Chapter One: Introduction to Business Studies
Introduction
When you wake up in the morning, you normally begin your day by using different products. For your personal hygiene routine, you might use a toothpaste, toothbrush, bathing soap and towel. All these products are produced by businesses. In this chapter, you will learn about the concept and scope of Business Studies, and its relationship with other disciplines. The competencies developed will enable you to appreciate the importance of business in daily life.
Think
How the world could have been without any business.
The Concept of a Business
Activity 1.1
Ask your fellow students on the following:
- The products they commonly consume; and
- Why people manufacture them?
A business is an economic activity engaged in producing or buying and selling of goods and services with the aim of earning profit through satisfying customers' needs. It offers people with a variety of things they need for survival, desire to own or use. Activity 1.1 provides some of products consumed by students. In the society, there are various businesses both large and small that take place in different places. Small businesses are such as small retail shops, selling of fresh fruits or items on street and carpentry as shown in Figure 1.1. Moreover, there are also businesses that provide services to their customers such as photography, makeup artistic, content video creation, transcribing and translating. On the other hand, large scale businesses include supermarkets, multiple shops, automotive, mobile phone companies, textile, ship building and sugar industries. In this level, concentration is on the small scale businesses.
Business Processes
Business activities involve the processes that an organisation engages in, to achieve its goals. These processes are production, distribution, exchange and consumption. They are explained as follows:
Production
This is a process of transforming raw materials into finished products to satisfy human needs and wants. For example, a tailor transforms a fabric into a type of a cloth such as a trouser, shirt, dress or curtains.
Distribution
This is a process of moving goods and services from where they are produced to where they are needed for consumption. For example, the transportation of manufactured sugar from Mübwa Sugar Company in Morogoro Region to wholesalers, retailers or consumers located in various regions of Tanzania or to other countries.
Exchange
This involves buying and selling of goods and services between two or more parties. It involves the use of several means of payments, including money. Exchange enables consumers to consume items they do not produce and producers to produce what they do not consume. For example, a tailor can produce clothes for selling and not for his or her own consumption while consuming sugar produced by a sugar manufacturing company.
Consumption
This is the act of using goods and services to satisfy human needs and wants. In everyday life, individuals consume different kinds of goods and services to satisfy their needs and wants. For instance, people consume food to satisfy hunger, and buy cars for transportation. Moreover, individuals consume different services provided by doctors, teachers, the military, taxi drivers, entertainers and tourist guides.
These business processes (production, distribution, exchange and consumption) ensure that the product reaches the final consumers. However, in order to understand them better, consider an example of a school uniform that a student wears:
- The uniform was manufactured by a textile factory or business. This process is called the production phase.
- It was then transported from the factory or business to the market for consumers. This process is called the distribution phase.
- Then someone visited the market and bought the uniform by offering the seller some money. This process is referred to as the exchange phase.
- The student wears the uniform at school. This process is called the consumption phase.
Purpose of a Business
The main goal of any business is to generate profit. However, other purposes of businesses are to provide individuals with goods and services that satisfy their needs and wants, make goods and services that are not produced within a given area available, create employment for people to reduce unemployment, and promote innovative activities that improve delivery of goods and services. All these are done through combining the various business processes to make the items that meet peoples' demand.
Exercise 1.1
- Kamwendo owns a small shop where he sells handmade shoes and jewellery. He advertises his products at the local market and sometimes online through social media. Does Kamwendo's small shop qualify as a business? Explain reasons for your answer.
- Your aunt applied for a loan from a microfinance institution with the aim of opening a restaurant. However, the loan officer asked her to explain the purpose of that business. Help your aunt to explain her business purpose.
- Mwanakombo transported woods from Njombe last month. She used them to make different furniture. Briefly, explain the business processes that Mwanakombo needs to undertake for the furniture to reach the final consumers.
Terminologies Used in Business Studies
Business Studies involve understanding the main business processes, which include production, distribution, exchange and consumption. Other important terminologies for understanding Business Studies include needs and wants, services, goods, resources, scarcity, and opportunity cost. These terms are explained as follows:
Needs and Wants
Activity 1.2
Create two lists of goods and services. The first list should comprise goods and services that you think are necessary for living and the second list should comprise goods and services that you desire to have.
People demand goods and services to satisfy their needs and wants. In Activity 1.2 the items listed as necessary for survival are referred to as needs, and those ones that a person desires to have are referred to as wants.
Wants on the other hand, can be goods or services an individual desires even when they are not essential. Motorcycles, televisions, and jewellery are wants because they are things that one can live without and still survive. Needs however, are goods or services an individual must have to survive. Food, shelter, water, and clothes are essential needs for a human being to be able to live.
Human needs and wants are unlimited in number. They have a tendency of multiplying in such a way that when an individual satisfies one, another one tends to arise. For example, a Form One student demands a school uniform, a school bag, and textbooks from the family budget. The same student may also need food or water to survive at school. At the same time, the student may require services of teachers, and sometimes of sports' coach in the physical education session. This means that wants increase continuously as one want is satisfied the other one arises.
Services
Services are intangible outcomes of human efforts that can satisfy human needs and wants. They command prices in exchange, and their purchase does not result in the ownership of anything physical. For example, one can only seek advice from the doctor, but cannot purchase him. Thus, a service is an act or a performance offered by one party to another. Services may be banking, online payments, education, health care, garden designing, car washing, recreation, communication, transportation, tourism and restaurants. Figure 1.2 shows health care services.
Goods
Goods are valuable items that satisfies human needs or wants. The goods listed in Activity 1.2 are in the form of physical products such as sweets, cars, furniture, clothes, and houses. Goods can be categorised in different groups, for example, free and economic goods, consumer and producer goods, perishable and durable goods, and merit and demerit goods. All these categories of goods are explained as follows:
Free and Economic Goods
Free goods are goods which are available for consumption at no cost such as breathable air and sunlight. Economic goods on the other hand, are goods which must be bought before consumption such as a pen, a pencil, a computer, and cloth.
Consumer and Producer Goods
Consumer goods are goods which are produced for direct consumption such as vegetables, television sets, cars, buildings and furniture. These goods are not used for production of other goods. Producer goods on the other hand, are goods which are used for producing other goods. They include goods such as machineries, seeds, and other raw materials.
Perishable and Durable Goods
Perishable goods are those goods which have a short shelf life such as fruits, bread, vegetables, meat, and milk while durable goods are those goods that last for a long time such as buildings, machines, vehicles, and equipment.
Merit and Demerit Goods
Merit goods are goods with high social benefits to consumers such as education, health services, sports facilities and fire protection while demerit goods are goods with negative impact to the society or most likely to cause health problems to the consumers such as tobacco, cigarettes and alcohol.
Activity 1.3
In Activity 1.1 goods that are commonly consumed by the students were identified, then:
- Group them according to different categories of goods; and
- What have you learnt from this activity.
Resources
Resources are the inputs used to produce goods and services, also known as factors of production. These inputs include land, labour, capital and entrepreneurship. They are explained as follows:
Land is a gift of nature which includes all natural resources used in production such as minerals, forests and water.
Labour is the human efforts, skills and expertise required to produce goods and services.
Capital refers to physical or financial resources used in production. It consists of tools, machinery, equipment, finance or money and infrastructures.
Entrepreneurship involves innovation, risk taking and organisation behaviour required to bring together factors of production and create new products or business.
Scarcity
In Activity 1.2 a number of things that one desires to have were listed. Probably someone wants them but does not have enough funds. Even if someone was able to buy them now, they may still want more things in the future. This is because human wants are unlimited and the resources to satisfy them are scarce. Scarcity means shortage in supply of resources. Generally, an individual cannot have sufficient resources, income or wealth to satisfy every desire. This necessitates them to make a choice which involves fulfilling the most preferred wants to the least preferred ones.
Opportunity Cost
Opportunity cost is the second best alternative foregone after making a choice. Any choice implies sacrificing something else. What is sacrificed is a loss of benefit that one would have received if they had made that choice. For example, a person who chooses to save money incurs the opportunity cost of not consuming goods and services worth the amount of money saved. Likewise, the opportunity cost of sleeping instead of working is the amount of money one could have earned if he or she had spent the time working. When making a decision, it is important to consider the opportunity cost.
Exercise 1.2
- Baraka is a secondary school student; he needs to buy a laptop for his school activities. At the same time, he would like to buy a bicycle. However, he does not have enough money to buy both. If you were Baraka, what would you consider to make the right choice? why?
- Your neighbour wants to open a grocery store. With reasons, advise him on the categories of goods he can sell.
- Shukuru works in the beverage industry and earns TShs 150,000 per month. Her father retired from his work and decided to give her TShs 4,000,000 to start a business of selling school shoes and quit the beverage industry.
- What is the opportunity cost of Shukuru's decision to start a business?
- Will Shukuru's business meet consumer needs or consumer wants? Explain your answer.
The Concept of Business Studies
Business Studies is a multidisciplinary field that deals with the principles of business, management, and economics. It combines elements of entrepreneurship, accounting and finance, marketing, organisational studies, human resource management, and business operations.
The Importance of Studying Business Studies
Business Studies provide insights into the fundamental principles and dynamics that shape the world of business. Here are some reasons why studying Business Studies is important:
- Entrepreneurship and innovation: Business Studies nurture an entrepreneurial mindset by teaching how to identify opportunities, create innovative solutions, and manage the risks associated with starting and growing businesses.
- Understanding customer needs and preferences: Business Studies help students to realise and appreciate the role of business in the provision of goods and services which satisfy customers' needs and wants.
- Critical thinking and problem solving: Students develop critical thinking skills as they analyse business situations, make decisions, and solve complex problems related to management, marketing, finance, procurement, and operations.
- Global perspective: Business Studies often explore international trade, globalisation, and cross-cultural communication, fostering an understanding of how businesses operate in a globalised world.
- Financial literacy: Studying business equips individuals with financial literacy to help them manage personal finances, understand investments, and make informed decisions about saving and borrowing.
- Career opportunities: Business Studies offer a wide range of career opportunities in fields such as marketing, finance, human resources, management, consulting and entrepreneurship.
- Soft skills development: Students learn communication, teamwork, leadership, and negotiation skills that are applicable in both professional and personal contexts.
- Ethics and corporate social responsibility: Business Studies address ethical considerations and corporate social responsibility, encouraging responsible and ethical business practices that contribute to sustainable development in the society.
- Adapting to change: Business environments are constantly evolving. Studying business equips the student with skills to adapt to changes, technological advancements, and shifts in market trends.
- Contribution to society: Successful businesses drive economic growth, create jobs, and contribute to the overall well-being of society. Business Studies provide insights into how businesses can positively impact communities.
- Interdisciplinary learning: Business Studies often intersects with various disciplines such as economics, psychology, sociology, and technology, offering a multidimensional understanding of how these fields interact in real-world scenarios.
The Scope of Business Studies
The scope of Business Studies include various components that provide comprehensive understanding of how businesses operate successfully in todays' economy. Some of the key components of Business Studies include:
- Entrepreneurship: This component focuses on the process of setting up and managing a new business. It includes opportunity identification, business planning, innovation and risk taking in business operations. It entails business start-up, development and management.
- Economics: This is an essential component that focuses on broader understanding of the economic environment in which the business operates. It includes concepts of wants, needs, scarcity, opportunity cost and demand and supply of goods and services in the market.
- Finance and accounting: The component of finance focuses on budgeting and financial decision making while accounting focuses on recording, analysing, interpreting and reporting financial performance of an organisation.
- Marketing: This component focuses on the strategies, techniques and processes that businesses use to influence and sell their products such as pricing, promoting and distributing a product.
- Business management: This component encompasses the principles and practices of operating a business effectively. It includes planning, organising, directing, staffing and controlling the business resources to achieve the business goals.
- Information technology and e-business: This component focuses on the role of Information and Communication Technology (ICT) in business operations. It includes e-commerce and digital marketing.
- Business laws and regulations: This component focuses on understanding legal aspects for effective business operations such as compliance, employment law and contract, and intellectual property.
- Risk management: This component focuses on identifying potential risks that a business may encounter and developing effective ways to overcome the risks, including insurance.
Exercise 1.3
- Makame is a new Form One student who is ambitious to become a business person. Explain to Makame how Business Studies will help him achieve that goal.
- Business Studies is a combination of various fields of study. Justify the statement.
Relationship Between Business Studies and Other Subjects
Business Studies relate with all subjects as it prepares and allows students to transfer knowledge, skills and attitudes acquired from various subjects into business opportunities. The subject develops the capacity of students to identify opportunities and transfer them into businesses. The relationship between Business Studies with a few selected subjects namely Agriculture, Music, Theatre arts, English language, Kiswahili, Arabic, Chinese language, French, and Mathematics is described as follows:
Business Studies with Agriculture
Students studying Agriculture may learn how to cultivate vegetables but may lack skills of making it a business that earns money. Thus, Business Studies will equip the students with business skills which will enable them to turn vegetable cultivation into a profit-making business.
Business Studies with Theatre Arts and Music Subjects
Students who are taking Theatre arts and music subjects may decide to start their own acting schools and production companies. Business Studies will equip them with necessary skills to create a business plan, manage the business finances and marketing their services.
Business Studies with Language Subjects
Students who are taking language subjects such as English, Kiswahili, Arabic, Chinese and French acquire translation, interpreting and editing skills. Business Studies will enable them to promote their skills to become translators, interpreters, editors and content creators for websites and social media.
Business Studies with Mathematics
Mathematics is like a toolkit for entrepreneurship and Business Studies. Mathematics helps entrepreneurs create successful businesses. It helps them with aspects like budgeting, measuring how well ideas are working, and making smart decisions about money. Mathematics provides the power to turn creative ideas into real-world successes by focusing on details, patterns, and innovative solutions.
Activity 1.4
Review various sources including internet and explain the relationship between Business Studies and other subjects that you are pursuing in your current academic stream.
Practical Activities
Out of Class Activity
Pay a visit to the local community, speak to different people and observe the surroundings.
- What are some common needs and wants in the community?
- Reflect on the needs and wants in the community that can become businesses.
Skills Lab Activity
Based on the knowledge acquired on business, choose any business which you may wish to establish with consideration of the needs of your community.
Project Activity
In your business club, prepare a short report on the type of a business you would like to establish and state its purpose.
Chapter Summary
- A business is an organisation that deals with producing or buying and selling of goods and services with the aim of earning profit and satisfying customers' needs.
- Most businesses are established with the main purpose of generating profit. However, other purposes include job creation, satisfying human needs, ensuring availability of goods and services, and innovation to improve goods and services delivery.
- Business Studies is a broad field that deals with the principles of business, management, and economics. Its scope includes various components which are entrepreneurship, economics, finance and accounting, marketing, business management, Information and Communication Technology (ICT) and e-business, and business laws and regulations.
- Business Studies is an important field as learners acquire basic knowledge, skills and attitude towards setting up and running an enterprise.
- The main significance of Business Studies in relation to other disciplines is the transfer of students' knowledge, skills, values and attributes into the formation of businesses that solve community needs.
- Business Studies allows the students to develop capacity to identify opportunities in different subjects and transform them into business.
Revision Exercise
In each of the questions 1 to 5, choose the correct answer among the given alternatives and write its letter in your exercise book.
- Who is the final user of goods and services?
- Distributor
- Retailer
- Manufacturer
- Consumer
- Which one of the following IS NOT considered as a business?
- An organisation which engages in buying and selling of goods
- An enterprise owned by a single person
- The process of recording business transactions
- Any activity aiming at generating profit
- One of the following IS NOT regarded as a consumer need
- Clothing
- Housing
- Holiday
- Water
- Which one among the following IS NOT an input for production?
- Land
- Capital
- Consumer
- Labour
- Which one among these is a component of Business Studies?
- Entrepreneurship
- Accounting
- Business Management
- All of the above
Question 6
Match the items from Group A with those in Group B by writing the letter of a correct option in Group B that corresponds to an item in Group A
| Group A | Group B |
|---|---|
| (i) Transforming inputs to outputs for satisfying human wants and needs | A. Scarcity |
| (ii) Moving goods from where they are produced to where they are consumed | B. Opportunity cost |
| (iii) Selling and buying goods and services | C. Production |
| (iv) Goods which have short shelf life | D. Consumption |
| (v) An organisation engaged in producing or buying and selling goods and services with the aim of earning profit and satisfying customers' needs | E. Producer goods |
| (vi) Goods which have price element | F. Distribution |
| (vii) Goods which are used to make other goods | G. Consumer goods |
| (viii) Shortage in supply | H. Exchange |
| I. Perishable goods | |
| J. Economic goods | |
| K. Business | |
| L. Business Studies | |
| M. Merit goods | |
| N. Demerit goods |
Questions 7-10
- Briefly explain the following terms:
- Goods
- Exchange
- Wants
- Resources
- With examples, explain different business activities carried out in your community.
- Briefly explain the concepts of scarcity and opportunity cost.
- Briefly explain the importance of studying Business Studies in peoples' daily life.
Chapter Two: Entrepreneurship
Introduction
The economic and social challenges facing countries have prompted a need to stimulate entrepreneurial activities. As a result, entrepreneurship has become one of the sources of business, innovation, social change, and investments which stimulate the economic growth of countries. In this chapter, you will learn about the concepts of entrepreneurship and theories of entrepreneurship. The competencies developed will enable you to demonstrate entrepreneurial skills and hence become an entrepreneur.
Think
Any business which you can establish in your community.
The Concept of Entrepreneurship
Activity 2.1
Think and list daily business activities taking place in your area. Then, identify any business that have not yet been established in that area.
The business activities listed in Activity 2.1 are the results of different business opportunities identified in the local area by business persons. Those people have applied entrepreneurial skills to set up their businesses. Thus, the whole process of starting and running a business involves entrepreneurship.
Meaning of Entrepreneurship
Entrepreneurship is the process of taking risks to initiate, organise and control factors of production such as land, labour, and capital to start and manage a business. It involves the process whereby individuals become aware of the existing business opportunities in the community, develop business ideas, and take personal responsibility and initiatives to start and run a business. The business opportunities can either be created or discovered and used by individuals who have unique mental abilities and attitudes for profit making.
Types of Entrepreneurship
Entrepreneurship is classified differently by various scholars. However, in this text book, three types of entrepreneurship are explained. These are business entrepreneurship, intrapreneurship or corporate entrepreneurship, and social entrepreneurship. These types cover the fundamentals of starting a business and focus more on the business itself, rather than on qualities of an entrepreneur. Figure 2.1 presents the three types of entrepreneurship.
Business Entrepreneurship
This is a type of entrepreneurship that begins with the identification of business opportunity, generation of business idea, setting-up of the business entity, and running a business with a purpose of making profit. It involves making investment and taking risk upon any decision made for the successful operation of the organisation. Business entrepreneurship is the most common type of entrepreneurship widely seen in the world. It generally exists in most Small and Medium Enterprises (SMEs). The majority of the small and medium-sized enterprises in Tanzania belong to this kind of entrepreneurship. It contributes to the nation's economy in terms of paying tax, providing jobs and value-added initiatives. Most of the entrepreneurs typically start their businesses using their savings or small loans from banks, friends or family. Local grocery stores, tea shops, plumbers, electricians, barbers, carpenters, and consultants are examples of these businesses.
In this kind of entrepreneurship, people usually want to earn enough profit to feed their families and meet their other basic needs. The business owner usually employs local employees or family members. These small businesses which are mostly owned and operated by individuals are likely to expand into a large-scale business.
Entrepreneurs who are in this type of entrepreneurship have an idea of making changes in the world through finding the missing or weak products in the market and then developing or improving them to fill the gap.
Intrapreneurship
This type of entrepreneurship is a dynamic approach that encourages employees within an organisation to think and act like entrepreneurs. It is a process of behaving entrepreneurially in an established organisation. It involves cultivating a culture where employees are empowered to develop, explore, and execute innovative ideas within the framework of the company or school they work for. It is the entrepreneurial activities that receive organisational sanction and resource commitments for the purpose of innovative results.
Intrapreneurship is important to all kinds of organisations both profit and not profit, public and private. It is valued in today's world, because it calls for constant; improvement, aggressiveness, vision, assess risks, and quickly take action.
Social Entrepreneurship
This type of enterprise is created to provide innovative solutions to social problems such as access to food, money, environmental challenges and education. Such enterprises include garbage collection, recycling, environmental conservation, and community microfinance initiatives. The goal of these enterprises is to make the world better. An entrepreneur sets up an enterprise primarily to produce products that can be profitable while solving some social problems. This type of entrepreneurship is sometimes described as non-profit organisations which work towards social good. Examples of social enterprises include Non-Governmental Organisations (NGOs), and charitable organisations dealing with fresh water wells construction.
The Meaning of an Entrepreneur and Intrapreneur
An entrepreneur is any person who creates and develops a business idea. He or she takes the risk of setting up an enterprise and producing goods or services that satisfy community needs. The entrepreneur engages in the entrepreneurship process through designing, launching, and running an enterprise.
An intrapreneur is an employee who is self-motivated and proactive in the use of his or her entrepreneurial abilities and initiatives to pursue creative and innovative activities within an organisation. Intrapreneurs are assigned to work on a special idea or project. They are given time and freedom to develop the project.
Activity 2.2
Read literature such as inspirational books from various sources including internet on the type of entrepreneurship, then:
- With reasons, classify business activities described in Activity 2.1 according to different types of entrepreneurship; and
- With examples, provide other types of entrepreneurship you have learnt after reviewing other sources.
Exercise 2.1
- Based on experience of the daily activities done in the market such as products sold, purchased and business persons involved, which type of entrepreneurship is mostly practised in your home market and why?
- Assume that you have an idea of opening a grocery store and employing the homeless persons to reduce the number of unemployed people in your area. Describe the type of entrepreneurship you will undertake.
- Didi came across a discussion about who is an entrepreneur on her way home from school. The debaters, knowing Didi is a Form One student, they decided to invite her to give views on the discussion. What remarks should Didi make?
- Hamisi, who works at a local telecommunication company, sees an opportunity to use mobile money for short-term loans as a new service. Does it make him an entrepreneur? Why?
Characteristics of Entrepreneurs
Entrepreneurs have many characteristics that affect their entrepreneurial behaviour and enterprising tendencies. However, for the entrepreneurs to be successful in their endeavour, they need to possess the following characteristics (attributes) as shown in Figure 2.2.
Creativity
This is an ability to produce new and unique ideas. In a competitive business environment, the presence of creativity is vital for the survival of a company as it fosters the generation of fresh concepts and ideas.
Innovativeness
This involves the act of being able to come-up with new or improved ideas (by developing new or improved businesses, products to the existing or new markets, ways of production, distribution and promotion) and commercialise them.
Risk Taking
This shows how entrepreneurs need courage and self-confidence to engage in a particular business without fear of uncertainties. In practice, there is no risk-free business; any business has some degree of risks due to uncertainties.
Curiosity
This is the desire to know or learn through investigation and inquiry. Curiosity is crucial to an entrepreneurial success because it enables an entrepreneur to learn from mistakes, try new things, and explore new business ideas.
Perseverance
This is persistence in doing something despite difficulty or delay in achieving success. Success does not happen or come easily, there will always be some challenges in starting and managing businesses.
Vision
This refers to the designed thoughts for achieving certain goals or objectives. Entrepreneurs must have the ability to form thoughts, concepts or objects by imagination.
Need for Achievement
This is the internal drive to excel and achieve in relation to a set of self-imposed goals. Entrepreneurs with a high need for achievement are more likely to start and sustain their businesses.
Networking
This is the ability to connect with people and identify opportunities for partnership or collaboration. It is one of the greatest personal characteristics entrepreneurs need for success.
Passion
This refers to loving what one is doing. Passion helps entrepreneurs to work hard and handle challenges faced in running a business. It makes entrepreneurs enjoy doing their work.
Self-motivation
This refers to personal initiatives to pursue goals and complete tasks. Entrepreneurs have an internal desire to succeed in a particular business.
Hard Working
This is the use of extra efforts to achieve a certain goal. Entrepreneurs are always ready to do any job in the business and to commit any amount of time to succeed in their ventures.
Commitment
This is an intense dedication to the business or project. Starting and sustaining a business requires dedication and sacrifice. This helps an entrepreneur face and go through business challenges.
Optimism
This is a sense of being positive and maintaining high expectations even in hard and challenging situations. Entrepreneurs aim and hold high expectations about their businesses.
Flexibility
This is the willingness to change, compromise, and adjust to the changing environment. Business factors like technology, price of products, costs of acquiring factors of production, resources, laws and regulations, value for money and purchasing power varies with time.
Proactiveness
This is the ability of acting in advance of a future situation, rather than reacting. Entrepreneurs are self-starters who take the initiative to turn their ideas into reality.
Autonomy
This is an independence or freedom of an entrepreneur preferring to work alone. Entrepreneurs strongly need to do their own things on their own way. They prefer being their own bosses.
Activity 2.3
Visit or use other sources including internet to determine various business people available in your community, then:
- Identify any two entrepreneurs among them;
- Describe the entrepreneurial characteristics observed from the two entrepreneurs;
- Explain with examples, other characteristics that you were not aware of, which are possessed by the two entrepreneurs; and
- Prepare a summary of what you have learnt.
The Relationship Between Invention, Innovation and Creativity
Entrepreneurs are believed to have creative minds which enable them to look for new and creative ways to do things that make a difference in the world. It is very important to understand the relationship between creativity, innovation, and invention. Creativity builds up innovative and inventive ideas. Innovation is a bridge that connects creativity and practical applications. Figure 2.3 shows various innovations the mobile phone devices have undergone since 1982. Invention, on the other hand, is the outcome of the creation of a new idea that has never existed before. For example, the development of the first mobile phone in 1982 as shown in Figure 2.3.
Activity 2.4
Analyse the case study below and use it to answer the questions that follow:
Case Study: LIPA LUKU KADRI UNAYYOTUMA
The Tanzania Electric Supply Company (TANESCO) for Tanzania Mainland and Zanzibar Electricity Corporation (ZECO) for Zanzibar, are the leading providers of electricity in the country. The companies realised that some households and small business customers defaulted on their electricity payments.
As a solution, TANESCO and ZECO decided to introduce new programs referred to as 'Lipa Umeme Kadri Unavyotumia' (LUKU) and Tununze Umeme Kwa Uangalifu Zanzibar (TUKUZA) which allowed customers to purchase electricity accordingly as needed and eased the buying of electricity tokens through mobile money and from various vendors in their communities.
TANESCO and ZECO management reported that at first it was complicated for the customers to use the system, but later on with upgrades it became very efficient.
- With specific examples from the scenario, what is meant by the term creativity, innovation and invention?
- What other examples of creativity, innovation and invention have been done by your community?
Exercise 2.2
- People working in the field of education have special characteristics that enable them to carry out their duties and responsibilities effectively. The same applies to lawyers, doctors, and in other professions. How is this statement correct to an entrepreneur?
- The products people are using today are different from those that were used in the past. They are either modified in size, usage, quality or quantity. What is your comment on these changes?
Entrepreneurial Skills
Entrepreneurial skills are abilities that an individual needs to possess so as to identify and pursue different opportunities in the market. Thus, to become a successful entrepreneur, one needs to develop several types of skills. The following are the skills which an entrepreneur is supposed to have for efficient and effective operation of a business:
Business Management Skills
This encompasses necessary skills for an entrepreneur to manage various aspects of the business. They include financial management, sales and marketing, decision making, and negotiation skills. These skills are further explained as follows:
Financial Management Skills
This is an ability to manage business finances. It is important for an entrepreneur to be able to predict a business cash flow, sales, as well as profit and loss. An entrepreneur may operate an enterprise effectively and safeguard financial investments by developing strong financial management skills.
Sales and Marketing Skills
This skill is crucial as it helps an entrepreneur to properly market products. An entrepreneur is likely to increase sales by offering excellent customer service and putting a marketing strategy in place.
Decision Making Skills
This is an ability that supports the capacity to select an alternative among the possible solutions to problems. This ability enables an entrepreneur to make well-informed judgments after gathering important facts and data, considering all possible outcomes, seeking inputs from others and trusting their own instincts.
Negotiation Skills
This is the entrepreneur's ability to resolve an issue in an acceptable and clear manner with others. An entrepreneur faces issues, discusses them, and bargains to gain advantages for own business. Thus, require negotiation skills in order to acquire business deals such as getting new customers or winning new contracts.
Leadership Skills
Leadership is the ability of an entrepreneur to influence people towards accomplishment of common goals. It involves the use of friendly influences to direct the behaviour of the group members towards achieving certain goals. For an entrepreneur to meet business goals, requires commitment of employees and other stakeholders in business. An entrepreneur, therefore, is expected to influence, convince, inspire, and motivate the business stakeholders to achieve the business objectives. To attain this, it is crucial for an entrepreneur to develop and possess business assertive skills.
Interpersonal and Intrapersonal Skills
Interpersonal refers to communication that happens between two or more individuals while intrapersonal is the communication that happens within an individual. Thus, an entrepreneur uses interpersonal skills to communicate and interact with others and uses intrapersonal skills for self-confidence. For business success, an entrepreneur needs to possess self-discipline, networking, and communication skills as explained:
Self-discipline
This is the capacity to stick with what one believes to be correct despite pressure to change one's mind. Self-discipline is important in increasing inner strength and power to stick to one's own decisions. A successful entrepreneur must possess self-discipline for better time management and direct all efforts toward the objective.
Networking
This is basically about building relationships with people in business. Every interpersonal interaction made by an entrepreneur is potentially an opportunity for business networking. The ideal way to connect with like-minded business stakeholders is through meeting them in person, sharing ideas, and learning about new prospects.
Communication Skills
This is the entrepreneur's ability to communicate and interact with others for the purpose of establishing and maintaining positive relationships in a business environment. An entrepreneur constantly interacts with people including customers, employees, financial institutions, investors, and lawyers among others.
Importance of Entrepreneurship
Entrepreneurship activities are important for individuals, nations, and the world at large. The importance of entrepreneurship includes:
- Creating employment: Entrepreneurial activities create employment opportunities through establishment of enterprises. An entrepreneur creates jobs for oneself as well as for those who will be employed in that business.
- Promotes innovation: Entrepreneurship fosters innovation which enhances the creation of new and improved products, markets, sources of raw materials, production systems, and organisations.
- Fosters economic development: Entrepreneurship fosters economic development through established enterprises which create job opportunities for the people. It reduces the rate of unemployment.
- Promotes social change: Entrepreneurship promotes social change by making entrepreneurs think beyond ordinary ways of doing things; and hence, it brings social changes such as improved lifestyles, generous thoughts, morals, and better financial options in society.
- Encourages investment: Through market research on the availability of various business opportunities, entrepreneurs establish new types of businesses in different economic sectors, which lead to increased investments.
- Stimulates competition: Entrepreneurs often compete for the same market and resources; hence, they ensure production of quality and sufficient quantity of goods and services with affordable prices to win the market.
Activity 2.5
Refer to Activity 2.3 where identification of two entrepreneurs in the community was made, then:
- Describe the entrepreneurial skills observed on each of the identified entrepreneur;
- Explain with examples, other skills that you think they are supposed to acquire;
- Explain the importance of entrepreneurship by referring to the two entrepreneurs you visited; and
- Read other inspirational books and listen speeches on successful entrepreneurs and share what you have learnt.
Exercise 2.3
- Viwandani Secondary School will host an entrepreneurship week to encourage students to learn about entrepreneurship. One of the students from your school will be invited as a guest speaker to talk to students about entrepreneurial skills. If you are the one to be invited, provide a brief summary of the skills you will talk about.
- Upon arriving home from school, you met your neighbours arguing about the value of entrepreneurship. They believed that, entrepreneurship lacks any value. Inform them about the importance of entrepreneurship.
Theories of Entrepreneurship
Entrepreneurial theories serve as a foundation for scientific inquiry, helping entrepreneurs generate knowledge, make sense of complex phenomena and direct them while carrying out various research. The following are some of those theories:
Innovation Theory
This is a dynamic theory of entrepreneurship which was first advocated by Professor Joseph Alois Schumpeter in 1934. The theory regards innovation as a tool of entrepreneurship whereby an innovator who brings new products or services into the economy is given the status of an entrepreneur. The founder views an entrepreneur as the engine of growth that sees the opportunity for introducing new markets, new products, new sources of supply, carrying out new organisation of an industry, and discovering new sources of supply of raw materials.
Need Achievement Theory
According to Professor David McClelland in 1961, there are two characteristics of an entrepreneur which are doing things in a new and better way, and making decisions under uncertainty. McClelland highlighted achievement as the most important factor for entrepreneurs. Individuals with high achievement orientation are not influenced by considerations of money or any other external incentives. However, profit and incentives determine success of entrepreneurs with high achievement orientation.
According to McClelland a person acquires three types of needs as a result of one's life experience. These three needs are:
- Need for achievement: A drive to excel, advance, and grow;
- Need for power: A drive to dominate or influence others and situations, and
- Need for affiliation: A drive for friendly and close interpersonal relationships.
Risk Bearing Theory
This theory postulates risk bearing as the key element of entrepreneurship. John Stuart Mill and Professor Knight viewed risk-bearing as the most important function of entrepreneurs. According to this theory, an entrepreneur earns profits because of undertaking risks. Risk entails potential for loss or failure associated with starting and running a business. The more risk the nature of business is, the greater must be the profit earned by it. For that reason, profit is regarded as a reward of an entrepreneur for assuming risks.
Theory of Status Withdrawal
This is an important theory of entrepreneurial behaviour that was postulated by Everett E. Hagen in 1962. The founder regards the withdrawal of status of respect, as the cause for changes in personality formation. He developed this theory from the case of the Samurai community of Japan which had enjoyed a high status of which it was later deprived. To regain this lost prestige, it became more active and vigorous and gave rise to many entrepreneurs. Thus, creativity of a disadvantaged minority group is the main source of entrepreneurship.
Hagen further states that withdrawal of status respect would give to four possible reactions and create four different personality types:
- Retreat: Entrepreneur who continues to work in society but remains indifferent to his work or status;
- Ritualist: One who works as per the norms in the society with no hope of improvement in the working conditions or his status;
- Reformist: One who is a rebellion and tries to bring in new ways of working and new society; and
- Innovator: An entrepreneur who is creative and tries to achieve his goals set by himself.
Economic Theory of Entrepreneurship
Many economists admitted that when economic conditions are in favour of the business environment the entrepreneurship and economic growth will take place. Papanek and Harris in 1970, as the key advocates of this theory, revealed that economic incentives are the main forces for entrepreneurial activities in any country. They insisted that some of the economic factors which promote entrepreneurship in any country are: bank credit availability; high capital formation; loanable funds at lower rate of interest; high demand for consumer goods and services; productive resources availability; efficient economic policies; communication and transportation facilities.
Importance of Entrepreneurship Theories
The following are some of the importance of entrepreneurship theories:
- Bring greater understanding of entrepreneurship behaviour exhibited by different entrepreneurs;
- Enable one to understand the need for entrepreneurship and the reasons on why some people are more entrepreneurial than others;
- Explain various approaches and perceptions held by entrepreneurs; and
- Show that desire for entrepreneurship is innate as well as environmentally determined.
Exercise 2.4
During the inter-school competition, you met Form One students from Akilinyingi Secondary School arguing on whether entrepreneurs are made or born. Based on the theories of entrepreneurship you learnt, help them understand about entrepreneurship.
Practical Activities
Out of Class Activity
Visit any entrepreneur in the local area, study the business skills he or she possesses. Then assess the following:
- Whether he or she keeps business records or not; and
- How he or she identifies the customers.
Skills Lab Activity
Following the knowledge you have acquired on entrepreneurial skills, which skills do you think local traders are not familiar with?
Project Activity
- Develop a short programme on how you will develop the skills identified in the skills lab session to the local traders.
- Establish a simple business in the business club which applies entrepreneurial skills you have learnt.
Chapter Summary
- Entrepreneurship is the process of taking risk to initiate, organise and control factors of production such as land, labour, and capital to start an income generating activity or business and sustain it.
- Business entrepreneurship, intrapreneurship or corporate entrepreneurship, and social entrepreneurship are the three main types of entrepreneurship.
- Entrepreneurs are people who undertake entrepreneurial activities: start a business, run and sustain its prosperity.
- Entrepreneurs have the characteristics and capabilities to build something practically from nothing; that is, taking risks to create, tolerate, achieve, and build an enterprise.
- Some characteristics of a successful entrepreneur are creativity, innovation, risk taking, curiosity, perseverance, vision, need for achievement, and networking.
- Entrepreneurial skills are abilities that an individual needs to possess so as to identify and pursue different opportunities in the market.
- Entrepreneurship is important in the economy as it creates job opportunities, promotes innovation, fosters economic development, promotes social change, encourages investment and stimulates competition.
- Theories of entrepreneurship are the theories which serve as a foundation for scientific inquiry in order to help entrepreneurs generate knowledge, make sense of complex phenomena in various business research.
- Some of the theories of entrepreneurship are innovation, need for achievement, status withdrawal, risk bearing and economic theory.
Revision Exercise
In each of the questions 1 to 4, choose the correct answer among the given alternatives and write its letter in your exercise book.
- Who starts, creates, and manages a new business?
- Leader
- Manager
- Professional
- Entrepreneur
- One of the following alternatives DOES NOT explain the abilities possessed by an entrepreneur
- Innovation
- Invention
- Risk avoidance
- Motivation
- What makes small scale businesses vital in the country's economy?
- Give an outlet to entrepreneurs
- Provide specialist support to large scale business
- Innovators of new products
- All of the above
- Which informal means do entrepreneurs use to gather information for further improvement in their business?
- Marketing
- Primary research
- Entrepreneurial networking
- Informal debates
Question 5
Match the items from Group A with those in Group B by writing the letter of a correct option in Group B that corresponds to an item in Group A
| Group A | Group B |
|---|---|
| (i) The ability of an entrepreneur to influence people towards accomplishment of goals. | A. Commitment |
| (ii) The intense dedication to the job. | B. Innovativeness |
| (iii) An entrepreneur's ability to search jointly for a mutually acceptable solution to a common problem through discussion and bargaining to gain advantages for own business. | C. Perseverance |
| (iv) The determination that pushes an entrepreneur to continue striving for business excellence all the time. | D. Leadership skills |
| (v) The act of coming up with new ideas and commercialising them. | E. Risk taking |
| (vi) Refers to actively seeking opportunities rather than waiting for them to occur by chance. | F. Negotiation skills |
| (vii) Criteria for the entrepreneurial idea that may be novel or unique. | G. Need for achievement |
| (viii) Internal drive to excel and achieve in relation to a set of self-imposed goals. | H. Networking |
| (ix) Courage and self-confidence of entrepreneurs to engage in a particular business by assessing costs and benefits. | I. Proactiveness |
| (x) Ability to connect with people, identify opportunities and learn from the success and failure of others, meet new clients and promote goods or services. | J. Creativity |
| K. Passion | |
| L. Vision |
Questions 6-10
- Write short notes on the following terms:
- Entrepreneurship
- Entrepreneurial skills
- Briefly explain five entrepreneurship skills possessed by an entrepreneur.
- Creation of employment is one among the contributions of entrepreneurship activities in the Tanzanian economy. Discuss.
- Briefly explain five characteristics possessed by an entrepreneur.
- Explain any two theories of entrepreneurship.
Chapter Three: Sole Proprietorship
Introduction
The businesses around us are either owned by a single person or a group of people. Majority of those businesses (for example, retail stores, beauty salons, barbershops, small restaurants and motor vehicle repair centres) are owned by single persons. In this chapter, you will learn about the concept of sole proprietorship, their formations (start-up), and ways of solving the challenges they face. The competencies developed will enable you to start and operate business as a sole proprietor.
Think
Important things to consider before starting a personal business.
The Concept of Sole Proprietorship
Activity 3.1
Read the scenario and answer the questions that follow.
Juliana's Tailoring Business
Juliana is a talented tailor with a desire of sharing her clothing designs to the world. After being employed for several years in the tailoring industry, she later decided it was time to start her own tailoring business. She began her entrepreneurial journey by setting up a small tailoring shop in her neighborhood as shown in Figure 3.1. The business required a small sum of startup capital. Juliana used her personal savings as capital to start the business. She purchased sewing machines and other supplies for the business. Since she is the only owner of the business, she makes all decisions, retains all profits, and bears all the responsibilities and operational costs generated by the business. This financial independence allows her to make strategic decisions and reinvest in the business for growth.
Juliana went through the necessary legal steps to register her tailoring business. She obtained the required permits and licence to operate business legally. Since Juliana interacts directly with her customers, she builds a strong relationship with them. With her friendly behaviour, she makes the customers feel valued. This promoted a positive word of mouth which leads to customer retention. As the only owner, Juliana enjoys the flexibility in meeting the needs of her customers by developing unique designs. She is now planning to expand the business and to offer jobs to people after generating reasonable profits.
Questions
- What made Juliana start the tailoring business?
- What type of business Juliana started and how does she benefit from it?
- What value does the business add to the community?
The tailoring business established by Juliana in Activity 3.1 is an example of a business owned by a single person. This type of business is referred to as sole proprietorship whereby, the term 'sole' means single, 'proprietorship' means the state of owning a business, and 'proprietor' means the owner of a business. This means that sole proprietorship is a business which is owned, managed, and controlled by one person namely, the sole proprietor. Other examples of sole proprietorships are small shops, salons, butchers, hawkers, restaurants, fruits and food vendors. Figure 3.2 shows a fruits vendor selling various fruits.
Sole proprietorship is the simplest and the most common form of business ownership which has existed for decades. Most people prefer to operate as sole proprietors for a variety of reasons, including establishing a business that makes use of their skills and allowing them to be their own bosses. This makes them flexible in decision making on matters such as when and how many hours to work and what products to make.
Activity 3.2
Based on the scenario on Julianas' tailoring business in Activity 3.1:
- Elaborate on the features of sole proprietorships and how those features are beneficial to future sole proprietors? and
- Create your own scenario about features of sole proprietorship.
Features of a Sole Proprietorship
Some of important features that one needs to understand about sole proprietorships are explained as follows:
Single Owner
Sole proprietorship business is owned and often operated by one person. In some cases, a sole proprietor may hire trusted employees or family members. However, the overall control and decision-making rests with the owner.
Flexibility
Sole proprietorship is the most flexible form of business ownership. The owner can easily change the location, product type, design or increase the variety of products depending on the customers' needs.
No Profit and Loss Sharing
A sole proprietor incurs all the benefits and risks associated with the business. The sole proprietor does not share the profit or loss gained in the business with anyone else.
Unlimited Liability
There is no legal separation between the owner and the business. Assets and liabilities of the business belong to the owner. Thus, in case of loss, the business assets, along with the personal possessions of the sole proprietor, can be used to settle the business debts.
Start-up Capital
In this type of business the capital is often contributed or raised by the owner and is usually small. Mostly, the main sources of capital are from personal savings, funds from family and friends, and loans from microfinance institutions.
Stability
Stability and continuity of the sole proprietorship significantly depend upon the capacity, competence, experience, and life span of the proprietor. If the sole proprietor is competent and committed enough to the business, the business will most likely expand and grow.
Exercise 3.1
- Anita wishes to use her personal funds to open a business, but she is not sure if the funds will be sufficient. Advice Anita on a form of business that requires a small amount of money and explain why.
- Badu owns a business in which he enjoys the profit and takes responsibility in case of loss. Describe the features of the business owned by Badu.
Activity 3.3
Based on Juliana's tailoring business scenario in Activity 3.1 analyse and state whether you would advise her to continue operating as a sole proprietor.
Advantages of a Sole Proprietorship
Advantages
Easy to Form a Business
Sole proprietorship is quick and easy to establish as the decision for set up depends on one person. Moreover, it requires minimal initial capital and adheres to few regulatory restrictions.
Quick Decision Making
A sole proprietor has the final say in all decisions regarding the business operations. When a single person makes decisions for the business there are few unnecessary delays in taking actions. Hence, sole proprietorships can fast track business operations.
Independence in Decision Making
The sole proprietor is free to make decisions independently without the interference of others. For example, a sole proprietor can make any business transactions without seeking approval from anyone else.
Easy to Supervise
It is easy to supervise a sole proprietorship because owners usually have close and direct contact with customers and employees. They undertake relatively few transactions and have full control over their business.
Small Start-up Capital
Sole proprietorships may require a small amount of capital for start-up. For example, someone setting up a vitumbua business only requires buying cooking ingredients, a cooking pot and a cooker. The size of capital attracts people to start this form of business.
Direct Relations with Customers
Since most sole proprietors have close contact with their customers, they are able to serve and satisfy customers' needs. They can receive orders from customers and learn their taste and preferences. Sole proprietors can provide customers personal attention and handle their complaints and thus, they can easily make efforts to retain them.
Enjoys All the Business Profit
Sole proprietors enjoy all the benefits associated with the business. They do not share the profit with anybody else. This means sole proprietors keep all the business profit.
Disadvantages of a Sole Proprietorship
Disadvantages
Unlimited Liability
If the business suffers loss, the personal property of the sole proprietor may be sold to meet the liability if the business assets are not enough to clear it. This may affect the success of the business because it is not legally separated from the owner.
Limited Skills
The business owner may not have all the necessary skills on financing, marketing, purchasing, producing, and supervising the business operations. This limits the sole proprietor to perform all duties and functions efficiently; hence it may hinder the growth of the business. They, therefore, need to spend more on hiring those with the appropriate skills.
Uncertainty in Continuity
The life span of a sole proprietorship is uncertain and difficult to predict. The sole proprietorship may be closed down or sold when the proprietor faces challenges that may affect supervision of the business. Such challenges may be death, sickness or imprisonment. In such cases, the business may easily come to an end.
Working Long Hours
As the sole owner and operator of the business, the sole proprietor is responsible for all aspects of its operation. This often leads to a significant time commitment as the proprietor takes on various roles including management, marketing, administration, and more. Thus, sole proprietors may find themselves working extended hours to fulfil these diverse roles.
High Cost of Production
Being a small business with small scale production, sole proprietors may not reap the benefit of economies of large scale production. This may result in a high cost of production. Also, sole proprietors may lack the financial capacity to access bulky discounts on supplies, machinery or raw materials.
Difficult to Expand the Business
Although the sole proprietor gains all the business profits, it is often difficult to raise funds to expand their business due to small startup capital and high competition from the large enterprises available in the same industry.
Exercise 3.2
"Operating a business as a sole proprietor has benefits as well as drawbacks". Discuss by providing relevant examples where possible.
Formation of a Sole Proprietorship
In starting up a sole proprietorship there are few and usually not complicated legal formalities to be adhered to. The only requirement to the sole proprietor is to secure the relevant business licence and permit from the local council depending on the activities to be undertaken. Figure 3.3 shows examples of business licences used in Tanzania Mainland and Zanzibar. It is also important for the sole proprietor to register the business name with Business Registration and Licensing Agency (BRELA) for Tanzania Mainland and Zanzibar Business and Property Registration Agency (ZBPRA) for Zanzibar. Thus, the formation of a sole proprietorship is the simplest of all forms of business units.
Activity 3.4
Visit various sole proprietorship businesses around your community and speak with the owners. Then, depending on the nature of the business, identify the documents which are needed in running a sole proprietorship business.
Ways of Solving Challenges Facing Sole Proprietorship
The disadvantages of sole proprietorship explained in this chapter are essentially major challenges that sole proprietors face when running their businesses. However, for the smooth operation of the sole proprietorship, those challenges need to be solved. The following are the suggested ways of solving the challenges encountered by sole proprietors:
Insure the Business
To solve the challenge of unlimited liability that may result from risks such as fire, it is important for a sole proprietor to insure the business. This involves the proprietor paying a premium to an insurance company for coverage against potential risks and losses related to business activities.
Contractual Hiring
The business owner may hire some experts for help in various business issues when a need arise. Examples of some issues which need hiring of experts are financial report preparations and business registration processing.
Succession Planning
Most of the sole proprietorships collapse because of absence of succession plans. If sole proprietors wish the business to continue and succeed even in their absence they should plan for the succession of the business. For example, transferring ownership of the business to the next generation while they are still exchange of the business.
Delegation of Some Roles
Sole proprietors may delegate some of their roles to employees in order to overcome the habit of overworking themselves. By doing so, they will be in a good position of fostering well-being and also dedicate their efforts in other aspects of business operation.
Expansion of the Business
To enjoy the economies of scale, a sole proprietor needs to expand its business. The fund for expanding the business may be obtained through microfinancing. Once the business has expanded, the running cost will be low; and hence, the business will generate more profit than how it was before.
Practical Activities
Out of Class Activity
During school holiday, try to sell a product or offer a service to a family, friends or a community. Reflect on your experience on the challenges faced as well as the successful factors for your business.
- Where were you successful?
- What were the challenges?
- If you were to run the same business in the future, what would you do differently to be successful?
Skills Lab Activity
Using the knowledge you have acquired on sole proprietorship, discuss the challenges faced by sole proprietors in your school community.
Project Activity
Based on the challenges faced by sole proprietorships in your local community, choose any business which you can establish and propose creative ways or solutions to address the challenges you might encounter.
Chapter Summary
- Sole proprietorship is a kind of business which is owned, managed and controlled by one person known as a sole proprietor.
- Sole proprietorship is the simplest form of business which requires only the business licence and permit from the local council to operate. Also, the sole proprietors are supposed to register their business names with the respective organs.
- Sole proprietorship is flexible, requires small start-up capital, and has unlimited liability. The profit and loss of the business is incurred by the owner.
- The sole proprietorship is easy to form and supervise; it facilitates quick decision making; and the owner usually keeps direct relationship with customers.
- Some of the disadvantages or challenges faced by sole proprietorships are unlimited liability, owners' limited skills and long working hours which may make them tired and unproductive, and uncertainty in continuity of the business.
- To solve some of the challenges faced by the sole proprietorship it is important to insure the business, making the contractual hiring, adopting succession planning, and delegating some of the roles.
Revision Exercise
In questions 1 to 5, choose the correct answer among the given alternatives and write its letter in your exercise book.
- Debora owns a soft drinks business. What form of business unit is this?
- Sole proprietorship
- Company
- Limited liability partnership
- Partnership
- The following are the characteristics of sole proprietorship EXCEPT:
- Controlled by the owner
- High start-up capital
- Owner takes all the risks
- The business assets are not legally separated from the owner's assets
- What is a key advantage of a sole proprietorship?
- Easy to form a business
- Limited liability of the owner
- Separate legal entity status
- Limited skills
- In a sole proprietorship context, what does unlimited liability mean?
- The proprietor can invest unlimited amount of money in the business
- The business has unlimited potential for expansion
- The proprietor's personal assets are at risk in case the business incurs liabilities
- The proprietor is responsible for registering the business
- Which among of the following businesses is a form of sole proprietorship?
- Coffee shop owned by Asha, Mary and Adam
- Mobile company owned by Asha and her friends
- Butcher owned by Adam
- Salon owned by a Tanzanian and an American
Question 6
Match the items from Group A with those in Group B by writing the letter of a correct option in Group B that corresponds to an item in Group A
| Group A | Group B |
|---|---|
| (i) It is one of the features of sole proprietorships | A. Sole proprietor |
| (ii) The life span of sole proprietorship is not predictable as it may be closed down or sold as a result of various challenges | B. Business developer |
| (iii) Is a person who owns a business, keeps all the profits after tax has been paid and is liable for any loss which may be encountered by the business | C. Uncertainty in continuity |
| (iv) It only requires a business licence and other permits, just like any other form of business | D. Easy to set up |
| (v) Preparing some of the family members to take over the business operations in absence of the sole proprietor | E. Sole proprietorships start up |
| (vi) It is one of sole proprietors' limits which affects the operation of the business | F. Managerial skills |
| (vii) To solve the challenge of unlimited liability that may result from various risks such as fire | G. Succession plan |
| (viii) In case of any loss both business assets and personal assets of a sole proprietor are used for clearance | H. Implementation plan |
| I. Unlimited liability | |
| J. Limited skills | |
| K. Insure the business | |
| L. Reassure the business |
Questions 7-9
- Describe the basic features of a sole proprietorship.
- Profit generation is one of the sole proprietorship's motivations, how important are the sole proprietorships to the world of business?
- Sole proprietorships like any other form of business face challenges in its operation. Explain those challenges and suggest how they can be solved.
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