Entrepreneurship lecture compilation

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  • 1. Entrepreneurship and B usiness P lanningLecture CompilationCompiled by : Ana Marie M. Somoray, MBA 1
  • 2. COURSE OUTLINE ENTREPRENUERSHIPChapter 1: A Perspective of EntrepreneurshipIntroduction A. Entrepreneurship and Economic Development B. Concept of Entrepreneurship - Types of Entrepreneur C. Portrait of Entrepreneur - Body Parts - Characteristics - Roles - Skills D. Advantages of Becoming an EntrepreneurChapter 2: Micro, Small and Medium Enterprise A. Micro Enterprise B. Small and Medium Enterprise Types of SMBE 1. Manufacturing 2. Service Business Types of Service Business 2.1 Business service 2.2 Personal service 2.3 Repair service 2.4 Entertainment and Recreation 2.5 Hospitality 2.6 Education service 3. Trading Business 4. Rentals 5. Agri and Aqua Business 2
  • 3. Chapter 3 : The Search for A Sound Business Ideas A. Before searching the Business Idea - Assessing the educational background - Financial strength - Commitment - Expertise & Interest - Personal qualities - Prior experiences - External contacts and resources B. Finding the Business Ideas C. Assessing Business Ideas - Discuss products/services with prospective customers - Assess the market using desk & field research - Analyze your competition - Consider possible start-up strategies - Set ball-park targets and prepare first-cut financial projections - Prepare a simple action plan - Critically examine ideas from all angles D. From Business Idea to Business Plan Chapter 4: Entrepreneurial Option: Start Up, Buy Out or Franchising A. Starting a new business Advantages and Disadvantages B. Buying an Existing Business - Advantages and Disadvantages - How to value a business - Step by step on how to buy a business C. Franchising - Concepts of Franchising - Types of Franchising - What does franchise provide - Advantages and Disadvantages of franchising Chapter 5: Market Analysis and Market Research A. Elements of Market Research 1. Market information 2. Market segmentation 3. Market trends 3
  • 4. 4. Market Size 5. Market growth rate 6. Market opportunity 7. Market profitabilityChapter 6 : Business Plan (Creating a Blueprint for your Business) A. What is a business plan? B. Business Plan format 1. Title Page 2. Vision statement 3. Mission statement 4. Executive Summary 5. Marketing Plan - Approaches to Marketing plan 6. Production plan - Elements of Production plan 7. Organizational and Management plan - Elements of Organizational plan 8. Financial Plan - Elements of Financial plan C. Business Plan Guide QuestionsChapter 7 : Forms of Small Business Ownership, Registering and Organizing A. Sole Proprietorship - Advantages and Disadvantages - Registering a Sole Proprietorship B. General and Limited Partnership - Advantages and disadvantages - Registering a Partnership C. Corporation - Advantages and disadvantages - Registering a corporation D. SSS Business Registration E. PHILHEALTH Registration F. PAG IBIG Fund H. ChecklistChapter 8: Finance IT : Raising Money for your Business A. Where to get the money 1. Boots trapping 2. Friends and family 3. Banks 4. Customers and suppliers 4
  • 5. B. Learning Financial Basics C. Financial Statement 1. Income statement 2. Balance sheet 3. Cash flow statement D. Accounting basics E. Techniques to a healthy Cash flowChapter 9: Managing Small Business Risk A. Defining risk B. Types of risk for small business C. Managing the risk D. Categories of risk in small business E. Integrating risk management in small business F. Types of InsuranceChapter 10 : 9 Rules for Business Success (John Gokongwei)R Books 1. Entrepreneurship and Small Business Management 2nd edition, Robert G. Medina Copyright 2010 Rex Bookstore. 2. Entrepreneurship for Modern Business, Jeorge A. Camposano. Copyright 2008. 3. Entrepreneurship. Eustaquio, Ditalbora and Jose Abad, copyright 2009. National Bookstore 4. John L. Gokongwei Jr. – The Path of Entrepreneurship. Marites A. Kashner, copyright 2007. Ateneo de Manila 5. The Ultimate Guide to Start Your Own Business, Entrepreneur Philippines, copyright 2008. Rowena Ochoa 6. Rich Dad Poor Dad, Robert T. Kiyosaki and Sharon LechterWebsites: 1. EntrePinoys Atbp .Business Opportunities. Investments. Livelihood Resources http://www.mixph.com/smebiz 2. Dept.of Trade and Industry for Small Medium Enterprise http://www.dti.gov.ph/dti/index.php?p=78 3. Business Plan Format. DTI.gov.ph 5
  • 6. http://www.dti.gov.ph/dti/uploads/file/Business%20Plan.pdf 4. Risk Management Guide for Small Business. Dept. of State and Regional Developmenthttp://www.proboards.nl/data_docs/NSW-Risk_management_guide_small_business.pdfeferences: INTRODUCTION Entrepreneurship is a key driver of economic growth and job creation. It providesmany people with career opportunities that better fit their preferences than wagedemployment. In addition, self-employment or business start-up is a response by significantnumbers of people to job losses in the current global economic crisis. One of the most important is entrepreneurship skills. Motivated people need theright skills to identify entrepreneurial opportunities and to turn their entrepreneurial projectsinto successful ventures. Figure 1 6
  • 7. CHAPTER 1 A PERSPECTIVE OF ENTREPRENUERSHIPEntrepreneurship and INTRODUCTION Entrepreneurship has become increasingly crucial as the Philippines struggles with economic challenge. Strong Filipino entrepreneurship is urgently needed. But at present, entrepreneurs are rare. Many educated Filipinos seek employment abroad and there is a mass migration of Filipino workers. The exodus threatens hopes for creative entrepreneurship. Encouraging entrepreneurship to flourish in the Philippines will certainly increase this dwindling capital of hope for most Filipinos, and may prevent some from leaving the country to seek employment abroad. A. Economic Development Entrepreneurship is a very important component of a capital economy like the Philippines. It thrives in economic systems that support innovation and hard work. When entrepreneurs become successful, the nations is immensely benefited. Economic development is a scheme aimed at improving the living standards of the nation’s citizenry. To achieve economic development goals, proper management. The following elements is necessary: 1. Human resources (labor supply, education, discipline, motivation) 2. Natural resources (land, fuel, climate) 3. Capital formation (machines, factories, roads) 4. Technology (science, engineering, management, entrepreneurship) The effective and efficient utilization of the various resource elements contribution growth. This happens when the element of entrepreneurship is performed well. The abundance of natural resources like fertile land, minerals, fuels and good climate are plus factors but they are not guarantees for positive economic development. There is need for entrepreneurs to perform the function of harnessing the potentials of any or all the various elements, determining the right quantity of resources needed, and applying the elements at the right time. The improving economy has a lot to do with the Small Medium Enterprise’s impressive performance. In the last five years, the MSME sector accounted for about 99.6% of the registered businesses in the country by which 63% of the labor force earn a living. Around 35.7% of the total sales and value added in the manufacturing come from MSMEs as well. 7
  • 8. B. Concept of Entrepreneurship What is an entrepreneur? Entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative. The entrepreneur leads the firm or organization and also demonstrates leadership qualities by selecting managerial staff. Management skill and strong team building abilities are essential leadership attributes for successful entrepreneurs. Entrepreneurs emerge from the population on demand, and become leaders because they perceive opportunities available and are well-positioned to take advantage of them. An entrepreneur may perceive that they are among the few to recognize or be able to solve a problem.Types of EntrepreneurSocial entrepreneurA social entrepreneur is motivated by a desire to help, improve and transform social, environmental,educational and economic conditions. The social entrepreneur is driven by an emotional desire toaddress some of the big social and economic conditions in the world, for example, poverty andeducational deprivation, rather than by the desire for profit. Social entrepreneurs seek to developinnovative solutions to global problems that can be copied by others to enact change. Serial entrepreneurA serial entrepreneur is one who continuously comes up with new ideas and starts new businesses. Inthe media, the serial entrepreneur is represented as possessing a higher propensity for risk, innovationand achievement. Serial entrepreneurs are more likely to experience repeated entrepreneurial success.They are more likely to take risks and recover from business failure.Lifestyle entrepreneurA lifestyle entrepreneur places passion before profit when launching a business in order to combinepersonal interests and talent with the ability to earn a living. Many entrepreneurs may be primarilymotivated by the intention to make their business profitable in order to sell to shareholdersIn contrast, a lifestyle entrepreneur intentionally chooses a business model intended to develop andgrow their business in order to make a long-term, sustainable and viable living working in a field wherethey have a particular interest, passion, talent, knowledge or high degree of expertise. A lifestyleentrepreneur may decide to become self-employed in order to achieve greater personal freedom, morefamily time and more time working on projects or business goals that inspire them. 8
  • 9. A lifestyle entrepreneur may combine a hobby with a profession or they may specifically decide not toexpand their business in order to remain in control of their venture. Common goals held by the lifestyleentrepreneur include earning a living doing something that they love, earning a living in a way thatfacilitates self-employment, achieving a good work/life balance and owning a business withoutshareholders Many lifestyle entrepreneurs are very dedicated to their business and may work within thecreative industries or tourism industry where a passion before profit approach to entrepreneurshipoften prevails. What is an entrepreneurship? Entrepreneurship defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". C. Portrait of an EntrepreneurWhat kind of person becomes an entrepreneur? What characteristics must successful entrepreneurshave? Whether people are born with these traits or they learn them is material for a good debate. Wedo know from numerous studies that successful entrepreneurs have several important personalitycharacteristics in common. They are often strong individualists, optimistic and resourceful, and theyusually have a high degree of problem solving ability. There are many other traits that describe anentrepreneur, some of which are listed below:Body PartsEntrepreneurs look for new and better ways. They are not satisfied with the status quo. Therefore,entrepreneurs are agents of change, they use innovation and creativity as a tool, finding new ways toaddress needs and wants, new solutions to problems and new processes for achieving production. Inpursuing their initiatives and establishing their ventures, entrepreneurs overcome problems and addressneeds and wants that people have. As an entrepreneur, you will have to rely on your physical body toget you through the day. You will use your body parts in the following ways:  Sharp eyes- for seeking out opportunities  Wise eyes- for establishing a vision and setting goals  Wrinkles- for smiling during the fun times  Brain- for generating creative, innovative ideas  Ear- for listening to the advice of those with knowledge and experience  Glands- for adrenaline: for the rush / for sweat: during hard work  Neck- for sticking out and taking calculated risks  Arms- for hugging members of the team that will determine your success  Fingers-for counting the positive learning opportunities from any mistakes, failures 9
  • 10.  Heart- for the passion, commitment and perseverance to stick with it  Knee- for bending and praying  Strong foot- for kicking butt when needed  Fleet feet- for moving ahead, keeping ahead and walking paths of adventure  Strong legs- for leaping over the many barriers and obstacles you will encounter  Deep pockets- to cover the unexpected  Hands- for shifting gears when necessary  Backbone- for the confidence to believe in ones self and to move ahead  Mouth- for effective communication and being able to sell an idea  Nose- for smelling signs of trouble and forseeing possible problems  Good ear- for keeping to the ground and sensing change and opportunityCharacteristicsEntrepreneurs are those individuals who are willing to take initiative and to pursue innovative ventures.The most successful entrepreneurs are those who possess enthusiasm and optimism for life, who makea zestful confident attack on his or her daily problems, who show courage and imagination, who pindown their buoyant spirit with careful planning and hard work and says "this may be tough, but it canbe licked". What sets entrepreneurial people apart is ultimately their attitude. They have a different wayof thinking about work and life, and that makes all the difference when it comes to living their passion. Ithas been researched that successful entrepreneurs have the following characteristics:  Strong need to achieve and seek personal accomplishment  Accept personal responsibility for successes and failures  Believes in ability to achieve goals  Self confident and self reliant  High drive and energy levels  Strong sense of commitment  Willing to take calculated risks  Innovative, creative and versatile  Hard working and energetic  Tolerates uncertainty  Spirit of adventure  Independent  Responsible  Goal oriented  Persistent  Positive attitude  Takes initiative 10
  • 11. RolesThe essence of entrepreneurship is the creation and building of business to exploit a marketopportunity. To carry out their directive successfully, the entrepreneur has to take on the followingroles: the inventor, who comes up with new products or processes, often combining previouslyunrelated elements or ideas; the innovator, who implements a new way of doing something, or comesup with an innovative, practical use for a new product or process; the manager, who sets goals andidentifies ways to reach them; and the administrator, who executes managerial strategies and sees thatthe organization achieves its goals.To ensure their success, all businesses, big or small, perform numerous tasks. Because of limitedfinancial and human resources, sometimes very limited, it is often the owner of a small business or self-employed worker who is in charge of both managing and carrying out all business activities. At onepoint, the owner will be acting as the director of finance, and later accountant or bookkeeper. Atanother time the role will be one of director of sales and marketing and then sales person and buying.Being a self-starter and taking initiative, the entrepreneur will have to take on many roles to ensuretheir success.These roles are as follows:  Organizer  Inventor  Innovator  Banker  Analyst  Producer  Promoter  Manager  Administrator  Secretary  Designer  Janitor  Mother and Father 11
  • 12. SkillsThe challenge for entrepreneurs is to think fast, move quickly and be innovative. Being entrepreneurialis learning to challenge and to reinvent yourself. An entrepreneur requires numerous skills (alone or incombination with one or more members of the team). These skills must be developed and usedoptimally in order to ensure the sound management and success of a business. However, no twoentrepreneurs have the same abilities, but in order to start and grow their ventures, research has shownthat successful entrepreneurs must acquire the following skills:  Opportunity identification  Creative thinking  Researching  Networking  Evaluation and assessment  Goal setting  Communication  Innovation  Planning  Organization  Decision making  Team building  Problem solving  Leadership  Stress management  Record keeping  Financial management  Financial planning  Negotiation  Market analysis  Marketing D. Advantages of Becoming an Entrepreneur Opportunity for greater financial success. Entrepreneurs have been shown to a mass even personal fortunes through the development of their companies.. When you work for someone else, you are contributing to their financial future all of the time and to your own financial future to the extent that they decide. 12
  • 13. Opportunity to build equity. When you own a business, you also own the means of production, which can develop into substantial value. This equity represents assets that can be sold to someone else or passed on to your heirs. You also have the opportunity to bring other family members into your firm and prepare for transition between generations. This is much more rewarding than receiving a gold watch at retirement from employment. Entrepreneurship creates the opportunity for philanthropy. If you are financially successful you may choose to give away some of your wealth in the manner that you decide to help your community or favourite institutions. Employees cannot give away the firm’s money or assets. They belong to the owners of the firm, not to the employees. Other contributions that entrepreneurs make result from their creating value. New, innovative ideas have been known to change society. Take for example the personal computer or telephone. To have the opportunity to change peoples’ lives through your work is personally rewarding and motivation for some entrepreneurs. The opportunity to have control over your life and job. It is not just the ability to say what hours you will work but it also involves every step in the operation of a business. This might include environmental sensitivity, social responsibility, and benefiting your own community in certain ways. When you are the boss, all decisions from design concept to job creation, sales, business operations, and customer relationship management ultimately circle back to the boss and his or her philosophy and motivations. Ego satisfaction. Business entrepreneurs have great opportunities to be visible in their community. Membership in chambers of commerce, business awards, community boards, and other corporate boards of directors serve the personal esteem and satisfaction motivations of some entrepreneurs.E. Lessons learned from the Two Fathers (Rich Dad Poor Dad ‘s excerpts) - One dad had a habit of saying, “ I can’t afford it”, and the other one says, how can I afford it?” - One dad thought that rich should pay more in taxes to take care of these less fortunate, the other dad says, “taxes punish those who produce and reward those who don’t produce”. - One dad recommend, “study hard so you could have a good company to work for”, the other dad says, study hard, so you can find a good company to buy.” - One dad says, “The reason I am not rich is because I have you kids”, the other one says, I reach I must be rich is because I have you kids” - One said, “when it comes to money play it safe, don’t take risk. The other one said, “Learn to manage risk”. 13
  • 14. - One believed, “our home is our greatest asset and achievement”, the other one believed, my home is a liability, and if your house is the largest investment, you’re in big trouble” - Both dad paid their bills, the first one paid his bills first, and the other paid his bills last. - One believed on pay raises, medical benefits, retirement plans, sick leave, vacation days, Tenure system in the university, other believed in total financial self reliance. - One dad struggles to save money, the other simply created investment. - One dad taught me how to write an impressive resume, so I could find a good job. The other one taught me how to write a strong financial and business plans, so I could create jobs. - My poor dad said, I’ll never be rich, and the prophecy became reality. My rich dad always says, I’m rich, he has become broke after a major financial setback, he continue sly referred himself as a rich man. - There is a difference between being poor and being broke. Broke is temporary, poor is eternal. - One dad says, acquire the highest position in the ladder. The other one says, why not own the ladder?”“Money is a form of power. But what is more powerful is financial education. Money comes and goes. Ifyou have an education how money works, you gain power over it and begin building wealth.”Robert Kiyosaki Chapter 2: MICRO, SMALL AND MEDIUM ENTERPRISE A. MSMEs Defined Micro, small, and medium enterprises (MSMEs) are defined as any business activity/enterprise engaged in industry, agri-business/services, whether single proprietorship, cooperative, partnership, or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entitys office, plant and equipment are situated, must have value falling under the following categories: 14
  • 15. B. By Asset Size* Micro: Up to P3,000,000 Small: P3,000,001 - P15,000,000 Medium: P15,000,001 - P100,000,000 Large: above P100,000,000 Alternatively, MSMEs may also be categorized based on the number of employees: Micro: 1 - 9 employees Small: 10 -- 99 employees Medium: 100 -- 199 employees Large: More than 200 employees C. Role and Importance of MSMEs MSMEs play a major role in the countrys economic development through their contribution in the following: rural industrialization; rural development and decentralization of industries; creation of employment opportunities and more equitable income distribution; use of indigenous resources; earning of foreign exchange (forex) resources; creation of backward and forward linkages with existing industries; and entrepreneurial development. They are vital in dispersing new industries to the countryside and stimulating gainful employment. A country like the Philippines where labor is abundant has much to gain from entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus, they generate jobs in the locality where they are situated. In this sense, they bring about a more balanced economic growth and equity in income distribution. MSMEs are quick in assimilating new design trends, developing contemporary products, and bringing them to the marketplace ahead of the competition. MSMEs tend to be far more innovative in developing indigenous or appropriate technology, which may be grown later into pioneering technological breakthroughs. They are able to effectively increase the local content or the value added in final goods that are processed and marketed by large manufacturing firms. MSMEs are notably skillful in maximizing the use of scarce capital resources and are able to partner with large firms by supplying locally available raw materials in unprocessed or semi- processed forms. 15
  • 16.  Also, MSMEs can act as the seedbed for the development of entrepreneurial skills and innovation. They play an important part in the provision of services in the community. They can make an important contribution to regional development programs. D. Types of Micro, Small and Medium EnterpriseMICROBUSINESS - is a type of small business, often unregistered, having five or fewer employees andrequiring seed capital of not more than 3 million.Appraisal services Duplicating standAutomotive trouble shooting LugawanBalut/Penoy Pedling Newspaper standBanana, Camote and Turon stand Notarial ServicesBarbeque stand Pizza standBuco salad stand Plumbing serviceBurger stand Tinapa, tuyo, daing standButong pakwan, mani stand Rags productionBrokerage Re packing (paminta, vetsin)Carwash Scrap buy and sellCellphone accessories Shoe shine and repairsCellphone repair Siomai in cartFishball cart Sorbetes vendorFruits and Veg. Stand Taho productionSago, Gulaman T-shirt printingHouse painting service Turo turoKakanin stand Tutorial servicesT.V, electric fan repair UpholsteryVulcanizing shop Watch repairSari sari storeBusiness Plan and Feasibility Study Preparation ServicesSMALL and MEDIUM BUSINESS ENTERPRISE - - is a type of business having an employees of 10-199 andrequiring seed capital of not more than 100 million. 16
  • 17. Types of SMBE 1. Manufacturing – involved in the conversion of raw materials into products needed by society. Examples: Food processing Purified water station Bags and Accessory manufacturing Sash and Decor works Footwear manufacturing Soap Making Furniture factory Toy manufacturing Garment factory Handicraft industries Jewellery manufacturing 2. Service Business – providing various types of labor services in a wide variety of business sectors. Types of Service Business 2.1 Business service – those that provide services to other businesses. Ex. accounting firms, janitorial services, security service, collection agencies. Printing press, cargo forwarding, trucking, trade promotions, merchandising business, security agency 2.2 Personal service – those that provide service to the person. Ex. Tutorial, massage parlor, spa, beauty parlor, voice lesson, school bus, Skin clinic, dental clinic, medical services, funeral parlor, flower arrangement 2.3 .Repair Services – provide repair services to owner of various machinery and appliances. Ex. Auto repair, watch repair, plumbing services, aircon repair 2.4. Entertainment and Recreation – movie houses, arcade games, internet cafe, Resorts, billiard, talent recruitment agency, 2. 5.Hospitality – hotels, motels, event planning, catering, travel and tour 2.6.Education services – Pre school, Grade school, High school, colleges 3. Trading Business – The business of buying and selling commodities. Ex. Auto supply, Botique, fish dealership, Cellphone dealership, electrical store, grocery store, Hardware store, furniture store, gasoline station, gravel and sand, LPG dealership, Magazine Store, meat and poultry dealership, medical supply, real estate, pharmacy, rice dealership 4. Rentals – a piece of property available for renting Ex. Apartment rental, billiard center, computer rental, warehousing 17
  • 18. 5. Agri and Aqua business - various businesses involved in food production, including farming and contract farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing, and retail sales. Ex. Broiler production, cattle fattening, dog breeding, poultry raising, hog raising, Honey bee production, quail raising, tilapia raising, raising live stock, growing of agricultural plants and crops, agriculture and aqua culture Chapter 3: THE SEARCH FOR A SOUND BUSINESS IDEASThis chapter will teach you the ways to discover a winning business idea by indentifying which one canand will work for you, and how to narrow down your options and evaluate the feasibility of your finalchoice.Finding a good idea is easy, what’s difficult is having determination to start and see the venture throughthe end. Most aspiring entrepreneurs spend too much time worrying despite of having unique and goodconcept for their business. The result is that opportunity, that great product or service you are thinkingof , is already been taken by another entrepreneur who is more daring than you. Once, you’ve through,act on your idea, do not waste time. Be realistic and start something you believe you can do. A. Before Searching for Business IdeaThe starting point for developing new business ideas lies inside the prospective entrepreneur ratherthan in the marketplace, laboratory, business plan etc. You are the critical component - it is yourstrengths and weaknesses which should dictate the areas in which to seek ideas and the likely scale &scope of your business. At the end of the day, support for your business by financiers, suppliers,customers etc. will also be a vote of confidence in your abilities to make it successful.What angle are you coming from? Are you: An inventor who has a product/service idea? An innovator who has developed a new product/service? Out of work and want to create a job for yourself? An entrepreneur who wishes to create a business? A manager who wishes to develop a business?Be especially aware that inventors and innovators does not necessarily make good business people.Educational background Any (special) business or technical qualifications? 18
  • 19. Do you have a knowledge of finance & marketing?Financial strengths Have you access to personal or family funds or finance from other sources? How much, how easily, what conditions and when? How long could you survive without any (regular) income while your business develops?Commitment Why do you really want to start a business? Are you in reasonable health? Have you any/many family commitments? Does the family fully approve of your proposal to set up your own business? Are you willing to relocate/commute in order to pursue a business possibility?Expertise & interests Do you have insights into any business sectors or trades? What are you good at or like doing? Do you have a hobby/interest/talent which could become the basis of a business?Personal qualities Are you a resourceful, energetic and motivated person? Have you a capacity to take lots of knocks and bounce back? Are you realistic and practical? Are you a hard worker? What do you dislike doing?Prior experience Where have you worked before? Have you done anything special, exceptional or unusual? What work-related skills or expertise do you haveExternal contacts, resources etc. What contacts have you in finance, business etc. Have you or your family access to any under-utilized resources. Do you know people who might help give you a start?2. Finding the Business IdeaWhen looking around for business ideas, bear in mind that these could be based on any of the followingapproaches: 19
  • 20. A manufactured product where you buy materials or parts and make up the product(s) yourself. A distributed product where you buy product from a wholesaler/MLM, retailer, or manufacturer. A service which you provide.You must narrow your search to specific market or product areas as quickly as possible. For example, the"food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or doyou mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It isbetter to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specificsand proves impossible to research and evaluate.Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuingideas which involve any prospect of price wars or are very price sensitive; of getting sucked into short-lived fads; or of having to compete head-to-head with large, entrenched businesses.Observe consumer behavior: What do people/organizations buy ? What do they want and cannot buy ? What do they buy and dont like ? Where do they buy, when and how ? Why do they buy ? What are they buying more of ? What else might they need but cannot get ?Look at changing existing products or services with a view to:  Making them larger/smaller, lighter/heavier, faster/slower  Changing their color, material or shape  Altering their quality or quantity  Increasing mobility, access, portability, disposability  Simplifying repair, maintenance, replacement, cleaning  Introducing automation, simplification, convenience  Adding new features, accessories, extensions  Changing the delivery method, packaging, unit size/shape  Improving usability, performance or safety  Broadening or narrowing the range  Improving the quality or service.Be on the look out for:  Emerging Trends For example, the population within your area may be getting older and creating demand for new products and services. 20
  • 21.  Expanding Market Niches For example, local industries may be outsourcing more of their services.Try the following approaches to locating ideas and suggestions:  Brainstorm with your friends, associates  Ask people for their ideas  Use one idea to spark a better one  Read relevant trade magazines (local, national and foreign)  Skim through trade directories (local, national and foreign)  Above all, open your eyes wide and try to spot the obvious gaps. By all means be inventive, imaginative and original in your thinking but stay market- and consumer-orientated rather than product-obsessed. We all know stories about people inventing a better mousetrap and never getting a nibble from the market!!C. Assessing Business IdeasOnce your short-list has been developed, you will need to start devoting substantial time to assessment,research, development and planning. For a start, you could pursue the following tasks: 1. Discuss products/services with prospective customers Would they buy from you, at what price, with what frequency etc.? Why would they prefer your products to the competition? Find out what they really think - there is a danger that people will tell you what they think you would like to hear. Listen carefully to what is being said; watch carefully for qualifications, hesitations etc.; and dont brow beat respondents with your ideas - you are looking for their views. 2. Assess the market using desk & field research How does the market segment (by price, location, quality, channel etc.)? What segments will you be targeting? How large are these segments (in volume terms) and how are they changing? What are the price makeups/structures? What market share might be available to you bearing in mind your likely prices, location, breath of distribution, levels of promotion etc.? 3. Analyze your competition Who are they and how do they operate? Are they successful and why? How would they react to your arrival? What makes you think that you could beat the competition? At whose expense will you gain sales? 4. Consider possible start-up strategies Will you be able to work from home or part-time? Will you seek a franchise or set up as an in-store concession? 21
  • 22. Will you start by buying in finished products for resale as a precursor to manufacturing? Will you contract out manufacturing? Will you buy an existing business or form an alliance? Could you lease or hire equipment, premises etc. rather than buy? How will you stimulate sales? . 5. Set ball-park targets and prepare first-cut financial projections Estimate possible sales and costs to get a feel for orders of magnitude and key components and to establish a rough break-even point (when our sales might start covering all your costs). Our Exl-Plan (for Excel) can be used to prepare 3/5-year financial projections (P&Ls, cashflows, balance sheets, ratio analyses and graphs). It incorporates a Quik-Plan facility for doing quick and dirty projections. Avoid over-estimating likely sales and under-estimating costs or lead times. Better to be relatively conservative. Dont confuse profits and cash - see the paper entitled Making Cashflow Forecasts for further information - and make sure that you make adequate provision for working capital. 6. Prepare a simple action plan Cover the first year of operations to highlight the critical tasks and likely funding needed before the business starts generating a positive cashflow. This is critical especially if you have to undertake significant product or market development or need to give credit to customers. 7. Critically examine ideas from all angles Can I raise enough money? Can I get a premises/staff etc. Will the product work? How will I promote and sell? Think through possible problems. What would happen if sales took twice the expected time to develop while costs escalated?D. From Business Idea to Business Plan Having firmed up on a specific idea and conducted preliminary research, you have several optionsincluding the following: Undertake more detailed/specific market research. Do further product research, development, testing etc. Review and refine your proposed start-up and developmental strategies. Draft a detailed or outline business plan. Prepare financial projections. Start looking around for the key resources - people, money. premises, partners etc. 22
  • 23. Most probably, you will start addressing all these tasks in parallel rather than sequentially. Other issueswhich you may need to start thinking about include the following: Select a company or business name, logo etc. Decide how you will start trading - limited company, sole trader etc. Enquire into any licenses which might be needed, or regulations to be complied with. Think about where the business will be located. Look for professional advisers (lawyer, accountant) and a bank. Consider likely telephone/communications needs.Bear in mind that, to develop a successful business, you must:CHAPTER 4: ENTREPRENUERAL OPTIONS : START-UP, BUYOUT ORFRANCHISING For a new entrepreneur, the decision to own and operate a business is the result of his seriousexploration of ideas and sensible evaluation of opportunities. A sensible entrepreneur would alwaysconsider serious issues before going into business. Very often, the decision to engage is a particularbusiness would minimize the possible waste of time, energy and resources if it is made after carefullyaddressing these issues. A. Starting a New Business This is a business from scratch as startup. The reasons for the popularity of a startup among entrepreneurs are varied. They find it exciting ans satisfying to be able to put to use the latest ideas, process and facilities in running a business. The challenge that goes with doing something new puts the entrepreneur passionately at work. Also, some entrepreneurs get a feeling of fulfilment in their autonomy and freedom to run a business. These are the other reasons that move an entrepreneur to pursue a business: 1. If the entrepreneur has a newly invented or newly developed products or service. 2. When the entrepreneur wants to take advantage of an ideal location, product or service, equipment, employees, suppliers and financial backers. 3. If the entrepreneur wants to avoid problems and undesirable commitments in policies, contracts, and procedures involving other firms. 23
  • 24. Advantages: 1. Lower start-up costs - Depending on the type of business you start, costs may be lower than a franchise where there is no up-front purchasing fee or supply costs 2. Independence - You make all decisions and create all business systems 3. Site selection - You choose where to locate your business and what marketing procedures to follow 4. No baggage - There is no history to overcome when you start a new venture 5. You’ll have the opportunity to orient the business toward your own personal goals. 6. You’ll have a complete flexibility in selecting your products, target market, service strategy, competitive strategy, location and facilities. 7. Easier to innovate and make further improvements. 8. You can design your own policies and procedures and can train employees your own way. 9. You also avoid “goodwill” expense of buying an existing business along the possibility of unknown or contingent liabilities. 10. You will not risk inheriting any pre existing ill will from previous customers, suppliers, creditors, or employees.Disadvantages: 1. There is a great uncertainty about the market demand for the new product or service. 2. It takes time and energy to create an image, build patronage, works out new system and procedures, and reach a break even level of sales. 3. Added risks in an investment will not be recouped. 4. Unexpected competition may emerge and potential customers may be more difficult to attract. 5. High commitment - Starting your own business requires a higher commitment of time and energy 6. High risk - Success depends totally on you and your business talents 7. Delayed profitability - Where the market may not already be established, it may take longer to become profitable. 8. Limited financing - Financing for a new business is more difficult to obtain 9. You will need to look in to every small detail that goes into running your business and that may mean long working hours and fewer chances of vacation. 10. Running a full-fledged business is not easy. A lot of processes are involved which may make your existing education inadequate. Thus you may need to learn a lot of new subjects like administration, planning, promotion, human resource development, research and development etc. 11. Owning a business means exposure to direct legal problems, which you would not face as an employee in a company. 12. If somehow you are not able to run your business yourself and your spouse or children take over, then there is a huge risk that the customers may leave you owing to different methods of business employed them. 24
  • 25. B. Buying an Existing Business For some entrepreneurs, buying an existing business represents less of a gamble than starting a newbusiness from scratch. While the opportunity may be less risky in some aspects, you must perform duediligence to ensure that you’re fully aware of the terms of the purchase.Deciding on the right type of business to buyIdeally any business you buy needs to fit your own skills, lifestyle and aspirations. Before you start looking,think about what you can bring to a business and what youd like to get back.List what is important to you. Look at your motivations and what you ultimately want to achieve. It is usefulto consider: Your abilities - can you achieve what you want to achieve? Your capital - how much money do you have to invest? Your expectations in terms of earning - what level of profit do you need to be looking for to accommodate your needs? Your commitment - are you prepared for all the hard work and money that you will need to put into the business to get it to succeed? Your strengths - what kind of business opportunity will give you the chance to put your skills and experience to good use? The business sector youre interested in - learn as much as you can about your chosen industry so you can compare different businesses. Its important to take the time to talk to people already in similar businesses. The internet and your local library will also be good sources of information. Find out how to comply with all the regulations and licences that apply to Your business sector. Location - dont restrict your search to your local area. Some businesses can be easily relocated.Advantages to Choosing an Existing BusinessThere are many favorable aspects to buying an existing business:  Drastic reduction in startup costs  Facilties, technology already available  Cash flow may be immediate because of existing inventory and receivables  Existing goodwill and easier financing opportunities, assuming the business has a good reputation  They already have available personnel with know how.  It may be easier to obtain finance as the business will have a proven track record.  A market for the product or service will have already been demonstrated.  There may be established customers, a reliable income, a reputation to capitalise and build on and a useful network of contacts.  A business plan and marketing method should already be in place.  Existing employees should have experience you can draw on.  Many of the problems will have been discovered and solved already. 25
  • 26. Disadvantages to Choosing an Existing BusinessThe following are some downsides to buying an existing small business:  Purchasing cost may be much higher than the cost of starting a new business because the initial business concept, customer base, brand and other fundamental work has already been done  Hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be non-collectible  Some of the groundwork to get the business up and running will have been done.  It may be easier to obtain finance as the business will have a proven track record.  A market for the product or service will have already been demonstrated.  There may be established customers, a reliable income, a reputation to capitalise and build on and a useful network of contacts.  A business plan and marketing method should already be in place.  Existing employees should have experience you can draw on.  Many of the problems will have been discovered and solved already.How to value a business Valuing a business can be one of the most worrying parts of buying an existing business.There are several valuation methods you can use. For specific advice on valuation methods see ourguide on how to value and market your business. Your accountant may be able to help you value thebusiness, but a business transfer agent, business broker or corporate financier will be best qualified toprovide valuation advice.A healthy businessTo get a general idea of how healthy the business is, look at: the history of the business its current performance - sales, turnover, profit future projections or a business plan its financial situation – cash flow, debts, expenses, assets why the business is being sold any outstanding or major litigation the business is involved in any regulatory changes which might have an impact on the businessAs part of your investigations, talk to the vendor and, if possible, the business existing customers andsuppliers. The vendor must be comfortable with you doing this and you must be sensitive to theirposition. Customer and suppliers may be able to give you information that affects your valuation, as wellas information about market conditions affecting the business. Such research can also be done on theinternet or at your local reference library.For example, if the vendor is being forced to sell due to decreasing profits, your valuation might belower.Intangible assets 26
  • 27. The most difficult part is valuing the intangible assets. These are usually difficult to measure and couldinclude: the companys reputation the relationship with suppliers the value of goodwill the value of licenses patents or intellectual propertyYou should consider how the value of these assets could be affected if you decide to buy the business.Other considerations.The list below details other factors that will affect the value: stock location assets products debtors creditors suppliers employees premises competition benchmarking - what other businesses in the sector have sold for who else in the sector is for sale or on the market the economic climate - will any new government legislation have an impact on the businessOnce you have considered all these factors you can then decide how much you want to offer, orwhether you want to buy it at all.If you do decide to make an offer, and agree a price with the seller, a period of time is allowed for you toverify that all of the information you have been told is accurate. This is known as due diligence. See thepage in this guide on how to make sure a business is worth buying: due diligence.Step-by-step: how to buy a business1 Get professional adviceProfessional help is invaluable as you go through the negotiation, valuation and purchase process. Youcan find details of how to find professional help in our guides on how to choose and work with asolicitor and how to choose and work with an accountant.2 ResearchResearch the sector youre interested in, including the best time to buy, and shortlist two or threebusinesses. 27
  • 28. 3. Initial viewing and valuationBe discreet - the owner may not want staff to know they are selling, but be thorough and record keyfindings.4 Arrange financeLenders generally require: details of the business/sales particulars accounts for the last three years financial projections - if no accounts are available details of your personal assets and liabilitiesThere are several possible sources of finance you could consider. For specific advice, see our guides onbank finance, financing from friends and family and equity finance.Use our interactive tool to identify the right finance for your business.5. Make a formal offerIf you make your initial offer by phone, follow this up in writing. Head your letter subject to contract andinclude this phrase in all written communication.6 .NegotiationBefore completing the sale, it may be worth trying to negotiate an overlap period so you have time tobecome familiar with the business before taking over.7. CompletionEven after you reach an agreement on the price and terms of sale, the deal could still fall through. Youhave to meet certain conditions of sale to complete, including: verification of financial statements transfer of leases transfer of contracts/licenses transfer of finance transfer of existing or new VAT registration 28
  • 29. C. Franchising Concepts of Franchising Franchise – an agreement whereby an independent person is given exclusive rights to sell a specified good or service.Franchising – a marketing system based on a legal agreement wherein one party (franchisee orfranchiser) is given the right to handle a business as an independent owner but is required to abide bythe terms and conditions specified by the other party (franchisor).Franchisor - The franchisor owns the overall rights and trademarks of the company and allows itsfranchisees to use these rights and trademarks to do business. The franchisor usually charges thefranchisee an upfront franchise fee for the rights to do business under the franchise name. In addition,the franchisor usually collects an ongoing franchise royalty fee from the franchisee.Franchisee - A franchisee is an individual who purchases the rights to use a company’s trademarkedname and business model to do business. The franchisee purchases a franchise from the franchisor. Thefranchisee must follow certain rules and guidelines already established by the franchisor, and in mostcases the franchisee must pay an ongoing franchise royalty fee to the franchisor.Franchising Contract - The franchise agreement is a legally binding agreement which outlines thefranchisors terms and conditions for the franchisee. The franchise agreement also clearly outlines theobligations of the franchisor and the obligations of the franchisee. The franchise agreement is signed at thetime an individual has made the final decision to buy the franchise. It is strongly suggested that anyone whois considering buying a franchise should consult with a professional franchise attorney.Types of Franchising:1. The Product Franchise. With this the manufacturer uses the franchise agreement to determine how the product isdistributed by the person buying the franchise. A retail company can be provided with a franchise todistribute, for example, a range of tyres. The franchisee can utilize the brand name and the trademarkowned by the manufacturer to distribute or sell the car tyres. The owner of the store will pay themanufacturer a franchising fee or agree to purchase a minimum inventory to sell on to their customers.The manufacturer gets the income from the purchase of the retailer, and/or the franchise fee, and theretailer gets the benefit of the brand and experience of the franchisor.2. The Manufacturing Franchise. The franchisee is permitted to manufacture the products under license and sell them using theoriginators trademark and name. They also get the benefit of the national advertising of the product 29
  • 30. they manufacture. The company owning the product gets the franchise fee and sometimes a fee forevery unit sold. Examples include the food and beverage industry.3. The Business Franchise Venture. The franchisee purchases and distributes the products for the franchise owner. A client base isprovided by the product owner for the franchisee to maintain. Vending machines are a classic exampleof this, where the franchisee purchases the vending machines and distributes and services them, takingtheir share of the takings of the machines.4.A Business Format Franchise This opportunity is very popular, and involves providing the franchisee a proven business modelusing a recognized product and brand. Training is provided by the franchise owner and assistance insetting up the business. Supplies are purchased from the franchisor and the franchisee pays a royaltyfee. Frequently the franchisor will sell the franchisee the products or raw materials to provide the samequality of product. Most well known fast food franchises are of this type, and also many jewelers andother ubiquitous High Street names.What Does Franchise ProvideLike other businesses, franchising also requires commitment , time, effort and the money that wouldspend on franchising. The franchisor not only looks at the business location of the outlet but also thefinancial and management capability. 1. Business name– The franchisee may have a different company name but it’s the product should have the names that are patented by the franchisor. The name and the way it is written designed or printed should be uniform with the other franchise outlets. 2. Market Research – The marketing research of the franchisor should benefit the franchisee. It will serve as guide to help the franchisor in evaluating the proper location, promotions, personnel, distribution and market segment. 3. System Ideas and the Operating Manual – the system ideals are written on the operating manual which should be provided by the franchisor. It describes how things should be conducted in the operating of the system. The operating manual communicates the complete operating procedures necessary to maintain the standards of the franchise 4. Propriety Marks – Include logo, slogans, and other printed signs that show distinction of the franchise. The franchisee is allowed to use the patented marks of the franchisor. 5. Experience – This is an important service that the franchisor provides to the franchisee. With the vast experiences of the franchisor, the franchisee avoids mistakes committed by one by a new and growing company. It will help reduce losses brought about by the miscalculation of risks. 6. Training- Franchisor provide training assistance to the franchisee. Not only the knowledge but the conceptual framework of the business. 30
  • 31. 7. Location Assistance and Approval - Give ideas on where a franchise would likely to get more sales. 8. Store Layout and Construction Supervision – Franchisor give the franchisee the specification for the construction of the store. These specifications are based on careful planning that would bring the efficient operations. (color, decor, walls, pertinent materials) 9. Exclusive Area Coverage – Franchisors provide exclusive territories to franchise holders. Exclusive territory means that no others franchise coming from the same organization may overlap territorial limit. 10. Procurement Programs – Franchise organizations share the system of procurement with the franchisee. It provides the list of authorized suppliers for the different needs of the franchise outlet. 11. Hiring Assistance – The franchisor usually gives the franchisee the guidance needed in hiring personnel that would fit the nature of the organization. 12. Grand Opening Assistance – The opening is the highlight event of the franchise outlet. The opening day is when all the training and plans will be operational zed. The franchise organization’s management and staff lend a helping hand to make sure that everything goes smoothly starting at the day one. 13. Marketing Strategies – The franchisor is generally familiar with tested and proven strategies to guide the franchisee to remain competitive. It includes the aspects of advertising and different promotional tactics design to ensure continued profit. 14. Research and Development – the franchisee must see to it that the business does not remain stagnant. The franchisor spends time to ensure that improvement in the products, services, equipment, operation processes. R&D is necessary to beat the competition.Advantages of Franchising:1) The business you are franchising is already successful and is a proven idea. Usually, beforeoffering the business for franchising, the original owners have already build it up and havealready made it successful. Franchising, for them, is a way to expand the business; it is not a wayto build the business from a small one to a big one.2. The brand name is already recognized and name-recall is already very easy. Plus thefranchisor or the owner of the franchise will take it upon himself to promote the franchisedname or product, which will benefit the franchisee.3) You may have exclusive rights to market the franchised products in your territory. Oneexample is Starbucks Philippines. This one is franchised, yes, but the franchise belongs to just asingle entity in the whole country. 31
  • 32. 4) A franchisee will enjoy the benefits of being supported by the franchisor. This is part of the franchise agreement. In return for the franchise fee the franchisee pays the franchisor, the latter commits to support, to train, to share ideas and even manpower to the franchisee. 5) Systems are already in place. From getting the supplies to cooking the food (if you’re franchising a fast food or a food cart business) to selling the products or services to summarizing your numbers and producing your financial reports, the systems are already there for you. You just need to follow them. 6) You will get to leverage on the good name and purchasing power of your franchisor when it comes to sourcing your supplies from suppliers. 7) Lower Failure Rate - When you buy a franchise, you are buying an established concept that has been successful. Statistics show that franchisees stand a much better chance of success than people who start independent businesses; independent businesses stand a 70 to 80 percent chance of NOT surviving the first few critical years while franchisees have an 80 percent chance of surviving 8) Buying Power - Your franchise will benefit from the collective buying power of the parent company as the franchisor can afford to buy in bulk and pass the savings along to franchisees. Inventory and supplies will cost less than if you were running an independent company. 4) Star Power – Many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers. 5) Profits - A franchise business can be immensely profitable. (Think of Macdonalds and Tim Hortons, for instance.)Disadvantages of Franchising: 1) Their Way or The Highway - The main disadvantage of buying a franchise is that you have to do it their way - sometimes right down to the way the napkin holders are filled. As a franchisee, you are not the one actually running the show, and some franchisors exert a degee of control that you may find excruciating. 2) Ongoing Costs – Besides the original franchise fee, royalties, a percentage of your franchise’s business revenue, will need to be paid to the franchisor each month. The franchisor may also charge additional fees for services provided, such as the cost of advertising. 3) Ongoing Support? Not all franchisors offer the same degree of assistance in starting a business and operating it successfully. Some are just startup operations – and everything after startup is up to you. Others make promises of ongoing training and support that they dont follow up on. 32
  • 33. 4) Cost - Buying into well-known franchises is very expensive. If this is your choice, you will have to have extremely deep pockets or the ability to arrange the necessary financing 5) Shark-Infested Waters - Buying a little-known, perhaps inexpensive franchise can be a real gamble. Just because a business is offering franchises is no guarantee that the franchise you buy will be successful. In some cases, franchising is the business; all the franchisor is interested in is selling more franchises. Whether or not the individual franchises are successful is irrelevant to them. This is not to say that no little known, inexpensive franchises are worthwhile, but just a reminder that any franchise youre thinking of buying needs to be investigated carefully CHAPTER 5 : MARKET ANALYSIS AND MARKET RESEARCH Is any organized effort to gather information about markets or customers. It is a very importantcomponent of business strategy. The term is commonly interchanged with marketing research;however, expert practitioners may wish to draw a distinction, in that marketing research is concernedspecifically about marketing processes, while market research is concerned specifically with markets. Market research is a key factor to get advantage over competitors. Market research providesimportant information to identify and analyze the market need, market size and competition. Market research is for discovering what people want, need, or believe. It can also involvediscovering how they act. Once that research is completed, it can be used to determine how to marketyour product. Doing a market research would allow you to:  Have an idea of your product or service’s acceptability  Have a grasp of your target market, its profile and preference  Have an estimate of how big or small your market is  Have a idea of the needs and wants of the market that you can satisfy.  Decide on the best entry strategy for your business  Find a means to differentiate your product or service for what is existing  See if you have enough resources in the playing field  Check if you have a fighting chance against competition  Find out if there is any possible hindrances to starting your business 33
  • 34. A. Elements of Market Research:Market informationThrough market information one can know the prices of the different commodities in the market, aswell as the supply and demand situation. Information about the markets can be obtained from differentsources, varieties and formats, as well as the sources and varieties that have to be obtained to make thebusiness work.Where to get information?  Internet – offers information on the business trends, practices and market sizes  Syndicate reports – provide an overview of how certain industries are performing.  Industry reports – An insider information developments and current practices of big players In certain industries such as (banking, real estate, tourism) through regular updates and reports released by various industry associations.  Government agencies – background research on particular businesses (DTI, and other government agency’s website)  Academic papers – feasibility studies and business plans conducted by undergraduates and graduate students of the universities and colleges  Publications – books, newspapers, magazines normally articles on how the industries and businesses are performing.Market segmentationMarket segmentation is the division of the market or population into subgroups with similarmotivations. It is widely used for segmenting on geographic differences, personality differences,demographic differences, technographic differences, use of product differences, psychographicdifferences and gender differences  By demographics – market’s profile (age, gender, income, educational attainment, status, religion, total house hold income, family size, social class, occupation)  By behaviour – dividing the market based on their knowledge, attitude, and response to the product.  By psychographics – Segmenting the market based on lifestyle, personality and values.  By geography – Partitioning the market into regions, localities, provinces, cities or municipalitiesMarket trends Market trends are the upward or downward movement of a market, during a period of time. Themarket size is more difficult to estimate if one is starting with something completely new. In this case,you will have to derive the figures from the number of potential customers, or customer segments. 34
  • 35. Market size The market size is defined through the market volume and the market potential. The market volumeexhibits the totality of all realized sales volume of a special market. The volume is therefore dependanton the quantity of consumers and their ordinary demand.Market growth rate A simple means of forecasting the market growth rate is to extrapolate historical data into thefuture. While this method may provide a first-order estimate, it does not predict important turningpoints.Market opportunity A market opportunity product or a service, based on either one technology or several, fulfills the need(s)of a (preferably increasing) market better than the competition and better than substitution-technologies withinthe given environmental frame (e.g. society, politics, legislation, etc.).Market profitability While different organizations in a market will have different levels of profitability, they are allsimilar to different market conditions.CHAPTER 6: BUSINESS PLANCreating a Blue Print for your Business Planning may be viewed as a systematic approach to achieve certain objectives. It is an attemptto eliminate mistakes inherent to “on the spot” decisions. Having a business plan is also an ideal to starta business, for that means you’re not leaving anything by chance. A. What is a Business Plan? The business plan is a document that helps the small business owner determine what resourcesare needed to achieve the objectives of the firm, and provides against to evaluate the results. Thebusiness plan is a sort of a blue print and it keeps the entrepreneur on the right track. It gives a sense ofpurpose to the business.What’s in a Name? Before you write down your business plan, you have to choose a suitable name for the companyyou’re going to put up. This is the name you’ll be constantly referring to when you begin piercing yourbusiness plan together. Aside from your company name, you may also find the need to come up with aseparate name for your product, which will be your brand name. 35
  • 36. B. The Business Plan Format 1. Title Page and Contents -Name of the Business -The name or the names of the proponents - Address - The telephone number - Email and website address - Date and name of the person who prepared business plan. 2. Vision Statement - is sometimes called a picture of your company in the future but it’s so much more than that. Your vision statement is your inspiration, the framework for all your strategic planning. 3. Mission Statement - is a statement of the purpose of a company or organization. The mission statement should guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making. It provides "the framework or context within which the companys strategies are formulated. 4. Executive Summary - Is a portion of the business plan that summarizes the plan and states of the objectives of the business. 1. Brief description of the project 2. Brief profile of the proponent 3. Projects contribution to the economy 5. Marketing Plan - are vital to marketing success. They help to focus the mind of companies and marketing teams on the process of marketing i.e. what is going to be achieved and how we intend to do it. There are many approaches to marketing plans.. It is contained under the popular acronym AOSTC. ANALYSIS. OBJECTIVES. STRATEGIES. TACTICS. CONTROLS.Stage One - Situation Analysis (and Marketing Audit).  Marketing environment.  Laws and regulations.  Politics.  The current state of technology.  Economic conditions.  Socio-cultural aspects.  Demand trends. 36
  • 37.  Media availability.  Stakeholder interests.  Marketing plans and campaigns of competitors.Stage Two - Set marketing objectives. SMART objectives.  Specific - Be precise about what you are going to achieve.  Measurable - Quantify you objectives.  Achievable - Are you attempting too much?  Realistic - Do you have the resource to make the objective happen (men, money, machines, materials, minutes)?  Timed - State when you will achieve the objective (within a month? By February 2010?).Stage Three - Describe your target market  Which segment? How will we target the segment? How should we position within the segment?  Why this segment and not a different one? (This will focus the mind).  Define the segment in terms of demographics and lifestyle. Show how you intend to position your product or service within that segment.Stage Four - Marketing Tactics.Convert the strategy into the marketing mix (also known as the 8Ps). These are your marketing tactics. 1. Price — The amount of money needed to buy products 2. Product — The actual product 3. Promotion (advertising)- Getting the product known 4. Placement — Where the product is sold 5. People — Represent the business 6. Physical environment — The ambiance, mood, or tone of the environment 7. Process — The Value-added services that differentiate the product from the competition (e.g. after-sales service, warranties) 8. Packaging — How the product will be protectedStage Five - Marketing Controls. Remember that there is no planning without control. Control is vital.  Start-up costs.  Monthly budgets.  Sales figure.  Market share data.  Consider the cycle of control. 37
  • 38. 6. Production Plan - is concerned with deciding in advance what is to be produced, whento be produced, where to be produced and how to be produced. It involves foreseeing every step inthe process of production so as to avoid all difficulties and inefficiency in the operation of the plant. Elements of a Production Plan: 1. Production Process 2. Fixed Capital 3. Life of Fixed Capital 4. Maintenance and Repairs 5. Sources of Equipment 6. Planned Capacity 7. Future Capacity 8. Terms and Conditions of Purchase of Equipment 9. Factory Location and Layout 10. Raw Materials 11. Cost of Raw Materials 12. Raw Materials Availability 13. Labour 14. Cost of Labour 15. Labour Availability 16 .Labour Productivity 17 .Factory Overhead Expenses 18. Production Cost 7. Organizational and Management Plan -Basically a “to do” list for an organization. It list the plan of work, programs and organizational growth over a period of time. Elements of an Organizational Plan 1. Form of Business 2. Organizational Structure 3. Business Experience and Qualifications of the Entrepreneur 4. Pre-Operating Activities 5. Pre-Operating Expenses 6. Office Equipment 7. Administrative Expenses 8. Financial Plan - A comprehensive evaluation of an investors current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans. 38
  • 39. Elements of a Financial Plan Project Cost 1. Financing Plan and Loan Requirement 2. Security for Loan 3. Profit and Loss Statement 4. Cash Flow Statement 5. Balance Sheet 6. Loan Repayment Schedule 7. Break-even Point (BEP) 8. Return on Investment (ROI) 9. Financial Analysis C. Business Plan Guide Questions EXECUTIVE SUMMARY1. What is the nature of the project?2. What are the entrepreneur’s competencies and qualifications?3. What are the project’s contributions to the local and national economy? Section 1 MARKETING PLAN1.1 What is the product?1.2 How does it compare in quality and price with its competitors?1.3 Where will be the business be located?1.4 What geographical areas will be covered by the project?1.5 Within the market area, to whom will the business sell its products?1.6 Is it possible to estimate how much of the product is currently being sold?1.7 What share or percent of this market can be captured by the business?1.8 What is the selling price of the product?1.9 How much of the product will be sold?1.10 What promotional measures will be used to sell the product?1.11 What marketing strategy is needed to ensure that sales forecasts are achieved?1.12 How much do you need to promote and distribute your product? 39
  • 40. Section 2 PRODUCTION PLAN2.1 What is the production process?2.2 What buildings and machinery (fixed assets) are needed and what will be their cost?2.3 What is the useful life of the building and machinery?2.4 How will maintenance be done and are spare parts available locally?2.5 When and where can the machinery be obtained?2.6 How much capacity will be used?2.7 What are the plans for using spare capacity?2.8 When and how will the machinery be paid for?2.9 Where will the factory be located and how will the factory be arranged?2.10 How much raw materials are required?2.11 How much will the raw materials cost?2.12 What are the sources of raw materials? Are they available throughout the year?2.13 How many direct and indirect labour are needed and what skills should they have?2.14 What will be the cost of labour?2.15 Are workers available throughout the year? If not, what effect will this have on production?2.16 How will the workers be motivated?2.17 What factory overhead expenses are involved?2.18 What is the production cost per unit? Section 3 ORGANIZATION AND MANAGEMENT PLAN3.1 How will the business be organized?3.2 How will the business be managed and operated?3.3 What is the business experience and qualifications of the entrepreneur?3.4 What pre-operating activities must be undertaken before the business can operate?3.5 What pre-operating expenses will be incurred?3.6 What fixed assets will be required for the office?3.7 What administrative cost will be incurred? Section 4 FINANCIAL PLAN4.1 What is the total capital requirement?4.2 Is a loan needed? What will be the equity contribution of the entrepreneur? And how much?4.3 What security (collateral) can be given to the bank?4.4 What does the Profit and Loss Statement indicate?4.5 What does the Cash Flow Statement indicate?4.6 What does the Balance Sheet indicate?4.7 What is the loan repayment schedule?4.8 What is the break-even point (BEP)?4.9 What is the return of investment (ROI)?4.10 Is the project feasible 40
  • 41. Chapter 7: Forms of Small Business Ownership, Registering and Organizing When starting your small business you will find that there are 5 main forms of business ownership tochoose from, which are listed below. Each has it’s advantages and disadvantages. The form of business ownershipyou choose will directly affect how much taxes you have to pay and what business licenses and documents you willneed. Many small businesses start as one form of ownership and changes to another as it grows. This is perfectlyacceptable, you are not bound to your first choice. You can decide to hire a lawyer or an attorney who specializesin small businesses to help you choose a form of business ownership and ensure you have all the required permitsand licenses.5 Main Forms of Business Ownership 1. Sole ProprietorshipA sole proprietorship in the Philippines is also known as a "single proprietorship,". A sole proprietorshipis the most simple form of business and the easiest to register in the Philippines, through the Bureau ofTrade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI). It isowned by an individual who has full control or authority of its own and owns all the assets, as well aspersonally answers all liabilities or losses. The fact that it is run by the individual means that it is highlyflexible in which the owner retains absolute control.AdvantagesControlSole proprietors experience the advantage of having unquestioned control of the operation. You make all the important decisions on pricing, marketing, staffing and expansion & everything.You won’t have to explain your decisions or answer to anyone else, which may greatly appeal to you ifyou’re coming from an oppressive work environment. Depending on the type of business, you also mayenjoy the flexibility in scheduling.SimplicityAnother advantage of a sole proprietorship is its simplicity. The business can be started almostimmediately and with a minimum of red tape.Low Start-Up CostsStart-up costs also may be minimal for a sole proprietor. Because your operation is small, you may notneed to hire a large staff or operate out of an expensive building. Some sole proprietors start theirbusinesses at home in a garage or basement. With the abundance of available online businesses, soleproprietors can start with just a computer and Internet connection. 41
  • 42. Disadvantages: Personal Liability A disadvantage of sole proprietorship is that there is no legal separation between business and personal liability. If you borrowed money or purchased supplies on credit, your creditors can sue you personally if you default on your obligations. Heavy Burden Although making all the decisions can be a benefit of sole proprietorship, it also can become a burden. As the business owner, you’re solely responsible for its success and failure. You also can have difficulty relinquishing control and delegating to others if your operations continue to grow. Difficulty Raising Money Sole proprietors can face hurdles in raising money if it’s needed to start or sustain a business, according to All Business. Banks often are fearful of lending money to sole proprietors because repayment becomes questionable if the business fails or the owner dies. Potential investors also may shy away from an unproven business model. Registering a Sole Proprietorship If you’re a Filipino citizen, 18 years old & above, you can register a sole proprietorship. What you should get, as a minimum: Certificate of Business Name Registration – DTI Certificate of Registration – your BIR Revenue District Office (RDO) Mayor’s Permit – at your City Hall Barangay Clearance – your barangay hall SS Number (as an employer; or for yourself as self-employed) – SSS branch covering your area Philhealth – Philhealth in Quezon City What you need Name of your business to be registered through DTI Business Name Registration System (BNRS) Original & photocopy of proof of citizenship (e.g. PRC ID, birth certificate, voters ID, passport) Signed copy of undertaking from DTI BNRS (see #2 below) Payment of P300 for application (+P15 for documentary stamps) 2 recent identical passport size picture (with signature of owner at the back) For franchise holder: photocopy of franchise agreement, each page duly certified by the franchisor or franchisee For franchise holder: photocopy of Business Name Certificate of franchisor 42
  • 43. Steps Visit DTI Business Name Registration System (BNRS). If unavailable, call DTI Direct (751-3330). You will receive a Transaction Reference Number Acknowledgement email from DTI BNRS. With all the supporting documents mentioned, proceed to DTI Office. Final notes: Your DTI registration has to be renewed every year. There’s a renewal fee of P300 and if you renew after 90 days from expiration, there’s a surcharge of P100. Make at least 10 copies of your DTI Business Name Certificate, which you’ll need for other registrations and to open your business bank account. 2. General Partnership- A business owned by two or more people. The partners share ownership and control of the business. A business partnership featuring two or more partners in which each partner is liable for any debts taken on by the business. Because the partners do not enjoy limited liability, all the partners assets can be involved in an insolvency case against the company. Each general partner has equal responsibility and authority to run the business. Each partner should be involved in day-to-day operations of the business, and should make management decisions. Any partner may represent the business without the knowledge of the other partners— the actions of one partner can bind the entire partnership. If one partner signs a contract on behalf of the partnership, the general partnership and each partner are responsible for that contract. Limited Partnership- A limited partnership consists of at least one general partner (controls the business) and at least one limited partner(investor). One of the co-owners of a business organized as limited partnership who (unlike a general partner) does not participate in the management of the firm and has limited personal liability for the firms debts. Also called nominal partner. Business Partnership Advantages • Partnerships are relatively easy to establish. • With more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. • Prospective employees may be attracted to the business if given the incentive to become a partner. • A partnership may benefit from the combination of complimentary skills of two or more people. There is a wider pool of knowledge, skills and contacts. • Partnerships can be cost-effective as each partner specializes in certain aspects of their business. • Partnerships provide moral support and will allow for more creative brainstorming. 43
  • 44. Business Partnership Disadvantages• Business partners are jointly and individually liable for the actions of the other partners.• Profits must be shared with others. You have to decide on how you value each other’s time and skills.What happens if one partner can put in less time due to personal circumstances?• Since decisions are shared, disagreements can occur. A partnership is for the long term, andexpectations and situations can change, which can lead to dramatic and traumatic split ups.• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.• A partnership usually has limitations that keep it from becoming a large business.• You have to consult your partner and negotiate more as you cannot make decisions by yourself. Youtherefore need to be more flexible.• A major disadvantage of a partnership is unlimited liability. General partners are liable without limitfor all debts contracted and errors made by the partnership. For example, if you own only 1 percent ofthe partnership and the business fails, you will be called upon to pay 1 percent of the bills and the otherpartners will be assessed their 99 percent. However, if your partners cannot pay, you may be calledupon to pay all the debts even if you must sell off all your possessions to do so. This makes partnershipstoo risky for most situations.Registering a PartnershipRequirements• Partnership with less than P3,000.00 capital only need to register their name with Department of Tradeand Industry DTI.• Partnership with more than P3,000.00 capital must register with Securities and Exchange Commission(SEC).• Submission of duly notarized Articles of Partnership.• If one of the Partners is a foreigner submission of SEC form F-105.• Licenses and clearance from necessary government offices• Filing of Tax Identification Number TIN with Bureau of Internal Revenue BIR.• If employing individuals must register with government offices.• Business permit and Mayors License for city of operation.Procedure• Secure reserved name from DTI• Present accomplished forms/docs for processing and evaluation to SEC• Present Verification from local bank of minimum paid up capital in trust account• Present Requirements if one of the partners is a Foreigner or Corporation• Pay filing fees to cashier• Claim Registration from records division from Records Division• Complete with all applicable government agencies. 44
  • 45. Partnership in the Philippines:  Business Registration  Government Licensing  Office Set-up  Tax Incentive Programs  Business DevelopmentTotal Registration Process is 1-2 weeks3. Corporation – is a business that is owned by its shareholders (natural or juridical persons). Acorporation is composed of juridical persons established under the Corporation Code and regulated bythe SEC with a personality separate and distinct from that of its stockholders. The liability of theshareholders of a corporation is limited only to the amount of their share capital. It consists of at leastfive to 15 incorporators, each of whom must hold at least one share and must be registered with theSEC. Minimum paid up capital is P5,000. A corporation in the Philippines can either be stock or non-stockcompany regardless of nationality.a. Stock Corporation – This is a corporation with capital stock divided into shares and authorized todistribute to the holders of such shares dividends or allotments of the surplus profits on the basis of theshares held.b. Non-stock Corporation. This is a corporation organized principally for public purposes such asfoundations, charitable, educational, cultural, or similar purposes and does not issue shares of stock toits members.Advantages of forming a corporation1. Owners have limited Liability. A corporation is considered by law as a separate and distinct legalentity. Thus, owners of corporation or shareholders are only indebted to the extent of their interest inthe corporation. Corporations have limited liability. This means that their creditors can only run after theassets of the corporation and not the on the personal assets of the stockholders in the settlement of thecorporation’s debts or liabilities.2. It can exist with continuity. The power of succession gives a corporation continuous existence. Unlikea sole proprietorship, where the death of the owner proprietor ceases its existence, the death of ashareholder will not terminate the corporation. The shares of ownership or interest of a corporation canbe transferred from one owner to another owner. A corporation continues to exist until theshareholders decide to dissolve it or merge with another business. 45
  • 46. 3. Shares of ownership are transferable. The shares of stock or interest of a publicly traded corporationcan be traded easily though a stockbroker. Shares of corporations are freely transferable except whenshareholders have “buy-sell” agreements restricting when and to whom share may be sold ortransferred. Securities laws and regulations may also limit the transferability of certain shares. For non-publicly traded corporations, the stock certificate can be transferred or assigned to another owner byexecuting a deed of assignment of shares of stock.4. It attracts more investors. Corporations attract investors because of its stock structure, perpetualexistence, ownership transferability, and limited liability. Attracting more investors allows a corporationto raise more capital or equity to manage and expand their operations. Furthermore, because of a moreregulated form of corporation and the fiduciary duties of its board of directors, it earns more trust andconfidence not only from investors, but also from its employees, creditors, suppliers, customers andother outside stakeholders.5. You can be an employee of your own corporation. Since the corporation is a distinct entity from itsowners or shareholders, they can become the corporation’s employees or officers. Thus, they canreceive salaries or compensation income aside from the dividends they may receive from thecorporation. They can also be eligible for reimbursement or deduction of expenses they incurred relatedto their employment with the corporation.6. The corporation pays its own tax. As a separate legal entity, a corporation is also a separate taxpayerfrom it owners. It has its own Taxpayer Identification Number, and it pays its own taxes, such ascorporate income tax, business taxes and withholding taxes. The owners or stockholders pay their owntaxes on the compensation and or dividend income they receive from the corporation.Disadvantages of forming a corporation1. Incorporation is costly. Incorporating a business needs to file with the Securities and ExchangeCommission (SEC) and may involve a lot of formal and legal papers, such as by laws, articles ofincorporation, affidavit and board resolutions. This is sometimes done by getting the service of acorporate attorney or firms which are specialized in incorporating a business. It may also require higheramount of initial or paid-up capital for other types of corporation like financing and lendingcorporations. Furthermore, the amount of subscribed capital is taxed with documentary stamp tax,which may result to additional expenses to be incurred by the incorporators.2. Corporations are highly regulated. Ordinary corporations are regulated by the SEC. Specialcorporations may be required with secondary licenses and are further regulated by other governmentagencies, such as Bangko Sentral ng Pilipinas (BSP) for financing and lending companies, Commission onHigher Education (CHED) for companies operating secondary schools and Insurance Commission (IC) forinsurance companies. Moreover, corporations also need to comply with the quarterly or annualreportorial requirements with the SEC and other agencies requiring those reports for certain types ofcorporations. This also means that the more compliance it requires, the more paper works and cost it 46
  • 47. involves. And when there are more to comply, bigger penalties are awaiting to be paid if they are notcomplied.3. Limited liability may discourage creditors. The limited liability feature of the corporation can be anadvantage for stockholders. However, it can also be a disadvantage when a corporation doesn’t have agood financial condition and performance. Because of the limited liability, a corporation with a lowcredit score may discourage creditors to lend their money to the corporation.4. It may result to double taxation. Since the corporation is already taxed on its income, distributing thisincome to shareholders in the form of dividends may result to double taxation. This is because thedividend income received by the shareholders (natural persons) is also taxed on their personal incometax returns.5. It is not easy to dissolve. Corporations are difficult to dissolve as it is also difficult to form. Everythingis regulated from formation, to operation, and to dissolution. An application for dissolution must be filedwith the S.E.C with complete requirements, including tax clearance with the Bureau of Internal Revenue.The liquidation process is also regulated to ensure that the rights of any creditor having a claim against itare not prejudiced.Registering a CorporationRequirements• Must consists of at least five (5) to fifteen (15) shareholders.• Registration of Name with Dept of Trade and Industry DTI.• If the Corporation has more than 40% foreign ownership submission of SEC form F-100.• Registration of paid-up capital and affidavit from corporate treasurer.- For 100% to 60% Filipino ownership minimum paid up is 100,000 Pesos- For Foreign ownership the minimum paid-up is expected to be higher depending on the type ofcorporation registering.• Licenses and clearance from necessary government officesProcedure• Secure reserved name from SEC 2nd floor• Fill up articles of incorporation with director and company information.• Present Articles of Incorporation to local bank for placement of minimum paid up capital in trustaccount• Present Articles of Incorporation and Bank Certificate to CMRD Department of SEC 2nd floor.• Pay filing fees to cashier• Claim Registration from records division from Records Division• Complete licensing with all applicable government agencies. D. Register Business Name with DTI PhilippinesIf you are planning to establish a business, a trade name is an essential part of your business existence.That is why you should take time for brainstorming to come up with a company name that is bothunique and appealing to your potential customers. Your trade name is what you will always use when 47
  • 48. dealing with your clients or customers. It is the name that will be stated in your certificates ofregistration with different agencies, in your official receipts and invoices, in your contracts and in otherbusiness forms.If you are forming a single proprietorship business, it is required that you secure a certificate ofregistration with the Department of Trade and Industry (DTI). Otherwise, if you’re forming a partnershipor a corporation, you should first register your business with the Security and Exchange Commission(SEC). After securing a SEC certificate of registration, although not required, you may also wish toregister your name with the DTI to ensure that no other individuals or organizations would register aname similar to yours.The DTI is the primary government agency with the dual mission of facilitating the creation of a businessenvironment wherein participants could compete, flourish, and succeed and, at the same time, ensuringconsumer welfare. DTI also governs the registration of business and trade names in the Philippines. Thefollowing are steps and guidelines to register your business name with the DTI:Choose your proposed business nameBefore you register your business with the DTI, you should be ready with your proposed business name.The following are guidelines for an acceptable and not acceptable business name:Acceptable business names:  The root word or words of the name shall be considered.  Describes the nature of business  Comprised solely of letters and/or numerals  Punctuation that are part of English and Filipino languageNames that are not acceptable:  Those which are or whose nature of business is illegal, offensive, scandalous, or contrary to propriety.  Those which are identical or which nearly resemble business names already registered with government office authorized to register names.  Names composed purely of generic words.  Names by which by law or regulation cannot be appropriated.  Distinguished or suggestive of quality of any class of goods, articles merchandise or service.  Abbreviation of names of any nation, inter-governmental or international organization  Names which are misleading, deceptive or which misrepresent the nature of businessSteps for over-the-counter registration 48
  • 49. A. Obtain application forms (duplicate copy) and fill these up completely. Only the owner of the businessor his/her Attorney-in-Fact (who is authorized in a proper legal instrument) is authorized to sign all theforms.B. Meet the following requirements (For Single Proprietorship):• Must be a Filipino citizen, at least 18 years old. Filipinos with names suggestive of alien nationalitymust submit any of the following proof of citizenship: birth certificate, PRC ID, voter’s ID, or validpassport. If the applicant has acquired Filipino citizenship by naturalization, election, or by other meansprovided by law, he must submit any of the following proof of his Filipino citizenship: naturalizationcertificate and oath of allegiance, card issued by the Bureau of Immigration and Deportation andaffidavit of election, or ID card issued by the Bureau of Immigration and Deportation.• Certain types of business may have other requirements such as service and repair shops, real estatebrokers, dental/medical clinic/hospitals, pawnshops, manpower services, engineering/architecturalservices and other services provided by professionals.C. Submit application form to the DTI Processor. The DTI Processor will check if the Business Name is stillavailable, if yes, you will be asked to pay the application fee.D. Pay the required registration and processing fee.New BN registration fees in effectThe Department of Trade and Industry (DTI) is now implementing the following registration fees forbusiness name registration (original and renewal) depending on the territorial jurisdiction covered in theapplication:a. Barangay: PHP 200.00b. City / Municipality: PHP 500.00c. Regional: PHP 1,000.00d. National: PHP 2,000.00E. After showing the receipt to the Processor, the Business Name Certificate will be released.F. Your Business Name Certificate is valid for 5 years from date of registration.Register Online at www.bnrs.dti.gov.ph1. Fill out application form by typing the required information (proposed business name, TIN, name ofregistrant, address, etc.,).2. Submit online and you will receive transaction reference number acknowledgment via e-mail.3. Submit the necessary documentation mention in the acknowledgment in DTI office in your area. Thereserve business name online is only up to 3 working days. 49
  • 50. 4. Pay your application. Payment can be through GCash or at the DTI teller. Fees will depend on theterritorial jurisdiction covered in the application (barangay, City/municipality, regional or national). E. How to Register a Corporation with SEC Philippines (Stock Corporation) Basic Requirements 1. Name Verification Slip (secure online or from SEC Name Verification Unit) You can visit the SEC i-Register, the web-based Company Registration System of Philippines SEC, to verify and register online. SEC i-Register is a quick, affordable, and user friendly service that is available to the public 24 hours a day, 7 days a week. To use their online services, you need to sign-up to create an account. Once you’ve created an account, you can already verify and reserve your proposed company name and file application for company registration. Alternatively, you can visit the SEC Verification Unit, located at the SEC Building, EDSA, Greenhills, Mandaluyong City to secure your Name Verification Slip at the counter 2. Articles of Incorporation and By-laws You can ask for blank forms from the Company Registration and Monitoring Department (CRMD). For the preparation and drafting of Articles of Incorporation, By-laws and other requirements, you can consult a corporate lawyer to get assistance. If you have time and want to save from expensive professional fees, you may also draft the documents on your own, especially if you’re already familiar with them. You can just visit a lawyer for notaries. 3. Treasurer’s Affidavit The Treasurer’s Affidavit also authorizes the Securities and Exchange Commission and Bangko Sentral ng Pilipinas to examine and verify the deposited amount in the bank, which is in the name of the treasurer in trust for the corporation, representing the paid up capital of the corporation on the process. The bank certificate of deposit is one of the documents that must be submitted with the SEC. Hence, you must obtain it from the bank. 4. Affidavit of incorporator or director undertaking to change corporate name (not required if Articles of Incorporation has provision on this commitment). 2. For corporations with foreign equity: Proof of remittance by non-resident aliens and foreign corporate subscribers who want to register their investment with the Bangko Sentral ng Pilipinas (BSP) 3. For corporations with more than 40% foreign equity: SEC Form No. F- 100 50
  • 51. 4. For corporations with Philippine Economic Zone Authority (PEZA), Subic Bay MetropolitanAuthority (SBMA) or other economic zones application: Certificate of Authority or endorsementfrom said government agencies5. Additional requirements based on kind of payment of subscription. If paid by cash below arethe additional requirements.a. Bank Certificate of deposit of paid up capital notarized in place where signed (as stated inno.3 Treasurer’s Affidavit)b. For corporations with foreign subscribers who want to register their investments with theBSP: Proof of inward remittance or bank certificateIf paid other than cash (i.e., properties, inventories, shares of stock, etc.,), please see thecomplete requirement on this link page from the Philippines SEC.Things to remember1. Incorporators are required to be not less than five (5) but not more than fifteen (15).Incorporators are the original stockholders included in the application for registration.Stockholders can increase after incorporation.2. Majority of the incorporators are required to be residents of the Philippines.3. All incorporators must be natural persons and must be of legal age. A Corporation or apartnership can become a stockholder by acquiring shares of stock after the corporation hasbeen duly incorporated.4. All incorporators must subscribe to at least one (1) share of stock of the corporation beingorganized.5. Minimum subscription: The law requires that the total capital stock to be subscribed at thetime of incorporation should at least be twenty five percent [25%] of the authorized capitalstock of the corporation being organized.6. Minimum paid-up capital: The paid-up capital of a Philippine corporation must not be lessthan PhP5,000.00. Thus, it is required that at least twenty five percent [25%] of the subscribedcapital stock should be fully paid up but the amount of which should not be less than saidPhP5,000.00. Certain types of companies, such as financing and insurance companies arerequired to have different minimum paid-up capital based on their industry. To see the differentminimum paid-up capital requirements published by SEC please click here.7. Don’t forget to pay the documentary stamp tax on the original issuance of shares of stock. Itmust be filed and paid with the Bureau of Internal Revenue (BIR) or Authorized Agent Bank 51
  • 52. (AAB). Section 174 of the National Internal Code (as amended), requires a payment at the rate of Php1 on each Php200 or a fractional part thereof of the par value of the shares of stock. Payment must be made on or before the 5th of the month following the date of issuance of the registration certificate or issuance of shares. The documentary stamp tax return or BIR form 2000 is one of the document required to be submitted with the Bureau of Internal Revenue (BIR) when you register your corporation with them.F. SSS - Business Registration Requirements Register and submit the required documents below at the Social Security System (SSS) branch that covers the location of your official business office. For Single Proprietorships: An owner of a single proprietorship business may accomplish and submit the following:  SSS Forms R-1 (Employer’s Data Record) and R-1A (Initial or Subsequent List of Employees).  DTI Business Permit  Mayor’s Permit For Partnerships: Any of the partners of a partnership firm should accomplish SSS Forms R-1 and R-1A and submit these forms together with a photocopy of the Articles of Partnership. The original copy of the Articles of Partnership must be presented for authentication. For Corporations: A corporation must accomplish SSS Forms R-1 and R-1A signed by its president or any of the corporate officers or incorporators. Submit these forms together with the photocopy of the Articles of Incorporation. The original copy of the Articles of Incorporation must be presented to the SSS for authentication. F. PHILHEALTH Registration procedures and documentary requirements 1. Submit the following at any PhilHealth Office: For Government Sector Employers -  Employer Data Record or ER1 Form (in duplicate)  M1a forms for each employee (in duplicate) For Private Sector Employers -  Employer Data Record or ER1 Form (in duplicate)  Business permit/license to operate and/or any of the following as applicable: 52
  • 53. Nature of Entity Additional Documents Required Single proprietorships Department of Trade and Industry (DTI) Registration Partnerships and corporations Securities and Exchange Commission (SEC) Registration Foundations and non-profit organizations Securities and Exchange Commission (SEC) Registration Cooperatives Cooperative Development Authority (CDA) Registration Backyard industries/ventures and micro-business Barangay Certification and/or Mayors enterprises Permit 2. After processing, the employer will be issued the following:  PhilHealth Employer Number (PEN) and the Certificate of Registration  PhilHealth Identification Number (PIN) and Member Data Record (MDR) for concerned employees . 3. Employers shall be asked to display the Certificate of Registration in their offices as proof of registration with PhilHealth G. PAG IBIG FUND  Two copies of Membership Registration or Remittance Form (M1-1)  Photocopies of DTI, SEC or CDA registration certificates. The PAG IBIG office may  Require the presentation of the original to compare with the photocopies Photo copies  SSS Registration (R-1 and R-1A)Payment of the first monthly contribution  Two copies of all qualified employees’ Member Data form to the Marketing Division Not later than the second month after the first payment of the contribution.CHECKLISTGovernment Agency  DTI business name registration  SEC certificate of Incorporation or registration  CDA certificate of incorporation (for cooperatives)  Special permits and licenses from the concerned government agencyBureau of Internal Revenue  Form 2303 (certificate of registration indicating your company’s TIN)  Cardboard sign that you have to display in your premises  Approved official receipts and invoices  Approved to use loose leaf or computerized books of accounts or accounting records  Permit to use cash register machines or point of sale machines 53
  • 54. Local Government  Baranggay clearance  Community tax certificate  Mayor’s permit with accompanying sanitation, fire safety, occupancy. For Corporation  Paid the document stamp tax on the subscribed capital stock  Had SEC stock and transfer of book stamped  Obtain stock certificate book  Secured a corporate seal CHAPTER 8: FINANCE IT : RAISING MONEY FOR YOUR BUSINESS Now that you have researched, planned, organized, and registered your business. It’s time to crunch the numbers. How much capital do you need, and where can you source it? No matter how groundbreaking your idea for a new business, you wont get past the starting gate without funding. While there are many ways to find money, most are generally more appropriate for more established companies. Still, there are some smart tacks for start ups.A. Where to get the money There are basically two sources of capital for your business: internal and external. One example of an internal source is your savings, while external source consists of financial support from friends and relatives. Heres a look at four options: 1. Bootstrapping. "Bootstrapping means using whatever resources you have on hand to help you get your business to the next level. Where do entrepreneurs find the money? While a large part comes from personal savings and home-equity loans, they also tend to use plastic heavily. In fact, perhaps half of all startups are funded by the owners credit cards, Take Google. For the first two years, founders Larry Page and Sergey Brin financed their efforts almost entirely through the use of credit cards, according to Bygrave. 2. Friends and family. At the very early stages of any startup, entrepreneurs also tend to raise money from relatives, colleagues and other people they know well. Usually, friends-and-family financing is informal. You probably wont have to write a business plan beforehand, for example. But no matter how well you know your early investors, youd be wise to draw up a contract to prevent any misunderstandings down the line. 3. Banks. For most startups, getting a traditional bank loan is a long shot. Thats because banks typically will only consider companies that have been in business for two years. Whats more, they need to see a tangible asset that can be used as collateral. The exception is a manufacturing company building or using heavy equipment. 54
  • 55. 4. Customers and suppliers. Some customers may be willing to help fund your product development if youcustomize it for them. As for suppliers, you may be able to convince one to hold inventory for you, as long asyou guarantee them youll pay for the material by a certain date. Remember: When youre raising money foryour business, it pays to be creative.LoansHere’s the latest list of available Loans and Financing Programs offered by the government, NGOs, banksand other commercial establishments: 1. SSS Financing Program for Educational Institutions 2. Hospital Financing Program 3. Special Financing Program for Vocational and Technical Schools 4. Financing Program for Tourism Projects 5. Industry Loan Program 6. The SSS Special Financing Program 7. SME Unified Lending Opportunities for National Growth (SULONG) 8. SME-Equity Ventures Program (EVP) 9. SME-FIRM (Funding for Investment in Regional Markets) 10. SME-FAST (Funding Access for Short Term Loans) 11. Guarantee Programs 12. SME-FIT (Financing for Information Technology Build-Up) 13. SME-FEASIBLE (Financing for Enterprising and Able Start-Ups With Innovative Business) 14. SME-FLEXIBLE (Financing for Variable Business Expansions) 15. SME-FORCE (Financing Organizationally Competent and Excellent Franchise Business) 16. Special Credit Facility for Export Development (SCFED) 17. Small and Medium Enterprise Credit Program (SMEC) 18. SME Lending Program 19. Countryside Loan Fund Programs CLF I, II, and III) 20. ADB-Air Pollution Control Credit Facility 21. Retail Countryside Fund (RCF I and II) Programs 22. Accelerating Change in the Countryside Thru Equity Sharing Strategy (ACCESS) 23. SME Unified Lending Opportunities For National Growth (SULONG) 24. Special Financing Assistance to Small and Medium Exporters (SFA-SMEx) 25. Easy Pondong Pang-Asenso (EPPA) 26. GSIS Special Financing Program 27. Fund for Sustainable Civil Society (FSCS) 28. Sustainable Partnership for Eco-Enterprise Development (SPEED) 29. Sustainable Waste Management Eco-Enterprise Program (SWEEP) 55
  • 56. 30. Coco Coir Business Integration and Development Program (COCOBIND)31. Trade Fair Financing32. Import Trade Financing With Trust Receipt Facility33. Domestic Trade Financing34. Export Trade Financing35. Credit-On-Hand (COH) – Credit Line Term Loan36. Lending Program on Housing, Healthcare and Education37. Lending Program on Sustainable Logistics Development38. Lending Program on Water39. Lending Program on Power40. Lending Program on Environment41. Lending Program for Micro, Small and Medium Enterprises42. Small Enterprise Technology Upgrading Program43. Grow Your SME Business Loan44. AsiaTrust Import Letter of Credit / Trust Receipt45. AsiaTrust Domestic Letter of Credit / Trust Receipt46. AsiaTrust Discounting Line/Receivables Discounting47. AsiaTrust Short Term Loan48. AsiaTrust Bank Carry Term Loan49. Micro-Lending Through Small Micro Finance Institutions and Community Cooperatives50. Micro-Lending Through Rural Banks51. Micro-Lending Through Lead Micro Finance Institutions52. Quedancor Program for Self Reliant Team53. Microfinance Council of the Philippines54. Balikatan sa Kaunlaran – PMDF55. Microfinance Program – PCFC56. OMB-WFI Special Lending Window57. Opportunity Ka-Partner Microfinance 2 Program58. Opportunity Ka-Partner Microfinance 1 Program59. Livelihood Development Program for OFW60. National Livelihood Support Fund (NLSF)61. Cooperative Lending Program62. Microfinance Program for MFI Retailers63. GSIS Family Bank Microfinance Lending Program64. Microfinance Eco-Enterprise Program65. Workers’ Microfinance Program66. Salary Loan – Asiatrust Development Bank 56
  • 57. 67. People’s Credit and Finance Corporation 68. Small and Medium Enterprise Credit 69. Financial Assistance for Small Businesses 70. Franchise Funding for SMEs 71. Agri-Fishery SME Loans B. Learning Financial Basics It’s a good start by first putting a sound financial system in place to ensure that your business will be managed properly. Having a foolproof recording system is already a step towards the right direction. The mark of a good financial record is one where it shows clearly where the company’s money is being spent-expenses-and where is it coming from, in the form of revenues or earnings. Financial statements are also needed when you are applying for credit with banks and financial institutions. There are two ways to set up your own financial system: manual and automated. A manual record system works for small cm software maybe expensive and impractical. To set up a formal financial system, you need to hire a certified public accountant or a bookkeeper to make a chart of accounts, prepare a books such as journals and ledgers which will be registered with the BIR. Aside from these, he will be in charge of periodically generating your financial statements, such as income statements and the balance sheet, and to do the audited financial statements that you have to submit with your income tax return at the end of the year. To make sure that all transactions are recorded, issue invoices and official receipts for sales and collections, and record all purchases and other expenses. C. Financial Statements With a good financial system, you can have a timely and accurate financial statements that will help you analyze your business and plot its course. There are three financial statements:1. Income Statement – This indicates your earnings, expenses, and any gains or losses. It is also known as the Profit and Loss Statement. Income statement shows how much a business earned in a given period. Expenses are deducted from the income (either from sales or from other sources) to arrive at a net profit or net loss. 57
  • 58. Components of an Income Statement  Sales – gross revenues less returns and allowances  Cost of Goods Sold – direct cost of producing the items  Gross Profit – profit from manufacturing the product  Operating expenses – expenses incurred when running the business  Other income and expenses – profits earned outside the business normal operations. Examples are interest on investment and interest expense on debt  Net profit – gross profit less the expense. The net profit is the basis for computing your income tax. Sample Income Statement: ABC123 Company For the period ending December 31, 2011 Sales P 3,000,000 Less: Cost of 1,250,000 Good Sold ------------------------- Gross Profit P 1,750,000Less: Operating ExpensesSalaries & Wages P 400,000Advertising expenses 60,000Supplies 17,000Depreciation 15,000Rent 150,000Telephone 50,000Transportation 60,000Taxes & Licenses 9,000Total 761,000 ----------------------------------Net Profit P 989,000 58
  • 59. 2. Balance Sheet – This shows your business standing as a whole, the list of your assets, liabilities, and owner’s equity. The Balance Sheet shows a realistic picture of where the business currently stands as it lists its assets, liabilities, and owner’s equity. Components of a Balance Sheet:  Assets – These are the things that you own. Examples are cash, accounts receivables, inventory, Equipment and real estate such as land and building.  Liabilities – These are what you owe creditors. Examples are, accounts payables, notes payables, accrued taxes.  Equity – This represents the investor’s money in the business. At all times, assets should be equal the sum of liabilities and equity. Assets represent the use of funds, while liabilities and equity represent the sources of funds for the business. Sample Balance Sheet: Best Company for the period ending December 31, 2011 Assets Current Assets: Cash P 75,000 Accounts Receivables 150,000 Inventory 200,000 Prepaid Expenses 4,000 ----------------------- Total Current Assets 429,000 Fixed Assets Land 0 Building 0 Equipment 650,000 Less: Accumulated Depreciation (180,000) ----------------------- Total Fixed Assets 470,000 Total Assets: 899,000 59
  • 60. Liabilities & Stock Holder’s Equity Liabilities: Current Liabilities: Notes Payable P 100,000 Accounts Payable 250,000 Accrued Expenses 50,000 -------------------------- Total Current Liabilities 400,000 Long term Liabilities 0 Total Liabilities 400,000 Stock holder’s Equity: Common stock 400,000 Retained Earnings 99,000 ----------------- Stock holder’s Equity P 499,0003. Cash flow Statement – This will show how much cash is coming in from operations and other activities (such as investing), and how much you are paying for purchases and other expenses. This statement shows the sources and uses of cash within a certain period as money coming in and going out. It alerts you when your cash level is dangerously low that you would not able to meet current liabilities and expenses. Sample Cash Flow: Super Company For the period ending December 31, 2011 Beginning Cash Balance P 250,000 Cash Inflow: Cash collections 500,000 Credit collections 720,000 Investment Income 50,000 ------------------------- Total Cash Inflow 1,270,000 Cash Outflow: Expenses 740,000 Others Equipment purchase 100,000 ------------------------------------------- Total Cash Outflow 840,000 Ending Cash Balance 680,000 60
  • 61. D. Accounting Basics When doing record keeping, it pay to know the difference between cash and accrual accountingsystems.Cash method – transactions are recorded when money changes hands. For instance, a sale is recordedwhen income is received. Expenses and purchases are recorded when they are paid.This is suited for small start up and no inventory.Accrual method – transactions are recorded when they are made. For example, a sale is recorded whenthe customer is billed with an invoice. Purchases are recorded when the supplier sends the bill.Business with inventory and large enterprises are usual followers of accrual method.It is very important for you to keep in mind that business and personal funds should be kept separateand reflected accordingly in the books. “You should not mix them”, otherwise you will have adulteratedrecords of transactions and this will not provide you a sound basis for decision making.E. Techniques to a Healthy Cash flow 1. Treating suppliers and sub contractors as partners – pay them on time, this enable to get credit terms and ensure gets the product quality. 2. Making extra effort to follow up collections – make a system that would make it easy for clients to meet their payables on time. 3. Safeguarding integrity 4. Collect receivables as fast as you can – the usual credit term is 30 days, but seven days is Acceptable in some businesses. 5. Pay creditors on due date not before – this will allow you to use the money before it is Due. 6. Weigh the advantages of paying creditors earlier in exchange for discounts. 7. Give shorter credit terms to customers if possible. 8. Liquidate excess o. If you don’t need them now, sell them. 9. If cash is short, sell equipment used for operations and subcontract the job. 10. Maintain 1:1 ratio for payables and capitals – if you have a debt of 10,000, your capital Should be 10,000. When the ration becomes 2:1 you would have a difficulty meeting the Payments if collection were delayed. 11. Keep expenses low to meet cash needs monthly. 12. Buy inventory only as needed. 61
  • 62. Chapter 9: Managing Small Business RiskG. Defining RiskRisk is inherent in life. Everything we do involve risk. Every business faces a certain degree of risk; someof them can be controlled if appropriate action is taken to do so where as some are largelyunpredictable and uncontrollable. Even when every aspect of the business is carefully considered andcarefully planned and executed, a business could still face closure due to some factor that was beyondits control such as fire, tornado, tsunami, hurricanes, earthquakes, floods etc. When you carefullyidentify the risks that your business faces and take action accordingly to counter the risk, the businesswill certainly be successful.Risk can be defined as the chance of something happening that will impact upon objectives. Theobjective of a small business might be: To provide best quality service, to maximize revenue andminimize expense, to have a quality employees, to increase productivity, and product quality, and alsoto increase market share.Risk may have a positive or negative outcomes, resulting into either an opportunity or a loss for abusinessH. Types of Risk for Small Businesses:Some of the risks that small businesses face are overhead cost, cost of equipment, expected salesvolume, salary cost, taxes, price charged for service or product, competitors actions, the local economy,changing trends, risk that the product may become obsolete. Other risks include damages from fire,water, natural calamities, intentionally inflicted damages, loss of data and property due to theft,machine breakdown forcing work to come to a standstill, cash flow problems that may force a businessto close.1. Opportunity Based Risk – There are two main aspects of opportunity based risk : Risk associated with not taking an opportunity and those associated with an opportunity. Opportunity based risk include moving a business to a new location, acquiring a new property, expanding a business, diversifying a product line.2. Uncertainty based risk – is the risk associated with unexpected events such as 9-11 , natural disasters (tsunami, earthquakes, fire, typhoon, flood, financial loss, loss of a vital supplier, unexpected loss of insurance, and loss of market share.3. Hazard based risk – risk associated with a source of potential harm or association with a potential to cause harm. Hazard base risk for small business include: a. Physical hazards – include noise, temperature and other environmental factors. b. Biological hazards – include viruses, bacteria and other hazardous microorganism 62
  • 63. c. Ergonomic hazard - including poor workspace design, layout or activity and equipment usage. d. Psychological hazard – include bullying, sexual discrimination, work load or mismatch job specification to employee capability.I. Managing the risk 1. Opportunity based risk managementOpportunities associated with changing location include:  Increase foot traffic  Increase sales  Joint marketing with the shopping center tenants and participation in special events To raise profile.Risk associated with changing location:  Increased competition  Loss of regular customers  Business damage to reputation in the local community  Significant increase in leasing and marketing cost 2. Uncertainty based risk management  Disaster and emergency planning  Planning to recover from a disaster  Business continuity planning to ensure that the business can continue can operate after a major disruption 3. Hazard based risk management  Eliminate – avoid whatever possible Substitute – whenever possible use alternative methods or equipment Separate – separate whatever hazard from workers wherever possible Re-design – change the work layout, process or equipment Administer – change current work practices, train staff Protect – consider all control options first and then provide staff with protective equipmentJ. Categories of risk in small businessFinancialThis category includes cash flow, budgetary requirements, tax obligations, creditor anddebtor management, remuneration and other general account management concerns.OrganisationalThis relates to the internal requirements of a business, extending to the cultural, structuraland people issues associated with the effective operation of the business. 63
  • 64. Compliance /legalThis category includes compliance with legal l requirements such as legislation, regulations,standards, codes of practice and contractual requirements. This category also extends tocompliance with additional ‘rules’ such as policies, procedures or expectations, which maybe set by contracts, customers or the social environment.OperationalThis covers the planning, operational activities, resources (including people) and supportrequired within the operations of a business that result in the successful development anddelivery of a product or service.CommercialThis category includes the risks associated with market placement, business growth,diversification and commercial success. This relates to the commercial viability of a product orservice, and extends through establishment to retention and then growth of a customer base.SafetyThis category includes the safety of everyone associated with the business. This extends fromindividual safety, to workplace safety, public safety and to the safety and appropriatenessof products or services delivered by the business.StrategicThis includes the planning, scoping and resourcing requirements for the establishment,sustaining and/or growth of the business.EquipmentThis extends to the equipment utilised for the operations and conduct of the business.It includes the general operations of the equipment, maintenance, appropriateness,depreciation, safety and upgrade.SecurityThis includes the overall security of the business premises, assets and people, and extendsto security of information, intellectual property, and technology.ReputationThis entails the threat to the reputation of the businesss due to the conduct of the entity asa whole, the viability of product or service, or the conduct of employees or other individualsassociated with the business.Service deliveryThis relates to the delivery of services, including the quality and appropriateness of serviceprovided, or the manner in which a product is delivered, including customer interaction andafter-sales service. 64
  • 65. ProjectThis includes the management of equipment, finances, resources, technology, timeframesand people associated with the management projects. It extends to internal operationalprojects, projects relating to business development, and external projects such as thoseundertaken for clients.Stakeholder managementThis category relates to the management of stakeholders, and includes identifying,establishing and maintaining an appropriate relationship. This includes both internal andexternal stakeholders.TechnologyThis includes the implementation, management, maintenance and upgrades associatedwith technology. This extends to recognising the need for and the cost benefit associatedwith technology as part of a business development strategy.K. Integrating Risk Management in Small Business Business Planning Contract Quality Management Assurance Financial Occupational Management Risk Health and Management Safety Client Compliance relationship Management Human Resource 65
  • 66. Business Planning It can achieve this by assisting the business to effectively manage the weaknesses and threats toachieving the objectives as well as recognising where opportunities exist and capitalisingon these to help the business grow and develop. In addition, combining risk management planning with business planning will serve as a promptto ensure that the risks and opportunities at a business level are identified and reviewed on an annualbasis, in line with annual business planning.Occupational health and safety (OH&S) Everything ‘reasonably practicable’ must be done to protect the health and safetyof others at the workplace. This duty is placed on all employers, their employees and any others whohave an influence on the hazards in a workplace (such as contractors and other external suppliers).This integrates with the overall risk management strategy by ensuring that risks and hazardsare identified/reported on an ongoing basis and measures are taken to reduce the exposureto this risk to as low as reasonably practicable.Human resources management If a business is large enough to employ staff, there are many risk considerations that should betaken into account. For example:• has the right person been employed for the job?• is the person appropriately qualified, skilled and able to perform the task require does the employee’s performance align with the requirements of the business?• is the client/customer satisfied with the level of service or product provided?• are resources adequate or appropriate to meet the needs of the role, including training?• is the business complying with anti-discrimination laws?• is the remuneration provided compliant with award wages?The risk management program will assist the business owner to identify risks associatedwith human resource management and to identify the treatment strategies to managethese appropriately, and monitor going basis.Compliance A business owner should be aware of and feel confident that areas requiring compliance havebeen identified and are not breached at any time. These include:• legislation and regulations, such as OH&S, fair trading, anti-discrimination, environmental protection,industrial relations, taxation, and various trading and licence practices• contracts, such as those with a client, sub-contractor, insurer or supplier• insurance requirements• financial reporting requirements. 66
  • 67. A risk management program can assist a business owner to develop a clear understanding of the areasof compliance that must be managed and monitored, including the risks associated with potentialbreach and what can be done to avoidthat breach.Financial management Any successful business relies on effective, transparent financial management. This includesmaximising income, determining the pricing for a product or service, minimising and managing expenses(e.g. bills and correct wages paid on time)and ensuring creditors honour their accounts. Financialmanagement is also about recognising and capitalising on opportunities. Determining where bothfinancial risks and opportunities exist can assist in ensuring that the financial management of thebusiness is both efficient and effective.Client–customer relationship management Client-customer relationship management relates to the steps taken to ensure thatthe satisfaction of existing customers or clients is maximised to ensure their ongoing patronage. This willhelp to create a steady income from existing customers, as well as creating opportunities to attract newcustomers (e.g. from word of mouth). A risk management program helps to identify existingrelationships with clients or customers and to minimise their degradation. The complaints managementsystem is an excellent source of retrospective risk and if managed effectively, the quality of theservice or product will increase.Contract management Most businesses rely on daily contracts with either individuals or other businesses. These mayinclude suppliers, clients or sub-contractors. The contract may exist in a verbal or written form.Contract management demands that the objectives and requirements for a partnershipare clearly specified, and that particular obligations are met appropriatelyQuality assurance A quality assurance program requires action to ensure the product or service fulfils customerexpectations.Quality assurance is integral to risk management: it is the process that continues from risk treatmentthrough monitoring and reviewing to a cycle of continuous improvement.L. Types of Insurance Property Insurance Property insurance insures against loss or damage to the location of the business and its contents. It can also insure the property of others in your control when the loss occurs. Property insurance can be for a specific risk. For example, a fire insurance policy insures only against a fire loss to the location. A tornado is not a fire and, therefore, that loss would not be covered. The insured location can be owned, leased or rented. 67
  • 68. Casualty Insurance Some insurers will lump property and casualty insurance together and refer to the coverage as “property and casualty” insurance. In fact, “packaged” policies of property and casualty are often the best purchase a business owner can make. However, to have an understanding of the difference between the coverage, I will discuss this as a separate type of insurance. Casualty insurance insures against loss or damage to the business.Liability InsuranceLiability insurance insures against liability legally imposed upon your business because of thenegligence of the business or its employees. Put another way, it protects your business when thebusiness is sued for negligence.Commercial AutoYour personal automobile policy does NOT cover vehicles used by your business. If your business usesvehicles or anything that is required to be titled by your state, then you need a commercial autopolicy. Commercial auto coverage insures against property damage to vehicles and damage caused toothers by those vehicles.Workers’ Compensation InsuranceYou will need to insure your employees against on-the-job injuries. Workers’ compensation is asystem where the employee is not allowed by statute to sue their employer for on-the-job injuries;but, in return, the employer must participate in a system that provides nearly automatic payment tothe employee in case of injury for medical bills and damages. There are many options for workers’compensation coverage.Business Interruption InsuranceBusiness interruption insurance insures against loss or damage to the cash flow and profit of abusiness caused by the business being unable to operate because of interruption. The easiestexample is to think about a critical piece of machinery being struck by lightning. The repairs to themachine may be covered by other coverage such as property or casualty insurance. But, if you can’tmake widgets for three months, then there is no replacement of that income without this coverage.Health InsuranceTo be competitive, most businesses need to offer their workers health insurance. This insuranceoffers a health coverage benefit to your employees (and you).Life and Disability InsuranceLife and disability insurance protects the business against the death or disability of key employees.For example, one partner carries a life insurance policy naming the partnership as a beneficiary. Ifthat partner dies, and the business has planned properly, the proceeds of the policy can be used bythe business to buy out the share of the decedent’s partnership interest from the estate. 68
  • 69. Chapter 10: 9 Rules for Business Success (John Gokongwei Jr.)1. Change is inevitable and flexibility is the key.Entrepreneurs gladly accept change. If it is not happening, they stir up the status quo and make importantchanges. Change is inevitable. Instead of being the victims of change, entrepreneurs just look foropportunities to make the best out of important changes.The business strategy of John L. Gokongwei Jr. testify to this principle. When Gokongwei entered themanufacturing industry, he changed the rules of the game in the Philippines. In the telecommunicationssector, he introduced the Unlimited Texting and Unlimited intra-network calls that changed the Philippinecellular phone industry.2. Personal stakes in the company encourage everyone to work hard.By involving subordinates and members of the organization, they will feel that they truly belong to theorganization. As such, they will become stakeholders in the company and they will work for theimprovement of the organization.3. Mistakes and disappointments are inevitable.Failures are a part of life. Deal with it. Gokongwei faced a lot of odds in his business career. At one time,he did not succeed in breaking through a particular sector. Some of his businesses failed. Some evenfailed to take off the ground. Yet, Gokongwei learned a lot of things from all those experiences and hebecame a great business tycoon after.4. Good brand building equals reputation.Gokongwei has a lot of brands to his credit—the budget airline company, Cebu Pacific Air;telecommunications companies such as Sun Cellular, and Digitel Philippines; snacks company UniversalRobina Corporation; and shopping mall chain Robinson’s Place! He has succeeded in building thesebrands and in turn, his reputation soared!5. Family support is crucial.John Gokongwei’s family has been crucial in building his empire. He was not able to finish his collegedegree, but he sent his younger brother James to the Massachusetts Institute of Technology to study andhelp him establish his empire. His brothers and sisters helped him in his early endeavors. Until now,family members such as his son Lance Gokongwei are very much active in helping him manage hisbusiness empire. 69
  • 70. 6. Never lose sleep thinking of business risks.Gokongwei knew how to enjoy life! Yet, he enjoyed the game of business, more than just the rewardswith it.7. Pausing to recharge brings new vigor.Even if he was very busy, Gokongwei tried to find time to rest and renew his spirits. This helped him keepthinking of new businesses and improvements in his operations.8. Reading and traveling enriches one’s mind.When he was young, Gokongwei was not afraid to brave the open seas to sell his goods in Manila. Whenhe was older, he also went to different places to enrich his mind. Reading was also a great part of hislifestyle as he was always on the lookout for good ideas.9. Philanthropy is a personal satisfaction.When he became very rich, Gokongwei found ways to help others. His businesses already generatedthousands of jobs in the Philippines. Because he values education, he has donated money to the Ateneode Manila University to support business education in the Philippines.John L. Gokongwei Jr. is already 80 years old. Yet, he continues to make his mark in the Philippinebusiness environment. His life is a shining testimony to the great benefits of an entrepreneurial life. 70