PRACTICE OF ENTREPRENEURSHIPEED 216

TABLE OF CONTENTS

Topic 1: Know Technique for Generating Business Ideas1. Define Business Opportunity2. State Process of Exploiting Opportunity3. Identify Business Opportunity using SWOT Analysis4. Process of conducting Market Survey5. Process of Business Idea Generation

Topic 2: Know How to Evaluate Business Idea for Enterprise Development

1. Concept of Business Plan2. Process of Preparing Preliminary Project Proposal3. Process of Preparing Detailed Business Plan4. Model Business Plan on a Selected Venture

Topic 3: Know Methods of Product/Service Selection1. 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

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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).

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

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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 opportunities3. 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.

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

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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.

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.

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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 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

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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, 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.

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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.

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.

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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.

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

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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.

Exercises1. 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.

Exercisesi. 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 thenext 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 ProposalThis 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.

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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.

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

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programmes, improving Malta’s ranking, strengthening Malta’s reputation in a particular area, etc.)

9. Other IssuesIf applicable, briefly identify any gender, ethical or legal issues that may be connected with the proposed project.

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.

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EXERCISESI. 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.

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………………………………………………………

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2. Project consultants ……………………………………………………3. Table of contents: Page

a) Executive Summaryb) The Reportc) Project Backgroundd) Objective of studye) Project description and f) Loan advancementg) Promoterh) 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

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New technologies Contingency plans.

Schedules: 12 months projected sales 12 months projected purchase Fixed Assets and depreciation schedule Profitability index.

Exercises1. 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

INTRODUCTIONThe 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. 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:

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;11. Explain effects of government policy and regulations on the

selected product;

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12. Identify legal aspects of business in product selection.

CONTENT

1. Define Product /Service;

Meaning of product/service1. 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

3. Explain Product Selection Criteria:

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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).

The parameters we consider in the funneling process are:

- Compliance to Expressed Customer Needs/Claims (Y/N)

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- 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. Source of supply of machinery and equipment (indicating

whether local or foreign) and including costs and terms.

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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 Training needs assessment and training schedules Proposal on remuneration including fringe benefits

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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. These conditions include hypotheses (predictions), which are internal

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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.

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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.

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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?

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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.

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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 Desirability of location in terms of distance from the source of

raw materials, market and other factors

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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 Technical and managerial staff requirement Training needs assessment and training schedules Proposal remuneration including fringe benefits

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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. 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)

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 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• Health• General Well-Being (Diseases, Physical Safety, Population

Density, Etc)

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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 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.

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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 RequirementsNAFDAC 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.

RegistrationIn January 2003, NAFDAC increased its fees for registration, vetting and documentation for all imports. The fee for registering each product was

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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.

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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. 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.

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.

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PART AThis 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 BPart 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;

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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.

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There are two types of company formation in Nigeria; private companies and public companies.

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 undertaken2) The type of goods/services to be produced and offered to the

public3) The environment of the business4) The name should comply with the necessary requirements of the

CAC5) The name has to be attractive/ appealing6) The name should be easy to relate with.

Exercise;Students should brainstorm to come up with additional factors.

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5. Explain the Procedure and Requirements For Registration of A Business Name;

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.

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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.

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 32) Filing the documents with the CAC3) Payment of all the necessary fees4) 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 Names1) To avoid conflicting names2) For easy identification3) For purpose of product classification/identification4) 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.

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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:

S/N Organization Certificate/Licence/Permit1. National Agency for Food and Drugs

Administration and Control (NAFDAC)Foods and Drugs

2. Nigerian Police Fire Arms3. Export Processing Zones (EPZ) Finance4. Nigerian Investment Promotion

Commission (NIPC)Tax Concessions/Pioneer Status

5. Nigerian Immigration Service Expatriate Quota6. Nigerian Institute for Standards (NIS)/

Standard Organization of Nigerian (SON)

Certificate for Standards (Quality Control)

7. Nigerian Export Promotion Council (NEPC)

Certification relating to exports

8. NACCIMA/Ministry of Commerce Certificate of Origin9. National Office for Technology

Acquisition and Protection (NOTAP)Intellectual Property

10. Ministry of Environment Location Permit11. Federal Inland Revenue Services

(FIRS) and Board of Internal Revenue (BIR)

Tax /Vat Certificates

12. State/Federal High Court Stamp Duty13. National Copy Right Commission

(NCRC)Patents, Trade Marks, Designs, Copyright, etc

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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. 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:

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 manager1. 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 collectively to include all the individuals in that group.

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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

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shareholders 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

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organization that facilitates the achievement of the organization’ objectives.

The organizational structure can be horizontal or vertical; it can also be formal or informal.

Typical Example Of Management Structure:1) Vertical Structure:

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)

Chairman Board/of Directors

General Manager/CEO

Top Management Team

Middle/Lowest Level Management

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GM

Marketing Production Finance

Marketing Engineering Finance Research Administration Planning

b) Departmentalization by territory (Geographical structure)

GM

Western Northern Easter Southern Region Region Region Region

c) Departmentalization by customers (Customer structure)

GM

Customer Industrial Military Sales Sales

d) Departmentalization by Process (Process structure)

GM

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Welding Punch Drilling Process

e) Departmentalization by Product:

GM

Baby Toiletries Beverages Hot Foods Drink

f) Matrix structureg) 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.

ExerciseStudents should practice drawing different organizational charts from the simple to the most complex. They should decide which is suitable for small enterprise.

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5. Explain the Techniques and Skills of: Planning; Organizing; Staffing; Leading; and Controlling.

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.

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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 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, long-term 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.

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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. 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 MARKETINGWhoever 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

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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 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 marketDistribution: 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;

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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, 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 controlTo 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.

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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.

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

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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. - 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.

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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 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.

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• 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.

The production process is a complex, adaptive, on-going social system. The inter-relationships between labour, capital and the socio-organisational 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:

External (not controllable). Internal (controllable).

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

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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 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.

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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

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

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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 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

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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).

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.

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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 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

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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 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.

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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:

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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

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money in a business enterprise, therefore, can be compared to the function of blood circulating in the human body.

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

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business. This can be done by planning or budgeting the cash projects and disbursement of business operations.

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

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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:

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 FundsBusiness activities should be separated from personal activities of the owners.

Deposit of CashDeposit your cash collection in the bank intact and monitor the deposits made.

Impress Petty Cash FundEstablish 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 AccountA very simple but effective protection of cash is done through the reconciling of bank accounts by a qualified person other than the

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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.

Daily Cash ReportA 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 7Sample Form

Name of the BusinessBank Reconciliation Statement

Date

Balance shown per bank statement, Date xxxAdd: deposits in transit xxx

reconciling items (adjustments) xxxxxxSub-total xxx

Deduct: outstanding chequesCheque no. xxxReconciling items (adjustments) xxx xxx

Adjusted balance per bank statement xxx===

Balance shown per cheque book, Date xxxAdd: Interest income xxx

Reconciling items (adjustments) xxx xxxSub-total xxx

Deduct: Bank service charges xxx Reconciling items (adjustments) xxx xxx

Adjusted cheque book balance, Date xxx===

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Figure 8Sample Form

Name of the BusinessDaily Cash Report

Date

Opening cash balance, Date xxxAdd: Receipts

Cash sales xxx Collection of accounts receivable xxx Other receipts xxx xxx

Total cash available xxx

Less: Disbursements Cash purchases xxx Payments of accounts payable xxx Payroll xxx Other payments xxx xxx

Closing cash balance, Date 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 ACCOUNTSSteps Involved in Book-Keeping to the Final AccountsThe 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;

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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.

SPECIMEN IINCOME STATEMENT OF AN ENTERPRISE FOR THE YEAR ENDED

31ST DECEMBER, 201XN N

Sales (Revenue) xxxSales Return

(x) Less cost of sales xxxOpening inventory xxPurchases xxCarriage inwards (x)Purchases returns (x)

(xx)Gross profit xxxOther income:Discount received

xRent income

xTotal income

xxxLess: Expenses:Discount allowed xSalaries xElectricity xTelephone & internet xInsurance xRates xBad debts xAdvertisements xMotor vehicle expenses xDepreciation x (xx)Net profit xx

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SPECIMEN IISTATEMENT OF FINANCIAL POSITION OF ABC ENTERPRISE AS

AT 31ST DECEMBER, 201X

Cost Accumulated Net Book

Depreciationn ValueASSETS N N NNon-Current AssetsFreehold Property xx - xxMotor Vehicle xxx x xxOffice Equipment xxx x xx

xxx x xxCurrent Assets:Inventory xTrade receivables xxLess: Provision for doubtful debt(x) xAccrued rental income xCash at bank xPrepaid insurance xPrepaid rates x

xxTotal Assets

xxxOwner’s Equity and Liabilities:Owner’s equity at 1st January, 201x xxNet profit for the year xxTotal equity at 31st December, 201x

xxxCurrent Liabilities:Trade payables xAccrued salaries x xEquity and liabilities xxx

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EXAMPLE I – SIMPLE FINAL ACCOUNTS OF A SOLE TRADERThe following statement of financial position was extracted from the ledgers of Boom Enterprises as at 31st December, 20x6.

DR CRN N

Purchases/Sales 1,200,000 4,900,000Returns 20,000 10,000Discounts 50,000 90,000Trade Receivables/Payables 1,150,000 1,200,000Inventory at 1/1/20x6 950,000Carriage inwards 150,000Carriage outwards 50,000Long Term Debt 200,000Drawings 150,000Land and Building at Cost 1,500,000Rents 150,000Motor Vehicle at Cost 800,000Advertisement 20,000Provision for Doubtful Debt 25,000Salaries & Wages 900,000Bade Debts 25,000Cash in Hand 250,000Cash at Bank 300,000Equipment MBV 1,000,000Accumulated Depreciation of Equipment 300,000Equity as at 1st January, 20x6 2,340,000

8,865,000 8,865,000

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Additional Information1. Inventory at close is N350,0002. Depreciation for equipment during the period is

N100,0003. Depreciation of 5% is charged for motor vehicle and Land &

Building4. 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, 20x6ii) Statement of financial position as at 31st December, 20x6

Solution1) INCOME STATEMENT OF BOOM ENTERPRISES FOR THE

YEAR ENDED 31ST DECEMBER, 20X6

N NSales/Revenue 4,900,000Less Sales Return (20,000)Cost of Sales 4,880,000Opening inventory 950,000Add Purchases 1,200,000

2,150,000Add Carriage Inwards 150,000Less Purchases Returns (10,000)Less Closing Stock (350,000) (1,940,000)Gross Profit 2,940,000Add Discount Received 90,000

3,030,000Less ExpensesDiscount Allowed 50,000Carriage outwards 50,000Rent 150,000Advertisement 20,000Salaries & Wages 900,000Bad Debts 25,000Depreciation of Equipment 100,000Depreciation for motor, Land & Building 115,000Increase in Provision Doubtful Debt

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(10% x 1,150,00 – 25,000) 90,000 (1,500,00)Net Profit 1,530,000

2) STATEMENT OF FINANCIAL POSITION OF BOOM ENTERPRISE AS AT 31ST DECEMBER, 20X6

Cost Accumulated Net Book Depreciation

ValueAssets N N NNon-Current Assets:Land & Building 1,500,000 75,000 1,425,000Motor Vehicle 800,000 40,000 760,000Equipment 1,400,000 400,000 1,000,000

3,300,000 515,000 3,185,000Current Assets:Inventory 350,000Trade Receivables 1,150,000Less: Provision for Doubtful Debt (115,000) 1,035,000Cash at Bank 300,000Cash in Hand 250,000 1,935,000Total Assets

5,120,000Owner’s Equity and LiabilitiesEquity 2,340,000Net Profit for the year 1,530,000Less: Drawings (150,000) 3,720,000

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Non-Current Liability:Long Term Debt 200,000Current Liability:Trade Payable 1,200,000

5,120,000

G.PRINCIPLES OF AUDITINGAnnual AuditAn 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

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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.

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Nature and Purpose of AuditingNature of an AuditThe 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 AuditThe 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 AuditAdvantagesBy 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.

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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 AuditThe 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

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H.PRINCIPLES OF TAXATION1. 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 certaintyiii) Convenience: The time and manner of payment must be

convenient to the tax payeriv) 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 excepta) Persons employed in the Nigerian Army, Navy, Air Force and the

Nigerian Police.b) Officers of the Nigerian foreign servicec) Residents of the federald) Persons resident outside Nigeria but who derive income or profit

from Nigeria

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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 capitalii) Interest on loans for developing an owner occupied residential

houseiii) Rentiv) Any expense incurred for the repair of premises, plant,

machinery

v) Bad debts incurredvi) Contribution to a pension fundvii) Expenses for research and levy paid to the national science and

technology fund.7. Items Specifically Disallowed as Deductible i) Domestic or private expensesii) Capital withdrawn from the businessiii) Any losses recoverable under an insurance on contract of

indemnityiv) Rent or cost of repairs of premises or part not used for producing

incomev) Taxes on income or profits levied in Nigeria or elsewhere vi) Any payment to a pension and provident fund or scheme except

as permitted by the joint Tax Board vii) Depreciation of fixed assetsviii) Any appropriation of profitix) Any expenses incurred within or outside Nigeria as management

fees.8. Types of Personal Incomei) 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.

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ii) Unearned Income: This is income from sources such as rent, dividend and interest less related expenses.

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

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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 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

industriesin Nigeria

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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 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)

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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 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

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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)

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.

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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 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.

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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 mannerIts 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.

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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.

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)

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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 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

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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. 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;

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 Materials

Product/Possible uses Processing Equipment Required

Possible Markets for Products

1. Maize - corn flour, corn flakes, animal feed, baby food, starch and derivatives, pharmaceuticals, confectionery- Alcohol- adhesives, industrial chemicals- corn oil- particle board manufacturing

- Milling plant with dehuster, grinder, sifter- distilling equipment, fermentation tanks- chemical extractors, concentratorsoil extraction plantchaff compressor and compactor

- local and foreign food and drug manufacturers- local and foreign distillers- paper and allied products manufacturers- furniture makers

2. Rice - Breakfast cereals, animal feeds, baby foods, confectionery, flour mills- malting and brewing- parboiled rice

- Milling plant with dehuster, grinder, sifter- Malt production plant, fermentation tanks

- fond and drug manufacturers- local and foreign distillers- food packaging and retailing

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-particle board manufacturing

- Boilers , washers, driers- Chaff compressor and compactor

companies- furniture makers

3. Cow pea - livestock feeds- Thickener in baby foods- domestic consumption as food

- bean flour mills, dehusters, sifters,etc

- livestock farmers, private individuals- local and foreign baby food and other manufacturers- individual and households

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

- local and foreign baby food and other food manufacturers, animal feed mill- domestic consumers, food and drug manufacturers

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

- pharmaceutical companies, vegetable oil manufacturers- local and foreign baby food and other food manufacturers- pharmaceutical companies- farmers- food processing plants.

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

- agro-allied industry- domestic consumption- local garri manufacturers- chemical manufacturers.

7. Cocoa - cocoa butter- wine and beverages- cocoa powder/ash- confectionery- livestock feeds- suppository- detergents

- cocoa mill, grinder, steamer, dryer- distilling units (grinder, steamer, dryer)- cocoa butter manufacturing plant

- cosmetics manufacturers- food and drug manufacturers- bakeries

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8. Kolanut - beverages- stimulants- wines- dyes- soft drink concentrates

distilling units (grinder, steamer, dryer)

- export market for products- local beverage manufacturers- domestic consumers

9. Coconut - edible oil- cosmetics, soap- furniture and fibre units- confectionery- animal feeds- vinegar- decorations- charcoal

- oil extraction units- crushers,- blender,- furniture making equipment- charcoal chamber

- export market for products- local pharmaceutical and confectionery industries- domestic consumption

10. Oil Palm(Fruit and Nut)

- edible oil- margarine- substitutes for coco butter- confectionery- coffee whitener- palm wine- fertilisers- soap/detergent- cosmetics- yeast

- oil mill- hammer mill- crushers- oil extractors,- boilers- pulp compactors- drums, moulds,- mixer

local and international pharmaceutical, cosmetics and confectionery manufacturing industries, furniture makers, distillers, domestic consumers

11. Yam/cocoyam

- starch and its derivatives- baby foods- composite flour- chips

- boiler- grinder- dryer

domestic consumption, flour millers, food and drug manufacturers.

12. Citrus - orange juice- wine- essential oils- aromatic- jellies- marmalade- flouring- syrups

- juice/oil extractors- distilling units

local and international beverage manufacturers, pharmaceutical companies, domestic consumers, confectioners.

13. Mango, Pineapple, Pawpaw, Guava

- medicinal extracts- edible fresh and juice- concentrates- jellies- juice- flavouring- nectar- syrup- jam- wine

- grinder/extractor- crusher, mixer, packaging- grinder, juice/pulp, extractor- crusher, mixer- distilling units, packaging

-pharmaceuticals- export markets- local and international confectioners, beverage manufacturers, domestic consumers.

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14. Sugar cane - sweetener- confectionery- beverages- paper- leather tanning- pharmaceuticals

- mixer, extractor, crushers- boiler, distilling units, packaging

- local and international market

15. Timber clipboard and furniture sawmilling and furniture equipment

same

16. Bamboo pulp and paper dryer, paper mill same17. Cashew roaster nuts roaster, cracker

extractorsame

18. Rubber Tyres and Tubes Oven, extrusion machine, roller mill, conveyor belt

same

19. Potato Chips peeler, washing utensils, boiler, dryer, frier and packaging machine

same

20. Banana food/confectionery peeler, slicer, dryer and miller

same

21. Plantain food/chips peeler, chipping machine, fryer and dryer

same

22 Pineapple/Orange

fruit juice continuous juice expeller, pasteuriser, filteration machine, cooking machine, packaging machine.

Same

23. Sorghum flour, starch, animal feed, malt

Jaw crusher, pulverisers, screens, hammer miles

same

24. Millet flour, feedmill, confectionery

same same

25. Wheat flour, malt milling machine same

Table 2: Uses, Processing Equipment and Markets for Mineral Resources S/No. Minerals Product/Possible uses Processing

Equipment Required

Possible Markets for Products

1. Clay - bricks, pottery, sanitary ware- ceramic insulator- refractory and insulating bricks

- ceramics processing equipment- crushers, moulds, vibrator, kiln- jaw crusher- impact grinders

- pan mills-vibrating screen

- domestic demand for crockery- local intermediate industrial users- international demand for finished/intermediate products

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magnetic separators - foundries, iron and steel plants- cement, fertilizer- petrochemicals- ceramic manufacturers

2. Feldspar - ceramic and glass wares, enamel, polished stone and slabs, tiles and refractories

ceramics processing equipment - crushers, mixers, moulds, vibrators, kiln

- ceramics manufacturers- dealers in stone ware

3. Gypsum - chalk, cement, pharmaceuticals, plaster of paris (POP), ceiling boards, decorative plaster, moulds, paint, paper

mixer, moulds, dryer - chalk making industry, pharmaceutical industries- local and foreign.

4. Limestone - 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

- 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

- cement manufacturers- construction contractors- stone masons- precipitated calcium carbonate production

5. Bitumen and Heaby oil

Road construction, coal tar.

Bitumen processing plant

construction and pharmaceutical companies - local and foreign

6. Granite floor tiles, war decorative finishing, monumental slabs

- diamond multiple blade frame saw- jaw crusher- rotary screen- hammer mill- compressor conveyor- grinding and polishing line- circular saw- trimming machine

local and foreign construction investors and service providers

7. Tantalite - Allow, electronic and computer manufacturing

- computer and electronic manufacturing

local and foreign construction investors.

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equipment8. Kaolin - fertilizer

- chalk- chemicals and pharmaceuticals- paint and paper products- ceramic tiles and porcelain wares- pipes insulator etc

- Sieves, Plungers, Tanks and Filter Press- Hydrocyclones- dryers- vibrating screen- separators- calciners- pumps- floatation machine- weighing scale- bagging machine

- pharmaceuticals- cosmetics- electrical products manufacturers- paper, paint and ceramic manufacturers

9. Talc - cosmetics (powders)- pharmaceutical processes- paper and paint production- ceramic industries

- jaw crushers, hammer mill, pebble mills- classifiers- floatation cells- slurry pump- compressor- hydrocyclone- filter press- flash drier- weighing scale- bagging machine

- pharmaceuticals- cosmetics- electrical products manufacturers- paper, paint and ceramic manufacturers

10. Phosphate - fertilizer (NPK)- phosphoric acid

- rotary washers- trommel- jaw crusher- vibrating screen- hydraulic classifier- rougher bed- floatation machine- mixing tank- silos- hammer mill- classifier- packaging equipment

- fertilizer manufacturers- phosphoric acid manufacturers

11. Gemstone - Jewellery and ornament- electronics

grinding, polishing, cutting and water pumps

local and international markets

12. Laterite Tiles, building & construction

hydroclones, sieves, tanks, filter drier, separator

local and foreign markets

13. Columbite Iron and Steel excavator, separator, pumping

Same

14. Tin Same excavators, separators, air flooding, pumping machines

Same

15. Marble Building and construction

cutting, polishing, excavators

Same

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16. Galina Same excavators and separators

Same

17. Zinc ore iron sheet and steel excavators, separators and air flooding

Same

18. Gold iron, steel, electronics and ornaments

excavators, separators, air flooding machines

Same

19. Rockaggregate

building and construction

excavator, cutting, polishing

Same

20. Whoframite electronics, ornaments, building and construction

excavator, separator Same

21. Aquamarine food and chemicals distillers and drier Same22. Silica ornaments, jewellery

and electronicsexcavators and separators, cutting, polishing,

Same

23. Copper ornaments, jewellery and electrical, electronics

excavators and separators, cutting, polishing,

Same

24. Lead Same excavators and separators

Same

25. Iron ore iron and steel excavators and separators

Same

26. Potash soap production, water treatment

hammer mill and crushers

domestic and export

27 Coal cokes, fuel hammer mill and crushers

same

28 Sandstone Building Not indicated Same29. Lignite paraffin wax crusher, dryer mill,

mixer, grater screenSame

30. Bauxite Refractories and abrasives

crusher, beneficiation plant

Same

31 Bronze Fittings clay, bronze, heater, wires, latente

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)

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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, 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.

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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.

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.

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5. Free Web Sites. Information and communication technology specialists will direct you to free web sites. Consult them.

“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. 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

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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• 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).

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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: UNITS % Min. of Finance Incorporated 297,688,401 59.54 Central Bank of Nigeria 201,822,645 40.36 Nigerian citizens and associations 488,954 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.

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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 Cooperative Bank began operation on 6th March 1973

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as Nigerian Agricultural Bank Limited. The two government institutions own the Bank in the following ratio: Federal Ministry of Finance 60% Central Bank of Nigeria 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), Non-Government 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

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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 INVESTMENTSCHEME (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.

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

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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.

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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.

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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 potential borrowers, these institutions have to be assured that

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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 feasibility study to assess and appraise the viability

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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)

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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

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planning in the 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?

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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 1999-2003, 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;

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The Federal government has always been concerned on accelerating the growth of SMEs considering the important role of this sector in the socio-economic 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 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 long-term 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

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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;

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

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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 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. Keke-NAPEP); 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

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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.

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 ENTERPRISESo Public and Private Sector Equitieso Public and Private Sector Debts Financingo Infrastructure Financeo Non-Refundable Capital

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o Convertible Long Term Capitalo Derivativeso Deficit Financingo Non Convertible Long Term Capital

Capital Market Instrumentso Equitieso Debtso Derivativeso Government Bondso Rightso Corporate Bondso Options and Futureso Preference Shareso Debentureso Exchange Traded Funds

CapitalCapital 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 marketLong-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 marketFinancial 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

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Borrowed capitalThis is capital which the business borrows from institutions or people, and includes debentures:

Redeemable debentures Irredeemable debentures Debentures to bearer Hardcore debentures

Own capitalThis is capital that owners of a business (shareholders and partners, for example) provide:

Preference shares: o Ordinary preference shares o Cumulative preference shares o Participating preference shares

Ordinary shares Bonus shares Founders' shares

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; debenture-holders 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; andc. 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 Following:i. Income;ii. Expenditure; Andiii. 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 to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. This distinction is important as the investment risk can 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

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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 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

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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 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.

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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 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:

Prepare a list of appropriate business opportunities, select one and identify reasons for the selection.

Produce a business plan for a small business.

Evaluate the plan for feasibility of the business.

Organize and complete the papers, documents and administrative requirements for a small business.

Prepare a plan of the physical layout of the business showing positioning of all major business components.

Calculate sale price for the product/service.

Draw up a sales plan to achieve a given target.

Design control mechanisms for maintenance of a given market share and suggest strategies to achieve expansion.

Prepare an input/output chart to demonstrate the service or product production process.

Analyze the service or product production process management, inventory management and control.

Analyze the business plan for a small business and suggest future directions.

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Entrepreneurial Project Topics

Select a business opportunity and prepare a business plan.

Prepare a set of documents necessary for establishing and starting an innovative business.

Evaluate an existing business and make recommendations to the owner for improving the business.

Survey the range of businesses in the community and propose “Value-added” ideas that could be adopted by the owners.

Conduct a market analysis and prepare a marketing plan for a small business.

Investigate environmental issues in the community and identify business opportunities to deal with them. Prepare a feasibility report.

Investigation technological options and prepare a feasibility report for the use of technology as a business opportunity.

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