concerning the particular business, such as;
Customers, products, business capabilities etc
NB: VISION AND MISSION SHOULD BE KNOWN BY ALL IN THE COMPANY
Sample mission statement;
2.3

GOALS/OBJECTIVES
Identify the tasks that must be achieved for the long-term vision to be
accomplished.
State the goals/objectives that the company wants to achieve by a given
point in time
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Aim high but be realistic and strategic

Be smart