I.S Tamba (2017) .Enterpreneourship Concepts - National Institute of Transport, DSM

ENTREPRENEURSHIP
2017
5 December, 2017 Faustine J.M

LECTURE ONE: UNDERSTANDING
ENTREPRENEURSHIP
1.1 Definition of entrepreneurship

1.1 Definition of Entrepreneurship
• Before defining the term entrepreneurship it is
important to define a key word forming part of
this terminology. This term is an “entrepreneur”.
The word entrepreneur derives from the French
words, entre, meaning "between"' and
prendrem, meaning to "to take". The word was
originally used to describe people who take on
the risk"' between buyers and sellers or who
"undertake" a task such as starting a new
venture.

• Entrepreneur is a therefore defined as the
person who tries to do something new,
visualizes a business opportunity, organizes
the necessary resources for setting up the
business and bears the risk involved. Thus, an
entrepreneur may be termed as an innovator,
an organizer and a risk bearer.

• The term entrepreneur may be properly
applied to those who incubate new ideas,
start enterprises based on those ideas, and
provide added value to society based on their
independent initiative.
• After understanding who is an entrepreneur,
now let us define the term entrepreneurship.

• Entrepreneurship is the process where
individuals or a group of individuals risk time
and money in pursuit of opportunities to
create value and grow through innovation
regardless of the resources they currently
control. The term ‘entrepreneurship’ can also
refers to the functions performed by an
entrepreneur.

• In not quite different perspective,
entrepreneurship can be defined as the
process of creating something new with value
by devoting the necessary time and effort,
assuming the accompanying financial, psychic,
and social risks, and receiving the resulting
rewards of monetary and personal satisfaction
and independence.

1.2 Characteristics of Entrepreneurs
• In the definitions of who is entrepreneur and
what is entrepreneurship, we met common
and re-occuring terms such as value,
independence, initiative, risk and resources to
mention few. These give a rough picture of
how entrepreneurs look like. To be very
specific, the following are the characteristics
that many people who are known as
entrepreneur shares.
i. Initiative- an entrepreneur must have an
innovative aptitude, pick the right
opportunity, and initiate action. If he/she does
not initiate action at the right time the
opportunity may be lost. Hence, the ability of
an entrepreneur to take initiative is the key to
the success of the venture to a great extent.

ii. Wide Knowledge- an entrepreneur should
have wide knowledge of the economic and
non-economic environment of business like
the market, consumer attitudes, technology,
etc. In the absence of such adequate
knowledge, the decisions taken by him may be
poor and will not contribute to the
profitability of his business in the long run.

iii. Willingness to assume risk- entering any
venture is full of risks and uncertainties. In
order to deal with various kinds of risks and
uncertainties efficiently, the entrepreneur
should have willingness and necessary
foresightedness to assume risks. The quantity
and quality of risk taking would determine the
quality of business decisions.

iv. Open mind and optimistic outlook- an
entrepreneur should have an open mind.
He/she must possess a dynamic and optimistic
outlook so as to predict changes in the
business environment and respond effectively
without delay. Being optimistic enable the
entrepreneur to take initiative in relation to
his business idea.

v. Adaptability/flexibility- the entrepreneur must
be prepared to adapt to the changes taking place
in the system. Any resistance to change and delay
in responding thereto, shall lead to losing the
opportunity of taking advantage thereof.
vi. Self-confidence- for achieving success in life, one
should have confidence in himself/ herself. A
person who lacks confidence can neither do any
work himself/herself nor inspire others to work.

vii. Leadership Qualities- an entrepreneur
should possess the qualities of a good leader.
He/she should have the traits of self-
discipline, presence of mind, sense of justice,
honor and dignity and above all, a high moral
character.

viii. Orientation towards hard work-while
running a business, one problem or the other
may occur. The businessmen has to be vigilant
about these and find solutions thereof as early
as possible. This requires hard work on the
part of the entrepreneur. He has to put in
extra efforts to ensure success of the
enterprise started by him.

1.3 Functions of Entrepreneur
The functions of an entrepreneur can be
summarized as follows.
i. Conception of an idea: An entrepreneur is the
person with a creative mind who can identify
business opportunities and take steps for the
conversion of ideas into successful business
ventures, and give them a concrete shape.
ii. Promotion: It is felt that generally an
entrepreneur undertakes the risk of setting up

a small enterprise as a sole proprietor. But, now-
a-days many entrepreneurs have assumed the
role of promoters of large companies. In fact,
promotion may be undertaken for setting up a
new business, small or large expansion of an
existing business or for combining two or
more business firms. As a promoter, the
entrepreneur has to conduct feasibility
studies, decide to the form of organization,
assemble the required funds and people, and
give a concrete shape to the business
proposition.
iii. Innovation: An entrepreneur is also seen as
an innovator who tries to develop new
technology, products and markets. The
entrepreneur uses his creative abilities to do
new things and exploit opportunities in the
market.

iv. Bearer of risks and uncertainty: You know
that starting of a new business venture
involves good amount of risk and uncertainty.
To start with, it is the entrepreneur who
assumes risks and is prepared for the losses
that may arise because of unforeseen
situations in future. In fact, it is his willingness
to take risks that helps him to take initiatives
in doing new things or trying new methods of
production.
v. Arranging necessary capital: Arranging funds
is one of the biggest hurdles in setting up a
new entrepreneur. It is he/she, himself/herself
who has to provide the initial capital
(otherwise known as ‘risk capital’ or ‘seed
capital’) for starting the ventures.

1.4 Role of Entrepreneurship in the
Economy
• It is beyond reasonable doubt that
entrepreneurship is essential for economic
development in a country like Tanzania and
anywhere in the world. Entrepreneurs are
regarded as the prime movers of innovations
and act as key figures in economic
development of a country. Specifically
entrepreneurship serve the following roles in
the economy.
Economy
i. Helps the formation of capital by bringing
together the savings and investments of people;
ii. Provides large-scale employment opportunities
and increases the purchasing power of the
people;
iii. Promotes balanced regional development in the
country;
iv. Helps in reducing concentration of economic
power (power to own the factor of production in
a few hands).
Economy
v. Helps availability of new products and services at
higher quality.
vi. Helps introduction of new technology,
vii. Improvement in the standard of living- by
adopting latest innovations in the production of
wide variety of goods and services in large scale
that too are at lower cost.
viii. Promotes country's export trade-
Entrepreneurs produce goods and services in
large scale for the purpose of earning huge
amount of foreign exchange from export.
Economy
ix. Induces backward and forward Linkages- this
is due to the fact some entrepreneurs demand
raw materials from other firms (backwards
linkages) and others supply firms to other
firms (forwards linkages) hence creation of
revenues and growth among firms.
x. Facilitates overall development- The total
effects of various roles of entrepreneurship is
overall economic development of a country.

1.5 Challenges facing entrepreneurship
in a country like Tanzania
i. Limited source of funds- most of financial
institutions offers loans to those already have a
business. Some demand colaterals which may
not be available to entreprenuer.
ii. High cost of capital-microcredit institutions the
major source of financing entrepreneurs offer
loans at very higher interest rates.
iii. Lack of enterprising culture-many people prefer
to save their money in foreign banks rather than
investing in income generating activities.
1.5 Challenges facing entrepreneurship
in a country like Tanzania
iv. Competition from big companies
v. Stringent conditions imposed by foreign
markets on products coming from third
world countries.
vi. Limited production capacity
vii. Lack of enough support

LECTURE TWO: OPPORTUNITIES
AVAILABLE FOR ENGINEERING
GRADUATES
2.1 Introduction

2.1 Introduction
• IT works with computers and internet to store,
study, retrieve, transmit, and manipulate data or
information often in the context of a business or
other enterprise. It also encompasses other
information distribution technologies such as
television and telephones. Several industries are
associated with information technology, including
computer hardware, software, electronics,
semiconductors, internet, telecom equipment,
engineering, healthcare, e-commerce and computer
services.

Why think about IT?
• Innovation is the great way to success in this digital
age.
• The path of innovation in business means doing
something different, smarter or better that will make
a positive difference in terms of value, quality or
productivity by using emerging or proved
technologies of the world.
• The technology which has already proved itself in last two
decades is of course the information technology (IT). It has
dramatically changed the lives of the individuals and
organisations.
Why think about IT?
• Currently online shopping, digital marketing, social
networking, digital communication and cloud computing
etc are the best examples of change which came through
the wave of information technology. Now accurate business
planning, effective marketing, global sales, systematic
management, real time monitoring, instant customer
support and long term business growth cannot be achieved
at the optimum level without IT.

The importance of IT in Business
• The success of every business depends on certain factors.

Some of which are accurate analysis, choosing the right
technology and the future vision.
• Research from the last two decades has proved that those
organizations that do invest in technology and choose the
path of innovation increase their market share, financial
figures and overall competitiveness.
• Information technology is the only technology which
provides opportunity to analyze specific data and plan your
business journey accordingly.

The importance of IT in Business
• It also provides you many tools which can solve complex

problems and plan the scalability (future growth) of your
business.
• In the modern age, it is proved that digital marketing is a
great tool which let you promote your products or services
to the global market while sitting in the comfort of your
remote office or home.
• It provides the cloud computing and modern
communication which enable you to form a global
organization, manage and monitor its virtual offices all
over the world.

Roles of IT
• Decision Making
• Speed and accuracy are at the heart of making right
decision for your business.
• Every successful organization has to go through a
comprehensive market research process which
enables management to make the right
decision. Market research can be done in many ways
through online surveys, forums, blogs, group
discussions using World Wide Web and of course
through in-person interviews as well.
Roles of IT
• Decision Making cont…..
• Currently Big data, Google Analytics and
Microsoft CRM Dynamics are also great tools
to extract useful information which can impact
on decision making.
• These online tools not only provide real time
responses from the potential audience but
also ensure the accuracy of data by minimizing
the risk of human errors.
Roles of IT
Marketing and Business Growth
• The heart of the business success lies in its marketing
which enables the management to identify its target
audience first and then observe their trends and
needs.
• The overall marketing covers public relation, advertising,
promotion and sales which subsequently impact on business
growth.
• Many types of marketing can help you reach your
potential customers.
• .
Roles of IT
Marketing and Business Growth cont…
Digital marketing here which was the dream in the past without
Internet technology. Digital Marketing is a modern
phenomenon which let you promote your products or
services all over the world. It is a broad term which includes
many concepts like search engine optimization (SEO), pay per
click (PPC), blogging, discussion forum, email shot, SMS, MMS,
social media marketing and Smartphone app advertisement
etc. Currently web market is booming at a very fast pace
because most of the entrepreneurs have understood that the
long term success in business is not possible without digital
presence on the internet. Millions of new websites are being
added
5 December, 2017 on the internet every year.
Faustine J.M
Roles of IT
Marketing and Business Growth cont…
Currently web market is booming at a very fast
pace because most of the entrepreneurs have
understood that the long term success in
business is not possible without digital
presence on the internet. Millions of new
websites are being added on the internet
every year.

Roles of IT
Customer Support and Satisfaction
• Higher level of customer satisfaction is the key
to success which cannot be achieved without
a real time customer support process.
Business success depends on knowing its
customers needs, trends, behaviors and
satisfaction level. Effective communication is
the best tool to understand the customer
demands, problems and their solutions.
Roles of IT
Customer Support and Satisfaction cont..
Thanks to the Internet Technology that has enabled us to
communicate with millions of potential or existing customer
in the real time.
IT provides many channels to communicate with the customer without going
out in snow or rain.
Some of these channels are email, webinar, social media, member portals,
online newsletters and text or multimedia messaging through the smart
phone.
Enterprise organizations normally use customer relationship management
systems (CRM) to hold valuable data for understanding customer
behaviors and future needs.

Roles of IT
• Resource Management and Globalization
• Resource management plays a crucial role in business success.
When it comes to medium or large organization, it is very hard
for the top management to manage all the resources
manually.
• These resources may include tangible, financial or human
resources etc.
• Information technology has played a vital role in automating
such complex problems by introducing user friendly solutions.
A decade ago, most of the resource management solutions
were desktop based.

Roles of IT
• Resource Management and Globalization
Thanks to the internet and cloud technology which enables software
engineers to introduce cloud based ERP (Enterprise Resource Planning)
solutions.
Now, the managers can manage or monitor their organizational resources
virtually anywhere in the world by using their personal computer, laptops,
tablets or Smartphone.
This concept has introduced the idea of globalization.
Most of multinational companies (Microsoft, Google, Amazon, McDonalds
etc) in the world use these cloud based solutions to manage their virtual
or physical offices and staff worldwide.

Business Opportunity
• A business opportunity is an idea that can be turned into
business and it comes about after a thorough study or survey
of a certain environment.
• Business opportunity can be identified through understanding
a consumer market and what needs to be done to products or
services to satisfy consumers.
• Specific methods are interviews, observations, asking for
suggestions newspapers, magazines, soliciting complaints, etc.

Opportunities
Information technology (IT) and Information and
communications technology (ICT) represent two of
the most exciting areas of employment for new
graduates.
Careers in IT & ICT now encompass a broad number of
areas from business consulting, development and
sales to technical roles. In addition, IT & ICT
professionals work in a variety of sectors including
finance, property and business services, as well as
the primary IT & ICT sectors.
Opportunities cont…
The range of occupational pathways in ICT continues to
expand as technology penetrates more and more
aspects of daily life. Common areas of work for ICT
graduates include:
(a) Software engineering and programming;
(b) Systems analysis and administration;
(c) General ICT management;
(d) Multimedia development; and ICT support.

Employment opportunities for ICT graduates are strong.
The ICT industry did not succumb to the effects of the
recent Global Financial Crisis as compared with
many other sectors, and ongoing investment in
technology and IT infrastructure suggests strong
employment growth in the coming years.

The industry has developed a unique corporate culture
in which flexible employment conditions are
common place.
ICT skills transfer easily from one country to the next,
so experienced ICT professionals can expect to find
career opportunities almost anywhere in the
developed world.

2.4 Role of Youth in Economic
Development
• The old saying that youths are the leaders of
tomorrow is not just a delaying tactic but an old and
worn out proverb because it has become clear that
youths should be leaders of today
• Nearly 50% of the developing world population is
youth and children there are 1.2 billion 15 to 24
year olds in the world and one billion live in
developing countries this is often referred to as the
'youth bulge' as young people constitute a high and
peaking proportion of many populations. youth
bulge represents both a challenge and an
opportunity for development.
Development
• Youth are energetic they can work for long hours
and overcome various challenges at the work place.
• Youth can easily adapt to new technology and
various changes in the society.
• Youth are optimistic due to many years ahead which
force them to prepare any environment which can
make them live comfortable.
• Youth know how to network both locally and
internationally.
• Youths are the market for different goods and
services
Development
• The large numbers of young people are therefore an
opportunity; an investment. Youth participation in
development:
i. Strengthens young people's abilities to meet their
own subsistence needs;
ii. Prevents and reduces vulnerabilities to economic,
political and socially unstable environments;
iii. Promotes ownership and sustainability of
interventions;

2.4 Paid Employment vs Self
Employment
• Graduate engineers may have opportunity to work in
large companies both nationally and internationally,
and get very attractive package, good office,
subordinates to lead and good title like Engineer….
Becoming an entrepreneur may necessitate you
sacrifice all such benefits. The most exiting part of
Entrepreneurship is that you are your own master.
When you are an employee, you work for others
according to their plans, whims and finances. In an
Entrepreneurship, it is you who set the goal, plan the
action and reap the satisfaction and rewards of
having achieved the goal.
Employment
• Why should you become an Entrepreneur/Self Employed?
 You will be your own boss and boss to other people and make
decisions that are crucial to the business success or failure.
 You will make money for yourself rather than for someone
else.
 You may participate in every aspect of running a business and
learn and gain experience in a variety of disciplines.
 You will have the chance to work directly with your
customers.
 You will have the personal satisfaction of creating and
running a successful business.
 You will be able to work in a field of area that you really enjoy.
 You will have the chance to build retirement value.
Employment
Basically the following are the rewards for an
Entrepreneur
i. Freedom to work.
ii. Satisfaction of being own boss.
iii. Power to do things as he likes.
iv. Rewards of ownership and retirement assurance.
v. Respect of family and friends.

Employment
Penalties for an Entrepreneur
i. Constraints of financiers, laborers, customers,
suppliers, and debtors curtail his freedom.
ii. Frustration due to availability of limited capital and
other resources.
iii. Social and family life is affected due to hard long
hours of working.
iv. Frustration due to non-achievement of full
objectives.
v. Risk of failure.
LECTURE THREE: SMALL BUSINESS
ENABLING ENVIRONMENT
3.1 Introduction to Small Business

• Small business is part of different types of business
sizes falling under an umbrella of Small and Medium
Enterprises (SME’S).
• SME’s is any acronym used to represent different types
of business, namely small and medium enterprises.
Below and above small and medium enterprises, are
micro and large enterprises respectively.
• The SMEs/SMEs cover non-farm economic activities
mainly manufacturing, mining, commerce and services.
There is no universally accepted definition of SME.
Different countries use various measures of size
depending on their level of development

• The commonly used yardsticks are total
number of employees, total investment and
sales turnover.
• In the context of Tanzania, micro enterprises
are those engaging up to 4 people, in most
cases family members or employing capital
amounting up to Tshs.5.0 million. The
majority of micro enterprises fall under the
informal sector.

• Small enterprises are mostly formalized
undertakings engaging between 5 and 49
employees or with capital investment from
Tshs.5 million to Tshs.200 million.
• Medium enterprises employ between 50 and
99 people or use capital investment from
Tshs.200 million to Tshs.800 million.



• This definition should not only be based on
quantitative characteristics of the enterprises,
but should also take into account the
difference between sectors.

• Small business in one sector does not mean
small in another sector. For example 200
million in construction sector can be very
small level of investments, however the same
amount of investment in Poultry farming can
be seen as a very large business. From the
above facts, then a small business is the one
which is independently owned and operated
for profit and it is not dominant in its field.
3.2 Enabling Environment for SME’s
• The factors for enabling environment for

enterprise can be divided into the macro
environment, micro environment and the
immediate MSE facilitation (meso)
environment.
a. Macro Environment
Tax policies and regulations
• Good tax regime-the tax regime which is
oriented to SME rather than the current
• situation where they are oriented to the large-
scale sector. Existence of provisions for tax
exemptions not only for large businesses but
also for SME’s.
• Provision of knowledge on the tax system.
This is due to the fact that here are a large
number of taxes and levies. For example there
are 27 different taxes and levies that apply to
various businesses and a certain level of
knowledge is required.
• Abolishing weakness on tax assessment. The
tax assessment and collection system lacks
transparency and predictability, creating
opportunities for tax officials to exhort bribes
from small business operators. Some business
people report that they have to conceal or
even worse, avoid growth, because otherwise
tax officials may demand unrealistically high
taxes and bribes and will harass.
Economic trends
• Absence of Inflation- this is due to the fact
that inflation has huge impact on
entrepreneurship as in inflation period, the
value of wealth decreases and the purchase
power of people declines. Therefore,
consumers tighten their belts and there are
fewer opportunities for entrepreneurs. So the
absence of inflation is a grace to the
entrepreneur.
• Low interest rates-this is due to the fact that
high interest rates limits the amount of capital
that a company can raise. Especially for SMEs,
if they can not receive adequate working
capital, they are likely to die off quickly during
the start time.
• Employment related issues-Employment
impacts on the entrepreneurship process.
High employment rates mean that there are
less people opting for self-employment,
as a result, the competition between these
SMEs will become less. At the same time
because of this high unemployment and
limited earnings, markets are naturally limited.
Good Business Registration and Licensing
• Absence of business registration and licensing
process which is unduly complicated and time-
consuming because of excessive bureaucracy
and in some cases because of demands for
bribes by officials.
• The government has started taking some
initiatives to improve the situation. Various
agencies have been set up to facilitate the
process of investing in businesses. These
include the Business Registration and
Licensing Authority (BRELA) and Tanzania
Investment Centre (TIC). Unfortunately
however, these organizations mainly target
large enterprises. Furthermore these are
centralized in Dar es Salaam.
• Availability of enough information on these
agencies. The current situation is that most of
SME’s lack information about the existence of
these agencies and, in any case, most
women’s businesses are just too small to be
served by these agencies.
Development of Enterprise Culture-providing
entrepreneurship knowledge and training.
Encouraging people to start small business
and invest in different sector.
b. MICRO ISSUES
• Owners/managers/ employees capabilities-
attitudes, knowledge, skills/exposure.
• Strategies for and management for growth
such as diversification, product differentiation,
etc.
• Networking both locally and internationally,

c. Support and Development Services for MSE
Promotion
Availability of Marketing Services
• Availability of adequate market outside the
immediate locality. The provision of marketing
services to the majority of entrepreneur
(market research, marketing intermediation,
facilitation of sub-contracting arrangements,
packaging, etc) to the sector.
• A few private firms and NGOs, including the
Finance and Enterprise Development Agency
(FEDA), Private Sector Initiatives (PSI), FAIDA-
Rural Economic Activities (REA) and
TechnoServe provide marketing research
services. They carry out market studies in
Tanzania as well as abroad, for SMEs or their
associations. The shortcoming is that these
services reach only a very tiny proportion of
SMEs.
Availability of Business Information and
Policy Advocacy
• Providing entrepreneurs with information
about sources of inputs, technology, premises
and laws and regulations related to their
businesses. They also require a forum through
which they can have their voices heard and
their interests taken into account.

• Business associations, government agencies
and other NGOs are supposed to provide
these services. However, in actual practice
very little is available for this purpose. There
are a number of MSE operators’ associations.
Few and their strengths and weaknesses are
analyzed below.

Opportunity for Technology Development
and Transfer
• Technology is the capacity and know-how
necessary for the processing of raw materials
into products, thereby adding value and
generating wealth. There are a number of
public sector research and development
(R&D) institutions like Tanzania Industrial
Research and Development Organization
(TIRDO),
• Technology Development and Transfer Centre
(TDTC) of the University of Dar es Salaam,
Kilimanjaro Industrial Development Centre
(KIDC), Centre for Agriculture and Rural
Mechanization and Technology (CARMATEC),
and the Cleaner Production Centre of Tanzania
(CPCT). These institutions have been
developing and disseminating appropriate
technology for SMEs.
However most have had to scale down
operations or resort to commercial production
because funding sources, which have been
based on donor and government subventions,
have dried up. The assumption that these
institutions could develop and sell technology
to manufacturers has not worked because the
technology they develop is so simple that it
can be and is easily copied by informal
manufacturers.
Provision of well tailored Technical Training
• There is a wide range of service providers of
technical training all over the country. They
include public institutions and private colleges.
The most prominent among them are the
Vocational Education and Training Authority
(VETA) Centres, religious organizations and NGOs.
Generally, technical training is aimed at
employability in large public or private
enterprises, not self-employment or employment
in SMEs. This is unfortunate because there are
very limited job openings in the formal sector.
• Of late, VETA has changed its curricula to
include some aspects of entrepreneurship in
order to prepare and encourage its graduates
to employ themselves.
• However, even if they could employ
themselves, the market for the products they
have learnt to produce is often limited relative
to their number. As a result, most of the
graduates from the technical institutions
remain unemployed.
Provision of free Advisory and Consultancy
Services
• The most common consultancy services to
SMEs relate to preparation of business plans
and loan proposals and improvement of
management practices. Some of the service
providers include SIDO, NGOs, Techno Serve
and some business development projects such
as FAIDASEP and Rombo-Pact.
• The main problem with consultancy services is
sustainability. Hardly any MSE operators are
able and willing to pay any fee for consulting
services. As a result, the service is only
available when there is a donor sponsoring it.
It is also not quite clear whether these
services have had any impact.

Provision of Entrepreneurship and Business
Training
• Lack of business and entrepreneurship skills
inhibit potential entrepreneurs in accessing
relevant business information, articulating
their needs as well as dealing with regulatory
and other challenges, such as bureaucracy.
Currently, there are many institutions which
offer training to SMEs.

• It offer high quality entrepreneurship
programmes and generate highly trained staff.
The major weakness of this body is that their
programmes are too expensive for most SMEs
and outreach is limited to a few SME
operators. Other Higher Learning Institutions
have highly trained staff but some tend to be
theoretical.

Availability of Business Premises
• Recent studies show that SMEs face serious
problems in terms of working premises and as
much as 60 per cent of businesses in the
informal sector operate along the streets. In
Tanzania, particularly in the urban areas
where the businesses are concentrated, it is
close to impossible for SMEs to acquire plots
for constructing business premises because of
bureaucracy, corruption and the very limited
number of surveyed plots.
• As a result, even relatively well-to-do business
operators are forced to locate manufacturing
and other types of businesses in residential
areas. This in turn often creates frictions with
government enforcement agencies.

Fight against HIV/AIDS and Health
• HIV/AIDS is a major threat to all economic
activities, including SMEs. The disease has been
claiming the lives of many entrepreneurs as well
as their employees. It is crippling SMEs whose
owners have to care for their sick or orphaned
relatives. The responsibility for care and the
overall impact of HIV/AIDS tends to fall
disproportionately on women, and consequently
creates and added burden for women
entrepreneurs. Some businesses, by their nature,
make the SMEs operators and their employees
more vulnerable to this disease than other
occupations.
• The existing AIDS awareness campaigns are
targeted mainly to the general public and are
not specifically targeted at business people
who are more vulnerable. Institutions which
offer such services are few in number and
mainly consist of NGOs and the Ministry of
Health.

Access to Financial Services
• Studies have shown that many SMEs lack
access to finance for starting, operating and
expanding their businesses. The estimated
demand for MSE credit is 2.5 million
borrowers, compared to about 50,000
borrowers being served currently. The largest
demand for credit is in the range of Tshs
50,000 to 500,000.
Small and short-term loans (typically rising in
stages from Tshs 50,000 to 500,000 per MSE
recipient or loan group, with a repayment
period of 6-12 months) are available from
several MFIs, of which PRIDE, MEDA and
Poverty Africa are the most prominent and
widespread. The main beneficiaries are
microenterprises primarily in trade, food
vending and agriculture.

• Loans attract an interest rate of between 25
and 40 per cent per annum, which is above
the commercial lending rate (20-25 per cent).
These rates would be a disincentive to long-
term borrowing even if this was available.

LECTURE FOUR: PLANNING FOR
A SMALL BUSINESS
4.1 Forms of Entrepreneurship

4.1.1.1 Sole Trade-meaning
• Sole proprietorship or sole trade is a business
that is owned and usually operated by one
person. The single owner is called the proprietor
or sole trader. Employees or members of his
family sometimes assists him. Proprietorships
tend to be small retail stores or solo providers of
professional services like physicians, attorneys,
barber’s shop, beauty parlors accountants or
other activities from wholesaling to retailing or
small scale farming, manufacturing, decorations,
restaurants, guest houses, etc.
4.1.1.2 Sole Trade-characteristics
• Sole trade has the following characteristics which
differentiate it from other forms of business
organization:-
i. The business is owned by a single person (sole
trader) and it is usually fairly small.
ii. All decisions of the business are made by the
owner.
iii. The owner provides the necessary capital.
iv. The law does not recognize the sole proprietorship
as a separate entity i.e. in the case of serious losses
resulting in inability to pay its creditors the sole
trader will be called up on to make pay the
creditors
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personal
J.M assets.
4.1.1.3 Formation of a Sole Trade
• When an individual plans to start a business, his/her
main objective is to earn profit. There are number of
factors to be taken into consideration. For example,
for any business to be successful, proper planning
and research is very essential before the business is
formed.
• A sole proprietor should be very clear about what
kind of goods or services he or she wants to deal in.
• Secondly, the kind of capital or investment available
to start the business. The sole proprietor should
know the size and nature of the business so that the
required amount of capital can be raised.
• Another important factor is the location of the
business. The sole trader must put his business in a
best areas where many customers can be cultivated.
Many businesses have failed or succeeded
depending on the location. This again depends on
the nature of the business.
• Then comes the legal formalities. The sole trader
must be aware of any legal issues which are to be
adhered for example licenses or permits and any
other requirements depending on the kind of
business. For example The Ministry of Industry and
Trade- Tanzania announced the annual renewal of
business licences starting from July 2013.
Business licenses are therefore no longer free. Sole
trader can apply for a license from the municipality
where the business premises are located. Sole
traders must also get certificates of registration of
business name from
Business Registrations and Licensing Agency (BRELA).
• Also, the sole proprietor should know the risks
involved in that particular type of business.
• The sole proprietor has to know the kind of
customers the business is targeting, for example is it
students, working people, or the sick?
• Also important is the time factor because every
business has a low or high
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season.
Faustine J.M
4.1.1.4 Advantage of sole trade
i. Retention of profits- the owner or proprietor
owns all the profits.
ii. It is easy to manage and the cost of
organization/operation is low
iii. No/few formal and complex procedures for
starting the business. In most cases, only a license
is needed to go into business
iii. Flexibility- the sole trader is completely free to
make decisions about the business operations.

4.1.1.4 Advantage of sole trade
iv. Secrecy-the sole trader is not required by the
government to publicly reveal their business plans,
profits or other vital facts.
v. Personal relationship- a more personal relationship
is possible between the employer on one hand and
his employee and customer on the other hand who
as a result understand better another’s point of view

4.1.1.5 Disadvantage of sole trade
i. Unlimited liability- the sole trader is personally
responsible for all the debts of his or her
business. This means there is no legal
difference between the debts of the business
and the debts of the owner. If the business fails
the owner’s personal property can be seized
and sold to pay creditors.
ii. Limited business skills and knowledge-a
business owner is unlikely to have expertise in
all areas of management, i.e. financial
management, planning, organizing, controlling
etc.
4.1.1.5 Disadvantage of sole trade
As a result, the business can suffer in areas in which
the owner is less knowledgeable.
iii. Lack of continuity- in the event that the owner
dies, his business will come to end. It also means
that even when he has to attend to other
functions, the business must close down.
iv. Limited ability to borrow- Financial institutions
are usually not willing to lend large amount of
money to sole traders because only one person
can be held responsible for repaying such loans
and the assets of most sole traders are very
limited.
4.1.2.1 Partnership-meaning
• "Partnership" is the relationship which subsists
between persons carrying on business in common as
defined with a view of profit. Persons who have
entered into partnership with one another are called
collectively a "firm", and the name under which their
business is carried on is called the "firm name. A
partnership has two or more (a maximum of 20
people) parties as co-owners, and each owner is a
partner.

4.1.2.1 Partnership
• Many retail establishments, professional service firms
(law, accounting, etc.), real estate, and oil and gas
exploration companies operate as partnerships.
Partnerships are governed by agreement, usually
spelled out in writing in the form of a contract between
the partners. General partnerships have mutual agency
and unlimited liability, meaning that each partner may
conduct business in the name of the entity, and can
make agreements that legally bind all partners without
limit for the partnership’s debts. Partnerships are
therefore quite risky, because an irresponsible partner
can create large debts for the other general partners
without
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4.1.2.2 Characteristics of Partnership
i. The partnership may be a temporary
partnership (joint ventures) or permanent
partnership. With a temporary partnership, the
relationship is for either a specified period or a
specified purpose at the expiry of which the
partners is dissolved.
ii. Membership is between two to maximum of
twenty. However, for professional services the
number may be up to fifty and each partner is a
qualified person e.g. accountants
iii. It is easy to set up partnership and future
disputes can be avoided if there is a partnership
deed.
4.1.2.2 Characteristics of Partnership
iv. There is a possibility of division of labour and
specialization
v. New partner may be admitted to cope with or for
the purpose of expansion
vi. Partners can raise more capital than a sole trader
vii. A person who is a minor according to the law to which he
is subject is not competent to be a partner in a firm.

4.1.2.3 Types of Partner/ship
a) Their participation in management
• Active partner- This is a partner who in
addition to providing capital and sharing
profits and losses plays an active role in the
affairs of the business. He takes part in the
management of the firm and may often be
given a fixed area of responsibility
• Dormant partner (sleeping or silent) – This
partner contributes towards capital, shares
profits and losses but takes no part in the
management of the business.
(b) The degree of liability in the partnership
• Limited partnership-The limited partner is a
person who contributes capital to a business
but is not active in managing it, his or her
liability is to the amount that he or she has
invested. In return for their investment,
limited partners share the profit of the firm.
Legally, it is not allowed to a limited partner.
• A limited partnership has both general and
limited partners. The general partners own
and operate the business and assume liability
for the partnership, while the limited partners
serve as investors only; they have no control
over the company and are not subject to the
same liabilities as the general partners.
• General partnership- He/she a partner who
has unlimited liability and may be called upon
to meet the firm’s debts from his/her personal

resources if the firm fails to settle them. He/she
takes active role in management of the firm.
(c) Capital contribution
• Quasi partner-He/she is person who does not
contribute any capital or take any part in the
business but allows the firm to use his name
as a partner. He/she is generally not liable for
the debts of the firm.
• Real partner-Contributes capital and takes
part in the business. He is responsible (liable)
for the debts of the firm
4.1.2.4 Formation of Partnership
• When a partnership is formed a “partnership

deed” or “articles of partnership” or a
partnership agreement is normally drawn
though it is not legal requirement. The aim is
to provide reference in case of disputes
between partners
• Contents of Partnership Deed
– Name of the firm
– Name, address and occupation of each partner
– Status or type of each partner e.g. dormant, active
etc.
– Capital contribution
– How profits and losses are to be shared
– Rights of each partner e.g. drawing allowed, salary
if any, interest to be allowed on capital,
allowances, facilities, free accommodation, right
to inspection of books of accounts, right to sign
documents on behalf of the business
– Duties allocated to partners
– Method of calculating goodwill at the time of
retirement, death or admission of a partner
– Manner of keeping books of account
– The procedures to be adopted at dissolution of
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2017 Faustine J.M
– How profits and losses are to be shared
– Rights of each partner e.g. drawing allowed, salary
if any, interest to be allowed on capital,
allowances, facilities, free accommodation, right
to inspection of books of accounts, right to sign
documents on behalf of the business
– Duties allocated to partners
– Method of calculating goodwill at the time of
retirement, death or admission of a partner
– Manner of keeping books of account
– The procedures to be adopted at dissolution of
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2017 Faustine J.M
– The duration of partnership if temporary
– The purpose for which the firm is established

In absence of a written partnership agreement,
the following provisions apply:
• Every partner has the right to take part in the
management of the business
• In case of differences arising as to ordinary
matters connected with business, the majority
of the partners may take decision
• No change may be made in the nature of the
business without the consent of all partners
• All profits and losses must be shared equally
by all partners
• No interest is to be allowed on capital
• No salary has to be paid to partners for their
service to the business
• 5% interest has to be paid on loans advanced
to the business by the partner
• Every partner will have the right to inspect the
firm’s books of account

4.1.2.5 Rights and duties of partners
Specifically the following are the Rights and
duties of partners
• Every partner is the agent of the firm and his
other partners for the purpose of the business
of the partnership.
• The firm must indemnify a partner for
liabilities incurred by him in the conduct of
the business
• Every partner who has access to the firm’s
funds or other properties must render
accounts, displaying utmost good faith
4.1.2.5 Rights and duties of partners
• If a partner has private business that
competes with the partnership all profits
made by him should be surrendered to the
firm
• No new partner may be admitted without the
consent of all partners
• No partner may be expelled without dissolving
the partnership
• A majority of partners cannot expel a partner

4.1.2.5 Advantage of Partnership
– Ease and low cost of formation-legal requirements
are limited to registering the name of the business
and purchasing whatever licenses that are
needed.
– Availability of capital and credits- Partners can put
together their funds so that their business has
more capital than would be available to a sole
trader. Banks and suppliers may often be more
willing to extend credit to such partnership than
to an individual owner. Therefore it is possible to
expand business more easily.
– All profits and losses are shared among the
partners
4.1.2.5 Advantage of Partnership
– Combined business skills and knowledge- it brings
in a wider degree of skills, knowledge and
experience from each of the partners.

4.1.2.6 Disadvantage of Partnership
• Unlimited liability- Each partner is personally
responsible for the debts of the partnership
• Lack of continuity-Partnership are terminated in the
event of the death, withdrawal or legally declared
incompetence of any kind
• Effects of partners’ disagreements- Partners may
disagree on various issues that can affect business.
This may slow or even retard the firm’s progress
• Mistake of one partner-if one partner makes a
mistake, all the partners have to suffer the
consequences
4.1.2.7 Dissolution of Partnership
• A partnership may be dissolved in any of the
following ways:
i. Expiration or notice
A partnership is dissolved
• If entered for a fixed term or by the expiration of
that term
• If entered for a simple venture or undertaking by
the termination of that venture or undertaking
• If entered into for an undefined time- by any
partner giving notice of dissolution to others
ii. Bankruptcy or death
• The death, bankruptcy or insanity of any partner
causes the dissolution of a partnership
iii. Illegality
• An event may happen which makes it unlawful for
the business of the firm to be carried out.
iv. Order of the court
• On application by a partner, the court may dissolve
the partnership in the following cases:
– When a partner is incapable by any reason of mental
disorder of managing and administering his property
and affairs
• When a partner other than the partner suing, becomes
permanently incapable of performing his duties as
partner
• When a partner other than the partner suing, commits
frequent breaches of the partnership agreement
• When the court thinks it is just and equitable to dissolve
the partnership

4.1.3.1 Company-meaning
• A company can be defined as an association of two
or more persons for any lawful purpose, by
subscribing their names to a memorandum of
association and otherwise complying with the
requirements of the Act in respect of registration.
• Company is among the forms of business units
carried out in different parts of the world, other
forms being sole trade/proprietorships,
partnerships and co-operatives.
• A company is corporate body i.e it is created under
law and has an entity of its own, quite separate
4.1.3.1 Company -meaning
from the members that comprise it.
• It is a legal entity which can enter into contracts,
incur liabilities, sue others, be sued by others and
do anything for which it has been formed.

4.1.3.2 Types of Companies
We have major two types of companies. These are:-
i. Statutory Companies- which are companies
whose formation and control is vested under
parliamentary control.
ii. Registered Companies- which is a company
registered by the registrar of companies for
example BRELA in Tanzania.
There are different types of registered companies.
These includes:-
i. Limited Companies-These are companies whose
liability of members is
limited (i.e each shareholder is only liable to the
extent of the value of shares he holds. This means
that in case of business failure, the members are
not required by the law to contribute fully to the
assets of the firm (business estate) from the
property of their private estates. These types of
companies are further classified as:
• A company limited by shares- where the liability for
members is limited to the nominal amount of the
shares they take, as stated by the memorandum.
This applies to companies formed for trade or gain.
• A company limited by guarantees- where the
liability for members is limited to the amount they
have agreed to contribute to the assets of the
company in the event of the winding up of the
company as stated by the memorandum.
Companies formed for purposes other than trade
e.g charitable organizations and professional
institutions may form this type.

ii. Unlimited Companies
• The liability of the members is not limited which
imply that in case of business failure, the members
are required by the law to contribute fully to the
assets of the firm (business estate) from the
property of their own (private estate) in order to
meet company’s obligations.

iii. Again, registered company may be a public or a
private company.
• A ''public company'' is a company limited by shares
or limited by guarantee and having a share capital,
being a company the memorandum of which states
that it is to be a public company.
• Public companies are formed when it is desired to
go to the public for funds to expand an existing
business.
• They have at least 7 members and unlimited
maximum number.
• The shares are transferable and can be offered to
the public for subscription.
• A “private company” A ''private company'' means a
company which by its articles restricts the right to
transfer its shares; and limits the number of its
members from two to fifty (shareholders only not
others like employee), and
• Prohibits any invitation to the public to subscribe
for any shares or debentures of the company.

4.1.3.3 Formation of a company
• Formation of the company start when any two or
more persons, associated for any lawful purpose
subscribe their names to their memorandum of
association (one of key documents) and otherwise
complying with the requirements of the laws in
respect of registration to form an incorporated
company with or without limited liability.
• Another important documents for this exercise, is
the article of association.
• The documents must be signed by the members.
• The company must also have a seal.
• The documents are to be delivered to the office of
the registrar of companies (for example in Tanzania
is BRELA which registers companies, among other
things) together with the prescribed fee. The two
documents are attached to a set of three forms:
• Form 1: Declaration of Compliance (to be attested
by notary public)
• Form 14: Particulars of Directors or Managers
• Form 15: Notice of Situation of Registered Office.
• Since the documents have to include the company’s
name, it is prudent to check in advance that
proposed name is likely to be available. If a name exists, it
cannot be reused.
• If the documents are in order, the registrar issues a
certificate of incorporation and the company there
upon comes into existence.
• In order for the company to start its activities, it is
necessary to have a Trading License, which is issued by
Ministry of Industry and Trade or the local government’
granted after having the respective permits
• Other things need to be taken into account either
before or after incorporation including:-
• Having Taxpayer Identification Number (TIN)
• Comply with various taxes for example those in
Local Government Authorities,
• Have a bank account
• Comply with various laws and regulations such as
Employment laws (ELA), Social security laws
(Pensions Acts), Safety laws (OSHA) e.t.c.
• Acquire rights towards various utilities providers
(Water, Electricity, telecommunications, internet,
posts) in relation to installation procedure, usage
and bills and related issues).
• Make sure that the projects are registered with
environmental authority e.g NEMC, which
determines the eligibility of each project for an EIA.
• Be aware and comply with import/export
procedures-pre shipment inspection, taxes, tarrifs
etc.

Some of the necessary documents for company
formation are discussed below.
a. Memorandum of Association- This is the document
that defines the constitution of the undertaking in
its relation to the outside world. It lays down
powers and limitations of the company and
establishes the company’s individual identity. It
gives the following details.
i. Name Clause- This states the name of the company,
with ''public limited company'' as the last words of
the name in the case of a public company, or with
''limited'' as the last word of the name in the case of a
company limited by shares or by guarantee (not
being a public company). The company can adopt
any names it pleases except that it may not register
a name identical with that of of the company
already in existence and does not give a false idea
of the nature of the company.
ii. Objects Clause- this outline the objectives for the
company existence. The company can not act
beyond these objectives. The promoters therefore
draft this clause in such away that almost all the
all the main and secondary activities intended to be
undertaken are registered. The statement of a
company’s objects in its memorandum serves
double purposes:
It protects the shareholders, who learn from it the
purposes to which their money can be applied.
It protects persons dealing with company, who can
discover from it the extent of the company’s power.
• Any act done by the company beyond the powers
indicated in the object clause, is utra vires that is,
beyond the powers of the company and therefore
invalid.
iii. Situation Clause- this gives the name of the
country which the office is situated. It also indicates
other details necessary for locating the office. The
company is governed by the laws of that country.
iv. Capital Clause- This states the share capital the
company wishes to have. It includes- total amount
of the share capital, the units into which the capital
is divided, types of shares whether ordinary or
preferences, the value of each share. The total value
of all the shares is called nominal share capital.
Once the memorandum is registered a company
becomes empowered to raise this amount by selling
share. It then referred to as authorized or
registered share capital. The registration fee is
calculated according to this amount.
v. Liability Clause- there must be a clear statement
that the liability of the company is limited by its
shares or otherwise in the event of its being wound
up
vi. Declaration- This must be signed by not less than
two members in the case of private company and
seven in the case of a public company, who declare
that they intend to take and pay for at least one
share each.
• All companies must prepare a memorandum of
association.
• The memorandum must be in English

seven in the case of a public company, who declare
that they intend to take and pay for at least one
share each.
• All companies must prepare a memorandum of
association.
b. Articles of Association
• This govern the internal structure of the company.
Articles shall be:
(a) in the English language;
(b) printed;
( c) Divided into paragraphs numbered consecutively;
and signed by each subscriber to the memorandum
of association in the presence of at least one
witness, who shall attest the signature and add his
occupation and postal address.
The articles of association include the following:-
i. Members- numbers of members with which the
company proposes to be registered,
ii. Procedures for calling company meeting e.g general
meetings whereby a company for example shall in
each year hold a general meeting as its annual
general meeting in addition to any other meetings
(extraordinary general meetings) in that year.
Notice of general meetings,
Proceedings at general meetings, such as :-
• To have laid before the members the annual
accounts; the directors' report; the auditors' report;
the appointment of auditors for the period up till
the next general meeting at which accounts are
laid; the re-election of any directors retiring and
seeking re-election in accordance with any
requirement in the company's articles.
(iii) Voting rights of shareholders -e.g every member
shall have one vote or no member shall be entitled
to vote at any general meeting unless all moneys
presently payable by him to the company have been
paid.
(iv) The number and powers of directors-not less
than two, appointment of attorney by power of
attorney, signing, drawing, accepting, endorsing; of
cheques, promissory notes, drafts, bills of exchange,
or other negotiable instruments.
(v) Disqualifications of directors e.g without the
consent of the company in general meetings holds
any other office of profit under the company; or
becomes of unsound mind; or resigns his office by
notice in writing to the company.
(vi) Proceedings of directors e.g calling of directors
meeting, appointment of chairman of board of
directors, delegation of powers, remuneration- the
method of deciding the level of payment of
directors, retirement, e.t.c.
(vii) Appointment of secretary, remuneration, power,
termination of contracts,
(viii) The seal of the company-limit on signing
documents/instruments to which the seal is affixed
especially by a director, secretary or second
director.
(ix) Borrowing powers of the company,
(x) Company’s accounts- types of transactions (e.g all
sums of money received and expended, all sales
and purchases of goods by the company; and all
assets and liabilities of the company), where books
to be kept (especially at the registered office of the
company, or other place or places as the directors think
fit), types of accounts (especially profit and loss
accounts, balance sheets, group accounts), inspection
of the company, presentation of accounts (in general
meetings), destruction of books of accounts, e.t.c.
(xi) Auditing of Company books, appointment of auditors
and their duties,
• Alteration may be fairly simple. A meeting of all
shareholders is called and the majority passes a
resolution seeking alteration. The resolution is then
forwarded to the registrar of companies and the
alteration effected.
• Alteration may be fairly simple. A meeting of all
shareholders is called and the majority passes a
resolution seeking alteration. The resolution is then
forwarded to the registrar of companies and the
alteration effected.

4.1 Definition of Planning

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ENTREPRENEURSHIP

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• The success of every business depends on certain factors.

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• It also provides you many tools which can solve complex

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3.1 Introduction to Small Business

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• The factors for enabling environment for

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• When a partnership is formed a “partnership