PRACTICE OF ENTREPRENEURSHIP
EED 216
TABLE OF CONTENTS
Topic 1: Know Technique for Generating Business Ideas
1. Define Business Opportunity
2. State Process of Exploiting Opportunity
3. Identify Business Opportunity using SWOT Analysis
4. Process of conducting Market Survey
5. Process of Business Idea Generation
Topic 2: Know How to Evaluate Business Idea for Enterprise
Development
1. Concept of Business Plan
2. Process of Preparing Preliminary Project Proposal
3. Process of Preparing Detailed Business Plan
4. Model Business Plan on a Selected Venture
Topic 3: Know Methods of Product/Service Selection
1. Define product /service;
2. Explain the nature and characteristics of
product/service;
3. Explain product selection criteria;
4. Identify key factors associated with product selection:
a. Infrastructure;
b. Technology;
c. Availability of raw material;
d. Government Policy/Regulation;
e. Legal aspects of business;
5. Explain the process of preparing feasibility study of a
venture;
6.Explain the steps involved in a technical analysis of a project:
a. Evaluate adequacy of infrastructural facilities for
product selection;
b. Identify the relevant technology available for the
selected product;
c. Evaluate sources and adequacy of raw materials for
the selected product;
7.Explain effects of government policy and
regulations on the selected product;
8. Identify legal aspects of business in product
selection.
Topic 4: Understand the Process and Procedure for Starting an
Enterprise
1. Outline the main features of the Companies and
Allied Matters Act (CAMA) 1990 and the subsequent
amendments;
2. Explain the functions of the Corporate Affairs
Commission (CAC) under the Companies and Allied
Matters Act 1990;
3. Explain the legal structure of business;
4. State factors to be considered in naming a
business;
5. Explain the procedure and requirements for
registration of a business name;
6. Explain the procedure and requirements for
incorporating a business;
7. Explain the reasons for the existence of registered
business names and companies;
8. Identify various agencies responsible for issuance
of licenses and permits.
Topic 5: Know the Various Operational Techniques in
Managing a Business
1. Define management and a manager;
2. Explain the functions of management and a manager;
3. Explain management structure for an enterprise;
4. Explain the communication process in the
management of an enterprise;
5. Explain the techniques and skills of:
a. Planning;
b. Organizing;
c. Staffing;
d. Leading;
e. Controlling.
6. Explain the basic techniques of marketing, production
and financial management in an enterprise;
7. Explain the principles of record keeping, auditing and
taxation (Preparation of a simple final accounts of a venture
or business).
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Topic 6: Know the Various Existing Industry Support
Agencies in Nigeria
1. Explain various industry/support agencies;
2. Explain the types, and sources of materials used in
both manufacturing and service Industries;
3. Explain the types and sources of plants and
machinery used in small scale Industries;
4. Explain the various information and assistance for
vital areas like finance, registration, project selection,
training, marketing, research, quality control, raw
materials, patent information etc.
5. Explain environmental factors associated with
Industrial and economic development in Nigeria.
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TOPIC 1:
KNOW TECHNIQUES FOR GENERATING BUSINESS IDEAS AS
WELL AS FOR IDENTIFYING AND ASSESSING
BUSINESS OPPORTUNITIES
INTRODUCTION:
Potential entrepreneurs require guidance on how to generate business
ideas. They are also expected to identify, assess and utilize business
opportunities to their advantage. It is against this background that effort
is made in this section to guide potential entrepreneurs to generate
business ideas and exploit available business opportunities. At the end of
this module students should be able to identify business opportunities
using SWOT Analysis. In addition they should learn how to conduct
market survey and select the most viable business venture and set up a
small business enterprise.
SPECIFIC LEARNING OUTCOMES:
1. Define business opportunity;
2. State the process of exploring opportunities
3. Identify business opportunities (using SWOT Analysis)
4. State the process of conducting a market survey in order to
establish demand/supply gap;
5. State the process of business idea generation
CONTENT:
1.
Define business opportunity;
Business opportunity is an attractive investment idea or proposition that
provides the possibility of a return for the investor/risk taker. Such
opportunities are presented by customer requirements and lead to the
provision of a product or service which creates or adds value for its buyer
or end user.
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Nigeria is a lead of vast and rich human and natural resources with
exceptional opportunities for full development. There are creative,
innovative and profitable possibilities which offer a range of opportunities
for the young people with the zeal to develop their skill and also driven
by achievement motivation.
There are diverse opportunities in the following areas for the imagination,
creative, inventive and innovative minds:
 Stone and Mineral based industry
 Chemical and Allied industry
 Petroleum industry both upstream and down stream
 Mechanical and metallurgical industry
 Electrical industry
 Electronic industry
 Forest based industry
 Agro-based Allied industries
 Rubber based industry
 Leather industry
 Water Resources based opportunities
 Service Industry
 Miscellaneous activities such as Pharmaceutical, Paper processing
etc.
Activity: Students should use the strength, weakness opportunities and
threats (SWOT) model to identify opportunities around them.
2.
State the process of
exploring opportunities
Process opportunity is a favourable challenge posed by the environment
which may lead an entrepreneur to enjoy differential advantages such as
profits, survival, potentials etc. It is just a set of business conditions
waiting to be perceived and conditioned by someone. Dynamic
prospecting for environmental opportunities may lead an entrepreneur to
start producing a new product, install a new method of production, open
up a new market, discover a new source or uses of raw materials,
reorganize an existing enterprise etc.
Nigerian business environment is saturated with lots of challenging
opportunities. Opportunities are not in short supply, rather,
entrepreneurs capable of capitalizing on existing business or of creating
new ones are in short supplies.
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Opportunities are always ever there waiting to be plucked. To take
advantage of them, someone must hunt or prospect for them, perceive,
capture and realize them. In the words of Carlin (1965), “Opportunity
offers itself to men in direct proportion to their ability, will for
action, power of vision, experience and knowledge of business”
The ability of an individual to create money-making ideas and/or
designs, formulate processes/ product/service, is the greatest single
power he possesses. Money making requires that opportunities be
identified, selected, captured, capitalized and realized by organization to
pursue what is captured; retain the organizations; maintain them and
sustain their growth and success. Willing entrepreneurs must go through
the following process in order to capture attractive investment
opportunities, take advantage and make a success of them.
a) Recognize needs for running a venture:
A venture must be fully recognized. The very propelling influence, need,
motive or drive that is responsible for the entrepreneur’s eventual
mindset to want to run a venture.
b) Conduct self – approval:
Define your values, competitive strength, behavior, resources and other
capabilities (personal capability analysis). Prospective entrepreneurs
must analyse themselves and see if they possess the occupational,
professional and entrepreneurial competence needed to run an enterprise
being contemplated. Capability and value assessments are technically
referred to as “enterprise or company profile”
c) Scan the environment and industry.
This will enable the entrepreneur to understand the force, institutions
and actors that are currently and potentially germane to organization’s
activities and performance.
Environment of business may be domestic or international, immediate or
remote, external or internal, absolute or comparative.
To understand the environment, the following are paramount:
 Environmental scanning
 Environmental forecasting
 Organizational adaptation to environmental changes.
d) Analyze Business ideas/opportunities: Possible business
idea/opportunities should be analyzed to enable the venturer to
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determine the interest or otherwise of the idea/opportunity and
capability and competence or the financial viability of the project;
technical or production pre-feasibility of the project; marketing,
commercial or economic viability of the project as well as social
desirability. Investment appraisal of the project(s) or ideas may be
conducted first, through a pre-feasibility study which highlights the
prospect of the project(s) and second through a comprehensive
feasibility study that provides critical, technical, economic, and
financial and management of the project(s).
e) Select the best idea/opportunity/project. This stage is an
investment decision stage. Criteria for accepting or rejecting the
project, called selection factors, are put in place. Such selection
factors may be objective (quantitative) or subjective (behavioral,
qualitative or judgmental).
f) Capture/implement the idea/project; the business ideas are bodies
of thought and reflections about the nature and structure of business
and what should then be the guiding principles on which to build the
business. It guides the direction of the enterprise; idea tells the
entrepreneur what to do and what not to do. For the contemplative
entrepreneur not to remain a dreamer, he has to be on the alert to
start something. He must have courage and self confidence in his
ability to run and manage an enterprise. The first step of the
implementation process is to start with a comprehensive business
plan, which marshals, allocates and deploys resources needed for the
actualization of the business.
Evaluate success: Activity: Analyze a case of an enterprise which is not
more than three years – five years old.
3.
Identify Business Opportunities (using SWOT Analysis)
Opportunities occur when people discover a problem of some kind that
can be helped with a product/services, or when people decide they have
certain needs or wants to satisfy.
Opportunities may also arise from change. Entrepreneurial activity itself
courses change to occur as well.
Sources of opportunities could also be an observed demand and supply
gap arising from society’s needs and function, growing and evolving
economies and economic niches, technological change, social change,
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demographic change, political changes such as war, tariff and embargoes
or artificial scarcities. Other conditions that may create opportunities
include shortages, surpluses, price response, and shifts in demand.
Students should be assisted to identify, evaluate, select and capture
opportunities which can be operated, managed and realized as
successful ventures (counseling services). Young entrepreneurs need
assistance through advice, not only in the areas of profitable investment
identification and selection, but also in the field of management,
technical know-how, project evaluation, financing, location of suitable
sources of appropriate technology, establishment of enterprise services,
growth alternatives and adjustments to boundary threats. Assistance in
the above areas helps the entrepreneur to establish profitable ideas,
capture, activate and actualize them. It helps the entrepreneur uncover
his interest and abilities through expert assessment of environment,
industry and capabilities of the entrepreneur.
SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) will
enable the student mirror himself in relation to identification and
assessment of business opportunities. Strengths are his stronghold,
Weaknesses imply shortcomings, and Opportunities are possible areas of
exploitation while Threats are those things that are cogs in the wheel of
progress, such as competitors.
Exercises:
i. Group students to scan their environment for possible business
opportunities. Each group to report its findings.
ii.
iii. Guide students on a visit to a close-by trade fair or market.
Students should prepare a summary of the products/services on
display.
iv.
v.
Give students assignment to watch television or listen to radio
advertisements at home and compose a newspaper article
assessing; the intended target audience, attention – getting values
that were visible, product information given, etc. Students to
brainstorm and prepare a concept web of opportunities that might
arise from these advertisements. Students to debate whether
ideas create opportunities or vice versa.
vi.
vii. Analyze a case involving identification of opportunities and ideas.
viii. Students to role play a variety of daily life situations that can
provide an introduction to identifying opportunities and ideas.
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4.
State the Process of Conducting a Market Survey in Order to
Establish Demand/Supply Gap;
A market for a business is all the people within a specific geographical
area, who need a product or service and are willing and able to buy it.
You may have an excellent product or service to offer to the public;
however you have to determine whether there are enough customers
willing to buy your product or service on a regular basis. The price of the
product or service must give you an adequate margin of profit to allow
you to survive and further develop the business.
For new entrepreneurs, the process of conducting a market survey
involves the following steps;
(1) Defining objectives of the market survey and specifying what
information is required.
(2) Working out the details of the study, such as;
 Identifying sources of obtaining information.
 Time and cost involvement for the study.
 Methodology to be used in gathering information.
 Developing a plan of action.
(3) Selecting samples and deciding what contacts and visit should be
made.
(4) Preparing questionnaire and plans for surveys and interviews.
(5) Collating and analyzing data.
(6) Preparing a report of findings.
Exercise:
Guide students to conduct a market survey and prepare a detailed
report. State uses of the survey.
5.
State the Process of Business Idea Generation
Definition: A business idea is the response of a person(s) or organization
to solving an identified problem or to meeting perceived needs in the
environment (markets, community, etc)
A business idea is a pre – requisite for a successful business venture.
Good business ideas result from effort and often creativity of the
entrepreneur.
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Finding a good idea is the first step in transforming the entrepreneur’s
desire and creativity into a business opportunity.
Sources of good business ideas: There are several sources of good
ideas. To be successful in generating or finding one, however, the
entrepreneur needs to keep his/her mind and eyes open and be alert to
opportunities. An idea however good, is only a tool at the end of the day.
It needs to be developed and transformed into a viable business
opportunity.
Sources of business ideas include:
 Hobbies/interests
 Personal skills and experience
 Franchises
 Mass media (newspapers, magazines, TV, internet etc)
 Exhibitions
 Surveys
 Complaints
 Brainstorming
 Creativity
Reasons for generating business ideas:
 Business idea generation is a sine-qua-non ((inevitable) for business.
 Ideas are generated to respond to market needs
 Ideas are also generated to respond to changing fashions and
requirements.
 In order to stay ahead of competition
 To be in tune with latest technology so as to do things better.
 In response to product life cycle
 In order to spread risk and allow for failure.
Exercises
1. Do the nine dot exercise. Ask students to connect the nine dots with
four straight, continuous lines.
2. Do the creative square exercises as another example of creativity in
action
3. Provide solutions and explanations to the two exercises?
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TOPIC 2:
KNOW HOW TO EVALUATE A BUSINESS IDEA FOR
DEVELOPING AN ENTERPRISE
INTRODUCTION:
In developing a business idea there is a need for potential entrepreneur
to adopt a carefully moderated and intelligent approach. It is against this
background that an attempt is made under this section to guide
potential entrepreneur to be more careful by examining and evaluating
every step in the course of developing and establishing business
enterprise. At the end of this module students should be able to prepare
a preliminary project proposal, explore Internet for company profile,
product catalog, product information, etc; as well as conduct a modest
business plan on a selected venture. Students should present the plan to
a panel of successful entrepreneurs for assessment.
SPECIFIC LEARNING OUTCOMES:
1. Define the concept of business plan;
2. Explain the process of preparing preliminary project proposal;
3. Explain the process of preparing a detailed business plan;
4. Prepare a model business plan on a selected venture;
CONTENT:
1.
Define the Concept of Business Plan;
Planning is a process that never ends for business. It is extremely
important in the early stages of any venture when the entrepreneur will
need to prepare a preliminary business plan.
There are different types of plans that may be part of any business
operation. These include financial plans, marketing plan, human
resource plan, production plans, sales plans etc. Plans may be short
term or long term or may be strategic or operational. Whatever the type
of plan or the function, plans have one important purpose; to provide
guidance and structure to management in a rapidly changing market
environment.
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A business plan on the other hand is a written document prepared by
the entrepreneur that describes all the relevant external and internal
elements involved in starting a new venture. It is often an integration of
functional plans such as marketing, finance, manufacturing and human
resources. It also addresses both short term and long term decision
making for the first three years of operation. Thus, the business plan, or
road map, answers the strategic questions of where am I now? Where am
I going? And how will I get there? Potential investors, suppliers and even
customers will request or require a business plan.
Exercises
i. 1. Students to react to the following situations:
What unpleasant occurrence in your recent past could have been
avoided by Planning?
ii. Do you agree with the statement: ‘failing to plan is planning to fail’?
iii. Students to analyse a case where lack of planning led to failure.
2. Students to pick a personal goal that they would like to achieve in the
next few months, example; to improve on their examination scores in all
subjects next term. Using the planning guides, students should describe
the plan, procedures and standards that can help to accomplish this
goal. Students may also make daily, weekly or monthly plans. Students
should select a proposed venture from the opportunities available in the
local environment and apply the planning process to it.
2.
Explain the process of preparing preliminary project
proposal;
Structure of a Preliminary Project Proposal
This should be structured according to the following key headings,
keeping each section as brief as possible. If a heading is not relevant to
the project, simply ignore the unrelated heading.
1. Background: in this section, establish the context of the project by
giving an account of the problem it is trying to address.
2. State of the art: give an overview of existing and emerging
technology in the field, including an account of rival technologies
and a comparison of the advantages and disadvantages of the
various options.
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3. Proposal: give an overview of the proposed project and the
approach, i.e. the activities which will be undertaken to achieve the
project objectives.
Clearly establish the research element or
novelty component in the proposal.
4. Consortium: give an overview of the proposed manpower and
establish the required ability to carry out the project successfully
(e.g. skills, competencies, etc.)
5. Objectives and Deliverables: Identify (1) the objectives and (2) the
deliverables of the proposed project.
6. Competitiveness: if applicable, establish the competitiveness or
advantages of the proposed solution compared to other solutions,
whether these already exist or are still being researched.
7. Cost: give an overview of the project cost (including start-up cost
and working capital requirements).
8. Impact: this section should include:
a. Markets and Uses: identify possible uses and markets for the
deliverables of the project.
b. Benefits and Beneficiaries: identify the beneficiaries of the
project’s results (e.g. the project participants, the general
public, third parties) and the manner in which they will
benefit.
c. Roadmap: give an indication regarding what further steps,
effort, costs and timeframes are necessary before tangible
benefits can be realised from the deliverables or results of
the project (unless these are realised within the lifetime of
the project).
d. Spillover Benefits: identify any secondary benefits of the
project (e.g. facilitating participation in funding programmes,
improving Malta’s ranking, strengthening Malta’s reputation
in a particular area, etc.)
9.
Other Issues
If applicable, briefly identify any gender, ethical or legal issues that
may be connected with the proposed project.
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3.
Explain the process of preparing a detailed business plan;
The meaning of a business plan has earlier been discussed. Reasons for
writing a business plan were also highlighted. Stages of writing a
business plan are: After deciding to go into business, before starting the
business and when updating is required.
Business plans can be written for retail business, wholesale business,
service business, manufacturing and any other type of business.
Business plans are written by prospective business owners or support
agency.
A business plan is written by :
 Identifying all the questions that could be asked about the
business.
 Determining what further information needs to be gathered
to answer all the questions.
 Obtaining all the necessary information.
 Comparing various alternatives
 Making a decision on each question.
A business plan should:
 Have a good appearance
 Provide an index
 Provide a summary
 Number each copy
 Be signed to show who is submitting it.
 Depend on the nature of the business.
Before preparing a business, plan, research should be done in the areas
of customers, competitors and suppliers.
A business plan should be organized to carry a cover page, table of
contents, executive summary, business description, Marketing plan,
organizational plan, operational plan, financial plan and appendices.
EXERCISES
I. 1. Distribute sample Venture/Business plan to students; students
to examine the plans and make their notes and observation, with
respect to its function, importance, mission and purpose.
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II.
III. 2. Divide students into groups of five or more. Each group to plan
an event such as wedding, concert, anniversary, athletics, picnic,
school dance, debate, quiz, graduation etc. Let them identify
problem areas. Discuss problem areas with the students; let them
know that an event is somewhat like a venture. If it is not well
planned, it may end up with serious problems that are difficult to
solve when the event is actually taking place. Let them realize at
what point their venture will never work and should be abandoned.
They should also know that they may choose to proceed, abandon
or modify their venture after the planning framework has been
completed. It is better to halt a project before large amounts of
time and resources have been expended on something that cannot
succeed. Students should know that the single most important
factor in beginning a successful venture is careful panning. Many
things can go wrong, but careful planning can prevent many of
them from happening. Students should also know that sometimes
a venture might seem like a good idea before the careful planning
stage. Some problems however, may be imminent which cannot be
solved. The best course of action may be to abandon the venture
and lose just the planning time.
IV.
V. 3. Students to assume that they are investors with a large amount
of money to invest. Many venture plans have been presented for
their consideration. Let them suggest criteria to use to pick the
best plan. They should know if they do not do a good job, they
stand a very good chance of losing a lot of money.
VI.
VII. 4. Prepare a model business plan on a selected venture.
ix.
Prepare a model business plan on a selected venture;
Outline of a business plan
1. Title: Feasibility study Report on
………………………………………..
Commissioned by………………………………………………………
2. Project consultants ……………………………………………………
3. Table of contents:
Page
a) Executive Summary
b) The Report
c) Project Background
d) Objective of study
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e) Project description and
f) Loan advancement
g) Promoter
h) Location
Market and marketing plan

Potential customers

Competition

Pricing

Sales Tactics

Advertising and Promotion

Distribution.
Technical Feasibility and management plan:

Factory

Machinery

Overhead charges

Packaging materials

Raw materials Manpower and Labour costs.
Financial Projection/Feasibility:

Overview on capital requirement

Financial plan

Projected cash flow

Projected profit and loss account

Projected balance sheet

Break-even analysis

Source and application of funds
Organization Plan:

Form of ownership

Identification of partners/Principal shareholders

Authority of Principals.

Management team background

Roles and responsibilities of members of organization
Assessment



of Risk:
Evaluate weakness of business
New technologies
Contingency plans.
Schedules:

12 months projected sales
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


12 months projected purchase
Fixed Assets and depreciation schedule
Profitability index.
Exercises
1. Present a hypothetical business plan to students; Let them analyze
it bringing out clearly:
 Strengths and weaknesses in terms of available resources,
expectations of the planners (are they realistic).
 Anticipated opportunities and threats that can be seen both
internally and externally.
 Develop goals for the venture including timeliness. Both long
term and short term goals may be identified.
 In the light of the strengths, weaknesses and environmental
issues identified, develop operating objectives and operating
plans.
2. Present copies of annual reports of several organizations to
students. Let them study them and compare the relationship
between marketing expenditures and sales. This experience may
help students to gain a sense of the costs needed to obtain
revenue.
3. Group students. Each group to prepare a comprehensive business
plan for their selected hypothetical venture. Each group to take
their proposal to a financial institution to determine if their
financial plans are realistic and viable. Upon returning from their
research, the groups may confer with each other about the
implication of the findings for the venture plans. Students should
also share their experiences about their findings.
4. Students should list a set of principles or criteria that financial
Institutions apply to ventures to determine the viability of a
financial plan, and use them as a basis to self-assess their
financial plans
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TOPIC 3:
KNOW METHODS OF PRODUCT/SERVICE SELECTION
INTRODUCTION
The need to guide potential entrepreneurs regarding how to go about
selecting the right type of product can not be over-emphasized as it is
quite crucial for their future survival. The point is that choosing the
wrong type of product or service delivery could easily lead to business
failure which would be disastrous to a potential entrepreneur. Hence, an
attempt is made in this section to guide entrepreneurs to go for an
effective way of selecting the right type of product or service. At the end
of the module students should be able to analyze a given case in product
selection; select a product and prepare a feasibility report on a modern
business and evaluate the viability, using CBA (Cost Benefit Analysis)
methodology. They should also be able to generate venture idea on
selected exportable product obtained from the web.
SPECIFIC LEARNING OUTCOMES:
1.
2.
3.
4.
Define product /service;
Explain the nature and characteristics of product/service;
Explain product selection criteria;
Identify key factors associated with product selection:
i. Infrastructure;
ii. Technology;
iii. Availability of raw material;
iv. Government Policy/Regulation;
v. Legal aspects of business;
5. Explain venture idea generation;
6. Explain the steps involved in preliminary screening;
7. Explain the different steps in preparing pre-feasibility study;
8. Evaluate adequacy of infrastructural facilities for product
selection;
9. Identify the relevant technology available for the selected
product;
10. Evaluate sources and adequacy of raw materials for the
selected product;
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11. Explain effects of government policy and regulations on the
selected product;
12. Identify legal aspects of business in product selection.
CONTENT
1.
Define Product /Service;
Meaning of product/service
1. A transformed input via a throughput or the resulting output
secured through the conversion of selected inputs in a
transformation process (systems definition).
2. Any producible, manufacturable or serviceable items altered
from the original state to a desired advanced state thereby
creating specific values or objectives for its producers and
users.
3. Anything that can be offered to a market for attention,
acquisition, use or consumption (marketing definition).
4. A bundle o f complex tangible and intangible attributes or
benefits. Such attributes/benefits include durability, finish,
image, colour, packaging, repair service, etc (marketing
definition)
Exercises: Based on the definitions, students should classify product
based on method of production, nature of output, nature of market.
2.
Explain the nature and characteristics of
product/service;
Nature And Characteristics Of Product /Services:
Product is an outcome of input-transformation-output. Where
inputs are men, methods, materials, money and machines,
transformation is the production process where the forms of raw
materials are changed into semi-finished products which output is
the final product/goods. Products/services must provide functional
utility to the consumer. The functional/performance characteristics
may be in terms of weight, liability, size, maintainability or operating
effectiveness. Products or services must:
 Be capable of advancing the “profitability and survival” goal
of the organization; and
 Satisfy a want
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3.
Explain Product Selection Criteria:
When a new product is to be acquired/produced, a company usually
uses a defined product evaluation and selection process. Very early in
the process, a list of relevant selection criteria is compiled and
distributed to sales force. Later on, the criteria list is used to compare
the various product offerings and create a shortlist with products
selected for further evaluation.
Early in the product evaluation and selection process you would identify
products that are expected to meet the market requirements. This is not
as easy as it sounds, since the number of innovative products is
overwhelming. Sometimes, it is difficult to cut through the thicket of
vendor marketing messages and carve out the substance of what a
product really does and when to use it.
I refer here to the bottom-up growth idea, as the top-down ones are
usually rooted in well structured (and expensive, even if done internally)
market researches and validated through formal yearly strategic
planning session.
For the bottom-up ideas, after the ideas have been collected, the
funneling process begins. An "expert" team analyzes the ideas from a
product technology and manufacturability standpoint; and then
check the result against the Voice of Customers tools (i.e. web site,
claims, reports from the sales force and technical assistance staff, etc.).
The ideas that pass through the "expert judgment" in terms of product
technology, manufacturability and compliance to Expressed Customer
Needs will go through a further technical analysis by the product
development department. If the PD Dept. states that yes the idea is really
feasible from a technical standpoint, then they are analyzed in terms of
economics (costs to make the product, investments required, etc.). In
parallel, a market analysis is done: how many sales in how many years
at what price. Finally, the financials are calculated and priority rank is
done based on those parameters. Here it is very important to use
multiple criteria, as otherwise the highest NPVs will overcome the
others...and this is risky as the NPV Volatility is not calculated (in other
words, the bigger developments will throw out the smaller ones, but
because the bigger are also more difficult to sell, hence the calculated
NPV is inherently more volatile than for smaller developments).
20
The parameters we consider in the funneling process are:
-
Compliance to Expressed Customer Needs/Claims (Y/N)
Fit with Strategic Imperatives (Y/N)
Feasibility of development concept (H/M/L)
Manufacturability (Y/N)
Time to develop the engineered concept (H/M/L)
Needs for Qualified Internal Resources (H/M/L/N)
Needs for External Capital Investments (H/M/L/N)
Expected Contribution Margin (H/M/L)
NPV
NPV Volatility Estimate (H/L)
IRR
Payback time
4.
Identify Key Factors Associated with Product Selection:
 Infrastructure;
 Technology;
 Availability of raw material;
 Government Policy/Regulation;
 Legal aspects of business;
Once a product has been selected for production, there is need for
further analysis of some key factors to determine how production will
proceed and what legal requirements and licenses must be met. Below
are some of these factors that must be investigated.
Processing Activities:
 Description of the process showing simplified flow charts indicating
comprehensive material and energy requirements;
 Consideration of alternative processes and justification for the
chosen process;
Firm Size and Production Schedules:
 From market studies, indication of demand for the product
 Consideration of availability of inputs and possibility of
importation of raw materials (where necessary)
 Consideration of the start up and technological know-how.
Machines and Equipment:
 Machines and equipments layout
 Specification of the machinery and equipment required, indicating
rated capacities of each.
21


Source of supply of machinery and equipment (indicating whether
local or foreign) and including costs and terms.
Comparative analysis of alternative machinery and equipment in
terms of cost, reliability, maintainability and local technical
expertise.
Project Location (Infrastructure and Utility Analysis):
 Map showing project location
 Desirability of location in terms of distance from the source of raw
materials, market and other factors
 Desirability of location in terms of infrastructures and utility
supply.
 Comparative study of different locations indicating advantages and
disadvantages;
Raw Materials:
 Description and specifications relating to physical, mechanical
properties
 Current and prospective cost of raw materials, including sources of
materials
 Local availability, continuity of supply all year round, and prospect
for importation.
Waste Disposal:
 Description and quantity of waste to be disposed of
 Description of the chosen waste disposal method and cost
 Comparison with other methods to indicate cost benefits
 Compliance with legal requirement with regards to environmental
impacts
Environmental Impact Studies:
 Description of the environment of the project location.
 Description of the project needs and processing technologies
 Prediction of impact of the waste products and processing activity
on the environment
 Mitigation measure to treat impacts
 Residual impacts and further studies to treat such residual
impacts
Manpower Requirements:
 Skilled and unskilled labour requirement
 Technical and managerial staff requirement
22


Training needs assessment and training schedules
Proposal on remuneration including fringe benefits
Explain Venture Idea Generation;
The starting point of being an entrepreneur and developing a new
venture is the identification of the basic product or service being offered.
This part of the venture creation process is perhaps the most difficult to
actualize. The origin of the new product/service idea is usually internally
generated through research and development, other sources of new ideas
could be through creative problem solving. A wide variety of techniques
can be used to obtain the new product idea. Whichever way it occurs, a
sound idea for a new product/service, if properly evaluated, is essential
to a successful launch of a new venture.
Some of the sources of new ideas include consumers, existing
companies, distribution channels, Government, R&D, Hobbies/interests,
Personal skills/experience, franchises, mass media, Exhibitions, surveys,
complaints, Brainstorming, creativity etc.
Even with a wide variety of sources available, coming up with an idea to
serve as the basis for a new venture can still be a difficult problem. The
entrepreneur can use several methods to help generate and test new
ideas, including focus groups, brainstorming and problem inventory
analysis.
5.
Explain the Steps Involved in Preliminary Screening;
Every project has uncertainties. The nature of the uncertainties can be
expressed in the form of assumptions which must be valid but which
cannot be directly controlled. Assumptions can be the most critical
factors in a development project. Many projects fail because planners
make unrealistic assumptions or forget to define and examine the
implicit assumptions they are making.
It is impossible for a project manager to control all the factors which can
affect a project. There are always social, political, technical, economic,
physical, and other factors beyond the project manager's control that are
necessary for successful achievement of project objectives.
To have confidence in the design of a project, one must define, at each
level, all the conditions necessary to reach the next level of objectives.
23
These conditions include hypotheses (predictions), which are internal to
the project, and assumptions (conditions), which are external to the
project. After identifying the assumptions affecting the project, one can
deal with them in a way that increases the probability of success.
Development projects involve important objectives and scarce resources,
so we must examine whether our predictions in the project design are
valid. Before we begin the project, we want to be confident that we can
achieve our objectives. We must, therefore, carefully examine what we
are assuming about factors outside our control that could be detrimental
to achieving our objectives. We identify those factors in the "assumption
column" of the Project Design Chart at the same level with the objective
they influence.
After identifying as many critical assumptions as possible with the
information at hand, they can be looked at more closely and defined
more specifically.
In a rice production project, for example, "adequate rainfall" is obviously
necessary. Project planners and managers need more guidance, however,
if they are to assess the validity of this assumption. How much rainfall is
adequate? We must know how much rain is required and when it should
fall. If we find that the rains must begin in May and last through
October, with a monthly average of 12 inches, the next step is to find out
if it is reasonable to expect this level and pattern of rainfall. If review of
the climate records in the region shows that for eight of the last twenty
years rainfall was less than 8 inches for the months of June and July,
our assumption of adequate rainfall would not be valid.
If our assumptions are likely to be invalid, we have several options to
consider. First, we could continue with the project "as is" and accept the
lower probability of success. Second, we could examine if there is some
way to modify the project to overcome the weak assumption. In the rice
production example, perhaps an irrigation system could be included in
this (or another) project to bring a sufficient supply of water to the crops.
Finally, if there are insufficient resources to develop an irrigation system,
the project could be abandoned because it is unworkable - thus averting
project failure before large amounts of time and resources are expended.
24
6.Explain the Different Steps in Preparing Pre-feasibility Study;
A MANAGEMENT APPROACH TO FEASIBILITY STUDY
In recent years, project feasibility study has become an increasingly
detailed and technical set of procedures practiced by highly trained
economists and engineers. And yet very often these procedures seem
irrelevant to the practical people designing and managing projects. Why?
Perhaps it is because these procedures ignore some of the most
important questions.
What do practical project designers need to know in order to have
confidence in potential projects? Essentially they need to know (1) if the
proposed project will really achieve its objectives; (2) how they can
improve the likelihood and level of its impact; (3) whether there is a less
expensive way to achieve the same results; and (4) whether, all things
considered, the benefits justify the costs.
Will The Project Succeed? How Can It Be Improved?
The most important question concerns the plausibility of the suggested
project design. Managerially useful feasibility studies begin with this
question. And the most effective of these studies treat project plausibility
not merely as a question but as a challenge. In other words, such studies
don't simply ask "Will it succeed?", they ask "How can we make it
succeed?" They take an active, not a passive, role in project design.
Feasibility study, by itself, cannot increase a project's likelihood of
success. What it can do is substitute risk (known probability of failure)
for uncertainty (lack of information) and suggest practical measures for
reducing the risk by modifications to the project design. In other words,
it can provide us with information on how likely our project is to succeed
and how we can increase that likelihood. As managers, we must learn to
demand nothing less of feasibility analysts.
Projects are theories about the world. If we do certain things, we expect
certain results will occur. And if these results do occur, we believe they
will have certain impacts.
25
Analysis Of Assumptions
Potential feasibility questions exist wherever there are sources of
uncertainty - i. e., wherever we are unsure of "facts" or "effects". These
"facts" are the assumptions and the "effects" are the hypotheses.
How do we go about analyzing assumptions?
Most importantly, make sure all of the important assumptions are
identified. To do this, ask yourself, skeptics, and as many others as
possible, to describe the factors which could prevent the project from
reaching its objectives. In essence, the question is "What, beyond my
direct control, could cause this project to fail?" The answers to that
question are the assumptions.
It may be helpful to group the assumptions by type:
-
market factors
cost factors
financial factors
political factors
technical factors
cultural and social factors
geological/climatic factors
managerial factors
To gain a clearer idea of what these factors include, consider how some
of the following questions might come out of an investigation into these
factors.
Market Factors - Do people have disposable income available at the time
when the product is for sale? Is there a MARKET that can be reached
and served profitably? What is the likely price (considering seasonal
swings) ? What are the quality and quantity dimensions?
Cost Factors - What are all the major initial costs involved in
production? What are the important recurring costs? How much is the
labor cost likely to be?
Financial Factors - Are there sources of affordable credit in the
community? Is there a plan for control of group money? Is the cash flow
sufficient?
26
Political Factors - Does the governor support the general idea? What are
the licenses and inspections needed? Is the activity legal?
Technical Factors - Is the technology easy to maintain? Are spare parts
readily available? Is the scale appropriate? Is the level of risk
appropriate? Are the inputs readily available?
Cultural and Social Factors - Does it help one group by hurting
another? Does the project "fit" the culture? Is the level of risk acceptable?
Climatic Factors - Does the project hurt the environment? Does it use
already dwindling natural resources?
Managerial Factors - What are the training requirements? Is there a
sufficient, available labor force?
The type of assumptions chosen for analysis will determine the type of
feasibility study needed to investigate them.
Then, identify the assumptions most appropriate for analysis. Out of the
long list of assumptions, how do you choose the correct ones to study?
We suggest a simple two criteria basis for selection-importance and
uncertainty.
To begin, ask of each assumption whether it seems truly essential for
achieving project success. If its influence seems more or less incidental,
forget about it. If the assumption is judged to have high potential
influence, then ask yourself how uncertain project designers are about
the likely performance of that assumption. Only where assumptions are
important and insufficiently understood is detailed investigation
worthwhile.
Arrange data collection efforts to provide the information you need. The
data collected on assumptions should reduce the uncertainty of project
designers about the following:
-
whether key assumptions are likely to hold true or not;
what the effects on project success would be if any of the key
assumptions did not hold true;
- what means are available to managers to influence or avoid dangerous
assumptions.
27
If assumptions are unimportant (i.e., low impact) or very probable, they
should not affect project design or selection. When assumptions have
high impact and low probability, we have a danger signal. If we can
redesign the project to affect the assumption, we may wish to go ahead.
Otherwise, we would be well advised to suggest that the project be
abandoned in favour of something more promising.
Technical Analysis: (Evaluate adequacy of infrastructural
facilities for product selection; Identify the relevant technology
available for the selected product; and Evaluate sources and
adequacy of raw materials for the selected product;)
Product:
 Description of the product including specifications relating to their
physical, mechanical and chemical properties;
 Uses of the products.
Processing Activities:
 Description of the process showing simplified flow charts indicating
comprehensive material and energy requirements;
 Consideration of alternative processes and justification for the
chosen process;
Firm Size and Production Schedules:
 From market studies, indication of demand for the product
 Consideration of availability of inputs and possibility of
importation of raw materials (where necessary)
 Consideration of the start up and technological know-how.
Machines and Equipment:
 Machines and equipments layout
 Specification of the machinery and equipment required, indicating
rated capacities of each.
 Source of supply of machinery and equipment (indicating whether
local or foreign) and including costs and terms.
 Comparative analysis of alternative machinery and equipment in
terms of cost, reliability, maintainability and local technical
expertise.
Project Location:
 Map showing project location
28



Desirability of location in terms of distance from the source of raw
materials, market and other factors
Desirability of location in terms of infrastructures and utility
supply.
Comparative study of different locations indicating advantages and
disadvantages;
Project Layout:
 Description of project layout showing building and facilities.
 Types of buildings and estimated cost
 Land improvements such as access road, drainages, etc
 Type of supplementary utilities and cost.
Raw Materials:
 Description and specifications relating to physical, mechanical
properties
 Current and prospective cost of raw materials, including sources of
materials
 Local availability, continuity of supply all year round, and prospect
for importation.
 Evaluate the sources and adequacy of the raw materials needed to
sustain viable production of the selected product(s).
Waste Disposal:
 Description and quantity of waste to be disposed of
 Description of the chosen waste disposal method and cost
 Comparison with other methods to indicate cost benefits
 Compliance with legal requirement with regards to environmental
impacts
Environmental Impact Studies:
 Description of the environment of the project location.
 Description of the project needs and processing technologies
 Prediction of impact of the waste products and processing activity
on the environment
 Mitigation measure to treat impacts
 Residual impacts and further studies to treat such residual
impacts
Manpower Requirements:
 Skilled and unskilled labour requirement
29



Technical and managerial staff requirement
Training needs assessment and training schedules
Proposal remuneration including fringe benefits
The process of technical analysis must answer the following questions.
o What should be produced, when should it be produced and
what quality standards should be attained?
o What is the most appropriate technology in terms of product
quality, reliability and operating conditions?
o Are the project and its technology environmentally and
socially acceptable?
o Are all related government regulations and policy guidelines
met in the implementation of this project?
o Are required materials and other inputs reliably available?
o Is the available labour pool adequate for the project; if not, is
it possible to train workers as required?
o Where should the project be located?
o What is the implementation plan and how much time is
required?
o What are the costs of investment, implementation and
operation?
7.
Explain Effects of Government Policy and Regulations on the
Selected Product;
Your business may need permits and other licences before you can start.
The licensing rules are different depending on the type of business that
you are setting up. These are examples of the sort of licenses you might
need, and where to apply for them:
The Abuja Environmental Protection Board, (AEPB) is in the process of
setting up formal licence requirements for certain kinds of businesses,
especially those business that may affect the environment. While the
plans have reached advanced stage, they have not yet been finalized.
Your Counselor will keep you updated on the development.
Food businesses (such as restaurants, catering services, snack bars,
bottled or packaged drinking water etc) as well as businesses dealing
with dugs formulation, repackaging and distribution need a licence from
NAFDAC.
Businesses dealing with children, such as nurseries or daycare centres,
are licensed by the Abuja Board of Education.
30
Land related businesses (Certificate of Occupancy) or if you are planning
on applying for a piece of land for business purposes you will do that at
Abuja Geographic Information Service (AGIS)
Whatever your business is, your Counselor will be able to tell you
whether any special licences are needed. The CAC and NAFDAC promise
short processing time, but you should still allow enough time for them to
process your application. You will not be able to start your business
without NAFDAC licenses, if you are in the food, drug and cosmetics
industry.
8. Identify Legal Aspects of Business on Product Selection
In Nigeria different regulations apply to different products. The
entrepreneur is advised to consult his/her lawyers and/or technical
services provider for guidance. Below are some of the common
regulations that must be met – environmental impact report and
certification, NAFDAC registration, copyright and trademark law, etc.
ENVIRONMENTAL IMPACT ANALYSIS (EIA)
In siting your project in a location, it is important to analyze the impact
of the production operations on the immediate/surrounding
environment. It is essential that for any identified negative effect designs
for corrective actions and or mitigation must be incorporated in the
project implementation strategy. The EIA process must take account of
the following:
Socio-Cultural Factors
• Community Structure
• Traditional Cultural Habits and Customs
• Historic Sites
• Religious and Social Services
• Recreation
• Housing
• Internal and External Relations
• Protection of Vital Natural Resources
Social Infrastructure
• Education
• Sanitation
31
•
•
Health
General Well-Being (Diseases, Physical Safety, Population Density,
Etc)
Emissions
• Liquid Waste
• Solid Waste
• Air Pollutants (Gases, Dust, Fumes, Vapours)
• Noise and Vibrations
• Odours
• Chemical Reactants (Producing Colours, Odours, Poisons)
• Hazardous Substances
Health Risks and Hazards
• Health Risk to Workers and Staff
• Increase of Already Existing Risks
• Risk of Accidents Affecting Social and Natural Environment
(During Construction and Operation, After Closing Down
Operations, During Transportation of Hazardous Substances)
Degradation of Social Structures
• Migration
• Displacement of Human Habitation
• Displacement of Economic Activities
• Disruption of Culture-Specific Social Relationships and
Infrastructures
• Deterioration of General Living Conditions
Degradation of Natural Resources
• Direct and Indirect Damage to Natural Water Resources
• Damage to Land Resources
• Uneconomic Use of Nonrenewable Natural Resources
• Damage to Plant Populations
• Disruption of Interlinked (Balanced) Ecosystems
• Displacement, Extinction of Species
REGULATION AND REGISTRATION OF FOOD AND DRUGS:
The National Agency for Food and Drug Administration and Control
(NAFDAC) is the government of Nigeria regulatory body responsible for
food and pharmaceutical products manufacturing, importation,
advertisement and distribution in Nigeria under the provision of the
32
government of Nigeria Decree 19 of 1993 and its accompanying
guidelines. No food item may be imported, advertised, sold or distributed
in Nigeria unless it has been registered by NAFDAC.
NAFDAC was established to protect and promote public health by
ensuring wholesomeness, quality and safety of food and drug consumed
in Nigeria.
The main strategy employed by the agency for the enforcement of
Nigeria’s food law is the process of product registration. Contravention of
the provision of existing food law is subject to prosecution and
punishment, as specified in the code. NAFDAC appears to have become
more active and more stringent in enforcing existing food law, but
primarily to protect local producers. In theory, any food item not
registered with NAFDAC is not legally importable.
General Requirements
NAFDAC regulation requires food labeling to be informative and accurate.
The following are NAFDAC’s minimum labeling requirements;
1. A product brand name or common name must appear in bold
letters.
2. A complete “location” address of the manufacturer showing
country of origin must be provided on the product label.
3. The production ”batch” number, date of manufacture and expiry
date must be indicated.
4. Net content, specifying essential ingredient in metric weight for
solid, semi solid and aerosols and metric volume for liquids.
5. Ingredient must be noted by their common names in order of
their prominence by weight unless the food is standardized, in
which case the label must include only those ingredients which
the standard makes optional.
6. Food additives and colours must be declared on the label.
Spices, flavours and colours may be listed as such, without
naming the specific material; but any artificial colour or flavour
should be identified as such.
7. Labeling should be in English. If it is in another language, an
English translation must be shown on the label r package insert
(where applicable).
8. NAFDAC registration number must be included on the product
label.
33
Registration
In January 2003, NAFDAC increased its fees for registration, vetting and
documentation for all imports. The fee for registering each product was
increased to 750, 000 Naira about ($6, 000) up from 10, 000 Naira ($100)
in 2002.
Additionally, NAFDAC Requires that:
1. No applicant will be allowed to register a food product in more than
one name.
2. Where different flavours of the same food are produced, each
flavour will have to be registered separately.
3. Major supermarket operators or importer can import mixed
container loads of high value product (HVP) under NAFDAC global
hooting of supermarkets (GLS) and other specialties required by
hotels, fast food, chain and international organizations, firms
participating in the programme are routinely inspected by the
agency.
COPYRIGHT AND TRADE MARK LAW
The Nigerian Standards Organization is responsible for issuing patents,
trademarks and copyright. Once conferred, a patent conveys the
exclusive right to make, sell, use a product or to apply a patented
process. The trademark Act of 1965 governs the registration. A
trademark grants the holder the exclusive right to use the registered
mark for a specific product or class of product.
Statutes which govern intellectual property regulation in Nigerian include
the copyright Act of 1988 (amended in 1992). Copyright law makes
counterfeiting, exporting, importing, reproducing, exhibiting, performing
or selling any work, without the permission of the copyright owner a
criminal offence.
The Nigerian governments lack of institutional capacity to address IPR
issues is a major constraint to enforcement. Patent and trademark
enforcement remains weak and judicial procedures are slow and subject
to corruption. Companies rarely seek trademark or patent protection
because they generally perceive Nigerian enforcement institution as
ineffective. Nonetheless, recent government efforts to curtail IPR abuse
have yield results. The Nigerian Police work closely with the Nigerian
copyright commission in enforcing the copyright law.
34
TOPIC 4:
UNDERSTAND THE PROCESS AND PROCEDURE FOR
STARTING AN ENTERPRISE
INTRODUCTION:
An attempt is made in this section to guide potential entrepreneurs
regarding the steps to adopt in the course of starting and operating their
proposed business enterprises. At the end of this module, students
should be able to identify the procedure as well as the documentations
required for registering different types of business ventures in Nigeria.
They should also understand the important elements in an Article and
Memorandum of Association.
SPECIFIC LEARNING OUTCOMES:
1.
2.
3.
4.
5.
6.
7.
8.
Outline the main features of the Companies and Allied Matters
Act (CAMA) 1990 and the subsequent amendments;
Explain the functions of the Corporate Affairs Commission
(CAC) under the Companies and Allied Matters Act 1990;
Explain the legal structure of business;
State factors to be considered in naming a business;
Explain the procedure and requirements for registration of a
business name;
Explain the procedure and requirements for incorporating a
business;
Explain the reasons for the existence of registered business
names and companies;
Identify various agencies responsible for issuance of licenses
and permits.
CONTENT:
1.
Outline The Main Features of The Companies and Allied
Matters Act (CAMA) 1990 and the Subsequent Amendments;
Main features of CAMA 1990: - The Company and Allied Matters Act
(CAMA ) is divided into part A, B, C.
35
PART A
This part deals with incorporated companies: the procedure of
incorporating companies, the function of corporate affairs commission
(CAC), types of companies, composition of the companies, inflow and
outflow of capitals in a company, types of meetings, merger and
acquisition of companies and the winding up of companies.
PART B
Part B deals with business name: which business name is registerable
and unregisterable?
PART C
Part C defines incorporated trustees. Incorporated trustees are non profit
organization. It deals with the procedure of incorporation, function and
composition of incorporated trustees.
2.
Explain the Functions of The Corporate Affairs Commission
(CAC) Under The Companies And Allied Matters Act 1990;
The functions of the commission as set out in section 7 of the Companies
and Allied Matters Act includes the following:
 To administer the Act, including the regulation and supervision of
the formation, incorporation management and winding up of
companies.
 To establish and maintain companies registry and offices in all the
states of the federation suitability and adequately equipped to
discharge its functions under the Act or any law in respect of
which it is charged with responsibility;
 Arrange and conduct an investigation into the affairs of any
companies where the interests of the shareholders and the public
demand;
 To undertake such other activities as are necessary or expedient
for giving full effect to the provision of the Act.
The commission also registers Business Names and Incorporated
Trustees as well as provides wide range of ancillary services.
3.
Explain the Legal Structure of Business;
36
Business is the totality of the economic and commercial life of a nation. It
is an organization whose purpose lies outside the business itself (to
create customers).
It may also be understood as a productive activity geared toward the
realization of objectives such as profitability, customer creation, growth,
survival and satisfaction of owners, workers, consumers, management
and competitors.
Business could be carried on as a small, medium or large scale
enterprise. It could also be carried on as domestic or international
business. It could also be publicly or privately owned. In Nigeria, legal
forms of business are sole proprietorship, partnership and companies.
Sole Proprietorships are one-man businesses. The owner provides the
capital, takes decision and assumes all risk. They are the most common.
The partnership is an Association of two or more persons carrying on
business with a view to making profits through the pursuit of lawful
objective.
In Nigeria, the number of people to form an ordinary partnership must
not exceed twenty while in the case of banking; the number must not
exceed ten persons. The people forming the association are called
partners. They agree from the start what capital each brings to the
business, specific functions each will perform and how profits will be
shared. These conditions are embodied in the partnership “deed”. The
partnership agreement or deed clearly specifies the right and duties of
partners and privileges of such partners.
The limited liability company (corporation) is an “artificial being,
invisible, intangible and existing only in contemplation of law”. Being a
mere creation of the law, it possesses only the properties which the
charter of its creation confers upon it either expressly or as incidental to
its very existence. The company has the right to acquire, own and sell
property, sue and be sued.
In Nigeria, company formation and operations are secured through
company incorporation in accordance with the company Act 1968 and
the CAMA 1990, and its subsequent amendment in 2004.
There are two types of company formation in Nigeria; private companies
and public companies.
37
A private company is composed of a minimum of two and maximum of
fifty members. A public company on the other hand has a minimum of
seven members with no upper limit.
The following documents are required by the Corporate Affairs
Commission (CAC) Registrars of companies) before incorporation of a
company;
 Articles and Memorandum of Association
 A list of persons who have consented to become directors with
their written consents to act as such (not required for private
companies).
 Notice of situation/location of registered office (within 14 days).
 A statement of authorized share capital
 A statutory declaration that all the requirements for
registration have been complied with.
If the registrar is satisfied that all is in order, he will issue “certificate of
incorporation”. A private company can commence operation with this
certificate. However, a public company may have to receive in addition “a
trading certificate” before it can commence business.
4.
State Factors To Be Considered in Naming A Business;
It is important that each business has a distinct name different from
others. This is because it has to be its own identity and uniqueness.
Many factors are usually considered in naming a business. Such factors
include among others;
1) The nature of the business to be undertaken
2) The type of goods/services to be produced and offered to the public
3) The environment of the business
4) The name should comply with the necessary requirements of the
CAC
5) The name has to be attractive/ appealing
6) The name should be easy to relate with.
Exercise;
Students should brainstorm to come up with additional factors.
5.
Explain the Procedure and Requirements For Registration of A
Business Name;
38
A business name is the name or style under which any business is
carried on whether in partnership or otherwise. A business name will be
rejected by CAC if;
 It is found to be identical with or similar to any registered
trade mark or to a name by which any firm, company or
individual has already been registered as a corporate entity
under part A of the CAMA 1990 or part B as the case may
be.
 It is found to be deceptive or objectionable in that it contains
a reference direct or otherwise to any personage, private or
institution, or it is likely to mislead the public as to the
nationality, race or religion of the person(s) by which the
business is wholly owned.
 A business name would not be registered if it contains the
word “national, government, municipal, state, federal or any
other word which imports or suggest that the business
enjoys the patronage of the federal, state or local
government.
 Contain the word “co-operative” or its equivalent in other
language or any abbreviation thereof or contain the word
“chamber of commerce, building society, guarantee, trustee,
investment, bank, insurance or any other word of similar
connotation”.
Registration of a business name requires among other things, the
submission of a statement in writing, on the prescribed forms, signed by
the appropriate persons and containing the following particulars:
 The business name, or if the business is carried on under two or
more business name, each of those business names;
 The full address of the principal place of business, and every
other subsidiary place of business.
 The general nature of the business;
 In respect of registration of a firm, the present forenames and
surnames, nationality, ages, sex, occupation and the corporate
name and registered office of such corporation which is a partner.
 The date of commencement of the business whether before or
after coming into the operation of the 1990 Act.
 Passport photographs duly certified in the prescribed manner in
the case of sole proprietorships or firms consisting only of
individuals.
 Professional certificates in cases of sole proprietorships or firms
intending to carry on any professional business.
39

Submission of tax clearance certificates for at least three years.
CAC may request for additional information and supporting documents
in the cases of a firm or an individual carrying on business on behalf of
another individual, firm or corporation whether as nominee, as trustee
and in the case of a firm or individual carrying on business as general
agent for another entity overseas and not having a place of business in
Nigeria.
6.
Explain the Procedure and Requirements For Incorporating A
Business;
Procedures and Requirements for Incorporation of a Business include:
1) Consulting a legal practitioner to prepare all the necessary
incorporation documents as itemized in topic 3
2) Filing the documents with the CAC
3) Payment of all the necessary fees
4) Issue of certificate of incorporation and a trading certificate (in the
case of a public limited company).
7.
Explain The Reasons For The Existence of Registered Business
Names and Companies;
Reasons for the Existence of Registered Business Names
1) To avoid conflicting names
2) For easy identification
3) For purpose of product classification/identification
4) To maintain standards of product and services.
5) To maintain customer loyalty.
Exercise:
Students to further brainstorm on the reasons for existence of registered
business names.
8.
Identify Various Agencies Responsible For Issuance of Licenses
and Permits.
Licenses are official documents showing that permission has been given
to do, use or own something.
In Nigeria, licenses and permits relevant to enterprises are issued by the
following organizations:
40
S/N Organization
1.
National Agency for Food and Drugs
Administration and Control (NAFDAC)
2.
Nigerian Police
3.
Export Processing Zones (EPZ)
4.
Nigerian Investment Promotion
Commission (NIPC)
5.
Nigerian Immigration Service
6.
Nigerian Institute for Standards (NIS)/
Standard Organization of Nigerian
(SON)
7.
Nigerian Export Promotion Council
(NEPC)
8.
NACCIMA/Ministry of Commerce
9.
National Office for Technology
Acquisition and Protection (NOTAP)
10. Ministry of Environment
11. Federal Inland Revenue Services
(FIRS) and Board of Internal Revenue
(BIR)
12. State/Federal High Court
13. National Copy Right Commission
(NCRC)
Certificate/Licence/Permit
Foods and Drugs
Fire Arms
Finance
Tax Concessions/Pioneer Status
Expatriate Quota
Certificate
for
(Quality Control)
Standards
Certification relating to exports
Certificate of Origin
Intellectual Property
Location Permit
Tax /Vat Certificates
Stamp Duty
Patents, Trade Marks, Designs,
Copyright, etc
41
TOPIC 5:
KNOW THE VARIOUS OPERATIONAL TECHNIQUES IN
MANAGING AN ENTERPRISE
INTRODUCTION:
Potential entrepreneurs need to fully understand certain guidelines
regarding the smooth running of business enterprises if they are to
manage them successfully. These operational techniques for managing
an enterprise are treated in this section. Students should be able to draw
an organogram for any SME. They should understand the
communication process in an enterprise as well as the function areas of
business and in particular the importance of good record keeping
practice.
SPECIFIC LEARNING OUTCOMES:
1.
2.
3.
4.
Define management and a manager;
Explain the functions of management and a manager;
Explain management structure for an enterprise;
Explain the communication process in the management of
an enterprise;
5. Explain the techniques and skills of:
i. Planning;
ii. Organizing;
iii. Staffing;
iv. Leading;
v. Controlling.
6. Explain the basic techniques of marketing and production in
an enterprise;
7. Explain the principles of record keeping, auditing and
financial management.
CONTENT:
1.
Define Management and A Manager;
Meaning of management and manager
1. Management is described as the process of getting things
done through people in an effective and efficient manner.
2. Management can be used to refer to a group of people,
performing managerial tasks and functions. The term is used
42
collectively to include all the individuals in that group. For
instance, a group of people often referred to as the
“management” of the organization.
3. Management is a process: As a process, management is
viewed as involving some specific activities or function, and
it is the collective performance of the function that is referred
to as management. In other words, carrying out specific
actions is recognized as management.
4. Management is a set of activities undertaken by one or more
persons in order to coordinate the activities of others in the
pursuit of ends which could not be achieved by any one
person. [Donnelly, Gibson and Ivancevich (1975:10)].
Management can be more scientifically defined as the coordination of all
the resources of an organization through the process of planning,
organizing, directing and controlling in order to attain organizational
objectives” – Nwachukwu (1988:4)
From the above definitions, management could be seen as the
performance of those activities that enhance effective utilization of
human and material resources with the aim of achieving organizational
goals. The activities are planning, organizing, directing and controlling.
Therefore, while management is the art of getting things done through
people, managers are responsible for achieving organizational goals by
arranging for others to perform whatever tasks may be necessary and not
by performing the tasks themselves. Managers are organization members
who are assigned primary responsibility of carrying out the management
process.
A manager is a hired hand saddled with the responsibility of planning,
organizing, integrating activities of others in an organization. A manager
is an agent of an organization who works in accordance with the goals of
an employer. His motives centre on the attainment of organizational
goals and objectives. He works and ensures effective and efficient use of
organizational resources to achieve the set goals.
2. Explain the Functions Of Management and A Manager;
Function of management or management functions are the functions
that are performed by managers. The performance of management
functions separate management from other employees and shareholders
43
in an organization. A manager is a manager by virtue of the performance
of the functions of management. The key functions of management are
planning, organizing, leading (directing) and controlling.
The derivative functions of management are:
 Setting of objectives
 Forecasting
 Formulating and implementing policies
 Decision making
 Leading
 Motivating
 Communicating.
The functions of a manager on the other hand include:
 Provision of a clear direction for the organization
 Ensuring that the organization serves its basic purpose, which is
the efficient provision of goods and services.
 Management design and maintain the stability of the organization’s
operations.
 Managers choose the strategies needed to keep an organization
adapting in a controlled way to its changing environment.
 Managers ensure that the goals of the organization are achieved.
 Managers serve as the information link between the organization
and its environment.
 As formal authorities, managers are responsible for the operation
of the organization’s status system and serve as symbol of the
organizational activities.
3.
Explain Management Structure For An Enterprise;
Organizational structure is the framework of jobs and departments that
directs the behavior of individuals and groups toward achieving the
organizations objectives. It is the network of relationships between the
various positions and position holders in the organization. The
organizational structure is a blue print or model indicating how people
and jobs are combined in an organization. The organizational structure
provides an orderly arrangement among functions so that the
organization’s objectives can be accomplished effectively. An
organizational structure should be considered with the organization’s
plan. There is no single best structure for an organization. The challenge
of managers is to design the best structure for a specific organization
that facilitates the achievement of the organization’ objectives.
44
The organizational structure can be horizontal or vertical; it can also be
formal or informal.
Typical Example Of Management Structure:
1) Vertical Structure:
Chairman Board/of Directors
General Manager/CEO
Top Management Team
Middle/Lowest Level Management
2) Line organization: Line organization/Authority
Example of a line authority:
Rector, Dean, HODs (line manager)
Staff authority:
Bursary, chief security officer and registrar
3) Horizontal structure:
a) Departmentalization by function (functional structure)
GM
45
Marketing
Marketing
Research
Production
Finance
Engineering
Administration
Finance
Planning
b) Departmentalization by territory (Geographical structure)
GM
Western
Region
Northern
Region
Easter
Region
Southern
Region
c) Departmentalization by customers (Customer structure)
GM
Customer
Industrial
Sales
Military
Sales
d) Departmentalization by Process (Process structure)
GM
46
Welding
Punch
Process
Drilling
e) Departmentalization by Product:
GM
Baby
Foods
Toiletries
Beverages
Hot
Drink
f) Matrix structure
g) Committee Organization
4. Explain the Communication Process in the Management of An
Enterprise;
Communication in the management of an enterprise connotes the flow of
information or authority among individuals in the organization.
In selecting a structure for an enterprise, it is expected of a manager to
evaluate the relative advantages/disadvantages of preferred structure.
The teacher/facilitator should analyze the various structural patterns
listed above showing clearly the relationships and flow of authority.
Charts are necessary for this exercise.
Exercise
Students should practice drawing different organizational charts from
the simple to the most complex. They should decide which is suitable for
small enterprise.
5.
Explain the Techniques and Skills of: Planning; Organizing;
Staffing; Leading; and Controlling.
47
Planning, organizing, staffing, leading and controlling were identified by
Henri Fayol, as managerial activities. Planning is to foresee and provide
by examining the future and drawing up the plan of action.
Planning is the first of the series of functions that managers perform. It
entails a mental picture of what the organization is to be, what the
organization should achieve, when it should be achieved, who is to
ensure it is achieved and how the objectives are to be achieved.
Planning is the process by which managers establish goals and design
methods by which the goals are to be achieved. Planning includes all
activities that lead to the definition of objectives and to the determination
of appropriate courses of action to achieve to achieve these objectives.
Planning is a process by which mangers examine their internal and
external environments, ask fundamental question about their
organizations’ purpose, and establish a mission, goals, and objectives. It
includes all the activities that lead to the definition of objectives and to
the determination of appropriate course of action to achieve those
objectives.
Planning is important in many respects:
 It provides sense of direction to the organization
 Provides the organizations with objectives to be
achieved.
 Helps to minimize cost as trial and error in operations
and management are avoided.
 Helps to management uncertainty.
 Enhance the spirit of togetherness.
All other management functions hinge on planning for their execution.
Without plans, managers cannot know they should organize people and
resources or what they need to organize. Without a plan, they cannot
lead with confidence or expect others to follow.
There are different types of plans such as strategies, policies, rules,
procedures, programme, budgets, etc. The various levels of planning are
strategic planning, tactical planning and contingency planning.
Organizing: Organizing involves building up the dual structure, material
and human, of the enterprise. It involves identifying, mobilizing and
utilizing resources to achieve the set plans/objectives. Tasks are divided
48
into jobs, authority is delegated, appropriate basis for
departmentalization of jobs is determined and the optimum number of
jobs in each department is decided.
Staffing: Staffing involves finding the right people, with the right skills, abilities, and fit,
who may be hired or already working for the company (organization) or may be working
for competing companies.
In the knowledge economies, where talent becomes the new capital, this
discipline takes on added significance to help organizations achieve a
competitive advantage in each of their market places.
"Staffing" can also refer to the industry and/or type of company that
provides the functions described in the previous definition for a price. A
staffing company may offer a variety of services, including temporary
help, permanent placement, temporary-to-permanent placement, longterm and contract help, managed services (often called outsourcing),
training, human resources consulting, and PEO arrangements
(Professional Employer Organization), in which a staffing firm assumes
responsibility for payroll, benefits, and other human resource functions.
Leading: Directing is the process of commanding which means building
together, unifying and harmonizing all activity and effort. Personnel are
encouraged to make their maximal contributions towards the attainment
of the organizations’ goals. In directing, a manager must motivate, lead
and communicate so that objectives can be achieved at the least cost.
Controlling: Controlling ensures that everything occurs in conformity
with established rule and expressed command. Controlling is the process
of ensuring that actual activities conform to planned activities. It is used
to evaluate actual performance, to compare actual performance to goals,
and then to take action on the difference between performance and goals.
Management has many control methods at its disposal. Management
must therefore decide which method is appropriate in different
situations.
Managements should be able to establish a control process which can be
summarized into four steps;
 Establish standards and methods of measuring
performance.
 Measure the performance.
49
 Determine whether the performance matched the
standard
 Take corrective action.
Control can be strategic, managerial or operational.
6. Explain The Basic Techniques of Marketing and Production in an
Enterprise;
BASICS OF MARKETING
Whoever engages in business, whoever embarks on entrepreneurial tasks
will - knowingly or unknowingly - engage in marketing. Looking at this
subject historically, we can state that whenever people engaged in
business, they also engaged in marketing. Some aspects of marketing
have over the years changed rather dramatically. The current
understanding of marketing, its philosophy and science, is not very old
and gained momentum only after the end of World-War II, more
particularly, in the fifties and thereafter. But as late as the sixties, many
world-wide important enterprises offering exclusive products or services,
and operating on monopolistic grounds, neither recognized the need nor
really needed to engage in what we today consider marketing activities. It
was enough to have good quality products or services, offer them at
reasonable prices, and go out and sell. Selling alone was considered to be
the actual marketing activity.
In the late sixties, the seventies and the eighties this changed, gradually
at first, but with and ever increasing momentum. Quality products and
services in the historical sense were no longer all that customers were
looking for. Design, innovation and support became more and more
important. More manufacturers, more distributors and increasing buying
power changed the ‘market-place’. Globalization of markets set in, and
new and more sophisticated management instruments were needed to
help manufacturers, distributors and entrepreneurs to stay in business
and grow with growing markets and all of this despite ever-increasing
competition and fighting over market shares. Marketing, therefore,
means much more now than just selling, the latter being just one although an important one - of the marketing instruments, which
entrepreneurs have at their disposal.
Market Segmentation
Any market primarily consists of people, and the cassava and cassava
products market is no exception. It consists of buyers who differ in one
50
or many characteristics. They differ in their geographic, demographic and
psychological needs, and in their behavioural characteristics. It is a huge
market that one entrepreneur cannot effectively and competitively serve,
given his limited resources. Instead of marketing cassava and cassava
products to everyone in the market, the entrepreneur needs to
concentrate his/her efforts on one of the segments of the market in
which the products have the greatest potential appeal.
For this, the customers or prospects - have to be grouped into segments
consisting of homogeneous group in order to be able to address them
with messages which are target-group oriented. Good market
segmentation is a must for any successful marketing approach.
Marketing Strategy
The target markets and segments identified and the marketing objectives
established serve as the bases for the development of an appropriate
marketing strategy.
Marketing strategy is defined by Philip Kotler as "the basic approach that
a business unit will use to achieve its objectives, consisting of broad
decisions on target markets, marketing positioning and mix, and
marketing expenditure levels."
The marketing strategy should cover major marketing tools, as shown in
the following example:
Price:
Price of your product must be competitive in the market
Distribution: Preferably direct selling to potential users, but may also
use stores as retail outlets/orders takers, providing direct
delivery to buyers.
Advertising:
Develop an advertising campaign directed at the target
audience, and supporting the positioning strategy;
emphasize the quality of your product and the quantity
you can supply. Use the most appropriate media, obtaining
information on media effectiveness from publicity agencies,
other entrepreneurs or even competitors. Do not spend
money without first informing yourself.
Promotions:
Consider which promotional activities are most appropriate
to your market. Promotions usually have a good rate of
return on investment, but one can reach only a limited
number of people. They therefore must be well targeted.
Good examples are customer discounts, trade fairs,
51
seminars, etc.
Publicity:
Develop good public relations with the professional buyers
who may exert strong influence on industrial users. Set
aside adequate funds for such activities.
Personal
Selling:
Follow up customer leads with a personal presentation of
the product, emphasizing again the product positioning.
Encourage professional buyers by, for example, giving
them the incentive of a certain percentage of the selling
price.
Market Research
Conduct a market survey in selected areas among those identified users,
to find out their intentions with regards to volume of purchase monthly.
All of these activities cost money. Prepare everything well and get all the
information you need before you take any decision. Well-targeted and
well-prepared campaigns pay rich dividends, poorly prepared advertising
and promotional activities are like throwing money away.
Marketing control
To ensure that marketing activities are implemented according to the
marketing plan, the entrepreneur has to constantly monitor such
activities. To monitor means to see to it that the company has not
deviated from the plan. In cases where there are deviations, the
entrepreneur decides on corrective measures.
The entrepreneur has to evaluate the company's performance vis-à-vis
marketing objectives set at the start of the planning period. He needs to
carry out some types of marketing control like the annual-plan control,
the profitability control, and others.
In the annual-plan control, the entrepreneur monitors the current
marketing effort and results to ensure that sales and profit goals will be
achieved.
In the profitability control, the entrepreneur assesses the profitability
of the product in terms of shape and color, market segment served,
channels used, and the amount and quality of services rendered to
clients.
The results of marketing control are then used as inputs for marketing
plan for the next planning period.
52
HOW TO SELL
Marketing and selling involve a two-way flow of information. The market
(customers) needs to know all about cassava and cassava products and
the producers need to know all about the customers. Tile producers
provide information to the customers through promotion, advertising and
direct conversations. Customers express their likes and dislikes and in
this way the producers learn about their customers’ needs. Up to now
the focus has been on the preparation for an actual selling situation. You
have learned about the market (customer needs related to market
segments) and also about some ways of promoting your products before
an actual sale.
Warming Up
A meeting with a customer should begin with a so-called warming up
stage. This stage applies regardless of where the meeting takes place. In
many cultures it is part of being polite. The conversation can be light and
general, or more personal if the customer and producer know each other
or have friends in common or business contacts. An example would be to
ask the customer where he grew up or went to school. In some cultures it
is polite to mention a mutual friend or contact person known to both
parties. The warming up period enables each party to relax and relate to
the other. If a relationship of mutual respect has been established,
communication is easier. The main topic, that is, cassava and cassava
products, will only come into the conversation when both parties are
relaxed and ready. The length of the warming up stage varies from
country to country.
Opening
When both parties feel at ease with each other, the discussion moves on
to business. The customer expresses his interest and needs and the
producer introduces his products. Usually the salesperson is prepared
and knows the information he wants to give to the customer. If the
salesperson is nervous at first, it is a good idea to practice a short
introductory talk before meetings. Below are some tips in opening the
sale conversation:
- Find out what the general needs of the customer are - why has he come
to you?
- Give general information on the products, stressing the advantages.
- Show pictures and start asking questions about the specific needs of
the customer.
- The producer should lead the conversation, but encourage the
customer to express his needs and ask questions.
53
- During the conversation take note of any information the customer
provides and adapt your opening to the customer’s needs.
Discussion
The needs of the customer should be the centre of the conversation, with
the customer doing most of the talking and the producer most of the
listening. When appropriate, more information can be given during the
conversation about the products and their advantages. Generally it does
not pay to criticize competitor products. Most successful businesses
focus rather on their own products. Some businesses even instruct their
salespersons never or hardly ever to mention the competitors’ products.
If the customer asks about the competitors’ products, however, it is good
to provide information in a fair and truthful way.
Honesty is the best policy! Exaggerating the benefits of a product will
result in the customer having very high expectations which cannot be
met and this could lead to problems at a later stage.
When the customer criticizes products or objects to a certain aspect, this
can be dealt with by listening and discussing the subject in an honest
way. If it is a real problem, it may be wise to admit that this is so, but to
point out other advantages that apply to that customer’s needs.
In some cases the customer will ask about prices right at the beginning
of the discussion. If at all possible, politely delay discussing prices until
the advantages of your products have been explained and some pictures
shown. At the beginning of the first meeting the customer probably does
not know any details about your products and still needs to be
persuaded about their advantages.
Summarizing
Summarizing the customer’s own comments and repeating them to the
customer is a technique that clarifies the situation, your understanding
of it and reinforces positive aspects brought up in the discussion.
Trial Close
The producer does a trial close when he feels that the customer has
decided to buy his product. It is an attempt to close the selling
transaction and finalize the sale. A trial close should not be attempted
too early in the selling process as this could cause the sale to be lost. It
tests the customer’s reaction, but if the reaction is not favorable then it
is wise to continue the discussion and perhaps clear any doubts the
customer may have. Often the customer will need time to think about the
54
matter and the discussion may be continued at a later date. A trial close
may be done a few times, but care should be taken not to make the
customer feel that he is being put under too much pressure.
The Close
If the trial close is successful, that is, if the customer agrees to buy a
specific product, the transaction has been made. This usually involves a
brief summary of what is needed and the purchase conditions, ending
with a definite order.
PRODUCTION
Production is that part of the business which is responsible for turning
raw materials into goods with the help of workers and equipment. The
shape, quality and quantity of the produced goods should meet customer
needs. The production costs should be kept as low as possible. Specific
production tasks include:
• Organisation of the workshop (who produces what, how much, where
and when). Trained workers are an expensive and precious resource. It is
important to select persons who are the most suited for a specific job and
to train them until they are as skilled as possible in their work. They
should be motivated and well-treated because; output will be higher in a
good working atmosphere. Their work should be organized in an efficient
way to help reduce operation costs.
• Quality control: well-known high quality is the best propaganda for
your products.
• Organisation of the stock.
• Operation and maintenance of the equipment.
PRODUCTIVITY IMPROVEMENT FACTORS
Productivity improvement is not just doing things better: more
importantly, it is doing the right things better. This section aims to
identify the major factors, or “right things”, which should be the main
concerns of productivity programme managers. Before discussing what to
tackle in a productivity improvement programme, it is necessary to
review the factors affecting productivity.
55
The production process is a complex, adaptive, on-going social system.
The inter-relationships between labour, capital and the socioorganisational environment are important in the way they are balanced
and co-ordinated into an integrated whole. Productivity improvement
depends upon how successfully we identify and use the main factors of
the socio-production system. It is important, in connection with this, to
distinguish three main productivity factor groups:
- job-related;
- resource-related;
- environment-related.
Since our main concern here is the economic analysis of managerial
factors rather than productivity factors as such, we suggest a
classification which will help managers distinguish those factors which
they can control. In this way, the number of factors to be analysed and
influenced decreases dramatically. The classification suggested here is
based on a paper by Mukherjee and Singh.1
There are two major categories of productivity factors:
The external factors are those which are beyond the control of the
individual enterprise and the internal factors are those within its control.
To deal with all these factors we require different institutions, people,
techniques and methods. For example, any performance improvement
drive which plans to deal with external factors affecting the management
of the enterprise must take such factors into consideration during the
planning phase of the programme, and try to influence them by joining
forces with other interested parties.
Thus it can be clearly seen that the first step towards improving
productivity is to identify problem areas within these factor groups. The
next step is to distinguish those factors which are controllable. Factors
which are external and not controllable for one institution are often
internal to another. Factors external (macro-productivity factors) to an
enterprise, for example, could be internal to governments, national or
regional institutions, associations and pressure groups. Governments
can improve tax policy, develop better labour legislation, provide better
56
access to natural resources, improve social infrastructure, price policy,
and so on, but individual organisations cannot.
A general classification of the three main groups of macro-productivity
factors is shown in figure 1 below
Figure1. Main macro-productivity factors
Factors external to an enterprise are of interest to that enterprise
because an understanding of them can motivate certain actions which
might change an enterprise's behaviour and its productivity in the long
run. However, for now we shall concentrate on internal factors that an
entrepreneur should manage for growing his enterprise.
INTERNAL FACTORS OF ENTERPRISE PRODUCTIVITY
Since some internal factors are more easily changed than others, it is
useful to classify them into two groups: hard (not easily changed) and
soft (easily changed). The hard factors include products, technology,
equipment and raw materials, while the soft factors include the labour
force, organisational systems and procedures, management styles and
work methods. This classification helps us build priorities - which factors
can easily be dealt with and which factors require stronger financial and
organisational interventions. A brief description of some key aspects of
each internal factor follows.
HARD FACTORS
57
Product
Product factor productivity means the extent to which the product meets
output requirements. “Use value” is the amount that the customer is
prepared to pay for a product of given quality. “Use value” can be
improved by better design and specifications. Many companies around
the world fight a constant battle to incorporate technical excellence into
marketable products. Breaking down the walls between research,
marketing and sales has become a major productivity factor. For
example, leading Japanese companies continually redesign products
which are on the market. Product “place value”, “time value” and “price
value” refer to the availability of the product at the right place, at the
right time and at a reasonable price. The “volume factor” in particular
gives us a better notion of the economies of scale through increased
volume of production. Finally, the cost-benefit factor can be enhanced by
increasing the benefit for the same cost or by reducing the cost for the
same benefit.
Plant and equipment
These play a central role in a productivity improvement programme
through:
- good maintenance;
- operating the plant and equipment in optimum process conditions;
- increasing plant capacity by eliminating bottle-necks and by corrective
measures;
- reducing idle time and making more effective use of available machines
and plant capacities.
Plant and equipment productivity can be improved by attention to
utilisation, age, modernization, cost, investment, internally produced
equipment, capacity maintenance and expansion, inventory control,
production planning and control, and so on.
Technology
Technological innovation constitutes an important source of higher
productivity. Increased volume of goods and services, quality
improvement, new marketing methods, etc., can be achieved through
increased automation and information technology. Automation can also
improve materials handling, storage, communication systems and quality
control.
During the past 25 years, considerable productivity increases have been
realized through the use of automation and current developments in
information technology suggest great improvements to come. Significant
58
examples of the application of this technology are the development of
automatic downtime recording systems and automatic lubrication
systems which have reduced the idle time of men and machines, and
reduced overtime expenditure. New technology is normally introduced as
a result of such productivity improvement programmes as fighting
obsolescence, process design, R & D and the training of scientists and
engineers.
Materials and energy
Even small efforts to reduce materials and energy consumption can bring
remarkable results. These vital sources of productivity include raw
materials and indirect materials (process chemicals, lubricants, fuels,
spare parts, engineering materials, packing materials). Important aspects
of materials productivity include:
- material yield: output of useful product or energy per unit of material
used. This is dependent upon selection of the right material, its quality,
process control and control of rejects;
- use and control of wastage and scraping;
- upgrading of materials by initial processing to improve utilisation in the
main process;
- use of lower grade and cheaper materials;
- import substitution;
- improving inventory turnover ratio to release funds tied up in
inventories for more productive uses;
- improved inventory management to avoid holding excessive stock;
- developing sources of supply.
SOFT FACTORS
People
As the principal resource and the central factor in productivity
improvement drives, the people in an organization all have a role to play as workers, engineers, managers, entrepreneurs and trade union
members. Each role has two aspects: application and effectiveness.
Application is the degree to which people apply themselves to their work.
People differ not only in their ability but also in their will to work. This is
explained by a law of behaviour: motivation decreases if it is either
satisfied or blocked from satisfaction. For example, workers may do their
jobs without working hard (no motivation), but even if they did work to
their full capacity they would not be satisfied (motivation is blocked from
satisfaction).
59
In order to stimulate and maintain motivation, the following few factors
should be considered:
A set of values conducive to higher productivity should be developed in
order to bring about changes in the attitude of managers, engineers and
workers.
Motivation is basic to all human behaviour and thus to efforts in
productivity improvement. Material needs are still predominant, but this
does not mean that non-financial incentives are not effective or have no
place. Workers' success in increasing productivity should be reinforced
immediately by rewards, not only in the form of money, but also by
improving recognition, involvement and learning opportunities, and,
finally, by the complete elimination of negative rewards.
If management can plan and execute effective incentive schemes, then
the result is invariably a significant improvement in productivity. Wage
incentives must always be related to the amount of change
accomplished.
It is also possible to improve productivity by eliciting co-operation and
participation from workers. Labour participation in goal-setting, for
example, has been quite successful in many countries. Human relations
can be further improved by reducing the complexity of communications
procedures and by minimising conflicts. Labour productivity can be
tapped only if management encourages workers to apply their creative
talents by taking a special interest in their problems and by promoting a
favourable social climate.
Standard of performance plays an important role in productivity. It
should be set at a high but realisable level. Management expectations of
high performance need to be considerably raised in many cases.
However, standards should always be achievable to maintain confidence
and the “will to do”.
The “will to do” is affected by job satisfaction which managers can
enhance by making jobs interesting, challenging and bigger, more worth
while and self-contained. Job enrichment and job enlargement can
influence job satisfaction and motivate higher productivity.
The second factor in the role played by the people involved in a
productivity drive is effectiveness. Effectiveness is the extent to which the
application of human effort brings the desired results in output and
60
quality. It is a function of method, technique, personal skill, knowledge,
attitude and aptitude - the “ability to do”. The ability to do a productive
job can be improved through training and development, job rotation and
placements, systematic job progression (promotion), and career planning.
To summarise, the following key approaches, methods and techniques
can be used to improve labour productivity: wages and salaries; training
and education; social security - pensions and health plans; rewards;
incentive plans; participation or co-determination; contract negotiations;
attitudes to work, to supervision and to change; motivation to higher
productivity; co-operation; organisation development; improved
communications; suggestion systems; career planning; attendance;
turnover; job security.
Organisation and Systems
The well-known principles of good organisation such as unity of
command, delegation and span of control, are intended to provide for
specialisation and division of work and co-ordination within the
enterprise. An organisation needs to be dynamically operated and led
towards objectives and must be maintained, serviced and reorganised
from time to time to meet new objectives.
One reason for the low productivity of many organisations is their
rigidity, They fail to anticipate and respond to market changes, ignore
new capacities in the labour force, new developments in technology and
other external (environmental) factors. Rigid organisations lack good
horizontal communication. This slows down decision-making and
inhibits delegation of responsibility close to the point of action,
encouraging inefficiency and bureaucracy.
Compartmentation according to professional groups or functions also
inhibits change. For example, the decision-making steps may have been
designed for a particular existing technology, for a definite product or
service mix. Things have now changed, but procedures have survived
because managers want to minimize change. No system, however well
designed, is efficient in all situations. Dynamism and flexibility should be
incorporated into the system design in order to maximize productivity.
Work methods
Improved work methods, especially in developing economies where
capital is scarce, technology intermediate and labour-intensive methods
dominant, constitute the most promising area for productivity
improvement. Work method techniques aim to make manual work more
61
productive by improving the ways in which the work is done, the human
movements performed, the tools used, the workplace laid out, the
materials handled and the machines employed. Work methods are
improved by systematically analyzing present methods, eliminating
unnecessary work and performing the necessary work more effectively
with less effort, time and cost. Work study, industrial engineering and
training are the main tools of improving work methods.
Management styles
There is a view that in some countries management is responsible for 75
per cent of productivity gains, because management is responsible for
the effective use of all resources under enterprise control. One
productivity expert and consultant to many leading Japanese companies
believes that as much as 85 per cent of the quality and productivity
problems in United States industry are common problems of the system
that lie within the province of management, not the individual worker, to
correct.2 There is no perfect management style. Effectiveness depends
upon when, where, how and to whom a manager applies a style.
Management styles and practices influence organisational design,
personnel policies, job design, operational planning and control,
maintenance and purchasing policies, capital cost (working and fixed
capital), sources of capital, budgeting systems and cost control
techniques.
Figure 2 summarizes the main productivity factors internal to an
enterprise.
62
Figure 2 Model of internal productivity factors
Source: Adapted from S. K. Mukherjee and D. Singh, 1975, p. 93.
This model serves as a checklist for identifying the most promising
productivity areas for management analysis planning and intervention.
7. Explain the Principles of Record Keeping, Auditing and Financial
Management.
The specific record a company needs depends on a number of factors:
such as the type of business, the company’s goals, management needs
and interests, and cost factors. A basic record keeping system,
whether on paper or an off-the-shelf computer software programme,
should be simple to use, easy to understand, reliable, accurate and
consistent, and designed to provide information on a timely basis.
Your accountant can develop the entire system most suitable for your
business needs and train you in maintaining these records on a regular
basis. These records will form the basis of your financial statements.
Complete and accurate financial record keeping is crucial to your
business success for a number of reasons:
63
1)
Good records provide the financial data that help you
operate more efficiently, thus increasing your profitability.
2)
Accurate and complete records enable you to identify all your
business assets, liabilities, income and expenses. That
information helps you pinpoint both the strong and weak
phases of your business operations.
3)
Good records are essentials for the preparation of current
financial statements such as income statement (profit and
loss) and cash flow projection. These statements, in turn, are
critical for maintaining good relations with your banker.
They also present a complete picture of your total business
operation, which will benefit you as well.
4)
Good records are critical at tax time. Poor records could
cause you to underpay or overpay your taxes. Good records
are essential during an audit, if you hope to answer
questions accurately and to the satisfaction of the revenue
people.
5)
In managing the finances of your business, you need reliable
records to make sound and timely decisions especially on the
funds allocation.
It is essential that you try to determine the precise financial condition of
your business. It is as critical as maintaining good customer relations.
Good records keeping is time-consuming and can take away from the
time you need to run your business. It is time well spent; and you must
keep regular faith with it!
HOW TO MANAGE YOUR CASH
Money plays a major role in an enterprise. At the end of the business,
money is needed to purchase the necessary tools/equipment,
materials/supplies and other needs. In operating the business, money is
needed to pay for salaries/wages, utilities and other expenses. When a
sale is made, the business receives money in payment for the
goods/products/services rendered. Money received will be then used to
pay for materials, salaries, etc. This cycle continues as long as the
business carries on with its activities and transactions. The role of
money in a business enterprise, therefore, can be compared to the
function of blood circulating in the human body.
64
To be competitive, small business owners must prepare for all future
events and market changes. One of the most important aspects of such
preparation is cash flow planning. Failure to properly plan cash flow is
one of the leading causes for small business failures. Knowing some
basics of accounting will help you better manager of your cash flow.
Cash management is controlling in such a way that you have enough for
your immediate needs.
A.
Pitfalls in Cash Management
The pitfalls in cash management common to small businesses include:




Poor internal control
Lack of cash planning
Diversion of funds to unproductive uses
Poor management of cash e.g. carrying excess cash, late
collection of bills, lack of expense control, etc.
Poor internal control may cause cash losses. Always plan your cash
requirements. Lack of cash planning may find you running short of
money in the course of operations. Watch out against diversion of funds
to unproductive uses. Use the money for the purpose for which it is
intended. To guard against problems in bills collection, always make
inquiries about a person/company you extend credit to. Maintain a
regular follow-up on collection of bills. Specify a time limit in which all
bills must be paid. Keep an expense control. Balance your expenses to
the level of your production. This will be done by preparing an expense
budget.
B.
Scope and Importance of Cash Management
Cash management is important to the business because management
needs cash to carry out its plans and policies. There are two important
aspects of cash management. The first is called Safeguarding. This action
protects cash from loss due to theft, fraud and other criminal
manipulation and oftentimes, carelessness. The second aspect of cash
management is maintaining adequate funds to meet the needs of the
business. This can be done by planning or budgeting the cash projects
and disbursement of business operations.
65
C.
Cash items in a small industry
To start with, let us identify the items that can be regarded as cash/or
cash equivalents. These are the following:
 Cash on hand
 Cash in banks, current account
 Bank deposits
 Postal money orders
 Bank draft
 Cashier’s checks
 Manager’s checks
 Traveler’s checks
 Short-term liquid investment readily convertible to cash and
not likely to a significant change in value. An equivalent
that matures within 3 months or less from the date of
acquisition is cash equivalents.
D.
Safeguarding Cash
Once you have classified all your cash items accordingly, you have to
keep close guard of your cash because it is easy to steal. The following
are some ways by which records may be manipulated to conceal the
theft:
 Misrouting books of original entry, documents and schedules
and reconciliation
 Recording of duplicates or false purchase of expense
vouchers
 Padding of payroll
 Forging of documents
 Writing off assets to sales discounts
 Lapping-concealment of shortage by delaying the recording
of cash receipts
 Kiting- e.g. check in one bank (A) is deposited in another
bank (B) and the amount of check is not shown as a
deduction from the balance in Bank (A) at the date of
transfer
E.
Internal Control in Small Business
Internal control is a system of checks within a business to safeguard its
assets, especially cash. This control usually provides that the work of
one person will be reviewed and examined by another. The following are
internal control applications commonly used in small firms:
66









Segregation of business and personal funds
Immediate recording of all cash receipts
Deposit of cash intact
Use of petty cash fund entrusted to a petty cashier for all
payments other than checks
Reconciliation of bank accounts monthly
Use of Daily Cash Report
Approval of disbursements, signing of checks and bad debts
write-off
Annual audit by a chartered accountant on a retainer basis
Careful selection of employees
Business and Personal Funds
Business activities should be separated from personal activities of
the owners.
Deposit of Cash
Deposit your cash collection in the bank intact and monitor the
deposits made.
Impress Petty Cash Fund
Establish a separate petty cash fund sufficient to cover small
expenses to pay for postage, transportation, and purchases of small
supplies without writing cheques for every small purchases. When
the fund balance reaches a low level, list the expenditures in detail
and draw a cheque payable to the custodian of the fund for
reimbursements. The cheque should be charged to the appropriate
expense accounts. All supporting documents should be marked”
Paid”. This will prevent subsequent re-use to obtain funds by deceit
and misrepresentation.
Reconciliation of Bank Account
A very simple but effective protection of cash is done through the
reconciling of bank accounts by a qualified person other than the
cashier.
You, as the owner, should regularly review bank
reconciliation along with the bank statement. By so doing, you will
become familiar with the status of your funds.
67
Daily Cash Report
A daily summary of cash will provide information as to your current
cash position. This summary should show balance at the beginning
of the day and deposits, disbursements and balance at the end of
the day.
Figure 7
Sample Form
Name of the Business
Bank Reconciliation Statement
Date
Balance shown per bank statement, Date
Add: deposits in transit
reconciling items (adjustments)
Sub-total
xxx
xxx
Deduct: outstanding cheques
Cheque no.
Reconciling items (adjustments)
Adjusted balance per bank statement
xxx
xxx
Balance shown per cheque book, Date
Add: Interest income
Reconciling items (adjustments)
Sub-total
Deduct:
Bank service charges
Reconciling items (adjustments)
Adjusted cheque book balance, Date
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
===
xxx
xxx
xxx
xxx
xxx
===
Figure 8
Sample Form
Name of the Business
Daily Cash Report
Date
68
Opening cash balance, Date
Add: Receipts
Cash sales
Collection of accounts receivable
Other receipts
Total cash available
Less: Disbursements
Cash purchases
Payments of accounts payable
Payroll
Other payments
Closing cash balance, Date
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
===
Vouchers should be pre-numbered and a record of cheques issued
maintained for reference and control purposes. Review and approve bad
debt write-offs. This will keep you informed of accounts charged off. This
will also prevent an employee from pocketing customer’s payments and
writing that account off as bad debt.
F. PREPARATION OF THE FINAL ACCOUNTS
Steps Involved in Book-Keeping to the Final Accounts
The steps involved from Book-Keeping to the preparation of final
accounts can be divided into eight (8) steps as follows:
1.
Collection of the original data of the transaction from the source
document. The source document is any written evidence showing
that a transaction has occurred e.g. receipts or cheque stubs.
2.
Entry of the transaction in the journal;
3.
Identification of the relevant accounts involved in the transaction;
4.
Determination of which of the accounts to be debited or credited;
5.
Posting of the entries in the journal into the accounts in the ledger;
6.
Extraction of the balances of the accounts in the accounts in the
ledger at the end of the period under review in order to prepare a
“Trial Balance”;
7.
The preparation of the income statement of an enterprise;
8.
The preparation of the statement of financial position of an
enterprise formerly known as balance sheet.
69
SPECIMEN I
INCOME STATEMENT OF AN ENTERPRISE FOR THE YEAR ENDED
31ST DECEMBER, 201X
N
N
Sales (Revenue)
xxx
Sales Return
(x)
Less cost of sales
xxx
Opening inventory
xx
Purchases
xx
Carriage inwards
(x)
Purchases returns
(x)
(xx)
Gross profit
xxx
Other income:
Discount received
x
Rent income
x
Total income
xxx
Less: Expenses:
Discount allowed
x
Salaries
x
Electricity
x
Telephone & internet
x
Insurance
x
Rates
x
Bad debts
x
Advertisements
x
Motor vehicle expenses
x
Depreciation
x
(xx)
Net profit
xx
70
SPECIMEN II
STATEMENT OF FINANCIAL POSITION OF ABC ENTERPRISE AS AT
31ST DECEMBER, 201X
Cost
Accumulated
Net Book
Depreciationn
Value
ASSETS
N
N
N
Non-Current
Assets
Freehold Property
xx
xx
Motor Vehicle
xxx
x
xx
Office Equipment
xxx
x
xx
xxx
x
xx
Current Assets:
Inventory
x
Trade receivables
xx
Less: Provision for doubtful debt(x)
x
Accrued rental income
x
Cash at bank
x
Prepaid insurance
x
Prepaid rates
x
xx
Total Assets
xxx
Owner’s Equity and Liabilities:
Owner’s equity at 1st January, 201x
xx
Net profit for the year
xx
st
Total equity at 31 December, 201x
xxx
Current Liabilities:
Trade payables
x
Accrued salaries
x
x
Equity and liabilities
xxx
71
EXAMPLE I – SIMPLE FINAL ACCOUNTS OF A SOLE TRADER
The following statement of financial position was extracted from the
ledgers of Boom Enterprises as at 31st December, 20x6.
DR
CR
N
N
Purchases/Sales
1,200,000
4,900,000
Returns
20,000
10,000
Discounts
50,000
90,000
Trade Receivables/Payables
1,150,000
1,200,000
Inventory at 1/1/20x6
950,000
Carriage inwards
150,000
Carriage outwards
50,000
Long Term Debt
200,000
Drawings
150,000
Land and Building at Cost
1,500,000
Rents
150,000
Motor Vehicle at Cost
800,000
Advertisement
20,000
Provision for Doubtful Debt
25,000
Salaries & Wages
900,000
Bade Debts
25,000
Cash in Hand
250,000
Cash at Bank
300,000
Equipment MBV
1,000,000
Accumulated Depreciation of Equipment
300,000
Equity as at 1st January, 20x6
2,340,000
8,865,000
8,865,000
Additional Information
1.
Inventory at close is
N350,000
2.
Depreciation for equipment during the period is
N100,000
3.
Depreciation of 5% is charged for motor vehicle and Land &
Building
4.
Provision for Doubtful Debt amounting to 10% of trade receivable
is to be made
Prepare:
i)
Statement of income for the year ended 31st December, 20x6
ii)
Statement of financial position as at 31st December, 20x6
72
Solution
1)
INCOME STATEMENT OF BOOM ENTERPRISES FOR THE
YEAR ENDED 31ST DECEMBER, 20X6
N
Sales/Revenue
Less Sales Return
Cost of Sales
Opening inventory
Add Purchases
Add Carriage Inwards
Less Purchases Returns
Less Closing Stock
Gross Profit
Add Discount Received
950,000
1,200,000
2,150,000
150,000
(10,000)
(350,000)
Less Expenses
Discount Allowed
50,000
Carriage outwards
50,000
Rent
150,000
Advertisement
20,000
Salaries & Wages
900,000
Bad Debts
25,000
Depreciation of Equipment
100,000
Depreciation for motor,
Land & Building
115,000
Increase in Provision Doubtful Debt
(10% x 1,150,00 – 25,000)
90,000
Net Profit
N
4,900,000
(20,000)
4,880,000
(1,940,000)
2,940,000
90,000
3,030,000
(1,500,00)
1,530,000
73
2)
STATEMENT OF FINANCIAL POSITION OF BOOM ENTERPRISE
AS AT 31ST DECEMBER, 20X6
Cost
Book
Assets
Non-Current Assets:
Land & Building
Motor Vehicle
Equipment
N
1,500,000
800,000
1,400,000
3,300,000
Current Assets:
Inventory
Trade Receivables
1,150,000
Less: Provision for Doubtful
Debt
(115,000)
Cash at Bank
Cash in Hand
Total Assets
Owner’s Equity and Liabilities
Equity
Net Profit for the year
Less: Drawings
Non-Current Liability:
Long Term Debt
Current Liability:
Trade Payable
Accumulated
Depreciation
N
75,000
40,000
400,000
515,000
Net
Value
N
1,425,000
760,000
1,000,000
3,185,000
350,000
1,035,000
300,000
250,000
2,340,000
1,530,000
(150,000)
1,935,000
5,120,000
3,720,000
200,000
1,200,000
5,120,000
74
G.PRINCIPLES OF AUDITING
Annual Audit
An annual audit helps prevent frauds. The fact that an audit is
conducted may discourage trusted employees, who may otherwise be
tempted to embezzle funds from the business.
Financial Planning is a continuous process that flows with strategic
decision making. The Operating Plan and the Financial Plan will both
support the Strategic Plan. The best place to start in preparing a budget
is with sales since this is a driving force behind much of our financial
activity. However, we have to take into account numerous factors before
we can finalize our budgets.
Budgeting should be flexible, allowing modification when something
changes. For example, the following will impact budgeting:
! Life cycle of the business
! Financial conditions of the business
! General economic conditions
! Competitive situation
! Technology trends
! Availability of resources
Budgeting should be both top down and bottom up; i.e. upper level
management and middle level management will both work to finalize a
budget. We can streamline the budgeting process by developing a
financial model. Financial models can facilitate "what if" analysis so we
can assess decisions before they are made. This can dramatically
improve the budgeting process.
One of the biggest challenges within financial planning and budgeting is
how do we make it value-added. Budgeting requires clear channels of
communication, support from upper-level management, participation
from various personnel, and predictive characteristics. Budgeting should
not strive for accuracy, but should strive to support the decision making
process. If we focus too much on accuracy, we will end-up with a
budgeting process that incurs time and costs in excess of the benefits
derived. The challenge is to make financial planning a value-added
activity that helps the organization achieve its strategic goals and
objectives.
75
Nature and Purpose of Auditing
Nature of an Audit
The day-to-day running activities of the company are vested on the
Directors. Their responsibility is to ensure that the possibility of fraud
and error is reduced if not eliminated; they set up a system of internal
control for various checks and procedures in order to control the
recording of the business transactions. Upon engagement of the auditor
for any audit work which is a two-stage operation for each year; in which
case, the first stage is a system audit whereby the audit is conducted to a
particular date within the accounting period. This first stage is also
known as interim audit.
Stage two is that the audit is carried through to completion in one
continuous session, which involves verification of items in the final
accounts i.e. final audit.
Audits are performed by audit team comprising of audit trainees and
qualified accountants. A manager will oversee their work while the actual
audit is signed by one of the partners in the name of the audit firm.
(Mohammed, 2003).
Reasons for an Audit
The reasons for an audit exercise can be:

Statutory: as required in Companies and Allied Matters Act (CAMA)
1990 and some other enabling statutes for certain industries.

In order to enhance the confidence of the owners of the business
enterprises

To enhance the confidence of other interested parties in the
business enterprise

To prevent and detect errors and frauds.
Advantages and Disadvantages of an Audit
Advantages
By advantages of an audit we mean the benefits to be enjoyed by a
company that its accounts have been audited and may include:

It makes possible the arrangement of income tax assessment with
the Inland Revenue be more easily done where the accounts have
been audited by a qualified accountant.

In case of making claims from insurance company as a result of
claim from loss of profits under an insurance policy e.g. fire, the
availability of an audited account would make it more easily
processed.
76



In applying for loans from banks or overdraft, the negotiations
would be easier to be taken where the company’s accounts have
been audited.
The application of sound auditing techniques would always detect
fraud committed by staff of the client and the fact that an audit
would be undertaken would guide against perpetration of future
fraud while inefficiency and weaknesses of the workers could be
revealed.
Since an auditor is familiar with his clients business and financial
statements, this fact would make any advice readily workable if
required by the client. (Mohammed, 2003).
Disadvantages

Audit fees: the cost of audit work can be high

Audit work allows auditors to interfere in the private affairs of the
company

Management and staff time is taken by the auditor

It brings about inconveniences to the client’s staff
Essential Features of an Audit
The object of an audit is detection of errors and fraud; this is not always
the case. The responsibility of detection of errors and fraud rests with the
management who may obtain reasonable assurance that this
responsibility will be discharged by instituting an adequate system of
internal control. (Mohammed, 2003).
However, the essential features of an audit include:

To ascertain and record the accounting system and internal
controls, assess the adequacy of the accounting system and
evaluate the controls on which the auditor wishes to place reliance.

To test the accounting records and perform compliance tests on
the operation of those internal controls on which the auditor
wishes to place reliance.

To compare the financial statements with the accounting records

To verify the existence, ownership and bases of valuation of assets
and liabilities.

To carry out a review of the financial statement, and

To report on the financial statement
77
H.PRINCIPLES OF TAXATION
1.
Definition of Taxation
Taxation may be defined as the compulsory levy by government through
its various agencies on the income, capital or consumption of its
subjects. These levies are made on personal income such as salaries,
business profits, interests, dividends, commissions, royalties, rent etc.
2.
Classification of Taxes
Taxes may be classified into two broad categories: direct and indirect
taxes.
i)
Direct tax is where the person assessed is also the person who
bears the burden of the tax. The person who pays the tax is unable
to shift the burden to any other person.
ii)
Indirect tax is where the person who pays the tax can shift the
burden to someone else.
3.
Essentials of a Good Tax System
Adam Smith outlined the following as being essential for a good and
equitable tax system.
i)
Universality: It should be all embracing
ii)
Certainty: The amount of the tax liability and time of payment
must be determined with certainty
iii)
Convenience: The time and manner of payment must be
convenient to the tax payer
iv)
Economy: The system of collection must be economical.
4.
Relevant Tax Authority
Tax shall be payable for each year of assessment on the total income of
every individual, corporation – sole or body of individuals deemed to be
resident for that year in the relevant state in Nigeria except
a)
Persons employed in the Nigerian Army, Navy, Air Force and the
Nigerian Police.
b)
Officers of the Nigerian foreign service
c)
Residents of the federal
d)
Persons resident outside Nigeria but who derive income or profit
from Nigeria
78
5.
Incomes Chargeable To Tax
Tax is payable for each year of assessment on the aggregate amounts
which comprise the income of every taxable person from all sources
whether from inside or outside Nigeria.
6.
Items Specifically Allowed As Deductible
These are:
i)
Interest on money borrowed and applied as capital
ii)
Interest on loans for developing an owner occupied residential
house
iii)
Rent
iv)
Any expense incurred for the repair of premises, plant, machinery
v)
vi)
vii)
7.
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)
8.
i)
ii)
Bad debts incurred
Contribution to a pension fund
Expenses for research and levy paid to the national science and
technology fund.
Items Specifically Disallowed as Deductible
Domestic or private expenses
Capital withdrawn from the business
Any losses recoverable under an insurance on contract of
indemnity
Rent or cost of repairs of premises or part not used for producing
income
Taxes on income or profits levied in Nigeria or elsewhere
Any payment to a pension and provident fund or scheme except as
permitted by the joint Tax Board
Depreciation of fixed assets
Any appropriation of profit
Any expenses incurred within or outside Nigeria as management
fees.
Types of Personal Income
Earned Income: The income earned from sources such as
employment including salaries, fees, commissions, bonuses,
allowances, pension, gratuities and other benefit. They are: salary,
wages, fees, commission, bonus, allowance, pension and gratuities.
Unearned Income: This is income from sources such as rent,
dividend and interest less related expenses.
79
TOPIC 6:
KNOW THE VARIOUS EXISTING INDUSTRIES AND
SUPPORT AGENCIES IN NIGERIA
INTRODUCTION:
The role of support agencies and various existing industries is quite
paramount and therefore potential entrepreneurs need to be intimated
about the assistance they render and the functions they discharge. This
section therefore intends to highlight them. On completion of this course
students should be able to identify various industry/support agencies in
Nigeria and their functions. They should also know types and sources of
plants and machinery used in small scale industries, nature and type of
material inputs for each industry type and be able to source information
about market and financial assistance; as well as understand the
environmental factors associated with Industrial and economic
development in Nigeria.
SPECIFIC LEARNING OUTCOMES:
1. Explain various industry/support agencies;
2. Explain the types, and sources of materials used in both
manufacturing and service Industries;
3. Explain the types and sources of plants and machinery used in
small scale Industries;
4. Explain the various information and assistance for vital areas
like finance, registration, project selection, training, marketing,
research, quality control, raw materials, patent information etc.
5. Explain environmental factors associated with industrial and
economic development in Nigeria.
CONTENT:
1.
Explain Various Industry/Support Agencies;
World wide findings over the years have shown that small firms and
entrepreneurships play very important roles in national economic growth
and development. The Government of Nigeria, like its counterparts, the
world over, has realized the importance of small and medium scale
enterprises and has, over the years formulated various public policies to
encourage, support and fund the establishment and development of
SMEs. Developments in small and medium enterprise are what give a
80
developing nation the base for employment creation, solid base for
creating a middle class and encouragement for the use of local raw
materials and technology.
In Nigeria, the main types of industry include:
 Extractive/Primary Industry: This encompasses stone quarrying,
extraction of mineral raw materials, etc.
 Manufacturing/Secondary Industry: This involves changing the
form of raw materials to useable or semi-useable products e.g.
maize to flour, etc.
 Service/Tertiary Industry such as banks and professional service
providers;
 Construction Industry such as roads, bridges, etc.
There are several support agencies established by government to assist
the various industries in different dimensions. Among the support
agencies are:
THE NIGERIAN EXPORT PROMOTION COUNCIL (NEPC)
The NEPC was established through the promulgation of the NEPC Act of
1976 and formally inaugurated in March, 1977. The Council’s
Amendment Decree of 1992 was to minimize the bureaucratic
bottlenecks and increase autonomy in dealing with members of the
Organized Private Sector. Its goal and mission are to make the non-oil
export sector a significant contributor to Nigeria’s GDP, facilitate
opportunities for exporters to promote sustainable economic
development. Their Web sight is www.nepcng.com
Activities of the Council
 To promote the development and diversification of Nigeria's
export trade
 To assist in promoting the development of export-related
industries
in Nigeria
 To spearhead the creation of appropriate export incentives
 To actively articulate and promote the implementation of
export policies
and programmemes of the Nigerian Government
 To co-ordinate and monitor export promotion activities in
81













Nigeria
To collect and disseminate information on products
available for export
Collect and disseminate local manufacturers and exporters
information on foreign markets
Provide technical assistance to local exporters in such areas
as export procedure and documentation, transportation,
financing, marketing techniques, quality control, export
packaging, costing and pricing, publicity and other similar
areas
Provide directly or jointly, with training institutions,
training for its staff and assist with the manpower
development of the export community in Nigeria
Organize and plan the participation of Nigeria in trade fairs
and exhibitions in other countries
Administer grants and other benefits related to export
promotion and development
Undertake studies of the current economic conditions, with
special attention to the export sector with the aim of
advising Government on necessary policies and measures
Co-operate with other institutions on matters relating to
export financing, export incentives specialized services to
exporters
Engage in export promotion publicity
Assist in finding appropriate solutions to practical problems
encountered by exporters in the process of exportation
Plan and organize outward trade missions and provide
support from Nigeria
Services to in-ward missions from other countries
Perform such other functions as may be conducive to the
achievement of the objective of the Export Decree (Act).
THE NIGERIAN INVESTMENT PROMOTION COMMISSION (NIPC)
The Nigerian Investment Promotion Commission (NIPC) is an Agency of
the Federal Government which was established in 1995 to, among other
things, “Co-ordinate, monitor, encourage and provide necessary
assistance and guidance for the establishment and operation of
enterprises in Nigeria.”
By this decree the government abolished almost all restrictions on
investment, especially restrictions on foreign investment into the
82
Nigerian economy. Most of the efforts of the NIPC are, therefore, focused
on attracting foreign investment.
However its total mandate includes domestic investment and its area of
operation even include small and medium scale enterprises. It is
currently managing, on behalf of the Federal Government, a World Bank
Micro, Small and Medium Enterprise (MSME) pilot project aimed at
empowering and increasing capacity in the MSME sectors as well as in
NGOs that specialized in delivering Business Development Services (BDS)
to MSMEs. While the pilot programme only includes Lagos, Abia and
Kaduna States, it is likely that other states and the FCT will come under
this programme within the next five years. The NIPC also has a new very
informative web site at www.nipc-ng.org. It has a very comprehensive
section on tax incentives.
NIGERIAN INDUSTRIAL DEVELOPMENT BANK (NIDB)
NIGERIAN BANK FOR COMMERCE AND INDUSTRIES, (NBCI);
THE NATIONAL ECONOMIC RECONSTRUCTION FUND (NERFUND);
THE BANK OF INDUSTRY (BOI).
Over the years, a number of Development Finance Institutions (DFIs)
were established by various governments to provide funds that would
boost economic activities in the country and in the process, reduce the
rate of poverty. Sadly, however, 47 years after independence, the rate of
poverty has continued to grow. Some of the Development Finance
Institutions that were introduced over the years to help fight poverty are:
The Nigerian Bank for Commerce and Industry (NBCI), Nigerian
Industrial Development Bank (NIDB), and the National Economic
Reconstruction Fund (NERFUND).
In the early 2000 the NIDB was transformed into the Bank of Industry
(BOI), following the government’s decision to merge it with NBCI and
NERFUND.
In addition to the above the government, since the advent of the new
democracy, initiated more programmes aimed at fighting poverty in the
country. They range from the National Poverty Eradication Programme
(NAPEP) to Small and Medium Enterprises Development Agency of
Nigeria (SMEDAN)
83
The microfinance scheme has just been introduced in 2007, as an
evolution of the community banks to Microfinance Banks (MFBs) that
would primarily focus on small scale lending as a way of empowering low
income earners and small ventures so as to fight poverty and boost
economic activities.
THE RAW MATERIALS RESEARCH AND DEVELOPMENT COUNCIL
(RMRDC).
The Raw Materials Research and Development Council (RMRDC) is an
agency of the Federal Government of Nigeria vested with the mandate to
promote the development and utilization of Nigeria’s industrial raw
materials.
It originated from the recommendations of a Workshop on Industrial
Matters which was organized by the manufacturers Association of Nigeria
(MAN) and the Nigerian Institute of Social and Economic Research
(NISER) in July 1983. It was established by Decree No.39 of 1987, but
commenced operation on February 10, 1988. It is today, Nigeria’s focal
point for the development and utilization of the nation’s vast industrial
raw materials.
The primary mandates of the Council are:
a. To draw up policy guidelines and action programmes on raw
materials acquisition, exploitation and development;
b. To review from time to time, raw material resources
availability and utilization, with a view to advising the
Federal Government on the strategic implication of depletion,
conservation or stock-piling of such resources;
c. To advise on adaptation of machinery and process for raw
materials utilization;
d. To provide special research grants for specific objectives and
device awards or systems for industries that achieve
breakthrough or make innovations and inventions; and
e. To encourage the publicity of research findings and other
information relevant to local sourcing of raw materials.
Industrial development is one of the indices for measuring the
development of nations. The development and survival of a
manufacturing sector in an economy is predicted largely on availability of
raw materials. The exploitation and utilization of such raw material is
84
critical to economic development. RMRDC is therefore very critical to the
development al of Nigeria’s productive sectors.
Currently, the capacity utilization of many industries in Nigeria is low
due to lack of raw material utilization and the singular focus of the
economy on one product. It is hoped that RMRDC through its numerous
programmemes, will promote new investments in the other local
resources and encourage industries to substitute local raw materials for
currently imported ones.
The global goal is to pursue this policy which will invariably have
multiplier effects on the nation’s economy in terms of new industries,
more employment and increase gross domestic product (GDP). Their web
site is: www.rmrdc.gov.ng
THE SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AGENCY
OF NIGERIA (SMEDAN):
SMEDAN was established by the SMEDAN Act of 2003 to promote
the development of the MSME sector of the Nigerian Economy.
The Agency positions itself as a “One Stop Shop” for Micro, Small and
Medium Enterprises Development. Micro Enterprises are included in the
clientele of the Agency since they form the bedrock for SME’s.
On its web site, its vision is to establish a structured and efficient micro,
small and medium enterprises sector that will enhance sustainable
development of Nigeria. The mission is to facilitate the access of micro,
small and medium entrepreneurs/investors to all resources required for
their development.
Justification for the existence of SMEDAN rests on the fact that poverty,
which is due to lack of access to income-earning opportunities and lack
of capacity to take advantage of the opportunities, is a social malaise that
is threatening global prosperity in general and national economic growth
and development in particular.
It is also realized that a well developed MSMEs sector has proven to be
one of the most veritable channels to combat poverty. The establishment
of SMEDAN is therefore justified by the need to trigger the development
of Nigeria’s MSMEs in a structured and efficient manner
85
Its main functions are to provide business information, in partnership
with various state governments. Its efforts with most states, and the FCT
are well placed on the web at www.abujaenterprise.org.
These sites serve as credible suppository of business information for the
locations. They compile, review and update all existing economic policies,
regulations, incentives, and legislation affecting MSME operations within
the country.
Its world market section sources and makes available information on
international markets, products standards/specifications and
regulations, including updates in development databank on MSMEs, raw
materials, available local technologies, machineries and prototypes. Its
proposed services through their sites and offices include:
Proposed Design and Establishment of Comprehensive BSCs and IPs:
To be able to provide Business Support Centers (BSCs) in each State, to
provide business advisory services. i.e Link MSMEs to sources of funds;
provide internet/website facilities; provide market information; provide
business consultancy services; collate and make available business plans
and prototypes; implement capacity building programmes; advise on
regulatory and standardization frameworks and collate all relevant
business information that could be useful to SMEs.
Develop and establish, in collaboration with state governments and
NGOs in the private sector, Industrial Parks (IPs) to facilitate easy access
to land, good infrastructure, security, regulatory bodies such as NAFDAC
and SON; banking services etc.
Capacity Building and Proposed Promotional Services:

Develop, test and disseminate new business models illustrating
best business practices to upgrade SMEs operations.

Conduct seminars, conferences, workshops, and interactive
sessions for promotional and capacity building purposes.

Encourage and facilitate business clusters, networks and
cooperatives for enhanced productivity and easier access to
factors of production including finance.

Encourage and facilitate new investments in designated priority
areas in each State.

Organize trade and investment exhibitions and interactive fora.

Develop and apply standards and quality control measures for
technologies and products of SMEs.
86

Improve the financial management skills of MSMEs through
training workshops.

Develop and implement effective strategies for opening up
domestic and international markets for MSMEs products.
Proposed to be a Main Financial Intermediary between MSMEs &
Sources of Finance:

Liaise with financial institutions to harness and pool resources
for utilization by MSMEs.

Develop and implement a strategy for the effective and timely
disbursement of SMIEIS funds.

Hold regular consultations with international donor agencies,
trade groups, relevant ministries, research institutes, states and
local governments with the view to share ideas and partner in
implementing programmes for the development of MSMEs.

Attract foreign investments and funds for the development of
the MSMEs sub-sector.
Proposed Policy Development:
 Develop and seek statutory approval for a national policy on
MSMEs. Conduct impact assessment studies and use same to
recommend improvements in policy intervention.
www.smedan.gov.ng
THE INDUSTRIAL DEVELOPMENT CENTERS (IDCs)
Over the years, the Federal Government has taken various steps, to
promote the development of Small and Medium Scale Enterprises
(SMEs). These included, among others, funding and setting up of
industrial estates to reduce overhead costs.
One of the many institutions established was the Industrial Development
Centers (IDCs), to provide extension services to SMEs in such areas as
project appraisal for loan application, training of entrepreneurs,
managerial assistance, product development, production planning and
control, as well as other extension services. The first IDC was established
in Owerri in 1962 by the former Eastern Nigeria Government, Ministry of
87
Trade and Industry, and was taken over in 1970 by the Federal
Government.
Subsequently, more IDCs were established at Zaria, Oshogbo, Maiduguri,
Abeokuta, Sokoto, Benin City, Uyo, Bauchi, Akure, Ilorin, Port Harcourt,
Kano and Ikorodu. Over the years the achievements of the IDC’s have not
been commendable and in most instances they have been overtaken by
other government agencies doing the same programmes.
TECHNOLOGY BUSINESS INCUBATION CENTERS, (TBIC’s)
Part of the NEEDS programme of the Obasanjo era included the creation
of jobs, education facilities with special emphasis on Technology
business Incubation Centers, (TBIC’s). The goal is to promote and engage
the semi-formal productive sectors of the economy:
According to information at the beginning of 2000 about 70% of the
population of Nigeria are engaged either in the informal sector, the
Agricultural sector, or small and medium enterprises (SME’s). Such an
important sector of the economy has access only to the most
rudimentary technology, information and processes. As part of the
transformation agenda, the government wanted to diversify the economic
base and mainstream the informal sector while strengthening its
linkages to the rest of the real sector by increasing the local value
addition and share of manufactured goods in total exports.
Under NEEDs I and II, the institutional and policy framework for this
was being established through Small and Medium Enterprise
Development Agency of Nigeria, (SMEDAN), Technology Business
Incubation Centres, (TBIC’s) and Small and Medium Industries Equity
Investment Scheme, (SMIEIS).
In summary SMEDAN and TBIC’s aim to provide conducive environments
for nurturing start –ups and survival of value added and technology –
related manufacturing.
2.
3.
Explain The Types, And Sources Of Materials Used In Both
Manufacturing And Service Industries;
Explain The Types And Sources Of Plants And Machinery Used
In Small Scale Industries;
88
LOCALLY AVAILABLE RAW MATERIAL AND MINERAL
RESOURCES BY POSSIBLE USES AND PROCESSING EQUIPMENT
REQUIRED, AND POSSIBLE MARKETS
Table 1 shows the uses, processing equipment for major agricultural raw
materials while Table 2 does the same for minerals. It is evident that
many of these raw materials and mineral resources can be put to
multiple uses while the processing equipment in many cases has
multiple applications. Markets often exist locally and internationally for
the products
Table 1: Uses, Processing Equipment and Markets for Raw Materials
S/No.
Raw
Product/Possible uses
Processing
Materials
Equipment
Required
1.
Maize
- corn flour, corn flakes,
- Milling plant with
animal feed, baby food,
dehuster, grinder,
starch and derivatives,
sifter
pharmaceuticals,
- distilling
confectionery
equipment,
- Alcohol
fermentation tanks
- adhesives, industrial
- chemical extractors,
chemicals
concentrators
- corn oil
oil extraction plant
- particle board
chaff compressor and
manufacturing
compactor
2.
Rice
- Breakfast cereals,
- Milling plant with
animal feeds, baby foods, dehuster, grinder,
confectionery, flour mills sifter
- malting and brewing
- Malt production
- parboiled rice
plant, fermentation
-particle board
tanks
manufacturing
- Boilers , washers,
driers
- Chaff compressor
and compactor
3.
Cow pea
- livestock feeds
- bean flour mills,
- Thickener in baby
dehusters, sifters,etc
foods
- domestic consumption
as food
Possible Markets
for Products
- local and foreign
food and drug
manufacturers
- local and foreign
distillers
- paper and allied
products
manufacturers
- furniture
makers
- fond and drug
manufacturers
- local and foreign
distillers
- food packaging
and retailing
companies
- furniture
makers
- livestock
farmers, private
individuals
- local and foreign
baby food and
other
manufacturers
- individual and
households
89
4.
Soya bean
- composite flour
- baby food, cereals,
livestock feeds
- confectionery
- protein concentrate
- edible oil
- dehuster,
dryer/steamer,
milling machine,
packaging
- crusher/oil
extractor and refining
plant
5.
Groundnut
- edible oil, margarine
- peanut butter
- cosmetics - soap,
perfumes and creams
- animal feed
- babay food, cereals.
- steamer, milling
machine, crusher/oil
extractor,
mixer/blender
- washer, driers,
grinders, mixers,
- dehuster, animal
feed mill
6.
Cassava
-
starch (textile finishing)
livestock feed
alcohol
adhesives
garri
confectionery
- cassava mill
(washing, weighing
scales, drier,
pelleting machine,
peeler, packaging
machine), mixers,
packaging machines
7.
Cocoa
8.
Kolanut
-
cocoa butter
wine and beverages
cocoa powder/ash
confectionery
livestock feeds
suppository
detergents
beverages
stimulants
wines
dyes
soft drink concentrates
- cocoa mill, grinder,
steamer, dryer
- distilling units
(grinder, steamer,
dryer)
- cocoa butter
manufacturing plant
distilling units
(grinder, steamer,
dryer)
9.
Coconut
- edible oil
- cosmetics, soap
- furniture and fibre
units
- confectionery
- animal feeds
- vinegar
- decorations
- oil extraction units
- crushers,
- blender,
- furniture making
equipment
- charcoal chamber
- local and foreign
baby food and
other food
manufacturers,
animal feed mill
- domestic
consumers, food
and drug
manufacturers
- pharmaceutical
companies,
vegetable oil
manufacturers
- local and foreign
baby food and
other food
manufacturers
- pharmaceutical
companies
- farmers
- food processing
plants.
- agro-allied
industry
- domestic
consumption
- local garri
manufacturers
- chemical
manufacturers.
- cosmetics
manufacturers
- food and drug
manufacturers
- bakeries
- export market
for products
- local beverage
manufacturers
- domestic
consumers
- export market
for products
- local
pharmaceutical
and confectionery
industries
- domestic
consumption
90
- charcoal
10.
Oil Palm
(Fruit and
Nut)
- edible oil
- margarine
- substitutes for coco
butter
- confectionery
- coffee whitener
- palm wine
- fertilisers
- soap/detergent
- cosmetics
- yeast
- starch and its
derivatives
- baby foods
- composite flour
- chips
- orange juice
- wine
- essential oils
- aromatic
- jellies
- marmalade
- flouring
- syrups
-
11.
Yam/
cocoyam
12.
Citrus
13.
Mango,
Pineapple,
Pawpaw,
Guava
14.
Sugar cane
15.
16.
17.
oil mill
hammer mill
crushers
oil extractors,
boilers
pulp compactors
drums, moulds,
mixer
- grinder/extractor
- crusher, mixer,
packaging
- grinder, juice/pulp,
extractor
- crusher, mixer
- distilling units,
packaging
Timber
- medicinal extracts
- edible fresh and juice
- concentrates
- jellies
- juice
- flavouring
- nectar
- syrup
- jam
- wine
- sweetener
- confectionery
- beverages
- paper
- leather tanning
- pharmaceuticals
clipboard and furniture
Bamboo
Cashew
pulp and paper
roaster nuts
- boiler
- grinder
- dryer
- juice/oil extractors
- distilling units
local and
international
pharmaceutical,
cosmetics and
confectionery
manufacturing
industries,
furniture makers,
distillers,
domestic
consumers
domestic
consumption,
flour millers, food
and drug
manufacturers.
local and
international
beverage
manufacturers,
pharmaceutical
companies,
domestic
consumers,
confectioners.
-pharmaceuticals
- export markets
- local and
international
confectioners,
beverage
manufacturers,
domestic
consumers.
- mixer, extractor,
crushers
- boiler, distilling
units, packaging
- local and
international
market
sawmilling and
furniture equipment
dryer, paper mill
roaster, cracker
same
same
same
91
18.
Rubber
Tyres and Tubes
19.
Potato
Chips
20.
Banana
food/confectionery
21.
Plantain
food/chips
22
Pineapple/
Orange
fruit juice
23.
Sorghum
flour, starch, animal
feed, malt
24.
Millet
25.
Wheat
flour, feedmill,
confectionery
flour, malt
extractor
Oven, extrusion
machine, roller mill,
conveyor belt
peeler, washing
utensils, boiler,
dryer, frier and
packaging machine
peeler, slicer, dryer
and miller
peeler, chipping
machine, fryer and
dryer
continuous juice
expeller, pasteuriser,
filteration machine,
cooking machine,
packaging machine.
Jaw crusher,
pulverisers, screens,
hammer miles
same
milling machine
same
same
same
same
Same
same
same
same
Table 2: Uses, Processing Equipment and Markets for Mineral Resources
S/No.
Minerals
Product/Possible uses
1.
Clay
- bricks, pottery,
sanitary ware
- ceramic insulator
- refractory and
insulating bricks
Processing
Equipment
Required
- ceramics processing
equipment- crushers,
moulds, vibrator, kiln
- jaw crusher
- impact grinders
- pan mills
-vibrating screen
magnetic separators
2.
Feldspar
- ceramic and glass
wares, enamel, polished
stone and slabs, tiles
and refractories
ceramics processing
equipment crushers, mixers,
moulds, vibrators,
Possible Markets
for Products
- domestic
demand for
crockery
- local
intermediate
industrial users
- international
demand for
finished/interme
diate products
- foundries, iron
and steel plants
- cement,
fertilizer
- petrochemicals
- ceramic
manufacturers
- ceramics
manufacturers
- dealers in stone
ware
92
kiln
3.
Gypsum
- chalk, cement,
pharmaceuticals, plaster
of paris (POP), ceiling
boards, decorative
plaster, moulds, paint,
paper
- construction
- cement manufacture
- ceramics
- water treatment
- As filter in plastics,
fluxes in iron and steel
smelting
- As source of industrial
salt
- As decorative
ornaments
- As monumental slabs
4.
Limestone
5.
Bitumen
and Heaby
oil
Road construction, coal
tar.
6.
Granite
floor tiles, war decorative
finishing, monumental
slabs
7.
Tantalite
- Allow, electronic and
computer manufacturing
8.
Kaolin
- fertilizer
- chalk
- chemicals and
pharmaceuticals
- paint and paper
products
- ceramic tiles and
porcelain wares
mixer, moulds, dryer
- chalk making
industry,
pharmaceutical
industries- local
and foreign.
- vertical shaft/rotary
kiln
- jaw crusher
- conveyers
- impact hammer
crusher
- ball mills
- electrostatic
precipitator
- conditioning tower
- precalcinic system
- cutting/shaping
tools
- hydrator
- rotary kiln
- packaging
Bitumen processing
plant
- cement
manufacturers
- construction
contractors
- stone masons
- precipitated
calcium
carbonate
production
- diamond multiple
blade frame saw
- jaw crusher
- rotary screen
- hammer mill
- compressor
conveyor
- grinding and
polishing line
- circular saw
- trimming machine
- computer and
electronic
manufacturing
equipment
- Sieves, Plungers,
Tanks and Filter
Press
- Hydrocyclones
- dryers
- vibrating screen
- separators
- calciners
construction and
pharmaceutical
companies - local
and foreign
local and foreign
construction
investors and
service providers
local and foreign
construction
investors.
pharmaceuticals
- cosmetics
- electrical
products
manufacturers
- paper, paint
and ceramic
93
- pipes insulator etc
9.
Talc
- cosmetics (powders)
- pharmaceutical
processes
- paper and paint
production
- ceramic industries
10.
Phosphate
- fertilizer (NPK)
- phosphoric acid
11.
Gemstone
12.
Laterite
- Jewellery and
ornament
- electronics
Tiles, building &
construction
13.
Columbite
Iron and Steel
14.
Tin
Same
15.
Marble
16.
Galina
Building and
construction
Same
17.
Zinc ore
iron sheet and steel
18.
Gold
iron, steel, electronics
and ornaments
- pumps
- floatation machine
- weighing scale
- bagging machine
- jaw crushers,
hammer mill, pebble
mills
- classifiers
- floatation cells
- slurry pump
- compressor
- hydrocyclone
- filter press
- flash drier
- weighing scale
- bagging machine
- rotary washers
- trommel
- jaw crusher
- vibrating screen
- hydraulic classifier
- rougher bed
- floatation machine
- mixing tank
- silos
- hammer mill
- classifier
- packaging
equipment
grinding, polishing,
cutting and water
pumps
hydroclones, sieves,
tanks, filter drier,
separator
excavator, separator,
pumping
excavators,
separators, air
flooding, pumping
machines
cutting, polishing,
excavators
excavators and
separators
excavators,
separators and air
flooding
excavators,
separators, air
flooding machines
manufacturers
pharmaceuticals
- cosmetics
- electrical
products
manufacturers
- paper, paint
and ceramic
manufacturers
- fertilizer
manufacturers
- phosphoric acid
manufacturers
local and
international
markets
local and foreign
markets
Same
Same
Same
Same
Same
Same
94
19.
20.
Rock
aggregate
Whoframite
building and
construction
electronics, ornaments,
building and
construction
food and chemicals
ornaments, jewellery and
electronics
21.
22.
Aquamarine
Silica
23.
Copper
ornaments, jewellery and
electrical, electronics
24.
Lead
Same
25.
Iron ore
iron and steel
26.
Potash
27
Coal
soap production, water
treatment
cokes, fuel
28
29.
Sandstone
Lignite
Building
paraffin wax
30.
Bauxite
31
Bronze
Refractories and
abrasives
Fittings
excavator, cutting,
polishing
excavator, separator
Same
distillers and drier
excavators and
separators, cutting,
polishing,
excavators and
separators, cutting,
polishing,
excavators and
separators
excavators and
separators
hammer mill and
crushers
hammer mill and
crushers
Not indicated
crusher, dryer mill,
mixer, grater screen
crusher,
beneficiation plant
clay, bronze, heater,
wires, latente
Same
Same
Same
Same
Same
Same
domestic and
export
same
Same
Same
Same
Same
Source: CBN SMINIS Document 2006.
4.
Explain The Various Information And Assistance For Vital
Areas Like Finance, Registration, Project Selection, Training,
Marketing, Research, Quality Control, Raw Materials, Patent
Information Etc.
Nature and Types of Information Required by
Entrepreneurs
A. Marketing information
B. Technical information
C. Information and communication technology (ICT)
D. Financial Information
Where to Obtain Information and Assistance
1. Industry data is helpful in comparing a business to other similar
businesses. This data is available from trade associations or government
agencies and includes ratios such as: stock turnover, cash discounts,
95
percentage mark-up and average sales per month.
2. Membership-based organizations can provide services such as
political lobbying, conducting research, organizing education and
training programmes, implementing new technology, responding to
members’ questions and concerns and disseminating information
through newsletters, magazines and special reports.
3. Subscribing to trade papers and magazines is also desirable.
Entrepreneurs should set aside time to read articles especially those
important in understanding new trends and developments relating to the
business. Keep a file of pertinent articles for future reference.
4. Training programmes help entrepreneurs to develop formal plans for
improving their management skills and ability. Training courses and
adult education programmes are designed by many institutions, agencies
and associations. Entrepreneurs should be aware of these personal
development possibilities and take full advantage of them.
5. Consultants can be of assistance both directly and indirectly. Pay
special attention to the approach and techniques used by a consultant to
solve business problems. When working on solutions to future problems,
you may have to act as your own consultant and may want to use these
same techniques.
6. The library is a primary resource for information. Government
agencies have a variety of publications which may be helpful. Some
colleges and universities have reference libraries which may have a
circulation section available to the public. Research institutes and some
large corporations have libraries with sections on specific topics. Trade
associations and labour organizations may also have libraries containing
material related to specific needs. Libraries are a storehouse of
information which may be useful in operating a small business. Books,
periodicals, reports and newspapers may contain information which can
be of help in solving some of the problems in operating a business.
7. Internet can be used to carry out research and to find useful
information and data. E-mail can be used to communicate with providers
of information who have web sites on the internet.
8. Business Development Services providers. There are many
Business Development Services providers who will offer guidance in
various aspects of business operations.
96
Who Can Provide Information and Assistance?
“FREE”
1. Employees. Few entrepreneurs can do everything themselves, and
they need qualified employees to relieve them of most of the day-to-day
operational problems. This allows them to dedicate their time to working
on the longer range problems. The people who work for a business can
provide answers to specific problems in a business. For example,
entrepreneurs might ask employees for their advice and assistance about
stock display or customer attitudes. Employees are in a good position to
give valuable advice provided they know that their opinions and
suggestions are valued.
2. Customers. These people can supply very special information about
the products and services they buy. Customers should be asked their
opinions because they are an excellent source of information about the
relative strengths and weaknesses of a business product or service.
3. Suppliers. Because the success of most suppliers depends on the
businesses they serve, it stands to reason that they should be interested
in an entrepreneur’s success. Many suppliers are able to give sound
management advice because they are able to explain how other
successful businesses operate and provide suggestions about how
businesses can improve.
4. Other Business Owners. Most businesses have common problems
and owners are generally willing to discuss their problems with one
another. Occasionally, the competitive nature of business may
discourage this frank exchange. If the businesses are unrelated and do
not compete for the same customers, entrepreneurs may be willing to
share ideas concerning solutions to common problems. In this way, all
business owners can benefit from this interaction and improve their
business operations.
5. Free Web Sites. Information and communication
specialists will direct you to free web sites. Consult them.
technology
“FOR A FEE”
1. Professionals. Use the talents of professionals, such as web
designers, IT specialists, financial advisors, bankers, management
consultants, insurance agents, accountants and bookkeepers, estate
agents, surveyors and lawyers, to assist in solving business problems.
97
Try to develop good questioning techniques to get as much advice and
information as possible from these professionals.
Each professional person is a potential resource, but entrepreneurs must
be able to explain their needs clearly and ask relevant questions
concerning their needs so that professionals can provide valuable advice.
2. BDS Providers. Use the Directory of BDS Providers to contact them.
5.
Explain Environmental Factors Associated With Industrial
And Economic Development In Nigeria.
NATURAL ENVIRONMENT
A: Natural Resources
• Land
• Atmosphere
• Surface Water
• Groundwater
• Flora
• Fauna
• Ecosystems
• Energy Resources
B: Social Resources
• Cultural Factors
• Economic Factors
• Social Infrastructure
• Social Development
ENVIRONMENTAL IMPACTS OF ECONOMIC ACTIVITIES ON
VARIOUS RESOURCES AND FACTORS
• Emissions
• Health Hazards
• Degradation –Natural Resources and Ecosystems
• Degradation – Social Structures
EMISSIONS
• Liquid Waste
• Solid Waste
• Air Pollutants (Gases, Dust, Fumes, Vapours)
• Noise And Vibrations
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•
•
•
Odours
Chemical Reactants (Producing Colours, Odours, Poisons)
Hazardous Substances
HEALTH RISKS & HAZARDS
• Health Risk to Workers And Staff
• Increase of Already Existing Risks
• Risk of Accidents Affecting Social and Natural Environment
(During Construction & Operation, After Closing Down Operations,
During Transport of Hazardous Substances)
DEGRADATION OF NATURAL RESOURCES
• Direct and Indirect Damage to Natural Water Resources
• Damage to Land Resources
• Uneconomic Use of Nonrenewable Natural Resources
• Damage to Plant Populations
• Disruption of Interlinked (Balanced) Ecosystems
• Displacement, Extinction of Species
DEGRADATION OF SOCIAL STRUCTURES
• Migration
• Displacement of Human Habitation
• Displacement of Economic Activities
• Disruption of Culture-Specific Social Relationships and
Infrastructures
• Deterioration of General Living Conditions
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TOPIC 7:
APPRECIATE THE ROLE OF COMMERCIAL AND
DEVELOPMENT BANKS IN SMALL AND MEDIUM SCALE
INDUSTRIES DEVELOPMENT.
INTRODUCTION:
There is the doubt that the Commercial and Development Banks are
playing a very significant role for the promotion of small and medium
scale enterprises in Nigeria. It is against this background that, this
section attempts to intimate the potential entrepreneurs to appreciate
the contributions of these financial institutions in the promotion of
SMEs. Students should be able to identify sources of finance to SMEs
and know how to access their funds. They should understand the modus
operandi of government policies as they affect different sectors of the
economy.
SPECIFIC LEARNING OUTCOMES:
1. Identify financial institutions involved in entrepreneurial
development;
2. Explain the role of banks and financial institutions in the
creation and development of enterprises;
3. Explain government policy on financing small and medium
enterprises;
4. Explain the role of microfinance (Formal and Informal) in
financing enterprise;
5. Explain the role of capital markets in financing enterprise.
CONTENT:
1.
Identify Financial Institutions Involved in Entrepreneurial
Development;
The reduction of all six existing Development Finance Institutions (DFIs)
to two; (BOI and NACRDB) has narrowed the playing field and
streamlined the operations of the DFIs. The Nigerian Industrial
Development Bank (NIDB), the National Economic Reconstruction Fund
(NERFUND) and the Nigerian Bank for Commerce and Industry (NBCI)
have been brought together to form the Bank of Industry. On the other
hand, the Family Economic Advancement Programme (FEAP), Peoples
Bank of Nigeria (PBN) and the Nigerian Agricultural and Cooperative
Bank (NACB) have become a single Bank, the Nigerian Agricultural,
Cooperative and Rural Development Bank (NACRDB).
100
These institutions, before the Government took the decision to merge
them, were unable to perform their roles effectively due to the following
reasons:
1. Low Capitalization
2. Inefficient Operations
3. Poor loan portfolio
4. Poor Liquidity
5. Inability to access external lines of credit, and
6. Lack of capacity to finance projects
BANK OF INDUSTRY (BOI)
The Bank of Industry (BOI) is owned by the Federal Government of
Nigeria. This bank emerged from the government’s rationalization of
some DFIs namely the Nigerian Bank for Commerce and Industry (NBCI),
Nigerian Industrial Development Bank (NIDB) and the Nigerian Economic
Reconstruction Fund (NERFUND).
SHAREHOLDING:
NAME:
Min. of Finance Incorporated
Central Bank of Nigeria
Nigerian citizens and associations
UNITS
297,688,401
201,822,645
488,954
%
59.54
40.36
0.10
The Bank of Industry has four subsidiaries from its merger:
• Leasing Company of Nigeria (LECON)
• NIDB Trustees Limited (NTL)
• NIDB Consultancy and Finance Limited (NIDB Consult)
• Industrial and Development Insurance Brokers (IDIB)
FACILITIES
• Initial capital base of N50 billion
• Six zonal offices
TYPES OF PROJECTS FINANCED BY BOI
• Projects in the areas where Nigeria has comparative advantage
• Projects that engage in the efficient conversion of local raw
materials into finished products
• Ventures that produce good quality products at a least cost and
that could be successfully marketed locally and/or
internationally.
101
PRODUCTS AND SERVICES DELIVERABLE BY BOI
1. Medium and Long-term loans.
2. Working Capital Finance
3. Equity Financing
4. Management of dedicated funds
5. Loan guarantees
6. Co-financing
7. Investments in Corporate Boards
8. Business Development Services
9. Lease financing
10. Trusteeship
11. Stock Brokerage
12. Foreign Exchange Dealership
13. Insurance Brokerage
PROSPECTS
The BOI is intended to focus on the private sector in both funding and
commercial operations. The Bank has opted to adopt the existing
prudential guidelines for Banks though more stringent when compared
with the CBN proposal to apply some standards used by other finance
companies for BOI.
BOI would focus on SMEs with linkages within the broad economy with a
view to enhancing overall industrial interaction, expanding output and
employment and utilizing local resources to its fullest advantage. The
huge SMIEIS funds currently accumulated by the Banks will help BOI
fulfill its mandate.
It is expected that the bank’s contribution to the economy will grow
stronger as the implementation of the economic reforms progresses to
widen the scope of needs for economic/business development financing.
NIGERIAN AGRICULTURAL COOPERATIVE AND RURAL
DEVELOPMENT BANK (NACRDB)
The Bank is a development Finance Institution wholly owned by the
Federal Government of Nigeria. NACRDB was incorporated in 2000
following the merger of the defunct Nigeria Agricultural and Cooperative
Bank, People’s Bank of Nigeria and risk assets of the Family Economic
Advancement Programme (FEAP). The Nigerian Agricultural and
th
Cooperative Bank began operation on 6 March 1973 as Nigerian
Agricultural Bank Limited. The two government institutions own the
Bank in the following ratio:
102
Federal Ministry of Finance
Central Bank of Nigeria
60%
40%
FACILITIES
• Six zonal offices.
• 200 branch offices.
• N50 billion capital base.
TYPES OF BUSINESS
NACRDB provides:
• Finance and credit facilities to agricultural and agro-allied
industries.
• Loans to farmers, agricultural institutions, organizations and
cooperative societies.
• Direct investments by way of equity participation in wholly owned
or joint-venture projects.
• Provision of guarantees to viable agricultural and agro-allied
ventures.
• Rural savings scheme.
LENDING CHANNELS
The NACRDB has five channels of financial support to its clients:
i. On- lending Scheme:
This is lending through Cooperative Financing Agency (CFAs), NonGovernment Organisations (NGOs), Self Help Groups (SHGs) and some
Private Sector micro-credit institutions
ii. Small Holder Scheme (SHS)
The Small Holder Scheme is designed for small and medium scale
individual and group farming organizations and funds are provided as
loans on very favourable terms and conditions. Interest charges are
usually below the market rate.
iii. First/Second Livestock Development Programme (SLDP)
This programme projects are also designed for small and medium scale
individual and group farming organizations and funds are provided as
loans on very favourable terms and conditions. Interest charges are
usually below the market rate.
iv. Special Projects
103
The special projects are usually undertaken in collaboration with such
international financial institutions and donor agencies as IFAD,
ECOWAS and ILO.
v. Investments in projects
This targets mainly medium and large-scale entrepreneurs who have the
capacity to provide collateral securities.
PROSPECTS
• Sourcing of offshore credit facilities for loan disbursement.
• Participation in Agricultural Exchange Market through its
subsidiary, the Food Development Company.
• Creation of local market for raw material supply to local
industries.
• Diversification of operations to agricultural support services:
desertification control project, tangential agro-allied projects,
equipment leasing, agro-chemicals manufacture and others.
SMALL AND MEDIUM INDUSTRIES EQUITY INVESTMENT
SCHEME (SMIEIS)
Establishment of the Scheme:
The Small and Medium Industries Equity Investment Scheme (SMIEIS) is
a voluntary initiative of the Bankers’ Committee approved at its 246th
Meeting held on 21st December, 1999. The initiative was in response to
the Federal Government’s concerns and policy measures for the
promotion of Small and Medium Enterprises (SMEs) as vehicles for rapid
industrialization, sustainable economic development, poverty alleviation
and employment generation.
The Scheme requires all banks in Nigeria to set aside ten (10) percent of
their Profit After Tax (PAT) for equity investment and promotion of small
and medium enterprises.
Purpose of the Scheme:
The 10% of the Profit After Tax (PAT) to be set aside annually shall be
invested in small and medium enterprises as the banking industry’s
contribution to the Federal Government’s efforts towards stimulating
economic growth, developing local technology and generating
employment.
104
The funding to be provided under the scheme shall be in the form of
equity investment in eligible enterprises. This will reduce the burden of
interest and other financial charges expected under normal bank
lending, as well as provide financial, advisory, technical and managerial
support from the banking industry.
For the purpose of this scheme, a small and medium enterprise is
defined as any enterprise with a maximum asset base of N500 million
(excluding land and working capital), and with no lower or upper limit of
staff.
Activities Covered By the Scheme:
Every legal business activity is covered with the exception of
(i) Trading/merchandising
(ii) Financial Services
Eligibility for Funding:
To be eligible for equity funding under the Scheme, a prospective
beneficiary shall:
(i) Register as a limited liability company with the Corporate Affairs
Commission and comply with all relevant regulations of the Companies
and Allied Matters A ct (1990) such as filing of annual returns, including
audited financial statements;
(ii) Comply with all applicable tax laws and regulations and render
regular returns to the appropriate authorities; and
(iii) Engage or propose to engage in any of the businesses covered by the
scheme
Mode of Investments and Other Related Issues:
1. Equity under the scheme may be in the form of fresh cash injection
and/or existing debts owed to participating bank.
2. A participating enterprise may obtain more funds by way of loans from
banks in addition to equity investment under the scheme.
3. Eligible enterprises are free to approach any bank, including those
they presently have relationship with, to seek funding under the scheme.
Prospective beneficiaries should note that the banks may operate the
scheme directly, through their wholly owned subsidiary venture capital
companies or through venture capital companies floated by consortia of
banks or through independent venture capital companies.
105
4. Prospective beneficiaries are advised to seek the opinion of third party
consultants such as lawyers, accountants and valuers in determining the
value to be placed on the assets and capital of their businesses in order
to determine a fair price before or during negotiations with the banks.
Requirements by Beneficiaries:
1. Beneficiaries will be expected to:
(a) Ensure prudent utilisation of funds;
(b) Keep up-to-date records on the companies’ activities under the
Scheme;
(c) Make the companies books, records and structures available for
inspection by the appropriate authorities (including banks and the CBN)
when required;
(d) Comply with guidelines of the Scheme; and
(e) Provide monthly financial and operational reports to the investing
banks before the 15th of the next succeeding month.
2. The recommendations of industrial associations, particularly
Manufacturers Association of Nigeria (MAN); National Association of
Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA);
National Association of Small and Medium Scale Enterprises (NASME);
and National Association of Small Scale Industries (NASSI) will be
mandatory for members of these associations.
3. Membership of recognized NGOs engaged in entrepreneurial
development and promotion of small and medium scale enterprises will
also be an advantage.
2.
Explain The Role Of Banks And Financial Institutions In The
Creation And Development Of Enterprises;
SOURCES OF BUSINESS FINANCING
Many prospective entrepreneurs have promising business ideas and
plans. However, the capital necessary to initiate their plans may not be
readily available. As a result, many prospective small enterprises never
become operational. The small business owner will have to invest a
certain amount of personal money to start a business. However, with
sound preparation and planning, financing can be obtained from other
sources. The two primary sources of financing to establish a business
may be the owner’s equity or borrowing from lending institutions.
106
1. Equity financing
The main source of equity financing for most entrepreneurs is their
personal savings. Financial experts say that one-half of the money
needed to start a small business should come from the owner. This
means future owners must work and save before having enough money
to start a business.
Another popular source of equity financing is money from other sources
such as family, friends, venture capitalists, an existing business.
However, there are a few points to consider. For example, will they want
to get involved with operating the business? What will happens if the
business doesn’t succeed? Will it ruin your relationship?
Equity financing can also be obtained by selling part of the business to
one or more partners. With partners putting in money, it is usually
easier to raise the total amount needed. However, partners must be able
to get along and sometimes this is not easy. Since many people starting
their own business want to make their own decisions, the partnership
alternative may not be a good idea.
2. Borrow from lending institutions
When equity sources are not enough, the entrepreneur has the option of
borrowing from other sources. Lenders will usually lend money for
starting a business to people they know and trust. Lenders are careful
not to lend money if the risk is too great. Lenders do not want to lose
money on businesses that fail. Most lenders will therefore review the
business plan carefully. This plan should describe how the business will
be operated, how much money will be needed and how it will be used,
and at what point the business will be profitable.
Most people think of banks when borrowing money. However, it is not
always easy for small enterprises to borrow from them. Banks only lend
money when the risk of losing it is very low. Frequently, they will only
lend to customers whom they have known for a long time. If someone is
thinking of borrowing money at some time in the future, it would be a
good idea for that person to develop a personal relationship with a local
banker as soon as possible.
3. Considerations in applying for a business loan
Different lending institutions have different procedures which have to be
followed by the loan applicant. While lending institutions want to help
107
potential borrowers, these institutions have to be assured that
repayment of the loan will take place as agreed by the borrower. It is
necessary to understand the following factors that are taken into
consideration when appraising a loan application.
Type of loan: short-term (up to one year) or long-term (longer than one
year).
Purpose of the loan: it is essential to determine that the applicant will
not invest the money in a business venture which is illegal, not favoured
by government policy or is unfavourable to the community concerned.
Credit worthiness and integrity of the borrower: Can the borrower be
trusted?
Capability: the business profile of the applicant becomes an indicator of
the entrepreneur’s capability to operate the project with professional
expertise and effectiveness. Capability characteristics help the lender to
understand whether the borrower will be able to utilize the loan for the
intended purpose.
Repayment period: this is a very important requirement both from the
borrower’s and the lender’s standpoint. The lender needs to know
whether the offer of the borrower to repay is realistic. The lender can
ascertain this through statistical and financial projections and advise the
applicant regarding a realistic repayment period, and other details such
as the amount of monthly instalments.
Security: security or collateral for the loan must be acceptable to the
lender. Even if all other conditions are fulfilled, the lender may not grant
the loan if security conditions and terms required by the bank are not
adequate. This is especially true when applying for a business loan for
the first time.
Guarantors: some lenders call for security both in the form of immovable
property and tangible assets and guarantees from friends.
Business plan: this is the major instrument used by any lending
institution to decide whether a loan applicant deserves a loan. A
business plan discloses whether the intended business is viable or not. A
loan applicant may have his own expert prepare a business plan to prove
that the loan he is applying for deserves due consideration by the lending
organization. The lender always appraises the business plan presented
by the applicant and comes to his own conclusions or prepares his own
108
feasibility study to assess and appraise the viability of the proposed
business. A very significant aspect is the cost involved and the cash flow.
Cash flow, as well as financial and statistical projections, indicate
whether the project can generate more money than the cost incurred.
These results will indicate to the lender whether the loan is safe and the
borrower can repay according to the agreed terms.
Current customers of a lending institution have an easier position when
applying for a business loan if the loan is to be used as working capital.
The bank will study the customer’s past financial records and these
financial records will help the banker to decide what action to take. If the
customer intends to start a new business, then the procedures will
almost be similar to that of a new applicant. By keeping written financial
records, the entrepreneurs will have written proof of the past history of
the business.
There are several sources of money available to entrepreneurs.
Frequently, the key decision is to determine which source of money is
most appropriate for their current needs. Selection of the right source of
financing for their needs can often have a pronounced effect on the
future of their business.
Receiving a short-term bank loan when a longer-term loan is required
can soon create a crisis. Selling a part of the business to raise capital
that could have been borrowed may be extremely costly. Over-extended
credit can be costly and restrict operations.
There are many opportunities for mistakes in the choice of capital
source. However, the right choice can provide the capital needed while
freeing entrepreneurs from unnecessary costs, risks, or the possibility of
losing control of their own business.
4. Criteria for evaluating loan sources
To determine the best source for raising capital needed in a particular
situation, the following five questions should be considered.
What are the benefits of a loan in relation to its costs? (cost)
Which loan source exposes the business to the lowest degree of risk? (risk)
Will conditions imposed by a loan source reduce flexibility in seeking
additional capital or in using capital generated through operations
according to the owner’s best judgement? (flexibility)
109
Could the owner’s control of the business be adversely affected? Could the
loss of control prevent the entrepreneur from making operating decisions
that are in the best interests of the business? (control)
Which financial sources are available to the business? (availability)
Cost. The cost of a loan is usually measured by its impact on the
earnings of the present owners, not simply the increased expenses
incurred by that business. Consider a company that is deciding between
a =N=20,000 loan at 10% interest or selling 25% of the shares in the
business to raise =N=20,000. The business expects to pay interest of
=N=2,000 on the loan per year, which would reduce its net income by
=N=2,000 before taxes. If the business expects to earn =N=30,000,
interest expenses would reduce earnings to =N=28,000.
In the equity alternative, the net income would be =N=30,000, since there
would be no interest expenses. However, only =N=22,500 would be
applicable to the present owners since =N=7,500 (=N=30,000 x 25%)
would represent the participation of new shareholders. Therefore, the
income of the business under the equity alternative would be higher, but
the participation of the present owner(s) would be less.
Each capital source has its own cost. Internal sources such as the sale
or liquidation of assets could lead to a loss of revenue following inventory
disposal or added operating costs if machinery was sold to generate cash.
In reaching a decision, it is important to consider all relevant costs for
each source of finance.
Risk. There are several types of risk involved in raising capital. Use of
trade credit could lead to supplier dissatisfaction and possible damage to
your credit standing. Since borrowed money must be repaid with
interest, debt capital imposes obligations upon the cash flow of the
business that must be met to avoid default. A default could cause a
number of actions, such as forfeiture of collateral or forced bankruptcy.
The only money source that involves no risk to the business is equity
capital, since the equity investor, not the business, is the risk-taker.
5. Lending officer’s concerns
Often a bank lending officer refuses or “declines” a loan request.
Foremost in the lender’s mind is the question: “Can the firm pay back
this loan?” The lender may refuse the loan because the owner hastily and
haphazardly prepared the loan application under pressure. As a result,
the lending officer detects an air of instability and lack of planning in the
110
owner’s description of his or her business affairs. When an
entrepreneur’s request for a loan is turned down, the loan applicant
should accept the refusal gracefully and eliminate weaknesses before
applying for a loan in the future.
Questions Concerning Borrowing
The lender needs answers to several pertinent questions to determine
whether or not the borrower can repay the loan. One of these questions
is: “How does the borrower intend to use the money?”
What kind of loan? When consider borrowing, determine what kind of
loan is needed. A business uses four basic types of money in its
operations. The purpose for borrowing will determine the type.
Trade Credit: This type of money is not borrowed. It is money you owe
your suppliers who permit you to carry inventory on open account. A
good past credit experience is evidence of your ability to repay borrowed
funds.
Short-term Credit: Banks and other lenders provide this type of money
to make purchases of inventory for special reasons, such as buying
inventory for the next selling season. Such loans are self liquidating
because they generate money from sales. Short-term credit is repaid in
less than one year.
Long-term Credit: Loans for more than a year are used for the
expansion or modernization of a business. They are repaid out of
accumulated profits. Usually, a loan of this type is a mortgage or a
promissory note.
Equity Funds. This type of money is never repaid. An investor gives cash
to the business in return for a share of ownership in the business.
Many owners fail to recognize the difference between the four types of
money. Keep in mind that money borrowed for a temporary purpose
should be used in the profit producing areas of the business and will be
repaid out of that operation. Equity funds are those which remain in the
business and increase the net worth for the owner.
Are sales adequate? Is a loan being requested to: increase sales volume,
buy additional stocks of high volume merchandise which may have even
greater potential, or create a new image through an overall advertising
campaign?
111
What is the receivables position of the business? Receivables are the
accounts receivable that are going uncollected and getting old. In effect,
does the business need money to carry old accounts?
Is the profit margin adequate? Is there a lot of business but results show
a lack of profit? This may indicate that the business expenses are not
controlled. Is the market insufficient? What is the plan for repayment? Is
the forecast for cash income and expenditures realistic?
The lender will carefully review the cash flow of the business to
determine whether or not the owner is providing sufficient cash to meet
the firm’s obligations. The lender also has to make sure that cash needed
for working capital is not being absorbed by the business into other
areas of equity and thereby reducing the available cash.
However entrepreneurial forces in Nigeria are traditional and strong. In
recent times an increased unemployment and a corresponding rise in
poverty has left few other options for the enterprising Nigerian.
With the advent of the new democracy and the national quest for free
economy, the government has created and adopted policies promoting
the use of technology in education. The Nigerian Economic Policy 19992003, is a comprehensive compendium of the government’s policies and
guiding principles for the nation. The policy states: "Government will
provide affordable quality education for all Nigerians, the Universal Basic
Education and mass Adult Literacy programmes will be pursued in
earnest" and in particular, "Government will create incentives to expand
access to information and communications technology which will
facilitate leap-froging in order to short-circuit the longer span of
development.” The policy even recommends partnerships with national
and international agencies including the United Nations Transfer of
Knowledge through Expatriate Nationals, (TOKTEN) programme.
3.
Explain Government Policy On Financing Small And Medium
Enterprises;
The Federal government has always been concerned on accelerating the
growth of SMEs considering the important role of this sector in the socioeconomic development of the nation. This has informed the setting up of
various agencies and Development Financial Institutions aimed at
addressing the peculiar problems of the SMEs. On the inception of
democratic rule in 1999, the government reviewed existing structures
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and policies and decided on rationalizing the DFIs to make them more
functionally effective.
The reduction of all six existing DFIs to two; (BOI and NACRDB) has
narrowed the playing field and streamlined the operations of the DFIs.
The Nigerian Industrial Development Bank (NIDB), the National
Economic Reconstruction Fund (NERFUND) and the Nigerian Bank for
Commerce and Industry (NBIC) have been brought together to form the
Bank of Industry. On the other hand, the Family Economic Advancement
Programmeme (FEAP), Peoples Bank of Nigeria (PBN) and the Nigerian
Agricultural and Cooperative Bank (NACB) have become a single Bank,
the Nigerian Agricultural, Cooperative and Rural Development Bank
(NACRDB).
These institutions, before the Government took the decision to merge
them, were unable to perform their roles effectively due to the following
reasons:
1. Low Capitalization
2. Inefficient Operations
3. Poor loan portfolio
4. Poor Liquidity
5. Inability to access external lines of credit, and
6. Lack of capacity to finance projects
The following strategies have also been used to address poverty reduction
and SME growth:
1. Support for rapid development of SMEs through increased funding
of development financial institutions to enable provision of longterm credit to the real sector of the economy;
2. Design and implementation of agricultural subsidy and special
presidential initiatives (on selected products) for direct benefit for
the Nigerian farmers;
3. Elaborate the infrastructure and platform for private sector
exploitation of solid minerals;
4. Utilize the competitive opportunity provided by due process
mechanism for award of contracts to encourage participation of
indigenous enterprises in government procurement
5. Support and encouragement of foreign construction companies
and other multinational corporations to patronize local producers
of inputs as well as sub-contract to small indigenous firms.
4.
Explain The Role Of Microfinance (Formal And Informal) In
Financing Enterprise;
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A microfinance institution (MFI) is a semi-formal, non-governmental and
community development organization involved in rural development
(Marx, 2001). In recent decades, microfinance, of which microcredit is a
component, is a sub-set of flexible structures and systems by which a
wide range of financial and enterprise development services are offered to
micro enterprise owners in an affordable and convenient manner. It has
become one of the buzzwords of contemporary development initiatives all
over the world. This is particularly contextual to the developing
countries, where top-down formal financial institutions have failed to
address the credit needs of the real sector of the economy, thereby
constraining the processes of investing for livelihood enhancement
among the poor, the small-scale farmers and micro-level entrepreneurs.
The Nigerian microfinance industry has come a long way and boasts of
all the four well-known models in the industry. A CBN study identified,
as at 2001, 160 registered MFIs in Nigeria with aggregate savings worth
=N=99.4 million and outstanding credit of N=649.6 million, indicating
huge business transactions in the sector (Anyanwu, 2004). Institutional
structures for the provision of microcredit vary and may be government
or public sector-oriented, NGO-supported, traditional or a mixture of two
or more of these.
There are those that exist along the lines of the Informal Model and
involve revolving credit and savings associations, which are based on
traditional experience. These groups provide savings and credit services
to their members. They operate under different names such as ‘esusu’
among the Yorubas, ‘etoto’ for the Igbos and ‘adoshi’ in the North for
Hausas. These associations operate traditional microfinance in various
forms in rural areas/communities and urban centres.
Microfinance is also extended to clients through formal financial
institutions in what is called the Formal Model. Examples include the
Nigerian Agricultural Cooperative and Rural Development Bank
(NACRDB) and the Bank of Industry (BOI). Such institutions usually
know very little about the poor who need microcredit but have to
maintain such a unit in order to fulfill statutory requirements by the
political and financial authorities.
There is the Linkage Model in which informal savings collectors are
linked to the formal financial institutions. A good example is the defunct
Village Adoption Scheme of the Centre for Rural Development and
Cooperatives, University of Nigeria, Nsukka, which linked commercial
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banks to village cooperative societies and other groups for financial
support.
Finally, there is the Donor Model in which mainly international donors—
such as UNDP—provide funds to MFIs for on-lending to their members
and clients who enjoyed microfinance services.
The MFIs in Nigeria, most of which are non-regulated, include NGOs.
More prominent among which are Nalt-United Self-Help Organisation
(NUSHO) in Nsukka; OUTREACH Foundation (OF) situated in Lagos; the
Country Women Association of Nigeria (COWAN) in Ondo State; the
Farmers Development Union (FADU), which can be found in Oyo State;
the Development Education Centre (DEC) in Enugu, the Lift Above
Poverty Organisation (LAPO) in Benin and the Save and Produce (SAP),
Jos. Regulated sources of microcredit include the 282 community banks
that were licensed by 2003, credit unions and cooperative societies.
Microfinancing is still perceived as public sector-led activity in Nigeria.
For example government initiates and implements activities of these
MFIs. The National Poverty Eradication Programme (NAPEP), whose
funds go to alleviate poverty levels by providing equipment (e.g. KekeNAPEP); and the National Directorate of Employment (NDE) that equips
people with skills thereby encouraging entrepreneurship; and various
State government loan schemes are examples of government domination
of microfinance. The role of government should gradually shift towards
creating an enabling environment for private sector active participation.
Enterprise Development Agencies (EDAs) - e.g. Abuja Enterprise Agency
(AEA) should be established by each State. These EDAs should be
responsible for guiding and advising prospective entrepreneurs to
develop and grow their enterprises. They should also monitor and
evaluate the functions of MFIs in their domain as well as provide
guarantee trusts for funds granted SMEs that comply with laid-down
parameters for funds provided MFIs for on-ward lending. Private
Business Development Services (BDS) providers should be registered
with the Enterprise Agencies. These BDS providers should serve as
consultants to potential beneficiaries of various microfinance schemes.
The BDS providers should teach the beneficiaries how to organize their
business, basic accounting and record keeping, budgeting and financial
planning, computer applications, among others. They should also assist
the EDAs in monitoring and evaluating the activities of loan beneficiaries
at the local levels. The EDAs should be responsible for remunerating the
BDS providers.
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Institutional evolution is taking place in the Nigerian microfinance
sector; but the pace is slow. Sources of change sweeping the
microfinance sector include the CBN, MFIs themselves, the State
governments and donors who initiated these processes. There is
increasing recognition and prioritization of the needed basic
interventions to foster private sector participation in this vital financial
sector that has the greatest potential to reach and affect the lives of rural
Nigerians. For example, the United Nations Capital Development Fund
UNCDF, through its MICROSTAT project, has made significant efforts to
strengthen the institutional, organizational and technical capacities of
MFIs. Donors are now supporting mostly ‘retailer’ MFIs as opposed to
‘wholesale’ institutions.
The National strategic development plans - NEEDS and SEEDS, by
recognizing the place of microfinance in poverty reduction, linking with
MDGs and now catalyzing current initiatives at the CBN, assures us that
the future of Microfinancing in Nigeria is bright. The ongoing processes
are changing the motives, roles and capabilities of the ‘active’ and
‘passive’ stakeholders in the sector. Government is beginning to see MFIs
less as mere self-help organizations, and more as serious formal
institutions whose activities would affect the nation’s financial
aggregates.
5.
Explain The Role Of Capital Markets In Financing Enterprise.
WHAT DOES THE CAPITAL MARKET OFFER ENTERPRISES
o Public and Private Sector Equities
o Public and Private Sector Debts Financing
o Infrastructure Finance
o Non-Refundable Capital
o Convertible Long Term Capital
o Derivatives
o Deficit Financing
o Non Convertible Long Term Capital
Capital Market Instruments
o Equities
o Debts
o Derivatives
o Government Bonds
o Rights
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o
o
o
o
o
Corporate Bonds
Options and Futures
Preference Shares
Debentures
Exchange Traded Funds
Capital
Capital is the money which gives the business the power to buy goods to
be used in the production of other goods or the offering of a service.
Capital market
Long-term funds are bought and sold:
o Shares
o Debentures
o Long-term loans, often with a mortgage bond as security
o Reserve funds
o Government Bonds
Money market
Financial institutions can use short-term savings to lend out in the form
of short-term loans:
o Credit on open account
o Bank overdraft
o Short-term loans
o Bills of exchange
o Factoring of debtors
Borrowed capital
This is capital which the business borrows from institutions or people,
and includes debentures:
 Redeemable debentures
 Irredeemable debentures
 Debentures to bearer
 Hardcore debentures
Own capital
This is capital that owners of a business (shareholders and partners, for
example) provide:
 Preference shares:
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Ordinary preference shares
o Cumulative preference shares
o Participating preference shares
Ordinary shares
Bonus shares
Founders' shares
o



Differences between shares and debentures
 Shareholders are effectively owners; debenture-holders are
creditors.
 Shareholders may vote at Annual General Meetings (AGMs) and be
elected as directors; debenture-holders may not vote at AGMs or be
elected as directors.
 Shareholders receive profit in the form of dividends; debentureholders receive a fixed rate of interest.
 If there is no profit, the shareholder does not receive a dividend;
interest is paid to debenture-holders regardless of whether or not a
profit has been made.
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TOPIC 8:
UNDERSTAND THE ROLE OF PERSONAL SAVINGS AND
PORTFOLIO INVESTMENT IN NATIONAL
ECONOMIC DEVELOPMENT
INTRODUCTION:
The position of personal savings and portfolio investment in this country
vis-à-vis the nations’ economic development is quite significant and
noteworthy. So, the potential entrepreneurs need to be very conversant
with this development. Therefore this section attempts to expose these
entrepreneurs towards this dimension. Students should understand the
importance of Personal Financial Planning and Management. They
should be able to develop personal budget for a chosen period and create
a spreadsheet for tracking the budget. They should imbibe the savings
culture as well as understand how to invest in stocks and bonds.
SPECIFIC LEARNING OUTCOMES:
1.
Define the following:
a. Income;
b. Expenditure; and
c. Savings
2. Explain the role of savings in starting and sustaining businesses;
3. List the benefits of interest;
4. Explain personal financial planning and management;
5. Explain shopping habits;
6. Explain portfolio investment: shares, bonds & debentures
CONTENT:
1.
Define The
i.
ii.
iii.
Following:
Income;
Expenditure; And
Savings
Income, generally defined, is the money that is received as a result of the
normal business activities of an individual or a business.
Internationally, the accounting term income is synonymous to term
revenue. The International Accounting Standards Board uses this
definition:
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Income is increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets or decreases
of liabilities that result in increases in equity, other than those
relating to contributions from equity participants.
For the average citizen in many countries, the term “income” is most
relevant for its role in determining how much income tax a person must
pay.
In common usage, saving generally means putting money aside, for
example, by putting money in the bank or investing in a pension plan.
In a broader sense, saving is typically used to refer to economizing,
cutting costs, or to rescuing someone or something.
In terms of personal finance, saving refers to preserving money for future
use - typically by putting it on deposit - this is distinct from investment
where there is an element of risk.
Saving differs from savings in that the first refers to the act of putting
aside money for future use, whereas the second refers to the money itself
once saved.

For example: you may decide to start saving 10% of your income;
because you aim for your savings to grow into an amount sufficient
to buy a car
Saving in Personal Finance
Within personal finance the act of saving corresponds to nominal
preservation of money for future use, although inflation can still erode its
real value. A deposit account paying interest is typically used to hold
money for future needs, i.e. an emergency fund, to make a capital
purchase (car, house, vacation, etc.) or to give to someone else (children,
tax bill etc.).
Savings within personal finance refers to the accumulated money put
aside by saving.
Within personal finance, money used
collective investment scheme or used to
element of capital risk is deemed an
important as the investment risk can
to purchase shares, put in a
buy any asset where there is an
investment. This distinction is
cause a capital loss when an
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investment is realized, unlike cash saving(s). Lower levels of risk
normally apply to savings e.g. interest rates may fail to preserve its real
value, or in extreme cases loss can occur due to bank failure.
In many instances the term saving and investment are used
interchangeably which confuses this distinction. For example many
deposit accounts are labeled as investment accounts by banks for
marketing purposes. To help establish whether an asset is saving(s) or an
investment you should ask yourself, "where is my money invested?" If the
answer is cash then it is savings, if it is a type of asset which can
fluctuate in nominal value then it is investment.
Personal finance is the application of the principles of finance to the
monetary decisions of an individual or family unit. It addresses the ways
in which individuals or families obtain, budget, save and spend monetary
resources over time, taking into account various financial risks and
future life events. Components of personal finance might include
checking and savings accounts, credit cards and consumer loans,
investments in the stock market, retirement plans, social security
benefits, insurance policies, and income tax management.
2.
Explain The Role Of Savings In Starting And Sustaining
Businesses;
Want to start a business? Start saving your money.
Have you ever dreamed of starting your own business and being your
own boss with your own hours? It may seem like a dream, but it’s not
impossible to attain—a majority of first-generation millionaires got there
just by starting their own businesses. These aren’t just tech businesses
though—these are electricians, plumbers, and other local small
businesses. These are companies that anyone can start—even you.
To do so, however, you need to have some startup capital. For some
companies, venture funding is the way to go, but for most, self-funding is
essential. This means that you will need to have money saved up to start
your company. If you are serious about wanting to start your own
business, you will need to begin budgeting for it.
If you want to save money to start your own business, you have two
options:
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#1 - You can try to work on the new venture while you are still at your
current job. Depending on your situation, this might be a better option
than the second one.
#2 - Save enough money so that you can quit your job and focus on your
new company full time.
Both options have their pros and cons, but it might be a good idea to
follow #1. Many companies fail, and the first option is a good way to
hedge your bets in case your company doesn’t do as well as you hope.
If you don’t have a budget, it’s pretty important that you create one,
especially if you are planning to quit your current job. In a previous post,
I provided links to some good resources and articles on such topics as
calculating start-up costs. You should try to do the math to see how
much you need to save. In a future article, I’ll try to explain how to figure
out exactly how much you need to start your business.
Beyond saving for a new business, there are other options, such as
borrowing. A survey of Person to Person (P2P) loans in Lending Club
shows that a growing number of business owners are turning to Lending
Club to raise funds for creating and expanding their businesses.
Regardless of how you raise your funds, budgeting is still important. By
budgeting and planning for your business, no matter what it is, you will
improve your chances of it being a success. If it does well, you will be
comfortably rich.
3.
List The Benefits Of Interest;
Learning that it is important to:
(1) Save early and often,
(2) Save as much as possible,
(3) Earn compound interest,
(4) Try to earn a high interest rate,
(4a) Save in Unit Trust Funds to earn high interest;
(5) Leave deposits and interest earned in the account as long as possible,
and
(6) Choose accounts for which interest is compounded often.
This lesson assumes that students have worked with percents and
decimal equivalents
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4.
Explain Personal Financial Planning and Management;
Personal financial planning:
A key component of personal finance is financial planning, a dynamic
process that requires regular monitoring and reevaluation. In general, it
has five steps:
1. Assessment: One's personal financial situation can be assessed by
compiling simplified versions of financial balance sheets and
income statements. A personal balance sheet lists the values of
personal assets (e.g., car, house, clothes, stocks, bank account),
along with personal liabilities (e.g., credit card debt, bank loan,
mortgage). A personal income statement lists personal income and
expenses.
2. Setting goals: Two examples are "retire at age 65 with a personal
net worth of $200,000 American" and "buy a house in 3 years
paying a monthly mortgage servicing cost that is no more than
25% of my gross income". It is not uncommon to have several
goals, some short term and some long term. Setting financial goals
helps direct financial planning.
3. Creating a plan: The financial plan details how to accomplish your
goals. It could include, for example, reducing unnecessary
expenses, increasing one's employment income, or investing in the
stock market.
4. Execution: Execution of one's personal financial plan often
requires discipline and perseverance. Many people obtain
assistance from professionals such as accountants, financial
planners, investment advisers, and lawyers.
5. Monitoring and reassessment: As time passes, one's personal
financial plan must be monitored for possible adjustments or
reassessments.
Typical goals most adults have are paying off credit card and or student
loan debt, retirement, college costs for children, medical expenses, and
estate planning.
5.
Explain Shopping Habits;
Shopping Habits
The economy is a core influence. When it is positive, shoppers feel more
freedom to be selective about where and how they shop. When the
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economy is of primary concern, shoppers exercise more discretion about
where and how they spend their money.
Loyalty can be stolen: Shoppers will deviate from past shopping habits
to achieve additional value. Taking queues from the economy, 61% cited
price/value as the primary reason driving them to a retail destination.
Control your habits, improve your life:
We are all the sum of our daily
habits. Small actions repeated over and over make up our day, our week, our year, our life. We all
know there are things we ~should~ (or shouldn't) do. The trick is just getting our conscious brain a
little help to turn "I think I should" into "I knew I could!"
6.
Explain Portfolio Investment: Shares, Bonds & Debentures
In economics and finance, Portfolio investment represents passive
holdings of securities such as foreign stocks, bonds, or other financial
assets, none of which entails active management or control of the
securities' issued by the investor; where such control exists, it is known
as foreign direct investment. Portfolio investment is strictly connected
with a portfolio diversification process.
Some examples of Portfolio investment are:



purchase of shares in a company.
purchase of bonds issued by government.
acquisition of assets.
Portfolio investment is part of the capital account on the balance of
payments statistics.
A brokerage is a firm that acts as an intermediary between a purchaser
and a seller. More commonly, a brokerage is referred to as a brokerage
firm. To broker a deal is to communicate with both the buyer and seller
as to acceptable price on anything sold or purchased.
A broker, a single person, or the brokerage firm completes any necessary
legal paperwork, obtains the appropriate signatures, and collects money
from the purchaser to give to the seller. Since the buyer and seller are
employing the brokerage to complete the deal, the brokerage may collect
a portion of the money obtained. In some cases, a brokerage receives
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money from both parties. In others, the brokerage receives a commission
only from the seller.
Brokerage firms are most commonly thought of in relationship to the sale
and purchase of stocks and shares. Fees are variable, depending on the
degree to which the brokerage is involved in decisions about purchase.
Some stockowners give their brokers power of attorney to make decisions
about when to buy or sell stock and depend upon their brokers for
researching new stock for purchase. This type of brokerage firm usually
assesses a fairly large fee, and regardless of whether the owner loses or
earns money, the firm is paid.
How the Stock Market Works
A share of stock is a small ownership stake in a company. When you buy
stock, you become a shareholder or stockholder. Companies sell stock in
order to raise the money needed to expand or improve their businesses.
Businesses that raise capital in this way are called public companies.
Investors buy stock to obtain returns on their investment, just as you
may deposit money in a savings account to earn interest. If you purchase
the stock of a company that does well, you may earn a higher return
than what you could earn from a savings account – and your money may
actually grow faster.
Stocks can help your money grow in two ways. If the share price of your
stock goes up, you can draw a profit – also known as a capital gain –
when you sell your shares. Of course, the share price can go down, and
you can loose some of your money. Some stocks pay investors a
dividend, which is a portion of the company’s profits, on a regular basis.
Stock prices are driven by supply and demand. If a company is doing
well or its shares are selling at a fair price, many investors may buy its
stock, creating demand. Demand drives up the price. If the company is
not doing well – or the share price has been driven too high – investors
may stop buying or begin selling. As demand drops, so does the price.
Stocks are bought and sold at the stock market. This is where public
companies seeking capital meet investors who seek profits. The first
stock exchange began in 1602 in Amsterdam, Holland, where shares of
the United East India Company were traded. America’s first stock market
opened in 1792, near an old buttonwood tree where stock traders used to
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meet. England’s first stock market opened in 1773, in a former London
coffeehouse. The Nigerian stock exchange opened in 1961. At the stock
market, each stock is registered with a particular exchange. If you think
of the stock market as a big shopping mall, then an exchange is a store
that carries only certain brands of products. Today there are stock
markets all over the world. At each, stocks are bought and sold on a
daily auction conducted by stock traders and specialists.
When someone wants to buy or sell stock, they usually go to a brokerage
firm and talk to a licensed stockbroker. The stockbroker will execute
your trade – that is, help you buy or sell stock – and charge you a small
transaction fee. Stockbrokers who are financial consultants may also
offer investment guidance.
When a stock market does well and prices rise over a period of time, it’s
called a bull market. When prices decline for a period of time, it’s called a
bear market.
Let’s say you purchased 10 shares of XYZ stock at =N=52.00 a share.
Over time, the share price rises to =N=78.50 an increase of =N=26.50 a
share. If you sell at that point, you will make a profit of =N=265.00. If the
stock pays a dividend, that amount will be added to your total return. A
small transaction fee will be deducted from the proceeds by the firm that
that executes the transaction. You will also be responsible for taxes on
the profit.
The companies may also give bonus shares to existing shareholders in
addition to paying dividends. This issuing of bonus shares increases the
units held by shareholders and serve as a source of capital gains.
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GENERAL EXERCISES:
identify reasons for the selection.
and administrative
requirements for a small business.
positioning of all major business components.
target.
and suggest strategies to achieve expansion.
production process.
n process management,
inventory management and control.
directions.
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Entrepreneurial Project Topics
innovative business.
owner for improving the business.
added” ideas that could be adopted by the owners.
business.
identify
business opportunities to deal with them. Prepare a feasibility report.
the use of technology as a business opportunity.
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