Page 1

FUNDAMENTALS OF BUSINESS OWNERSHIP A Pre-session briefing for Trainees @DBA 103b (pre-read)

COURSE INTRODUCTION: This course would introduce participants to the basic principles of business venture and acquisition. The

course would introduce them to what it takes and needs to either go into a business as a start-up or acquire

an existing business and critically examine various business models and character traits.

OBJECTIVES: At the end of this course, Trainees should be able to understand:

The importance of purpose in business

Reasons for going into business

Character traits of a business person

Business ownership categories

Business types and classification

Comparative analysis of starting a business and keeping a job

Ways of owning a business

Steps to take before acquiring a business

OUTLINE: - Character traits of a good business man/woman - Risk Analysis - Basic forms of business ownership - Potential areas of business & influence / classification of business - Other ways of owing a business - Starting a business from scratch (merits & demerits) - Buying an established business (merits & demerits) - Buying a franchise (merits & demerits) - Buying a network sales / MLM business (merits & demerits) - Critical areas of evaluation - Legal Requirement for business success. - Q & A

Course Summary: A lot of business people (existing and potential) proceed to form and engage in various forms of business

association without critically taking a circumspective look at or have a firm handle on the basic fundamentals

of the various forms of business ownership in existence, their pros and cons, what type suits their business

needs the most, thus exposing themselves to avoidable risks and liabilities most of the time.

This class is intended to stimulate your understanding of the various forms of business ownership; relevant

considerations in making a choice of the form of business to engage in or form; the merits and demerits of

the various forms and the legal framework necessary to form same.

It is expected that at the end of this class, you are better informed on the choice of business formation to

engage in or a better form to consider if you are already doing business but yet to ‘own’ a business keeping a

close tab on how to align your business with your life’s purpose.

Page 2

1. You will also understand the relationship between your life’s purpose and choice of business, which

as a matter of necessity must be in alignment. You will learn the secret of what makes successful

businessmen what they are – successful.

2. You are also enlightened on how to carry out a risk analysis on your business idea viz-a-viz your

current job (especially for those yet to start their business or delve into full time or are still in paid

employment).

3. Beyond your fringe knowledge of some forms of business ownership you will learn about other

forms, their advantages and disadvantages, and how you can unlock the wealth potentials in each of

them, particularly in the area of tax, avoid risk/liabilities, get funding, etc.

METHODOLOGY:

- Facilitation

- Practical Session

ACTION LEARNING - ASSIGNMENT:

Each Trainee to submit their business-plan using the DBA Businessplan workbook template as a requirement

to graduation and participation in the Pitch Session/Businessplan Defence.

OUTLINE DETAILS ON FUNDAMENTALS OF BUSINESS OWNERSHIP

At the end of the class you are expected to have a firm grasp of the following:

Roles of your life’s purpose in business:

Discovering your purpose in Business can take this format:

1. Your purpose is your life assignment/ calling 2. You are naturally gifted in this area 3. The freedom you will feel in this area is almost contagious 4. You enjoy grace at the point of need 5. An opportunity to “live your dream”

Character traits for successful business people include:

Discipline

Determination

Self Control/self reliant

Focus

Persistence/perseverance

Time Management

Knowledge

Finance & Accounting Skills

People Management & HR

Communication Skills

Sales & Customer Relationships

Marketing Skills

Strategic Business Planning Skills

Leadership Skills

Creativity

Page 3

Flexibility

Intuition

Result/performance-oriented

Self-Motivation

Balance

Risk Taking: Learning how to take calculated risks

RISK ANALYSIS MATRIX (a tabular review)

Your business ideas vs. your current job

Advantages Disadvantages

Start out in Business

+

+

+

-

-

-

Stay on your present job

+

+

+

-

-

-

Basic forms of business ownership at a glance:

There are several forms of business ownership. Though it is important to note that quite apart from sole

proprietorship, and partnership, other forms are separate from their ‘owners’. As a matter of fact, nobody

owns a company, people can only own shares in a company, but the company itself is not ‘ownable’, little

wonder you cannot spend ‘your’ company’s funds simply because it is your company. You and the company

are two separate entities.

Sole Proprietorship – this is a form of business ownership formed and run by a single individual as

the word ‘sole’ denotes. In this form of business both it and its owner are one. The implication of

this is quite significant. You are the company and the company is you. You are fully personally liable

for any risk or liability incurred by the company. Every income made by the company is viewed as

yours and fully taxed as personal income. This type of business ownership is very easy and cheap to

form. It is good for business ventures that have little or no risk at all (even though I doubt if any such

business exists today). Dissolution is quite easy and decision making is very straight forward.

However in case of a business flop, the owner bears the entire brunt. A sole proprietor operates as

alias or trading under the name and style…. and can only sue or be sued in its alias or nickname.

Partnership – this is akin to sole proprietorship, only that unlike sole proprietorship, in partnership,

you have a partner. The hallmark of any partnership is that the partners agree to carry on business in

common with a view to make profit. Partners are persons who come together to form and run a

business of mutual interest to them. They contribute to the equity of the business, debts and liability

Page 4

of the partnership and also share in the profit of the partnership. There are several forms of

partnership – general, limited and limited liability partnership. A partnership can be between

individuals, individuals and a company, companies, etc. Partners can be active or docile, but

whatever the class of partner, the liability of every partner like sole proprietorship is largely

unlimited, except it is a limited liability partnership where the partners agree to contribute a certain

amount to offset the debt and liability of the partnership should the business fail to meet them. In

choosing a partner, always source for that person (natural or juristic) who shares the same passion,

interest and flare for the business the partnership is set up to run. Get necessary legal framework in

place, especially in terms of a partnership agreement. Partnership is regulated by law in Nigeria and

can have a minimum of 2 members and maximum of 20 members. It follows the same procedure of

formation as a sole proprietorship except for the other specialized types.

3 Typical Classifications of Partnerships. Each partner has total & unlimited personal liability of the

debts incurred by the partnership. E.g. include:

1. GENERAL PARTNERSHIP: partners have unlimited liability for debts & obligations

2. LIMITED PARTNERSHIP: liability limited to the amount of capital contribution

3. limited liability partnerships

Limited Liability Company - Membership of this form of business is not less than two (2) and not

more than 50 persons for a private company (and usually end with the appellation ‘limited or Ltd’)

and unlimited for a public companies. Public companies are those quoted on the stock exchange

(and usually end with the appellation ‘Plc’), the company is solely responsible for its debts and

liabilities; the liability of its members is limited to the amount if any unpaid on the shares

respectively held by them; it has perpetual succession (it does not die with the death of its founder,

except properly wound up), it can own and acquire properties in its corporate name, sue and be

sued in its corporate name; it can be limited by guarantee, where members undertake to contribute

to the assets of the company in the event of its being wound up; or unlimited, having no limited on

the extent to its members’ liabilities. Owners of this type of business are called shareholders. It has a

Board of Directors who manages the day to day activities of the business. A Director may or may not

be a shareholder. Be careful whom you give your shares to! Tax in on a company’s profit is paid to

the Federal Inland Revenue Services; while the tax of staffers is paid to the Inland Revenue of the

state it is domiciled. A company must have a Company Secretary who must either be a legal

practitioner or a chartered account. The function of a company secretary is not the same as

confidential secretaries or Personal Assistant; their roles are quite technical and highly regulated.

The company must meet at least once a year at an AGM; it can only make decision by Resolutions.

Other forms are those formed for NGOs such as churches, charities, etc.

Corporation – characteristics include

1. Owned by multiple shareholders

2. Overseen by a board

3. Shareholders’ liability limited to amount of share capital

Joint Venture – Entity formed by 2 or more parties for economic activity. It can also be formed by

large corporations for the purpose of executing highly technical business. Here each ‘partner’ has a

technical expertise to contribute to the business. Usually JVs dissolves once the purpose it was

formed is accomplished. This is highly technical and sound legal advice is recommended.

Page 5

Cooperatives – can be formed for a specific or general purpose and its members benefit solely for

themselves. Ccharacteristics include

1. Limited liability entity meant for profit

2. Has members, not shareholders.

3. Members share decision-making authority

Potential areas of business or influence

Some potential areas of business and influence your business can focus on include:

Economy/ business/ finance

Government/ law/ politics

Social/ family

Arts/ Entertainment

Science & Technology

Religion/ ministry/ church

Media

Education

Sports

Classification of businesses

Your business should focus on meeting common needs such as:

Feeding

Shelter

Fashion, Style and clothing

Relationship

Health and medical services

Transportation

Info-tech and communications

Education/schools/curriculum

Financial services

Leisure/entertainment

Security

Value system

Manufacturing/production

Power/energy

Services & consulting

Retail & distribution

Knowledge

Your core business activity level focus can be on any of the following stages:

Raw Materials

Processing

Packaging

Distribution

Marketing

Sales and regulation

Page 6

Other ways of owning a business:

Starting a business from the scratch (advantages & disadvantages)

Buying an established business (advantages & disadvantages)

Buying a franchise (advantages & disadvantages)

Building a network sales/ Multi-Level Marketing business (advantages & disadvantages)

Starting an e-commerce or social media-driven business in Nigeria

Inventions from what is on ground already ‘nothing is new under the sun’

Running a Home-based businesses (advantages & disadvantages)

The advantages and disadvantages of the following forms of business association will be laid bare in the

cause of the class:

1. Starting a business from the scratch can be very rewarding; it gives you freedom to be creative and

innovative; it allows you to make all your decisions, very exciting and of course, it’s a dream come

true. The down side of it is that, many start-ups fail within their first 6 months of existence; you

basically do everything yourself because you are the business and the business is you, there is no

breathing space, you don’t have anybody or partner to cross breed ideas with so, you take and make

all critical decisions in the business. Ultimately, the buck stop here….YOU!

2. Buying into the share portfolio of an established business is also exciting as you have critical

infrastructures in place already; have fair share of the market in terms of existing client base;

existing good will & name recognition; existence of past records makes it easier to gain access to

finance and this is less risky than fresh start-ups. On the downside however, you could be

adversely exposed to inheriting hidden or covered problems in their financials or reputation; public

perception of the business or the reputation of the business is tied to the reputation of last

management; laundering a bad perception is often difficult and the former owner may even start a

competing business; it may also be difficult to establish a new identity and other related issues.

a. Guides to buying an existing business (just before you buy that business)

1. Do some serious research and analysis.

2. Study the records, ask questions of customers and neighbors,

3. Evaluate the location

4. Physical assets such as equipment, fixtures, inventory

5. Personnel

6. Client base and customer loyalty

7. Financial condition

8. Products or services offered

9. Warranty liabilities

10. Business relationships with suppliers, distributors, etc.

3. Buying a franchise business you stand to receive supports from a large network and reduced risk; you

also have a fore knowledge of what you are getting; preliminary work has already been done with

solid infrastructure well established; you also inherit a sound marketing strategy and a well

established product line; you will get some management assistance, training and financial supports;

there is also a strong promotional opportunity and group buying power due to polled resources. The

disadvantages of this system however are – your freedom to innovate and explore is restricted; high

cost of acquiring a franchise; high operational cost, the reputation of one franchise affects another,

and it is not easily transferrable without franchisor’s approval.

Page 7

4. Buying a Network/Sales Multi-Level Marketing (MLM) Business This has a potential for high earning

with low initial investment; you enjoy the freedom to be your own boss and have a home based

business; you have the opportunity to interact often with other people. The disadvantages are that,

it is time consuming because it often requires extending your work week into weekends; it may be

difficult to sell a product with high selling expenses; you have to follow established guidelines by the

company and the reputation of one business is affected by others in the organisations.

5. Starting an e-commerce or social media-driven business in Nigeria here you simply enjoy innovations

from what is on ground as nothing is new under the sun. The downside is the high exposure to

frauds, etc.

6. Running a home-based business this allows you to run with little or shared overhead costs especially

for a start. The downside is just the difficulty of coping with distractions coming from your TV screen,

kids, pets, etc. common when you work in your pyjamas

7. Be an Angel Investor this, by far offers you the highest leverage as you stand to earn nominal income

on funds invested. Amongst the challenges you will face is that a wrong decision by the people

running the business might plunge your capital into the pits, leaving you with added expense on

legal proceedings to recover a part of it.

8. You can also start from: (from nothing or with what you have)

o An existing idea

o Intellectual property rights issues

o Personal experience

o Hobbies & Sports

OUTLINE DETAILS ON IDENTIFYING & ENGAGING YOUR BUSINESS HELPERS 1) You need an ACCOUNTANT: …to set up a good bookkeeping system for your business.

2) You need an ATTORNEY or LAWYER as follows:

a. Needed in the planning stages of your business,

b. To assist you in choosing your legal structure,

c. To assist with drawing up agreements and contracts,

d. To provide information on your legal rights & obligations.

3) You need a BANKER:

a. As a source of financial information and for obtaining financing.

b. Ensure you establish a relationship with your banker before you need a loan

4) You need an INSURANCE AGENT who:

a. Can advice on the type and amount of coverage suitable for your business.

b. Can tailor a package to meet your needs

c. Advises on right insurance for a start-up.

5) You need a CONSULTANT to assist in expert areas like:

a. Business advisory,

b. Management consultancy,

c. Marketing

d. Promotional consultancy,

e. Financial planning, etc.

Page 8

6) You need a BUSINESS COACH

a. Assists you work through your plans

b. You need a business coach. Get one today

c. Every winning football team has a coach

OUTLINE DETAILS ON LOCATING YOUR BUSINESS (Factors to consider in finding the right location for your business)

1) Your choice of a location can make or break your business.

2) First consider your type of business in choosing a location

3) Do you require heavy traffic (either foot or car?)

4) Will people come to you? E.g. retail stores vs. manufacturers

5) Specific needs of your business--space, special installations, etc.

6) Appearance of the area; safety, exquisite, etc.

7) Customer base of the area

8) Population density and type

9) Traffic patterns, road accessibility, and parking space

10) Nature of the competition around you

11) Cost of securing the space/ location. Lease terms with property owner (s)