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and Business Planning

Lecture Compilation

Compiled by : Ana Marie M. Somoray, MBA

Entrepreneurship

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COURSE OUTLINE ENTREPRENUERSHIP

Chapter 1: A Perspective of Entrepreneurship

Introduction

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

Chapter 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

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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

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4. Market Size 5. Market growth rate 6. Market opportunity 7. Market profitability

Chapter 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 Questions Chapter 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. Checklist

Chapter 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

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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 flow

Chapter 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 Insurance

Chapter 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 Lechter

Websites:

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

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http://www.dti.gov.ph/dti/uploads/file/Business%20Plan.pdf

4. Risk Management Guide for Small Business. Dept. of State and Regional Development http://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 provides

many people with career opportunities that better fit their preferences than waged

employment. In addition, self-employment or business start-up is a response by significant

numbers of people to job losses in the current global economic crisis.

One of the most important is entrepreneurship skills. Motivated people need the

right skills to identify entrepreneurial opportunities and to turn their entrepreneurial projects

into successful ventures.

Figure 1

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CHAPTER 1 A PERSPECTIVE OF ENTREPRENUERSHIP

Entrepreneurship 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.

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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 Entrepreneur

Social entrepreneur A 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 to address some of the big social and economic conditions in the world, for example, poverty and educational deprivation, rather than by the desire for profit. Social entrepreneurs seek to develop innovative solutions to global problems that can be copied by others to enact change. Serial entrepreneur A serial entrepreneur is one who continuously comes up with new ideas and starts new businesses. In the media, the serial entrepreneur is represented as possessing a higher propensity for risk, innovation and achievement. Serial entrepreneurs are more likely to experience repeated entrepreneurial success. They are more likely to take risks and recover from business failure. Lifestyle entrepreneur A lifestyle entrepreneur places passion before profit when launching a business in order to combine personal interests and talent with the ability to earn a living. Many entrepreneurs may be primarily motivated by the intention to make their business profitable in order to sell to shareholders

In contrast, a lifestyle entrepreneur intentionally chooses a business model intended to develop and

grow their business in order to make a long-term, sustainable and viable living working in a field where

they have a particular interest, passion, talent, knowledge or high degree of expertise. A lifestyle

entrepreneur may decide to become self-employed in order to achieve greater personal freedom, more

family time and more time working on projects or business goals that inspire them.

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A lifestyle entrepreneur may combine a hobby with a profession or they may specifically decide not to

expand their business in order to remain in control of their venture. Common goals held by the lifestyle

entrepreneur include earning a living doing something that they love, earning a living in a way that

facilitates self-employment, achieving a good work/life balance and owning a business without

shareholders Many lifestyle entrepreneurs are very dedicated to their business and may work within the

creative industries or tourism industry where a passion before profit approach to entrepreneurship

often 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 Entrepreneur

What kind of person becomes an entrepreneur? What characteristics must successful entrepreneurs

have? Whether people are born with these traits or they learn them is material for a good debate. We

do know from numerous studies that successful entrepreneurs have several important personality

characteristics in common. They are often strong individualists, optimistic and resourceful, and they

usually have a high degree of problem solving ability. There are many other traits that describe an

entrepreneur, some of which are listed below:

Body Parts

Entrepreneurs 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 to

address needs and wants, new solutions to problems and new processes for achieving production. In

pursuing their initiatives and establishing their ventures, entrepreneurs overcome problems and address

needs and wants that people have. As an entrepreneur, you will have to rely on your physical body to

get 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

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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 one's 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 opportunity

Characteristics

Entrepreneurs 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 make

a zestful confident attack on his or her daily problems, who show courage and imagination, who pin

down their buoyant spirit with careful planning and hard work and say's "this may be tough, but it can

be licked". What sets entrepreneurial people apart is ultimately their attitude. They have a different way

of thinking about work and life, and that makes all the difference when it comes to living their passion. It

has 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

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Roles

The essence of entrepreneurship is the creation and building of business to exploit a market

opportunity. To carry out their directive successfully, the entrepreneur has to take on the following

roles: the inventor, who comes up with new products or processes, often combining previously

unrelated elements or ideas; the innovator, who implements a new way of doing something, or comes

up with an innovative, practical use for a new product or process; the manager, who sets goals and

identifies ways to reach them; and the administrator, who executes managerial strategies and sees that

the organization achieves its goals.

To ensure their success, all businesses, big or small, perform numerous tasks. Because of limited

financial 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 one

point, the owner will be acting as the director of finance, and later accountant or bookkeeper. At

another 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 ensure

their success.

These roles are as follows:

Organizer

Inventor

Innovator

Banker

Analyst

Producer

Promoter

Manager

Administrator

Secretary

Designer

Janitor

Mother and Father

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Skills

The challenge for entrepreneurs is to think fast, move quickly and be innovative. Being entrepreneurial

is learning to challenge and to reinvent yourself. An entrepreneur requires numerous skills (alone or in

combination with one or more members of the team). These skills must be developed and used

optimally in order to ensure the sound management and success of a business. However, no two

entrepreneurs have the same abilities, but in order to start and grow their ventures, research has shown

that 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.

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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”.

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- 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. If you 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 entity's

office, plant and equipment are situated, must have value falling under the following

categories:

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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 country's 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.

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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 Enterprise

MICROBUSINESS - is a type of small business, often unregistered, having five or fewer employees and

requiring seed capital of not more than 3 million.

Appraisal services Duplicating stand

Automotive trouble shooting Lugawan

Balut/Penoy Pedling Newspaper stand

Banana, Camote and Turon stand Notarial Services

Barbeque stand Pizza stand

Buco salad stand Plumbing service

Burger stand Tinapa, tuyo, daing stand

Butong pakwan, mani stand Rags production

Brokerage Re packing (paminta, vetsin)

Carwash Scrap buy and sell

Cellphone accessories Shoe shine and repairs

Cellphone repair Siomai in cart

Fishball cart Sorbetes vendor

Fruits and Veg. Stand Taho production

Sago, Gulaman T-shirt printing

House painting service Turo turo

Kakanin stand Tutorial services

T.V, electric fan repair Upholstery

Vulcanizing shop Watch repair

Sari sari store

Business Plan and Feasibility Study Preparation Services

SMALL and MEDIUM BUSINESS ENTERPRISE - - is a type of business having an employees of 10-199 and

requiring seed capital of not more than 100 million.

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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

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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 IDEAS

This chapter will teach you the ways to discover a winning business idea by indentifying which one can

and will work for you, and how to narrow down your options and evaluate the feasibility of your final

choice.

Finding a good idea is easy, what’s difficult is having determination to start and see the venture through

the end. Most aspiring entrepreneurs spend too much time worrying despite of having unique and good

concept for their business. The result is that opportunity, that great product or service you are thinking

of , 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 Idea

The starting point for developing new business ideas lies inside the prospective entrepreneur rather

than in the marketplace, laboratory, business plan etc. You are the critical component - it is your

strengths 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?

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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 have

External 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 Idea

When looking around for business ideas, bear in mind that these could be based on any of the following

approaches:

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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 do

you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is

better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics

and proves impossible to research and evaluate.

Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing

ideas 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 don't 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.

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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 Ideas

Once 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 don't 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?

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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. Don't 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 options

including 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.

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Most probably, you will start addressing all these tasks in parallel rather than sequentially. Other issues

which 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 OR

FRANCHISING

For a new entrepreneur, the decision to own and operate a business is the result of his serious

exploration of ideas and sensible evaluation of opportunities. A sensible entrepreneur would always

consider serious issues before going into business. Very often, the decision to engage is a particular

business would minimize the possible waste of time, energy and resources if it is made after carefully

addressing 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.

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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.

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B. Buying an Existing Business

For some entrepreneurs, buying an existing business represents less of a gamble than starting a new

business from scratch. While the opportunity may be less risky in some aspects, you must perform due

diligence to ensure that you’re fully aware of the terms of the purchase.

Deciding on the right type of business to buy

Ideally 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 you'd like to get back.

List what is important to you. Look at your motivations and what you ultimately want to achieve. It is useful

to 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 you're interested in - learn as much as you can about your chosen industry so

you can compare different businesses. It's 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 - don't restrict your search to your local area. Some businesses can be easily relocated.

Advantages to Choosing an Existing Business

There 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.

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Disadvantages to Choosing an Existing Business

The 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 our

guide on how to value and market your business. Your accountant may be able to help you value the

business, but a business transfer agent, business broker or corporate financier will be best qualified to

provide valuation advice.

A healthy business

To 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 and

suppliers. The vendor must be comfortable with you doing this and you must be sensitive to their

position. Customer and suppliers may be able to give you information that affects your valuation, as well

as information about market conditions affecting the business. Such research can also be done on the

internet or at your local reference library.

For example, if the vendor is being forced to sell due to decreasing profits, your valuation might be

lower.

Intangible assets

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The most difficult part is valuing the intangible assets. These are usually difficult to measure and could

include:

the company's reputation

the relationship with suppliers

the value of goodwill

the value of licenses

patents or intellectual property

You 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 business

Once you have considered all these factors you can then decide how much you want to offer, or

whether 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 to

verify that all of the information you have been told is accurate. This is known as due diligence. See the

page in this guide on how to make sure a business is worth buying: due diligence.

Step-by-step: how to buy a business

1 Get professional advice

Professional help is invaluable as you go through the negotiation, valuation and purchase process. You

can find details of how to find professional help in our guides on how to choose and work with a

solicitor and how to choose and work with an accountant.

2 Research

Research the sector you're interested in, including the best time to buy, and shortlist two or three

businesses.

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3. Initial viewing and valuation

Be discreet - the owner may not want staff to know they are selling, but be thorough and record key

findings.

4 Arrange finance

Lenders 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 liabilities

There are several possible sources of finance you could consider. For specific advice, see our guides on

bank 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 offer

If 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 .Negotiation

Before 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. You

have 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

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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 or

franchiser) is given the right to handle a business as an independent owner but is required to abide by

the terms and conditions specified by the other party (franchisor).

Franchisor - The franchisor owns the overall rights and trademarks of the company and allows its

franchisees to use these rights and trademarks to do business. The franchisor usually charges the

franchisee 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 trademarked

name and business model to do business. The franchisee purchases a franchise from the franchisor. The

franchisee must follow certain rules and guidelines already established by the franchisor, and in most

cases the franchisee must pay an ongoing franchise royalty fee to the franchisor.

Franchising Contract - The franchise agreement is a legally binding agreement which outlines the

franchisor's terms and conditions for the franchisee. The franchise agreement also clearly outlines the

obligations of the franchisor and the obligations of the franchisee. The franchise agreement is signed at the

time an individual has made the final decision to buy the franchise. It is strongly suggested that anyone who

is 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 is

distributed by the person buying the franchise. A retail company can be provided with a franchise to distribute, for example, a range of tyres. The franchisee can utilize the brand name and the trademark owned by the manufacturer to distribute or sell the car tyres. The owner of the store will pay the manufacturer 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 the retailer 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 the originator's trademark and name. They also get the benefit of the national advertising of the product

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they manufacture. The company owning the product gets the franchise fee and sometimes a fee for every 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 is

provided by the product owner for the franchisee to maintain. Vending machines are a classic example of this, where the franchisee purchases the vending machines and distributes and services them, taking their 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 model using a recognized product and brand. Training is provided by the franchise owner and assistance in setting up the business. Supplies are purchased from the franchisor and the franchisee pays a royalty fee. Frequently the franchisor will sell the franchisee the products or raw materials to provide the same quality of product. Most well known fast food franchises are of this type, and also many jewelers and other ubiquitous High Street names.

What Does Franchise Provide

Like other businesses, franchising also requires commitment , time, effort and the money that would

spend on franchising. The franchisor not only looks at the business location of the outlet but also the

financial 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.

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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, before

offering the business for franchising, the original owners have already build it up and have

already made it successful. Franchising, for them, is a way to expand the business; it is not a way

to 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 the

franchisor or the owner of the franchise will take it upon himself to promote the franchised

name or product, which will benefit the franchisee.

3) You may have exclusive rights to market the franchised products in your territory. One

example is Starbucks Philippines. This one is franchised, yes, but the franchise belongs to just a

single entity in the whole country.

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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 don't follow up on.

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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 you're 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 important

component 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 concerned

specifically about marketing processes, while market research is concerned specifically with markets.

Market research is a key factor to get advantage over competitors. Market research provides

important 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 involve

discovering how they act. Once that research is completed, it can be used to determine how to market

your 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

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A. Elements of Market Research:

Market information

Through market information one can know the prices of the different commodities in the market, as

well as the supply and demand situation. Information about the markets can be obtained from different

sources, varieties and formats, as well as the sources and varieties that have to be obtained to make the

business 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 segmentation

Market segmentation is the division of the market or population into subgroups with similar

motivations. It is widely used for segmenting on geographic differences, personality differences,

demographic differences, technographic differences, use of product differences, psychographic

differences 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 municipalities

Market trends

Market trends are the upward or downward movement of a market, during a period of time. The market 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.

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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 the future. While this method may provide a first-order estimate, it does not predict important turning points.

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 within the 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 all

similar to different market conditions.

CHAPTER 6: BUSINESS PLAN

Creating a Blue Print for your Business

Planning may be viewed as a systematic approach to achieve certain objectives. It is an attempt

to eliminate mistakes inherent to “on the spot” decisions. Having a business plan is also an ideal to start

a 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 resources

are needed to achieve the objectives of the firm, and provides against to evaluate the results. The

business plan is a sort of a blue print and it keeps the entrepreneur on the right track. It gives a sense of

purpose to the business.

What’s in a Name?

Before you write down your business plan, you have to choose a suitable name for the company

you’re going to put up. This is the name you’ll be constantly referring to when you begin piercing your

business plan together. Aside from your company name, you may also find the need to come up with a

separate name for your product, which will be your brand name.

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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 company's 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.

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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 protected

Stage 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.

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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.

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 investor's current and future financial state by using

currently known variables to predict future cash flows, asset values and withdrawal plans.

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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 SUMMARY

1. 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 PLAN

1.1 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?

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Section 2 PRODUCTION PLAN

2.1 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 PLAN

3.1 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 PLAN

4.1 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

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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 to choose from, which are listed below. Each has it’s advantages and disadvantages. The form of business ownership you choose will directly affect how much taxes you have to pay and what business licenses and documents you will need. Many small businesses start as one form of ownership and changes to another as it grows. This is perfectly acceptable, you are not bound to your first choice. You can decide to hire a lawyer or an attorney who specializes in small businesses to help you choose a form of business ownership and ensure you have all the required permits and licenses.

5 Main Forms of Business Ownership

1. Sole Proprietorship

A sole proprietorship in the Philippines is also known as a "single proprietorship,". A sole proprietorship is the most simple form of business and the easiest to register in the Philippines, through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI). It is owned by an individual who has full control or authority of its own and owns all the assets, as well as personally answers all liabilities or losses. The fact that it is run by the individual means that it is highly flexible in which the owner retains absolute control.

Advantages

Control Sole 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’re coming from an oppressive work environment. Depending on the type of business, you also may enjoy the flexibility in scheduling.

Simplicity Another advantage of a sole proprietorship is its simplicity. The business can be started almost immediately and with a minimum of red tape.

Low Start-Up Costs Start-up costs also may be minimal for a sole proprietor. Because your operation is small, you may not need to hire a large staff or operate out of an expensive building. Some sole proprietors start their businesses at home in a garage or basement. With the abundance of available online businesses, sole proprietors can start with just a computer and Internet connection.

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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

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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 firm's 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.

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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, and

expectations 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. You

therefore need to be more flexible.

• A major disadvantage of a partnership is unlimited liability. General partners are liable without limit

for all debts contracted and errors made by the partnership. For example, if you own only 1 percent of

the partnership and the business fails, you will be called upon to pay 1 percent of the bills and the other

partners will be assessed their 99 percent. However, if your partners cannot pay, you may be called

upon to pay all the debts even if you must sell off all your possessions to do so. This makes partnerships

too risky for most situations.

Registering a Partnership

Requirements

• Partnership with less than P3,000.00 capital only need to register their name with Department of Trade and 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 Mayor's 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.

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Partnership in the Philippines:

Business Registration Government Licensing Office Set-up Tax Incentive Programs Business Development

Total Registration Process is 1-2 weeks

3. Corporation – is a business that is owned by its shareholders (natural or juridical persons). A corporation is composed of juridical persons established under the Corporation Code and regulated by the SEC with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited only to the amount of their share capital. It consists of at least five to 15 incorporators, each of whom must hold at least one share and must be registered with the SEC. Minimum paid up capital is P5,000. A corporation in the Philippines can either be stock or non-stock company regardless of nationality.

a. Stock Corporation – This is a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held.

b. Non-stock Corporation. This is a corporation organized principally for public purposes such as foundations, charitable, educational, cultural, or similar purposes and does not issue shares of stock to its members.

Advantages of forming a corporation

1. Owners have limited Liability. A corporation is considered by law as a separate and distinct legal entity. Thus, owners of corporation or shareholders are only indebted to the extent of their interest in the corporation. Corporations have limited liability. This means that their creditors can only run after the assets of the corporation and not the on the personal assets of the stockholders in the settlement of the corporation’s debts or liabilities.

2. It can exist with continuity. The power of succession gives a corporation continuous existence. Unlike a sole proprietorship, where the death of the owner proprietor ceases its existence, the death of a shareholder will not terminate the corporation. The shares of ownership or interest of a corporation can be transferred from one owner to another owner. A corporation continues to exist until the shareholders decide to dissolve it or merge with another business.

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3. Shares of ownership are transferable. The shares of stock or interest of a publicly traded corporation can be traded easily though a stockbroker. Shares of corporations are freely transferable except when shareholders have “buy-sell” agreements restricting when and to whom share may be sold or transferred. 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 by executing a deed of assignment of shares of stock.

4. It attracts more investors. Corporations attract investors because of its stock structure, perpetual existence, ownership transferability, and limited liability. Attracting more investors allows a corporation to raise more capital or equity to manage and expand their operations. Furthermore, because of a more regulated form of corporation and the fiduciary duties of its board of directors, it earns more trust and confidence not only from investors, but also from its employees, creditors, suppliers, customers and other outside stakeholders.

5. You can be an employee of your own corporation. Since the corporation is a distinct entity from its owners or shareholders, they can become the corporation’s employees or officers. Thus, they can receive salaries or compensation income aside from the dividends they may receive from the corporation. They can also be eligible for reimbursement or deduction of expenses they incurred related to their employment with the corporation.

6. The corporation pays its own tax. As a separate legal entity, a corporation is also a separate taxpayer from it owners. It has its own Taxpayer Identification Number, and it pays its own taxes, such as corporate income tax, business taxes and withholding taxes. The owners or stockholders pay their own taxes on the compensation and or dividend income they receive from the corporation.

Disadvantages of forming a corporation

1. Incorporation is costly. Incorporating a business needs to file with the Securities and Exchange Commission (SEC) and may involve a lot of formal and legal papers, such as by laws, articles of incorporation, affidavit and board resolutions. This is sometimes done by getting the service of a corporate attorney or firms which are specialized in incorporating a business. It may also require higher amount of initial or paid-up capital for other types of corporation like financing and lending corporations. 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. Special corporations may be required with secondary licenses and are further regulated by other government agencies, such as Bangko Sentral ng Pilipinas (BSP) for financing and lending companies, Commission on Higher Education (CHED) for companies operating secondary schools and Insurance Commission (IC) for insurance companies. Moreover, corporations also need to comply with the quarterly or annual reportorial requirements with the SEC and other agencies requiring those reports for certain types of corporations. This also means that the more compliance it requires, the more paper works and cost it

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involves. And when there are more to comply, bigger penalties are awaiting to be paid if they are not complied.

3. Limited liability may discourage creditors. The limited liability feature of the corporation can be an advantage for stockholders. However, it can also be a disadvantage when a corporation doesn’t have a good financial condition and performance. Because of the limited liability, a corporation with a low credit 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 this income to shareholders in the form of dividends may result to double taxation. This is because the dividend income received by the shareholders (natural persons) is also taxed on their personal income tax returns.

5. It is not easy to dissolve. Corporations are difficult to dissolve as it is also difficult to form. Everything is regulated from formation, to operation, and to dissolution. An application for dissolution must be filed with 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 it are not prejudiced.

Registering a Corporation

Requirements • 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 of corporation registering. • Licenses and clearance from necessary government offices Procedure • 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 trust account • 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 Philippines

If 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 both unique and appealing to your potential customers. Your trade name is what you will always use when

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dealing with your clients or customers. It is the name that will be stated in your certificates of registration with different agencies, in your official receipts and invoices, in your contracts and in other business forms.

If you are forming a single proprietorship business, it is required that you secure a certificate of registration with the Department of Trade and Industry (DTI). Otherwise, if you’re forming a partnership or 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 to register your name with the DTI to ensure that no other individuals or organizations would register a name similar to yours.

The DTI is the primary government agency with the dual mission of facilitating the creation of a business environment wherein participants could compete, flourish, and succeed and, at the same time, ensuring consumer welfare. DTI also governs the registration of business and trade names in the Philippines. The following are steps and guidelines to register your business name with the DTI:

Choose your proposed business name

Before 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 language

Names 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 business

Steps for over-the-counter registration

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A. Obtain application forms (duplicate copy) and fill these up completely. Only the owner of the business or his/her Attorney-in-Fact (who is authorized in a proper legal instrument) is authorized to sign all the forms.

B. Meet the following requirements (For Single Proprietorship):

• Must be a Filipino citizen, at least 18 years old. Filipinos with names suggestive of alien nationality must submit any of the following proof of citizenship: birth certificate, PRC ID, voter’s ID, or valid passport. If the applicant has acquired Filipino citizenship by naturalization, election, or by other means provided by law, he must submit any of the following proof of his Filipino citizenship: naturalization certificate and oath of allegiance, card issued by the Bureau of Immigration and Deportation and affidavit 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 estate brokers, dental/medical clinic/hospitals, pawnshops, manpower services, engineering/architectural services and other services provided by professionals.

C. Submit application form to the DTI Processor. The DTI Processor will check if the Business Name is still available, if yes, you will be asked to pay the application fee.

D. Pay the required registration and processing fee.

New BN registration fees in effect

The Department of Trade and Industry (DTI) is now implementing the following registration fees for business name registration (original and renewal) depending on the territorial jurisdiction covered in the application:

a. Barangay: PHP 200.00 b. City / Municipality: PHP 500.00 c. Regional: PHP 1,000.00 d. National: PHP 2,000.00

E. 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.ph 1. Fill out application form by typing the required information (proposed business name, TIN, name of registrant, 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. The reserve business name online is only up to 3 working days.

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4. Pay your application. Payment can be through GCash or at the DTI teller. Fees will depend on the territorial 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

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4. For corporations with Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA) or other economic zones application: Certificate of Authority or endorsement from said government agencies

5. Additional requirements based on kind of payment of subscription. If paid by cash below are the additional requirements.

a. Bank Certificate of deposit of paid up capital notarized in place where signed (as stated in no.3 Treasurer’s Affidavit)

b. For corporations with foreign subscribers who want to register their investments with the BSP: Proof of inward remittance or bank certificate

If paid other than cash (i.e., properties, inventories, shares of stock, etc.,), please see the complete requirement on this link page from the Philippines SEC.

Things to remember

1. 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 a partnership can become a stockholder by acquiring shares of stock after the corporation has been duly incorporated.

4. All incorporators must subscribe to at least one (1) share of stock of the corporation being organized.

5. Minimum subscription: The law requires that the total capital stock to be subscribed at the time of incorporation should at least be twenty five percent [25%] of the authorized capital stock of the corporation being organized.

6. Minimum paid-up capital: The paid-up capital of a Philippine corporation must not be less than PhP5,000.00. Thus, it is required that at least twenty five percent [25%] of the subscribed capital stock should be fully paid up but the amount of which should not be less than said PhP5,000.00. Certain types of companies, such as financing and insurance companies are required to have different minimum paid-up capital based on their industry. To see the different minimum 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. It must be filed and paid with the Bureau of Internal Revenue (BIR) or Authorized Agent Bank

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(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:

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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 enterprises

Barangay Certification and/or Mayor's 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.

CHECKLIST Government 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 agency

Bureau 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

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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 won't 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.

Here's 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 won't have to write a business plan beforehand,

for example. But no matter how well you know your early investors, you'd 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. That's because banks typically will

only consider companies that have been in business for two years. What's 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.

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4. Customers and suppliers. Some customers may be willing to help fund your product development if you

customize it for them. As for suppliers, you may be able to convince one to hold inventory for you, as long as

you guarantee them you'll pay for the material by a certain date. Remember: When you're raising money for

your business, it pays to be creative.

Loans

Here’s the latest list of available Loans and Financing Programs offered by the government, NGOs, banks

and 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)

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30. Coco Coir Business Integration and Development Program (COCOBIND)

31. Trade Fair Financing

32. Import Trade Financing With Trust Receipt Facility

33. Domestic Trade Financing

34. Export Trade Financing

35. Credit-On-Hand (COH) – Credit Line Term Loan

36. Lending Program on Housing, Healthcare and Education

37. Lending Program on Sustainable Logistics Development

38. Lending Program on Water

39. Lending Program on Power

40. Lending Program on Environment

41. Lending Program for Micro, Small and Medium Enterprises

42. Small Enterprise Technology Upgrading Program

43. Grow Your SME Business Loan

44. AsiaTrust Import Letter of Credit / Trust Receipt

45. AsiaTrust Domestic Letter of Credit / Trust Receipt

46. AsiaTrust Discounting Line/Receivables Discounting

47. AsiaTrust Short Term Loan

48. AsiaTrust Bank Carry Term Loan

49. Micro-Lending Through Small Micro Finance Institutions and Community Cooperatives

50. Micro-Lending Through Rural Banks

51. Micro-Lending Through Lead Micro Finance Institutions

52. Quedancor Program for Self Reliant Team

53. Microfinance Council of the Philippines

54. Balikatan sa Kaunlaran – PMDF

55. Microfinance Program – PCFC

56. OMB-WFI Special Lending Window

57. Opportunity Ka-Partner Microfinance 2 Program

58. Opportunity Ka-Partner Microfinance 1 Program

59. Livelihood Development Program for OFW

60. National Livelihood Support Fund (NLSF)

61. Cooperative Lending Program

62. Microfinance Program for MFI Retailers

63. GSIS Family Bank Microfinance Lending Program

64. Microfinance Eco-Enterprise Program

65. Workers’ Microfinance Program

66. Salary Loan – Asiatrust Development Bank

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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.

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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 1,750,000

Less: Operating Expenses

Salaries & Wages P 400,000 Advertising expenses 60,000 Supplies 17,000 Depreciation 15,000 Rent 150,000 Telephone 50,000 Transportation 60,000 Taxes & Licenses 9,000 Total 761,000 ----------------------------------

Net Profit P 989,000

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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

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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 499,000

3. 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

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D. Accounting Basics When doing record keeping, it pay to know the difference between cash and accrual accounting systems. Cash method – transactions are recorded when money changes hands. For instance, a sale is recorded when 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 when the 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 separate and reflected accordingly in the books. “You should not mix them”, otherwise you will have adulterated records 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.

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Chapter 9: Managing Small Business Risk

G. Defining Risk Risk is inherent in life. Everything we do involve risk. Every business faces a certain degree of risk; some of them can be controlled if appropriate action is taken to do so where as some are largely unpredictable and uncontrollable. Even when every aspect of the business is carefully considered and carefully planned and executed, a business could still face closure due to some factor that was beyond its control such as fire, tornado, tsunami, hurricanes, earthquakes, floods etc. When you carefully identify the risks that your business faces and take action accordingly to counter the risk, the business will certainly be successful. Risk can be defined as the chance of something happening that will impact upon objectives. The objective of a small business might be: To provide best quality service, to maximize revenue and minimize expense, to have a quality employees, to increase productivity, and product quality, and also to increase market share. Risk may have a positive or negative outcomes, resulting into either an opportunity or a loss for a business

H. Types of Risk for Small Businesses:

Some of the risks that small businesses face are overhead cost, cost of equipment, expected sales volume, salary cost, taxes, price charged for service or product, competitor's 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 business to 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

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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 management Opportunities 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 equipment

J. Categories of risk in small business Financial This category includes cash flow, budgetary requirements, tax obligations, creditor and debtor management, remuneration and other general account management concerns. Organisational This relates to the internal requirements of a business, extending to the cultural, structural and people issues associated with the effective operation of the business.

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Compliance /legal This category includes compliance with legal l requirements such as legislation, regulations, standards, codes of practice and contractual requirements. This category also extends to compliance with additional ‘rules’ such as policies, procedures or expectations, which may be set by contracts, customers or the social environment. Operational This covers the planning, operational activities, resources (including people) and support required within the operations of a business that result in the successful development and delivery of a product or service. Commercial This category includes the risks associated with market placement, business growth, diversification and commercial success. This relates to the commercial viability of a product or service, and extends through establishment to retention and then growth of a customer base. Safety This category includes the safety of everyone associated with the business. This extends from individual safety, to workplace safety, public safety and to the safety and appropriateness of products or services delivered by the business. Strategic This includes the planning, scoping and resourcing requirements for the establishment, sustaining and/or growth of the business. Equipment This 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. Security This includes the overall security of the business premises, assets and people, and extends to security of information, intellectual property, and technology. Reputation This entails the threat to the reputation of the businesss due to the conduct of the entity as a whole, the viability of product or service, or the conduct of employees or other individuals associated with the business. Service delivery This relates to the delivery of services, including the quality and appropriateness of service provided, or the manner in which a product is delivered, including customer interaction and after-sales service.

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Project This includes the management of equipment, finances, resources, technology, timeframes and people associated with the management projects. It extends to internal operational projects, projects relating to business development, and external projects such as those undertaken for clients. Stakeholder management This category relates to the management of stakeholders, and includes identifying, establishing and maintaining an appropriate relationship. This includes both internal and external stakeholders. Technology This includes the implementation, management, maintenance and upgrades associated with technology. This extends to recognising the need for and the cost benefit associated with technology as part of a business development strategy.

K. Integrating Risk Management in Small Business

Risk Management

Business Planning

Quality Assurance

Occupational Health and Safety

Contract Management

Financial Management

Compliance Client

relationship Management

Human Resource

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Business Planning

It can achieve this by assisting the business to effectively manage the weaknesses and threats to

achieving the objectives as well as recognising where opportunities exist and capitalising

on these to help the business grow and develop.

In addition, combining risk management planning with business planning will serve as a prompt

to ensure that the risks and opportunities at a business level are identified and reviewed on an annual

basis, in line with annual business planning.

Occupational health and safety (OH&S)

Everything ‘reasonably practicable’ must be done to protect the health and safety

of others at the workplace. This duty is placed on all employers, their employees and any others who

have 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 hazards

are identified/reported on an ongoing basis and measures are taken to reduce the exposure

to 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 be

taken 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 associated

with human resource management and to identify the treatment strategies to manage

these appropriately, and monitor going basis.

Compliance

A business owner should be aware of and feel confident that areas requiring compliance have

been 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.

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A risk management program can assist a business owner to develop a clear understanding of the areas

of compliance that must be managed and monitored, including the risks associated with potential

breach and what can be done to avoid

that breach.

Financial management

Any successful business relies on effective, transparent financial management. This includes

maximising 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. Financial

management is also about recognising and capitalising on opportunities. Determining where both

financial risks and opportunities exist can assist in ensuring that the financial management of the

business is both efficient and effective.

Client–customer relationship management

Client-customer relationship management relates to the steps taken to ensure that

the satisfaction of existing customers or clients is maximised to ensure their ongoing patronage. This will

help to create a steady income from existing customers, as well as creating opportunities to attract new

customers (e.g. from word of mouth). A risk management program helps to identify existing

relationships with clients or customers and to minimise their degradation. The complaints management

system is an excellent source of retrospective risk and if managed effectively, the quality of the

service or product will increase.

Contract management

Most businesses rely on daily contracts with either individuals or other businesses. These may

include 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 partnership

are clearly specified, and that particular obligations are met appropriately

Quality assurance A quality assurance program requires action to ensure the product or service fulfils customer

expectations. Quality assurance is integral to risk management: it is the process that continues from risk treatment through 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.

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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 Insurance Liability insurance insures against liability legally imposed upon your business because of the negligence of the business or its employees. Put another way, it protects your business when the business is sued for negligence.

Commercial Auto Your personal automobile policy does NOT cover vehicles used by your business. If your business uses vehicles or anything that is required to be titled by your state, then you need a commercial auto policy. Commercial auto coverage insures against property damage to vehicles and damage caused to others by those vehicles.

Workers’ Compensation Insurance You will need to insure your employees against on-the-job injuries. Workers’ compensation is a system 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 to the employee in case of injury for medical bills and damages. There are many options for workers’ compensation coverage.

Business Interruption Insurance Business interruption insurance insures against loss or damage to the cash flow and profit of a business caused by the business being unable to operate because of interruption. The easiest example is to think about a critical piece of machinery being struck by lightning. The repairs to the machine may be covered by other coverage such as property or casualty insurance. But, if you can’t make widgets for three months, then there is no replacement of that income without this coverage.

Health Insurance To be competitive, most businesses need to offer their workers health insurance. This insurance offers a health coverage benefit to your employees (and you).

Life and Disability Insurance Life 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. If that partner dies, and the business has planned properly, the proceeds of the policy can be used by the business to buy out the share of the decedent’s partnership interest from the estate.

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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 important

changes. Change is inevitable. Instead of being the victims of change, entrepreneurs just look for

opportunities to make the best out of important changes.

The business strategy of John L. Gokongwei Jr. testify to this principle. When Gokongwei entered the

manufacturing industry, he changed the rules of the game in the Philippines. In the telecommunications

sector, he introduced the Unlimited Texting and Unlimited intra-network calls that changed the Philippine

cellular 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 the

organization. As such, they will become stakeholders in the company and they will work for the

improvement 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 even

failed to take off the ground. Yet, Gokongwei learned a lot of things from all those experiences and he

became 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 Universal

Robina Corporation; and shopping mall chain Robinson’s Place! He has succeeded in building these

brands 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 college

degree, but he sent his younger brother James to the Massachusetts Institute of Technology to study and

help 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 his

business empire.

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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 rewards

with 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 keep

thinking 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. When

he was older, he also went to different places to enrich his mind. Reading was also a great part of his

lifestyle 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 generated

thousands of jobs in the Philippines. Because he values education, he has donated money to the Ateneo

de 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 Philippine

business environment. His life is a shining testimony to the great benefits of an entrepreneurial life.