Farida Athumani Dereza

TOPIC ONE: INTRODUCTION TO BUSINESS STUDY The concept of a business A business is an economic activity engaged in producing or buying and selling of goods and services with the aim of earning profit through satisfying customers' needs. It offers people with a variety of things they need for survival, desire to own or use. Activity 1.1 provides some of products consumed by students. In the society, there are various businesses both large and small that take place in different places. Small businesses are such as small retail shops, selling of fresh fruits or items on street and carpentry as shown in Figure 1.1. Moreover, there are also businesses that provide services to their customers such as photography, makeup artistic, content video creation, transcribing and translating. On the other hand, large scale businesses include supermarkets, multiple shops, automotive, mobile phone companies, textile, ship building and sugar industries. In this level, concentration is on the small scale businesses. Business processes Business activities involve the processes that an organization engages in, to achieve its goals. These processes are production, distribution, exchange and consumption. They are explained as follows: Production This is a process of transforming raw materials into finished products to satisfy human needs and wants. For example, a tailor transforms a fabric into a type of a cloth such as a trouser, shirt, dress or curtains. Distribution This is a process of moving goods and services from where they are produced to where they are needed for consumption. For example, the transportation of manufactured sugar from Mtibwa Sugar Company in Morogoro Region to wholesalers, retailers or consumers located in various regions of Tanzania or to other countries. Exchange This involves buying and selling of goods and services between two or more parties. It involves the use of several means of payments, including money. Exchange enables consumers to consume items they do not produce and producers to produce what they do not consume. For example, a tailor can produce clothes for selling and not for his or her own consumption while consuming sugar produced by a sugar manufacturing company. Consumption This is the act of using goods and services to satisfy human needs and wants. In everyday life, individuals consume different kinds of goods and services to satisfy their needs and wants. For instance, people consume food to satisfy hunger, and buy cars for transportation. Moreover, individuals consume different services provided by doctors, teachers, the military, taxi drivers, entertainers and tourist guides. These business processes production, distribution, exchange and consumption) ensure the product reaches the final consumers. However, in order to understand them better, consider an example of a school uniform that a student wears: (a) The uniform was manufactured by a textile factory or business. This process is called the production phase. (b) It was then transported from the factory or business to the market for consumers. This process is called the distribution phase. (c) Then someone visited the market and bought the uniform by offering the seller some money. This is referred to as the exchange phase. (d) The student wears the uniform at school. This process is called the consumption phase. Purpose of a business The main goal of any business is to generate profit. However, other purposes of businesses are to provide individuals with goods and services that satisfy their needs and wants, make good and services that are not produced within a given area available, create employment for people to reduce unemployment, and promote innovative activities that improve delivery of goods and services. All these are done through combining the various business processes to make the items that meet peoples' demand. Exercise 1.1 1. Kamwendo owns a small shop where he sells handmade shoes and jewellery. He advertises his products at the local market and sometimes online through social media. Does Kamwendo's small shop qualify as a business? Explain reasons for your answer. 2. Your aunt applied for a loan from a microfinance institution with the aim of opening a restaurant. However, the loan officer asked her to explain Terminologies used in Business studies Business Studies involve understanding the main business processes, which include production, distribution, exchange and consumption. Other important terminologies for understanding Business Studies include needs and wants, services, goods, resources, scarcity, and opportunity cost. These terms are explained as follows: Needs and wants People demand goods and services to satisfy their needs and wants. In Activity 1.2 the items listed as accessory for survival are referred to as needs, and those ones that a person desires to have are referred to as wants. Wants on the other hand, can be goods or services an individual desires even when they are not essential. Motorcycles, televisions, and jewellery are wants. because they are things that one can live without and still survive. Needs however, are goods or services an individual must have to survive. Food, shelter, water, and clothes are essential needs for a human being to be able to live, Human needs and wants are unlimited in number. They have a tendency of multiplying in such a way that when an individual satisfies one, another one tends to arise. For example, a Form One student demands a school uniform, a school bag, and textbooks from the family budget. The same student may also need food or water, to, survive at school. At the, same time, the student may require services of teachers, and sometimes of sports' coach in the physical education session. This means that wants increase continuously as one want is satisfied the other one arises. Services Services are intangible outcomes of human efforts that can satisfy human needs and wants. They command prices in exchange, and their purchase does not result in the ownership of anything physical. For example, one can only seek advice from the doctor, but cannot purchase him. Thus, a service is an act of a performance offered by one party to another. Services may be banking, online payments, education, health care, garden designing, car washing, recreation , communication, transportation, tourism and restaurants. Goods Goods are valuable items that satisfies human needs and wants. The goods listed in activity 1.2 are in form of physical products such as sweets, cars, furniture, clothes, and houses. Goods can be categorized in different groups, for example free and economic goods, consumer and producer goods, perishable and durable goods, and merit and demerit goods. All these categories of goods are explained as follows: Free and economic goods: free goods are goods which are available for consumption at no cost such as breathable air and sunlight. Economic goods on the other hand, are goods which must be bought before consumption such as a pen, a pencil, a computer, and cloth. Consumer and producer goods: consumer goods are goods which are produced for direct consumption such as vegetables, television sets, cars, buildings and furniture. These goods are not used for production of other hand, are goods which are used for producing other goods. They include goods such as machinery, seeds, and other raw materials. Perishable and durable goods: perishable goods are those goods which have a short shelf life such as fruits, bread, vegetables, meat, and milk while durable goods are those goods that last for a long time such as buildings, machines, vehicles, and equipment. Merit and demerit goods: merit goods are goods with high social benefits to consumers such as education, health services, sports facilities and fire protection while demerit goods are goods with negative to the society or mostly to cause health problems to consumers such as tobacco, cigarettes and alcohol. Resources Resources are inputs used to produce goods and services, also known as factors of production. These inputs includes land, labour, capital and entrepreneurship. They are explained as follows: Land is a gift of nature which includes all natural resources used in production such as minerals, forests and water. Labour is the human efforts, skills and expertise required to produce goods and services. Capital refers to physical or financial resources used in production. It consists of tools, machinery, equipment, finance or money and infrastructures. Entrepreneurship involves innovation, risk taking and organization behaviour required to bring together factors of production and create new products business. scarcity In activity 1.2 a number of things that one desires to have were listed. Probably someone wants them but does not have enough funds. Even if someone was unable to buy them now, they may still want more things in the future. This is because human wants are unlimited and the resources to satisfy them are scarce. Scarcity means shortage in supply of resources. Generally, an individual cannot have sufficient resources, income or wealth to satisfy every desire. This necessitates them to make a choice which involves fulfilling the most preferred ones. Opportunity cost Opportunity cost is the second best alternative foregone after making a choice implies sacrificing something else. What is sacrificed is a loss of benefit that one would have received if they had made that choice. For example, a person who choose to save money incurs the opportunity cost of not consuming goods and services worth the amount of money saved. Likewise, the opportunity cost of sleeping instead of working is the amount of money one could have earned if he or she had spent the time working. When making a decision, it is important to consider the opportunity cost. The concept of business studies Exercise 1.2 1. 2. Baraka is a secondary school student; he needs to buy a laptop for his school activities. At the same time, he would like to buy a bicycle. However, he does not have enough money to buy both. If you were Baraka, what would you consider to make the right choice? Why? Your neighbour wants to open a grocery store. With reasons, advise him on the categories of goods he can sell. 3. Shukuru works in the beverage industry and earns TShs 150,000 per month. Her father retired from work and decided to give her TShs 4,000,000 to start a business of selling school shoes and quit the beverage industry. (a) What is the opportunity cost of Shukuru’s decision to start a business? (b) Will Shukuru’s business meet consumer needs or consumer wants? Explain your answer. The concept of Business Studies Business Studies is a multidisciplinary field that deals with the principles of business, management, and economics. It combines elements of entrepreneurship, accounting and finance, marketing, organizational studies, human resource management, and business operations. The importance of studying Business Studies Business Studies provide insights into the fundamental principles and dynamics that shape the world of business. Here are some reasons why studying Business Studies is important: Entrepreneurship and innovation: Business Studies nurture an entrepreneurial mindset by teaching how to identify opportunities, create innovative solutions, and manage the risks associated with starting and growing businesses. Understanding customer needs and preferences: Business Studies help students realize and appreciate the role of business in the provision of goods and services which satisfy customers’ needs and wants. Critical thinking and problem solving: Students develop critical thinking skills as they analyse business situations, make decisions, and solve complex problems related to management, marketing, finance, procurement, and operations. Global perspective: Business Studies often explore international trade, globalization, and cross-cultural communication, fostering an understanding of how businesses operate in a globalized world. Financial literacy: Studying business equips individuals with financial literacy to help them manage personal finances, understand investments, and make informed decisions about saving and borrowing. Career opportunities: Business Studies offer a wide range of career opportunities in fields such as marketing, finance, human resources, management, consulting and entrepreneurship. Soft skills development: Students learn communication, teamwork, leadership, and negotiation skills that are applicable in both professional and personal contexts. Ethics and corporate social responsibility: Business Studies address ethical considerations and corporate social responsibility, encouraging responsible and ethical business practices that contribute to sustainable development in the society. Adapting to change: Business environments are constantly evolving. Studying business equips the student with skills to adapt to changes, technological advancements, and shifts in market trends. Contribution to society: Successful businesses drive economic growth, create jobs, and contribute to the overall well-being of society. Business Studies provide insights into how businesses can positively impact communities. Interdisciplinary learning: Business Studies often intersects with various disciplines such as economics, psychology, sociology, and technology, offering a multidimensional understanding of how these fields interact in real-world scenarios. The scope of Business Studies The scope of Business Studies include various components that provide comprehensive understanding of how businesses operate successfully in today’s economy. Some of the key components of Business Studies include: Entrepreneurship: This component focuses on the process of setting up and managing a new business. It includes opportunity identification, business planning, innovation and risk taking in business operations. It entails business start-up, development and management. Economics: This is an essential component that focuses on broader understanding of the economic environment in which the business operates. It includes concepts of wants, needs, scarcity, opportunity cost and demand and supply of goods and services in the market. Finance and accounting: The component of finance focuses on budgeting and financial decision making while accounting focuses on recording, analyzing, interpreting and reporting financial performance of an organization. Marketing: This component focuses on the strategies, techniques and processes that businesses use to influence and sell their products such as pricing, promoting and distributing a product. Business management: This component encompasses the principles and practices of operating a business effectively. It includes planning, organizing, directing, staffing and controlling the business resources to achieve the business goals. Information technology and e-business: This component focuses on the role of Information and Communication Technology (ICT) in business operations. It includes e-commerce and digital marketing. Business laws and regulations: This component focuses on understanding legal aspects for effective business operations such as compliance, employment law and contract, and intellectual property. Risk management: This component focuses on identifying potential risks that a business may encounter and developing effective ways to overcome the risks, including insurance. Relationship between business studies and other subjects Business studies relates with all subjects as it prepares and allows students to transfer knowledge, skills and attitudes acquired from various subjects into business opportunities. The subject develops the capacity of students to identify opportunities and transfer them into businesses. The relationship between Business Studies with a few selected subjects namely Agriculture, Music, Theatre arts, English language, Kiswahili, Arabic, Chinese language, French, and Mathematics is described as follows: Business Studies with Agriculture Students studying Agriculture may learn how to cultivate vegetables but may lack skills of making it a business that earns money. Thus, Business Studies will equip the students with business skills which will enable them to turn vegetable cultivation into a profit-making business. Business Studies with Theatre arts and Music subjects Students who are taking Theatre arts and music subjects may decide to start their own acting schools and production companies. Business Studies will equip them with necessary skills to create a business plan, manage the business finances and marketing their services. Business Studies with Language subjects Students who are taking language subjects such as English, Kiswahili, Arabic, Chinese and French acquire translation, interpreting and editing skills. Business Studies will enable them to promote their skills to become translators, interpreters, editors and content creators for websites and social media. Business Studies with Mathematics Mathematics is like a toolkit for entrepreneurship and Business Studies. Mathematics helps entrepreneurs create successful businesses. It helps them with aspects like budgeting, measuring how well ideas are working, and making smart decisions about money. Mathematics provides the power to turn creative ideas into real-world successes by focusing on details, patterns, and innovative solutions. TOPIC TWO: SOLE PROPRIETORSHIP Sole proprietorship is the simplest and the most common form of business ownership which has existed for decades. Most people prefer to operate as sole proprietors for a variety of reasons, including establishing a business that makes use of their skills and allowing them to be their own bosses. This makes them flexible in decision making on matters such as when and how many hours to work and what products to make. Activity 3.2 Based on the scenario on Julianas’ tailoring business in Activity 3.1: (a) Elaborate on the features of sole proprietorships and how those features are beneficial to future sole proprietors? and (b) Create your own scenario about features of sole proprietorship. Features of a sole proprietorship Some of important features that one needs to understand about sole proprietorship's are explained as follows: Single owner: Sole proprietorship business is owned and often operated by one person. In some cases, a sole proprietor may hire trusted employees or family members. However, the overall control and decision-making rests with the owner. Flexibility: Sole proprietorship is the most flexible form of business ownership. The owner can easily change the location, product type, design or increase the variety of products depending on the customers’ needs. Moreover, depending on the available market, one may even choose to change the type of business. For instance, a sole proprietor may change from selling ice cream to opening a bakery or from a restaurant to a stationery shop. No profit and loss sharing: A sole proprietor incurs all the benefits and risks associated with the business. The sole proprietor does not share the profit or loss gained in the business with anyone else. This means that the sole proprietor enjoys the profit from the business and in case of any loss, the sole proprietor is responsible. Unlimited liability: There is no legal separation between the owner and the business. Assets and liabilities of the business belong to the owner. Thus, in case of loss, the business assets, along with the personal possessions of the sole proprietor, can be used to settle the business debts. Start-up capital: In this type of business the capital is often contributed or raised by the owner and is usually small. Mostly, the main sources of capital are from personal savings, funds from family and friends, and loans from microfinance institutions. Stability: Stability and continuity of the sole proprietorship significantly depend upon the capacity, competence, experience, and life span of the proprietor. If the sole proprietor is competent and committed enough to the business, the business will most likely expand and grow. Exercise 3.1 Anita wishes to use her personal funds to open a business, but she is not sure if the funds will be sufficient. Advice Anita on a form of business that requires a small amount of money and explain why. Badu owns a business in which he enjoys the profit and takes responsibility in case of loss. Describe the features of the business owned by Badu. Advantages of a sole proprietorship There are advantages of operating as a sole proprietorship. The following are some of those advantages: Easy to form a business: Sole proprietorship is quick and easy to establish as the decision for set up depends on one person. Moreover, it requires minimal initial capital and adheres to few regulatory restrictions. Quick decision making: A sole proprietor has the final say in all decisions regarding the business operations. When a single person makes decisions for the business there are few unnecessary delays in taking actions. Hence, sole proprietorships can fast track business operations. Independence in decision making: The sole proprietor is free to make decisions independently without the interference of others. For example, a sole proprietor can make any business transactions without seeking approval from anyone else. Easy to supervise: It is easy to supervise a sole proprietorship because owners usually have close and direct contact with customers and employees. They undertake relatively few transactions and have full control over their business. Small start-up capital: Sole proprietorship's may require a small amount of capital for start-up. For example, someone setting up a vitumbua business only requires buying cooking ingredients, a cooking pot and a cooker. The size of capital attracts people to start this form of business. Direct relations with customers: Since most sole proprietors have close contact with their customers, they are able to serve and satisfy customers’ needs. They can receive orders from customers and learn their taste and preferences. Sole proprietors can provide customers personal attention and handle their complaints and thus, they can easily make efforts to retain them. Enjoys all the business profit: Sole proprietors enjoy all the benefits associated with the business. They do not share the profit with anybody else. This means sole proprietors keep all the business profit. Disadvantages of a sole proprietorship The following are the disadvantages of sole proprietorship: Unlimited liability: If the business suffers loss, the personal property of the sole proprietor may be sold to meet the liability if the business assets are not enough to clear it. This may affect the success of the business because it is not legally separated from the owner. Limited skills: The business owner may not have all the necessary skills on financing, marketing, purchasing, producing, and supervising the business operations. This limits the sole proprietor to perform all duties and functions efficiently; hence it may hinder the growth of the business. They, therefore, need to spend more on hiring those with the appropriate skills. Uncertainty in continuity: The life span of a sole proprietorship is uncertain and difficult to predict. The sole proprietorship may be closed down or sold when the proprietor faces challenges that may affect supervision of the business. Such challenges may be death, sickness or imprisonment. In such cases, the business may easily come to an end. Working long hours: As the sole owner and operator of the business, the sole proprietor is responsible for all aspects of its operation. This often leads to a significant time commitment as the proprietor takes on various roles including management, marketing, administration, and more. Thus, sole proprietors may find themselves working extended hours to fulfil these diverse roles. High cost of production: Being a small business with small scale production, sole proprietors may not reap the benefit of economies of large scale production. This may result in a high cost of production. Also, sole proprietors may lack the financial capacity to access bulky discounts on supplies, machinery or raw materials. Difficult to expand the business: Although the sole proprietor gains all the business profits, it is often difficult to raise funds to expand their business due to small startup capital and high competition from the large enterprises available in the same industry. Formation of a sole proprietorship In starting up a sole proprietorship there are few and usually not complicated legal formalities to be adhered to. The only requirement to the sole proprietor is to secure the relevant business licence and permit from the local council depending on the activities to be undertaken. Figure 3.3 shows examples of business licence used in Tanzania Mainland and Zanzibar. It is also important for the sole proprietor to register the business name with Business Registration and Licensing Agency (BRELA) for Tanzania Mainland and Zanzibar Business and Property Registration Agency (ZBPRA) for Zanzibar. Thus, the formation of a sole proprietorship is the simplest of all forms of business units. Ways of solving challenges facing sole proprietorship The disadvantages of sole proprietorship explained in this chapter are essentially major challenges that sole proprietors face when running their businesses. However, for the smooth operation of the sole proprietorship, those challenges need to be solved. The following are the suggested ways of solving the challenges encountered by sole proprietors: Insure the business: To solve the challenge of unlimited liability that may result from risks such as fire, it is important for a sole proprietor to insure the business. This involves the proprietor paying a premium to an insurance company for coverage against potential risks and losses related to business activities. Contractual hiring: The business owner may hire some experts for help in various business issues when a need arise. Examples of some issues which need hiring of experts are financial report preparations and business registration processing. Succession planning: Most of the sole proprietorship's collapse because of absence of succession plans. If sole proprietors wish the business to continue and succeed even in their absence they should plan for the succession of the business. For example, transferring ownership of the business to the next generation while they are still incharge of the business. Delegation of some roles: Sole proprietors may delegate some of their roles to employees in order to overcome the habit of overworking themselves. By doing so, they will be in a good position of fostering well-being and also dedicate their efforts in other aspects of business operation. Expansion of the business: To enjoy the economies of scale, a sole proprietor needs to expand its business. The fund for expanding the business may be obtained through micro financing. Once the business has expanded, the running cost will be low; and hence, the business will generate more profit than how it was before.