Jimma university

College of Business and Economics

Department of Management

Welcome to the course Entrepreneurship

and Small Business Management
 Course objectives
After successfully completing this course students
will be able to:
 Define entrepreneurship within the context of
society; organizations and individuals.

 Understand more about the specific management

issues involved in setting up and running a small
enterprise.

 Demonstrate an understanding of the impact of

entrepreneurship on the economy.
Recognize and overcome obstacles to creative
problem-solving in entrepreneurial journey.

Describe the element of an effective business

model/plan.
Develop a concept for an innovative product or service
in his or her own area of interest.

Recognize that entrepreneurial success in the 21st

century depends on teamwork and diversity.

Develop a personal framework for managing the

ethical dilemmas and social responsibilities facing
 Equipped with the basic knowledge and skills of
starting and operating a business for they will be
the future managers (or even Owner-managers)
of these firms.

 Identify traits/characteristics of an entrepreneur/

entrepreneurs as exhibited in behavior.

 Analyze elements of the entrepreneurial mind

set and discuss the implications for functioning
as a successful entrepreneur.
 Course policies
For successful accomplishment of the course, students
should fulfill the following requirements
 Attending class regularly
 Participation in individual base and/or in group
 Completing and submitting different assignment work on time

 Reporting any issues relevant for teaching learning process to

their teacher
 Switching off mobile phone during class time
 Avoid side talking unless permitted
 Collecting their assessment result on time
The course contents
 Chapter One
Overview of Entrepreneurship
Definition of Entrepreneur and Entrepreneurship
 The word entrepreneur is derived from
French word ‘Entreprendre‘ which was used
to designate an organizer of musical or other
entertainments.
 In the early 16th century the French men
who organized and lead military expeditions
were referred to as „entrepreneur'.
After 1700, the term was applied to other
types of adventures, mainly civil engineering
like constructions of roads etc.

Richard Cantillon, an Irishman living in France

who first used the term entrepreneur to refer
to economic activities.
As to him “An entrepreneur is a person who
buys factor services at certain prices with a
view to selling its product at uncertain prices
in the future”.
Joseph A. Schumpeter also gave a central
position to the entrepreneur who believed
that an entrepreneur is a dynamic agent of
change.

E.E.Hagen:―An entrepreneur is an
economic man who tries to maximize his
profits by innovation, involve problem
solving and gets satisfaction from using his
capabilities on attacking problems.
Entrepreneur as an organizer:
According to J.B Say “an entrepreneur is
one who combines
 the land of one,
 the labor of another and
 capital of yet another, and thus
produces a product.
In general entrepreneurs are
viewed as
risk bearer,
innovator
Organizer;
who establishes own business or
industrial undertaking with a view to
making profit.
 Definition of Entrepreneurship
Entrepreneurship is the process by
which entrepreneur establish a
business venture.

It is a creative, innovative response to the

environment and an ability to recognize,
initiate, and exploit an economic
opportunity.
 Functions of an Entrepreneur
• The main functions of an entrepreneur
are as follow:
• 1. Innovation: An important function of an
entrepreneur is “innovation”.

• An entrepreneur introduces new combinations

in any branch of economic activity.
It may occur in the following forms:
1. Introduction of a new product or new quality
of an existing product.
2. Introduction of new methods of production
or distribution.
3. Opening of a new market
4. Conquest of a new source of raw materials
5. New form of organization of industry
• 2. Risk-taking: Risk taking or uncertainty
bearing implies assuming the responsibility
for loss that may occur due to unforeseen
contingencies of the future.

• An entrepreneur provides or invests capital

in order to establish and run the
enterprise.
3. Organization building: organization and
management of the enterprise is
considered as the main function of an
entrepreneur.

• It implies bringing together the various

factors of production.
• Thus, as an organization builder, the
organization and management function of
an entrepreneur includes;
– (a) planning of an enterprise,
– (b) coordination/administration, and
– control; and
– (c) routine type of supervision.
 Characteristics of Entrepreneurs
• 1. Need for Achievement
• Psychologists recognize that people differ in
their need for achievement.

• Individuals with a low need for achievement are

those who seem to be contented with their
present status.
• On the other hand, individuals with a high need
for achievement like to compete with some
standard of excellence and prefer to be
personally responsible for their own assigned
tasks,

• i.e. Need for achievement- a desire to succeed,

where success is measured against a personal
standard of excellence.
• C. McClelland, a Harvard Psychologist discovered
a positive correlation between the need for
achievement and entrepreneurial activity.
• According to McClelland, those who
become entrepreneurs have, on average, a
higher need for achievement than do
members of the general population.
2. Willingness to Take Risks
• The risks that entrepreneurs take in starting
and/or operating their own business are varied.

• By investing their own money, they assume a

financial risk.
• If they leave secured jobs, they risk their careers.
• The stress and time required in starting
and running a business may also place
their families at risk.

• Entrepreneurs who identify closely with

particular business ventures assume
psychic risk as they face the possibility of
business failure.
• individuals with a high need for
achievement also have moderate risk-
taking propensities.

• This means that they prefer risky situations

in which they can exert some control on the
outcome,
• in contrast to gambling situations in which
the outcome depends on pure luck.
3. Self-Confidence
• Individuals who possess self-confidence feel they
can meet the challenges that confront them.

• They have a sense of mastery over the

types of problems they might encounter.

• Studies show that successful entrepreneurs tend

to be self-reliant individuals who see the
problem in launching a new venture but believe
in their own ability to overcome these problems.
• McClelland & Rotter, a psychologist,
believed that entrepreneurs’ success depends
upon their own efforts have an internal locus of
control.

• In contrast, those who feel that their lives are

controlled to a greater extent by luck or chance
or fate have an external locus of control.
• External locus of control believing
that one’s life is controlled more by
luck or fate than by one’s own
efforts.

• On the basis of research to date, it

appears that entrepreneurs have a
higher internal locus of control than is
true of the population.
4. Innovation
• It is a hallmark of entrepreneurship,
but not necessarily of the owner-
manager.

• Can this be learned or are we born

with, or without, an ability to
innovate?
• Drucker insists that-we can
develop our innovation skills.
• Drucker presents entrepreneurs, are not as
people who are born with certain character
traits,
• but as managers who know where to look
for innovation, and
• how to develop it into useful products or
markets once they have found it.
• Entrepreneurship is not so much an art that you
either have, or you do not, but rather a practice,
which you constantly follow or you choose to
ignore.
5. Total commitment
• Hard work, energy, and single mindedness are all
essential elements in the entrepreneurial profile,
such as running your own business in a 24-hours-
a-day, 7-days-a-week commitment.
6. All - rounder
• At least in the early stages of the business,
entrepreneurs need to be able to ‘ make the
product, market it and count money’.
 Role of Entrepreneurs in Economic
Development
• Capital formation: Entrepreneurs mobilize the idle
savings of the public through the issue of industrial
securities.

• Investment of public savings in industry results in

productive utilization of national resources.

• Rate of capital formation increases which is

essential for rapid economic growth.
• Thus, an entrepreneur is the creator of wealth.
• Improvement in per capital income:
Entrepreneurs locate and exploit
opportunities.
• They convert the latent and idle resources like
land, labor and capital into national income
and wealth in the form of goods and services.

• They help to increase Net National Product and

per capita income in the country, which are
important yardsticks for measuring economic
growth.
• Generation of employment: Entrepreneurs generate
employment both directly and indirectly.

• Directly, self-employment as an entrepreneur offers

the best way for independent and honorable life.

• Indirectly, by setting up large and small-scale

business units they offer jobs to millions.

• Thus, entrepreneurship helps to reduce the

unemployment problem in the country.
• Balanced regional development:
Entrepreneurs in the public and private
sectors help to remove regional disparities
in economic development.

• They set up industries in back ward areas

to avail of the various concessions and
subsidies offered by the Central and State
Governments.
• Improvement in living standards:
Entrepreneurs set up industries which
remove scarcity of essential commodities
and introduce new products.
• Production of goods on mass scale and
manufacture of handicrafts, etc. in the small
scale sector help to improve the standard of life
of a common man.
• These offer goods at lower costs and
increase variety in consumption.
• Economic independence: Entrepreneurship is
essential for national self-reliance.

• Industrialists help to manufacture indigenous

substitutes of hitherto imported products thereby
reducing dependence on foreign countries.

• Businessmen also export goods and

services on a large scale and thereby earn
the scarce foreign exchange for the country.
• Backward and forward linkages: An
entrepreneur initiates change which has a chain
reaction.
• Setting up of an enterprise has several backward
and forward linkages.
• For example, the establishment of a steel plant
generates several ancillary units and expands the
demand for iron ore, coal, etc. These are backward
linkages.
• By increasing the supply of steel, the plant
facilitates the growth of machine building, tube
making, utensil manufacturing and such other
units
• Agents role: Entrepreneurs are aptly
called ‘Agents of change’.

• Entrepreneurs act as catalyst or agent of

economic development by perceiving
opportunities and putting them into action.
• Entrepreneurs, seizing opportunities, set-up
business undertakings and industries and
thereby make economic transformation.
• Innovation Role : Innovation is a key to
entrepreneurship.
• Innovation implies the commercial
application of an invention.
• As an innovator, the entrepreneur
assumes the role of a pioneer and an
industrial leader.
• Entrepreneurs have contributed many
innovations in developing new products
and in the existing products and services.
• All these have resulted in economic
development by providing employment,
more income, etc.

• In fact, the innovational activity raises the

productive efficiency of the economy
resulting in greater output and income.

• Schumpeter finds the secret of economic

development ‘’rising productivity’’.
• Thus, innovative entrepreneurship can
alter the production function of
nations and bring about rapid
development.

• In their absence, many scientific

inventions would have remained as
they were.
• Imitating role: Entrepreneurs in developing
countries take the role of “imitators” who
generally copy the innovations introduced by the
“innovative” entrepreneurs of the developed
countries.
• They copy the organization, technology, and
the products of innovation from other
developed regions.
• They are capable of adopting the
innovative technology to the local
conditions prevailing in the country and
 CREATIVITY AND INNOVATION

• creativity is the having of new ideas

which, in an organization, are generated or
spotted by individuals or teams.
 Four main stages in creative
process
1 Preparation (information gathering, analysis and
solution exploration)
2 Incubation (letting the mind work to continue
the process)
3 Illumination (inspiration – which can come when
the individual is not necessarily thinking about the
problem but is in a relaxed frame of mind)
4 Verification (testing ideas, solution, hunches,
insights for applicability).
 Obstacles to Creativity
1 Negativity
2 Fear of failure
3 Lack of quality thinking time
4 Over-conformance with rules and regulations
5 Making assumptions
6 Applying too much logic
7 Thinking you are not creative.
 To be creative an individual should:
1 think beyond the invisible frameworks
that surround problems /situations
2 recognize when assumptions are being
made and challenge them
3 spot blinkered (restricted) thinking and
widen the field of vision (to draw on the
experiences of other individuals/businesses)
4 develop/adapt ideas from more than
one source
5 transfer technology’ from one field to another

6 be open/prepared to use chance or

unpredictable things/events to advantage

7 Note down thoughts/ideas that apparently

drop into the mind

8 tolerate ambiguity and occasionally live with

doubt and uncertainty
• Innovation (to bring in or introduce
something new – a new idea, method or device)
draws together new ideas and their
implementation.

• Innovation is called as best way to

manage creativity and innovate
successfully in business).
 Phases of managing innovation
1 The generation of ideas (from individuals
and teams)
2 The harvesting of ideas (people evaluating
ideas)
3 The implementation of ideas (teams
developing and introducing ideas to the
final, customer-offering stage).
• In innovation it must be
remembered that creative thinking
makes it possible and teamwork
makes it happen.
 Obstacles to innovation
1. An initial response of outright condemnation,
ridicule, rejection, damning criticism or faint
(light) praise.

2. The vested interest of a particular

person or department.

3. Too early evaluation/judgment

Enabling conditions for innovation
– accepting risk
– working with half-formed ideas
– Bending the rules whenever necessary
– responding quickly
– be enthusiastic (to motivate others)
– Having genuine self-determination
– Act in team
 Success factors for entrepreneurs

• The Entrepreneurial Team

• Venture Product or Services
• Markets and Timing
• Business Ideology
 Individual Assignment 1
1. Read various kinds of entrepreneurship books
and prepare a brief report describing the
different types of entrepreneurs. Use examples
to justify your report when ever necessary.
 WHO ARE REAL ENTREPRENEURS?
• What Unique competencies do they
have?
• PEC
 Group Assignment 1: PEC
• Opportunity seeking & initiative
• Persistence
• Commitment
• Demand for Efficiency & Quality
• Taking calculated Risk
• Goal setting
• Information Seeking
• Systematic planning & monitoring
• Persuasion and networking
• Independence and self confidence
 THE END
THANK YOU VERY
MUCH!!
 Chapter Two

SMALL BUSINESS:
VITAL COMPONENT OF THE
ECONOMY
Concepts and definition of Small Business

• There are two approaches to define

small business.

1. Size criteria

2. Economic/control criteria.
 1. Size Criteria

• Size refers to the scale of operation

• Some of criteria used to measure size are:
number of employees; (mostly used)
Volume, and value of sales turnover, asset size…
total capital investment,
volume/value of production, and
combination of the stated factors.
• The following general criteria for defining a small
business are suggested by Small Business
Administration (SBA)

 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 firm’s
operations are geographically localized.

 Compared to the biggest firms in the industry, the

business is small.
Country Category of Criterion
industry
Ethiopia Micro enterprise Investment paid up capital not exceeding (<=ETB 500,000 )
Small enterprise (SE) Investment paid up capital (ETB 500,000-1000,000)

Australia Manufacturing <100 employees

services <20 employees
Germany SME <500 employees
France SME 10 -499 employees
China SME Depends on product group.
Usually 100 employees: investment ceiling US $8
million.

Indonesia SME <100 employees

Malaysia SME <175 full time workers & investment US $1
million
 2. Economic/Control Criteria
All of these characteristics must be
satisfied if the business is to rank as a
small business.
• Market share
• Independence (concerned with operations)
• Personalized Management (concerned with administration)
• Technology (labor intensive)
• Geographical area of operation (limited to domestic
market mostly
• Generally, small business is a
business that is:
privately owned and operated,
 small number of employees, and
relatively low volume of sales.
 Economic, social & political contributions
of small business enterprise
1. Equitable distribution of wealth and decentralization of
economic power

 Income dispersed more widely and its benefit is derived by the

large segments of the society (this is due to wide spread
ownership and decentralized location of small scale enterprises.
)

 Encourage competitive spirit and generate the momentum to

self development.

 Relations between workers and employers are more

harmonious
2. More Employment creation capacity
small scale enterprises are labor intensive and thus
create more employment with a given level of capital.
require less capital but generate more
employment.

3. Removing Regional Imbalance-

by inducing people to set up small firms in
rural areas to avoid migration.
4. Export Promotion
Small-scale enterprises are opening up fresh
opportunity in the export market in our world.
How Big Companies Can
Support Small • This function involves
Businesses? specialization in specific areas
and results in greater
profitability
 Ancillary Function

• Supply function: supplying material

inputs & accessories to bigger
enterprises.

• Distribution function: Serving as the

distribution outlet for commodities made by
large enterprises.
 Advantages of going into Small Business
 Independence
 Financial Opportunities
 Community Service
 Job Security
 Family Employment
 Learning from Challenge
 Introducing Innovation
 Catering for small or niche markets
 The Potential Drawbacks of Small Business Ownership

• Complete responsibility:
• Lower quality of life until the business gets
established
• Long hours and hard work
• Risk of losing your entire invested capital
• Uncertainty of income
Small Business Failure factors
Overcoming Obstacles
 Small Business Failure factors
• Poor operations management – The manager
lacks the ability to operate a small business.

• Lack of experience – Many owners start

businesses in industries in which they have no
experience
• Poor financial management – Many owners start
with too little money and with little or no
understanding of financial spreadsheet
applications. Illegal loan too!
• Over-investing in fixed assets – Owners who over-
invest in fixed assets may find themselves with no
access to funds for working capital.

• Poor credit practices – Owners often sell on

credit to meet (or beat) the competition

 and they lack the additional working capital required

or the ability to collect receivables.

• Failure to plan – The lack of a strategic plan to guide

the business in the long run
• Unplanned and uncontrolled growth – Growth is
natural and healthy, but unplanned growth can be
fatal to a business.
• Inappropriate location – Owners who choose a
business location without proper
analysis,
Investigation and
planning often fail.
 Too often, owners seek “cheap” sites and locate
themselves straight into failure.
 Problems in the Ethiopian small
business
Small-scale businesses have not been able
to contribute substantially to the economic
development, particularly because of:
– financial,
– production, and
– marketing problems
– Weak attitude towards self employment?
 Another causes for business
failures
• Neglect: occurs whenever an owner does
not pay sufficient attention to the enterprise.
• Fraud: involves intentional misrepresentation
or deception.
• Disaster : refers to some unforeseen
happening.
Solution to prevent/reduce failure
a) Knowing the business in depth
b) Developing a solid business plan
c) Managing financial resources
d) Understanding financial statements
e) Learning to manage people effectively…
Entrepreneurship and Business Enterprise
Creation
 1. Opportunity scouting/ sensing

• The entrepreneurial process begins with

identifying an opportunity and evaluating it
through an initial screening process.

• If it appears reasonable, a detailed business

plan can be made. If not it can be discarded.

• the startup process for a new venture

creation begins with scouting for
opportunities.
• An entrepreneur can sense and intelligently seize
opportunities, which exist in the environment.

• Often it is said that necessity is the mother of

all inventions.

• However, in the context of entrepreneurship,

opportunities besides existing in the environment in the
form of needs and problems of people around might
have to be ‘created.’

• Thus, the entrepreneurs meet not only the existing

needs; but they also create the new needs as well.
 2. Opportunity scanning
• I. Environmental analysis
A. Macro environment
 Political Environment-stable and conducive political
climate
 institutional support gives a stimulus to
entrepreneurship
 Technological Environment- new and effective.
 It has been observed that many small units use
obsolete technologies and do not invest in research
and development (R&D). As a result their goods are of
poor quality and lack standardization.
Socio-Cultural Environment-customs, norms and
traditions of the society also play an important role in
either hindering or promoting enterprise.

 Legal Environment- The laws of the country can make

the process of setting up business very lengthy and
difficult or vice-versa.
 Simpler legal procedures can facilitate the process of
new venture creation

 Economic Environment- Liberalization, globalization

and opening of the economy, has increased the space
for business operations.
 B. Sectoral Analysis
• industry conditions
• The purpose of industry analysis is to determine
what makes an industry attractive- this is usually
indicated either by above normal profits or high
growth rates.
• For such analysis one should study the history of the
industry, the future trends, new products developed
in the industry, forecasts made by the government or
the industry.
• It is also advisable to study the existing or potential
competition, threat of substitutes and entry barriers.
2. SWOT analysis
• Strength

• Weakness

• Opportunity

• threats
 Motivation for Starting a Business
Pull Influences: these are the conditions
that attract people towards own business.

– Desire for Independence

– Desire to Exploit an Opportunity
– Financial Incentive
– Turning a Hobby or Previous Work Experience
into a Business
Push Influences
– Unemployment (or threat of unemployment)
–Disagreement With Previous Employer
 Generating Business Idea
• The starting point for any successful
new venture is the basic product /
service to be offered.

• This idea can be either generated

internally or externally
Major activities in Business idea generation

• Identifying Business opportunities

• Evaluating the viable opportunities
• Crystallizing one specific idea.
• The ideas should be compatible
with the;
capability of the entrepreneur
 resources available in the environment
and
 the need of the society.
 SOURCES OF BUSINESS IDEAS
Market characteristics / observing the
market
 It can reveal the demand and supply position for
various products unfulfilled demand will open the
door for new product or service

Government organization
 several government organizations nowadays
assist entrepreneurs in discovering and
evaluating business ideas.
Development in other nation
people in under developed countries
generally follow the fashion trend of
developed countries.
Entrepreneurs in developing countries
follows the trends of the developed
nations
Social and economic trends
Social and economic status of people is always
dynamic in nature and offer wide opportunities.
Emerging new technology.
Commercial exploitation of indigenous
or imported technologies and know how
is another source of project idea.
Trade fairs and exhibitions
national and international trade
fairs are very good sources of
business idea.
 METHODS OF GENERATING NEW IDEAS FOR
ENTREPRENEURS

1. Survey: A survey is a method of

gathering information from a sample of
individuals.

2. Focus Groups/ experts groups of individuals

providing information in a structural format.
3. Brainstorming: It is a group method
for obtaining new ideas and solutions.

4. Problem inventory analysis: It is a method

for obtaining new ideas and solutions by
focusing on problems.
 Steps in Setting a Small Scale Unit
1.Select the right product:
 the first key to success in any
business activity is to select the
right product.
 By taking info. from knowledgeable
people, from industrial publications,
or from various organizations.
2. Preparation of detailed project report:
 A detailed estimate of demand is to be
made-
 total demand,
 existing suppliers and
 the capacity of existing units,
 the demand gap to be met,
 the customers,
 the distribution method required
have all to be studied.
 Technical specifications of the process should
be carefully studied- details of the know - how

 The equipment required and the sources are to be

specified.

 Requirements of space-land shed

 Man power requirements of direct and indirect personnel

are to be determined and their availability ensured.

 Cost of the project to be worked should be identified.

3. The action phase begins-
 form of ownership is to be decided
upon and the company formed and
registered.
 obtaining finance, necessary licenses
and necessary infrastructure is to be
taken.
4. Once all the required authorizations
and sanctions have been obtained
simultaneous action is to be taken for
the following:
Ordering machinery from suppliers.
Obtaining utilities like power and water
connections after constructions.
Recruitment of staff.
Arranging supplies of materials.
Arranging for distributions of the product.
5. The plant is ready for commissioning.
Trial run may be made
Promotional work may be made

6. The unit is then ready for commercial

production.
 THE END
THANK YOU VERY
MUCH!!
CHAPTER THREE

Developing Business
plan
 What is Business Plan?
It is a written document describing all
relevant internal and external elements and
strategies for starting/running a new
venture.
 answers the questions:
 Where am I now?
 Where am I going?
 How will I get there?
Who uses Business Plan?
Potential investors,
lenders,
suppliers,
employees and
customers
Benefits of a Business Plan

Specifically for the entrepreneur

– To view the venture critically and
objectively in terms of :
• The competitive,
• Economic, and
• Financial analysis perspectives
Specifically for the financial
sources

Financial Institutions need to see

the ability of their clients to pay
back the money that the borrower
has borrowed.
 Pitfalls to Avoid in Business Planning

Pitfall 1: No Realistic Goals

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

Remedy: setting up a time table

with specific steps to be
accomplished during a specific
period.
Pitfall 2: Failure to Anticipate Roadblocks
• Indicators:
–no recognition of future problems,
–no admission of possible weaknesses of
the plan,
– no contingency plans
Remedy:
–listing the expected obstacles and
solutions
Pitfall 3: No Commitment or Dedication

Indicators:
 excessive procrastination
missed appointments
 no desire to invest personal  money
Remedy:
acting quickly and follow professional
appointments,
 show financial commitment.
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.
Remedy:
giving evidence of personal experience and
background, build effective team.
Pitfall 5: No Market Segment
Indicators:
uncertainty regarding who will buy,
no proof of unsatisfied need
Remedy:
having a specific target market
justify why and how your product
will satisfy the need.
Business Planning Vs Feasibility
study

• Developing a Well-
Conceived Business
Plan
Market Analysis
 Market analysis is primarily concerned with
the aggregate demand of the proposed
product/service in future and the market share
expected to be captured.

Success of the proposed idea clearly pivots on

the continuing support of the customers.
However, it may be difficult to identify
the market for one’s product/service.

After all, the whole world cannot be your

market.

You have to carefully segment the market

according to some criteria such as:
 geographic scope, demographic and
psychological profile of the potential
customers.
 It is a study of knowing:
who are your customers?
for this you require information
on:
consumption trends,
past and present supply position,
production possibilities and constraints,
imports and exports competition,
 cost structure, elasticity of demand,

 consumer behavior, intentions, motivations,

attitudes, preferences and requirements;

 distribution channels and marketing policies

in use;

 administrative, technical and legal

constraints on the marketing of the product.
Financial Analysis
The objective of financial analysis is to ascertain
whether:

 the proposed project will be financially viable in the sense

of being able to meet the burden of servicing debt and

 the proposed project will satisfy the return

expectations of those who provide the capital. This
includes;

– investment outlay and cost of the project

– means of financing
– projected profitability
• break- even point
• cash flows of the project
• investment worthiness judged in terms of
various criteria of merit; and
• projected financial position.
Technical Analysis
 Technical Analysis…
a) Input Analysis:
Input analysis is mainly concerned with the
identification, quantification and evaluation of
project inputs, in terms of :
 machinery and materials.
You have to ensure that the right kind and quality
of inputs would be available at the right time
and cost throughout the life of the project .

Arrange long-term contracts with the potential

suppliers and cultivate your supply sources.
b) Process Analysis:
• It refers to the production/operations that
you would perform on the inputs to add
value.
• It answers
Where to locate the facility,
what would be the sequence
what would be the layout
what would be the quality control
measures
c) Output Analysis
• This involves product specification in terms of
physical features
 color
 weight
 length
 height &
 The Chemical material properties
 All these describes functional features of the
deliverables
 Economic Analysis

 Economic analysis is the study of costs- and- benefits.

• Emphasize whether the total cost of the product is

justifiable in comparison with the price at which it will sell
at the market place.

– it is also useful to distinguish between :

• the economic /unit cost of the product
• commercial feasibility/enough units would sell.
 Ecological Analysis

Important for projects which have significant ecological

implications like power plants and irrigation schemes, and for
environment polluting industries (like bulk drugs, chemicals and
leather processing).

• The concerns that are usually addressed include the

following:
 What is the likely damage caused by the project to the
environment?
 What is the cost of restoration measures required to
ensure that the damage to the environment is contained
within acceptable limits?
 Legal and Administrative Analysis

• Choice of the form of business ownership,

• Registration and procedural clearances and

approvals from the diverse authorities.
 Project Report
• The findings of the feasibility analysis may be
compiled in a project report.

• These findings may be examined by the

independent consultants/experts.

• The idea is that the optimist entrepreneur may

have overlooked certain aspects that may have a
bearing on the ultimate feasibility of the proposed
business idea
Complete Outline of a Business Plan
• Section I: Executive Summary
 Similar to abstract or synopsis
 it demonstrates your knowledge of the business
opportunity and
 proves that any investment in the future will
yield a good return.
• Section II: Business Description

• General description of business

• Industry background

• Mission and vision of the company

• Goals and potential of the business

• Uniqueness of product or service
 The general description of the business refers :
• Form of business
• Owners
• Name of the business
• Business startup date
• Business operation- for instance, full time
venture Monday to Friday, 7:00 AM to 6:00 PM
• Business type products
• Location- kebele, telephone, fax, E-mail
Section III: Marketing
 Research and analysis
• 1. Target market (customers) identified
• 2. Market size and trends
• 3. Competition
• 4. Estimated market share
 Marketing plan
Market strategy – sales and distribution
Pricing policy &
Promotion plan
  
• Section IV. Research, Design, and Development
(applicable only if R & D is involved)

A. Development and design

B. Technical research results
C. Research assistance needs
D. Cost structure
Section V: Production/Manufacturing
A. Location analysis
• Labor availability, wage rate, proximity to
suppliers & customers, and community support
• The support of area bank
• local tax and zoning requirements
 Is the area desirable? The building desirable?
 Is it easily accessible? Is the public transportation
available? Is street    lighting adequate?
 Are market shifts or demographic shifts
occurring?
B. Production needs: Deals with facilities
and equipment
• Plant, warehouse storage, and office
C. Suppliers/transportation cost
D. Labor supply
E. Manufacturing cost data
Section VI: Management
• explain in detail:
 who will run the business,
 what skills and credentials these people have,
 and how everyone will fit into the organization's
structure.
A. Management team – key personnel
B. Legal structure – stock agreements,
employment agreements, ownership
C. Board of directors, advisors, and consultants
In summery: management aspect of the report
indicates;
 Organizational Structure
 mgt team
 critical personnel
 experience and
 technical capabilities of the personnel
 ownership structure
 compensation agreement for board of directors
and outside consultant and advisors
 Section VII
Analysis of critical Risks
• Potential problems include: effect of unfavourable trend
in the industry, design or manufacturing cost overruns,
and longer lead times in material purchases, unplanned-
for competition.
• What-ifs: are those conditions which may happen in the
future but not yet to be known about their occurrence
currently.
• Some of them might be competitors’ price cut, inaccurate
sales projections, breaking up of management team.
• Obstacles and risks
• Alternative courses of action (i.e. contingency plans)
Section VIII: Financial Aspects
Pro forma balance sheet = projected
1. Financial forecast
information about financial conditions of the
business will be considered using various financial
statements.
Profit and loss statement
• Provides you with an overall profitability summary
for a period of time and will determine your tax
liability for the year.
• Income statement
• Cash flow statement
• Break-even analysis
• Cost controls
• Balance sheet

2. Sources of finance
• Debt financing
• Equity financing
Section IX: Milestone Schedule
 Section X: Appendix
• contains documents and other materials
which have been used for preparing
business plan.

• This can be financial, administrative,

human resource or other related data.
End Of The Chapter

Thank you very

much!!