FORM 1

CHAPTER ONE
INTRODUCTION TO BUSINESS STUDIES
OBJECTIVES
By the end of the topic, the learner should be able to;
a) explain the meaning of business studies;
b) explain the importance of business studies in society.
Meaning of business
Business refers to any activity that is carried out by an individual or an organisation concerning provision of goods and services
with a view to making profit.
Business studies is the study of the activities that are carried out in and around production, distribution and consumption of goods
and services.
Goods are items that are tangible e.g. furniture
Services are actions that can be sold e.g. teaching
Production is the creation of goods and services or increasing their usefulness through activities such as transporting them to
where they are required.
Distribution is the movement of goods and services from producers to the users.
Consumption means to use a service or a good to satisfy ones need.
Components/disciplines of Business Studies
1. Economics-this is the study of how human beings strive to satisfy their endless needs using the available scarce resources.
2. Commerce-this is the study of trade and aid to trade
3. Accounting-this refers to a systemic way of recording business activities which are used for decision making
4. Office practice-this refers to all the activities that are carried out in an office
5. Entrepreneurship-this is the study of the activities involved in the process of identifying a business opportunity and acquiring
the necessary resources to start and run a business.
Importance of Business Studies in society
 Assist members of society to relate the knowledge, skills and attitude acquired to the day to day business activities around
them.
 Equips the members of society with knowledge and skills necessary to start and run a business comfortably.
 Assist the individual in appreciating the role of business in provision of goods and services.
 Makes the members of society to appreciate the need for good business management practices
 Assist individual to acquire self-discipline and positive attitude towards work
 Equips individuals with abilities to promote cooperation in society through trade
 Enables the individuals to understand the role of government in business activities
 Equips individuals with abilities to understand the role of communication and information technology in modern business
management.
 Helps the individuals to develop positive attitudes towards the environment
 Equips the individual with knowledge and skills required to evaluate business performance.

Ways in which business studies may benefit an individual

 Equips an individual with skills and knowledge to manage a business
 Prepares one for future career in business/employment
 Enables one to relate issues affecting business/problems to its environment.
 Enables one to relate issues affecting business activities taking place globally
 Enables one to identify business opportunities to venture into
 Prepares one for further studies
 Enables an individual to think critically and make sound judgement in day to day activities
 Enables an individual to appreciate the role of government in business
 Makes an individual be disciplined and have positive attitude towards work
 Enables an individual to appreciate and take care of the environment
 Appreciate the role of technology in the country
 Enables an individual to evaluate business performance
 Enables an individual to learn other subjects
 Enhances cooperation of members of a society
 Able to appreciate the need for ethical practises in business
 Appreciate the economic issues in the country e.g. inflation unemployment
 Able to understand the role of business (trade and aids to trade)

CHAPTER TWO
Business and its environment
Objectives
By the end of the topic, the learner should be able to:
a) explain the meaning and purpose of a business;
b) identify& various business activities;
c) identify various types of business environments;
d) explain how the various business environments influence a business;
e) recognize the need for maintaining a healthy business environment.
Business is defined as any activity carried out by an individual or an organisation with an aim of making profit. It also refers to the
firms or entities that provide goods and services to make profit.
Purpose of business
a) To earn profit
b) Job creation
c) Provision of goods and services
d) To become an owner or manager
e) For prestige
f) To earn the government revenue
g) Earn foreign exchange for the country
h) Promotion of creativity and innovation among people
i) Facilitate development and transfer of technology
j) Leads to effective utilisation of available resources
k) Promotion of peace and understanding among people
l) Provides an opportunity to develop and exploit individual talents.
Types of business activities
There are many types of business activities, but the main ones include:
a) Extraction-obtaining goods from their natural setting e.g. mining, farming etc.
b) Processing of raw materials. Changing the form of goods without combining it with other goods
c) Manufacturing-combining different raw materials to come up with one final product
d) Construction like building of houses, roads etc.
e) Distribution of goods-moving goods from where they are produced to where they are needed.
f) Trade-buying and selling of goods with a view to making profit
g) Provision of services like insurance etc.

BUSINESS ENVIRONMENT
As defined earlier, business environment refers to CONDITIONS OR FACTORS THAT AFFECT BUSINESS
OPERATIONS.
Types of business environment
These factors that affect business operations are classified according to their origin i.e. those that originate from within the
business and those that originate from outside the [Link] there are two classes namely:
1. Internal business environment/micro-environment.
2. External business environment/macro-environment.

a) Internal business environment. This consists of factors that are within the business unit itself. It could either be
strengths or weaknesses of the business. Firms have influence and control over these factors. They include:
1. Objectives of the business
These ate targets or goals that are set by the owners or managers of a business to be achieved. The objectives will
influence the following;
a. The strategies of a business-This is a plan of action which a business intends to follow so as to achieve its
goals.
b. The resources required-By studying the objectives set; a business can determine the resources required for
its effective operation. These resources may be physical,financial,human e.t.c
2. Management policies and style
The management refers to the people who are responsible for directing the day-to-day operations of a business. It is
the management that sets the objectives and policies of an organization.
A policy is a course of action of action for achieving set objectives, which is adopted by a business.(it is the
established way of doing things in a business.
a) The policies of a business-The policies adopted by a business may boost or hinder its growth and survival e.g.
the management may decide that workers will not be allowed to join trade unions. This may make the workers
feel locked out of the decision making process, resulting in tension. This tension may interfere with the
performance of the employees and result in inefficiency.
b) The activities of a business-Management policies will determine the activities of a business i.e. the goods and
services provided, location of business e.t.c.
c) Management style-This refers to how managers conduct the daily operations of the business. This will
determine how workers relate with their managers. The style adopted by the management will influence the
workers performance positively or negatively thus affecting the overall performance of the business.
3. Business structure
This is the formal arrangement of activities that are carried out at various levels of the organization so that objectives of
the business can be achieved.
 Duties and responsibilities of all the workers are defined in the business structure. Their interrelationship are also
defined.
A well laid out business structure is likely to lead to success of the business since:
i. Each of the employees know what is expected from them
ii. There will be no conflicts or confusion among the workers
iii. Team work is enhanced
iv. Ensures proper control which is turn promotes efficiency.
A poor business structure leads to business failure.
4. Business Resources
A resource refers to anything that can be used to achieve an objective. These resources include;
a. Human resource-Human resource (personnel) refers to the employees working in an organization. Employees
will only be useful if they have the necessary knowledge and skills to successfully carry out the assigned tasks.
It is therefore necessary for the management to match the correct people with the correct job activities; this will
ensure success for the business.
b. Financial resource-Money is required in order to start and operate a business.A business with adequate
finances that are property allocated to various activities and also monitored is likely to do better than the one
lacking such aspects.
c. Physical resources-These include tangible facilities which belong to the business such as buildings, machinery,
furniture and stock. Availability of such facilities enables the business to operate.
d. Technology-This refers to skills and methods used in production. Use of modern technology enhances
production of goods and services.

5. Research and development

Research and development is an important factor for the success of a business. Research generates new ideas, skills
and better methods of doing things.
A business has to do market and consumer research regularly to find out how the consumers perceive its goods and
services, and how they can improve in order to outdo their competitors.
Research also assists in the development of new and unique goods and services that may attract new consumers or
maintain the loyalty of the existing ones.

6. Business culture
This is a combination of employees expectations, beliefs and values within the business. It is normally passed on
from one generation of employees to the next. Employees acquire norms and code of conduct that is acceptable to all
from the general manager down to the sweeper. A business that has a culture of involving employees in decision
making may perform better than one that does not involve its employees.

7. Owners
The owners of the business provide finances/resources to start and run the business. They also make decisions
concerning operations of the business.
Appropriate decisions are likely to lead to well being of the business while poor decisions may adversely affect the
business.
8. Communication
The success or failure of failure of a business depends on how communication flows internally and externally.
9. Innovations cultivated in the business.
10. Management policies and style.

b) External business environment/macro-environment

This environment consists of factors that affect business from outside of the business. A business has little or no control over these
factors. They include:
A. Economic environment that affect consumers buying abilities and preference in terms of level of income, level of prices, the
structure and levels of saving, credit availability and debt patterns.
B. Demographic environment. These are changes in the population in terms of age groups, distribution pattern, growth rate,
movement patterns and levels of education
C. Legal-political environment-Legal environment comprises of laws political stability and policies that regulate business
activities in a country. If the laws are favourable business will succeed. If on the other hand the laws are unfavourable the
businesses will not succeed. Political stability creates conducive environment for businesses to thrive. If there is political
hostility or unfavourable political climate the business cannot do well.
D. Cultural environment-Culture refers to the norms that regulate the behaviours of the people in a society. It dictates how
people live and what products they consume. Businesspersons should assess people’s culture so as to get information on the
opportunities that exist.
E. Competitive environment-This is where firms are trying to outdo each other so as to maximise profits. There are two types of
competition; generic and enterprise competition.
Generic competition is where different products are used for the same purpose.
Enterprise competition is where firms produce similar products and compete for the same market
F. Physical environment-These environment comprises of factors like climate, relief, infrastructure etc. if they are favourable
the business will succeed.
G. Technological environment- It refers to level of know-how, efficient use of tools and other equipment. Advanced technology
leads to high quality goods and services. A firm that uses out-dated technology may not compete favourably with a firm that
uses the latest technology in their production.
Ex.
 Differentiate between macro and micro environments of a business
 Outline seven types of business activities
 In groups of five discuss and list down factors that affect academic performance in your school
 Differentiate between generic and enterprise competition
 CHAPTER THREE
SATISFACTION OF HUMAN WANTS.
Objectives
At the end of the topic, the learner should be able to:
a) Explain the meaning and characteristics of human wants;
b) classify human wants;
c) explain the meaning of goods and services;
d) discuss characteristics of goods and services;
e) explain the meaning and characteristics of economic resources;
f) relate the concepts of scarcity, choice and opportunity cost to real life situations.
Human Wants are the desires that human beings strive to satisfy by using goods and services.
Satisfaction of human wants is the process of acquiring and using goods and services.
Characteristics of Human Wants.
1. They are insatiable -because they are endless and unlimited in number.
2. They vary in intensity and urgency. The amount of goods and services required vary from one person to another person and
from time to time depending on age, sex and situation.
3. They are competitive i.e. they compete for attention such that each one of them yearns to be satisfied first.
4. They are recurrent or repetitive. A particular want will demand to be satisfied over and over again because wants are not
fully satiable.
5. Some are universal. Some are common to all human beings though in varying quantities.
6. They are habitual. Once a taste for a particular product has developed, the person tends to use it over and over again.
7. They require resources for them to be satisfied.
8. They are complimentary i.e. satisfaction of human wants may create a need, a second want derived from the first.
Types of Human Wants
(a)Basic Wants/Needs/Primary Wants
These are the requirements that one cannot do without because they are necessary for life.
Examples: food, shelter and clothing.
They must be satisfied first before secondary wants.
Characteristics of basic human wants.
 One cannot do without them.
 They are felt needs.
 They cannot be postponed.
 They are satisfied before secondary wants.
(b) Secondary wants
These are requirements that one can do without but are needed to make life more comfortable.
Categories of secondary wants.
1. Comforts-wants that improve one’s living standard beyond the level of mere survival. Examples; furniture, Medicare, security
and education.
2. Luxuries-requirements that provide excess comfort. Examples; gold watch and diamond necklace.

Problems that consumers encounter as they try to satisfy their wants

 Resources to satisfy human wants are scarce hence the problem of choosing which wants to satisfy first
 Many human wants are recurrent hence the consumer has to keep satisfying them as they arise.
 Human wants keep changing with time hence some become unusable
 The complementary nature of some human wants makes it difficult to satisfy one leaving the other to be satisfied later
 It is difficult to decide which want to satisfy first since they are competitive.
 Human wants change with age.
Difference between basic wants and secondary wants
 Basic wants are necessary for survival while secondary wants are not necessary for survival
 Basic wants are universal while secondary wants vary from one person to another
 Basic wants are felt needs while secondary wants are not felt need but desired
 Basic wants are mainly satisfied at individual level while secondary wants are satisfied communally.
GOODS AND SERVICES
Goods are physical commodities that are tangible e.g. shoes while
Services are actions that can be sold e.g. teaching.
Characteristics of goods
1. They are tangible- can be touched.
2. They can be stored for future use.
3. Their quality can be standardised –quality can be made uniform through mechanisation.
4. They can change possession-through trade or donation
5. They can be seen
6. They can change in quality over time.
7. Some goods are movable while others are immovable
8. Goods can be owned or possessed.
9. Goods have utility.
Characteristics of services
 They cannot be touched and felt since they are immaterial.
 They cannot be stored for future use.
 Quality cannot be standardised due to varying quality over time or may be offered by different people.
 They cannot be separated from the provider.
 They cannot be seen.
 Services are perishable it expires immediately after it is provided
 Services cannot be owned by the buyer as the buyer only pays for the experience
 Have utility to satisfy human wants
 Services are mobile since they can be received or provided at different places or occasions
ECONOMIC RESOURCES
Economic resources are those resources that are scarce in supply and have monetary value. Examples: books and minerals.
Features of economic resources
1. Scarce/limited in supply-not available in sufficient quantities.
2. Have money value-they have a price which have to be paid for their use or transfer or for recording.
3. They are unevenly distributed-available in varying quantities at different places.
4. They have utility i.e. ability to satisfy a human want.
5. Have alternative uses i.e. may be put into different uses.
6. They can change ownership through sale, donation or as a gift.
7. They can be combined-to produce other goods and services.
8. They can be complimentary-they can be consumed together.
9. Have geographical mobility-Some can be moved from one region to another
10. Some are exhaustible while others are renewable

Classification of economic resources

Economic resources an be classified as:
(a) Natural resources-those that are made available by nature.
(b) Man-made resources-resources that are created by human beings to be used in satisfying human wants
(c) Human resources-human beings when rendering services during production.
(d) Renewable resources-their supply can be restored after use.
(e) Non-renewable resources-they are exhausted after use.

Scarcity, choice and Opportunity cost

Scarcity means that resources used in satisfying human wants are limited in supply.
Choice means to select among the many humans wants those to be satisfied using the limited resources.
Reasons why people make choices
 Resources are limited
 Human wants are unlimited
 Human wants are competitive
 Difference in tastes, fashion and preferences
 Differences in tastes, culture and beliefs
 Differences in prices of goods
Opportunity Cost is the value of the foregone alternative where choice has been made.
 CHAPTER FOUR
PRODUCTION
Objectives
By the end of the topic, the learner should be able to:
a) explain the meaning of production;
b) distinguish between the different types of utility;
c) distinguish between direct and indirect production;
d) describe the levels of production and occupations relating to each;
e) Discuss the factors of production and the reward for each;
f) Explain the role of division of labour in the production process;
g) Discuss the factors that influence the mobility of factors of production;
h) Classify goods and services produced in an economy.
Meaning of production
Production is the creation of goods and services or increasing their usefulness to become more satisfying. It includes converting
raw materials to finished goods, transportation and storage. Commodities produced must have utility to the user.
Utility is the ability of a good or a service to satisfy human wants.
Types of utilities
1. Form utility-changing the form of a commodity by converting raw materials to finished goods.
2. Time utility-storing of goods until they are required.
3. Place utility-bridging the geographical difference between producers and consumers through transportation
4. Possessive utility-transfer of commodities from one person to another e.g. through trade.
5. Natural utility-is the satisfaction derived by using a commodity in its natural state e.g. fruits and water.

TYPES OF PRODUCTION
1. Direct Production/Subsistence Production
2. Indirect Production/Specialisation/commercial production

1. Direct production is the creation of goods and services for one’s own personal consumption
Characteristics of Direct Production
 Commodities are of low quality and quantity.
 It involves limited division of labour and specialisation.
 Uses simple technologies
 Leads to low standard of living
 Less interdependence among producers
 Can be very tiring
 Does not encourage invention and innovation
 A lot of time is wasted moving from one job to another.
 Limited variety of goods and services are produced.
Limitation of direct production
 Limited exchange of goods and services
 Limited variety of goods and services due to production of similar products
 There is less specialisation leading to lack of skills and limited output
 Technological development is hindered since most of the production is by use of simple technology.
2. Indirect Production/Specialisation/commercial production
This is production of commodities with a view to selling the excess in order to acquire what one does not produce.
Characteristics of indirect production
 Production with a view of exchange/sale.
 Producer specialises in one or few areas.
 Results in surplus production.
 Production is carried out mainly on large scale
 Modern technology is employed in production.
 High quality goods and services are produced.
 Wide variety of goods and services are produced.
 There is more interdependence among producers.
 Common in developed economies.
Reasons why people are embracing indirect production
 To improve their standards of living
 To get what they may not produce
 To save time and energy
 To enhance peace and understanding as people come together through trade
 To dispose off their surplus produce
 To earn more income
 To acquire variety of goods and services

LEVELS OF PRODUCTION
1. Primary level/Extractive level
2. Secondary level
 3. Tertiary level
1. Primary level/Extractive level
This level of production involves extraction of goods from their natural settings. The products are either used in the state they are
obtained or processed further to make them more useful.
Occupations in this level are: Mining, Fishing, Farming and Lumbering.
2. Secondary level
Raw materials are transformed into finished product or into more useful forms.
It includes manufacturing, processing and construction.
Examples of occupation includes: maize milling, bread baking, road building, and railway construction.
3. Tertiary level
This level of production deals with the provision of services.
The services can be communal or direct personal services.
Commercial services are activities that are either trade or aid to trade. Occupations in this category include banking, wholesaling
etc.
Direct personal services are services that are rendered by individuals directly to the consumer. Occupations include teaching,
nursing and pastoral duties.

Factors of production and their rewards

These are the resources or agents that are necessary in the production process. They include:
a) land
b) Labour
c) capital
d) entrepreneurship
a) Land
Land refers to all natural resources like soil, rivers and climate. Land provides space for production and raw materials.
The reward for land is royalty, rent or rates.
Characteristics of land
 Basic factor of production
 Its supply is fixed
 Lacks geographical mobility
 Quality is not homogeneous
 Productivity can be increased by increasing quality and quantity of capital.
 It’s subject to the law of diminishing return
 It is a natural resource.
Reasons why land is a prime factor of production
 It provide space for production to take place
 It is a source of all raw materials/natural resources
 It is home for labour
 It is source of power
b) Labour/Human resource
Refers to human effort applied in production.
Can be physical or mental but in most cases both are combined.
Reward for labour is wages and salaries.
Labour can be skilled, semi-skilled or unskilled.
Characteristics of labour
 Basic factor of production.
 Cannot be stored.
 Cannot be separated from the labourer.
 Labourers sell their labour and not themselves.
 Its human resource with ability to think or get annoyed.
 Its supply can be varied.
 Its quality can be improved through education, training and experience.
 Its productivity can be affected by environmental and socio-cultural factors.
 Labour is mobile both geographically and occupationally.

c) Capital
It refers to all man-made resources used in production.
As a factor of production, capital refers to those goods that are produced to be used in producing other goods and services.
Examples: machines, tools and equipment.
Reward of capital is interest.
Characteristics of capital
 It is man-made resource
 It is a basic factor of production
 Its supply can be varied.
 Some forms of capital are geographically mobile while others are geographically immobile.
 Some capital items can become obsolete with time e.g. typewriters
 It is subject to depreciation
 Can be improved through technology
d) Entrepreneurship
In production entrepreneurship is the ability to organise other factors of production in appropriate proportions for effective
production.
The reward for entrepreneurship is profit/loss.
Entrepreneurship is carried out by an entrepreneur.
Functions of an Entrepreneur
 Controls the business
 Starts the business
 Makes decisions
 Acquires and pays for all the other factors of production
 Bears the risks and enjoys profits
 Pays expenses e.g. electricity
 Owns the whole project

DIVISION OF LABOUR AND SPECIALISATION

Division of labour is where a production process is broken down into stages and each stage is assigned to an individual or a group
of individuals.
Specialisation is where one concentrate in the production of what he/she can produce best leaving other people to produce other
commodities.
Advantages of Division of labour and specialisation
 Output per worker is greatly increased
 A worker can engage in a trade which she/ he is best talented or suited
 Specialisation encourages invention and innovation
 Division of labour makes it possible for greater use of machines in production which makes production fast and efficient.
 It enables a worker to acquire skills in a particular field
 Division of labour saves time
 Increases output of goods and services
 Facilitates easier planning and management of work
 It saves time due to less movement from one task to another.
 It leads to efficient use of tools and machinery.
 High quality commodities are produced
 Workers use less mental and physical efforts
Disadvantagesof Division of labour and specialisation
 Specialisation leads to monotony of work hence boredom
 It hinders creativity- people work mechanically like machines
 Specialisation makes a worker dependent on one trade which may lead to unemployment in case he/she loses demand in the
market
 Has led to unemployment due to increased use of machines
 Specialisation may make a country dependent on other countries
 Specialisation and division of labour brings many people together leading to social problems such as crimes.
 Lack of pride in the final product.
 If a few people stop working dueto a technical fault such as power failure the whole process of production stops.
Note: The problems resulting from specialisation can be offset by the benefits arising from increased standards of living and
human advancement.
Classification of goods and services produced in an economy
 Free goods/Non-economic goods-goods that are available in abundance as gifts of nature. They have no price but have utility.
Example: air.
 Economic goods-are those that are scarce in supply and have money value. Human effort is required to obtain them and must
pay a price for them.

 Producer goods/Capital goods-are those produced to be used in producing others. Example: machines
 Consumer goods- are goods that are readily usable by the final consumer or user. They satisfy human wants directly. Example:
food
 Perishable goods-are goods that go bad very easily unless stored using special facilities. Examples: tomatoes.
 Durable goods-are that will continue giving services for a long time and can resist spoilage cause by agents such as wear and
tear. Example: vehicles.
 Public goods-are those that belong to no one in particular but are owned by the government or by all of us collectively.
Example: road.
 Private goods-are those owned by individuals or group of individuals in their private capacities. Example personal car.
 Intermediate goods-are not ready for use before they are further processed. Example: sugarcane.
 Finished goods-are final products that come out of production in the required form. Example: ugali.
 Material goods – commodities that are tangible like food.
 Non-material goods- these are services e.g. teaching.
Classification of services in an economy
 Direct services are provided directly to consumers
 Commercial services are those that support the production process e.g. wholesaling and banking
Ex.
1. In groups of five identify five trends-new things that are taking place in production nowadays
that used not to be there
2. Discuss how division of labour is applied in your school.
3. List factors of production and their rewards
 CHAPTER FIVE
Entrepreneurship
Objectives
By the end of the topic, the learner should be able to:
1) Explain the meaning of entrepreneurship;
2) Discuss the importance of entrepreneurship to an economy;
3) Describe the characteristics of an entrepreneur;
4) Generate business ideas;
5) Identify a business opportunity;
6) Evaluate a business opportunity;
7) Explain the need for a business plan
8) Discuss the factors that may influence entrepreneurship practices in Kenya;
9) Discuss the causes of business success.
10) Recognise the need for ethical practices in business
Meaning of entrepreneurship
Refers to the process of identifying a business opportunity and getting the necessary resource to start and run a business. It can
also be defined as coming up with a new business idea and mobilising the necessary resources to start a business.
An Entrepreneur is person who creates new businesses or transforms the existing in the face of risk and uncertainties in order to
make profits.
Importance of entrepreneurship to an economy
i. Creation of employment –it helps in creating jobs for the jobless people
ii. Formation of capital- entrepreneur create capital through the profits they make
iii. Reducing rural-urban migration –they set up business in rural areas hence reducing rural–urban migration
iv. Raising standards of living-they avail goods and services, provide salaries and wages to their employees.
v. Saving on imports-they discourage importation of goods by producing them locally.
vi. Improving infrastructure-they set up business in places forcing the government to improve infrastructures in such places
vii. Reducing foreign dominance of the economy-their participation helps in reducing number of foreign businesses
viii. Making use of local resources-they help in proper utilization of the locally available resources
ix. Promotion of technology-they are creative and hence help in development of technology in the country
x. Promotion of entrepreneurial culture successful entrepreneurs act as role models hence encouraging others
xi. Generation of personal and national incomes-they help in generating national income through taxes
xii. Promotes innovation and creativity among people.-through competition people become creative in order to beat others in the
market
Characteristics of an entrepreneur
1. Desire to achieve-have a great desire to run successful businesses by setting targets and using their effort to achieve
them.
2. Future focused-ability to watch trends and tell what people might need in future.
3. Ability to solve problems
4. Ready to take risks-putting money into new businesses whose profits are not assured.
5. Initiative
6. Internal locus for control-attaches or blame their success or failure on themselves without blaming anyone else.
7. Time conscious-no time wasted as they treat time as any other resources.
8. Creative and innovative-coming up with new ideas and new methods of doing things
9. Independent/autonomy-they desire to be their own bosses and don’t like taking orders from other people.
10. Self-confidence-believe in their own abilities.
11. Effective leadership-they make decisions objectively and confidently and also lead by example.
12. Persistent and patient-they don’t give up easily when the going is tough. They are not in a hurry to realise their dreams.
13. High levels of tolerance-they are able to accommodate business fluctuations and unpredictable outcomes.
14. Open minded-they don’t prejudge situations.
15. Goal setting/oriented-they plan and monitor whether set goals are being achieved and what improvement can be made to
achieve them in the business.
16. Aggressive-they think like winners, not losers.
17. Seek information
18. Concern for high quality product
19. Opportunity seekers-through keen observation of their surroundings.
20. Committed to work
21. Hard working-they put in long working hours of work to ensure they succeed.
22. Concern for customer’s satisfaction
23. Desire for feedback

BUSINESS IDEA
A business idea is a notion that if translated into action may generate income.
Sources of Business Idea
 Newspapers, Magazines
 Shows, exhibitions and trade fares
 Copying and improvisation of existing products
 Innovation and creativity which may lead to a new idea or product.
 Internet resources such as websites twitter and Face book.
 Combination of two or more business ideas into one venture.
 Hobbies and one’s personal skills can lead to a business idea.
 Vocational training and experience
 Waste products
 Listening to people and paying attention to one’s surrounding.
 Conducting market research/survey to determine consumer needs
 Spotting a market gap/Niche

Q1: State four ways of implementing a business idea

Q2: How can one evaluate a business idea?

Business Opportunity
It is a favourable chance that an entrepreneur accepts for investment. Alternatively, a business opportunity refers to the market
gaps that an entrepreneur endeavors to fill.
Examples of business opportunities:
 Unavailability of products
 Poor quality products
 Insufficient quantities
 Unaffordable prices
 Poor services
A business opportunity may arise from:
 Carrying out market research
 Changing consumer patterns due to changes in tastes and preferences.
 Change in technology.
 Existence of market niche or gap
 Change in government policy.
 Occurrence of calamities
Evaluating a business opportunity
This means assessing whether the identified opportunity is viable or not
It should be done carefully, systematically and without emotions.
Evaluation is necessary even where there is only one business idea.
Evaluation helps to avoid starting a business that cannot succeed.
Factors to consider when evaluating a business opportunity
1. Personal consideration
 Objectives for venturing into business
 Skills required starting and running the business.
 Commitments of the entrepreneur
 Interest by the entrepreneur

2. Business consideration
 Availability and size of markets
 Market dynamics such as changes in income, trends in buying and levels of inflation.
 The possible level of return i.e. profitability of the business.
 Technology required to run the business e.g. appropriateness,cost, availability, adoptability etc.
 Availability and price of raw materials
 Government requirements or policy
 Amount of capital required
 Level of competition
 Difficulties in marketing
 Possibility of expansion
 Impact of the business operations on the environment
 Security
 Level of development of infrastructure

BUSINESS PLAN
A business plan is a written document that highlights the objectives of the business and steps to be followed in achieving the set
objectives.
Contents of a Business Plan
A. Business description
This section contains the name, location, nature of business and the date of commencement. Background information of the
business and the owners are also given in this section.
B. Product description
Defines the product to be provided by emphasising any unique or special features in comparison to those that may be exist in the
market.
C. Market strategy
Potential customers are identified and strategies on how to attract them outlined. It should also include promotional strategies,
selling methods etc.
D. Organisation and management
The key management personnel and what each will do, their qualifications and the salaries they will earn are described in this
section.
E. Operation and production
Indicate places of operation or the workshop layout including the tools, machinery and equipment necessary to perform tasks.
F. Finance
This section gives a three year projection of the following; Sources and application of funds, initial and projected balance sheet,
annual profits and loss statements and break even analysis.
G. Executive summary
Gives a brief summary of each section covered in the plan. The purpose is to give precise information on each of the components
as an introduction to the plan. This section is written last but appears in front pages of the document to give the reader brief and
precise information on the business idea at the outset.
Need For a Business Plan
 Avoiding unnecessary mistakes
 Identifying strengths and weaknesses
 Its a requirement by financiers
 Enhances determination of the finance required
 Allocation of resources
 It’s a motivating factor
 It forces the owner to think through a business idea in a clear and systematic manner to ensure that he /she understand the kind
of business to set up.
 It’s a proof that the owner has the ability and commitment to the idea.
 It tests the idea on paper before implementation. It is much easier to see an idea fail on paper than plunge into it and see that it
actually fails after resources have been used.
 It serves as a blueprint for starting, operating and expanding an enterprise.
 Tool for control.
Factors that influence entrepreneurial practices
 Government policy-favourable government policies tend to encourage many people to go into business while unfavourable
ones will tend to discourage them.
 Infrastructure-availability of good infrastructure tends to encourage people to set up businesses while poor infrastructure tends
to discourage them.
 Levels of education and skills-entrepreneurs with appropriate education and skills can succeed than one without such skills and
education.
 Availability of markets will encourage existing entrepreneurs to continue producing goods and also attract new ones to venture
into business.
 Availability of resources
 Culture-determine the kind of commodities that people will consume hence the type of business to be established in such
communities.
 Competition-business will succeed if it is able to ward off competition or operate in areas least competition.
 Political stability provides conducive environment for business to start and thrive.
 Natural factors like rainfall and earthquakes.
 Presence of role models/interaction with successful business people who may inspire/create interest in
entrepreneurship/business ownership.
 Availability of capital or credit facilities may facilitate entrepreneurship
 Security—that ensures the safety of business
 Good governance that ensures transparency or accountability in conducting business activities
 Availability of technology that lead to the production of desired quality/ quantity of goods
 Need to be self-employed or for others

Causes of business success

a) Ability to manage people i.e. hiring, assigning duties, supervising training and motivating.
b) Proper location/availability of customers
c) Availability of raw materials/stock of goods
d) Adequate finance/capital to run and expand the business.
e) Availability of adequate labour supply.
f) Appropriate skills in both the owner and employees for efficient running of the enterprise.
g) Use of modern and appropriate technology for the production of right quality and quantity of goods and services.
h) Fair competition to enable the business to access markets and suppliers for its goods and services.
i) Favourable government policies to encourage growth and investments.
j) Political stability and security to create certainty and confidence in entrepreneurs.
k) Appropriate pricing policies to attract and encourage growth and investments.
l) Good time management to take advantage of available opportunities.
m) Good customer relation and care to attract and retain clients.
n) Commitment to the business
o) Proper management of finances e.g. acquisition of finances, managing cash and proper record keeping.
p) Proper debt management
q) Being creative and innovative
r) Proper market research
s) Availability of good infrastructure for the business to access it markets and inputs.
t) Proper business planning so that appropriate strategies can be developed to accommodate unexpected changes.
u) Efficient use of resources to enhance productivity of the enterprise.

ETHICAL ISSUES IN BUSINESS

Business ethics are moral principles that control or influence employees behaviour. It deals with how values and principles affect
business operation.
Need for Ethical Issues in Business
1. Ensures no discrimination in business
2. Creates fairness in competition
3. Ensures protection of the environment
4. Ensures fair play in competition
5. Helps in avoiding environmental degradation
6. Helps in avoiding environmental pollution
7. Ensures rights of employees are upheld
8. Eliminates use of unfair means of achieving business objectives
9. Avoids consumer exploitation through:
 Overcharging them
 False advertisement
 Selling poor quality goods
 Selling wrong quantities
 Selling harmful commodities

N/B a business can uphold accepted ethics by:

 Obeying the laws of the land
 Being fair to employees in terms of payment and not discriminating them.
 Fair business practices with its competitors.
 Zero tolerance to corruption in its dealings.
 Responding to community, social and economic needs through corporate social responsibility.
 Being fair to customers by providing good quality goods and services.
 Being fair to suppliers
 Conserving the environment
 Responsible product promotion activities and advertisements of its goods and services.
Emerging issues
 Automation
 Restructuring of business operation
 Mergers and takeovers
 HIV/aids
 Management styles
 Franchising
 Employment of senior management staff on performance contracts
 Being socially responsible to improve the image of the business
 Use of suggestion box to get feedback from customers

CHAPTER 6
THE OFFICE
Objectives
By the end of the topic, the learner should be able to:
a) explain the meaning of an office;
b) explain the functions of an office;
c) describe the various office layouts;
d) explain the uses of various office equipment;
e) discuss the role of filing in an office;
f) discuss the duties of various categories of office staff
g) describe essential qualities of each category of office staff
h) discuss trends in office management.
Meaning of an office
An office is a place, a room, or building set aside in an organisation where communication, secretarial, accounting, administration
and clerical work take place.
Functions of an office
1. Receiving and recording information
2. Distribution/dissemination of information
3. Mailing-processing and sending out letters and parcels.
4. Reproduction of documents using typewriters, carbon copying, photocopying, duplicating and printing.
Factors to consider when choosing a method to use in reproduction include;
 Cost of production/reproduction,
 Nature/type of document
 Urgency,
 Quality
 Availability of the means
 Confidentiality.
5. Safeguarding and controlling of organisations property. These can be done by:
 Improving security like from malicious damage and theft
 Ensuring physical care by those using the property
 Keeping records of movement of the property
 Physical stock-taking of each property
 Insuring the property
 Proper repairs, servicing and maintenance of the property
6. Communication –receiving, recording and analysing information before distribution.
7. Filling-storing of received information in different ways like memory cards.
Characteristics of a good filing system
 Should be simple to understand and to operate
 Should not occupy too much space
 Should be appropriate for the needs of the organisation
 Should be flexible to accommodate future needs
 Should provide protection to documents against theft and landing in unauthorised hands
 Should be easy to retrieve information
 Should not be expensive to start and to operate
 Should be easy to locate related documents
Role of filling in an office
 Facilitates easy access to documents
 Makes the office to appear tidy because documents are put together and in acentral place
 Preserves information for future references
 Protects information from loss
 Information is kept away from unauthorised persons
 It’s a legal requirement for some documents to be kept for some time
 To save on space that would have lost when documents are not filled
 Can be used as evidence in case of disputes
 Filled documents can be used for planning in future.

The factors that a firm will consider before choosing a filling system
 The type of documents handled by the firm
 The size of the firm
 Ease of reference
 The quantity of documents handled by the firm
 The length of time that the documents are retained
 The nature of the business and types of transactions handled by the firm
 Affordability of the system
 The need for future expansion of the system
 The relative importance of the documents or confidentiality of the information in the documents.
The main filling systems
 Alphabetical filling system-according to the alphabetical order
 Numerical filling system-arranged in numerical order
 Alpha-numerical filling systems-combines both numeric and alphabetical orders
 Geographical filling system-based on geographical locations r
 Subject filling system-based on subject like marketing
 Chronological filling system-they are arranged according to dates.
Advantages of using electronic filing systems
 Requires little office space
 Easy and fast retrieval of documents
 It is relatively inexpensive
 It is easily adaptable to the future requirements of a firm
 Information is secure since they are secured using passwords
 Easy to operate
 Provides for various storage devices that one can choose from
 Provides for backups
 Provides for long term storage of information
 The devices are portable hence one is able to carry a lot of information
 Information can be accessed by people far away through the internet
 It possible to store information in the cloud hence more security for the documents
Disadvantages of using electronic filing system
 Only suitable for areas with electricity
 Operation may stop when there is power shortage
 Information may not be accessed when computer system break down which may lead to stoppage of operation
 Storage devices can be damaged easily leading to loss of stored information
 Viruses can destroy information stored in computers hard disk
 Hackers may access the confidential information stored in computer hard discs.

OFFICE LAYOUT
Meaning of office layout/Office Plan
Office layout refers to the outlook, arrangement and positioning of furniture and equipment in an office.
Factors to consider when choosing an office layout
 Work flow-the work should flow in one direction so as to save on time
 Minimal movement-so as to save on time moving from one point to another
 Supervision-workers should be reached easily
 Working space-should be enough for each employee
 Proximity to equipment- to avoid unnecessary movement
 Office appearance-should be pleasant
 Communication-should promote communication
 Legal requirements-should meet the legal requirements like proper ventilation and sanitation for the employee to work in.
 Staff to be accommodated in relation to their roles and their grades
 Cost of the layout
Types of office layout
i. Open office layout
ii. Landscape office layout
iii. Enclosed /partitioned office layout

1. Open office layout

This is where all staff members work in one large room. They are grouped according to departments.
Advantages of open office layout.
 Easy supervision
 Cheap to construct due to less partitions
 Easy to locate workers
 Minimal movement of staff hence save on time
 There is no misuse of office equipment and machinery due to close supervision
 Encourages teamwork
 Sharing of office equipment is possible
 Easier and cheaper to reorganise the office when need arises
 There is easier communication between various departments
 Saves on floor space
 Cheap to decorate/maintain
 Discourages absenteeism
 easy to organise the office when need arises
 faster flow of work due to reduced movement or working together
Disadvantages of open office layout
 Senior workers are not placed in the areas of privacy
 Untidy and un-business like in appearance
 Not conducive to work in due to overcrowding, air conditioning and lighting.
 Distraction from noise and fellow workers
  Contagious diseases like TB may pass from one employee to others easily.
 Difficult to have private discussions and consultations management
2. Enclosed/partitioned office layout
This is where one or two employees occupy one office with their designation and/or names pinned on the door.
Advantages of enclosed office
 There is privacy for confidential discussions or consultations
 There is less noise and disruptions from workers and machines.
 Provide an appropriate working environment
 Confer status to top level employees
 The required conditions in a room like lighting may be controlled according to ones need.
 Provide security for valuable and sensitive items.
Disadvantages of enclosed office
 No close supervision of workers
 Expensive to construct and to maintain
 Encourages absenteeism
 Time is wasted moving from one office to another
 Encourages laxity in the office
 Reduces interactions between management and other employees
 Office facilities may be misused
 Facilities cannot be shared which lead to their under utilisation
 Require more communication facilities to cater for each room which may be expensive.
3. Landscape office layout
Advantages of landscape office layout
 Promotes teamwork
 Promotes sharing of office equipment and machinery
 Easy to supervise workers
 Maintenance cost is low
 Easy to locate workers
 Discourages absenteeism
 Attractive and conducive to work in because of decorations
Disadvantages of landscape office layout
 Disruption from colleagues and machines.
 Expensive to construct and to maintain.
 Senior officers are not placed in areas of privacy.
 Confidential work may not be conveniently done.
 Inclined to beauty than being an office.

OFFICE EQUIPMENT
These are facilities used in an office to make work easier and efficient
Role of office equipment
 Speed up and to simplify work
 Enhance neatness and accuracy
 Ensure security of documents and other valuables
 Provide comfortable working environment
Types of office equipment
General office
 Guillotine-trimming documents into required shapes and sizes
 Paper punch-making holes for filling
 Stapling machine-pinning papers together
 Staple remover-remove pins from papers
Mail room
 Folding machine-folding letters and sealing envelopes
 Franking machine-printing postage impressions on envelopes
 Addressing machine-printing addresses on mails
 Sorting machine-sorting letters
 Letter opener-opening letters
 Composite-folding documents, placing them in envelopes and sealing the envelopes.
 Stamp moistening device-to wet stamps in order to affix them on envelopes
Typing pool
 Type writer-for typing documents
 Dictating machine-making shorthand dictations and recording information on tapes
 Paper shredder-cutting unwanted papers into tiny pieces to avoid such documents getting into wrong hands
 Duplicating machine-reproducing documents from a master copy.
 Communication
 Telephone-send and receive verbal messages
 Telex-printing messages which are telexed
 Fax-transmit printed messages like maps using telephone lines
 Answering machines-to record telephone calls when there is no one to answer the phone.
 Computers-for sending and receiving electronic mail
 Paging devices-to alert someone that they are required elsewhere or to get in touch with the office
 Radio calls-for sending and receiving calls
Duplicating
 Photocopier-reproduce documents
 Printing machine-reproduce documents
 Stencil duplicator-reproduce documents
Accounts
 Adding machine-adding and subtracting figures
 Cash register-preparing cash registers
 Calculators-calculations like addition and subtractions
 Accounting machine-posting information to ledgers
 Computer- accounting operations.
 Money counting machine-counting coins and notes.
Other office equipment
 Chairs, desk, tables and stools
 Filling cabinets-storing documents
 Safe-storing valuable items
 Trays-for incoming and outgoing documents in an office.
Advantages of office machines
 Saves on labour because it require few staff
 Faster hence saves time
 Accurate
 Output is more presentable
 Assist in controlling activities like fraud
 The output is uniform
 Reduces monotony of work
 Saves on cost

Disadvantages of office machines

 The initial and running cost is high
 Breakdown of machines may lead to stoppage of work
 Contributes to unemployment
 They become out dated due to advancement in technology
 Some machines require skills to operate hence the need to train or hire new staff to operate the machines
 Some require special materials and stationery
 May lead to huge losses if handled carelessly
 May make the members of staff to be dependent on the machines.

Factors to consider when selecting office equipment

 Cost-initial, running and maintenance cost
 Adaptability-ability to cope with future changes and development
 Possibility of hiring rather than buying
 Durability
 Effect on staff morale
 Availability of complementary resources
 Availability of manpower
 Availability of room
 Security of the equipment

OFFICE STAFF
Office staff refers to a team of employees who work to achieve the organisations goals.
Categories of office staff
i. Managerial staff-they formulate policies and supervise the activities in an organisation.
ii. Junior staff-carry out activities assigned to the by the managerial team.
iii. Subordinate staff-unskilled employees who perform non-specialised duties in organisation.
 Essential qualities of office staff
1. Personal attributes
 Physical appearance
 Hygiene
 Posture
 Moral behaviour
 Good health
2. Office etiquette
 Respect-show regard to other people according to their rank.
 Punctuality-able to keep time in attending duties
 Courtesy-handling people politely, pleasantly and with consideration
 Loyalty-commitment to the work one is doing and to the organisation.
 Honesty-telling the truth and being sincere
 Cooperation-ability to work with others as a team.
 Diplomacy-ability to convince others tactfully.
 Judgement-ability to make a ruling or a decision.
 Accuracy-performing duties with excellence.
 Initiative-ability to create and implement ideas.
 Initiative and innovative
 Use of office time well.
3. Personal knowledge and skills
 Knowledge
 Skills
Trends in office management
a) Computerisation-employment of computers in the organisations operation.
Uses of a computer in organisation
 Data processing-as it sorts, analyses, or organise data
 Storage of information/filling
 Production of documents either in soft copy or hard copy
 Assists in research by linking with various sites
 Communication
 assist in decision making since it has special programs which may facilitate decision making by giving meaningful output
 capacity building/ training /staff development/it is atool for training during staff orientation/presentation/induction
 recreation /entertainment-has accessories for games/music/movies which can be used for relaxation or while working
 data input/capture by typing/scanning/photographing/recording/punching
 tool of supervision by monitoring employees activities online/through systems of administration
 security through password/pin code/raising alarm/signals/alerts/warning control fraud
Advantages of a computer
 Economises on space
 Speeds up operation
 Output is presentable
 Can store large volume of information
 Facilitates communication
 It is accurate
Disadvantages of computers
 May lead to unemployment
 Inhibits innovation
 May lead to monotony
 Require backup
 Require skilled manpower
 Expensive
 Confidential information may be accessed by unauthorised person
 Requires electricity
 Can be attacked by computer virus

b) Change in office layout to either open or landscape layout.

c) Creation of customer care departments

d) Increased use of cell phones

e) Relocation of offices from town centres to suburban places

f) Change in procedures and routines

g) Use of modern methods of technology like website

h) Introduction of identification badges for employees in an organisation

i) Teleconferencing

j) Merging of duties

k) Wearing of corporate casual dress on particular days of the week

l) Phasing out of stencil and duplicating machines.

 CHAPTER 7
HOME TRADE
Objectives
By the end of the topic, the learner should be able to:
a) explain the meaning and importance of trade;
b) classify trade;
c) explain the forms of home trade;
d) discuss the types and functions of retailers;
e) discuss the types and functions of wholesalers;
f) describe the documents used in home trade;
g) describe the documents used in home trade and the circumstances under which
they are used;
h) Explain the terms of payment used in home trade and circumstances in which they are used.
Meaning of trade.
Trade is the buying and selling of goods and services with an aim of making profit.
Importance of Trade
1. Helps people to acquire what they may not produce
2. Avails a variety of goods and services
3. Helps producers to dispose of their surplus
4. Creates employment
5. Encourages specialisation and division of labour
6. Promotes social relations and understanding among the parties involved
7. Provides revenue to the business people and the government
8. Ensures steady supply of goods and services
Classification of trade

Trade

Home trade/local trade Foreign

trade/internation
al
Wholesale trade Retail trade Import Export

Forms of local trade

1. Retail trade
Retail trade is the buying of goods and selling them to the final consumers.
Types of retailers
a) Small scale retailers
Features of small scale retailers
 They are owned by one person or a group of people
 They are small in size
 They are easy to start and run
 They require little capital to start
 They sell fast moving commodities
 They are common everywhere
 Some operate in open air while others operate in shops
Classification of small scale retailers
1) Small scale retailers without shops
i. Itinerant traders
They move around selling their goods usually in bicycles, motor cycles, or on foot. They move from village to village or from
town to town selling items like clothes, plates, cups, and basins. Examples of itinerant traders are hawkers and peddlers. Peddlers
walk around while hawkers use bicycles, carts or motorcycles.

Characteristics of itinerant traders

 Found mainly in densely populated areas
 Move around in search of customers
 They are very persuasive
 Their prices are not controlled

Advantages of itinerant traders

 They are flexible i.e. they move from place to place
 Require little capital to start and to operate.
 Convenient in that they take goods to the customers
 Few legal formalities are required
 They sell on cash basis hence do not suffer bad debts
 They are in close contacts with customers
Disadvantages of itinerant traders
 They are affected by weather changes
 It is difficult to transport goods to various places
 They do not offer guarantee in case the items are defective
 They sell limited types of goods
 They are harassed by local authorities
 They do not have regular customers since they don’t operate from fixed premises
ii. Road side sellers
They selltheir goods in places where people pass e.g. along busy roads, bus stages or road junctions. They place their goods on
trays, card boards, sacks or mat. They usually deal in fast moving goods like sweets, roasted maize fruits etc.
iii. Open- air market traders
 Anopen air market is a place set aside by the government where people meet to buy and sell goods. Open air market traders are
traders who sell their goods in open places such as the roadside, open air markets and bus stages.
 Traders pay entrance fee to be allowed to sell their fast moving goods
 The market is administered by the local authority
 The market is organised in such a manner that traders selling similar goods are allocated specific area.
 They usually open on specific days of the week
Advantages of open air market traders
 Require little capital to start and operate.
 Low operating costs since they do not pay monthly rents and salaries
 There prices are not fixed and tends to be low
 They sell on cash basis hence have no bad debts
 They are more responsive to customer needs as they tend to sell items that are in high demand by customers
 They are flexible
 Few legal formalities only trade licences are required.
Disadvantages of open air market traders
 They sell limited types of goods
 They are affected by weather changes.
 They do not have regular customers since they do not have permanent premises to operate from.
 Their goods have no warranty
 They are constantly harassed by local authorities leading to loss of business wares
 They face stiff competition from other businesses
 The markets have been neglected by the local authorities/poorly managed
iv. Automatic vending machine
These are machines used for selling commodities like drinks and stamps.
Coins are inserted into the machine depending on the price of what you want to buy.
Examples of vending machines include juke-box and telephone coin boxes.
Advantages of automatic vending machine
 They offer goods throughout the day.
 They are fast
 They reduce chance of fraud by employees
 They are cheap to operate since they don’t require a sales person
 They economise on space
Disadvantages of automatic vending machine
 They are expensive
 Sometimes they break down/require regular servicing.
 They can be vandalised by thieves
 Sometimes they run out of stock
 They sell a limited range of products
 There is no personal contact with customers
 They require regular servicing
 Goods can be stolen by thieves
2) Small scale retailers with shops
i. Single shop/unit shops
This is a shop that is run by one person and who may get assistance from his/her family or employed attendants.

Advantages of unit shops

 They may give credit to credit worthy customers
 They use cheap/free labour from family members
 They are flexible
 Easy to start since it only requires a trade licence
 Require a small amount of capital
 They have regular customers since they operate on a permanent premises
Disadvantages of unit shops
 Inadequate capital to expand the business
 They face stiff competition from supermarkets
 The owners tend to overwork themselves
 Their prices are usually high
 They sell limited type of goods
 Their operation is affected by health or commitment of owners and assistants and at times they remain closed
ii. Tied shops
These shops sell products of one particular manufacturer. They are owned or controlled by the manufacturer. The manufacturer
designs the organisation of the shop and its appearance. They do not sell products from other manufacturers without authority
from the manufacturer. Examples include Bata shops, total petrol stations etc.
Features of a tied shop
 Shops have similar appearance
 Sell goods from one manufacturer or supplier
 Prices are controlled by the supplier or manufacturer
 They sell standardised commodities
 Manufacturer supply goods on credit
 Retailers get licences from suppliers
 Shops use advanced technology from supplier
Advantages of tied shops
 They are financed by manufacturers
 Their products are standardised all over the country
 Their advertising expenses are met by suppliers
 They have loyal customers due to their unique branding
 They are better managed due to advice they get from financiers
 Easy to make profits due to financing from suppliers
Disadvantages of tied shops
 They don’t sell competing products
 Low profit margin due to fixing of prices by suppliers
 Difficult to make decision due to consultation
 Expensive to acquire a licence from suppliers
 Do not allow creativity and independences to the shop owners since they use them only as outlet for their products
 Difficult to control tied shop owners
iii. Kiosks
These are small shops or simple structures that sell fast moving goods like newspapers and soft drinks.
They are located in strategic places like the corner of busy street residential areas or inside a building where people pass by or
work in.
Advantages of kiosks
 They give credit to credit worthy customers
 Require small capital to start and operate
 Located near customers
 They offer personal attention to customers need
 Easy to construct
 Few legal formalities when starting
 Easy to construct
 Have low operating cost
 Have loyal customers
 They are flexible
Disadvantages of kiosks
 They do not enjoy economies of scale
 Limited capital for expansion
 Offer limited range of products
 They face stiff competition from other established businesses
 They sometimes suffer bad debts
 They are sometimes affected by severe weather changes
iv. Market stalls
These are permanent stands found in market [Link] open on daily basis.
The stalls are constructed and owned by local [Link] stall deal in a particular good or service and designed depending on
the type of good or service [Link] rent or lease the stalls from the local authority.

v. Canteens
These are retail shops found in institutions like schools and hospitals. They sell to people working in the [Link] can be
run by the institution management or by individuals on retail [Link] offer a variety of goods to their customers.
vi. Mobile shops
These traders move from town to town selling their goods on vehicles.
Advantages of mobile shops
 Simple to start and manage
 Easy to raise capital and start
 Few legal requirements to start
 One can use cheap labour from family members
 Small risks involved
 Wider market due tom constant movement
Advantages of small scale retailers
 Easy to raise capital
 Retailers are in close contacts with the consumers and may give them credit.
 They use cheap or free labour from the family
 Risks involved in their business is small
 The business is simple to start and to operate
 Few legal formalities are required to start and run the business.
 The business is flexible
Disadvantages of small scale retailers
 Limited access to loan
 They may not afford to hire specialist or technical staff
 They may suffer bad debts if they give credit to customers who is not credit worthy.
 They do not enjoy economies of scale
 They have low turnover because of little capital invested
b) Large scale retailers
Characteristics
 Require large amount of capital
 Operate mainly in urban areas where there is large population
 They do not give credit since they sell on cash basis.
 They stock a wide variety of goods ranging from foods, detergents, clothes, furniture and utensils.
 Buy goods in large quantities from wholesalers or producers hence they are able to sell goods at low prices
 Require the service of specialists
 Most of them have their own fleet of transport vehicles to transport their goods from the manufacturer
 Most of them are able to undertake their own advertising and sales promotion
 They may occupy one big room or several premises located in various parts of the country.
Types of large scale retailers
A. Supermarkets
A supermarket is a large self-service store that deals mainly with household [Link] are well displayed on shelves and each
article has a price tag.
Features of supermarkets
 Require large capital to start
 Stocks a variety of goods
 Offer self-service facilities
 Goods have price tags
 Prices of goods are fixed hence no bargaining or haggling.
 No credit facilities offered
 Cashiers are stationed at the point of exit
 Basket and trolleys are provided for customers
 They are large and spacious to allow for free movement
 They have no after sales services
 Sells at comparatively low prices
Advantages of supermarkets
 They buy goods in large quantities therefore able to offer lower prices for their merchandise than other retailers.
 Customers are able to obtain variety goods they require under one roof hence able to save time.
 No wasting of time as customers picks the goods they require and pay for them at the counter without bargaining.
 They employ fewer attendants hence saving on cost
 More sales due to impulse buying
 They don’t suffer bad debts-they sell on cash basis only.
 They offer parking facilities to customers.

Disadvantages of supermarkets
 No credit to customers hence losing customers
 No delivery of goods to customers
 Found mainly in urban places, hence not accessible to ordinary shoppers
 Limited after sales services such as transportation and installation make customers shop elsewhere.
 Some customers prefer shopping where they can bargain hence the supermarket lose sales.
 They do not offer personal attention to customers since they are self service stores. Customers waste time locating goods on
shelves.
 Overcrowded supermarkets cause discomfort to customers
 They sell fast moving goods hence limiting consumer’s choice.
 Pilferage of goods may result in losses
 Customers may buy goods they may not require-impulse buying.
 Long queues at the cashiers counters discourage customers
B. Chain stores/multiple stores
These are large scale businesses with separate branches which are managed and organised [Link] branch manager is
accountable to the head office. They deal in the same line of products like foodstuff or [Link] include ART, Deacons,
commercial banks, Nakumatt and Uchumi supermarkets
Characteristics of chain stores
 Purchases are done centrally
 Standardised prices for all branches
 Sales are decentralised to branches
 They operate from permanent premises
 Administration is done from the headquarters
 Goods are freely transferable from one branch from one branch to another depending on their demand
 They operate several branches
 All branches deal in the same type of products
 They are uniform in outward appearance and interior layout
Advantages of chain stores
 They offer low prices for their goods due to large scale purchases
 Costs such as advertising is shared by all the branches
 Slow moving goods can be moved to a branch where the demand is high.
 Uniform appearance publicise the business
 They serve a wider market due to country wide branch network
 There are reduced cases of bad debts.
Disadvantages of chain stores
 Require large amount of capital to start and operate
 They may record low sales because people may shy away from buying identical products.
 They do not offer credit facilities
 Lack of personal touch with customers
 Employees may feel demoralised because they are not in touch with the employer.
C. Departmental stores
A departmental store comprises of many single shops under one roof and one management. Each shop is referred to as a dept.
Each department deals in a different line of goods and is controlled by a dept. manager.
The dept. manager buys for his dept. although sometimes it’s done centrally. The dept managers report to a general manager.
General Services such as transport and finances are done centrally. They are normally located in the central business districts
(CBD) of big towns.
Characteristics of departmental stores
 They offer a wide variety of goods at relatively lower prices.
 They are attractive and convenient to shop in.
 They are usually situated in town centres.
 They operate in big buildings that accommodate various departments.
 Goods are not transferable from one dept. to another
 They may provide services such as restaurants etc.
 Each dept. is under a dept. manager dealing in a different line of goods.
 All departmental managers are answerable to a general manager.
N/B; they are not common in Kenya as they require a very large amount of capital to start and maintain
Advantages of departmental stores
 Customers can buy a wide variety of goods under one roof.
 They sell their goods at lower prices.
 They employ specialised staffs who provide quality services.
 They open for long hours.
 They offer adequate parking facilities to customers
 Decision making by dept. managers are quick since they are independent.
 They enjoy low cost of advertising since they are large in nature.
 There is diversification of risk since they sell different goods in different depts.
Disadvantages of departmental stores
 Require a large amount of capital to start and operate e.g. money to buy land.
 Shoplifting is common due to large number of customers who shop in these shops.
 A dept. may be run at a loss to attract customers to other profitable dept.
 They only cater for urban dwellers only.
 They lack personal contact with their customers.
 Departments’ poses management challenges like coordination and control.
D. Hypermarkets
A Hypermarket is a large shopping centre in one building, comprising a variety of businesses under different management. Each
shop or business deals in a different line of product and is managed by different persons.
Examples include; The Mall, Sarit centre, Yaya centre and Uchumi Hyper along Mombasa road.
Characteristics of Hypermarket
 They have good parking and access roads.
 They require very large capital to start and manage
 Many businesses in one building
 Most businesses deals in different lines of products and are owned and managed by different persons
 Attractive and convenient to shop in
 Located in the outskirts of town
 Offer a variety of goods and services.
Advantages of Hypermarket
 They offer extensive parking facilities which provide security to customers vehicles
 Customers can do all their shopping in one building due to variety of goods offered
 Save on space which reduces rents and rates
 They are located in areas where future expansion is possible/easy
 They are less congested due to their location and are more spacious
 Usually open for long hours.
 They may offer credit facilities by accepting credits cards.
Disadvantages of Hypermarket
 They serve a limited number of people especially those with cars since they are located far from towns
 They need heavy security to prevent pilferage of products and theft of motor vehicles
 They require large space which may not be available in central business district
 Their prices may not be controlled hence may exploit their customers to cover their high operating expenses.
 Require large amount of capital
 They are a threat to other retail outlets
E. Mail order stores
The business is carried through the post office. Customers place their orders through the post office and goods delivered through
the post office. Buyers obtain the information from advertisements and places inquiries and orders through the post. Goods are
dispatched mainly on the basis of C.W.O. or C.O.D.
Characteristics of mail order business
 Sell the goods through the post office.
 They advertise their products e.g. in the print media.
 Transactions are carried out through the post office
 Customers do not visit the sellers’ premises
 Goods are mainly dispatched on COD or CWO.
 May have large warehouses
Advantages of mail order stores
 Reach customers who are far away from the business
 They are cheap and convenient for customers since they do not have to travel to make orders.
 Does not require the services of sales personnel, maintain big showrooms or huge fleet of transport vehicles hence low
operating cost
 No need for skilled labour since selling is routine
 May not require transport facilities since they use the post office
 There is total control of distribution network
 They do not suffer bad debts because they sell on CWO or COD.
 It is cheaper to store goods in one place than to have many warehouses in many places.
Disadvantages of mail order stores
 High cost of advertising which increases the price of the final product
 Inspection of goods by customers is not possible
 Limited variety of goods is sold
 No personal contact between the seller and the buyer
 Mainly suitable to those who can read and write
 Problems arising in the post office may affect the business.
 They do not offer credit facilities to customers.
 Price changes and other correction may force the seller to issue new catalogues which may be expensive.
FUNCTIONS OF RETAILERS
A) To consumers
 They may give credit to credit worthy customers
 They may offer after sales services like transport, installation, repair etc.
 They stock a variety of goods from different manufacturers or producers
 May offer advice to customers on choices and uses of the product
 Make goods available to customers.
 They break bulk for the consumers.
 They assist consumers make special orders for goods through them since they are in contact with them
B) To wholesalers
 Source of valuable information e.g. consumers needs and tastes.
 Assist in distribution of products to consumers
 Relieve them of the burden of transportation
 Relieve them of the burden of storage
C) To producers
 Provide valuable information by linking up with retailers
 Market their products
 Advertise goods on their behalf
 Break bulk
 Finance them by buying and paying in cash.
2. Wholesale trade
This is selling of goods in large quantities to traders for resale by a trader called wholesaler.
A wholesaler is a trader who buys goods in bulk from producers and then sells them to other traders for resale.
Classification of wholesalers
A) According to the range of goods they handle
 General merchandise-they deal in a wide range of good
 General line-deal in a wide range of goods but within one line e.g. hardware
 Specialised-deal in a particular good from a given line
B) According to the geographical area of operation
 Nationwide-distribute their goods to all parts of the country
 Regional-distribute their goods to certain parts of the country only
C) According to the method of operation
 Cash and carry-traders come and pick goods on self service and pay cash for them. They don’t offer transport and credit
facilities to their customers.
 Mobile wholesalers-they go round selling their goods to traders
 Rack jobbers-specialise in selling particular products to the other specialised wholesalers.
Functions of a wholesaler
a) To producers
 Distribute their products
 Relieve them of risks like theft of goods, fall in demand etc.
 Save them the problem of storage by buying their goods in bulk and storing them in their own premises.
 Carry out market research that is useful to producers in producing goods that meet their requirements
 They do product promotion through advertising, displays and trade fairs
 They finance them by buying in large quantities and paying in cash or in advance
 They prepare the products for sale e.g. packaging of goods
b) To retailers
 Stock a variety of goods in large quantities hence relieving them of the problem of moving to different producers to buy goods
 Avails goods at places convenient to retailers
 They break bulk for their benefit
 They may offer transport to retailers
 May offer advisory services to them
 May offer credit facilities
 Engage in product promotion which is to their advantage
 They prepare goods for sale.
c) To consumers
 Ensure steady supply of goods hence no shortages being experienced
 Helps to stabilise prices by ensuring a steady supply of goods in the market
 Avails a variety of goods
 Break bulk hence getting goods in suitable quantities.
 Give information to consumers through retailers

DOCUMENTS USED IN HOME TRADE

Purpose of a business document
 To prove that a business transaction has taken place
 For future reference
 To provide information that is used for various purposes
 To be used as a source from which other business records can be made
 To provide information giving the background or history of a business transaction
1. Letter of inquiry
An inquiry is a request by a prospective buyer for information about the goods dealt in by a [Link] can be oral or written.
A letter of inquiry can be specific or general.
They seek the following things;
 The availability of goods
 The quality of goods
 Their prices
 Terms of sale and delivery
2. Catalogue
This is a booklet that describes commodities sold by a business. It is normally used when the letter of inquiry is [Link] are
expensive to print but carry more information.
Its content includes;
 After-sale services offered to customers
 Packaging and posting expenses to be incurred
 Delivery services to be used
 Terms of sale.
3. Quotation
This is an offer to supply commodities according to terms and conditions stated like terms of payment and discounts offered.
It is normally used when a letter of inquiry is specific in nature.
They are normally in form of letters but large businesses have pre-printed quotation forms which they readily send to the potential
customers.
4. Price list
This is a list of items sold by the trader together with their prices.
They normally show the recommended retail prices of commodities.
They are normally used for branded goods or those known to potential customers.
They may also indicate any discount offered.
Price lists are cheaper to print than [Link] are used to show prices of commodities and to update the catalogues because
they are cheaper to print.
5. Price current
This document is similar to a price list only that the prices indicated are not fixed. The seller is not obliged to sell the goods at the
prices shown.
6. Tender
A tender is an offer that is sent by a seller to the buyer in response to an advertised request. It gives the date when it was made, the
name and address of the prospective seller, the prices at which the goods can be supplied, the period of supply and the mode of
delivery. The wining tender is usually awarded to the lowest bidder although the buyer is not obliged to accept this especially if
the quality is likely to be compromised. Tenders are not legally binding unless it has been accepted by the buyer.
7. Order
This is a formal request made by a buyer to a seller to supply commodities under certain terms and conditions.
Orders can be verbal or written in the form of letters or by filling pre-printed form.
Contents of an order include;
 Name and address of both the buyer and the seller
 Order number
 Quantities ordered and total amount to be paid.
 Description of the good
 Price per item
 Special instructions like mode of packaging
8. Acknowledgement note
This is a document sent to a prospective buyer to inform him that the order has been received and it is being acted upon.
The seller will process the order or issue a pro-forma invoice if the potential buyer is not credit worthy.
9. Pro-forma invoice
This is a document sent by the seller before the goods are delivered showing how the invoice would look like if the buyer buys the
goods.
Functions of pro-forma invoice;
 A polite way of asking for payment before the goods are delivered
 Sent when the seller does not want to give credit
 Used by importers to get custom clearance before goods are delivered
 Issued to an agent who sell goods on behalf of the seller to show the prices of goods
 Sent to show what the buyer would have to pay if the order is approved
 Can serve as a quotation
 To determine profitability before selling.
10. Packing note/sheet
This is a document that list all the items contained in every container, box or carton and their respective quantities.
It is prepared in quadruplet and sometimes serves as a delivery note.
It does not contain the prices of commodities as a precaution against theft by those transporting or handling the product.
It may contain the following;
 Quantities packed
 Brief description of the product
 Means of delivery
11. Advice note
It is sent by the seller to the buyer after the goods have been dispatched to inform the buyer that the goods have been dispatched.
It is normally sent through the fastest means possible.
It does not contain the prices of commodities.
Contents include;
  Means of delivery
 Description of the goods
 The quantity dispatched
Purpose of advice note
 Inform the buyer that the goods have been sent and in case of any delay he may make enquiries
 Alert the buyer to make necessary preparation for payments when goods arrive.
N/B Advice note serve as an acknowledgement note when an acknowledgement note is not sent.
12. Delivery note
Document sent by a seller to accompany goods being delivered.
It is prepared in triplicate; two copies accompany the goods while the remaining copy is retained by the seller.
A delivery book is used instead of a delivery note when the seller delivers the goods by him/her.
It does not contain the prices of commodities.
Contents include;
 Name and address of both the buyer and the seller
 Date of delivery
 Delivery note number
 Quantities and description of the goods
 Space for signing by the buyer and comment on the condition of the goods.
13. Consignment note
A document prepared by a transporter who delivers goods on behalf of a seller.
The document is first issued to the seller who signs and completes it. Then it is taken to the buyer who signs as evidence that the
goods were actually transported.
Contents include;
 Details of the goods to be transported
 Name and address of the buyer and the seller
 Terms of carriage and condition of transporting the goods.
14. Invoice
Document sent by the seller to the buyer demanding payment for goods delivered.
It can be a cash invoice or credit invoice.
Businesses that render services send a bill instead of an invoice.
Functions include;
 To show details of goods sold
 To demand for payment
 Used as a source document when recording transaction in books of record.
15. Goods received note
Document sent by the buyer to the seller informing him that goods sent have been received.
It’s prepared in duplicate and original sent to the seller.
Contents include;
 Date
 Name and address of both the buyer and the seller
 Corresponding purchase order
 Details of goods received.
 Date the goods are received.
16. Goods returned note
Document prepared by the buyer and send to the seller to accompany goods being returned.
17. Credit note
It is a document send by a seller to a credit buyer informing him that the amount payable by him has been reduced.
It is usually printed in red.
It shows the value of the goods returned by the buyer.
Reasons for issuing credit note;
 When an item is overcharged
 When goods are returned
 When a wrong item is charged
 Due to arithmetic errors resulting in an overcharge
 When more quantities are invoiced than the amount delivered.
 When empty packing cases are returned by the buyer yet they had been included in the invoice.
18. Debit note
Document sent by the seller to the buyer to correct an undercharge.
Reasons for issuing a debit note;
 To correct undercharge
 To correct arithmetical errors that result in undercharge
 To correct omission of items in an invoice
 To include additional charges to customers
19. Statement of account
This is a document sent by the seller to the buyer at the end of a period showing the transactions that have taken place during the
month or the period.
It serves as a reminder to the buyer of all outstanding debts.
Contents of a statement of account.
 Name and address of both the buyer and the seller
 Account number
 Date column
 Particulars/details column
 Money column
 Terms of credit
20. Receipt
This is a document issued by the seller to the buyer as a proof that payment has been made. It is also used as a source document
for making entries in books of accounts. It is issued when payment is made in cash, cheque and credit card or in kind.
Contents of a receipt
 Date of payment
 Name of the person making payment
 Amount paid and means of payment
 Name of the person receiving the money
 Receipt number
 Signature of the person issuing the receipt.
21. IOU(I OWE YOU)
This is written acknowledgement of a debt. It is written by the debtor and sent to the buyer. It does not specify the date when
payment will be made but state the amount owed. It acts as evidence that debt exists.
MEANS OF PAYMENT
Refer to the additional items given out when making payments.
a) Cash
It refers to currency notes and coins issued by the central bank of Kenya.
Advantages of cash payment
 It is the only means of payment which is a legal tender
 Convenient for settlement of small debts
 Convenient to people with or without bank account
Disadvantages of cash payment
 Not convenient for large amounts
 Cash can get lost or stolen easily
 It is difficult to prove its payment unless a receipt is issued.
Circumstances under which cash payment is appropriate
 Where the amount involved is small
 Where the payee does accept any other means of payment
 When it is the only means available
 Where the payee requires cash urgently
 Where there is need to avoid expense associated with other means of payment.
 When the credit worthiness of the buyer is doubtful
b) Cheque
A cheque is a written order by an account holder to the bank to pay on demand a specified amount of money to the named person
or to the bearer.
 Parties to a cheque
Drawer-the person who writes and signs the cheque/the account holder.
Drawee-the bank
Payee-the person to be paid
Types of cheques
i. Open cheque-a cheque that requires payment to be made over the bank counter.
ii. Crossed cheque-a cheque that bears two parallel lines across its face. The crossing can be general or special.
iii. Cash cheque-a cheque where the person presenting it for payment is its drawer.
iv. Bearer cheque-an open cheque which is payable to any person who present it to the bank for payment.
Dishonoured cheque/Bouncing cheque
This is a cheque that has not been paid by the bank after presenting it for payment.
Circumstances under which a cheque may be dishonoured.
 When the account is closed
 When the amount in words differ from the amounts in figures
 When the drawer becomes insane or bankrupt
 When the drawer instruct the bank not to pay
 When the signature of the drawer differ with the specimen signature held by the bank
 When the account holder is dead and the bank has been notified
 When the cheque is dirty, torn or defaced
 When the cheque is stale
 When the cheque is post-dated
 When there are alterations which are not countersigned by the drawer
 When the drawer has insufficient money in the bank account
Advantages of using a cheque
 Cheques are more secure than cash
 Cheques are convenient to carry around and can be used to pay large sums of money.
 Payment can be made without travelling to make payment
 Can be used for future reference
 Cheques can be used to pay a third party.
Disadvantages of cheques
 Requires the payee to go to bank
 Cheques may be dishonoured
 The drawer pays some bank charges
 Can only be issued by account holder
 Some people are not ready to accept personal cheques
 It is a slow means of payment
 They may be forged leading to fraud and loss of money
Circumstances under which a cheque is appropriate
 Where the amount of money involved is large
 Where the policy of the business demands so
 Where the cheque is the only means available
 Where there is need to avoid risks associated with other means of payment
 When the drawer wants to make payment without travelling to the place to make payment
 When the drawer wants a secure means of payment
 When the drawer wants a convenient means to carry around
 When the drawer wants a proof of payment
c) Bill of exchange
It is an unconditional order, in writing, addressed by one person to another, requiring the person to whom it is addressed to pay on
demand, or at stated future date, the sum of money on the bill to a named person or to the a bearer.
It is prepared by a creditor who wants to be assured of payment by a debtor (drawee).
There are three parties to a bill of exchange; drawer, drawee and payee.
Procedure for preparing a bill of exchange
The creditor prepares a draft and sends it to the debtor
The debtor receives the draft, signs on it and writes the words accepted. He then sends it back to the creditor.
The creditor after receiving the bill may keep it until maturity or discount with the bank or negotiate it.
Essentials of a valid bill of exchange;
 Be signed by the drawer/creditor
 Accepted by the drawee/debtor in order for it to be legally enforceable. He/she is supposed to write the word ‘accepted’ and
sign it.
 Accepted unconditionally or wilfully
 Bear a revenue stamps
Features of a bill of exchange
 A bill of exchange is negotiable
 It is drawn by a creditor and sent to a debtor
 It can be discounted before maturity
 Most have a life span of 90 days
 It has to be accepted by the creditor to be valid
Types of bill of exchange
Order bill-this is payable on demand
Bearer bill-it is payable to the bearer at a fixed date
Sight bill-it is payable some days after acceptance
Usance bill-it a bill which is payable in future date
Trade bill-this is a bill arising from lending money
Money bill-this bill arises out of lending money
Inland bill-this bill is used in home trade only
Foreign bill-this bill is used in international trade
Accommodation bill-this is a bill that is presented to another person who is not a debtor. This person then accepts it and provides
accommodation to the one presenting it. The drawer can then cash the bill with a financial institution to get the money stated on it.
Advantages of a bill of exchange
 The holder may negotiate it
 Date of payment is determined
 It is legally binding once accepted by the debtor
 Can be discounted by the payee
 Acts as evidence that a debt exists
 Safer to carry than cash
Disadvantages of a bill of exchange
 It may be dishonoured on maturity
 Banks may not readily accept it especially if the debtor is of doubtful financial background
 It is expensive as the creditor may lose part of the face value of the bill in form of discount
Circumstances under which a bill of exchangeis appropriate
 Where the creditor wants to be assured that the payment would be made
 Where the creditor wants money while the debtor is not able to raise it before the end of the credit period
 Where the creditor wants to use the debt to pay another debt.
 When the use of a letter of credit is involved
 When the degree of trust is low and there is a high risk involved
d) Promissory note
A document whereby one person promises to pay another person or his/her order, a specified sum of money at a certain stated
date.
It is drawn and signed by a debtor who then sends to a lender (creditor).
The seller may keep it until maturity or may discount it before maturity.
Mainly used by financial institutions that lend out money.
Similarities with a bill of exchange
 Both act as evidence of the acknowledgement of a debt
 Both may be discounted before maturity
 Both are legally binding
 Both allow debtors time to organise for payment.
Difference between a bill of exchange and a promissory note
 A bill of exchange is written and signed by a creditor while a promissory note is written and signed by a debtor.
 A bill of exchange must be accepted by a debtor for it to be valid while a promissory note does not need to accept to be valid.
 The drawer is the creditor and drawee is the debtor in a bill of exchange, while the drawer and the drawee is the same person
in a promissory note.
e) Money order
This is a facility provided by the post office for the purposes of remitting money.
The person wishing to use this facility is required to fill a form and hand it together with the money to the cashier at the post
office. The cashier then prepares a money order and gives it to the sender who may post it or take it to payee. A commission is
charged for this facility.
A money order can be ordinary, express or telegraphic.
The sender keeps the counterfoil as evidence of remittance and may use it to claim for loss of money.
There is a limit as to the maximum amount of money that can be sent in one money order.
Types of money order
 Open money order-cashed over the counter
 Crossed money order-paid through a bank account and bears two parallel lines drawn diagonally on its face.
Circumstances under which a money ordermay be used
 Where it is the only means available
 Where other means are not accepted.
 Where there is need to avoid inconveniences or risks associated with other means.
 When sending a small amount of money
 When sending money to a person without a bank account or far from a bank.
 When the payee wants to be assured of payment
 When the payee wants a fast payment
 When the sender wants security for the remittance.
Reasons for the popularity of express money order.
 It is faster than ordinary money order
 It is safer because the post office guarantees its safety
 It can easily be traced if it gets lost
 The sender can be compensated if the money is lost during transport or transit
 It is a convenient way of sending money
 The post office contacts the payee directly.
Advantages of money order
 They guarantee payment and are therefore readily accepted in payment of goods and services
 They can be crossed to make them safe to use in paying for goods and services through a bank account
 They are suitable for sending payments in places that are not served by commercial banks and people without bank accounts
 They are cheaper and more economical to use than bankers cheques for remitting small amount of money
 In case it gets lost and payments have not been made, a refund can be claimed.
Disadvantages of money order
 There is a set maximum limit that can be remitted using one money order
 They are not negotiable
 If the payee is to receive sums through a crossed money order and he does not have an account then it will be difficult to get
the money
 Open money orders may be unsafe as a means of payment

Postal order
These are instruments available at the post offices in various fixed denominations used to transmit money. They are available in
the denomination of Ksh 20, 40, 100 and 200. The remitter pays for the face value of the postal order and a commission for the
service a. the remitter is required to affix a stamp on the order. They are issued with counterfoils as evidence of remittance of
money.
The sender writes the names of the payee on the postal order as a safety measure. Payment can be made at any post office with
postal facilities.
Types of postal orders
 Open postal order
 Crossed postal order
Advantages of postal orders.
 The face value can be increased by affixing stamps
  They are available in small denominations, hence any payment can made.
 They are relatively safe to carry than cash.
 They need no formality to obtain.
 They are payable at any post office.
 They can be crossed for greater safety.
Circumstances under which postal orders areappropriate.
 When sending small amount of money
 When payee wants afast means of payment
 When the sender wants to be assured of security for the remittance.
 When other means of payment are not available.
 Where there is need to avoid inconveniences and risks associated with other the means of payment.
Difference between money order and postal order
Postal order Money order
1. It can be cashed at any post office. 1. It can be cashed at specific post office
2. They are in fixed denominations. 2. Varies according to the needs of the remitter.
3. Requires the filling of an application form in
3. Does not require any application form to make a making remittance.
remittance. 4. Can only be cashed by the payee.
4. Can be cashed by the bearer.

f) Postage stamps.
Postage stamps may be used in settling small debts. The person to whom the stamps are sent can then use them for sending mail or
to pay someone else.
Uses of postage stamps
 Settle small debt
 Popularize a slogan and advertisement
 Fund raising for charities and special causes
 Recording and preserving national heritage
 Facilitation and acceptance of mail by the post office.
g) Bankers cheque/bank draft
This is a cheque drawn on a bank. The bank charges a commission for this service. The facility can be used by anybody
irrespective of whether he has an account or not.
They are used because they are safe and many people do not accept personal cheques.
Circumstances under which bankers cheque is appropriate.
 Where the amount involved is large hence risky to carry large sums of money or does not wish to take the trouble to count.
 Where payee wants to be guaranteed of payment
 When evidence of payment is required in future
 When the payee wishes to be paid faster.

Terms of payment
This refers to the agreement between buyers and sellers on how to settle debts arising out of trade transaction between them.
1. Cash terms
The buyer is required to pay for goods and services immediately using cash or cheques.
a) Spot cash/cash transactions
The buyer pays for the goods as soon as they are handed over to them over the counter.
Circumstances when spot cash is used.
 When the amount of money is small
 When the credit worthiness of the buyer is doubtful
 When the seller prefer cash payments
 When the seller wants to avoid bad debts and record keeping.

b) Cash with order (CWO)

The buyer is required to pay cash or cheque while placing the order.
Circumstances when cash with order may be used.
 When the seller wants to avoid debtor’s record maintenance
 When the business is being conducted through post/mail order business
 When the buyer is new to the seller
 When the buyer’s credit worthiness is in doubt
 When it is the sellers policy to not to advance credit
 When the seller wants to avoid the high cost of debt collection
 When the seller needs working capital/is in urgent need of cash
 When the seller does not want to incur bad debts.
c) Cash on delivery
The buyer pays for goods when the goods are delivered.
Circumstances when cash on delivery may be used.
 When the seller does not want to extend credit.
 When the seller does not want bad debts, or to keep records of debts incurred.
  When cash on delivery is the policy of the business.
 When the seller is in urgent need of cash.
d) Prompt cash
This refers to a situation where the buyer pays for goods within seven days of delivery. The seven days allow the buyer to
examine the goods and documents accompanying the goods before making payment.
Circumstances when prompt cash may be used.
 When the seller trust the buyers credit worthiness.
 When the seller is not in urgent need of cash or payment
 When the value of goods is not large.
2. Credit terms/deferred payments
The buyer pay for goods bought within a specified period of time after delivery.
The credit period ranges between 7 days to 90days.
Factors to consider before extending credit
 Availability of adequate stock
 The amount of goods a customer wants to take on credit and their value
 Frequency with which the customer buys from the seller
 Creditworthiness of the customer
 The character of the customer i.e. honesty and reliability
 Credit period to be allowed to the customer
 Evaluation of the security given to cover the credit
 The prevailing economic condition of the business and the economy
 Sellers intention to attract and retain customers
Types of credit
I. Simple credit
This is extended by businesses to customers.
II. Trade credit
It is practised by traders who buy goods for sale. The credit attracts no interest if it is paid within the credit period.
Features of trade credit
 Attracts no interests if paid within the credit period
 It is a short term credit facility
 No security is required as sellers relies on the integrity of buyer to determine credit worthiness
 Buyer has time to organise repayment during credit period
 It is practised among traders
 Does not require a down payment
 Buyer caries goods immediately the agreement is made
 Credit period runs up to 30 days
 It ensures continuous supply of goods and the buyer enjoys discounts
 It is usually paid in one month
Circumstances under which trade credit is given
 If the trader is credit worthy
 When the seller is not in urgent need of payment
 Where the seller wants to attract and retain customers
 When the seller wants to increase business sales
 When the value of goods sold does not constitute a large part of the business stock
III. Budget account
This is a bank account opened to control a person’s expenditure e.g. payment of insurance premiums, mortgages and other bills.
The annual expenditure for each of the items is paid into the account in equal monthly instalments, bills being paid from the
budget accounts as they become due. The drawer does not have to worry with the expenses as payments are done directly as they
come due.
IV. Credit cards/plastic money
These are plastic cards issued by banks or businesses to enable a person to buy goods or services on credit or obtain money. They
are issued by banks or credit card companies which guarantee payments for commodities bought by its clients. They are issued to
adults with approved credit ratings. They can be used locally or internationally. Credit card companies charge interest on the use
of the card and issue monthly statement to the card holder.
When a card holder obtains goods he/she signs special forms that have been filled by the trader. Such forms are usually provided
by the card company to the trader. The trader and the card holder retain one copy each and the other copies send to the credit card
company or the trader’s bank. Examples of such companies include; American express, Visa card etc.
Advantages of credit cards
 Enable the card holder to get goods from specified sellers without having to pay for them immediately
 Convenient to carry around
 Enables the holder to get money from specified banks
 It increases the credit ratings of individuals
 It is safer to carry around than cash
 Some are internationally accepted.
Disadvantages of credit cards
 It can lead to impulse buying
 Use of the card can lead to high interest charge if payments are not made on time.
 Can be abused through fraud to obtain cash or buy goods
 They are limited to adults with good credit records and higher incomes only.
 Their use is limited to specific places only (urban areas)
 It faces competition from other means of payment such as cheques etc
 Only few businesses accept the cards
 Long procedures are involved in getting the card
 The cards can only be afforded by people with high income.
Factors limiting the use of credit card in Kenya.
 Few businesses accept these cards
 Lengthy procedures are involved in getting them
 The cards are only issued to people with high incomes only
 It is expensive to operate them due to high interests charged on them and the high minimum balances required
 They are mainly used in urban areas
 They face competition from debit cards, cheques and other means of payment
Circumstances when they are used by businesses
 When avoiding handling sums of money
 When travelling to enhance security
 When there are many transactions to make in routine business
 When they do not have cash at hand.
Hire purchase
This is a method of buying goods by making an initial deposit and then equal monthly instalments spread over an agreed period of
time. The seller will issue a certificate to the buyer once the last instalment is paid as a proof of transfer of ownership.
Goods sold on hire purchase are mostly durable and expensive. The hire purchase price is usually higher than cash price because it
includes interests charged on the item. A written agreement is made by both the seller and the buyer to safeguard their
interests. Examples include, ART, Amedo etc.
Characteristics of higher purchase
 An initial deposit is paid followed by equal monthly instalments until the debt is fully serviced
 The buyer acquires possession and use of the item immediately the deposit is made
 Ownership of the item remains with the seller until full payment of the total price is paid
 The buyer cannot resell the item until final payment is made
 Seller can repossess the item it the buyer default in payment
Advantages to the buyer
 The buyer acquires and uses the goods immediately after entering the contract
 The instalments to be paid are predetermined hence the buyer is able to budget for its payment
 The buyer can posses more/variety goods including the expensive ones
 Buyer can use the goods while paying for them
 Buyer can use the cash spared for other uses
 It is convenient to pay in instalment
 Goods bought on higher purchase can be to secure loans.
 It is a form of savings accumulated in form of durable goods rather than cash
 After sales services like transport is offered to the buyer.
 It raises buyer’s living standards.
Disadvantages to the buyer
 The goods belong to the seller until the last instalment is paid
 The buyer may be tempted to buy more than what they may be able to pay for. This may lead to financial problems to the
buyer.
 Hire purchase is an expensive way of buying goods due to interest charged.
 Limited types of goods can be bought on hire purchase e.g. durable goods
 Initial deposit is required unlike credit sales
Advantages to the seller
 The seller is able to sell more goods due to instalments payment
 The seller may earn more profits than from other cash terms due to the interest charged.
 The goods belong to the seller until the last instalment is paid.
 In case the buyer defaults in payment the goods can be reposed and resold by the seller.
Disadvantages to the seller
 The cost of operating the hire purchase business is very high
 Goods repossessed by the seller in case of a default in payment can only be sold as second hand
 The risks of loss due to bad debts is normally high
 Requires a lot of record keeping and follow up on clients which may be expensive
 High initial deposits may not attract potential customers leading to high maintenance costs by the firms before a sale takes
place.
 Large amount of capital is needed to finance a hire purchase business.
Instalment buying
This is a method of buying where the ownership and possession of a commodity is passed to the buyer immediately the down
payment is made or the check off system agreement signed. The seller is not able to repossess the item but can take the buyer to a
court of law to reclaim the amount due from the buyer. It is used for both durable and non durable goods.
Comparison of higher purchase and instalment buying
 Hire purchase Instalment buying
the buyer does not become the owner of the goods The buyer becomes the owner
The buyer cannot resell the goods The buyer can resell the goods
The price is higher than the cash/credit price The price of goods is lower than that of the same goods
bought on credit
Goods may be repossessed if the buyer default in payment Goods cannot be repossessed instead the buyer can be sued

1. Discounts
This is a reduction in the price charged for an item. It is deducted from the cost price.
Types of discounts
a) Quantity discounts
It is extended to traders who buy goods in large quantities. The higher the quantity of goods bought the higher the quantity of
discount allowed. It is calculated based on the gross value of items. For example; if a trader buys goods worth Kshs 600,000,000
and is offered a quantity discount of 10%, then the amount payable is:-
Quantity discount 10/100*600,000,000=60,000,000
Net amount payable 600,000,000-60,000,000=540,000,000
b) Trade discounts
They are given to traders who buy goods for resale. It reduces the cost price and is the profit that the trader makes. It is calculated
on the basis of the gross value of items. If in the above example the trade discount is 20 %, then
Trade discount 20/100*600,000,000=480,000,000
Net amount payable 480,000,000-60,000,000=420,000,000
c) Cash discounts
This is the reduction in the price given to traders for prompt payment. The discount is higher if the debt is paid within a short
period of time. It is calculated on the basis of net amount payable to the seller.
Difference between cash discount and trade discount
Cash discount Trade discount
Varies depending on time when payment is settled Fixed as a given percentage or flat rate.
Given to encourage prompt payment of goods sold on May be given whether goods are sold on credit or cash
credit terms
Based on net price Based on cost price
Given to encourage prompt payment Given to traders to enable them to make a profit.

2. Standing order
This is an instruction to a bank by an account holder to pay a specified sum of money at regular intervals to a named person or
institution for a specified period of time. The bank charges a commission for this service.
Circumstances when standing order is used
 When one wants to pay a specified sum of money at regular intervals
 When a debtor does not want to default in payment
 When the sum involved is not large
 When the drawer does not want to travel to make payments
 When the drawer wants a secure means of payment
Emerging issues
Environmental degradation-they pollute the environment e.g. throwing of polythene bags. Traders need to protect the
environment in which they operate from to avoid conflict with the community.
Counterfeit products- are penetrating the market without paying taxes or having tested to verify if they are safe for use by the
relevant authorities.
Anti-corruption-traders are campaigning against corruption which has led to a change of attitudes of customers, employees and
employers towards the vice.