MANAGING A SMALL BUSINESS ENTERPRISEThis unit focuses on managing a small business enterprise. In order to understand how a small business enterprise can be managed effectively, we shall look at the meaning, role, importance, and the functions of management. The unit will conclude with a discussion of the tasks and responsibilities of management. By the end of this topic, students should be able to: Define management. Explain the roles of an entrepreneur in the management of a small enterprise. Discuss the importance of management in a small business enterprise. Describe the functions of management in a small business enterprise. Examine the responsibilities of management in a small business enterprise. Outline the tasks of management in a small business enterprise.Sub-topics: Meaning of management The role of management Functions of management Importance of management Responsibilities of management. Tasks of management

Meaning of managementManagement is the art of getting things done through people and the proper utilisation of resources like capital, raw materials and time, which enables the enterprise to achieve its goals and objectives. Management is a problem solving process of effectively achieving organizational objectives through the efficient use of scarce resources in a changing environment. In a small business enterprise, the entrepreneur acts as the top manager while the few employees and family members serve as lower managers.

Who are the managers?A managers job is highly crucial to the success of any organization. The more complex the organization is, the more crucial is the managers role. It is the managers job to achieve the organizational objectives through the proper utilization of its human and material resources. However, since the material resources of equipment, capital, facilities, information, etc., can only be used by humans, the human resources are the most valuable assets of any organization. Accordingly, a manager must be highly skilled in the art of optimally utilizing the human resources. Some of the essential skills are: (1) Technical skillsThese involve the knowledge, methods and techniques and the ability to use these techniques in performing a job effectively.(2) Human skillsHuman skill is the ability to work with other people amicably. It involves patience, trust and genuine involvement in interpersonal relationships.(3) Analytical skillsEffective and right decision making is the most important function of management. A successful manager must possess the analytical skill, involving the ability to logically, objectively, and scientifically analyse the problems and opportunities and use scientific approaches to arrive at feasible and optimal solutions.(4) Conceptual skillsThe conceptual skill is the ability to view the organization as a whole, and as a system comprised of various parts and sub-systems, integrated into a single unit.Characteristics of a good managerNot all managers are successful. Those managers who are successful have certain characteristics which create a climate for success for themselves and their subordinates. Some of the more important personality traits of a successful manager are:(a) KnowledgeTo have the knowledge about competitive markets, about technological advancements and about social changes is very important for taking action.(b) DecisivenessDecision making involves more than simply choosing the best alternative. A good manager should possess conceptual, logical ability, intuitive and courageous judgement and ability to analyse the problem by breaking it into parts and identifying the nature and effect of each part.(c) Ability to handle conflictA good manager is calm, able to listen, is positively responsive to criticism and is able to handle conflicts and differences in a constructive manner. In order to handle conflicts well, a manager must be confident, self-assertive, fair and dominant.(d) Emotional stabilityEmotional stability is the major ingredient for effective leadership and an effective manager is always an effective leader. Emotional instability often leads to wrong and impulsive decisions with some consequences.Student Activity1. Define management.

2. What are the various skills that an effective manager must possess? Are all these skills equally important?

3. Are the characteristics of a good manager in-born traits or can these be acquired by environmental influences?

ROLES OF AN ENTREPRENEUR IN THE MANAGEMENT OF A SMALL BUSINESS ENTERPRISEAn entrepreneur plays a number of roles in a small enterprise. Among these are:

(a) Decision makingDecision making is the process of choosing the best alternative from among different alternatives to maximize the achievement of business goals and objectives. The decision-making role can be seen in resolving conflicts, resource allocation and in negotiations. The entrepreneur makes decisions concerning: Identifying markets and business opportunities Making available the necessary resources, such as capital, labour, raw materials, etc., for the identified business opportunities Translating the business idea into a real business that produces goods and services Searching for new ideas and innovations to meet changing customer needs, tastes and preferences Conducting regular meetings with business employees, staff involved in research and development, etc Solving conflicts among employees, other business competitors Allocation of resources such as money, time, equipment, etc Negotiating business contracts with suppliers, customers, etc(b) Information processingUnder information processing, an entrepreneur acts as a monitor as well as an information disseminator. In his/her role as a monitor, the entrepreneur regularly scans the internal and external environment which affects the business. He/she collects information on changes in customers needs, tastes and preferences. This information can be collected from newspapers, magazines, and other media. In his/her role as a disseminator of information, an entrepreneur finds possible solutions to the changes in the internal and external environment and disseminates the changes in company policies to employees. This information is disseminated through memoranda, telephone calls, electronic mail, etc. (c) Interpersonal relationshipsAn entrepreneur can maintain good interpersonal relationships by playing a leadership role, network officer and figure head. As a leader, an entrepreneur must lead by example. He/she should guide other employees, treat them with respect and be dedicated to the business. This will motivate the employees to perform their duties. As a network officer, an entrepreneur should have contacts outside of the business. This helps in assessing changes in the business environment, social changes and changes in government policy. As a figure head, an entrepreneur receives company visitors; signs legal documents, gives public speeches, and attends workshops and conferences, etc on behalf of the enterprise. Within the enterprise, an entrepreneur plays the figure head role by attending employees functions such as weddings, funerals, etc. This helps to build rapport and shows a good image to the outside world.

Students' Activity1. What are the different roles that an entrepreneur is expected to play? 2. Describe in detail the manager as a decision maker.3. How do managers different work roles affect his/her ability to perform as an effective manager?Importance of management in a small business enterpriseManagement is important to different stakeholders such as owners of the business or the shareholders, employees, customers, government and the community.(a) ShareholdersThe shareholders are the owners of the business who invest capital in the business. The main purpose of investing capital in the business is to generate profits. Management therefore plays an important role of investing the shareholders resources (capital) into projects that can yield satisfactory rate of return and produce quality products and services that can meet customers needs.(b) EmployeesThe importance of management to employees can be seen in: Assigning employees the right jobs as per their knowledge, experience, attitudes and interest Communicating to employees the business policies, procedures and objectives and the strategies to be used to achieve the objectives Ensuring that the working conditions of employees are conducive Provision of social activities and additional benefits to boost the employees morale and dedication Involvement of employees to participate in business affairs like how to improve on business performance, etc Provision of fringe benefits in addition to salary, medical insurance, sick leave, etc(c) ConsumersManagement tries to ensure that a customer is their business lord and is always right. Management thus produces quality products and services at fair prices with guaranteed satisfaction to meet the interests/needs of their customers. (d) Government Management ensures that its business operates within the legal system abiding by all the laws and regulations of the state. This is important to the government in that; There is payment of taxes and on time Environmental laws are respected Provision of employment by hiring/employing people on merit(e) Community interestsManagement is important to the community in the following ways: Providing jobs for the people within the community Raising funds for public activities like hospitals, roads Provision of products and services needed by the community(f) Inter-business relationsManagement helps to maintain the inter-business relations through fair trade practices like fair prices, good quality products, and fast mode of delivery and quality services. This is because businesses are interdependent on each other in terms of products produced by them.Students' Activity1. Discuss the importance of management to the following stakeholders:

(a) Shareholders(b) Employees(c) Consumers(d) Government(e) Community

FUNCTIONS OF MANAGEMENT IN A SMALL BUSINESS ENTERPRISEManagement carries out a number of functions in a small business enterprise. These functions include planning, organising, staffing, leading, controlling, communication, motivation, and budgeting.

(a) PlanningPlanning involves the establishment of business goals and objectives, and determining the ways in which they will be achieved. In planning, an entrepreneur is envisaged to: Set business goals and objectives Determine different courses of action to achieve the business goals and objectives Select the best option Formulate business strategies to translate the chosen option into actionPlanning aims at reducing future uncertainty. Planning answers questions like: what should be done? When will it be done? Where will it be done from? Who will do it? How will it be done?

(b) OrganizingThis refers to identifying the activities to be done, categorising them into sections/departments and assigning the activities to particular people to carry them out. In order to organise efficiently, an entrepreneur should: Identify the tasks to be performed and group them into departments, for example, sales and distribution under the marketing department Assign tasks/activities to individuals and define their responsibility and authority, for example, a sales manager can be assigned marketing tasks Delegate the authority to the chosen employees, for example, heads of departments, managers, etc Co-ordinate the activities to ensure that they are done as scheduled(c) StaffingThis involves the process of recruiting, training, developing, compensating and evaluating employees. It also involves maintaining employees with incentives like good salaries, housing and medical facilities or allowances, etc. This is likely to result in commitment to work on part of the employees.(d) LeadingThis involves motivating and guiding the employees about business procedures and methods. There should be open communication such that employees receive information and also give feedback. An entrepreneur should lead by example and employees should be motivated either verbally or through other rewards like money, promotion, recognition, etc. (e) ControllingControlling in a small business enterprise is concerned with monitoring purchases and sales, money received and paid out, stock and other business property. It consists of those activities which are undertaken to ensure that the activities done are not different from the pre-planned ones. An entrepreneur should look at the original set goals, and find out whether or not they have been achieved as planned.(f) CommunicationThis is the process of receiving and sending messages. It is the process of passing information from one individual to another. An entrepreneur should transmit and share messages, ideas, facts and information with his/her suppliers, employees, customers, etc.(g) MotivationThis is the process of encouraging employees to do their best towards the desired goals of the business. Employers should aim at getting their employees to willingly pursue company objectives. Motivation can be through fair payments/salaries, allowances, promotion, fringe benefits like free housing, medical care, etc.(h) BudgetingA budget is a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flows. It is a financial plan outlining how funds will be spent in a given period of time and how these funds will be obtained. The process of preparing a budget is known as budgeting.Types of budgets1. Master budgetsThis is a comprehensive summary budget, incorporating all the functional and operational budgets, generally including sales, production, material and labour costs, any overhead costs, profit, etc.2. Materials and utilities budgetThis budget also known as operations budget includes budgeting for raw materials required for production, spare parts for maintenance, labour time, machine time, energy consumption, etc. Labour time and machine time is the output per unit of time. 3. Control of liquidityThis involves cash flow and is very important in controlling and meeting current financial obligations. This budget forecasts cash receipts and outlays in a set time basis and is necessary to control the income and expenses, so that there is no shortage of cash to pay bills, and also no excessive unused cash which may be unproductive.4. Revenue and expenses budgetsThe revenue budgets should show anticipated sales by product or by geographical area or department, etc. The expense budgets should cover all necessary and relevant areas such as rent, utilities, supplies, security, etc.

5. Capital expenditure budgetsThese budgets plan for long term investments and include expenditures for new plant and equipment, major installations, replacement of existing equipment, building, etc. 6. Sales budgetThe sales budget is the direct outcome of sales forecast and is based on the consideration of the following factors: demand and supply, competition, past sale trends, future prediction of sales, seasonal changes that affect sales, etc. The sales forecasting is based on such factors as population trends, consumers purchasing power, disposable income, price trends of the products, inflation rate and the general business economy, etc.7. Production budgetThe production budget contains manufacturing program for future operations and is based upon the sales forecasts and sales budgets. It aims at obtaining maximum utilization of manufacturing methods and facilities.8. Balance sheetIt is a composite budget and reflects anticipated assets, liabilities and owners equity or net worth at the end of a given period in the future. It provides a forecast of the anticipated financial status of the company at a future date.

9. Flexible budgetFlexible or variable budget reflects and combats the changes in expenditure as a result of changes in volume of production and revenues. These expenditures are primarily variable costs since the fixed costs are not generally affected by changes in revenues.Benefits of budgetingBudgets are produced in all organizations, whether they are small, large, private or public sector. They are important and are produced for the following reasons: To compel planning by having a formal budgeting procedure, managers are forced to consider business objectives and ways in which those objectives can be achieved To co-ordinate the activities of the various parts of the business and to ensure that the parts are working together To communicate plans to the various responsibility managers within the enterprise To motivate managers to work towards the business objectives To control activities the budget provides a yardstick against which the performance of the business can be compared To evaluate the performance of the managers The budgeting process helps management learn from past experience. Management can critically look at the success or failure of the past budgets and isolate errors and analyze their causes and establish steps to avoid repetition of the same errors Budgets help in the just measurement of performance. Due to quantification of budgets, the measurement is more objective, thus eliminating biases that might be introduced due to subjective evaluations The budgeting process induces the management to shift attention to the future operations. It forces managers to anticipate and forecast the trends and changes in the external environmentLimitations of budgeting Some of the problems associated with budgeting are: Budgets are often too rigid and restrictive and supervisors are given little free hand in managing their resources. The budgets may either be changed too often or not at all, making it difficult for employees to meet performance levels Budgets are used to evaluate the performance and results, but the causes of failures and successes are not thoroughly investigated Budgets may be used punitively. The employees may regard budgets simply as rating tools or as a device for catching their mistakes. This will lower their morale and dilute their sense of dedication Budget goals may be conceived as too high. A high production level or sales level may be resented as un realistic and may create tension and pressures which could very well result in worker inefficiency and create conflict between workers and the management

Students' Activity1. (a) List seven functions of management in a small business enterprise.(b) For any four functions chosen, describe the activities managers must perform to achieve a desired goal.(c) List two problems managers might encounter in performing any one of the functions chosen in part (a).(d) Describe one way in which any one of the problems chosen in part (c) might be eased or solved.2. Define budgeting and a budget.3. List six types of budgets.4. Why is budgeting important to an entrepreneur?5. What are some of the problems associated with budgeting?Characteristics of small businessesSize definitionsThe legal definition of "small business" varies by country and by industry. In the United States the Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most non manufacturing businesses. The definition can vary by circumstance for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the health care reform bill Patient Protection and Affordable Care Act. The European Union generally defines a small business as one that has fewer than 50 employees. However, in Australia, a small business is defined by the Fair Work Act 2009 as one with fewer than 15 employees. By comparison, a medium sized business or mid-sized business has under 500 employees in the US, and fewer than 200 in Australia.In addition to number of employees, other methods used to classify small companies include annual sales (turnover), value of assets and net profit (balance sheet), alone or in a mixed definition. These criteria are followed by the European Union, for instance (headcount, turnover and balance sheet totals). Small businesses are usually not dominant in their field of operation.The table below serves as a useful guide to business size nomenclature.Business Size definitionsAUSUSEU

Minute/Micro1-21-6