Surname and Names: Mpya Tshiamo Clyde

Student Number : 16212851

Assignment Number: 2

Module Code :OTE 2601

Tshiamo Mpya 16212851 OTE2601

ASSIGNMENT 02

QUESTION 1

Every entrepreneur has certain expectations and goals when choosing a business.

1.1 W hat is a close corporation in business? Give one examples. (5)

A closed corporation is a legal entity with a small number of shareholders, usually

not listed on a stock exchange, and often owned by managers, owners or families. It
offers its members limited liability and is subject to most reporting requirements
and shareholder pressure. An example would be a family-run retail store that
operates within a tight corporate structure.

1.2 You are a Grade 7 teacher leading a discussion on the different kinds
of franchising.

1.2.1 W hat are the issues to consider when discussing about capital
requirement for a franchise (10).

Capital Requirement for a Franchise:

• Initial Franchise Fee: The upfront fee paid to the franchisor for the right to
operate the franchise.

• Startup Costs: Expenses associated with opening the franchise location, such as
leasehold improvements, equipment purchases, and inventory.

• Working Capital: Funds needed to cover ongoing operating expenses until the
franchise becomes profitable.

• Working Capital: Funds needed to cover ongoing operating expenses until the
franchise becomes profitable.

• Royalty and Advertising Fees: Ongoing fees paid to the franchisor for support
services and marketing efforts.

• Additional Investments: Any additional capital needed for unforeseen expenses or

expansion opportunities.

1.2.2 Do you agree with the assertion that businesses fail for a number of
reasons? Substantiate on your answer by discussing the following;
1.2.2.1 Incompetent management (2)

• Ineffective leadership and decision-making can lead to poor strategic planning

and execution.

• Lack of vision, direction, and ability to adapt to changing market conditions can
hinder business success.

1.2.2.2 Lack of experience (2)

Tshiamo Mpya 16212851 OTE2601

• Inexperienced entrepreneurs may struggle to navigate the complexities of running
a business.

• Lack of industry-specific knowledge and expertise can lead to costly mistakes and
missed opportunities.

1.2.2.3 Poor financial control (2)

• Inadequate financial management, budgeting, and cash flow monitoring can

result in financial instability.

• Failure to accurately forecast expenses and revenues can lead to cash flow
problems and eventual insolvency.

1.2.3.4 Inflexibility (2)

• Businesses that are rigid and resistant to change may struggle to adapt to
evolving customer preferences, market trends, and technological advancements.

• Failure to innovate and embrace new ideas can lead to stagnation and loss of
competitiveness.

1.2.3.5 Unrealistic time frames (9)

• Setting unrealistic goals and timelines can lead to undue pressure on the
business and its resources.

• Overcommitting to ambitious targets without considering practical constraints

can result in burnout, resource depletion, and ultimately, failure.

In summary, while businesses can fail for a variety of reasons, addressing issues
related to management competence, experience, financial control, flexibility and
setting realistic time frames can help reduce the risk of failure and the likelihood of
long-term success to increase.
[25]

QUESTION 2

2.1 Profit is the compensation that someone is entitled to when delivering a

service. In other words, when an article is sold at a higher price than what it
was bought for, the difference is the profit. W hen, however, the expenses exceed
the income, we have a loss. Sometimes this is the case, but when a business
makes too much profit because of too high prices, clients will go and buy from
other businesses in the vicinity. This will force the retailer to lower the prices.
Elaborate on any five factors which influence profit /15/

Pricing Strategy:

Pricing is a critical factor in determining profit margins. Setting prices too high can
deter customers and lead to lost sales, while setting prices too low may result in
reduced profitability. Finding the right balance between pricing and value perception
is essential for maximizing profit.

Tshiamo Mpya 16212851 OTE2601

 Cost Management:

Effective cost management is essential for maximizing profit. Controlling expenses

such as production costs, overheads, labor costs, and raw material costs can help
improve profit margins. Implementing cost-saving measures, negotiating better deals
with suppliers, and optimizing operational efficiency can all contribute to higher
profits.

Demand and Sales Volume:

Demand for products or services directly impacts sales volume and, consequently,
profit. Understanding customer demand patterns, market trends, and consumer
preferences is crucial for forecasting sales accurately. By aligning production and
marketing efforts with demand trends, businesses can optimi ze sales and maximize
profit potential.

Competition:

The competitive landscape significantly influences profit levels. Intense competition

can exert downward pressure on prices and profit margins as businesses strive to
attract and retain customers. Monitoring competitors' pricing strategies, offerings,
and market positioning can help businesses stay competitive while maintaining
profitability.

Economic Conditions:

Economic factors such as inflation, interest rates, and consumer confidence can
impact consumer spending behavior and purchasing power. During periods of
economic downturn, consumers may tighten their budgets, leading to reduced
demand and lower sales volumes. Businesses need to adapt their strategies and
offerings to navigate challenging economic conditions and sustain profitability.

2.2 After the entrepreneur chooses a specific form of business, the business is
established by complying with the legal requirements. There are general as well
as specific legal provisions for the different forms of business. Discuss the
general legislation of business. You answer should focus on the following;

2.2.1 Licensing (3)

Licensing refers to the process of obtaining official permission or authorization from

government authorities to engage in certain business activities. Depending on the
nature of the business and local regulations, businesses may require licenses or
permits to operate legally. These licenses ensure compliance with safety standards,
zoning regulations, health regulations, and other legal requirements.

2.2.2 Name (3)

Choosing a business name is an important aspect of establishing a new business.

The name should be unique, distinctive, and not infringe on existing trademarks or
intellectual property rights. Businesses may need to register their chosen name with
the appropriate government authority to ensure legal protection and prevent
unauthorized use by others.

Tshiamo Mpya 16212851 OTE2601

2.2.3 Registration of trade marks, patents, and design (3)

Intellectual property protection is essential for businesses to safeguard their unique

ideas, inventions, and branding elements. Registering trademarks, patents, and
designs with the relevant intellectual property offices provides legal recognition and
exclusive rights to use, reproduce, and license these assets. This protection helps
prevent unauthorized use or infringement by competitors and enhances the value of
the business's intellectual property portfolio.

2.2.4 Contractual capacity (3)

Contractual capacity refers to the legal ability of individuals or entities to enter into
binding agreements or contracts. Businesses must ensure that all parties involved
in contractual agreements have the requisite capacity to understand and achieve
their obligations. This includes ensuring that parties are of legal age, mentally
competent, and not subject to any legal restrictions or incapacity that would
invalidate the contract.

2.2.5 Registration of the new business (3)

Registering a new business involves formalizing its legal structure and ensuring
compliance with applicable laws and regulations. Depending on the chosen business
structure (e.g., sole proprietorship, partnership, corporation), businesses may need
to register with government authorities at the local, state, or national level.
Registration typically involves providing information about the business, its owners,
and its activities, and paying any required fees. This process establishes the
business as a legal entity and enables it to operate within the boundaries of the law.

In summary, compliance with general laws is crucial to the legal and responsible
establishment and operation of a business. From obtaining licenses and registering
trademarks to ensuring contractual capacity and formalizing registration,
companies must meet various legal requirements to protect their interests and
ensure compliance with the law.

/15/ [30]

QUESTION 3

Financial management means planning, organizing, directing, and controlling

the financial activities such as procurement and the utilization of funds of
the enterprise. It means applying general management principles to the
financial resources of the enterprise. Discuss the following functions of
financial management and give suitable examples;

3.1. Estimation of capital requirements (6)

Estimating capital requirements involves determining the amount of funding needed

to support the company's operations, growth, and investment activities. This process
requires forecasting future financial needs based on factors such as expansion plans,
equipment purchases, inventory requirements, and working capital needs. For
example, a manufacturing company may estimate capital requirements to invest in
new machinery and technology to increase production capacity.

Tshiamo Mpya 16212851 OTE2601

3.2 Determination of capital composition (6)

Determining capital composition involves deciding the mix of equity and debt
financing used to fund the company's activities. This decision impacts the company's
financial structure, risk profile, and cost of capital. For instance, a startup may rely
heavily on equity financing from venture capitalists to fund its growth initiatives,
while an established company may use a combination of debt and equity financing
to optimize its capital structure.

3.3 Choice of source of funds (6)

Choosing the source of funds involves selecting the most appropriate sources of
financing to meet the company's capital requirements. This decision considers
factors such as cost, risk, flexibility, and availability of funds. For example, a
company may choose to raise funds through bank loans, issuing bonds, equity
offerings, or internal sources such as retained earnings, depending on its financial
needs and market conditions.

3.4 Investment of funds (6)

Investment of funds involves deploying capital into income -generating assets or

projects that generate a return on investment (ROI) for the company. This decision
aims to maximize shareholder wealth by allocating resources to opportunities that
offer the highest potential returns. For instance, a retail company may invest funds
in opening new stores in high-demand locations or expanding its online sales
platform to capture market share and increase revenue.

3.5 Financial controls (6)

Financial controls involve implementing systems, processes, and procedures to

monitor, evaluate, and regulate the company's financial activities and performance.
This includes budgeting, financial reporting, internal controls, and risk management
practices. For example, a company may establish budgetary controls to track
expenses and ensure adherence to financial targets, implement internal controls to
prevent fraud and errors, and conduct regular financial audits to assess compliance
with regulatory requirements and financial performance.

In summary, effective financial management includes estimating capital

requirements, determining capital composition, selecting sources of financing,
investing funds wisely, and implementing financial controls to ensure the efficient
use and allocation of financial resources to achieve organizational objectives.

[30]

QUESTON 4

The law protects the consumer. The prices of certain goods are fixed, for
example the price of specific kinds of bread. This means that nobody is
allowed to sell these goods at more than the fixed prices.
Discuss any 3 the following factors which influence profit:

Tshiamo Mpya 16212851 OTE2601

4.1 Kind of business (5)
The nature of the business significantly impacts its profit potential. Certain
industries or sectors may inherently yield higher profits due to factors such as
demand dynamics, barriers to entry, and market competition. For example,
technology companies often have higher profit margins compared to traditional
manufacturing businesses due to the scalability of digital products and services.
Similarly, businesses operating in niche markets with limited competition may have
greater pricing power and profitability.

4.2 Element of Risk (5)

The level of risk associated with a business venture affects its potentia l for profit.
Higher-risk ventures typically offer the potential for higher returns but also entail
greater uncertainty and potential losses. Factors such as market volatility, regulatory
changes, technological disruptions, and economic conditions contribute to the risk
profile of a business. For instance, investing in emerging markets or pioneering
innovative products involves higher risk but may lead to substantial profits if
successful.

4.3 Competence of the entrepreneur (5)

The skills, experience, and decision-making abilities of the entrepreneur play a
crucial role in determining the profitability of a business. Competent entrepreneurs
possess strong leadership, strategic vision, and operational expertise, enabling them
to identify opportunities, mitigate risks, and effectively manage resources. Their
ability to innovate, adapt to market changes, and execute business strategies
influences the company's financial performance. For example, a skilled entrepreneur
may optimize operations, negotiate favourable contracts, and develop innovative
marketing campaigns to drive sales and increase profitability.

4.4 Turnover and market size (5)

4.5 New production techniques (5)

Tshiamo Mpya 16212851 OTE2601

In summary, factors such as the type of business, risk exposure and the competence
of the entrepreneur have a significant impact on a company's profit potential.
Understanding these factors and managing them effectively can increase the
likelihood of achieving sustainable and profitable business results.

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Tshiamo Mpya 16212851 OTE2601