HEXCO · Polytechnic · NC Accountancy

Entrepreneurship Skills Development: Formulating a Business

Learning Outcome 1 of 3

Free HEXCO NC Accountancy notes on Formulating a Business, learning outcome 1 of 3 in Entrepreneurship Skills Development. Formulating, registering and operating a business. Semester 2, module 402/22/M01.

Here we learn what an entrepreneur is, the concepts of entrepreneurship and forms of business ownership, how to write a business plan, research the market, compile a financial plan, position products, plan survival strategies, analyse the business environment and mobilise finance.

Every successful business begins as an idea, but turning that idea into a working business needs careful planning, research and finance, which together make up the process of formulating a business.

1.1 Formulating a Business Idea

A business idea is a product or service that meets a need customers are willing to pay for.

The person who spots the opportunity and takes the risk of starting the business is the entrepreneur.

The Entrepreneur

An entrepreneur is a person who identifies a business opportunity, gathers the resources needed, and takes the risk of starting and running a business in order to make a profit.

Successful entrepreneurs are usually creative, self-confident, hardworking, willing to take calculated risks, persistent in the face of setbacks, and good at spotting opportunities that others miss.

Concepts of Entrepreneurship

Entrepreneurship is the process of creating a new business, or new value, by bringing together resources to take advantage of an opportunity. Related concepts include innovation (introducing new or improved products and methods), creativity (generating new ideas), risk-taking (accepting the chance of loss in return for possible profit), intrapreneurship (acting entrepreneurially inside an existing organisation), social entrepreneurship (businesses that aim to solve social problems), and self-employment (working for oneself rather than an employer).

Forms of Business Ownership

The table compares the main forms of business ownership available to an entrepreneur in Zimbabwe.

Form	Main features
Sole trader Owned by one person.	Easy and cheap to start, the owner keeps all profit and makes all decisions, but has unlimited liability and limited capital.
Partnership Owned by two or more partners.	More capital and shared skills, but unlimited liability in an ordinary partnership and possible disagreements.
Private business corporation A simple incorporated business for a small number of members.	A separate legal entity with limited liability, suited to small businesses, with simpler requirements than a company.
Private limited company Owned by shareholders, shown as (Private) Limited.	A separate legal entity, shareholders have limited liability, shares cannot be offered to the public, and registration is required.
Public limited company Shares may be offered to the public.	Can raise large capital, often listed on a stock exchange, but must meet strict disclosure and governance rules.
Co-operative Owned and controlled by its members.	Members share benefits, usually one member one vote, common in farming and savings groups.

1.2 Producing a Business Plan

A business plan is a written document that describes a business, its objectives, and how it will achieve them, including its marketing, operations and finances.

It guides the entrepreneur and is usually required by banks and investors before they provide funds.

Sections of a Business Plan

A business plan normally contains the sections below. The example used is Chiedza's Bakery, a small bakery planned for Chitungwiza.

Executive summary

A one-page overview of the whole plan, written last but placed first: the business, its products, market, management, and the finance needed. For example, "Chiedza's Bakery will bake and sell fresh bread and confectionery in Chitungwiza, needing $15,000 to start, and expects to break even within eight months."

Description of the business

The name, location, form of ownership, vision, mission and objectives of the business, and what makes it different.

Organisational structure

The owners and key staff, their roles and experience, often shown in an organisation chart.

Products and services

What will be sold, its features and benefits, and how it meets customers' needs.

Market analysis

The target market, its size and trends, customer needs and the competitors, based on research.

Marketing strategies

How the business will price, promote and distribute its products to reach customers, using the marketing mix.

Financial plan

Start-up costs, sources of finance, sales and profit forecasts, cash flow forecast and a projected statement of financial position.

1.3 Researching the Business Market

Before investing money, an entrepreneur must understand who will buy, how much they will buy, and who else is selling.

Market research provides this information.

The Business Market

A business market is the group of actual and potential customers for a product or service, together with the competitors serving them. Market research is the gathering and analysis of information about that market, through questionnaires, interviews, observation and secondary sources such as reports and the internet.

Market Trends

Market trends are the directions in which a market is moving, such as rising demand for healthy foods, the growth of mobile money payments, or customers buying more online. Studying trends helps the entrepreneur anticipate demand, adapt products and avoid declining markets.

Market Segmentation

Market segmentation is dividing a market into groups of customers with similar needs or characteristics, so that products and marketing can be targeted. The main bases are geographic (location, such as urban or rural), demographic (age, income, gender, occupation), psychographic (lifestyle, values, interests) and behavioural (buying habits, usage rate, loyalty). For example, the bakery may target commuters buying breakfast and households buying daily bread.

Competitor Analysis

Competitor analysis identifies the businesses offering the same or similar products, and studies their prices, product quality, location, strengths and weaknesses, and market share. It helps the entrepreneur find a gap in the market and a way to be different, such as fresher products, better service or longer opening hours.

1.4 Compiling a Financial Plan

The financial plan turns the business idea into figures, showing whether it can be profitable and how much money is needed.

It includes plans for staff, forecasts of profit and cash, and a projected balance sheet.

Planning for Staffing

The entrepreneur decides how many employees are needed, their roles and skills, when they will be employed, and their wages and benefits, including statutory contributions such as NSSA. Staff costs are often one of the largest expenses, so they must be planned in line with expected sales. For example, the bakery plans two bakers at $250 a month each and one sales assistant at $200 a month.

Forecast Profit and Loss

A forecast statement of profit or loss estimates sales, costs and profit for a future period, usually the first year, month by month or in total.

Cash Flow Analysis

A cash flow forecast estimates the cash coming in and going out each month, to show whether the business will have enough cash to pay its bills. A business can be profitable yet fail because it runs out of cash, for example if it must pay for equipment before sales begin. The forecast shows when extra finance, such as an overdraft, is needed.

Projected Balance Sheet

A projected balance sheet (statement of financial position) shows the expected assets, liabilities and capital at the end of the planning period. It shows investors and lenders what the business will own and owe, and whether the owner's capital will grow.

1.5 Positioning Products and Services

Customers compare products in their minds, placing each one in relation to its competitors.

Positioning is the deliberate effort to win a clear and attractive place in the customer's mind.

Meaning of Positioning

Positioning is the process of creating a distinct image of a product or service in the minds of target customers, compared with competing products. For example, a bakery may position itself as 'the freshest bread in town, baked every morning'.

Types of Positioning

Products can be positioned by price and value (the cheapest, or best value for money), by quality (premium, top quality), by product features or benefits (healthy, long-lasting, convenient), by use or application (for school lunches or weddings), by customer group (for students or for families), and against competitors (better than or different from a named rival).

Importance of Positioning

Clear positioning differentiates the business from competitors, attracts the right customers, guides pricing and promotion decisions, builds brand loyalty, and allows the business to charge prices that match the value customers see.

1.6 Survival Strategies

Many new businesses fail within their first few years because of competition, cash problems or changes in the economy.

Survival strategies are plans to keep the business going through difficult times.

Meaning and Types of Survival Strategies

Survival strategies are actions a business takes to continue operating when faced with threats such as falling sales, rising costs or economic crisis. They include cost cutting (reducing waste and unnecessary expenses), diversification (adding new products or markets), niche focusing (concentrating on a small, loyal market), innovation (improving products or methods), strategic alliances and partnerships with other businesses, improving cash management, such as collecting debts faster, and retrenchment (scaling down operations).

Importance of Survival

Survival keeps the owner's investment safe, protects jobs, maintains relationships with customers and suppliers, and gives the business time to grow when conditions improve. In an economy with frequent changes in prices and currencies, survival planning is especially important for small businesses.

1.7 Establishing the Business Environment

A business must understand its own strengths and weaknesses and the opportunities and threats around it.

It must then set prices, position its products and promote them in ways that suit its environment.

SWOT Analysis

A SWOT analysis examines the business's internal strengths and weaknesses and its external opportunities and threats. The table shows a SWOT analysis for Chiedza's Bakery.

Internal	External
Strengths Skilled baker, fresh products daily, good location near a bus terminus.	Opportunities Growing population, demand for affordable snacks, possible supply contracts with schools.
Weaknesses Limited capital, small oven capacity, no brand recognition yet.	Threats Large established bakeries, power cuts, rising prices of flour and fuel.

Pricing and Positioning Products

Prices are set by considering costs, competitors' prices, what customers are willing to pay, and the positioning chosen. A business positioned on quality can charge more, while one positioned on value must keep prices low by controlling costs.

Viable Promotions

Viable promotions are promotional activities that are affordable and effective for the business. For a small business, these include social media posts and WhatsApp status adverts, flyers, signboards, free samples, loyalty cards, special offers and word of mouth from satisfied customers. The cost of each promotion should be compared with the extra sales it brings.

1.8 Mobilising Financial Resources

Even the best idea needs money to start, so the entrepreneur must find suitable sources of finance.

The finance raised must balance with how it is used, as shown in the opening statement of financial position.

Sources of Start-up Finance

Revenue and funding to get started can come from personal savings, family and friends, bank loans and overdrafts, microfinance institutions, government and development funds for small businesses and youths, trade credit from suppliers, hire purchase or leasing of equipment, partners or investors who contribute capital, grants from NGOs, and savings groups such as rotating savings clubs. Once trading, the main source of funds is revenue from sales, and profits reinvested in the business.

Balancing the Financial Statement

The opening statement of financial position must balance: the total sources of finance (capital and liabilities) must equal the total uses (assets). Chiedza's Bakery raises $15,000 from savings of $10,000 and a loan of $5,000, and uses it for equipment and stock, keeping the rest as cash.