Entrepreneurship and Business Planning Lecture Compilation
Entrepreneurship and B usiness P lanningLecture CompilationAna Marie M. Somoray, MBA
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 Entrepreneur E. Myths, Fears, and ExcusesChapter 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 BusinessChapter 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 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 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)
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.
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, factories, 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. B. Concept of Entrepreneurship What is an 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 Entrepreneur
Social 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. 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 • 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 initiativeRolesThe 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 FatherSkillsThe 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• MarketingD. 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. 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. Myths, Fears and Excuses 1. Entrepreneurs are academic and social misfits. Business schools focus primarily on managing corporate activity. But there are lots of successful entrepreneurs after school drop outs. One of them is Bill Gates. 2. It Takes Money to Make Money” The world is full of self-made men and women who did not start out with any great deal of money. Many entrepreneurs have started businesses amidst troubling financial circumstances and only prospered monetarily once their companies took off. 3. Entrepreneurs are gamblers and risk takers Gambling is a game of chance. As entrepreneur is a gambler of distorted impressions, because business ventures are more likely to succeed if the factors are carefully studied. Entrepreneur’s move are based on calculated risks. 4. You need a great idea. Another commonly imagined stumbling block to being an entrepreneur is lack of a “great idea.” Somewhere along the line, “entrepreneurship” became synonymous in the public mind with “new-age” or “unconventional The owner of a restaurant, laundromat, or carpentry business is no less an entrepreneur than the founders of the next YouTube nestled in an expensive city loft. Furthermore, a “great idea” is less important than a profitable, proven business model. 5. You need to be lucky Sometimes, the runaway success of an entrepreneur seems explainable only by luck. “How else could Bill Gates have become the world’s richest man?”, is a frequently asked question. Yet luck is not the essential ingredient to business success that we often believe it to be. Bill Gates, specifically, was the beneficiary of tremendously good luck (in addition to being smart and resourceful.) But scores of less celebrated businesspeople prospered with hard work, drive and intelligence. Most people are best served utilizing these things rather than waiting for their entrepreneurial “ship” to come in. 6. You need support from family and friends There are plenty of books and stories about entrepreneurs who were bolstered by moral support from family and friends. Full-fledged endorsements of self-employment are especially common in stories of child or teenage entrepreneurs. This, too, is more the exception than the rule. It’s easy to give someone a pat on the back once their
company has succeeded, but such praise is rarely as forthcoming in the early, unproven days of a fledgling venture. Rather, friends and family are more likely to urge you toward a more proven path involving school or a “guaranteed” career.7. You need a business plan Countless would-be entrepreneurs have delayed starting businesses because they did not have a lengthy, formal business plan. It has long been insinuated that “real” businesspeople do not take any kind of action without massive planning in advance. But while there is a grain of truth to this idea, it is not fully accurate, either. What needs to be firmly understood before committing to a venture is the basic, underlying business model: who are the customers, what do they want, and can you profitably supply it. Beyond that, it is a waste of time to create elaborate plans and forecasts that will likely change later on.8. You need a Type A personality Without question, vast numbers of entrepreneurs come off as tense, assertive and irritable. Psychologists and psychiatrists describe people who chronically exhibit these behaviors as having “Type-A” personalities. A Type-A personality is not, however, a requirement of working for oneself. The reason Type-A’s often thrive in entrepreneurial roles is that they tend to be extremely focused, alert and driven. If you can will yourself to embrace the entrepreneurial lifestyle (self-motivation, task management, adherence to external or self-set deadlines), there is nothing to say you cannot also be a relaxed and fun-loving person.9. You need perfect timing Some entrepreneurs can honestly say that the timing was right for them to go into business. Perhaps they were young, unmarried and not in debt. Undoubtedly, such circumstances can be more conducive to business success than others. That said, they are hardly a baseline necessity. In reality, few entrepreneurs are likely to say that the timing was perfect for them. This is especially true as you age, when deciding to open a business usually entails a radical shift in career paths. Even younger businesspeople often find themselves juggling college in tandem with their start ups – far from an easy task, and hardly “perfect timing.”10. You need to succeed immediately The most celebrated people in any field tend to be those who succeeded right out of the gate. Michael Jordan, Eddie Van Halen, and (in business) Google are cultural icons largely because of how quickly they established themselves as big-time stars. Fortunately, there is room in the business world for people who make mistakes en route to succeeding. Winston Churchill famously said that “success consists of going from failure to failure without losing enthusiasm.” Along these lines, many entrepreneurs have prevailed after withstanding repeated false starts
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: 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. • 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 printing
House 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.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 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? 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: • 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. 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? 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.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: • Define precisely the nature of the business • Offer clearly identifiable products or services • Tap a real need or generate a demand for your product/service • Operate within your expertise and resources • Have realistic targets and have reasonable expectations
• Keep everything as simple and straightforward as possible. •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 start up. The reasons for the popularity of a start up among entrepreneurs are varied. They find it exciting and 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.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. 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.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 business
As 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 assetsThe 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.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 and include 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 to become familiar with the business before taking over.7. Completion
Even 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 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 productthey 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 franchise4. 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.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.4) A franchisee will enjoy the benefits of being supported by the franchisor. This is part of thefranchise agreement. In return for the franchise fee the franchisee pays the franchisor, the lattercommits 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’refranchising a fast food or a food cart business) to selling the products or services to summarizingyour numbers and producing your financial reports, the systems are already there for you. Youjust need to follow them.6) You will get to leverage on the good name and purchasing power of your franchisor when itcomes 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 surviving8) Buying Power - Your franchise will benefit from the collective buying power of the parentcompany 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. 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 businessA. 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.Market size The market size is defined through the market volume and the market potential. The market volume exhibits the totality of all realized sales volume of a special market. The volume is therefore dependant on 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.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. 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. 6. Production Plan - is concerned with deciding in advance what is to be produced, when to be produced, where to be produced and how to be produced. It involves foreseeing every step in the process of production so as to avoid all difficulties and inefficiency in the operation of the plant. Production planning has been defined as the technique of forecasting or picturing ahead every step in a long series of separate operations, each step to be taken in the right place, of the right degree, and at the right time, and each operation to be done at maximum efficiency. In other words, production planning involves looking ahead, anticipating bottlenecks and identifying the steps necessary to ensure smooth and uninterrupted flow of production. It determines the requirements for materials, machinery and man-power; establishes the exact sequence of operations for each individual item and lays down the time schedule for its completion. 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 Cost7. 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. 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?
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
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 proprietorship is the mostsimple form of business and the easiest to register in the Philippines, through the Bureau of Trade Regulation andConsumer Protection (BTRCP) of the Department of Trade and Industry (DTI). It is owned by an individual who hasfull control or authority of its own and owns all the assets, as well as personally answers all liabilities or losses. Thefact that it is run by the individual means that it is highly flexible 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 if you’recoming from an oppressive work environment. Depending on the type of business, you also may enjoy theflexibility in scheduling.SimplicityAnother advantage of a sole proprietorship is its simplicity. The business can be started almost immediately andwith 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 not need to hirea large staff or operate out of an expensive building. Some sole proprietors start their businesses at home in agarage or basement. With the abundance of available online businesses, sole proprietors can start with just acomputer and Internet connection.
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 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 morepartners 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. Thereis 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. 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.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.