Jimma University Jimma Institute of Technology Mechanical Engineering Department

Lecture Notes for the course:

Entrepreneurship (ENGG 5182)

1. Levels of Entrepreneurial Development

Level One: The Self-Employed Mindset Level Two: The Managerial Perspective Level Three: The Attitude of Owner/Leader Level Four: The Entrepreneurial Investor Level Five: The True Entrepreneur Idealization Visualization Verbalization Materialization

2. The Relationship between Creativity, Innovation and Entrepreneurship

Modeling creativity
Phase1. Preparation Phase 2: Incubation process Phase 3: Idea generation or Eureka experience, Phase 4: Evaluation and implementation, e.g. prototypes

Innovation
Invention Extensio n

Duplication
Synthesis.

Entrepreneurship: SMALL BUSINESS

MANAGEMENT

2.1Concepts and definition of Small Business

1. Size criteria 2. Economic/control criteria. 1. Size criteria

Financing of the business is supplied by one individual or a small group. Only in a rare case would the business have more than 15 or 20 owners. Except for its marketing function, the firms operations are geographically localized. Compared to the biggest firms in the industry, the business is small. The number of employees in the business is usually fewer than 100.

2. Economic/control criteria
Market share Independence Personalized management Technology Geographical area of operation

2.2. Economic, Social & Political Contributions of small business enterprise

Equitable distribution of wealth and decentralization of economic power More Employment creation capacity Removing Regional Imbalance Ancillary (Subsidiary) Function Export Promotion

2.3 Small Business Failure factors

Poor operations management Lack of experience Poor financial management Over-investing in fixed assets Poor credit practices Failure to plan Inappropriate location

2.4. Entrepreneurship and Business Enterprise Creation

2.4.1. Opportunity scouting/ sensing

2.4.2. Opportunity scanning

I. Environmental analysis a. Macro environment Political Environment Technological Environment Socio-Cultural Environment Legal Environment Economic Environment b. Sectoral Analysis c. SWOT analysis d. Product/Service

3. FEASIBILITY ANALYSIS, PROJECT REPORT AND BUSINESS PLAN

3.1. Feasibility Analysis
3.1.1 Market Analysis A market, whether a place or not, is the arena for interaction among buyers and sellers. 3.1.2 Financial Analysis 3.1,3 Technical Analysis 3.1.4 Economic Analysis 3.1.5 Ecological Analysis 3.1.6. Legal and Administrative Analysis

3.2. Types of Business Ownership in Ethiopia

A. Sole proprietorships

Advantages of a Sole Proprietorship: Easiest and the least expensive to organize. Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business. Profits from the business flow directly to the owner's personal tax return. The business is easy to dissolve, if desired. Disadvantages of a Sole Proprietorship: Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or bank loans. May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to own a part of the business. Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income.

B. Partnerships
Advantages of a Partnership:

Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. With more than one owner, the ability to raise funds may be increased. The profits from the business flow directly to the partners' personal tax returns. Prospective employees may be attracted to the business if given the incentive to become a partner. The business usually will benefit from partners who have complementary skills. Partners are jointly and individually (legally) responsible for the actions of one or more partners. Profits must be shared. Since decisions are shared, disagreements can occur. Some employee benefits are not deductible from business income on tax returns. The partnership may have a limited life; it may end upon the withdrawal or death of a partner

Disadvantages of a Partnership:

C. Corporations
Advantages of a Corporation:
Shareholders have limited liability for the corporation's debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.) Corporations can raise additional funds through the sale of stock. A corporation may deduct the cost of benefits it provides to officers and employees.

Disadvantages of a Corporation:
The process of incorporation requires more time and money than other forms of organization. Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice

3.3 Business Plan 3 .3.1 What Is A Business Plan?

It is a carefully elaborated plan on how a new business venture will be implemented.

It explains how a new business is to be created. It explains how an existing business is to be expanded or restructured.

WHY A BUSINESS PLAN needed to be PREPARED? THE BUSINESS PLAN: CLARIFIES THE BUSINESS STRATEGY IDENTIFIES RISKS IDENTIFIES WEAKNESSES WILL HELP SAVE MONEY PROVIDES INFORMATION FOR DECISIONMAKING IS REQUIRED BY LENDERS, ETC..

.but Who can be the best business planner?......

PROMOTERS OF A NEW BUSINESS VENTURE ENTREPRENEURS BUSINESS MANAGERS TECHNICAL SPECIALISTS INDEPENDENT BUSINESS ADVISERS ACCOUNTANTS

WHO MAKES A BUSINESS PLAN

WHO FOR?
BUSINESS OWNERS INVESTORS BANK MANAGERS GOVERNMENT DECISION MAKERS BUSINESS MANAGERS PROMOTERS OF NEW ENTERPRISES

Business Plan Segments

EXECUTIVE SUMMARY Management & Organization Plan Market Analysis Product/Service Plan Sales and Marketing Plan Financial Plan

Executive Summary
One of the most important parts of the business plan

Captures the attention of the reader Explains why the reader should invest time and money Provide clear overview of the company Future growth Marketplace differentiation

Business Description
General description of business Industry background-trends, analysis of competitors Company history or background Goals and potential of the business and milestones (if any) Uniqueness of product or service

Research, Design, and Development

A. Development and design B. Technical research results C. Research assistance needs D. Cost structure

Manufacturing
A. Location analysis B. Production needs: raw materials, facilities and equipment C. Suppliers/transportation cost D. Labor supply E. Manufacturing cost data

Management
A. Management team key personnel B. Legal structure stock agreements, employment agreements, ownership C. Board of directors, advisors, and consultants

Financial
1.Financial forecast 2.Sources of finance and application of funds

Pitfalls to Avoid in Planning

Pitfall 1: No Realistic Goals

Indicators: lack of attainable goals, time frame, priorities and action steps

Pitfall 2: Failure to Anticipate Roadblocks:-7

Indicators: no recognition of future problems, no admission of possible weaknesses of the plan, no contingency plans

Pitfall 3: No Commitment or Dedication

Indicators: excessive procrastination, missed appointments, no desire to invest personal money

Pitfall 4: Lack of Demonstrated Experience (Business or Technical)

Indicators: no experience in business, no experience in specific area of the venture, not understanding the industry.

Pitfall 5: No Market Segment

Indicators: uncertainty regarding who will buy, no proof of unsatisfied need