Entrepreneurship

NIM
NIGERIAN INSTITUTE
OF MANAGEMENT
(CHARTERED)
NIGERIAN INSTITUTE OF MANAGEMENT

(CHARTERED)
ENTREPRENEURSHIP
(SMPE 104)
NIM VISION: To be The Source and Symbol of Management Excellence

NIGERIAN INSTITUTE OF MANAGEMENT
(CHARTERED)
STUDY PACK
ENTREPRENEURSHIP
(SMPE 104)
STAGE 1
ENTREPRENEURSHIP PAGE
3
STUDY PACK
Nigerian Institute of Management (Chartered)

Management House
Plot 22, Idowu Taylor Street
Victoria Island Lagos
P.O. Box 2557
Lagos
Tel. 01 -2705282
Website: www.managementnigeria.org
E-mail: mgtedu@managementnigeria.org
VISION: To be the Source and Symbol of Management Excellence
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FOREWORD
This study pack covers all the topics and all the basic materials necessary for adequate grasp of the
subject for the Proficiency Certificate in Management Examination of Nigerian Institute of
Management (Chartered).
While expecting candidates to read as much as possible on their courses, the Institute's role in
preparing this study pack is to treat in one publication all the topics covered by syllabus for the
particular course.
This will enhance focused study on the part of the candidate. This pack is written by an expert(s) on
the subject. The writing is reader-friendly while the issues discussed are current, with the general
treatment of topics having the contemporary time.
The topics are treated in a way not only to provide general and theoretical knowledge but to
enhance practice.
Reviewed questions are provided at the end of each pack.
We wish to express our utmost appreciation to our faculty of experts for their invaluable
development and writing of these study pack series.
We also appreciate the support provided by the Directorate of Capacity Building.
MANAGEMENT
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TABLE OF CONTENTS
Pages
FOREWORD 5
TABLE OF CONTENTS 6
Lesson 1 The concept of entrepreneurship 7
Lesson 2 Book keeping and basic financial management 16
Lesson 3 Purchasing 23
Lesson 4 Production planning 26
Lesson5 Sales management 30
Lesson6 Office organization and basic personnel management 37
Lesson 7 Organizing resources. 44
Lessson8 Dealing with legislative institutions, government and
non-governmental Support agencies. 46
Lesson 9 Problems associated with SMEs in Nigeria. 51

Lesson10 Case studies in SMEs management. 54
Bibliography 58
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LECTURE ONE
THE CONCEPT OF ENTREPRENEURSHIP
1.10. Learning Objectives: At the end of the lecture students should be able to
l Define the term entrepreneur and mention some of the characteristics and roles of
entrepreneurs.
l Describe the history of entrepreneurship in Nigeria.
l Identify business opportunities and explain how to properly exploit them
l Identify business risks and state how to minimize them
l Mention the social and personal rewards of entrepreneurship
l Explain how to carry out feasibility studies and write feasibility reports
1.20 Meaning of 'Entrepreneur'

A. Definitions of the concept 'entrepreneur':
l A person who assumes the risk of and responsibility for a business venture for a profit.
l An individual who searches for, responds to and exploits an opportunity for a profit
l A man or woman who creates a new firm and continues to run it until it becomes successful
l A person that identifies a necessary change or business opportunity and exploits it with own
or borrowed resources into a successful enterprise.
B. Other names for an entrepreneur: businessman, tycoon, magnate, impresario (in the
entertainment industry) or an industrialist.
C. An entrepreneur can operate a micro, small, medium or large enterprise and function
effectively.
l A micro enterprise has a full-time labour force of not more than 10 and a total cost and
working capital, less cost of land, of not more than #1m.
l A small enterprise has a full-time labour force of 11- 25 and a total cost and working capital,
less cost of land, of more than #1m but not more than #40m.
l A medium enterprise has a full-time labour force of 26- 100 and a total cost and working
capital, less cost of land, of #40- #200m.
l A large enterprise has a full-time labour force of more than 100 and a total cost and working
capital, less cost of land, of more than #200m
1.21A. The roles of an entrepreneur

l Partners with governments to upgrade the quality of life and development in the country.
l Promotion of local and indigenous technology.
l Promotion of domestic productivity and production.
l Reduces national trade imbalance and currency weakness,
l Develops local management and business skills,
l Exploits local raw materials and methodology,
l Reduces societal imbalance and problems
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1.21B. The functions of an entrepreneur
He or she
l Decides on what to produce or the business to operate.
l Is an innovator who develops a new product, market or way of doing things
l Searches for and develops business opportunities and ideas.
l Bears the risk of a business operation
l Spearheads the setting up of a business
l Finds means of making a profit from a business
l Acquires and organizes capital and other resources to run a business
l Motivates and uses human resources to work optimally.
l Coordinates all aspects of a business to run it well
1.22A. The characteristics of an entrepreneur

He or she is
l Impatient to improve and make things better
l Patient to work out a problem, start an innovation and wait for it to prosper. Entrepreneurs
can endure start-up problems.
l Not inclined to paid employment
l Wants to be independent.
l May detest rigid authority, bureaucracy and inflexible ways of doing things.
l Eager to learn new things and new ways of doing things.
l Dynamic, energetic and works hard
l Enthusiastic about work and can work for long hours
l Desirous to contribute to societal well being
l Not inclined to academic qualifications as a platform to rest but as a launching pad to
entrepreneurial greatness
l Always dreaming of and imagining new things, new ways and developments
l A repository of relevant skills to turn a dream to reality
l Inclined to act on business opportunities
l Inclined to experiment and try out new things
l Confident in him/herself and in the future
l Able to persuade others to join him/her to achieve the entrepreneurial dreams
1.22B. Some sayings from notable entrepreneurs

l A man is known by the company he organizes
l An entrepreneur is like an eagle, soars alone, flies alone and hunts alone
l When I work 14hours a day and 7 days a week, I am lucky.
l If you think you can or can't, you are probably right
l An entrepreneur is a born schemer and thinker- up of things
l An entrepreneur does what people say is impossible
l A business that makes nothing but money is a poor kind of business
1.22C. THE HISTORICAL DEVELOPMENT OF ENTREPRENEURSHIP IN NIGERIA

In the traditional society, the main occupations of the peoples of Nigeria were farming, hunting and
fishing but industries grew up to meet growing needs for manufactured goods and these produced
the basis, first for local trade and then for commercial dealings involving peoples living far apart
from each other. Notable industries included the production of salt, fishing, soap boiling, cloth
weaving, leather craft, iron, copper and bronze smelting.
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Industry was on a small scale with the unit of production comprising of a single craftsman or
entrepreneur and his apprentices. The craftsmen were themselves organized in guilds similar to
what obtained in Europe at the time. These guilds were located by trade in clusters in the markets
and towns. According to (Ubah 2009) each craft had its own head that supervised the activities of
his fellows and chaired discussions on methods to advance their common interests. He was a sort of
welfare officer assisting workers and their families to cope with financial, medical, spiritual, housing
and other personal problems. There was specialization as craftsmen competed to increase and
improve production. This resulted in surpluses for exchange and high quality goods which fetched a
higher price for the producer.
In the north, rich merchants/entrepreneurs sponsored trans-Saharan business trips. Traders took
hides, ivory, ostrich feathers, kola nuts, gum etc to North Africa and Arabia and imported salts,
horses, swords, spices, perfumes, brocades, silks and so on. The volume and value of the trans-
Saharan trade was very huge. The trade was organized in a sophisticated way, bearing in mind the
geographical and security dangers associated with desert journeys. The capital (finance) for the
trade was provided by wealthy North African merchants who owned large numbers of camels and
had the resources to purchase the goods required as well as to pay guides and protection money to
desert tribes. The journey across the Sahara desert usually took about three months. So, a merchant
was only able to make one trip a year and so he maximized his business activities. The system
depended on mutual trust which our people did not betray. In the Hausa states, both agriculture and
trading involved a large labour force and a hierarchy of participants.
Both had the labourers (or carriers), supervisors or head men and the entrepreneur or financier of
the venture. In crafts, there were the artisan/entrepreneur and his apprentices. In all cases, trust was
important and it was on it that the conduct of business depended.
When the British came they brought companies that traded in Nigerian raw material or European
finished products. Such companies included Societe Commerciale de Quest African (SCOA), GB
Olivant (GBO), United African Company (UAC), Barclays Bank, Standard Bank and others that
fuelled the entrepreneurial spirit in Nigerians. They saw and appreciated what individuals working
independently of government could do. Nigerians themselves set up trading and crafts making
industries. Independence in 1960 encouraged the regional governments in the North, East, West
and later Midwest (in1963) to roll out policies and development plans that boosted small scale
businesses. The north boomed with groundnut, benniseed, tin, cotton and gum Arabica; the East
flourished with palm oil and coal while the West and Midwest blossomed with rubber, palm oil,
timber and cocoa. Individual entrepreneurs actively partnered with the various governments in the
exploitation of natural resources and the setting up of agric processing firms.
The civil war slowed down entrepreneurial development especially in the East. After the war, the
Federal government promulgated the Indigenisation Decree and facilitated the transfer of
ownership of many foreign owned businesses to Nigerians. The then oil boom and special
government financial assistance to Nigerians who wanted to buy out foreigners from their
businesses, made that period the golden age of entrepreneurship in Nigeria.
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Since then Nigerian businesspeople have continued to excel and are now to be found in all parts of
the globe, trading or manufacturing, fuelled by the globalisation of business.
1.23A. RISKS AND REWARDS OF ENTREPRENEURSHIP

A) Entrepreneurial Risks
An entrepreneurial risk is a chance that something may go wrong with a person's business or
innovative activities. It is the possibility that an investor or entrepreneur might lose his investment in
a business venture.
Like life, business has some interest risks. To overcome the risks, entrepreneurs should:
i. prepare properly before starting a business and
ii. have viable alternatives when a particular business venture fails.
B) Some common business risk factors

l Possible loss of capital if the business plan or process fails
l Poor infrastructures and other environmental problems (like insecurity, multiple taxation)
l Activities of competitors and saboteurs
l Dishonest or incompetent employees
l Inability to get expected finance and financial assistance
l An unexpected large fall in the value of the naira can jeopardise businesses and imports
l Running a business is not easy and has some unexpected problems
l Loss of earning power during the initial (incubation) period of the business
l Loss of honour, prestige and employment if the business fails
l Reduced support from family and friends when the gains of the business are slow or when the
entrepreneur spends a lot of time and scarce financial resources on the business.
l Opportunity cost that investing in one business makes the capital unavailable in other areas.
C) Social rewards of entrepreneurship-

l Reduces unemployment
l Reduces crime
l Creates alternatives to imported of goods and services
l Enhances the economy of the rural areas and the country at large
l Develops manpower
l Produces relevant goods for consumers
l Enhances national creativity and innovation
l Helps to develop local facilities
l Reduces rural urban drift and rural poverty
l Enhances export power, prestige and economy of the country
l Increases the quality of life for all stakeholders
l Increases government revenue through different taxes.
l Exploits local raw materials and talents
l Provides raw materials for larger industries
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D) Personal rewards to entrepreneurs
l Great financial rewards
l Popularity and prestige
l Personal fulfilment and satisfaction
l An enhanced opportunity to help others
l Freedom from paid-employment and all its tears and pains
l Enhances personal recognition
l A control of the business and its decision making
l The satisfaction of helping to reduce societal, social and financial problems.
1.25. IDENTIFYING AND EXPLOITING BUSINESS OPPORTUNITIES.

A) What is a business opportunity?
l A business opportunity is a situation or circumstance that is favourable for the start of a
specific business or a particular investment.
l It is a business idea which if properly exploited will lead to entrepreneurial success.
l It is an advantage that will make a business start or continue effectively.
l It is a chance to do business or make an investment that will succeed.
Entrepreneurs should be alert and broadminded enough to see, hear, read about or perceive a
business opportunity in their near or far environment. And exploit them.
A good business opportunity or idea has the following features:

l It is supported by a good demand for the potential product.
l It will yield a good return on investment and profit.
l It will lead to legal business.
l There are sufficient raw materials/equipment/management and technical skills to turn the
idea to a profitable business.
l It is easy to implement.
B) Sources of business opportunities

Entrepreneurs should look for opportunities to start or expand their businesses from the following
problems in the environment:
l Defective or imperfect products or production methods
l Poor delivery or marketing strategies
l Scarcity of products or raw materials
l Consumer, employee or customer complaints and suggestions
l An increased demand for an old product or a demand for a new one
l Failure of an existing product
l A gap in customer demand, needs or supply
C) METHODS OF IDENTIFYING BUSINESS OPPORTUNITIES

l Personal observations of products and business operations
l Research reports on business and customer operations
l Intuition, meditation, dreams and insights
l Extrapolations and forecasting into future customer needs, demands and trends
l An inward desire to improve the quality of life in the society
l A desire to solve particular problems in the society
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l A gap between activities and products in our environment and in other environments.
Copying good things, positive emulation or bench marking is allowed in business.
l Accidental stumbling on good ideas without conscious search. Luck and serendipity still
exist.
l Ideas of business experts and consultants.
l Patronising academic and professional institutions
l News media, the internet and books
l Trade and product exhibitions and launchings
l Hobbies, particular interests and special abilities. These can be converted to money-
spinning machines
l Good training, interactive and brainstorming sessions
l Individual and group problem solving sessions
l Mistakes and errors.
D) Exploiting Business opportunities

Any identified business opportunity should be exploited to yield rich benefits. The following steps
will help us exploit such opportunities:
1. Crosscheck the business opportunity or idea on the bases of demand, profitability,
availability of raw materials, existing knowledge etc (pre-feasibility check)
2. Carry out a feasibility study of the business that will result from the opportunity.
3. Get the feasibility report and develop a business plan (how the product will be marketed)
4. Gather all the necessary resources
The resources are start-up capital (personal savings, money from friends, relatives and
partners or from financial institutions), start-up staff (relatives may be co-opted to support
key experts in production and finance).
The multi-skills of the entrepreneur will be important at this early stage especially for a micro
or small enterprise.
Equipment and materials for initial production. This can be hired or borrowed from friendly co-
entrepreneurs and other sources recommended by the feasibility report.
5. Choose a suitable location and site for the business: The location ( state or town of the
business should depend on ease of getting land, approvals, support facilities,
infrastructures, market, suppliers and other determinants of business success. The site of the
business also depends on the above factors plus health considerations, population and
traffic density and government regulations. Can you cite a poultry or piggery in a densely
populated place?
6. Choose the business format (form of ownership): it could be a sole-proprietorship, a
partnership or a limited liability company. Each of them has its specific uses, advantages and
disadvantages. They should be considered carefully before a choice is made.
7. Register the business and get all other necessary approvals. Registration is done by the
Corporate Affairs Commission (CAC) while special approvals are needed for specific
business operations e.g. from NAFDAC (foods, drugs, beverages etc) and Standards
Organisation of Nigeria (manufacturing of industrial inputs and output).What specialised
agency should approve an application to start a security outfit?
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1. Start the business with the necessary policies and procedures in employment, training, staff
rewards and motivation, inventory, purchasing, marketing, accounting and public relations.
These policies and procedure may be borrowed from other organisations or recommended
by a consultant. They could be summarised in policy handbooks, pasted on the notice
board, read to workers or put in circulars and memos depending on the size and nature of the
organisation and its business.
1.26. The Feasibility Study.

A) Definitions of a feasibility study
l A feasibility study is an analysis of all areas (marketing, finance, operations, organisation and
socio-economic development) of a business venture to determine its viability, profitability
and future performance.
l It is a forecast of whether a business is worth going into or not.
l It is research into the profitability, feasibility and effectiveness of exploiting a given business
opportunity.
B) A feasibility report is the formal result of a feasibility study, and can be defined, for example,
as the result of an analysis of a business venture to determine its viability, profitability and
future performance.
C) Importance of a feasibility study/report

To enable the entrepreneur:
l Understand the variables and mechanism of the proposed business
l Understand and assess the profitability of the proposed business
l Decide whether to invest in the business or not
l Meet one of the conditions for obtaining financial assistance from banks and other credit
givers
l Have an idea of the marketing, production, personnel and other strategies for a profitable
business.
l Understand the cash flow projection and financial strategies of the proposed business
concern.
l Plan to start or expand his business with most of the information he requires; not in a blind or
deaf state.
l Have a solid foundation for writing a business plan (how to market the product).
D) Who performs the feasibility study?

l The entrepreneur, if he is skilled enough.
l An individual or an institutional business or management consultant
l A chartered accountant or chartered secretary or chartered manager.
E) Procedure for writing a feasibility study

l Read widely about the Nigerian economy and the particular business being studied.
l Collect data about the objectives, benefits and other circumstances of the proposed business
l Collect data about the personnel and staffing needs of the business in terms of quantity and
qualifications of different kinds of staff and their job descriptions
l Collect data about the different types of machines, production facilities, production process
and other information relevant to production in the business concern.
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l Gather data on the proposed product types, sizes, quality and packaging.
l Find out relevant sales and marketing data for example how the products shall be
distributed, priced and promoted. Actual details on product warehousing, distribution
methods and routes and the types and levels of promo tools to be employed are stated.
Carry out a suitable analysis of the direct and indirect competitors on the business and
outline clear steps to overcome them and win in the market place.
l Proposed cost, productivity and revenue data are gathered and used to calculate expected
profit figures return an investments, and relevant financial ratios. The proposed cash flow
projection and sensitivity analysis are also generated.
l Honestly summarise all the information and data into a feasibility report.
l Find out the expected impact of the business on the environment and how any negative side
effects will be overcome.
F) Outline of a feasibility report

l Name of the proposed venture
l Proposed location and address
l Aims and objectives of the venture
l Background and qualifications of the entrepreneur and how he came about the business
idea.
l Data collection and analysis methods
l A description of the business detailing the product to be sold, the target customers, the
distinctive features and uses of the product, the nature of the market, how it can be
penetrated and future opportunities for business expansion.
l Staffing and personnel considerations: e.g. the vision and mission of the organisation, its
organogram, the qualifications and duties of directors and top management staff, and
indication of the availability of the required balance of skills, number, quality and duties of
other staff, the cost of labour, recruitment and training plans for very skilled and scarce
labour etc
l Plant layout, production facilities and processes e.g. the location of the business, necessary
facilities for initial and future production, the production process to be used, the equipment
needed, their prices and source(s), the nature, prices and sources of raw materials, the
normal and full production capacities of the plant, the expected productivity, the inventory
and quality measures that will be used, the scheduling process, the amount of power, water
and other utilities that will be used and how they will be sourced etc.
l Product and marketing strategies. Target market and specific customers, how the customers
will be prospected and persuaded to buy, unique selling points of the product, the prices to
be charged and the pricing strategy and method applicable, the competitiveness and
suitability of the prices and how they will prosper the venture and its profitability, allowable
quantity and cash discounts, distribution strategy, how the venture will promote the product
to increase customer awareness, interest, desire and action, social responsibility and
environmental strategies that will endear the company and its products to the society etc
l Financial considerations: indicating the financial needs of the venture now and in the
future and how they will be sourced (personal savings, loans, etc) and used, possible cost
and expenditure profile including taxes, the expected production, sales, profit, break even
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point, balance sheet, income statement, cash flow statement and control measures to
prevent unnecessary costs and losses.
Possible risks and challenges: e.g. expected risks and problems inherent in the business and
its environment and how they will be overcome. For example in sourcing raw materials,
meeting planned production schedule and customer demand, neutralising security issues,
addressing government policy, import, export and license issues that affect the business, the
challenge of competitors, problem of funds and the risk of budget overruns and fraud.
Evaluation: showing an evaluation of the worth, profitability, feasibility, productivity, cost
benefit ratio, present value of future cash flow, the number of years needed to recoup the
initial investment. Some methods of financial evaluation include pay back period, average
rate of return, discounted cash flow and sensitivity analysis (to test what happens to
proposed financial returns when certain project assumptions e.g. the project out put or price
of the product turn out to be inaccurate. Use the different assumptions to calculate the
financial returns)
Conclusion: possible contributions of the business to the local and national economy
especially in the areas of employment generation, raw material production for larger
industries, reduction of rural-urban migration, export, government revenue etc.
Appendices- any relevant photograph, diagram or blueprint.
1.3. Tutorial Questions:

i. When does an entrepreneur become a tycoon or magnate? Look up the origins of both terms
in a good dictionary.
ii. Give your personal definition of an entrepreneur. What particular roles do entrepreneurs
play in national development?
iii. Study the criteria for classifying businesses into micro, small, medium and large enterprises.
Are they satisfactory? How can you modify them to be more realistic? What roles can
inflation and robot-technology play in this type of classification?
iv. Name any 5 local, 5 national and 5 international entrepreneurs you know. What special
benefits do they enjoy? What 10 characteristics differentiate them from non entrepreneurs?
v. Are all business-persons real entrepreneurs? Give reasons for your answer.
1.4. Revision questions

i. Nigerian entrepreneurship has a rich history. Discuss.
ii. State 10 business opportunities each that exist in your home state and in your place
of primary assignment? How did you identify them? Why?
iii. What risks do you see in the exploitation of business opportunities? Describe how
they can be minimized. What will you say to a fellow 'corper' who wants to take shelter
in paid employment because of the business risks in Nigeria?
iv. Describe the salient features of a feasibility report and how it is prepared. Why is it
important in business?
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LECTURE TWO
BOOK KEEPING
2.1. Learning objectives

At the end of the lecture, students should be able to
l Define bookkeeping and describe its usefulness in SMEs.
l Explain with examples the double entry system of bookkeeping.
l Describe the salient features of a balance sheet, a profit and loss account, an income and
expenditure account and a cash flow statement.
l Draw up a balance sheet, a profit and loss account, an income and expenditure account and
a cash flow statement.
l Calculate relevant financial ratios to assess the performance of SMEs.
2.20. Introduction
Even though entrepreneurs may hire accountants, they should be familiar with the what, why and
how of bookkeeping as explained in this lecture. This will at least help them perform minor
accounting duties and understand records of transactions with banks, tax authorities, creditors,
debtors and other stakeholders. A bookkeeping-ignorant businessperson is more prone to
accounting deceptions and frauds.
2.21A. What is bookkeeping? It is the part of accounting concerned with recording financial
data and transactions in manual and electronic accounting books.
B. Who are the users of accounting information? The firm's management, existing and
potential investors, financial institutions, tax authorities, workers, the entrepreneur, the general
public etc.
C. What are transactions and accounts? Financial events like the purchase of assets or the
sale of products which result in balance sheet changes are called transactions. The transactions are
recorded in accounts in accounting books like ledgers. An account is a place in an accounting book
where the information about a particular asset or liability is recorded e.g. an account for buildings, an
account for loans, an account for taxes etc.
D. The double entry system

Each transaction affects two items in the accounting books and balance sheet and should be
recorded accordingly. This double effect is the double entry system in accounting. Each entry is
made twice, the entry increases or decreases an item in one account and decreases or increases
another item in another account.
Any transaction about this asset or liability is recorded in its proper account in the accounting book.
Each account is on a separate page in the accounting book with each page divided into the credit
(right) and debit (left) halves.
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Eg Cash Account
Debit credit.
Fig 1: A T- account showing the debit and credit halves.
th
Each transaction e.g. starting a business with #250,000 on the 5 of December means debiting the
cash account and crediting the capital account with that amount in the two different accounts in the
accounting book on that particular day. Each entry of the account should have a date, the narrative
(a reference to the title of the other account) and the money worth involved.
If a piece of equipment (a hair dryer) was bought for #24,500, start an equipment account. Debit the
equipment account with that amount with the narrative, 'cash' and credit the cash account with the
same account with the narrative ' hair dryer'. Consult a good business accounting book to increase
your proficiency in bookkeeping to prevent been confused by accounting records.
2.22 BALANCE SHEET:

A. Definitions:
l it is a document that summarizes the assets and liabilities of a business venture at a particular
point in time.
l A balance sheet is the financial position of an organization at a particular point in time.
l It gives a snapshot or picture of the performance of the business from figures in accounting
books that were not used in calculating the profit and loss statement.
B. Some facts about balance sheets

a) Capital is the name given to resources owned by the owner of the business.
b) All the resources in the business are assets.
c) The assets supplied by other people whom the business owes are liabilities.
d) The accounting equation is thus: Assets = capital + liabilities. Or capital = assets less
liabilities.
e) Assets can be current or fixed.
f) Current assets are resources with a short life or can be converted to cash in a year eg cash in
hand, stocks for sale, accounts receivable, shares cash in bank.
g) Long term assets are resources acquired for use in the business and not for sale (as stock) eg
land, buildings, equipment, fixtures, motor vehicles
h) Liabilities or financial obligations can be divided into current liabilities and long term (or
fixed) liabilities.
i) Current liabilities are payable in a year eg taxes, salaries, insurance premiums, creditors for
goods bought, short term loans, bank overdrafts etc
j) Long term liabilities or financial obligations that fall due in more than a year eg owner's capital
(or owner's equity), long term debts, capital reserves etc.
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C. Fig 2: Example of a balance sheet
Balance Sheet of Omolere Edes Ltd as at 25 March 2O1X
Asset #
Shop 64,000
Stock of goods 12, 000
Debtors 1,200
Cash at bank 50,800
128,000
Less creditors (8,000)
120, 000
Capital 120,000
2.23 THE MANUFACTURING, TRADING PROFIT AND LOSS ACCOUNT (PROFIT

AND LOSS ACCOUNT)
A. Definition: This is a special account that summarises our expenditures and incomes in
order to show us our business performance for example profit in a particular period of time, usually
annually.
B. Purposes:
l Helps us calculate our profit or loss.
l It is used to compare current performance with a past or planned one or with the
performance of competitors.
l Helps to plan for the future
l Helps us to calculate tax payable
l Helps us to obtain loans and financial assistance from financial institutions and individuals
C. Basic facts about a profit and loss account

l Gross profit = sales revenue minus cost of goods sold for that period (COGS).
l If the sales revenue > COGS, there is a gross profit.
l If sales revenue < COGS, there is a gross loss.
l Net profit = gross profit + any other revenue eg royalties, commission, rent, minus cost of
sales.
l Cost of sales = the total costs used in selling the goods less what has been included in COGS.
l If the cost of sales > gross profit+ other revenues, there is a net loss. But if the cost of sales <
gross profit+ other revenues, there is a net profit.
D. Other data used to draw up the profit and loss account

l Revenues (as noted earlier) are usually gotten from the sale of goods and other sources like
royalties, other investments, rents etc
l The revenues should be adjusted for unsold goods, returned goods, bad debts, allowances
and discounts.
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Expenses are
i) costs of goods sold (overheads, materials and labour costs),
ii) operating expenses (selling, advertising, office supplies, depreciation, and administrative
costs) and
iii) fixed expenses (taxes, interest, legal and audit fees insurance premium paid).
l Total revenue less COGS = gross profit.
l Gross profit minus operating expenses = net operating income.
l Net operating income minus other expenses = net income.
E. Fig 3: Example of a profit and loss statement.
Omolere Edes Ltd.

Trading, Profit and Loss Account for year ending 25 March 201X.
# #
Sales 77, 000
Less Cost of goods sold:
Purchases. 58,000
Less closing stock (6,000)
(52.000)
Gross profit 25,000
Less expenses
Rent 4,800
Lighting expense 3,000
General expenses 1,200
(9,000)
Net profit 16,000
2.24. CASH FLOW STATEMENT

A. Introduction: This is a statement indicating how cash was generated and disbursed in an
organisation.
It is a statement that shows us where corporate cash came from and what was done with it.
B. Importance:
l It shows the sources of the funds in a business
l It also explains how the funds where disbursed
l it helps to prevent cash shortages
l It helps fraud prevention and cash control mechanism
C. Construction of a cash flow statement

Step i: note all the possible sources of cash into the business e.g. from profits, sale of fixed assets,
receipt of loans, payments by debtors, sale of goods etc. (cash inflow statement)
Step ii: note all possible reasons for cash outflow e.g. business losses, purchase of fixed assets,
payment of loans, granting of credits, purchase of stocks or goods etc (cash outflow statement)
Step iii: note that all minus figures are bracketed and subtracted from the earlier figure to give the net
figure.
19
Step iv: reconcile or adjust the inflows for each item or month with the outflows to give a cash flow
statement for the business venture.
2.25. THE INCOME AND EXPENDITURE ACCOUNT

A. Introduction: Manufacturing, trading, profit and loss accounts are for profit making
organisations. Not- for profit organisations don't trade, manufacture or make profits and
therefore prepare receipts and payments accounts (if they only have cash assets and no
liabilities) or income and expenditure accounts (if they have cash and non cash assets and
liabilities)
B. A receipts and payments account: A receipts and payments account is simply a

tabulated summary of transactions recorded in the cash book during a particular period in
the form of various receipts and payments and their totals.
C. Income and expenditure accounts.

Not for- profit or nonprofit organisations have Income and Expenditure (I & E) accounts
instead of Profit and Loss (P& L) accounts. Both of them are drawn up in the same way. The
difference between both is in their terminologies. A net profit in the P & L account is called
surplus of income over expenditure in the I & E account while a net loss is deficit over
expenditure. What the for-profit sole trader may call a capital account, a not-for-profit
charity, NGO, club or association will call accumulated funds.
2.26. INTERPRETATION OF FINANCIAL STATEMENTS: RATIO ANALYSIS

A. Definition: A ratio analysis is the calculation and interpretation of ratios from financial
statements (balance sheets, P& L and I & E accounts) to determine past, present and future
organisational performance.
B. Importance of ratio analysis

l To determine the financial performance of business firms
l To be able to compare the firm's performance over the years e.g. comparing this year's
performance with last year's
l To compare a firm's performance with that of competitors
l To determine and evaluate the effectiveness of new methods, machines and management.
C. Other uses of ratio analysis

It will assist all stakeholders including managers, investors and tax authorities evaluate
different aspects of a business concern and use the results as a basis for making decisions.
l For example investors will know the earnings to expect and decide how much or whether to
invest or divest,
l The managers will use it to rate their performance and take necessary control and planning
decisions,
l Government authorities will be able to know what assistance, if any, to give and what tax or
levies to charge.
l Why should workers and labour unions be interested in ratio analysis?
20
D. SOME FINANCIAL RATIOS
1) Liquidity ratios determine how well a firm is able to meet current obligations and how easily
its current assets are converted to cash.
l Current ratio is current assets current liabilities. A current ratio of 2: 1 is recommended.
l Acid test or quick ratio is current assets less inventories current liabilities. An acid test ratio
of 1: 1 is satisfactory.
l Working capital is total current assets. It indicates how much assets an organisation has to
settle its creditors as quickly as possible.
l Net working capital is current asset less current liability.
2) Activity ratios determine how well an organisation can manage its current and fixed assets.
l Inventory/stock turnover ratio is cost of goods sold (COGS) average inventory. It shows
how effectively a business is managing its inventory. The higher the inventory turnover, the
better, up to a limit. Why?
l Total Assets Turnover indicates how effectively a firm uses existing assets to generate sales
3) Profitability ratios show how efficiently a firm invests and makes profits from its business and
assets.
l Gross profit margin is gross profit or (sales less COGS) annual sales
l Net profit margin is net profit or operating income less financial expenses Annual sales
l Return on investment (ROI) is earnings before interest and taxes total assets.
4) Leverage ratios determine how effectively an organisation uses long term financing options.
l Total debt ratio is total short and long term liabilities total assets. A high ratio shows a
preponderance of external liabilities and debts in the corporate financial structure, a highly
un-recommended situation.
l Debt to equity ratio is total long-term debt total owner's equity. A high ratio shows that a lot
of liabilities are owed other people, a risky state of affairs. Why?
2.30. TUTORIAL QUESTIONS

i. Visit your accounts department to find out the types of accounting books used. What are their
functions?
ii. To what extent is information technology important in bookkeeping and in your accounts
department?
iii. Study the balance sheets and profit and loss accounts in the annual reports of any two
companies and note the different values of their specific assets, liabilities, net profit or loss.
What are their quick ratios, debt and equity ratios, total debt and ROI values?
iv. Prepare a statement of your cash inflows and outflows for the past six months. Why is such a
statement necessary?
v. Why is it necessary for Jovita Jovial Ladies Club to have an income and expenditure account
and not a profit and loss account?
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2.40 Revision Questions.
i. List any three financial statements necessary in Accounting. Which of them do small
businesses need to prepare? Why?
ii. A company, Bivbere Tivere Ltd has a current ratio of 1: 2. What is the implication of this?
What will you advise the management to do?
iii. What are the differences and similarities between i) a balance sheet and a profit and loss
account and ii) between a profit and loss account and an income and expenditure account?
iv. From the following trial balance of Ozzie Idoye Farms, extracted after one year's trading,
prepare a trading, profit and loss account and a balance sheet for the year ended 31
December, 201X.
Sales ------------------------------------------------------381,152
Purchases----------------------239,664
Salaries-------------------------113,054
Motor vehicles------------------ 33,188
Rent------------------------------3,788
Insurance------------------------- 744
General expenses------------------ 170
Premises----------------------------- 190, 840
Motor expenses----------------------4,832
Debtors--------------------------------53,480
Creditors---------------------------------------------------------33,038
Cash at bank---------------------------- 33,038
Drawings-------------------------- 16,850
Capital--------------------------------------------------------- 276,132.
690,332 690,332
Stock at 31 December 201X ----------# 24,816.
v. Mallam Lemu Ibn Yakassai bought a corner shop for #64,000, paying by cheque from his bank
balance of # 120,000. The effect of this transaction on the balance sheet is that the cash at bank
decreased while a new asset, building was added. Graphically show the balance sheet of Mallam
Lemu.
22
LECTURE THREE
PURCHASING
3.1 Learning objectives

l Define purchasing and outline its benefits to SMEs
l Explain different styles of purchasing
l Enumerate the purchasing procedure
l Discuss the various forms of specification open to purchasing agents.
3.20. Introduction.
An entrepreneur should be involved in purchasing, at least initially. He or she should be able
to purchase or assist others in purchasing initial corporate fixed assets like fixtures and
machines, goods for resale or raw materials for production. This lesson will turn the average
businessperson into an efficient purchaser.
3.21. The ABC of purchasing

A. What is purchasing? It is the process of buying (hiring or leasing) the machines, goods and
raw materials needed to run a business and produce goods and services for sale.
B. What is purchased? Raw materials, machines and equipment, spare parts, tools, stationery,
finished goods for use or resale, lands, buildings, various services like security, auditing,
cleaning, fumigation etc.
C. Aim of effective purchasing: To purchase the right items at the right price, from the right
place, at the right quantity and quality, at the right time and delivered to the right place. The
right price may not be the lowest price. Why? Seek for right prices that are most economical
in the long run.
3.22. Objectives of purchasing

l To help the organization acquire all the items needed for effective production
l To examine the economy and environment for information that can affect purchasing and
bring such to the notice of management.
l Searching for more economic substitutes for the items bought and better purchasing
procedures and suppliers.
l Keep good record of details of supplies and suppliers
l Cooperate with the engineering, production and other departments to identify needed items
and generate clear specifications
l Carry out purchasing procedures like requisition for items, analysing quotations and
proposal, selection of vendors, checking supplies etc.
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3.22. Objectives of purchasing
l To help the organization acquire all the items needed for effective production
l To examine the economy and environment for information that can affect purchasing and
bring such to the notice of management.
l Searching for more economic substitutes for the items bought and better purchasing
procedures and suppliers.
l Keep good record of details of supplies and suppliers
l Cooperate with the engineering, production and other departments to identify needed items
and generate clear specifications
l Carry out purchasing procedures like requisition for items, analysing quotations and
proposal, selection of vendors, checking supplies etc.
3.23. Different Purchasing styles

l Regularly purchasing few individual items as they are required for production. This is
because of small needs and price instability.
l Buying more items than required because of fears of future price increases
l Aggregating required items and buying them in groups and periodically eg monthly to enjoy
quantity discounts and reduce the cost of the purchasing process.
l Purchasing by a central purchaser e.g. the Admin Department or purchasing by any unit or
department that requires items for their work
l Purchasing by in-house personnel or by external contractors
l Carrying out a project by 'direct labour' or by awarding it to contractors
l Contractors may be selected on the bases of the following criteria
i) quality or reputation of contractor.
ii) Favouring or encouraging local contractors or those with particular features e.g.
disability, minority tribe or religion.
iii) Reciprocity or using contractors who buy products from the company.
3.24. Purchasing procedure

i) Requisition- persons or units that require certain items should complete the appropriate
requisition form to be checked and signed by the appropriate authority. This authority can be
a unit head or a central figure in administration, marketing, accounting or the office of the
CEO. Oral requisition is not recommended.
ii) Check the store or cupboard for the item. Decide to buy outof- stock items.
iii) Specifications. With the aid of the user-units, clearly describe items to be bought in terms of
their properties, use and acceptable variations. Entrepreneurs can specify materials and
equipment by the following means:
a) a description of their properties and appearance.
b) A statement of the use they will be put into.
c) Required SON, NAFDAC or other acceptable certifications.
d) Appropriate colours or composition e.g. of foods and some raw materials.
e) Drawings or plans of machines, building.
f) Method or place of manufacture- some places of manufacture denote more quality than
others.
iv) Required items are supplied from the store or if outof-stock, bought by the purchasing
authority or a contractor depending on corporate policy.
v) To purchase the items, the internal buyer visits the market to assess the prices and quality of
different items or requests for quotations and proposals from contractors.
vi) The quotations and proposals are assessed on the basis of current prices and brands and the
most appropriate contractor and a standby one as a 'plan B' are selected.
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vii) The successful contractor is given a purchase order (LPO) specifying details of agreement to
purchase the item including specifications, prices, and minimum delivery date.
viii) It is also important to follow up and monitor the activities of the supplier to ensure an
adherence to the LPO.
ix) Delivered items should be inspected for quantity and quality.
x) Accepted items should be promptly sent to the requesting person and unit.
xi) The vendors or contractors should be promptly paid. A delay here is demeaning and
counterproductive. How?
3.30. Tutorial questions

i. Why is purchasing an important part of SMEs?
ii. Can group purchasing and contract purchasing be carried out simultaneously? How?
iii. Suggest how the purchasing function can be controlled to make it efficient.
iv. Why is it not right to delay payments to suppliers and contractors?
v. Is it actually necessary to monitor the work of our suppliers and contractors?
3.40. Review questions

i. What are the components and principal benefits of a good purchasing policy?
ii. Outline the advantages and disadvantages of purchasing items directly without
engaging external contractors?
iii. What form of specification is best for a local footwear manufacturer who wants to
engage a supplier of imitation leather?
iv. Mention three styles of purchasing popular in Nigeria. Why do you think some Oil
companies favour local contractors in the award of some levels of contracts?
v. Describe the process of purchasing suitable for the average small scale industry.
25
LECTURE FOUR
PRODUCTION PLANNING AND CONTROL
4.1. Learning objectives: At the end of the lecture, students should be able to
l Define the terms production planning, production control and production planning and
control
l Mention and describe the determinants of production planning and control.
l Explain the process of production planning and control in an SME.
l Describe how a production control is actually done
l Explain the importance of routing, scheduling and dispatching.
4.20. Introduction:
Production of goods should not be done haphazardly to avoid all the problems associated
with poor planning and control e.g. over or under production. Entrepreneurs should take
time to carry out planning tasks and control production to meet the goals and objectives of
the organisation.
4.21.A. What is Production Planning and Control?

An integration of the use of manpower, machines and materials to produce goods to meet
customer needs.
B. What is production planning? It determines the how, where and when of a production
and issues the order to manufacture and directs the use of facilities, materials and labour to meet
sales requirement.
C. Other activities and benefits of production planning.

l Determines the quantity to be manufactured from sales forecasts
l Calculates the requirements and cost of the production as per equipment, materials,
manpower and time.
l Determines correct sequence of manufacturing and schedules the machines accordingly.
l Allocates time and job to machines, materials and manpower.
l Carries out all administrative tasks necessary to effectively manufacture.
D. What is production control?

l Production control ensures that all the planned activities are regularly checked, monitored
and adjusted to conform to the plan. Specifically, it ensures that:
l All raw materials, machines and other resources are available or improvised.
l All the resources are used according to plan.
l All obstacles and bottlenecks in the production process are eliminated.
l The quantity and quality of manufactured goods are achieved
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4.22 The tasks in Production Planning and Control
Inventory control- Ensuring a steady supply of inventory for production.
Routing- Specifying the methods and sequence of operations for manufacturing
Scheduling- Deciding on the timing and rate of every operation.
Dispatching- The commencement of production through the issuance of work orders,
requisition orders, control sheets, delivery note, progress chart, e.t.c.
Production control- Following up production to ensure that things work according to plan.
Check output rate and completion time.
4.23. Benefits of an effective production planning control

i. Ensures a steady supply of finished products to satisfy customers
ii. Reduces unplanned fluctuations in production that can cause product shortages of raw
materials or products, idle men and machines or unplanned 'rush' productions
iii. Leads to effective inventory control with little or no over accumulation of materials or
products.
iv. Obstacles to production are easily discovered and dealt with
v. Resources are effectively and efficiently utilised to meet corporate objectives
vi. The plant or firm does business profitably.
4.24. Factors that influence production, planning and control

l The size and structure of the firm
l The type of manufacturing processes used
l The type of work processes used in the plant
4.25. The production, planning and control process

1 Preambles:
i) in order to know what should be produced, get all necessary blueprints, drawings, parts lists,
chemical formulae and bills of materials related to the product.
ii) Specify what spares and raw materials for the products should be made, supplied and which
ones already exist.
iii) Confirm the amount of items available and the amount allotted for production.
iv) Specify the tools to be used for production and whether they are available and which ones
will be hired, bought or improvised.
v) Determine the capacity of available machines to know if they can meet sales need within the
production cycle or if there is a need for supplementary measures like hiring new staff,
overtime work, procuring more machines or producing some items externally.
vi) Forecasting what, how much and when to produce to meet current and future customer
needs.
vii) Converting the production forecast into a production budget.
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2. Routing: this is the sequence of production as specified in a route sheet, in line with the
production layout and established materials handling procedures. Any routing should
change when products are modified, new ones introduced or when machines and processes
are changed. In custom-made production, the routing is modified for each production.
3. Scheduling: This determines the priority of production and the rate of output of the products
and the timings. It establishes a steady, economic rate of output to allow for a minimum
processing time and a rapid turnover of inventories.
a) Pre-scheduling- forecasts the sales figure and the necessary buffer to determine the overall
production output and determine the scheduling period (a year, a quarter or half a year).
The scheduling period should allow for a specific, ideal quantity of products to be in the store
to service future customer needs. This quantity should be consistently replenished by new
production.
b) The master schedule: this shows the overall or total production required to be produced and
the total production that can be done in the plant. Any gap between both is noted and dealt
with. This can be done by acquiring more workers, new machines, more training etc. The
master schedule also determines the order of priority of producing the various items or
products in a multi- product plant.
c) Production schedule: this gives a breakdown of the data in the master schedule. It
specifically sets the order of work of each machine or stage in the production process, the
starting date for each lot and the weekly or daily output for each item to match the master
schedule. In a plant producing a simple product in a continuous process, a production
schedule may not be necessary. The master schedule is detailed enough.
4. Controlling process: It aims at monitoring supply of production tools and inputs, the priority,
sequence and rate of production to ensure they are in line with the master and production
schedules. Controlling of inputs prevents shortages that can disrupt production or surpluses
that can tie-up capital. The control procedure shows production lags caused by machine
failure, input or tool shortage, defective work, absenteeism, substandard raw materials,
power failure etc. Such lags should be corrected by appropriate measures e.g. standby
equipment, more staff, overtime work, subcontracting, staff discipline, etc
4.26. Production report: The PPC unit should regularly write and submit a production report to
the general manager or CEO. The report should include
I) the size of production requirements
ii) current rate of output
iii) the capacity of the plant
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iv) any production lag and causes of the lag and action taken or recommended to alleviate it.
v) the percentage of rejects, scraps or substandard products
vi) the problem of raw material quality and supply
vi) the number of overloaded or unused machines
vii) any other production activity or decision that would interest top management or require
their endorsement.
4.30. Tutorial questions

i. Find out how small scale industries in your area carry out PPC. How different is it from what
is outlined in this section?
ii. What factors actually influence the PPC system of a company?
iii. Explain how PPC prevents the production of low quality products
iv. Design a PPC system for a bakery producing only one size of bread.
4.40. Review questions

i. How does a master schedule differ from a production schedule? When can a
production schedule be irrelevant?
ii. Differentiate between production planning and production control. How are they
useful in production of goods?
iii. Outline the process of production planning in an average industry.
iv. Write short notes on the following i) routing ii) scheduling iii) dispatching
v. What are the constituents of a good production report? How can such a report
improve production?
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LECTURE FIVE
SALES MANAGEMENT
5.10. At the end of the lecture, students should be able to:

l Define and distinguish among the terms marketing, salesmanship, sales management and
personal selling.
l Mention different aspects of sales management
l Explain how to employ, utilise, train, motivate, compensate and evaluate salespersons.
l Enumerate the importance of pricing in SMEs and how to fix attractive prices.
l Describe different benefits and methods of product promotion
l Tell how effective warehousing, inventory management and physical distribution enhance
salesmanship.
5.20 Introduction: SMEs are in business to meet the needs of their customers. Money is made
while meeting needs of customers. This will require the marketing and sale of their goods. A
successful entrepreneur therefore, should possess knowledge and skills necessary to
exchange his goods and services for the money of customers.
5.21 Definitions:
A. Marketing is a process by which a product originates and is then priced, promoted and
distributed to customers.
It is also the planning, organising, directing and coordinating efforts towards developing,
pricing, promoting and developing products for different customer groups.
B. Salesmanship is the skill required to sell or persuade people to buy a particular product.
C. Personal selling is a face to face encounter between a sales person and the customer aimed
at convincing the latter to buy the product on offer.
It is the aspect of marketing that involves the actual meeting with and selling to the customer.
SMEs can never prosper without marketing and salesmanship. Why?
D. Sales management is the planning and control of all aspects of salesmanship or sales, from
the product generation to the delivery to customers.
5.22. BASIC ASPECTS OF SALES MANAGEMENT

A. Different areas of sales management.
Sales planning includes target setting and territorial planning, employment of sales persons,
training and motivation of staff, provision of sales facilities, organising and controlling the
staff, performance evaluation, staff welfare and compensation.
30
B. Duties of sales persons
Prospecting and scouting for customers, persuading all levels of customers to purchase
company products, distribution and delivering products, monitoring the performance of the
company's products on the market, study the needs and characteristics of the market and
customers, monitoring the performance and features of competitive products, explaining
new products and policies to customers, and reporting customers' problems to office
managers,
C. Qualities of good salespersons

A good knowledge of and interest in the company and its products, a good knowledge of
competitors and their products, good communication skills e.g. ability to speak, write and
listen well, good persuasive skills, love and empathy for customers, patience and endurance,
emotional stability, self and anger control, honesty, commitment to sales duty, a knowledge
of the sales environment, basic sales knowledge and skills, good time and territory
management, optimism and positive mindedness and a love and zeal for salesmanship and
selling.
D. Motivation of salespersons: This can be achieved through

l Good corporate sales strategies that can lead to good sales and profits
l Clear sales objectives for sales persons in the form of mutual target setting set. These targets
should be sales volumes or targets per territory per period.
l Employment of qualified, customer- centred and teachable sales persons and sales
supporting staff (like secretaries and accounts staff). Inefficient co- employees can de-
motivate others.
l A good training of staff in sales knowledge, skills and attitudes to help them perform
confidently and professionally.
l Assigning of sales persons to specific zones and territories commensurate with their zeal and
experience.
l Provision of good sales facilities like computers, telephones, internet and intranet facilities,
good customer data base, motor vehicles for sales duties, maps and directories, product
samples and brochures/leaflets, work tables and chairs and access to good reference books
and mentors.
l Good promotion prospects to higher sales and marketing positions.
l Committed and qualified managers and bosses to motivate mentor and train the
salespersons.
l Humane treatment and discipline of sales persons.
l A good compensation package based on experience, performance and industry standard.
31
E. Sales Training. Training should be based on corporate training objectives, the nature of the
customer and the type of product to be sold.
The content of the training should include company history, structure, vision and mission;
product features; prospecting for customers; planning to meet customers; how to approach
customers; presentation techniques; handling sales objections and problems; how to close
sales; customer service skills; customer -follow up skills; communication including report
writing; territory and time management; sales accounting; basic vehicle driving and
maintenance techniques etc.
Training methods include lectures, problem solving, case study, visiting customers in the
company of more experienced salespersons and listening to customer suggestions and
problems.
F. Different salesperson compensation styles

A straight salary per month, a straight salary plus commission on sales, only commission on
sales with no regular salary, a straight salary + commission + company products+ sales
bonuses + special personal rewards from management.
5.23 A PRODUCT
A. Definition: Business persons sell products to customers. A product is a bundle of physical
and symbolic characteristics offered to the customer. It can be a good (tangible) or a service
(intangible).
B. Some facts to note about a product

i. The product sold to customers should consist of more than the actual, physical item for
consumption. It should also include other parts that will attract and keep customers. These
extras are ease of purchase, warranty, courtesy, effective delivery, a good and simple brand
name, quality packaging, beautiful product colours, clear product labels and instruction for
use etc.
ii. Every product, like every human being, has a life cycle from infancy through maturity to
decline. No product can exist for ever without modification. Marketing efforts and strategies
should depend on the stage in the life cycle of the product. For example products in their
infancy should require more selling and promotion efforts and more pricing innovativeness
than those in their decline stage.
iii. It is important for entrepreneurs to always develop completely new products, develop new
uses for existing products and improve the appearance and quality of the products
iv. It is important to always incorporate cost reduction and quality into every aspect of product
development and management.
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5.24 PROMOTION:
This involves all activities designed to influence and persuade customers to act in a
particular manner beneficial to the organisation.
A. Types of promotional activities

l Advertising: A paid-for message to customers through mass media like radio, TV,
billboard. Posters or radio jingles announcing the opening of a new poultry or barbing
salon in Kaura-Namoda.
l Publicity: a free message to customers through the mass media to stimulate demand, e.g.
a newspaper report about how the proprietor of a school gave scholarships to some
indigent Nigerians. This can have positive business consequences for the school.
l Telemarketing: selling by telephone for example a 'KUNU' producer using the telephone
to inform and persuade customers to buy her beverage.
l Direct marketing: this is a personalised one to one selling between the producers and the
consumers. Sales persons of different household item sell directly to customers by
helping to identify customers' problems, suggesting solutions, persuading them to
purchase their products, suggesting payment options etc. it reduces the added cost or
hoarding associated with middlemen.
l Mail order: the customer selects a product to buy from a catalogue or magazine and sends
and pays for it by post or mail. For example a businessperson may prepare a brochure or
catalogue of his herbal products. Customers would be encouraged to write or phone for
their choice of products, make payment to a particular bank account and expect the
product to be delivered to them anywhere in Nigeria in three days.
l Sales promotion: all activities other than publicity and advertisement that help to give
customers the immediate incentive to purchase a product, examples include special price
reductions, competitions and contests, sampling and free trials. They are used especially
in periods of low sales. For example the first 50 customers of a new product would pay
half the price for it.
B. IMPORTANCE OF PROMOTION
l Reduces selling efforts to make selling easy.
l Sales promotion actually helps customers make immediate purchase decisions.
l It can be used to introduce new products.
l It is used to inform consumers about changes in product, price or distribution techniques
l It can be used to build corporate or product image and counter negative publicity about
the product or company
l Promotion can also be used to build a positive brand name and customer image
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5.25. PRICING
A. Importance of pricing in SMEs.
l It affects sales volume
l It affects profit
l It affects product competitiveness
l It influences the customer's perception of quality.
l It can influence sales effort. A low price, at least initially, can reduce the efforts put into selling
a product.
B. Some Pricing Methods

l Using prices suggested by manufacturers and wholesalers.
l Adding a little 'mark up' or extra naira value on the cost price to give the selling price.
l Adapting to the prices of competitors, i.e. increasing (or reducing) them by a particular
percentage.
l Fixing prices on the basis of what the consumers are willing and able to pay.
C. Other facts about pricing

a) Sales discounts can be used to increase sales and revenue.
b) A sales discount is either a cash discount or a quantity discount.
c) A cash discount is a price reduction to enable customers pay cash promptly.
d) A quantity discount is a price reduction or rebate to induce customers to buy in large
quantities
e) Symbolic pricing is an artificial price unrelated to cost or value of the product.
f) Odd number pricing quotes the price of an item as a figure that is not rounded up, for
example N59.95 instead of N60.00. It gives customers an impression that the price is
accurate.
5.26 DISTRIBUTION
Definition. This is the total process or mode of transporting and moving goods and services from the
primary source to the final consumer. It involves the design and use of a network of available
channels for moving raw materials, components and parts, fixtures, machines internally (within the
organisation) or externally. Important aspects of physical distribution are warehousing, channel
design, communications, transportation, inventory control and materials handling.
A) Warehousing. This encompasses all the operations involved in storing goods safely and
filling orders from customers.
Some warehousing tips.
l Receive and keep goods safely with due consideration for cost, security, lighting, ventilation
and protection from rain and dust.
l Use tags with date and product type to identify and label goods
l Store similar items and products in the same area or place.
34
l Tidy and clean store and storage area
l Fill orders smoothly and fast.
A) Determining the individuals and organisations that act as go-betweens between the product
manufacturer and the consumer. These go-betweens are channels like retailers (hawkers,
department stores) and wholesalers. A producer may opt for direct marketing to the
consumer without a middle person or go-between.
B) Using communication and other means to ensure an efficient flow of goods and services to
the final consumer. For example coordinating distribution activities by telephone, the
internet or sophisticated tracking devices.
C) Means of transportation include airways (aeroplanes, helicopters); waterways (boats,
ships); motor vehicles (lorries, cars, trailers); pipelines; beasts of burden (donkeys, horses);
bicycles and tricycles; railways (trains). An entrepreneur should consider the under listed
factors to chose a means of transportation for his products:
l Nature of product, whether bulky or light, perishable, liquid or solid
l Cost of the means of transport, railways, waterways and motor vehicles are cheaper than air
transport.
l Urgency, how long it takes to transport the goods to particular destinations. Aeroplanes and
motor vehicles are faster than ships, animal carriage and bicycles.
l Distances to be covered
l Accessibility of producer or market to different modes of transportation.
In summary, an entrepreneur should weigh the costs and benefits of different means of
transport before taking appropriate decisions.
D) Inventory control
l Make right decisions as to when to order raw materials and other items, for example to what
level should the stock of items fall before new items are ordered?
l What quantities should be ordered?
l These two factors depend on the cost of ordering (cost of the labour used in ordering,
personal visits etc) and holding costs (cost of capital tied down, cost of wear and tear, risk of
the goods becoming obsolete, pilferage, insurance costs. Cost of providing security, light etc)
l Entrepreneurs should balance both factors to avoid under stocking or over stocking. Which
is worse?
35
F) Materials handling- Raw materials or products may be handled manually with bare hands or
mechanically with the aid of fork lifts or trolleys. Which one do you prefer? It depends on the
nature and cost of the materials and the nature of the businessperson (some people like to
use the best means to do business and serve the customers while others don't)
5.3 Tutorial questions

i. Find out how small scale businesses in your area promote their products. Suggest how they
can improve their promo-strategies. Would they need ad agencies?
ii. In what various ways do salespersons add value to SMEs? How do you think they can be
encouraged to work to the best of their ability?
iii. Consult businesses around you to find out if sales discounts actually work. Are there other
alternatives to them?
iv. Advise an entrepreneur who has set up a video viewing centre in your community on how to
price his services. Is pricing really important in SMEs?
v. Study how any manufacturing industry you are familiar with ware houses and distributes its
goods. Make suggestions for improvement to boost their competitiveness.
5.4 . Review questions

i. How can SMEs promote their products in a depressed economy? Why?
ii. Differentiate between marketing and salesmanship. Which of them doesn't require sales
persons? Why?
iii. Write short notes on the importance of effective
i) materials handling
ii) product modification
iii) inventory control
iv) personal selling
v) advertising
vi) product labelling.
iv. How can entrepreneurs identify and employ good sales persons?
v. Describe the factors that influence how businesspeople distribute their products. What
methods are recommended for the effective distribution of meat? Why?
36
LECTURE SIX
OFFICE ORGANISATION AND BASIC PERSONNEL MANAGEMENT
6.10. Learning Objectives:

l Define the term 'office organisation' and mention its determinants, objectives and
functions.
l Describe different types of office layout and their advantages and disadvantages.
l List various office machines and explain their functions, advantages and disadvantages.
l Explain the functions of Personnel Management in small business
l Clearly explain how to employ and motivate staff
l Fix and administer wages for workers
6.20. Introduction: No enterprise is too small to require good organisational and personnel
procedures and strategies. In fact one persistent flaw in many small businesses is the lack of
formal administration and personnel management. Students are enjoined to thoroughly
ingest and digest this lesson before venturing into business.
6.21A. Definitions;
Organisation (in this context) is defined as arranging mutually related and independent
parts into a functional whole that works smoothly.
An office is a place or room for carrying out work or business. It can be in a person's
residence or in a building different from the residence.
Office organisation therefore means arranging different parts of an office or organisation to
form a smooth system that effectively achieves corporate objectives.
B. Functions of an office
- Gathering of information from different units.
- Keeping records in registers, ledgers, and computers
- Disseminating information to different units e.g. price list,
- Protection of data
- Receiving visitors
- Doing official work
C) Office layout this is the physical arrangement of workers, furniture and machines in the
work place. It is a part of office organisation.
D) Considerations for choosing an office layout;

- Finance
- Industry practice
37
- Total space available
- The business to be transacted
- Total labour size
- Equipment and facilities available
E. Some facts about office layout.

- Plan and sketch layout on paper/computer before adopting it. Why?
- All office space should be utilised
- The layout should ensure adequate lighting, ventilation and easy flow of work.
- A good layout should allow some privacy for work that requires privacy.
- It should allow technical and administrative work to be carried out effectively.
F. TYPES OF OFFICE LAYOUT

1) Use of a Closed or private office; It is partitioned into rooms for 1, 2, 3 or more workers and
usually used by managers, accountants and secretaries.
Advantages;
- Gives privacy
- Allows workers to concentrate and focus on their work.
- Confers some prestige to the organisation.
Disadvantages;
- More costly to set up and maintain
- Supervision of the workers is more difficult
2) Use of an open office; this is an open hall or space with chairs and tables for the workers.
Advantages;
- It is cheaper than closed offices
- It leads to better staff interaction and communication
- It is easier to supervise
- The layout is flexible and can be easily modified.
Disadvantages;
- It may be noisy
- It would be hard to concentrate in an open office
- Privacy is very difficult to achieve.
- Cold and airborne diseases can easily spread
- Challenging interpersonal relations issues may occur when all staff constantly work in the
same open.
6.22A. Objectives of Office Organisation

- To unite all members and units of an organisation for a single purpose.
- Waste reduction
- Smooth office operations
- To enhance customer and employee interactions.
38
B. Determinants of how an office should be organised.
- Needs of the customers
- Type of business
- Finance
- Industry practice
C. Some principles of office organisation

- Properly plan all activities and office arrangement
- Assign duties to units and individuals
- The office organisation should fit the function of the business and the needs of the workers.
- Each unit should have a separate responsibility or set of functions under a unit head.
- There should be checks and balances among the units to reduce unethical practices
- There should be adequate supervision to reduce inefficiency and unethical practices.
- A small business could be run (at least initially) by the owner and some family members.
- The owner (or) his manager may need to perform 2 or more functions
- There may be a need to employ a few staff.
- Copy some methods of larger companies e.g. delegation, induction of workers.
- Do everything possible to reduce cost and increase sales
- There could be a need to have a schedule of duties for each staff.
- There should be a written policy of rules for dealing with customers, personnel and other
stakeholders.
6.23 A. OFFICE MACHINES

These are mechanical devises powered manually or by batteries or electricity that more efficiently
perform tasks that would have been performed by a part of the body e.g. leg, eyes, hand.
Advantages;
i. Reduce labour, cost and stress of writing and adding figures.
ii. Reduce fraud and errors.
iii. Improve layout and appearance of office documents.
iv. Increase creativity and quality of the office.
Disadvantages;
i. Some cause noise e.g. generators
ii. They cost money to buy and maintain
iii. A machine breakdown can delay work and cause embarrassment.
iv. Power instability and interruptions reduce the value of some machines.
v. The use of machines reduce interpersonal contact e.g. internet and
telephone communication decrease face to face interactions.
vi. High recurrent costs of stationery, maintenance, computer-software, diesel
and Ink increase the cost of doing business.
B. Examples of office machines

I) A typewriter [portable or fixed] to type documents instead of writing them by hand.
39
ii) A desktop or laptop computer: A computer is a machine or a series of electronic machines
connected to a unit and capable of automatically accepting, processing and producing the
results of operations. It can perform all the jobs of an office e.g. accounting, stock control,
price listing, invoicing, credit control, hire purchase documentation, wages calculations and
administration, tax and staff records, production control, purchasing control and all types of
tabulations and mathematical computations.
iii) Adding machines- Simple accounting machines used in calculating figures. There are two
types:
a) Non-listing adding machines that add or subtract figures without showing a
permanent record of the results on the screen and
b) Listing adding machines that add, subtract and produce a printed result on a paper
attached to them. Before operating adding machines, clear their screens of previous
calculations.
They are used
l to calculate wages and salaries
l to calculate sales
l for budgeting and other planning calculations
iv) Electronic calculators; these show the result of operations or figures (addition, subtraction,
division and multiplication) on the dials in the form of lighted figures.
v) Cash register; this machine registers sales and cash and produces receipts
vi) Bank note counters; count and check notes
vii) Stapler; to staple documents
viii) A power generator is an inevitable office machine in Nigeria.
6.24. A. OFFICE FURNITURE

Chairs, tables and desks; typical chairs of the managers and secretary are designed to permit
rotation and tables should be big enough for all documents and computers/typewriters.
Book cases file documents/cupboards to keep books and documents
B. ORGANIZING A STORE/INVENTORY
- Keep a store of consumables in a room, cupboard or file cabinet
- Keep a record of all the items and equipment.
- Arrange items according to a particular order, for ease of retrieval
- Similar items should be kept together
- Items that are regularly in demand should be kept nearest the door or 'at hand'
- Protect items from dirt, water, sunlight, pilfering, e.t.c.
6.25. PERSONNEL MANAGEMENT

A. Definition: It involves the planning and execution of the employment, training, supervising
and welfare of employees.
40
In large organisations the personnel function is performed by the Personnel/ Human
Resource Manager but in small businesses the owner or general manager does so.
B. Functions of Personnel Management.

l Determines the quality and quantity of persons to employ
l Determines the wages/salaries and allowances to pay workers
l Determines how workers should be treated and motivated
l It is concerned with staff training and development
l It ensures good employee relations
l It helps to plan for future labour requirements and labour saving measures
l It helps to increase corporate efficiency, discipline and productivity
l It is concerned with performance appraisals, promotion, transfers, dismissals, etc.
C. Characteristics of a good employee

l Honesty
l Loyalty
l Good health
l Ability to mix with others
l Ability to keep secrets and confidential information
l Enthusiasm for work
l Patience and ability to endure difficult situations
l Ability to relate well with other workers and customers
l Ability to work hard and be innovative.
l Cleanliness and hygiene
l A good attitude to safety and security
l Zeal to work
D. What is employment? This is the attraction and selection of persons to work in an

organisation.
It encompasses the following steps:
l Lists the tasks and duties that will be performed by the person to be employed (job
specification) and be sure that no one is presently performing them and that no present
employee can combine them with his/her duties.
l List the basic academic, work and physical qualifications of the person to be employed
(man specification)
l Specify the salary level or pay the person will receive
l Advertise for or invite people to apply for the job (recruitment). For the small businessperson,
recruitment can be done through friends, posters, existing employees, other entrepreneurs or
through visits to institutions of learning and government labour offices. The use of 'corpers',
industrial training students and casual or part time staff can greatly reduce staffing costs!
What are the merits and demerits of employing casual staff?
41
l Find out and select the applicant whose qualifications most accurately match the job
specifications. This selection exercise should focus on the personal attributes, attitude to
work, work experience and interests of applicants. Selection tools include aptitude/
intelligence/ personality or proficiency test, interviews, actual work trials, medical tests and
verification of references and other data. Is a background check of potential employees
necessary? Would you employ an over-qualified candidate?
l Give the selected applicant a letter of employment with important pay and
work details. Why?
l Place the staff in the appropriate position after induction training. The induction programme
should expose inductees to basic facts about the organisation, management and the job to be
performed.
6.26. WELFARE
Some employers show interest in their staff beyond the payment of salaries. They give something
extra to workers to make them comfortable, happy and motivated to work to the best of their ability.
Welfare items include:
Canteen services for free or subsidised meals, free medical treatment , free means of transport or
transport allowance in lieu, free or subsidised products of the company, scholarship for employees
or their wards, a virile suggestion/ complaints scheme, recreational facilities etc.
6.27. PAYMENT OF WAGES

Workers should be promptly and adequately paid and rewarded for the work they have done.
Wages could be in the form of a straight salary only, salary and allowances, salary with commission
on production or sales or only commission.
Employers should select the payment scheme that best motivates staff and prevents unusual staff
exit, sabotage or fraud. Why do some employers pay their staff just enough to keep them alive to
work? Should small entrepreneurs have a sort of retirement or pension scheme?
Some guidelines for paying wages.

l According to the Labour Act, wages should be paid in legal tender and not in company
products.
l Employers cannot control the way employees use their wages
l Salary advance shall not exceed a monthly pay and repayment shall be over a minimum of
3months with no interest charged.
l Wages should not be paid on premises were intoxicating drugs and drinks are sold.
l Wages should be paid as and when agreed
l Wages are not a favour but a right of workers who have worked
42
l Commissions and bonuses can help to motivate workers and should be paid as agreed
l Deductions should be as agreed with employees and should conform to the law
l Visit the nearest tax office to learn more about individual and corporate taxes payable. Tax
evasion is a serious crime!
l A worker's salary is the taxable income minus liability ( e.g. tax and loan) plus any bonus
and allowance.
l If the workers are many, the use of a pay advice / pay slip format is advisable.
l Pay workers through their bank accounts for security reasons. It will also help some people
develop a savings culture. If you want to pay cash, put the money in individual envelopes.
Why?
6.3. Tutorial Questions.

i. Study the layout of your secretary's office. Is it an open or closed office? Which of them is
better for secretaries? Why?
ii. List the office machines and furniture in your office and state their functions and problems.
Which relevant ones are absent? What are their functions?
iii. Prepare a set of rules for the workers in your office on how to handle visitors. What factors
influenced the nature of the rules? Why are rules important in SMEs?
iv. What in your opinion should Udu Udo Ltd consider in employing a good secretary and
personal assistant to the CEO ?
v. Your fellow 'corper' intends to start an estate agency. What office machines would he need?
6.4 Revision Questions

i. What are the functions of the following office machines and furniture?
a computer, a file cabinet, a calculator, an adding machine, a fire extinguisher.
ii. Why is personnel management important in a small business? Describe how a person
in the photography business would get a skilled assistant.
iii. Is staff welfare actually essential in SMEs? How should a restaurateur give good welfare
to his staff?
iv. Why do some business persons pay their workers very low wages?
What positive and negative effects can this have on their businesses?
v. What is office organisation? How would you advise your friend to organise his 'holiday
coaching' business for senior secondary school students in Angwar Ukwu town?
43
LECTURE SEVEN
ORGANIZING RESOURCES
7.1 Learning objectives:

l Identify the types of resources required in businesses and describe how to acquire them.
l Explain how to adjust and adapt when required resources are unavailable.
l State the problems of SME finance and how to surmount them.
l Tell how to organise resources and start SME business.
7.20 Introduction:
Resources are what entrepreneurs require to produce results. Resources like machines, materials,
money and manpower are necessary and should be procured by business persons. This lecture will
focus on how these resources can be acquired and organised.
7.21. Types of resources:

A. Machines: Machines to process inputs and produce goods and services can be procured on
the advice of the relevant agencies listed in lesson 8. The machines can be bought new from
Nigeria or abroad (China, India, Taiwan, e.t.c) or fabricated here. Local versions of several
equipment exist in our markets. Business persons may also buy used machines from
reputable sources. They should consult knowledgeable and experienced persons to avoid
buying wrong equipment. Machines can be hired, leased or bought on credit or for cash.
B. Materials: These are inputs that are processed in machines and equipment or utilised to
generate products. They are also available for purchase internally or internationally. Local
versions also exist, for example, local fish and poultry feeds are popular substitutes of more
expensive (more nutritious?) foreign feedstuff.
C. Manpower: Employers are the centre of any business. Business persons may, at least initially,
use their skills and knowledge in their business to reduce manpower cost. The use of one or
more friends, family members, 'borrowed' staff or daily casual workers will also reduce
personnel costs. Later on, an entrepreneur may seek to employ formal workers as
enumerated in lesson 6. Entrepreneurs are advised to seek out and properly motivate good
employees, who should be technically and emotionally mature.
D. Business premises: It is clear that good business locations and premises greatly impact on
any business success. But entrepreneurs may need to start from home, share a relative's or
friend's business premises until he or she is stable enough to acquire a separate, choice,
business place. We should be careful not to over- invest in business premises and make our
business unprofitable. Can people use their motor vehicles or public places as offices?
E. Money: Money is necessary to acquire other resources required to do business.

Entrepreneurs can successfully begin business with a small sum (e.g. savings from the NYSC
period) and grow successfully.
44
Other Sources of Money for Business
l Borrowing from friends and relations.
l Borrowing from clubs and civil and religious associations.
l Borrowing from cooperative societies and microfinance institutions.
l Borrowing from commercial banks.
l Small businesses can approach the NDE for loans.
l Another source of capital for SMEs is to enlist one or more partners who will provide finance
in return for part ownership of the business (equity participation).
l Some of the agencies listed in the next lesson, give or direct SMEs to those who give financial
assistance.
l Leasing or hiring of equipment, land and materials from reputable organisations and
persons is one way to inject capital into a business.
7.22 Problems of Acquiring finance

l Some financial institutions are not small business friendly, they favour big businesses
l Lack of a credible feasibility report.
l Poor business and accounting record.
l Lack of acceptable collateral for loans.
l Financial institutions doubt the viability of some businesses and are afraid to commit money
into them.
l Some businesses are reckless with funds.
l Some financial institutions are fraudulent. They withhold the SME funds from government
and impose stringent loan conditions. Some want a part of the loan as a gift.
l Some business promoters lack credibility and the stout financial structure that engender
investor confidence.
l Banks are aware that some people divert loans or have no intention of ever repaying them.
7.30. Tutorial Questions

i. Discuss with any entrepreneur in your environment to find out how he sourced funds and
equipment to start; what problems did he face? How did he solve them?
ii. Find out how your local Chamber of Commerce and Industry can assist you start a bakery
business. Where did they advise you to get funds and other resources from?
iii. How can a new graduate with small financial savings, improvise in the areas of
(a) Business premises (b) Materials (c) Machinery (d) Workers?
iv. Interview some people who shun businesses because of lack of resources to start. Do they
have a strong case? Why?
v. Apply the saying 'don't despise the days of small beginnings' to SMEs.
7.40. Review Questions.
i. What options are available for a new graduate who wants to acquire accommodation
for an internet caf?
ii. Despite government rhetoric, SME financing is still poor in Nigeria. Why?
iii. How can a potential poultry farmer with limited funds get very important
equipment and materials to start business?
iv. Counsel a jobless HND mechanical engineer who has been waiting for 2 years for
N5million to start a modern automobile repair shop in Lagos.
45
LECTURE EIGHT
LEGISLATIVE INSTITUTIONS, RELEVANT GOVERNMENT AND NON-

GOVERNMENT SUPPORT AGENCIES AND SOURCES OF ASSISTANCE FOR
SOLVING PROBLEMS
8.10. Objectives
Mention some agencies and associations that can assist SMEs in solving their problems
State the functions of these agencies and associations
Advise entrepreneurs on how to assess them.
Find out the problems limiting the operations of some of the agencies and suggest solutions.
8.20 INTRODUCTION
Nigeria like many other nations is so interested in the development of SMEs that it
i) set up some agencies and
ii) encouraged the establishment of some associations and organisations to assist and support
SMEs. This lecture is a summary of the functions, operations and problems of some of these
agencies and associations.
8.21 NATIONAL ASSOCIATIONS OF SMALL AND MEDIUM SCALE INDUSTRIES

(NASME)
NASME is the apex organisation that coordinates the activities of micro, small and medium scale
enterprises in Nigeria and helps them interact, adopt and present a common approach to
government and other stakeholders.
In specific NASME has the following functions:
l An affiliate of the World Association of Small and Medium Scale Enterprises
(WASME), NASME facilitates interaction and cooperation between Nigerian SMEs and
their foreign counterparts.
l It provides special training, exhibitions and consultancy services for SMEs
l It interacts with various agencies of government to encourage them to make Nigeria more
SME friendly.
l It advocates and preaches the development of adequate infrastructure for Nigerian SMEs.
l NASME also assists in reducing the hurdles SMEs encounter in assessing credit facilities in
financial institutions.
l It promotes the growth and development of SMEs in Nigeria.
l It makes inputs into government budget and counsels against anti- SME policies in order to
reduce the threats and challenges to SMEs in Nigeria.
8.22. MANUFACTURERS' ASSOCIATION OF NIGERIA (MAN)

It is the industrial association and spokesman of the more than 2000 manufacturing companies in
Nigeria.
46
Its functions:
It enlightens governments and the general public on the need to buy made-in-Nigeria
products.
It leads the battle against governments and their agencies to reduce interest rates, taxes and
levies for manufacturers in order to make our products affordable and competitive.
It runs an economic data and information bank for the use of its members
MAN provides professional advice to its members to help them overcome operational
problems
It liaises with NAFDAC, SON and other quality and standards enforcement agencies to
ensure that MAN members produce goods of the highest quality.
It represents manufacturers in some government agencies in order to make inputs into

government budgets and policies and discourage anti- manufacturing sector decisions.
MAN actively monitors the budgets of governments nationwide to encourage effective and
efficient budget implementation. It is a watch dog and pressure group.
Finally, MAN provides a forum for manufacturers, governments and the public to analyse and
solve problems in the manufacturing sector of the economy.
8.23. RAW MATERIALS RESEARCH AND DEVELOPMENT COUNCIL (RMRDC)

This Federal Government agency has the following functions of interest to entrepreneurs:
l The RMRDC organises workshops, seminars and symposia to enlighten people on new raw
material developments and on how to solve raw material problems.
l It assists entrepreneurs to develop and upgrade their own research and development of
suitable raw materials, especially as substitutes for imported ones.
l It assists the government and the industrial sector to formulate virile policies and strategies on
raw materials development and utilisation
l RMRDC assists in the development of machinery for developing and using local raw
materials
l It promotes and publicises the need for and the use of local sources of raw materials
l It advises the Federal Government and the industrial sector on useful conservation and
stocking strategies for scarce or varnishing raw materials.
8.24. NIGERIAN ASSOCIATION OF SMALL SCALE INDUSTRIES (NASSI)

This is an association of small scale entrepreneurs and industrialists from almost all sectors of the
economy. Its functions/ benefits are as follows:
l It liaises with government standards agencies to understand their standards and then
communicates them to members. This will help small scale industrialists satisfy local and
foreign customers.
l Members get local and international information on raw materials sourcing and technical
assistance from NASSI.
l NASSI also advises its members on the best choice of plants and equipment for optimum
production
l It represents small scale industrialists in committees and on boards of Federal and State
government. NASSI is the voice of small scale entrepreneurs.
l NASSI has an efficient library service which serves as a source of information and data for all
stakeholders.
47
l It organises seminars, tours, workshops and other types of training to upgrade the
knowledge, skills and attitudes of industrialists.
l It receives financial assistance from foreign agencies for disbursement to qualified
entrepreneurs.
l NASSI also participates in local and international trade fairs and exhibitions to promote the
products of small scale industrialists to buyers and investors.
8.25. NATIONAL ASSOCIATION OF CHAMBERS OF COMMERCE, INDUSTRY,

MINES AND AGICULTURE (NACCIMA)
A chamber of commerce is an association of business persons with the aim of promoting their
common interests. NACCIMA is an association of chambers of commerce from all the states
of the federation and Abuja. This umbrella association has the following functions:
l It maintains a data bank of sources of funds, technical assistance, ready markets and
possible business investors for its members
l It trains and develops industrialists and business persons to enhance their ability to produce
and market good quality goods.
l NACCIMA makes inputs into government budgets and policies and is also a member of
some government trade and business agencies
l It promotes Nigerian culture, tourism and technological advancement through investment,
cultural and technological tours and exhibitions.
l NACCIMA assists governments in developing the host communities of their members
through the provision of basic social amenities
l The association receives foreign trade delegates on behalf of its members and briefs them on
the quality of made in Nigeria goods. It also links the foreign investors and businessmen to
Nigerian businesspeople.
8.26. NIGERIAN EMPLOYERS' CONSULTATIVE ASSEMBLY (NECA)

NECA is a grouping of employers in Nigeria that looks after the interests of employers in the same
way the Nigerian Labour Congress and the Trade Union Congress are concerned about the welfare
of Nigerian employees.
The functions of NECA are as follows:

l It conducts research into the Nigerian economy and makes the results available to employers
to help them make good policies.
l NECA is a consultant and adviser to employers in matters of employment, management,
labour relations, environmental issues, challenges from governments, etc.
l It also organises workshops and seminars for employers in various employment matters to
help them cope adequately with the challenges and opportunities in the Nigerian and global
business environments.
l NECA represents Nigerian employers in some Federal Government agencies like the NYSC
and ITF.
l NECA coordinates the activities of employers nationwide and speaks against challenging
government policies and some demands of organised labour through press conferences,
press releases, press interviews and advertorials.
48
l NECA maintains regular contact with the International Labour Organisation, the
International Guild of Employers, SON, FEPA, FIRS and a host of international and local
organisations in order to properly brief its members on their activities and policies.
l NECA has a mechanism for monitoring and controlling its members to prevent
embarrassing gaffes, selfish and illegal activities.
8.27 COMMERCIAL BANKS

l Commercial banks grant loans and other credit facilities to entrepreneurs to enable them
purchase equipment, finance plant expansion, develop new products or markets etc
l Many of them are into leasing (helping businesses rent or acquire assets for economic use
from lessors) and factoring (arranging for debts to be bought from businesses at a discount)
l They serve as agents for government loans and entrepreneurial development financing.
l They advise and monitor businesses to ensure that financial credits are applied efficiently
and effectively.
l Banks facilitate savings and payments through their various account schemes
l Letters of credit from banks help to expedite foreign trade
l Banks are the media for foreign exchange transactions and transfers
8.28. Other financial and quasi financial institutions

Savings and loan banks, micro finance institutions, cooperative and thrift societies and town
unions may also help support entrepreneurs. They are usually more humane and less
bureaucratic than commercial banks. But their functions are more limited. For example
they may not give 'big' loans or be involved in foreign exchange trading or transfers.
Town unions and cooperative societies in Nigeria are not financial institutions. They operate
through banks.
8.29. RESEARCH INSTITUTIONS

Various research institutes were set up by government to research into and develop new
products, new procedures and methods, new machines and models, import substitutes and
innovative policies for different agricultural, medical and industrial products.
Examples of such institutes are The Nigerian Institute for Oil Palm Research, NIFOR near
Benin City; Federal Institute for Industrial Research Oshodi; Industrial Research Council of
Nigeria, Matori, Lagos; Rubber Research Institute of Nigeria, Iyanomo near Benin City;
National Root Crops Research Institute, Umuahia; Cocoa Research Institute of Nigeria,
Ibadan; Projects Development Institute, Enugu, Nigeria Stored Products Research
Institute, Ilorin, National Cereals Research Institute, Minna, National Institute for Freshwater
Fisheries, New Bussa, etc.
49
8.30. Tutorial questions:
i. List three (3) the research institutes in Nigeria relevant to SMEs. State the functions of each of
them. Why do you think most of their objectives are yet to be realised?
ii. Which of the finance-support organisations listed in the lecture are of the greatest relevance
to SMEs? How?
iii. Find out how the National Directorate of Employment can assist graduate-entrepreneurs
start their own businesses. What are the conditions for such assistance?
iv. The Small and Medium Scale Development Agency of Nigeria (SMEDAN)is one of the
support agencies that have helped entrepreneurs overcome business challenges in Nigeria.
Find out the specific duties and achievements of SMEDAN.
v. Write down your personal assessment of SME support agencies in Nigeria. How can they
operate more effectively and efficiently?
vi. Check all available news media and mention at least five SME support organisations
omitted from this lecture. What are their functions?
8.40 Review questions:

i. Why do SMEs need support agencies to operate successfully in Nigeria?
ii. Explain the activities of the Chambers of Commerce and Industry in state capitals.
iii. What are the functions of NASSI in entrepreneurial development?
iv. In what different ways do NASME, MAN, NACCIMA and NECA support small
businesses?
v. V. An enterprising 'corper' is seeking support for the development and marketing of
her mini-solar batteries, Minisol 1. Which organisation should she approach for
assistance?
50
LECTURE NINE
PROBLEMS ASSOCIATED WITH SMES
9.10. Learning Objectives:

l List some problems associated with Nigerian SMEs.
l Outline how they are caused or aggravated.
l Explain how the problems affect SMEs.
l Suggest how to solve problems of SMEs in Nigeria.
9.20. Introduction: Many people describe SMEs in Nigeria as endangered and disadvantaged
compared to their counterparts in other parts of the world. They cite the death of hundreds of
businesses and the exodus of many more to business-friendlier countries. Imported raw materials
and finished goods are far cheaper than their local equivalents. For example the cassava starch
imported from Vietnam is 50% cheaper than Nigerian starch. Vegetable oil from Thailand, textile
materials from India, Ghana, Cote d'Ivoire, China; are also cheaper than their Nigerian cousins.
What disadvantages and burdens do our SMEs bear?
9.21. Problems of SMEs in Nigeria.

Some of the reasons for business calamity in Nigeria are as follows:
l Unmotivated staff in SMEs may work sub-optimally or fraudulently and degrade the
business. Some workers regularly steal products, raw materials, money or customers from
their employers. Why?
l Many entrepreneurs are untrained in management and use autocratic management to
destroy their businesses. They commit a lot of management sins and they refuse to learn
and change.
l Poor technology stifles businesses and limits them to an elementary level in terms of
innovation, production, quantity, quality, distribution and exports.
l Some small scale producers lack raw materials of adequate quality and quantity. One SME
had to rely on milk from London for its milk drinks because many local supplies were
'potential killers'. Another said it would only stop milk importation when Nigerian farms
can boast of at least ' 250,000 healthy dairy cows for milk production and hundreds of
refrigerated trucks to transport the raw milk to top grade dairies'
l Many of the governmental and non governmental institutions set up to support SMEs are
not doing so effectively. Bureaucracy, corruption, poor performance, politics and a poor
SME mindset are some factors that paralysed some of these ineffective support agencies.
l Poor patronage of SMEs by governments and large industries reduces their growth and
capacity utilisation. SMEs have for example protested the plan of the federal government
to buy millions of anti-malarial drugs from abroad.
51
l Multiple taxes, levies, tolls, rates, charges, tariffs, paid to Federal, State and Local
governments, development and district councils, traditional rulers, village and town unions,
touts and people with different shades of uniforms from black to white strangulate industries.
The approved list of taxes and levies are ignored. Tax consultants and armed personnel
illegally seal- up business premises with no regard for the rule of law to forcibly collect
regressive taxes and levies, (and their own commissions).
l Complexity and difficulty in obtaining licences and approvals to start and do business in
specialised areas like manufacturing, drugs, food and beverages, mining etc.
l Low levels of skills and education result in unskilled or half baked workers.
l Political, religious or social unrest in some parts of the country have crippled businesses there
and chased away SMEs.
l The low productivity and uncommitted attitude and behaviour of many workers bleed
business.
l Poor infrastructures have caused some firms to move to other countries or close down. The
effect on small businesses is better imagined. Infrastructures like good roads, power, security,
water supply are still a great challenge in many parts of Nigeria.
l Lack of self control on the part of some business men makes them over invest, take very high
risks, overspend beyond their profits and engaging in all kinds of frivolous spending. They
eat their seeds.
l Poor financial skills: Some SMEs ignore effective budgeting, feasibility studies, good financial
records, cash control, auditing, financial checks and balances, e.t.c. Some CEOs of limited
liability companies see company funds as personal funds.
l A wrong choice of business or a wrong selection of business location, associates and
employees can generate problems.
l Lack of the spirit of entrepreneurship and innovation: Many business persons are not
genuine entrepreneurs; they go into business just or the money they can make.
l Many funding problems may arise; inadequate funds to start or maintain a business
enterprise is an intrinsic and potential business killer.
l Poor customer and human relations: Poor interaction with customers, employees and other
stake-holders (e.g. host communities, government agencies) can blight a business.
l Poor management methods can cause problems: some businesses can be so informal that
they lack real management structure, inventory system, accounting procedure,
administrative system, e.t.c. Business requires structures to succeed.
l Some entrepreneurs neglect their businesses because of laziness, politics or other activities
completely unrelated to their business ventures. They 'pursue many rats' and catch none.
52
9.23. Some causes of the problems
l National and local corruption in various private and public organisations.
l A lack of entrepreneurial mindset among our leaders
l A lack of people-based leadership at all levels
l The availability of 'easy' money from politics and our petroleum resources
l The flourishing of the black economy- drug pushing, drug counterfeiting, internet fraud,
money laundering, bribe-taking, round-tripping by banks and juicy inflated contracts. Do
we add kidnapping and armed robbery?
l The national infrastructural framework is weak. How?
l Some Nigerians are entrepreneurship-ignorant and rely on dwindling paid employment.
Are you among them?
9.3 Tutorial Questions:

i. Calculate how much your organisation spends to run its power generator and water
borehole. What effect does it have on its bottom-line?
ii. Visit three SMEs of your choice to find out the actual range of taxes, rates, levies and other
pay-outs they endure. How do these payouts affect their competitiveness?
iii. Consult the internet for the problems of SMEs in Western Europe. How do they differ from
ours? Why?
iv. Find out how drug pushing, drug counterfeiting, internet fraud, money laundering, bribe-
taking, round-tripping by banks and inflated contracts actually affect the economy. How
can each of them be eliminated?
v. Interview a person who has worked abroad to find out if the average Nigerian worker is less
productive than his counterpart in Europe or South-East Asia. If so what can be done to
boost his productivity? If so, how can the laziness be cured?
9.4 Review Questions

i. On a scale of 1 to 10, with 1 as the lowest score, rate the ease of doing business in
your state of primary assignment. Give reasons for your answer.
ii. Why should Nigeria be investment- friendly? Suggest 5 ways this can be brought
about.
iii. In what ways does a poor financial sense affect an entrepreneur? How can it be
remedied?
iv. Mention five problems of doing business in Nigeria and how they can be neutralised.
53
LECTURE TEN
SOME CASES IN SMALL BUSINESS MANAGEMENT
1) AKIN FISH FARMS - CASE 1

Early in 2009, Oluji Akinsefunmi spurred by government campaigns for Nigerians to embrace self
employment decided to dump paid employment and go into fish farming in Ayobo, Lagos state.
He visited two agricultural consultants to learn the basics of fish farming and fish feeds production.
Akinsefunmi then rented five old fish ponds, bought about 30,000 fingerlings, a diesel power
generator and bags of Coppens fish feeds, hired one support staff, called his religious leader for
success prayers and started what he called Akin Fish Farms. His aim was to make such wealth from
fish farming that decades of 'working for others' couldn't bring. Every morning Akinsefunmi would
be seen with his staff feeding the fishes, weeding around the ponds and doing other necessary things
to ensure that the fingerlings became healthy adults that would attract fishmongers and hotels in
Ikeja. He was an optimistic entrepreneur.
But when he later harvested and sold the fish, he made such a loss that made him decide to suspend
fish farming. He explained that the cost of the imported fish feeds mixed with their local alternatives,
lubricant and diesel for the power plant, rent for the five ponds, fingerlings, the staff, fish drugs and
vitamins and other miscellaneous expenditures surpassed revenue from the sale of the harvested fish
by 98%. Mr Akinsefumi vowed to return to fish farming later, 'fully prepared'
Questions:
i) Consult a fish farmer or agricultural expert to find out why Akin Fish Farms failed.
ii) How can Mr Akinsefunmi fully prepare to make a come back?
iii) In what ways can government make fish farming more attractive in Nigeria?
2) ZUMA MAI DADI LTD - CASE 2

Hussein Bako studied Industrial Engineering in Saudi Arabia. During one of his holidays in
Nigeria he experienced 'the mother of all strikes' by our labour unions and how governments
reneged on wage increase agreements with workers. He then swore to be his own boss and
never to work for the government or anyone.
On returning to Zazzau after his graduation and NYSC, Hussein Bako set up a bee keeping
and honey production business, Zuma Mai Dadi Ltd near the Ahmadu Bello University.
54
He was the Chairman and Chief Executive Officer of the business. He employed staff with the
correct attitude and trained them how to use materials and machines from Dubai and Bahrain.
Within a year, health conscious middle class citizens of Zazzau and its environs made Zuma Mai Dadi
honey part of their breakfast, lunch and dinner. Sugar was overthrown by the company's honey
products. Hussein prospered and fully enjoyed the benefits of successful entrepreneurship.
Persuaded by friends, Alhaji Hussein Bako left his flourishing company in the hands of his younger
brother, entered partisan politics and became a state commissioner. But the new chairman/ CEO
ran Zuma Mai Dadi aground. Workers resigned. The product quality nose dived and customers
defected in droves to rival honey producers. Alhaji Hussein Bako visited his company one day, took
a look at the once vibrant bee farm, saw the broken down machines and broke down. Now he is in a
dilemma. Should he leave politics and return to revive Zuma Mai Dadi Ltd or consolidate in politics
and allow the company to die?
Questions:
i) What benefits of successful entrepreneurship did Alhaji Hussein enjoy?
ii) What are the pros and cons of employing close relatives and friends in a person's business?
iii) In your opinion, how can Alhaji Hussein resolve his dilemma?
3) MODESTA THE ENTREPRENEUR - CASE 3

Nkechi Amarachi is a business woman.
On her return from the UK where she lived for 15years, Ms Amarachi acquired a sizeable parcel of
land in Isiala-Ngwa and set up a modern plastics industry comparable to the best in Britain. She was
encouraged by the various incentives provided by the state government including tax concessions, a
good road network, cheap labour and steady power supply from a nearby gas turbine.
Raw materials were mostly waste plastic materials collected from places as far away as Port Harcourt
and Lagos and some imports from China. Her initial plans were based on product distribution
through traders in the major markets of Aba.
But recently, the traders forced her to accept their prices, terms of payment and other decisions that
should be made by a product manufacturer. It was a clear case of the tail waging the dog. Ms
Amarachi has decided to change and liberalise her distribution and marketing beyond the powerful
market traders in Aba to major cities in Nigeria and later to Cameroon and Sao Tome.
Questions:
I) Suggest some distribution strategies Ms Amarachi can use to market her plastics ware nationwide.
55
ii) If she decides to employ sales persons, what qualities should guide her selection exercise?
iii) Describe different ways of motivating sales persons to superlative performance?
4) DAME KATE OMON SMILE TRAIN. CASE 4

Dame Kate Omon Smile Train is a not- for- profit organisation set up to cater for children with cleft-
lips in Ekpoma and the entire Esanland. It is financially supported by subscriptions from its 14 board
members and donations from local and international sources. The children undergo treatment in
Nigeria and Mumbai, India.
The following transactions took place in the NGO in the year 201x.
(a) Donations to the NGO---------- # 2,780,000
(b) Subscription by board members--- #950,780
(c) Feeding and clothing of children----------------#390,000
(d) Surgical operations and other medicals --------------- #2, 790,670
(e) Transportation-------# 150,000
(f) Accommodation----------------------# 100,000
(g) Electricity and other sundry expenses ---#276, 721.
i) Prepare an income and expenditure account for the financial year, for Dame Kate Omon
Smile Train.
ii) If the organisation were profit making, the donations could become revenue from operations,
and subscription by members turned to owners' equity. How will the profit and loss account
then look like?
5. INDUSTRIAL SUIT- TAILORING CHALLENGE - CASE 5

Suit tailors in Nigeria are in a quandary. Their businesses have slumped because of cheap imports
from Asia. An imported suit from Dubai or China can cost as little as # 4,000. According to an
official of the Tailors Association of Nigeria, who wants to remain anonymous so as not to
jeopardise his business interests, such suits are of dubious quality and may not remain good for
more than six months.
But how can our tailors compete with them on price, the main determinant of purchase to the
average Nigerian?
It is difficult for a Nigerian sewn suit to cost less than #6, 500. A good suit fabric costs at least #1,000
a yard or #4,000 for the 4yards required to sew a suit. The assistants who cut and sew the jacket and
trousers will be paid at least #2,000 and #1,500 respectively. The cost of finishing (sewing the
sleeves and collar, fixing the buttons etc) and ironing could be as high as #1, 500 per suit. How can
the finished Nigerian suit match the Asian price of # 4,000?
But Nigerian tailors need to improve their quality and skill. Some of the ladings in suits they sew
overhang. The filling they use to make the suit solid and thick is of a low quality and makes the body
of the suit fold. In summary suit by Nigerian tailors are of low quality.
56
How can they be compared with Asian or European tailors with their specialised skills, machines and
division of labour? There, two different persons or machines cut the fabrics for the body of the suit
and the trousers, different specialists fix different parts of the suit and trousers, and others do the
finishing and ironing.
That is not all. According to Microsoft Encarta, 'today, the tailoring industry relies heavily on
computers to aid in patternmaking and layouts. Digitized data is fed to computer-driven cutting
machines for either single- or multi-layer fabric cutting. Garment assembly may employ advanced
robotics for relatively simple operations, but more complex work is still done by the individual
worker. Industrial sewing employs hundreds of specialized seaming techniques as well as a wide
variety of specialized stitching techniques'.
A small or medium scale tailor may not use robotics but there is a need to use cost cutting, quality
enhancing and time saving technology for effectiveness and competitiveness and to retrieve some
lost business from abroad.
Questions.
i. What do you think is the origin of the present 'suit making challenge' in Nigeria?
ii. Discuss with tailors in your area what they consider to creative solutions to the problem of
suit tailors in Nigeria. What are they?
iii. What resources do Nigerian graduates need to commence an industrial tailoring
business?
57
BIBLIOGRAPHY
i. Lawal, Abioye, Kio, Folusho, Sulaimon, Abduhameed and Adebayo, Isaiah:

Entrepreneurship Development in Small Scale Business (2000) Labson Resource
Nigeria Ltd, Lagos.
ii. Onasanya, SAB (2005) Effective Personnel Management and Industrial Relations.
CMD, Lagos.
iii. Onasanya, SAB (1988) The Effective Secretary. Longman Nigeria Ltd, Ikeja.
iv. Orekoya, Tosin (2010) Marketing for Managers. Publishers, Lagos.
v. Ubah, S C (2008) Customer Service and Risk Management for Small Businesses. Lagos,
Douglas and Diana Publishing.
vi. Ubah, S. and Atakpu, E; (2010) Management and Human Capital in Nigeria, Lagos,
Douglas and Diana Publishing.
vii. Wood, Frank and Sangster, Alan (2005) Business Accounting 1, London, Prentice Hall-
Financial Times.
viii. NECA Employers' Digest, Vol 6, No 4, Oct- Dec. 2010
ix. NACCIMA Business Directory and Nigeria Economic Guide, 2008.
x. Nigerian Business Fact book: Network Media Publishing Ltd, 2004.
58

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NIM

NIGERIAN INSTITUTE OF MANAGEMENT

NIM VISION: To be The Source and Symbol of Management Excellence

Nigerian Institute of Management (Chartered)

VISION: To be the Source and Symbol of Management Excellence

Reviewed questions are provided at the end of each pack.

We also appreciate the support provided by the Directorate of Capacity Building.

Lesson 9 Problems associated with SMEs in Nigeria. 51

THE CONCEPT OF ENTREPRENEURSHIP

1.20 Meaning of 'Entrepreneur'

1.21A. The roles of an entrepreneur

1.22A. The characteristics of an entrepreneur

1.22B. Some sayings from notable entrepreneurs

1.22C. THE HISTORICAL DEVELOPMENT OF ENTREPRENEURSHIP IN NIGERIA

1.23A. RISKS AND REWARDS OF ENTREPRENEURSHIP

B) Some common business risk factors

C) Social rewards of entrepreneurship-

1.25. IDENTIFYING AND EXPLOITING BUSINESS OPPORTUNITIES.

A good business opportunity or idea has the following features:

B) Sources of business opportunities

C) METHODS OF IDENTIFYING BUSINESS OPPORTUNITIES

D) Exploiting Business opportunities

1.26. The Feasibility Study.

C) Importance of a feasibility study/report

D) Who performs the feasibility study?

E) Procedure for writing a feasibility study

F) Outline of a feasibility report

1.3. Tutorial Questions:

1.4. Revision questions

2.1. Learning objectives

D. The double entry system

Fig 1: A T- account showing the debit and credit halves.

2.22 BALANCE SHEET:

B. Some facts about balance sheets

Balance Sheet of Omolere Edes Ltd as at 25 March 2O1X

2.23 THE MANUFACTURING, TRADING PROFIT AND LOSS ACCOUNT (PROFIT

C. Basic facts about a profit and loss account

D. Other data used to draw up the profit and loss account

E. Fig 3: Example of a profit and loss statement.

Omolere Edes Ltd.

2.24. CASH FLOW STATEMENT

C. Construction of a cash flow statement

2.25. THE INCOME AND EXPENDITURE ACCOUNT

B. A receipts and payments account: A receipts and payments account is simply a

C. Income and expenditure accounts.

2.26. INTERPRETATION OF FINANCIAL STATEMENTS: RATIO ANALYSIS

B. Importance of ratio analysis

C. Other uses of ratio analysis

2.30. TUTORIAL QUESTIONS

3.1 Learning objectives

3.21. The ABC of purchasing

3.22. Objectives of purchasing

3.23. Different Purchasing styles

3.24. Purchasing procedure

3.30. Tutorial questions

3.40. Review questions

PRODUCTION PLANNING AND CONTROL

4.21.A. What is Production Planning and Control?

C. Other activities and benefits of production planning.

D. What is production control?

4.23. Benefits of an effective production planning control

4.24. Factors that influence production, planning and control

4.25. The production, planning and control process

4.30. Tutorial questions