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At the end of this unit you should be able to understand

1. Meaning and definition


2. Main sources of business ideas
3. Methods or techniques of generating business ideas
Idea generation refers to either the discovery of a
business idea or the development of an idea into a more
feasible business concept over time.
A business idea is therefore a short and precise
description of the basic operations of an intended business.
It is an idea about;
What products you are going to offer.
What services you are going to provide or what goods you
are going to sell
Where and how you are going to sell them
Who are you going to sell them to.
Characteristics of a good business
idea
A product or service that customers want
A product or service you can sell at a price customers
can afford and which will give you a profit
The knowledge of skills you have or you can get
The resources and money you are able to invest.
an entrepreneur needs to know what the consumers
actually want so that he/she can offer the product or
service accordingly
Monitoring the existing products and services
already available in the market
Make a competitive analysis of them to identify
their shortcomings and then, based on it,
Decide what and how a better product and
service can be offered to the consumers.
Distribution channels called, market intermediaries, also
serves as a very effective source for new ideas for
entrepreneurs.
The reason is that they ultimately deal with the ultimate
consumers and, hence, better know the consumers’ wants.
The Government can also be a source of new product
ideas in various ways. For example, government from time
to time issues regulations on product production and
consumption.
Many a times, these regulations become excellent sources
for new ideas for enterprise formation.
The greatest source of a new business idea is the
entrepreneur’s own effort in research
The objective to gather information, ask questions from
existing entrepreneurs, analyze economic data and
information within the market can lead to a unique business
concept.
Many ideas for successful businesses come from people
who have experience of working in a particular market or
industry.
Thus, the background of potential entrepreneurs plays a
crucial role in the decision to go into business as well as
the type of venture to be created.
Brainstorming means using the brain to storm the
issue/problem. Brainstorming ultimately boils down to
generate a number of ideas to be considered for the
dealing with the issue/problem.
Focus group consisting of 6-12 members belonging to
various socio-economic backgrounds are formed to focus
on some particular matter like new product idea.
The focus group not only generates new ideas, but screens
the ideas also to come up with the most excellent idea to
be pursued as a venture.
Problem inventory analysis is a method for obtaining new
ideas and solutions by focusing on existing problems. In
this approach, the customers or consumers are provided
with a list of problems in a general product category.
Thereafter, they are asked to identify and discuss product
in each category that have a particular problem.
NEW VENTURE FINANCING
New venture financing deals with obtaining the money the
entrepreneur will need to start the business, but it is more
than that. It is also about creating value and wealth,
allocating that value among the investors and founders, and
determining financial risk for the business.
Entrepreneur need various type of capital including
i. Seed capital
ii. Startup capital
iii. Working capital
Seed capital
it is the relatively small amount of money needed to prove that the
concept is viable and to finance feasibility studies.
Seed capital usually is used to investigate the possibilities of a
business, not to start it.
Startup capital
it refers to the money that is required to start a new business,
whether for office space, permits, licenses, inventory, product
development and manufacturing, marketing or any other expense.
Start-up capital is invested in the business before any significant
commercial sales; it is the financing required to achieve these
sales.
Operating costs, often referred to as working capital
The amount of cash needed to carry out the daily operations
of a business that ensures a positive cash flow after
covering all operating expenses
Sources of funds for venture
operation
Now that you have researched, planned, organized, and
registered your business. It’s time to crunch the numbers.
While there are many ways to find money, most are
generally more appropriate for more established
companies. Still, there are some smart tacks for start up.
Bootstrapping
Bootstrapping- means using whatever resources you have on
hand to help you get your business to the next level.
A large part comes from personal savings and home-equity
loans.
Friends and family
At the very early stages of any start up, entrepreneurs also
tend to raise money from relatives, colleagues and other
people they know well.
Usually, friends-and-family financing is informal.
You probably won't have to write a business plan beforehand
But no matter how well you know your early investors, you'd be
wise to draw up a contract to prevent any misunderstandings
down the line.
Bank loans
For most startups, getting a traditional bank loan is a long
shot. That's because banks typically will only consider
companies that have been in business for two years.
What's more, they need to see a tangible asset that can be
used as collateral.
Customers and suppliers.
Some customers may be willing to help fund product
development if entrepreneur customize it for them.
As for suppliers, entrepreneur may be able to convince one to
hold inventory for him, as long as entrepreneur guarantee
them entrepreneur 'll pay for the material by a certain date.
Government grants
A grant is free money in that the entrepreneur does not
normally need to pay it back nor pay any interest.
National and local governments as well as non-profit
organizations often provide financial assistance in the form of
grants for start-up or expanding businesses.
In this source of finance an entrepreneurs are not required to
repay back but have to show business plan in order for the
organization to be satisfied to prove and provide grants to the
assessed entrepreneur.
Hire purchase and leasing
 These are financial facilities which enable an entrepreneur to
use an asset over a fixed period in exchange for regular
payments.
 With hire purchase the customer becomes the owner of the
asset after all the payments have been made.
 But leasing is that the customer never actually owns the
asset.
 Hire purchase and leasing can be used for most types of
equipment such as cars, office equipment, kitchen
equipment, and computers.
Business angels/Angel Investors
Angels are generally wealthy individuals or retired company
executives who invest directly in small firms owned by
others.
Angel Investors puts their own finance into the growth of a
small business at an early stage.
They are also potentially contributing their advice and
business experience.
Venture Capital

Venture capital refers to financing that comes from


companies not individuals in the business of investing in
young, privately held businesses.
Venture capital firms are made of professional investors,
and their money comes from a variety of sources.
Such as corporations and individuals, private and public
pension funds, foundations.
Reasons why entrepreneurs will require
Loan facilities
Normal operations
An entrepreneur/small business owner may have to
borrow part of the money to run the business, especially
when fund available is not sufficient to profitably run the
business venture.
Expansion purpose
If the business intends to expand existing operation or
acquire some highly sophisticated equipment, such
business may be required to look outward to raise needed
funds.
Financial difficulties
There may arise some financial difficulties as a result of
general economic depressions which may require business
venture to seek financial assistance.
 Accumulation of high bad debts.
 Temporary losses from operations
 And some more fundamental problems
BUSINESS PLAN
Simply Business plan is defined as a written document
that defines and describe thee business, its
managements, and products, market and strategies
direction
The business plan is a comprehensively written down
document prepared by the entrepreneur describing
formally all the relevant external and internal elements
involved in starting a new venture.
To seek loans from financial institutions
To persuade others to join business
To identify actual strength and weakness of business and
compotators
To attract major human resource/personnel
To give direction to the vision formulated by the entrepreneur
To monitor the progress after implementing business plan
To guide entrepreneur in actual implementation of plan
these are plans that developed by entrepreneurs in the actual
starting and running a new business.
These plans based on information and assumption and
predictions without the benefits of actual operating experience.

these are the plan developed for the business that have been in
operation for one or more years.
The plans based on refining operations, correcting defects,
planning for ongoing sales and growth.
Some of the salient issues a small business entrepreneur
should consider when writing a business plan include:

The business plan should be as brief as possible. The


relevant audience may not want to read a long-winded
document.
A business plan should be easy to read and comprehend,
without typographical or grammatical errors.
A business plan should inform the relevant audience
concerning the large and profitable market opportunities for
the business enterprise.
A business plan should convey the strength and depth of
the company’s management team, among others.
A BUSINESS PLAN CONSISTS OF THE FOLLOWING
SECTIONS

1. Executive summary
2. Business Description
3. Marketing Plan
4. Competitive analysis
5. Organization and Management Plan
6. Financial Plan
7. Appendices
The executive summary
 The executive summary is the introduction to a company’s
business plan and may be seen as the most important
section in a business plan.
 The statement should be short, may be of one or two
pages.
 It should explain the fundamentals of the proposed
business.
 Although it comes first in a business plan document.
 It is advisable to write it last, because it summarizes the
entire business plan
Executive summaries of business plans are expected to cover
the following major issues:
 The company’s origin/background/history.
 The products, ideas, or services offered (or to be offered) by
the company
 The company’s goals and objectives.
 The market potential for the products or services of the
company
 A three to five year summary of key financial forecasts,
especially sales and profit/loss.
 The management team for the business concern and its
track record
 Other relevant issues, policies and strategies.
The company description
The company description section of the business plan should
convey a sense of the history and origins of the company, as
well as its goals.
Relevant pieces of information that can be included in this
section are:
Vision Statement
Company mission/goal
Company Ownership
Start-up Summary
Company Locations
Services and facilities
Marketing Analysis

Marketing analysis forces the entrepreneur to become


familiar with all aspects of the marketing so that the target
market can be defined and the company can be positioned
in order to collect its share of sales.
 Market segment
 Target market
 Market Needs
 Market trend
 Pricing strategies
 Promotional strategies
Competitive Analysis
The purpose of the competitor analysis is to determine the
strengths and weaknesses of the competitors within the market.
 Identify your competition
 Analyze strengths and weaknesses
 Look at opportunities and threats
 Determine your position
ganization and Management Team
section identifies the key members of the company’s management te
cribes their responsibilities, and documents the relevant experience
omplishments of each member of the team.
rm of Business organization
ganizational Structure
siness Experience and Qualifications
ministrative Expenses
Financial plan
financial composition of the company,
sources of financing
total expenditure incurred by the company.
The profit and loss statement
Appendices
It includes details and studies used in the business plan; for
example:
Brochures and advertising materials
 Drawings and plans
 Maps and photos of location
 Magazine or other articles
 Detailed lists of equipment owned or to be purchased
 Copies of leases and contracts
 Letters of support from future customers
Importance of the business plan
It helps in determining the viability of the venture in a designated
market
It helps in providing guidance to the entrepreneur in organizing
his/her planning activities
It helps in satisfying the concerns, queries, and issues of each
group of people interested in the venture.
It provides room for self-assessment and self-evaluation,
requiring entrepreneur to think through various scenarios and
plan ways to avoid obstacles.
Business plan helps to realize the obstacles which cannot be
avoided or overcome, suggesting to terminate the venture while
still on paper without investing further time and money.
tion for discussion
a business has been established, a business plan is not required
meant only for startup companies”. Critically evaluate this stateme