TEC 103 Entrepreneurship

TEC 103 – Entrepreneurship
TECHNOLOGY
TECHNOLOGY EDUCATION
EDUCATION
DEPARTMENT
DEPARTMENT
BTVT
BTVT -- FSM
FSM
TEC 103
ENTREPRENEURSHIP
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TSU VMGO
VISION Tarlac State University is envisioned to be a premier university in Asia and the
Pacific.
MISSION Tarlac State University commits to promote and sustain the offering of quality and
programs in higher and advanced education ensuring equitable access to
education for people empowerment, professional development, and global
competitiveness.
Towards this end, TSU shall:
1.Provide high quality instruction trough qualified, competent and
adequately trained faculty members and support staff.
2.Be a premier research institution by enhancing research undertakings
in the fields of technology and sciences and strengthening
collaboration with local and international institutions.
Be a champion in community development by strengthening partnership with public
and private organizations and individuals.
CORE VALUES The six(6) core values institutionalize as a way of life of the university
community are:
E – xcellence and Enhanced Competence

Q – uality
U – nity
I – ntegrity and Involvement
T – rust in God, Transparency and True Commitment
Y – earning for Global Competitiveness
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TITLE
Flexible Instructional Module on TEC 103 – Entrepreneurship
COURSE DESCRIPTION
RATIONALE
This Module is designed to fulfill the means of Distance Learning. This Module have a
simplified lesson designed to help our dear students to learn on their own. This Module will
serve as a guide for the different lessons that will be discussed in this course. This module is
designed to supplement online learning as part of the Flexible Learning Program, developed by
the University to continue learning experiences in the face of the ongoing pandemic.
HOW TO USE THIS MODULE?
1. KNOW THE OBJECTIVES for you to be aware of the coverage of each chapters.
2. READ AND STUDY the content of each lesson in the module.
3. ANSWER THE ACTIVITIES in some parts of the lessons.
4. TAKE PRE-TEST AND POST-TEST in order to check prior knowledge and to check
your understanding upon the topic (all quizzes and activities will also be imported in
online platform for the ease of fulfillment and grading).
5. STUDENT SHOULD LOG IN TO MS Teams for further explanations for each
lessons. The time schedules provided for the subject/course. (i.e. TTH – 7:00 am –
8:30 am).
6. VISIT EXTERNAL LINKS located at the end of every chapters for additional
information and in-depth explanations of the topic.
7. REMEMBER that this module is just a part of the Flexible Learning Program.
8. IT IS ADVISED to print your modules to prevent eye strains when reading and to
answer the activities and tests provided.
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TARLAC STATE UNIVERSITY

College of Teacher Education
SELF-LEARNING MODULES
MIDTERM CONTENT
ENTREPRENEURHIP
TEC 103
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Table of Contents
Chapter 1 - Characteristics of Entrepreneurs...............................................................................................9
Content..................................................................................................................................................10
Entrepreneur Defined.....................................................................................................................10
Characteristics of Entrepreneurs...................................................................................................10
Choosing the Best Solution..............................................................................................................13
Implementing Decisions..................................................................................................................13
Concept of the Filipino Entrepreneur............................................................................................14
Determinants of Successful Entrepreneurship..............................................................................14
References.............................................................................................................................................16
Chapter 2 – Small Business.......................................................................................................................17
Content..................................................................................................................................................18
Small Business Defined....................................................................................................................18
Features of a Small Business...........................................................................................................18
Differences between Big and Small Enterprises............................................................................19
Advantages of the Small Business...................................................................................................20
Disadvantages of the Small Business..............................................................................................20
Economic Contributions of Small Business...................................................................................21
References.............................................................................................................................................23
Chapter 3 – Business Opportunities...........................................................................................................24
Content..................................................................................................................................................25
Entrepreneurial Activities...............................................................................................................25
Business Opportunities in Rural Communities.............................................................................26
Resources in the Community..........................................................................................................26
SWOT Analysis................................................................................................................................27
Linkages of Resources.....................................................................................................................28
Product Life Cycle...........................................................................................................................29
The Needs of the Community..........................................................................................................29
Market Research..............................................................................................................................30
Location of the Business..................................................................................................................31
Basic Phases of Business..................................................................................................................32
General Format of Project Stury....................................................................................................33
The Market Feasibility....................................................................................................................37
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Demand Analyses.............................................................................................................................37
Supply Assessment...........................................................................................................................38
Competition......................................................................................................................................38
The Marketing Program.................................................................................................................38
The Technical Feasibility................................................................................................................39
The Financial Feasibility.................................................................................................................40
Management and Manpower Requirement...................................................................................41
Contribution to the Philippine Economy.......................................................................................42
Limitations of the Project Study.....................................................................................................42
References.............................................................................................................................................43
Chapter 4 – Business Plan Development...................................................................................................44
Content..................................................................................................................................................45
Business Planning Explained..........................................................................................................45
Principles of Planning......................................................................................................................45
Stages of Business Planning............................................................................................................46
Criteria of Effective Planning.........................................................................................................46
Components of Business Planning..................................................................................................47
Characteristics of a Sound Business Plan......................................................................................47
Obtaining the Facts for a Business Plan........................................................................................48
Outline of a Business Plan...............................................................................................................48
Steps in Business Planning..............................................................................................................49
The Importance of Business Planning............................................................................................50
References.............................................................................................................................................51
Chapter 5 – Organizing the Enterprise.......................................................................................................53
Content..................................................................................................................................................54
Checklist for Going to Business......................................................................................................55
Organizational Structure................................................................................................................56
Forms of Business Organization.....................................................................................................57
The Cooperative: An Enterprise for the Poor...............................................................................60
Objectives of cooperatives...............................................................................................................60
Types of cooperatives......................................................................................................................61
Organizing a cooperative................................................................................................................61
Requirements for registration........................................................................................................61
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The Dimension of Organizational Structure..................................................................................62

Departmentalization........................................................................................................................62
Decentralization of Authority.........................................................................................................62
Line and Staff Authority.................................................................................................................63
Entrepreneurial Considerations.....................................................................................................63
Evaluating an existing enterprise...................................................................................................64
Steps in Starting a New Business....................................................................................................65
References.............................................................................................................................................66
Chapter 6 – Managing the Enterprise........................................................................................................67
Content..................................................................................................................................................68
Management Defined.......................................................................................................................68
Production Resources......................................................................................................................69
The Role of Management................................................................................................................69
Basic Function of Management......................................................................................................70
Characteristics of Successful Managers.........................................................................................70
Management By Objectives (MBO)...............................................................................................70
Theories of Management.................................................................................................................71
Contemporary Theory.....................................................................................................................72
The Need for Risk Management.....................................................................................................73
Risk and Insurance Management...................................................................................................74
Other Business Risks.......................................................................................................................75
Reference...............................................................................................................................................76
Chapter 7 – Financial Management...........................................................................................................77
Content..................................................................................................................................................78
Financial Management Defined......................................................................................................78
Financing the Enterprise.................................................................................................................78
Cooperatives for Micro Business....................................................................................................79
Other Sources of Funds...................................................................................................................80
The Need for Financial Management.............................................................................................81
Developing the Financial Plan........................................................................................................81
Evaluating Financial Performance.................................................................................................81
The Balance Sheet............................................................................................................................82
References.............................................................................................................................................85
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Chapter 8 – Production of Goods and Services.........................................................................................86

Content..................................................................................................................................................87
The Nature of Production...............................................................................................................87
Factors of Production......................................................................................................................87
Costs of Production.........................................................................................................................88
Rules of Production.........................................................................................................................88
Relevant Technology.......................................................................................................................89
Produce or Purchase........................................................................................................................90
Inventory Control............................................................................................................................91
Scheduling........................................................................................................................................92
Quality Control................................................................................................................................93
Productivity......................................................................................................................................93
References.............................................................................................................................................94
Chapter 9 – Marketing for Small Business................................................................................................95
Content..................................................................................................................................................96
Marketing Defined...........................................................................................................................96
Major Marketing Functions...........................................................................................................96
Marketing Concept vs. Selling Concept.........................................................................................97
Importance of Consumer Service...................................................................................................97
Marketing Plan................................................................................................................................98
Developing a Marketing Plan.........................................................................................................98
Consumer Behavior.........................................................................................................................99
Developing Marketing Strategies.................................................................................................100
Introducing New Products............................................................................................................100
Promotions.....................................................................................................................................101
Distribution Channels...................................................................................................................101
Pricing Strategies...........................................................................................................................102
Break-Even Analysis.....................................................................................................................102
Break-Even Graph........................................................................................................................103
References...........................................................................................................................................105
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Chapter 1 - Characteristics of Entrepreneurs

Entrepreneurs are certainly not supermen. Neither do they perform miracles. They are
just human beings. But they are different from many of us.
They possess several positive characteristics which are responsible for their business
success. For instances, they have self-confidence, leadership, and creativity. Not many of us have
these qualities. Most of us shy away from business. We prefer to be employees doing jobs which
do not require great risks like bankruptcy. The optimism and positive thinking of entrepreneurs
make a great difference between success and failure. Positive thinking produces favorable
results. We get what we deeply think and believe.
Being hardworking and opportunity seeker. An entrepreneur acquires more profit.
Moreover, in the process, they also create better goods and services for the consumers. Through
their innovations, they contribute to the improvement of the standard of living. So, they do not
only help the economy, they also help society.
This chapter explains the various characteristics and traits of an entrepreneur. In addition,
the different concepts or definitions of entrepreneur are presented. This chapter also discusses
the qualities of successful entrepreneurship.
Desired Learning Outcomes

1. Explain the various characteristics and traits of an entrepreneur.
2. Differentiate concepts or definitions of entrepreneur.
3. Discuss the qualities of successful entrepreneurship.
Pretest
Answer the following questions to test your prior knowledge about this chapter.
1. These are people who have the ability to see and evaluate business opportunities, to
gather the necessary resources and to take advantage of them, and to initiate appropriate
action to ensure success.
a. Small business owners
b. Entrepreneurs
c. Employee
d. Salesperson
2. Why are entrepreneurs called reasonable risk-takers?
a. Because entrepreneurs enjoy challenges.
b. Because entrepreneurs have strong faith in their abilities.
c. Because they always take risk.
d. Because they are aggressive earning money.
3. Which of the following is NOT considered as a good characteristic of an entrepreneur?
a. Self-confident
b. Reasonable risk-takers
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c. Hardworking
d. None of the above
4. Which of the following proves that entrepreneurs are leaders?
a. They are effective planners, organizers and implementors
b. They do things in new and different ways
c. Always attribute their success to hard work
d. Entrepreneurs have strong faith in their abilities
5. Which of the following is NOT considered as criteria of choosing the best solution?
a. Presence of risk
b. Economy of effort
c. Time factor
d. Cost of product
Content
Entrepreneur Defined
There are several definitions or meanings of entrepreneur. Here are some of them:
6. Cantillion defines an entrepreneur as one who bears uncertainty, buys labor and
materials, and sells products at uncertain prices. He is one who takes risks and makes
innovations on the factors of production.
7. In French concept, an entrepreneur is an adventurer, undertaker, and projector. His
function is to supply and accumulate capital.
8. To Schumpeter, an entrepreneur is an innovator. He does new things or does things in a
new way. He supplies new products; makes new techniques of production; discovers new
markets; and develops new sources of raw materials.
9. Peter Drucker says that an entrepreneur always searches for change, responds to it and
exploits it as an opportunity.
10. Say, an economist, explains that an entrepreneur is one who shifts economic resources
from an area of lower productivity to an area of higher productivity and greater yield.
11. The American Heritage Dictionary defines an entrepreneur as a person who organizes,
operates, and assumes the risk for business ventures.
12. The pure entrepreneurs are those who launch their own ventures from scratch. They
develop scarce resources into successful business by their instinct for opportunity, sense
of timing, hard work, and idea-producing activity. They accelerate the development of
our economy.
13. According to Geoffrey Meredeth, author of The Practice of Entrepreneurship,
entrepreneurs are people who have the ability to see and evaluate business opportunities,
to gather the necessary resources and to take advantage of them, and to initiate
appropriate action to ensure success.
Characteristics of Entrepreneurs
Characteristics are distinguishing traits or qualities, like honesty, courage, integrity or
punctuality. Entrepreneurs have many favorable interdependent characteristics which make them
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successful and extra-ordinary persons. However, their business success depends on realistic
goals and hardwork. Usually, goals are achievable if these are based on the abilities, interests and
resources of individuals. Here are the most important characteristics of entrepreneurs:
Reasonable risk-takers. Entrepreneurs enjoy challenges. But they are careful and
calculating. So, they shy away from high-risk situations, because these may not be attainable.
However, entrepreneurs also avoid low-risk situations because it is profit or loss.
As a matter of fact, life has many risks. Whether we like it or not, we make decisions the
result of which are not certain. We are lucky if we make the right decisions. But entrepreneurs
are different. They gather complete data about the situation, analyze the data, and make their
decisions. Since they are confident in their abilities and optimistic in the results of their
decisions, they are not afraid to make difficult decisions. In view of the risk-taking abilities of
entrepreneurs, they make things happen rather than let them happen.
Self-confident. Entrepreneurs have strong faith in their abilities. They believe they can be
the best in their field. They do not accept things as they are, because they believe they can do
things better.
Belief, affirmative thinking or positive thinking, enhances self-confidence. It has been
said that we succeed when we think success. Faith moves mountains. Entrepreneurs are
optimistic individuals or positive thinkers. They always think of success. Such deep faith drive
them to work with more enthusiasm and perseverance to reach their goals. The Bible states:
“If ye have faith as a grain of mustard seed… nothing shall be impossible unto you.”
Hardworking. Successful people always attribute their success to hard work. Thomas A.
Edison said that success is 99 percent perspiration and 1 percent inspiration. We can easily
confirm this by observing top executives in governmental and non-governmental organizations.
They work far beyond the 8-hour schedule.
It is very seldom that lazy people succeed in life through their own efforts and resources.
On the other hand, success smiles on hardworking people. A Chinese, called Chiquito in Tayug,
Pangasinan, used to walk 5 to 10 kilometers everyday buying empty bottles. Now, he is the
richest Chinese in Tayug. There are many others who are like Chiquito. They started with
practically nothing – except hardwork and determination – and now they are rich.
Entrepreneurs, although they are hardworking, enjoy challenges and difficult tasks, and
they love their work. Thus, their being hardworking is not really a sacrifice. When people love
their work, it is no longer work. It becomes a joy. In fact, people who are always busy forget
their worries or problems.
Innovative. Entrepreneurs are creative. They do things in new and different ways. For
example, they create new products or services, new methods of production, new markets, and
new sources of raw materials. They love to explore the unknown, and to blaze new paths of
progress.
Innovations are introduced to benefit both the economy and society. Changes are made in
response to the needs of people. For instance, the high costs of production serve as an
opportunity for entrepreneurs to introduce a technology that can reduce costs of production.
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Much better, they should introduce an innovation which creates jobs for the jobless masses.
According to the legendary production, but on the production of the masses.
Innovations have provided us the products and services of modern civilization. We have
wonder drugs, colored TV, computers, robots, cellular phones, cars, airplanes, home appliances,
and many more trappings of modern life. Without innovations, we would still remain in our
primitive stage of development. However, on the negative side, innovations have given us
pollution and diseases. Entrepreneurs therefore should not only innovate for profit, but also
ensure the protection of our environment.
Leadership. Entrepreneurs are leaders by the very nature of their functions. They are
people who are task-oriented. They are effective planners, organizers and implementors. And
they are achievers. Here are the essential leadership qualities:
- Selfless dedication
- Purpose and vision
- Courage
- Conviction
- Enthusiasm
- Integrity
- Tact
- Hardwork
Leaders treat their fellowmen like human beings. They respect human dignity, and are aware
of other human needs like belongingness, security, fulfillment and love. Entrepreneurs do not
exploit their workers or employees. Instead, entrepreneurs promote the welfare of their
employees. When Jose Yulo, owner of the sprawling Canlubang Estate (about 7,000 hectares),
was still alive, he gave numerous benefits to his farm workers, like free housing, free water, free
electricity, free rice and sugar, free hospitalization and free education. He even installed TV sets
in street corners of the residential community of his hacienda for his workers. At the time, TV
sets were still scarce and expensive for ordinary employees. Thus, his workers loved him. They
did not even like to be under the land reform program of the government. They preferred Yulo’s
program.
Positive thinkers. Entrepreneurs are positive thinkers. They think success and bright sides.
Such success consciousness leads entrepreneurs to success. Success begets success. Dr. Charles
Flory, a noted American psychologist, said that wealth does not always come to the most
intelligent or to the most ambitious individuals, but to those individuals who think money.
There is nothing wrong with thinking and acquiring money and more money if it is used
properly. Those who have plenty of money can satisfy their legitimate human needs, and be able
to help others, especially the poor. There are many rich entrepreneurs who are actively engaged
in civic and humanitarian projects.
Individuals who always think of failures and other negative thoughts get exactly what they
think. Their failure consciousness or defeatist attitude gives them failure after failure. The poor
became poorer because they think of poverty. While the rich become richer because they think of
wealth.
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Decision-makers. Entrepreneurs make decisions. They cannot avoid this. Being creative or
innovative, they always make decisions on how to improve their products, how to create new
markets, how to increase consumers satisfaction, or how to maximize profits. The success of
their business depends on their ability to make the rights decisions.
Decision-making has six distinct phases:
1. Identifying the problem.
2. Gathering the data about the problem.
3. Formulating alternative solutions.
4. Selecting the best solution.
5. Implementing the solution/decision.
The aforementioned phases of decision-making is a scientific method of decision-making.
However, implementation of the decision is a different matter. It requires leadership which
involves skills in dealing with people.
In fact, there are many unschooled entrepreneurs. Yet they are successful. They do not know
anything about scientific method of decision-making or modern management strategies, such as
PERT-CPM, forecasting methods, break-even point analysis, or linear programming. They just
rely on experiences, ideas or hunches. They are not afraid to make decisions because of their
risk-taking nature and self-confidences.
Choosing the Best Solution

The problem has to be identified and defined. Then gather the data relevant to the
problem. Organize and analyze the data to be able to com up with alternative solutions. The next
step is to determine the best solution. Naturally, the best solution is measured in terms of
profitability. But is the solution implementable?
In the final analyses, it is the implementation of the solution that counts. A best solution
which cannot be put into practice is not a solution. Peter Drucker, a renowned economist and
management consultant, mentions four criteria of choosing the best solution:
1. Presence of risk
2. Economy of effort
3. Time factor
4. Availability of resources
An ideal solution is one that does not create another problem, and it is most economical in
terms of time, labor and money. But of course, the final determinant is the availability or
resources. For instance, are there competent employees, adequate funds, necessary materials, and
facilities to implement the decisions or solutions?
Implementing Decisions
Entrepreneurs are generally careful. They implement their decisions on a trial basis or
limited scale. This is to test the feasibility or profitability of their decisions. If they happen to be
right in their decisions, they implement their business projects, their losses have been minimized.
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However, the problems of implementing a decision can be eliminated or minimized if the

decision has been the product of group action. As a democratic process, the beneficiaries, the
affected ones and those concerned in the implementation should be involved in decision-making
process. In community development, the implementors and beneficiaries of the project must be
involved from planning to the implementation of the project.
Japan has many successful entrepreneurs, because it considers employees the most
important resource of business. Employees are involved in planning, decision-making, and
implementation. Top management allows them to participate actively – within their areas of
competence – in the vital aspects of the business. Through this approach, it is much easier to
implement programs or projects. This is planning from below or participative management. A
former president of a poor country said, “Planning from the top is planning for the top.” –
Obviously, such kind of planning is not only undemocratic, but also ignores the rights and
capabilities of people.
Concept of the Filipino Entrepreneur

The Development Bank of the Philippines defines the qualities of an entrepreneur:
1. Self-reliant. An entrepreneur counts mainly on his own efforts and succeeds mainly by
doing a good job. He relies principally on his own merit and work. His self-reliance is
founded on hard work.
2. Risk-taker. He rises to a challenge and transfer problems into opportunities. His daring is
built on his competence which is marked by openness to new ideas, new skills and new
developments. Despite his setbacks and mistakes, he is willing to start all over again.
3. Industrious. He has a strong sense of pride in the workmanship of his product. He is
quality conscious in all the components of his business. He is also precise in counting
costs and in ensuring the value of money for his product or service.
4. Humble. The true entrepreneur has the humility and single-mindedness of purpose.
Where there is a chance to earn, no matter how lowly the task, he is at work patiently,
unmindful of his social status. To him rolling up his sleeves, getting his hands dirty is
noting to be ashamed of. Patience is his badge of security. Humility is the quality that
enables him to build a business from resources or opportunities, simple needs and humble
beginnings.
5. Helpful. He learns how to work with others from different fields, conscious that with their
help, effectiveness can be multiplied. He thinks of others, especially those working for
him, and of the opportunities for advancement he can provide for them. Through
appropriate words and works, he shows that he truly cares for their personal welfare and
development.
6. Creative. He has a sense of perseverance and a spirit of initiative. Never satisfied with
things as they are, he continues to improve, trying new and better ways of doing things.
And when difficulties, frustrations and failures come, he is never discouraged. Often, out
of these, create something new – another success, another problem solved, another
opportunity opened, another “first.”
7. Happy. The joy of this entrepreneur lies in the satisfaction of a customer, whom he puts
first over everybody else. He therefore attends to the real needs of his customers with
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dispatch, efficiency, and graciousness. A service-oriented person, he is a happy man for

he has discovered that the joy of giving is its own reward.
Determinants of Successful Entrepreneurship

Business enterprise failed due to poor management. Being industrious is not enough. It is
efficient management that counts most in business success. The entrepreneur must possess the
following managerial skills:
1. Ability to conceptualize and plan. The entrepreneur must view all the aspects of the
business, such as product, price, cost, inventory, etc., in a related and coordinated
manner. He must be able to plan for the total operation of the business. His ability to
foresee future problems of his business is an excellent asset.
2. Ability to manage others. Management is getting things done by others. As the business
grows, more people are needed. The entrepreneur must be able to organize work properly
so that his employees can perform their jobs efficiently and effectively. Good human
relations and communications are very important for the entrepreneur. By letting others
achieve the objectives of the enterprise, the entrepreneur has more time for
conceptualizing and planning.
3. Ability to manage time and to learn. The entrepreneur is a generalist. Especially when the
business is still small, the owner does everything: clerk, salesman and manager. In view
of the various functions of the entrepreneur, he should be an expert on time management.
He should also acquire basic training in small business management and specialized
courses in accounting, finance, marketing and personnel relations. A real entrepreneur
does not actually stop learning. He can do this by reading, attending seminars, or
enrolling in college.
4. Ability to adapt to change. Not a few individuals resist change. They stick to traditional
or established practices. This is the culture of many Filipinos, particularly the
unschooled. A business who refuses to adapt his operations to changing needs and tastes
of consumers is most likely to fail. Entrepreneurs, being innovative or creative, quickly
respond to changes for comparative advantage.
Posttest
Answer the following questions.
1. Which country is known for it has many successful entrepreneurs?
a. Korea
b. Philippines
c. China
d. Japan
2. “Planning from the top is planning for the top.” This means?
a. Undemocratic
b. Democratic
c. Authoritarian
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3. An entrepreneur counts mainly on his own efforts and succeeds mainly by doing a good
job.
a. Self-reliant
b. Risk taker
c. Industrious
d. Humble
4. He is quality conscious in all the components of his business.
a. Self-reliant
b. Risk taker
c. Industrious
d. Humble
5. Which of the following is NOT considered as a quality of an entrepreneur?
a. Creative
b. Helpful
c. Humble
d. Aggressive
References
Entrepreneurship by Feliciano Fajardo page 57-64
https://www.vistage.com/research-center/business-leadership/20161027-5-characteristics-of-an-
entrepreneur/
https://due.com/blog/7-characteristics-of-successful-entrepreneurs/
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Chapter 2 – Small Business

Small business is better than big business, especially in a poor country. The poor masses
cannot start with a big business. Obviously, their business opportunities are found in micro and
small businesses. Although small business has its shortcomings or disadvantages, it is most
relevant to poor or developing economies like the Philippines.
This chapter explains the definition of small business, the characteristics of small
business, and the differences between small and big business. Furthermore, the advantages and
disadvantages of small business are discussed. Also, the contributions of small business to the
economy are presented.
1. Define small business.
2. Cite some characteristics of small business.
3. Differentiate small and big business.
Pretest
Answer the following questions to check your prior knowledge.
1. It is defined as an organized effort of individuals to produce and sell goods and services
to satisfy the needs of society.
a. Stakeholders
b. Government
c. Business
2. It is where the owner is the principal worker, and he employs one or more assistants.
a. Organization
b. Business
c. Small business
d. Government
3. Which of the following is NOT considered as a characteristic of a small business?
a. It is privately owned.
b. It has few or no layers of management.
c. It has insufficient resources to dominate its field of business.
d. It is owned by several partners.
4. How does Magna Carta for Small Enterprises (R.A. 6977) define small and medium
enterprises as?
a. Any business activity or enterprise engaged in industry, agribusiness and/or services.
b. Anything that earns money.
c. Provides services
d. All government institutions which contribute to the Philippine economy.
5. This category of business has a value of P50,000.
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a. Cottage
b. Small
c. Medium
d. Micro
Content
Small Business Defined
Business is defined as an organized effort of individuals to produce and sell goods and
services in order to satisfy the needs of society. The primary objective of business is to acquire
profit. The individual who takes the risks in organizing and operating a business is the
entrepreneur must combine four types of productive resources: human, financial, material and
informational.
What then is a small business? There are two kinds of small business. The very small
business where the owner is the principal worker, and he employs one or more assistants. This is
the micro business. The other one is the bigger small business where the owner mainly directs
the work of the employees. This is not the only definition of small business. There are many
others. However, these are the common characteristics of small business:
1. It is privately owned.
2. It has few or no layers of management.
3. Generally, it has insufficient resources to dominate its field of business.
The Magna Carta for Small Enterprises (R.A. 6977) defines small and medium enterprises as
any business activity or enterprise engaged in industry, agribusiness and/or 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:
Micro: less than P50,000
Cottage: P50,001 – P500,000
Small: P500,001 – P5,000,000
Medium: P5,000,001 – P20,000,000
Features of a Small Business

1. A small business is low in capital high in labor intensity. Most small business do not
have sufficient financial resources. So, they cannot purchase big machines or modern
equipment. What is only possible for them to do is to use labor instead of machine in
their business operations. These are usually in retailing and service industries.
2. A small business is efficient in specialized skill or service. It can well produce goods
or services that are designed to the particular needs of an individual or a few clients.
For instance, repair works on cars and appliances require individualized service. Also,
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tailors, barbers, real estate agents and others provide services that require specialized
knowledge for specific needs.
3. A small business succeeds in small, isolated or overlooked markets. In rural
communicate where markets are small due to the few residents, a small business is
viable. For example, sari-sari stores, tailoring shops, small restaurants, and grocery
stores are profitable enterprises. Clearly, giant corporations cannot survive in small
towns where demand is limited.
4. A small business often operates in unstable markets. Big corporations are careful in
their investments. To be sure or safe in their business ventures, they conduct market
or feasibility studies to determine viability. This is actually the standard procedure in
putting up a business which involves huge resources in terms of money, machines and
materials. Such feasibility studies do not apply in most small businesses. With little
capital, they are not afraid to experiment or test the market. They can easily respond
to changing economic conditions. If these are not favorable, they can quickly get out.
Unlike big corporations, they have big buildings or large factories. It is not easy for
them to retreat from business without suffering from huge losses.
5. A small business is closer to the marketplace. Not a few small businesses conduct
their operations right inside the marketplace. Being closer to buyers, compared with
corporations, they get first-hand information about consumer tastes and preferences.
Such advantage enables the small business to respond quickly to the needs of
consumers. It is not possible for big business to act as quickly to satisfy new demand.
6. Generally, the owner of small businesses are also the managers. Most of our small
enterprises in the Philippines are like these. The owner-manager employs his wife and
children. If the business grows, the owner hires more employees, usually relatives and
townmates.
7. Capital comes from the owner or small group. In our country, a small business is
usually financed by the family through its own savings and/or loans. If ever the
business is funded by a small group, it comes from relatives and close friends.
8. The area of operation is small. This means the business is community-based. The
owner and the employees live in the community where enterprise is located.
9. The size of the enterprise is small in relation to the industry. For example, the shoe
industry is a large one. But there are very many stores of shoes. Clearly, one shoe
store cannot dominate the market for shoe. In the case of big businesses, there are
only few enterprises like the bear industry, OPEC, car manufacturers, etc.
Differences between Big and Small Enterprises

1. Small businesses as a group change through a cycle of births of deaths. In the case of big
enterprises, change is through expansion or contraction.
2. Small business risk or reward estimate is done by the individual owner who either gets
profit or loss, while in large corporations, the risk or reward calculation is done by
employee-managers. Such judgement has no direct stake in the livelihood of the
managers. However, in the case of small business, the loss can ruin the livelihood of the
owner and his family.
3. Small business has little or no economic power. On the other hand, big business has
tremendous influence on the economy, including the political sector. For example, the
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transitional corporations control our global economy, In many poor countries, transitional
or multinational corporations can have their men elected to top government positions.
They have enormous funds to influence the result of the election in their favor.
4. Small business serves markets which big busines does not like to serve or cannot serve
effectively.
Advantages of the Small Business

1. Personalized relationships with customers and employees. Retailers and shop owners
deal with their customers on personalized services. The owners know many of their
customers by name. The small business owners are involved in social, cultural and
political affairs in the community. Such personalized services or relationships with
customers are a big economic advantage which big corporations do not have. There is
also a close relationship between owners and employees. Because of this good and
informal relationship, efficient employees give their loyalty to their employers.
2. Flexibility in management. The owner being the boss and the manager, he can easily
introduce changes in his products or services experiments on price strategies, or more
store hours to fit market conditions. Furthermore, small business owners are quick to
learn changes in the needs and interests of their customers, and also the activities of their
competitors. So, they can immediately respond to such situations.
3. Government incentives. The national government has been promoting the organization of
small enterprise. It extends both financial and technical assistance, particularly
production and marketing, to small entrepreneurs. Such programs of the government are
relevant to the nature of our economy. The masses have to be helped in helping
themselves. A micro business is possible for them through government guidance and
assistance.
4. Simple record keeping. Small enterprises require few and simple sets of records. They
may consist only of a cash receipt journal which records all sales, and a cash
disbursement journal which records all expenses or payments.
5. Independence. Small business owners are the masters of their own destinies. They are not
employees. They make their own decisions. They do not apply for vacation or sick
leaves. They do not worry about being late, absent or laid off. To many individuals, this
is the kind of life they enjoy.
Disadvantages of the Small Business

1. Difficulty of raising capital. Without financial assistance from the government, a small
business has limited ability to obtain funds from others. Initially, it is the owner who
provides capital for his business. If additional funds are needed, these can be obtained
from relatives, friends or banks. In many cases, such loans are not enough. The bank can
only extend a loan which is equivalent to about 60-70 percent of the value of the property
used as a collateral. In the case of big corporations, they can sell shares of stock to the
public to raise funds. Banks are more willing to give loans to big business.
2. Risk of failure. A small business does not have enough financial resources to survive bad
economic conditions. Its inability to absorb losses and unforeseen events forces the
owner to go out of business.
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3. Limited management skills. Owners of small business generally lack management skills.
They have no formal education or training in management and marketing. They just
manage their enterprises through intuitions or practical business techniques. In the case of
big corporations, professional managers are hired to do the job.
4. Lack of opportunities for employees. Most of the employees of a small business are sales
staff. Only few of them become supervisors. In the Philippines, small enterprises are
family-owned. Those who are holding managerial and supervisory positions belong to the
family or relatives in most cases.
Why Small Business Fail

- Lack of experience
- Lack of money
- Wrong location
- Mismanagement of inventory
- Poor credit practices
- Poorly planned expansion
- Unsound or too little analysis in choosing the business
Economic Contributions of Small Business

Statistics on economic conditions favorably contributed by small businesses are based on
U.S. setting. There are no available data on the specific economic contributions of small
businesses in the Philippines. Nevertheless, it is obvious that in our country, micro and small
enterprises are numerous and rampant. Market vendors, sari-sari stores, groceries, bakeries,
restaurants, repair, shops and many others dominate our communities.
In all villages and towns, there are micro enterprises. Only very few communities have
big enterprises. Most of them are located in the cities. Even without statistics, small businesses
greatly contribute to the generation of jobs and incomes for many Filipinos. Hence, the thrust of
the national government in the promotion of small enterprises throughout the country. Such
business opportunities are accessible to the poor masses.
They introduce innovation

Invention and innovation are key factors in economic development. These are responsible
in reducing time, labor and cost of production. Based on the U.S. study, small firms produce
about four times as many as the largest firms. More than 50 percent of the major technological
advances come from individual small companies. Here are examples of innovations contributed
by small individual enterprises:
- Ball-point pen
- FM radio
- Instant camera
- Disposable razor
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- Penicillin
- Xerox
- Zipper
- Paper clip
They create employment

Small businesses are the main providers of jobs. Almost all non-governmental employees
come from small businesses. In the United States, 97 percent of business activities, and 43
percent of the GNP ($1.3 trillion) are contributed by small businesses. They constitute the
building block in U.S. economic development and other industrial countries. What is remarkable
about small businesses is that they perform activities which big businesses do not or cannot do.
They provide competition

Small businesses, as a group, challenge big businesses in many ways. Thus, small
businesses tend to be more efficient and responsive to the needs of the consumers. In their own
particular fields and ways, small businesses have combined competitive force against bigger
firms. In like manner, this is the concept of cooperatives. By pooling their small resources, they
acquire economies of scale. Therefore, they can compete with big enterprises.
They fill needs of society and big business

Big enterprises, because of their large-scale and mass production, are not willing or are
not able to satisfy the special needs of smaller groups of consumers, while small producers or
sellers can profitably fit their products and services to the needs of small groups of consumers. In
addition, small businesses supply the needs of big business. For instances, many of the goods
sold by National Book Store come from small business, such as bags, toys, decors, etc. Big
corporations in Japan purchase spare parts and assemblies from small family enterprises. In fact,
parts of radios, TV sets and watches are being assembled by families in rural Japan. This is more
economical for the big corporations.
Posttest
1. Which of the following is NOT true about Small Business?
a. A small business often operates in unstable markets.
b. A small business is efficient in specialized skill or service.
c. A small business has little to no chances of becoming a big business.
d. A small business succeeds in small, isolated or overlooked markets.
2. How small enterprise differs from big enterprises, in terms of economic power?
a. Small business has a huge amount of economic power.
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b. Small business has little or no economic power.

c. Small business has the same economic power with big business.
3. Which of the following is an advantage of the small business?
a. Personalized relationships with customers and employees.
b. Flexibility in management.
c. Government incentives.
d. All of the above
4. Which of the following is a considered as small business weakness?
a. Simple record keeping.
b. Independence.
c. Flexibility in management.
d. Risk of failure.
5. Why Small Business Fail?
a. Wrong location
b. Lack of experience
c. Lack of capital
d. All of the above
References
https://www.entrepreneur.com/article/246400
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Chapter 3 – Business Opportunities

Business opportunities are everywhere as long as there are people with money, and they
are willing to satisfy their needs. However, there are more business opportunities for individuals
who are creative, resourceful and risk-takers because they create opportunities instead of waiting
for opportunities to come. These are the real entrepreneurs.
There are factors to take into account in searching for business opportunities. These are
resources, skills, interests and economic needs. The resources, skills and interests of the
entrepreneur should match the social and economic needs of the community. For instances, are
you really interested in such kind of business? Are you willing and able to sell a certain product
or service? Is there a demand for such product or service? Do you have the resources and skills
to undertake such business?
Likewise, the resources, skills and technologies available in the community are to be
evaluated. If these are not fully or efficiently utilized, then these are good sources of business
opportunities. Fame and fortune always favors the innovators and risk-takers. They can create
new products/services, or new ways of doing things. Thus, new and more business opportunities
are discovered.
This chapter discusses entrepreneurial activities in the community, resources in the
community, and the needs of the people in the community. In addition, exploring market
opportunities is explained.
1. Discuss entrepreneurial activities in the community.
2. Enumerate needs of people in the community.
Pretest
Answer the following questions to check your prior knowledge about this chapter.
1. What factors to take into account in searching for business opportunities?
a. Resources
b. Skills
c. Interest
d. All of the above
2. Which of the following is MAIN advantage for heavily populated areas?
a. Less capital is needed
b. More buyers to attract
c. Less taxed to pay
d. Security of the business is a lot safer in populated areas
3. These are underdeveloped and have greatly contributed to poverty.
a. Urban areas
b. Rural areas
c. Subdivisions
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d. Cities
4. Which of the following factors or resources that is NOT necessary to be evaluated in
discovering business opportunities?
a. Markets
b. Individual differences
c. Weakness of the owner
d. Capital
5. Which of the following is an example of weakness of a product or service?
a. Cheap and abundant raw materials
b. Poor quality/service
c. Big demand for the product/service
d. Entry of many competitors
Content
Entrepreneurial Activities
Business activities are concentrated in cities and other urban communities. The primary
reasons are that more buyers, more incomes and more facilities are located in the said heavily
populated areas.
Apparently, there are more business competitors in the cities. This means it would be
very difficult for a newcomer to penetrate the markets. But for real entrepreneurs, such difficult
situation provides a challenge. Hence, they are encouraged to explore market opportunities.
It is natural for buyers to look for goods and services which offer better quality, lower
price and more conveniences. Precisely, these are the basic features of consumer satisfaction
which entrepreneurs can develop. In our country, there are several marketing innovations of
goods and services, like the express teller of banks, 24-hour service of some grocery stores, and
home delivery service of food items.
The Sears story

In the United States, Sears, Roebuck Corporation introduced mail-order selling. The
farmers comprised its first market. Julius Rosenwald studied the specific needs of the farmers in
1895. At that time, the American farmers were isolated from the channels of distribution of
goods and services. Since individual farmers had low purchasing power, and were very far from
trading centers, they were neglected by businessmen. And Sears, Roebuck rose to the occasion.
To Sears, Roebuck, the untapped buying potential of the farmers as a group was a rich
market. To reach the farmers, Sears, Roebuck used the mail-order selling. It produced the goods
that satisfied the needs of the farmers. These were delivered to them in large quantities at low
prices, and with guarantee of regular supply. And Sears made a policy of “your money back and
question asked” if farmers were not satisfied.
Gradually Sear, Roebuck became successful. From a retail store, it expanded to other
industries until it has acquired international reputation and customers all over the world.
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Business Opportunities in Rural Communities

Our rural areas are abundant with cheap raw materials and labor force. Yet these are
underdeveloped and have greatly contributed to poverty in the rural communities. Many rural
folks are unemployed or underemployed. This results to low level income among the people.
The productive resources in the rural sector are sleeping business potentials. Our raw
farm products can be a good source of agri-business. Other raw materials can be transformed into
toys, hats, bags, slippers, decors, etc.
Senate President Neptali Gonzales has learned during his political campaigns throughout
the country that entrepreneurs in Davao are exporting cutflowers to Singapore; astisans in Cebu
have elevated local stonecraft to world-class status; pina-cloth weavers in Aklan have attracted
the attention of international fashion designers; the goldsmiths of Bulacan have created jewelry
that are admired even in a place as far as Dubai; and the automotive tinsmiths of Pampanga get
job orders from California. There are other small entrepreneurs who have succeeded in selling
their products to foreign markets.
In a graduation speech before college students in Pampanga, Senate President Gonzales
cited the importance of entrepreneurship:
“In a feudal society such as ours, social status means a lot. And the college diploma is a
status symbol. It is perceived as a key to a door leading to a white-collar job. But the harsh
realities say otherwise. A diploma does not guarantee employment… Has it ever occurred to us
that there are more profitable opportunities in self-employment than in white-collar jobs? Have
we bothered to think seriously that there are many untapped potentials in the countrysides? Have
we given sufficient thought that there is a bright future in agriculture, particularly agribusiness
activities?”
Resources in the Community

Business opportunities and successes greatly depend on people. The efforts of an
entrepreneur are useless if he does not get the full support and cooperation of efficient workers
and others who are linked with the operations of the business enterprise. Any business firm is not
an island. It depends on employees, customers, suppliers and others who contribute to its
success. In short, people are the most important resources. It is the people who organize and
manage other productive resources, such as money, materials, machines and manpower.
In discovering business opportunities, the following factors or resources have to be
evaluated:
1. Markets. The number of prospective buyers, the presence of competitors, and the prices
and quality of goods and services have to be analyzed. Are the needs of the consumers
fully satisfied? If not, then business opportunities exist in areas where consumer
satisfaction is weak or incomplete.
2. Individual interests. Business interests of individuals vary. There are those who are
interested in agriculture. Others are inclined to industries. Not a few like to be employees.
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Interests should match business opportunities. For example, if there is a good business
opportunity for poultry or piggery, one should be interested in such fields.
3. Capital. Money is very important in putting up a business enterprise. The availability of
funds should fit the type of business to be organized. One who has a limited capital
should start with a micro business. Many unschooled individuals started with such
business. And some of them are now big shots in the business world.
4. Skills. The entrepreneur should have the proper skills in the business he is going to
undertake. For instances, if he is interested in food processing, like tocino, longaniza,
ham or corn beef, it is much better if he has the skills in such food processing. If it is a
travel business, the entrepreneur should have the experience or working knowledge about
such business. It is not advisable to depend completely on the services of assistants or
employees.
5. Suppliers of inputs. It is not enough that there are sufficient buyers of goods and services.
It is equally important that there are steady suppliers of raw materials and other inputs of
the business. Obviously, if there are no materials to be used in production, a businessman
has nothing to produce and sell. If production is delayed due to lack of materials, then it
is not good for the businessman. His business is likely to lose customers.
6. Manpower. The success of any business enterprise primarily deposits on the efficiency of
its employees. In putting up a business, make sure that experts or trained personnel are
available. This is an essential requirement to make the business feasible. For instance, a
basket-weaving enterprise needs workers who are good in such type of work.
7. Technology. Tastes and preferences of consumers are not permanent. These are heavily
influenced by innovations. And innovations are the products of technology. New
products and new services represent improvement which are intended to improve
consumer satisfaction. Entrepreneurs should be aware of the presence of technology,
particularly new technology. This is an opportunity for them to avail of such technology
to improve their products or services or introduce new ones in the market.
SWOT Analysis
There is always a need to evaluate business opportunities, whether these are really
economic opportunities and whether these are profitable. To be able to translate business
opportunities into profits, the SWOT analysis is applied. It studies the financial resources,
physical facilities, management capabilities, the market, production process, information system,
sources of supply and social environment. SWOT analysis is a toil of evaluating the strengths ,
weakness, opportunities and threats associated with a particular product or service. SWOT is the
acronym of strengths, weakness, opportunities and threats. Here are indicators of SWOT:
Strength of a product or service
- Cheap and abundant raw materials
- Sufficient funds
- Availability of technology
- Presence of skilled workers
- Management and technical expertise of the entrepreneur
- Good quality/service
- Ease of production
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- Small capital
Weakness of a product or service

- High price
- Poor quality/service
- Weak management
- Lack of skilled workers
- Irregular supply
- Unattractive design
- High costs of production
Opportunities of a product or service

- Big demand for the product/service
- Favorable government policy/support
- Scarcity of the product/service
- Poor quality of existing product
- Absence of product/service
- Possibilities of good profits
Threats
- Shortage of raw materials at a given time
- Entry of many competitors
- Increasing costs of production
- Expectation of unfavorable government laws, such as taxes
- Deteriorating peace and order
- Emergence of unfair demands of workers through labor union activities
Linkages of Resources
Enterprises which have established a strong growth future can increase their efficiency or
profitability through backward and forward integration. This is also called backward and forward
linkages.
Backward integration is the ownership or control of the inputs of production by the
enterprise. For instance, a poultry business is a heavy user of feeds which consist of a mixture of
palay, corn, fish and ipil-ipil leaves. To ensure a steady supply of feeds at a lower price, better
quality of the right quantity, the owner of the poultry business puts up his own feeds production.
This is another business opportunity, especially if such business is profitable. Thus, he achieves
two business objectives; he ensures the efficiency of his poultry business, and he gets additional
profits from his feeds business.
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In the case of forward integration, it is the ownership or control of the marketing system
by the enterprise. Using the same example, the poultry owner sets up his own distribution system
instead of depending on middlemen to market his poultry products. In short, the owner owns and
controls the entire operations of his poultry business, from production of feeds to marketing of
poultry products. All the profits belong to him. The point here is that the entrepreneur can create
business opportunities by exploiting backward and forward integration, aside from ensuring the
efficiency of his original business.
Clearly, backward and forward integration provides business opportunities to more
innovative and hardworking entrepreneurs. In fact, when the business has already become big, it
may resort to horizontal integration. This means it buys or controls some of its competitors.
However, this is considered an unfavorable business behavior from the point of social interest
because the enterprises reduces or eliminates competition which is not good for the customers.
As a matter of policy, the government discourages the creation of business monopolies, except in
certain areas of business.
Product Life Cycle

Products have their own life cycles. Each product life cycle is composed of four stages;
introduction, growth, maturity, and decline. Some products have long product life cycle while
others have short ones. Here are the descriptions of the various stages of a product, particularly
its sales volume and profits.
1. Introduction. Consumer awareness and acceptance of the product are low. However, sales
gradually increase due to promotion and marketing activities. But at the start, costs of
development and marketing activities. But at the start, costs of development and
marketing are high. This makes profit low or even incurs loss. There are relatively few
competitors, and the price is usually high. Buyers are individuals who want to be the first
in the community to own the product.
2. Growth. Sales rise rapidly as the product becomes popular. Due to competition and lower
average cost of production, prices fall. However, profits for the firm and industry
increase. To meet growing demand, product distribution is expanded. Promotion still
plays a vital role in the marketing of the product.
3. Maturity. Sales are still rising at the beginning of this stage. But the rate of increase has
declined. At the later partner part, the sales curve reaches its peak while profits begin to
fall. Price competition increases which forces inefficient competitors to get out from the
industry.
4. Decline. There is a sharp fall in sales volume while profit curve, becomes almost flat or
horizontal. There is also a decline in the number of competitors. The only survivors are
those who specialize in the marketing of the product. Once the product is no longer
profitable, it is eliminated from the market.
Entrepreneurs should be aware of the duration of each stage of the product life cycle of their
products. If maturity is long, a new product may be introduced between the peaks of the profit
and sales curves. If such stage is expected to remain for a short time, the new product should be
introduced earlier. Obviously, excellent knowledge about the product life cycle of the products
provides entrepreneurs business opportunities to continuously stay in business.
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The Needs of the Community

The ultimate objective of the business is profit. This is only possible if it can satisfy the
needs of consumers in a community. However, there are enterprising businessmen who can
create consumer needs for their own business interests. To some, such manipulation of human
weakness through advertising is immoral. Businessmen are presumed to be honest and sincere in
dealing with consumers.
Entrepreneurs who are seeking business opportunities have to explore the economic and
social conditions prevailing in the community. Such conditions reflect the needs of the
community, such as food, clothing, housing, health, education and recreation. The needs that are
not properly satisfied are areas of business opportunities. Assuming that these needs are
adequately met, it does not mean that there is no more room for business opportunity.
Entrepreneurs, by their very nature, are innovative. They are capable of creating new
products or new ways of selling products. Considering that people have unlimited satisfaction or
needs, entrepreneurs can still exploit the unsatiable nature of human beings. Business
opportunity exists as long as there is improvement in human satisfaction in terms of price,
quality and service. So, what is very important for a businessman is to identify the needs of the
people in the community, and then maximize the satisfaction of such needs. A simple market
research may be used in identifying the needs of the community, the competitors and existing
resources.
Market Research
Planning business prospects and strategies requires complete and correct information
potential customers, competitors and market characteristics. This can only be done in a
systematic manner through market research. Entrepreneurs must be future-oriented. They must
anticipate future changes in the market to be able to adjust their business. Hence the need for a
continuous market research.
The best way to evaluate business opportunities is to conduct a market research. This is
systematic and scientific. An entrepreneur can only make the right decisions if he has the right
data about the needs and resources in the community.
Market research is the process of systematically gathering, recording and evaluating data
regarding a specific marketing problem. The steps in market research are:
1. Defining the problem.
2. Making a preliminary investigation.
3. Planning the research.
4. Gathering the data.
5. Analyzing the data.
6. Reaching a conclusion/decision.
7. Implementing and evaluating decisions.
Uses of Market Research

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Through market research the entrepreneur can be guided in identifying the following:
1. Profitable markets
2. Saleable products/services
3. Strengths and weaknesses of competitors
4. Available resources
5. Business risks
6. Trends in consumer tastes and preferences
7. Better marketing strategies
8. Proper business location
9. New market opportunities
10. Realistic business objective
Location of the Business

The location of the enterprise is a vital factor in the success of a business. A prime
location is a great competitive advantage. All other things being equal, the one with a better
business location gets the maximum business. To be able to make the right choice of location. It
requires a market survey. Low rents and attractive leaseholds may be a trap in the proper
selection of a good location. There are many factors to consider in selecting a good location.
However, location of the customers may be the most critical factor. Here are the more basic
factors in selecting a business location:
1. Population trends
2. Income trends
3. Consumer Characteristics
4. Retail sales trends
5. Competition
6. Transportation facilities
7. Government policies
8. Environment (health and sanitation)
9. Electricity
10. Water supply
11. Communication facilities
12. Peace and order
13. Fire protection
14. Parking space
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Annex
Projet Study
By
Arlene E. Liberal
INTRODUCTION
A business project, whether an entirely new venture or an expansion of an existing one, is
undertaken in order to accomplish an objective: to produce and sell products/services for profit at
an attractive rate of return to the investors. To accomplish this will require adequate planning and
implementation.
Today, more and more firms, entrepreneurs, and other investors resort to the project
feasibility study as a tool for planning the project and as a guide in its implementation.
A project study is prepared to a certain if the project, as initially designed, will have a
good chance of making profit if implemented. Basically, the project study takes into
consideration the environment in which the business will operate or is currently operating and
the resources that will be put into the project, namely; manpower, machines and equipment,
money, and time. It should cover, therefore, the basic aspects of management, marketing,
production, finance, and all the other factors that will affect its operation.
Basic Phases of Business

Management
The management aspect is aimed at designing the form of ownership (for new ventures)
although in most cases this is already predetermined, as well as the internal structure for
managing the project.
The project time-table may also be presented in this section.
Marketing
The market study is aimed at determining and analyzing the demand and supply for the
product/service in the past and making projections of demand and supply in the future;
ascertaining its competitive position in the industry and designing the marketing program for the
product/service.
Production
The production aspect describes the technology that will be used in making the product.
It includes product specification (mechanical, chemical and physical properties), description of
equipment and raw materials to be used and the process involved. It also includes a study on the
plant location, layout and other facilities vital to the operation.
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For services, a description of the types of service(s) to be rendered, the equipment,

supplies, facilities vital to the operation.
For services, a description of the types of service(s) to be rendered, the equipment,
facilities and manpower are required to render the service efficiently.
Financing
The financial aspect is meant to determine the cost of the project and cash requirement
and the source and cost of financing the project. Financial projections are made over a period of
at least five years. Financial analysis is presented showing returns on investments, return on
equity, breakeven sales and price sensitivity test.
General Format of Project Stury

The Following is the format of a project study in general:
I. Introduction
This portion discusses the background and rationale why the project study is being
undertaking.
II. Summary of the Project Study

A. Name of the firm
B. Location of head office factory
C. Brief description of the project
1. Brief history of the business (if already existing) and/or nature or kind of
industry.
2. Highlights of the findings in each phase of the project study.
III. Proponent, Management and Personnel

A. Proponent: Refers to owners, project originators, promoters and founders. In many
cases, these represented by just one person (as in sole proprietorship) but this may
not necessarily hold true to other forms of ownership like a corporation where the
owners (stockholders) are not necessarily the founders or promoters.
B. Management
- Officers of the business and their qualifications
- Supporting professional firms (if any) during the pre-operating period and during the
operating period.
C. Project Time-Table (Optional) through GANTT Chart or PERT-CPM

(This section may be placed after the production study before the financial study or
after the financial study).
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IV. Market Feasibility

A. Market description – a brief description of the market to describe the buyers and
users of the product and the areas of dispersion.
B. Demand
1. Consumption in the past five to 10 years.
2. Major users of the products.
3. Projected consumption for the next five years.
C. Supply
1. Supply for the past five to 10 years broken down as so source whether
imported or locally produced. For imports, specify form in which goods are
imported, price and brand. For locally produced goods, indicate firms
producing them, their production capacities, brands, and market share.
2. Factors affecting trends in the past and future supply.
D. Competitive position
1. Selling prices – This includes a price study indicating the past import and
domestic prices, the high and low prices within the year and the effect of
seasonality.
2. Competitiveness of the quality of the product.
3. Methods of transportation and existing rate.
4. Channels of distribution.
5. General trade practices – This is a description of the existing marketing
practices of competitors.
E. Proposed Marketing Program

1. Description of proposed product/service characteristics
a. For tangible products – example, size, color etc., quality of service (for service).
b. Packaging (when applicable).
2. Description of the proposed market target. Market targets may be classified as
follows:
a. Geographical location – example, Metro Manila, Central Luzon etc.
b. Age
c. Sex
d. Income bracket (class A, B, C)
e. Educational attainment
f. Religious affiliation
g. Others
h. A combination of some or all of the above categories
3. Proposed prices
4. Proposed Channel of distribution
5. Proposed promotional activities
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F. Projected Sales
Expected annual sales volume for the next five years considering the supply and
demand situation, the competitive position and the marketing program.
V. Production
Product/Service
A. Product specification includes physical, mechanical and chemical
properties (for tangible products) and description of the kind and
quality of service-industry like restaurants, hotels, banks, etc.)
B. Production Process
1. Description of the process showing detailed flow chart
indicating material, equipment and energy requirement at
each step, and the normal duration of the process.
2. Alternative processes considered and justification for
adopting said process.
3. Technological assistance used and contracts, if any.
C. Plant size and Production Schedule
1. Rated annual and daily capacity per shift, operating days
per year, indicating factors used in determining capacity.
2. Expected production volume for the next five years
considering start-up and technical factors.
D. Machine and Equipment
1. Machinery and equipment layout, indicating floor plan.
2. Specification of the machinery and equipment required
indicating rated capacities.
3. List of machinery and equipment to be purchased and
origin (local or imported).
4. Quotations from suppliers, machinery guarantees, delivery
rates, terms of payment and other arrangements.
5. Comparative analysis of alternative machinery and
equipment in terms of cost, reliability, performance and
spare parts available.
E. Plant Locations
1. Location map showing plant location.
2. Desirability of location in terms of distance from the source
of raw materials and markets and other factors.
Comparative study of different locations indicating
advantages and disadvantages (for new projects).
F. Plant Layout
Description of the plant layout, drawn to scale.
G. Building and Facilities
1. Types of building and costs of construction.
2. Floor area involved.
3. Land improvement such as roads, drainage, etc., and their
respective costs.
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H. Raw materials
1. Description and specifications relating to their physical,
mechanical and chemical properties.
2. Current and prospective costs of raw materials; terms of
payment and long term contracts, if any.
3. Availability, continuity of supply and current and
prospective sources.
4. Material balance or material process chart.
I. Utilities
Electricity, fuel, water, steam and supplies indicating the
uses, quantity required, balance and utilities, availability,
sources and tentative sources and costs.
J. Waste Disposal
1. Description and quantity of waste to be disposed of.
2. Description of the waste disposal method.
3. Methods used in other plants.
4. Costs of waste disposal.
5. Clearance from proper authorities or compliance with legal
requirements.
K. Producing Costs
Detailed breakdown of the direct and indirect labor and
supervision required for the manufacture of the product(s)
indicating compensations, including fringe benefits.
VI. Financial Feasibility

A. For Existing Projects
1. Audited financial statement (balance sheets, income
statements, cash flow) for past three years to reflect the
following:
a. Aging Receivables
b. Schedule of fixed assets showing capitalized cost,
estimated useful life and depreciation method used.
c. Schedule of liabilities, tax assessments and other
pending claims or litigations against the applicant, if
any.
d. Financial trends and ration analysis.
e. Elements or production, selling and administrative
financial expenses.
2. Financial projections for the next five years (income
statement, cash flow, balance sheets).
3. Supporting schedules to the financial projections, stating
assumptions used as to:
a. Collection period of sales
b. Inventory levels
c. Payment period of purchases and expenses
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d. Elements of production cost – selling, administrative

and financial expenses.
4. Financial analysis to show rate of return on investment,
return on equity, break-even volume and price analysis.
B. For new Projects
1. Total project cost (fixed and working capital)
2. Initial capital requirements
3. Pre-operating cash flows relative to the project timetable.
4. Financial projections for the five years of operations to
include balance sheets, income.
5. Supporting schedules to the financial projections to
include:
a. Collection period on sales
b. Inventory levels
c. Payment period for purchases and expenses
d. Elements of production cost, selling, administrative and
financial expense.
6. Financial analysis showing return on investment, return on
equity, break-even volume and price analysis.
VII. Contributions to the Philippines Economy
A. Contribution to government revenues
B. Net annual amount of dollars earned or saved
C. Contribution to the growth of related industries (e.g. the
contributions of a feedmill project to the poultry and livestock
industry)
D. Contribution to the Philippine household
E. Other benefits
The Market Feasibility
Market is where and to whom a product is sold. A description of who the buyers/users of
the product are and where they are located are the starting considerations, as these determine the
size of the market.
Size of the market is usually expressed by the number of households in a particular area,
the population under certain age groups, number of groups in a particular income bracket, the
number of buyers in a particular are, etc.
Once the market size is determined, the demand and supply situation is analyzed.
Demand Analyses
The demand analysis is meant to determine the pattern of consumption for the product
and the characteristic of the market in the immediate past in order to determine what is likely to
happen to the consumption pattern in the near future. Implicit in the demand analysis is the
analysis of consumption custom idiosyncrasies and buyer buying habits. Usually, a time frame of
five years for past consumption and five years for future consumption is presented. In some
projects, however, a ten-year period is used.
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Where there is no record of past demand, a listing of prospecting buyers and quantity
desired in the next five years may be used to determine demand.
Supply Assessment
The supply situation for the product in a particular market is likewise assessed as to
source and the quantity and quality available. Past and future supply trends and a study of factors
affecting these demands are first presented.
Once the demand and supply situation is ascertained, an analysis is made to determine
whether there is a gap between demand and supply. If the product demand is more than the
supply, entry of the new venture or the expansion of an existing one is favorable. Otherwise, it is
not advisable to go on with the project.
Competition
Aside from the demand and supply situation, the competitive situation must also be
analyzed. Although the demand-supply situation may be favorable, entry to the market may be
very competitive. A good example is the beer industry in the Philippine. Other beer markets find
it difficult to penetrate the local market due to the monopoly staged by a large-scale brewery
already established in the field because of a very good marketing program.
Competition in the market is analyzed in terms of the number of competitors, the
prevailing prices, quality of the product, other services that accompany the sales of the product,
the promotion given to the product, the channels of distribution and the terms and conditions
given to effect sales and ultimate buyers of the product.
The Marketing Program

An understanding of the market situation and the activities of competitors in the market is
important in the design of the company’s marketing program.
The understanding of the market and competitive situation should enable the firm to
identify a specific market segment where there is an opportunity for profit and growth.
As pointed out in Part I of this article, a market segment may be identified in terms of: a)
geographic location, b) age bracket, c) sex, d) income bracket (class A, B, C), e) educational
attainment, f) religious affiliation, g) others, and h) a combination of some or all of the above
categories.
Once the target market has been identified, the marketing program can then be designed
to suit the requirements of said market.
The program includes product(s) determination of product quality, the prices at which it
will be sold , the promotion (if any) for the product(s), the channels of distribution or the
middlemen, the terms and conditions that will be given to these middlemen as well as the terms
that will be given to the ultimate buyers, and a schedule of when the product(s) will be made
available.
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The market program should also indicate the manpower required and the cost of the
marketing program per year.
With the given target market and a given marketing program, the projected sales of the
company for the next 5-10 years can then be estimated.
Summary
The market feasibility study should be able to present enough data to show:
- The size and characteristics of the market.
- The demand for the product.
- The supply available.
- The competitive situation
Equipped with the above information the firm should be able to pinpoint opportunities for
growth and profit.
If the market opportunity is favorable, the company’s marketing program should indicate
how such can be tapped and explored.
The Technical Feasibility

The technical feasibility study starts with the description of the qualities of the product,
the materials with which it is made and the chemical composition (if applicable).
Once the characteristics have been specified, the process involved in making the product
is described. This is done systematically by presenting the process flow chart which shows the
sequence of the process and indicates the following:
- Types and capacities of machines and equipment selected.
- Number of operators and auxiliary personnel.
- Types and quantities of raw materials supplies and components to be used.
In some cases, then firm may consider it technically or economically better to subcontract
certain parts of the process. Such possibility may be included in the study.
Based on the process flow chart, the rated capacity per shift is determined. The annual
capacity is then determined, based of the rated capacity may be included in the study.
Once the product process is established, a more detailed study of the production factors is
presented.
Each production factor is described, the current prospective cost indicated and the
desirability of having such production factor explained. The study may include a comparative
analysis of alternative of some or all of the production factors, the choice of which may be based
on cost, reliability of performance, availability and other reasons important to the life of the firm.
Included in the technical study is the waste disposal system to be used by the firm. This
has gained more importance in recent years with the growing environment ecology
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consciousness of the populace. The method and the cost involved in waste disposal are stated and
descried.
With the above information on the production process and production factors, the
production schedule can then be determined. In addition, the study should indicate:
- When a factory is expected to work at a normal level of output (installation and starting
time).
- The flexibility it will have with respect to manufacturing other products utilizing the same
machines and laborers in case market changes require; and
- The possibilities and requirements for expansion.
With the given production schedule, the production cost can then be ascertained. (Take
note that the production cost includes direct materials, direct labor and overhead cost.)
Summary
The technical study should be able to collect enough data to establish whether or not the
requirements can be fulfilled with regard to:
- Manufacturing know-how
- Equipment and materials; and
- Facilities and other utilities.
The technical study also serves as a basis for evaluating the economic feasibility
particularly with regard to cost covering the profit earning capacity.
The Financial Feasibility

The financial feasibility study determines the amount of money required in the
nationalization of the project. It likewise presents appropriate sources of financing and cost
involved.
The calculation of money needed for the project includes:
1. Pre-operating expenses or organizational expense including registration fees, notarial
charges, starting-up losses, etc., the cost of which is usually amortized over a period of
years;
2. Fixed capital or fixe assets like:
a. Land, which includes the purchase price plus other expenses to prepare it for use;
b. Building and fixtures which include construction cost inclusive of the complete outfit
of the building; and
c. Machinery and furniture which includes installation cost.
From the financing point of view, a suggestion (if any) may be made to show whether it
is better to but or lease the land, building and machinery.
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1. Working capital
Working capital is the fund needed to carry on the business over a short period of time. Most
firms estimate working capital to cover a period from one to six months. This covers expenses
which can be re-earned completely within one year.
The operating requirement of the firm determines the amount of working capital needed.
Estimates of the following items are necessary:
a. Level of stocks of raw materials and supplies.
b. Amount of work-in process.
c. Stocks of finished products.
d. Amount of receivables.
e. Cash requirements.
For stocks and work-in process the estimated amount required should take into consideration
the turn-over rates, seasonal influences and special circumstances like long lead times in
delivery, uncertainties in delivery, high processing times and excessive commercial stock
requirements.
For debtors, consideration should be given to the amount and term of credit given to
customers and the collection policy.
The total capital need is determined by adding up the pre-operating expenses, the fixed
capital and the working capital.
The projected income statement, balance sheet and their supporting schedules are also
presented, the information of which is reflected in the market and technical studies.
Once the projected financial statements are prepared, the analysis of the financial status of
the project follows. Here the discussions of profit, return on investment, return on equity and
break-even analysis are presented. A price sensitivity analysis may also be presented, which
shows the financial status of the company assuming different prices for the same product.
Based on the financial analysis, a decision to proceed with the project or not can be made.
The analysis will show whether or not the project will earn satisfactory profit and return on
investment.
Summary
A good financial study should be able to present the following:
- Funds needed for the pre-operating expenses, fixed assets, and working capital.
- Sources and cost of financing.
- Projected financial statements.
- Financial analysis.
The financial returns as shown in the study will ultimately determine whether or not the
project is feasible.
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Management and Manpower Requirement

As mentioned earlier, for most projects the form of ownership is already predetermined.
However, when the case is otherwise, a discussion of the advantages and disadvantages of each
form of ownership (i.e. single proprietorship, partnership, corporation) may have to be presented.
The manpower requirement may be classified as follows:
1. Management
2. Supervisory personnel
3. Specialists (accounting, technical, marketing) – either as internal stuff or external adviser.
4. Labor-skilled and unskilled.
The marketing program, the production plan and the project as a whole will determine the type
of management and type of personnel required.
An organization chart indicating key functions to be filled is most helpful in visualizing the
relationship of personnel. Duties and responsibilities will have to be defined.
Personnel policies of a project study, the discussion of the manpower requirement may be done
as a separate topic from the market program and production, or it may incorporated in both
where only the personnel not covered by the discussions will be elaborated on. The topic under
which the manpower requirement is to discussed depends on the individual preparing the study.
The cost of manpower is included in the project cost.
Summary
The management study should present the following:
- The form of ownership.
- The organization structure from the top management to the worker to indicate duties and
responsibilities as well as the interrelationship of the different units or departments.
- The personnel policies like selection, training and compensation.
Contribution to the Philippine Economy

Some project studies may be required by the financing institution to present contribution
of said undertaking to the Philippine economy in terms of dollar savings from importations,
and/or employment generation, contribution to growth of related industries and other benefits.
Limitations of the Project Study:

1. The preparation of a project study requires one to make a lot of assumptions, upon which
projections are based. All error in the assumption(s) or change in environmental situation
will result in erroneous results.
2. Sometimes, other factors are not given the importance such as: legal situation, tax
regulation, social requirements (additional benefits for employees), political pressure
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groups which might interfere with the setting up of the projects, attitude of regional/local
government and agencies which can help or hinder the launching of the project, etc.
Conclusion
In spite of these limitations, however, conducting project feasibility studies has proven to
be useful as evidenced by its popular use by financing institutions, investors and entrepreneurs.
A project feasibility study does not assure that the figures presented will exactly be the
same when implemented. Nevertheless, it promises a systematic approach towards planning the
project considering its limited resources. It helps convert an idea into a plan of action. It shows
whether a dream for a business venture will remain a dream or become a reality.
(Note: This reprint was submitted to the author many years ago by one of his students in a
feasibility study class. Due to the simplicity and comprehensiveness of this project study, the
author decided to use it in this book. The author expresses his gratitude to Arlene Liberal
(address unknown), writer of this project study material).
Posttest
1. Which of the following is an example of strength of product or service?
a. Cheap and abundant raw materials
b. Poor quality/service
c. Big demand for the product/service
d. Entry of many competitors
2. This is considered as threat for a business.
a. Deteriorating peace and order
b. Cheap and abundant raw materials
c. Poor quality/service
d. Big demand for the product/service
3. It is the ownership or control of the marketing system by the enterprise.
a. Backward integration
b. Forward integration
c. Sideward integration
4. What does it mean if the sales rise rapidly as the product becomes popular?
a. Introduction
b. Growth
c. Maturity
d. Decline
5. Which of the following is NOT considered as a step in market research?
a. Planning the research
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b. Gathering data
c. Analyzing data
d. Planning the business
References
https://www.entrepreneur.com/article/42940
https://www.entrepreneur.com/encyclopedia/business-opportunity
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Chapter 4 – Business Plan Development

Planning in plain and simple language is thinking ahead. In business, it is thinking ahead
of objectives, strategies, financing, production, marketing, profit prospects, and growth
possibilities.
However, business planning should be realistic. This means planning is based on
available resources, and is responsive to the needs of the community. Otherwise, planning is no
different from dreaming. Not a few business and government projects fail because their
objectives do not match their resources.
This chapter presents the fundamental principles of planning, criteria of effective
planning, steps in business planning and format of a business plan. In addition, other topics like
components of business planning and the importance of business planning are explained.
1. Present the fundamental of planning.
2. Cite the criteria of effective planning.
3. Enumerate steps in business planning.
4. Develop a business plan.
Pretest
1. It is the thinking ahead of objectives, strategies, financing, production, marketing, profit
prospects, and growth possibilities.
a. Strategizing
b. Planning
c. Growth
d. Production
2. Which of the following is NOT a good principle of planning?
a. Planning must be done during the business operation.
b. Planning must be flexible.
c. Planning must start with simple projects.
d. Planning must be based on felt needs.
3. At the start of the business, the owner-manager is busy looking for funds, customers,
materials and equipment.
a. Annual planning stage.
b. Budgeting-System stage.
c. Strategic planning stage.
d. Unplanned stage.
4. This component of Business Planning should be specific and realistic. It can be daily,
weekly, monthly and yearly.
a. SWOT
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b. Time frame
c. Objectives
d. Strategy
5. What is the third step in business planning?
a. Analyze you market.
b. Evaluate your personal resources and interests, and the resources of the community.
c. Prepare a financial plan.
d. Choose a proper business location.
Content
Business Planning Explained
Planning is:
- What to do.
- How to do it.
- When to do it.
- What to expect in the future.
Business planning involves the attainment of goals, and the way in accomplish such goals. A
time frame is needed in attaining the goals. Supposing you want to put up a poultry project. How
do you do it? Do you have the funds? Do you also have the skills and interest? Assuming there
are no problems in money, skills and interests, when are you going to start the project?
Starting the business is not the end of business planning. Ultimately, it is the consumer
satisfaction that requires planning. This should be properly planned because consumer
satisfaction means business stability and growth. In financial language, consumer satisfaction is
profit. Thus, business planning is a continuous process until consumer satisfaction is maximized
and sustained.
Principles of Planning
Here are some basic principles in planning which have general application, particularly
for micro and small business:
Planning must be realistic. It must base on available resources – human, financial and
physical resources. If these are not enough, then it would be impossible to implement
successfully the project. Any planning which is not supported by adequate resources is likely to
fail.
Planning must be based on felt needs. The objectives of the entrepreneur should fit the
needs of the people in a community. Such needs can be known through observations, personal
interviews and questionnaires.
Planning must be flexible. Resources, needs and economic conditions change. Planning
should be adjusted to such changes to be effective and relevant. For instance, fundamental
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changes in government policies require changes in planning the affected aspects of the business.
Likewise, planning should be responsive to the trends in consumer tastes and preferences.
Planning must start with simple projects. In the Philippines, many people are poor and
have no business experiences. The most appropriate project for them is micro business. This
requires very simple management and technology. It also needs simple and few resources in
terms of funds, materials and equipment. Such simple business enterprise has a greater
possibility of success. More importantly, it provides a good training experience for operating a
business. Later on, the operator can engage in bigger business projects as he acquires more
resources and management experiences.
Stages of Business Planning

Professor Philip Kotler, author of Marketing Management, said that there are four stages
of business planning. Business which have passed these stages are on their way to sophisticated
planning. Many enterprises are classified in each of these stages:
1. Unplanned stage. At the start of the business, the owner-manager is busy looking for
funds, customers, materials and equipment. He has no time for planning. His entire
attention is devoted to the daily operations of his business in his intense desire to survive.
2. Budgeting-System stage. Eventually, the owner-manager realizes the need to develop and
use a budgeting system. Estimated incomes from sales and expected expenditures are
made. This is done to facilitate the orderly functions of the growing enterprise.
3. Annual planning stage. The owner-manager drafts an annual plan. He can use either the
top-down planning or bottom-up planning. In top-down approach, the owner-manager
provides the goals and let the employees comply with them. In the case of the bottom-up
approach, he encourages his employees to participate in planning the goals and strategies
of the enterprise. The first approach in planning is autocratic while the other one is
democratic.
4. Strategic planning stage. As the business enterprise becomes bigger, a long-range
planning is needed. This is a three-or five-year plan. Such plan has flexibility to able to
adjust to changing conditions. An executive of the Xerox Corporation claims that some of
their plans are being revised every day of the year. At this stage, planning develops into a
more strategic character.
Criteria of Effective Planning

1. The plan should state clearly its objectives. Such clear statement is necessary so that
those who will be involved in the execution of the plan will understand, believe, accept
and support it.
2. The plan should provide measures for a satisfactory accomplishment of the objectives in
terms of quantity, quality, time and cost. These help in delegating responsibility and
measuring results.
3. The plan should state the policies which should guide people in attaining the objectives.
4. The plan should indicate what department or unit will be involved in accomplishing the
objectives. It may not spell out the procedures for performing the required work.
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5. The plan should indicate the time which should be allowed for each activity. It may be
necessary to establish a target data for completing the activity.
6. The plan should specify the required resources and their corresponding costs.
7. The plan should designate the officers who will be held accountable for the
accomplishment of the objectives. Sufficient authority should be delegated to such
officers/executives.
Components of Business Planning

1. SWOT. The chances of a product or service can be evaluated through the SWOT
analyses. This is explained in Chapter 6. Every product or service has its own strength,
weakness, opportunity and threat. Planning should include the improvement of the
product/service in order to survive competition.
2. Objectives. These should be specific and realistic. Such objectives can be daily, weekly,
monthly and yearly. For example, 10 percent increase in sales after 6 months of
operations. Environmental factors should be considered in formulating business
objectives. Peace and order, power supply and government policies affect business
activities.
3. Strategies. These are ways of accomplishing the objectives. Such ways are stated in the
financial, production, marketing and organizational plans of the enterprise. For instance,
in the objective of increasing sales by 10 percent after six months of operations, there are
several ways of attaining it. One way is to advertise the product. Another is to improve
customer relations. It can be also done by reducing the selling price, or a combination of
the three ways.
4. Time frame. In business, time is gold. For this reason, an entrepreneur must be efficient in
time management. Every activity has its own time schedule. Activities which are
completed on time save money. Here is a sample time schedule for a small business:
Activity Month
1 2 3 4 5 6 7 8 9 10 11 12
1. Market
analyses
2. Strategies
Organizational
Financial
Production
Marketing
3. Open business
4. Ten percent
sales increase
5. Purchase
equipment
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Characteristics of a Sound Business Plan

1. Objective
2. Clear
3. Logical and simple
4. Flexible
5. Stable
6. Complete and integrated
Obtaining the Facts for a Business Plan

Facts about the prospective business can be obtained from research surveys, governments
agencies, accountants, bankers and lawyers. Here are the questionnaires to get the necessary
data:
1. What is unique about my product/service?
2. Who are my competitors?
3. How will my customers buy?
4. What is my share in the market?
5. What is the market potential?
6. Who are my customers and where are they located?
7. Where will I put up my business?
8. How big should be my plant or place of business be?
9. What equipment will I need and what size?
10. How will I create customers?
11. What personnel do I need?
12. How will I organize my enterprise?
13. What kind of records do I need?
14. How much capital do I need?
15. How profitable will the business be?
16. How financially healthy will I be?
17. What is my break-even point?
Outline of a Business Plan

- Cover Sheet: Name of business, names of principals, address and phone number.
- Business Goals
- Strategies
- Table of Contents
Section One: The Business
A. Description of Business
B. Product/Service
C. Market
D. Location of Business
E. Competition
F. Management
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G. Personnel
H. Application and Expected Effect of Loan (if needed)
I. Summary
Section Two: Financial Data
A. Sources and Applications of Funding
B. Capital Equipment List
C. Balance Sheet
D. Break-Even Analysis
E. Income Projections (Profit and Loss Statements)
1. Five-year summary
2. Detail by month for first year
3. Detail by quarter for second, third, fourth and fifth years
4. Notes of explanation
F. Cash Flow Projection
1. Detail by month for first year
2. Detail by quarter for second, third, fourth and fifth years
3. Notes of explanation
G. Deviation Analysis
H. Historical Financial Reports for Existing Business
1. Balance sheets for past five years
2. Income statements for past five years
3. Tax returns
Section Three: Supporting Documents
Personal resumes, personal balance sheets, cost of living budget, credit reports, letters of
reference, job descriptions, letters of intent, copies of leases, contracts, legal documents, and
anything else relevant to the plan.
Steps in Business Planning

1. Evaluate your personal resources and interests, and the resources of the community.
- Do you have the necessary funds?
- Do you have the skills or management experience?
- Does the government provide financial and technical assistance?
- Are raw materials available?
- Are you interested in such business?
- Do you have good human relations?
2. Analyze you market.
- Is there a good demand for your product or service?
- How many competitors are there in the market?
- What is your estimated share in the market?
- Who are your customers?
- Are they interested in the existing product or service?
- Is it possible for you to offer a better quality or a lower price?
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- Is there a reasonable profit?

3. Choose a proper business location.
- Is it near your prospective customers?
- Are there facilities like electricity, water, transportation and communication?
- Is the place clean, decent and peaceful?
- Do you have good alternatives in case the best location is expensive?
- Is it accessible to raw materials and other supplies?
4. Prepare a financial plan.
- What are your objectives?
- How much money do you need?
- How will you spend the money?
- Where will you get the money?
- What are your expenses?
- How soon can you recover your money or investment?
5. Prepare a production plan.
- Is it more economical to rent or buy a production equipment?
- Can you ensure or improve your product design or quality?
- Can your production facilities meet demand?
- Do you have inventory control?
- Do you have proper scheduling of production?
6. Prepare an organization plan.
- What type of business organization is most suitable?
- Do you know the corresponding laws, policies and requirements of your business
organization?
- Are you aware of the advantages and disadvantages of each type of business organization?
- Who will be the officers and employees of your enterprises? What are their duties and
responsibilities?
7. Prepare a management plan.
- What are your goals and objectives?
- Do you have business policies for your customers?
- Do you have human resources development for your employees?
- What is your program of social responsibility?
The Importance of Business Planning

Putting up a business is not a game of chance. It is not a win or loss activity. However,
there are always risks in business. Some of these can be avoided. Others cannot be avoided like
natural calamities, but their effects can be minimized.
Planning can eliminate business risks because it carefully studies the competence,
interest and resources of the entrepreneur against the needs of consumers, together with the
presence of competitors. Through marketing research or feasibility study, the entrepreneur can
determine whether it is profitable to set up a certain kind of business or not.
Planning can minimize costs of production. The resources of production such as money,
materials, machines and manpower are properly used and scheduled according to plan. The
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entrepreneur monitors and controls every aspect of the business operations to prevent
unnecessary wastes. This results to economy and efficiency. Without planning, production inputs
are wasted more often than not
Planning can detect the weakness of the business operations. In planning goals and
objectives are formulated. Alternative strategies are designed on how to attain the objectives and
goals. The various resources or inputs are also indicated to support the strategies. If the goals and
objectives have not been accomplished according to the time frame, there is something wrong
with the operation. The entrepreneur can then reevaluate his planning.
Successful planning is highly dependent on adequate and accurate information. This is
much needed in knowing the needs of consumers, and the strengths and weakness of
competitors. Such data give the entrepreneur the ability to make the right goals and effective
strategies. In addition, any entrepreneur who follows the principles of planning is most likely to
succeed in his business.
Posttest
1. Which of the following importance of business planning that talks about the resources of
production such as money, materials, machines and manpower are properly used and
scheduled according to plan?
a. Planning can minimize costs of production.
b. Planning can eliminate business risks
c. Planning can detect the weakness of the business operations
2. What question must be answered when preparing a production plan?
a. What are your objectives?
b. Can you ensure or improve your product design or quality?
c. Is it near your prospective customers?
d. Who are your customers?
3. Which of the following is NOT considered as part of the Financial Data?
a. Balance Sheet
b. Break-Even Analysis
c. Description of Business
d. Sources and Applications of Funding
4. What supporting documents should you attach in business plan?
a. Personal resumes
b. Personal balance sheets
c. Cost of living budget
d. All of the above
5. What analyses should be conducted in order to know the product or service strength,
weakness, opportunity and threat?
a. Break-Even Analysis
b. SWOT
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c. Business plan
d. Balance Sheet
References
https://www.thebalancesmb.com/business-planning-definition-2947994
https://www.investopedia.com/terms/b/business-plan.asp
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TARLAC STATE UNIVERSITY

College of Teacher Education
SELF-LEARNING MODULES
FINAL TERM CONTENT
ENTREPRENEURSHIP
TEC 103
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Chapter 5 – Organizing the Enterprise

When one starts to organize a business enterprise, it is presumed that he has conducted a
feasibility or market study. That is, he knows his resources, the needs of the community, the
strengths of his competitors, and so forth.
However, what counts most is the personal characteristics of the entrepreneur. Hardwork,
determination, creativity, enthusiasm and human relations can make the difference between
success and failure. Many successful businessmen started from scratch. Now, they are
millionaires. Some of them have not even acquired college education. We have this kind of
entrepreneurs in our own communities.
In organizing an enterprise, there are several types of business organizations to choose
from. These are the sole or single proprietorship, partnership and cooperation. The cooperative is
also considered a business organization, although its basic motive is service to the members and
the community.
In view of the importance of cooperatives to the poor, this chapter has allocated a
substantial portion to such topic. This is also in line with the policy of the government of
promoting the organization of cooperatives as a means of reducing poverty. This chapter
explains the reasons for going to business, types of business organizations, organizational
structure, and how to reduce the risks of starting a business among others.
1. Explain the reasons for going to business.
2. Enumerate types of business organizations and structure.
3. Discuss how to reduce the risks of starting a business.
Pretest
1. What is the reason, why some entrepreneurs enjoy challenges and risk-taking ventures?
a. Family involvement.
b. Independence and power.
c. Personal satisfaction.
d. Social activities.
2. What does Independence and power mean for an entrepreneur?
a. They feel it is their responsibility to continue the business of their parents, especially
if it is profitable.
b. They love to make their own decisions and implement them.
c. They love social activities.
3. Which of the following questions is NOT necessary when testing an information about
your customers?
a. Do people need a store like yours?
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b. Who are your customers?

c. Do people like to live in the place where you intend to put up your business?
d. Do you need a partner who has the money and skills?
4. It is a group of two or more persons who work together to attain a common set of goals.
a. Partnership
b. Cooperative
c. Club
d. Organization
5. Which of the following is NOT considered as an advantage of a single proprietorship?
a. Independence and flexibility.
b. Ease and low cost of formation and dissolution.
c. Retention of all profits.
Content
The Levi’s Story
More than one hundred years ago, a young man from Bavaria went to the United States
as an immigrant. His objective was to seek his fortune. Little success at first encouraged him to
return to his country. But he decided to try prospecting for gold in California. At that time al
roads led to California. Likewise, luck was not for him as a gold prospector.
However, the young man recognized the needs of his fellow gold prospections for sturdy
and durable work pants. Exploiting his talent for tailoring and using his last money, he put up his
tailoring shop. Over the years his business prospered. Until it became transnational in operations.
The name of the young immigrants is Levi Strauss.
He did not discover gold in California. But just the same he acquired something worth
more than gold. The Levi Strauss and Company has become the largest apparel company in the
world. Famous chain stores throughout the world sell Levi’s jeans. Annual sales have been
recorded at $3 billion.
Why do you Go to Business?

Even if you have plenty of money, going to business is not as easy and as simple as it
seems. You should first evaluate your interest, experiences, skills and the community needs. For
instance, are you good in human relations? Do you have social contacts? Were you in business
before? Is your health fit for business? Is there a good market for your projected service or
product?
Aside from positive personal qualities as an entrepreneur, good planning and preparation
are essential in setting up and enterprise. Of course money and other valuable resources are
needed in business. But without proper planning and adequate preparation, such resources may
disappear. Such loss is unfortunate and unnecessary since it can be prevented.
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Putting up a business enterprise is an investment. As such it should take into serious

consideration the criteria of good investment, like safety of the capital, stability of income and
possibility of growth. Business is not really very risky – like speculation or gambling – if it is
well studied, planned and managed.
Here are the reasons why people go to business:
1. Personal satisfaction. They enjoy challenges and risk-taking ventures. Their business
success gives them a sense of fulfillment.
2. Family involvement. They feel it is their responsibility to continue the business of their
parents, especially if it is profitable. In our country, many of business enterprises are
family-owned, such as the Concepcion Industries, National Book Store, Soriano Group of
Companies, and others, particularly small enterprises.
3. Independence and power. They want to be the boss. They love to make their own
decisions and implement them. If they are employees, they are obliged to follow policies,
report on time, and finish their work according to schedule. Some people are not happy
with such kind of life. They prefer independence, power, fame and fortune.
4. Social activities. There are people who are really born socializers. They love social
activities. Such extroverted personalities are good for business. They take advantage of
their social contracts to promote their business interest.
5. Profit expectation. Some individuals are greatly motivated by profit or the chance to
amass wealth. Thus, they go to business. This is the best way for them to become rich. In
our country, most employees remain poor throughout their lives. On the other hand, those
who are engaged even in small enterprises become prosperous. This is the reason why the
government has been encouraging the people to be entrepreneurs instead of job seekers.
Checklist for Going to Business

Here is a test on your probable success in starting your business:
1. About you
- Why do you want to put up your own business?
- Do you have experience in the business you like to start?
- Did you work before as a manager?
- Do you have a business training?
- Do you have money for your business?
2. About capital
- Do you know how much money you need for your business?
- Do you know how much credit you can get from your suppliers?
- Do you know where to borrow in case your funds are not enough?
- Do you have an estimate of your net income per year?
3. About a partner
- Do you need a partner who has the money and skills?
- Do you know the positive and negative points in choosing single proprietorship,
partnership or corporation?
- Have you consulted an expert?
4. About your customers
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- Who are your customers?

- Do people need a store like yours?
- Do people like to live in the place where you intend to put up your business?
5. About your qualities
- Are you a self-starter?
- How do you feel about other people?
- Can you lead others?
- Can you make decisions?
- Can you take responsibility?
- Are you good in planning and organizing?
- Can people trust what you say?
- Are you hardworking?
- Is your health good?
What is an Organization?
An organization is a group of two or more persons who work together to attain a common
set of goals. A sari-sari store owned and managed by a family is an organization. In the same
manner, San Miguel Corporation is an organization. A credit cooperative is also an organization.
Organizing is a process of combining and coordinating resources and activities in order to
accomplish efficiently and effectively certain objectives. However, organizing has more
important role. This is the proper development of human resources. The best resources of the
organization are its employees – not money, machines, materials or buildings. Hence, the
entrepreneur must hire the best and the brightest, and then further develop them in line with the
philosophy of the organization.
Here is an inscription on the tombstone of Andrew Carnegie, who successfully built a
business empire:
Here lies a man
Who knew how to enlist
In his service
Better men than himself.
Organizational Structure
Every organization has a structure which indicates positions and relationships. These are
shown by an organizational chart. Of course in micro business like a sari-sari store or a backyard
piggery and poultry, positions and relationships are very few. In small business enterprises, we
have only the owner-manager, supervisor, book-keeper and the sales staff or workers. In the case
of big corporations, they have several layers of management. For instance, they have the board of
directors, president, executive vice president, several vice presidents, assistant vice presidents,
and many managers and supervisors.
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Here is an example of a simple organizational chart:
Manager-Owner
Office Supervisor Sales Supervisor
Accountant Clerk Messenger Salesman Salesman Salesman
Choosing the Form of Business Organization

In 1976 two young engineers worked together on an idea for a small computer for
personal use. Steven Jobs, then 21, and Stephen Wozniah, then 26, spent 6 months designing a
model and 40 hours building it. Their idea became a reality. Soon they had an order for 50 of
their personal computers.
With such order, the two engineers were practically in business. But they had no
resources. To solve the problems, Jobs and Wozniah became workers. They used the garage of
Jobs as their production site. To finance their business, they sold a second-hand Volkswagen van
and a programmable calculator for $1,350.
So, they were ready for starting their business. They named their business enterprise.
Apple Computer. The following year, 1977, the enterprise became a corporation. In 1980 and
1981, shares of common stock were sold to the public. It only six years, Apple Computer grew
from a two-man operation into an international corporation with more than 4,000 employees and
with more than $1 billion annual sales.
Forms of Business Organization
There are three most common forms of business organization in a capitalist economy.
These are the sole or single proprietorship, partnership and corporation. However, there are other
forms of business organizations, such as the cooperative, joint venture and syndicate. This
chapter presents only the three most common forms, together with cooperative. Many successful
firms started from single proprietorship until they became corporations.
Single proprietorship. This is a form of business organization that is owned and usually
managed by one person. It is the oldest and simplest form of business ownership. It is also the
easiest to start. Most of our business are in the form of single proprietorship. They dominate the
retailing, agriculture and service industries.
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The advantages of a single proprietorship are:

1. Ease and low cost of formation and dissolution. It is easy and cheap to start and it is also
easy and cheap to dissolve. It requires small capital and there are no legal papers needed.
Usually, only a license from the Department of Trade and Industry and a business permit
from the city/municipal government are required. On the other hand, if such form of
business organization decides to close its operations, there are no procedures to comply
with. The owner has of course the obligation to pay his creditors.
2. Retention of all profits. All profits belong to the owner of the business. This is the
greatest incentive or reward to the entrepreneur. This is the reason why many
entrepreneurs prefer the sole proprietorship.
3. Independence and flexibility. The owner is the boss. He makes his own decisions and
implements them in accordance with his will or wish. For instance, the owner can change
his business hours, his products or prices. He can also change his style of management.
4. Tax advantage and less government regulation. The owner does not pay several kinds of
taxes. Usually, his earnings are taxed as personal income tax. Likewise, the government
has very minimal regulation and supervision over a single proprietorship. The owners
deal with the government when they pay their business licenses, permits and taxes.
The disadvantages are:
1. Unlimited liability. This is the other side of profit. In case the business fails, the owner
assumes all the financial obligations. All his personal properties, including savings,
could be seized and sold to pay creditors.
2. Lack of stability. If the owner dies, it is the end of the business. However, members of
the family or close relatives can continue the business. This happens only if such
relatives are interested and the business is profitable.
3. Limited access to credit. Banks and other financial institutions are usually not willing to
lend large amounts of money to single proprietorships. Assets of owners are generally
small to be used as security or collateral. Such disadvantage prevents owners from
expanding their business operations.
4. Limited business skills and knowledge. In many cases the owner is the manager,
salesman, bookkeeper, messenger and janitor. There is no specialization.
Partnership. It is an association of two or more persons who act as co-owners of a business.

Each partner contributes money, property or service to their organization. Most partnerships have
two partners. They are usually engaged in accounting, law, advertising, real estate and retailing.
There two types of partners: general partners and limited partners. The liability of a general
partner extends up to his personal properties while a limited partner is only liable to the extent of
his contribution to business. In our country, we have also the capitalist partner and the industrial
partner. The former contributes money while the latter provides service or management.
The advantages of partnership are:
1. Easy to organize. Like single proprietorship, a partnership is relatively easy to form,
much easier than a corporation. The legal requirements include articles and by-laws of
partnership to be submitted to the Security and Exchange Commission, verification of
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business name with SEC, registration of business name with the Bureau of Commerce,
registration with the Bureau of Internal Revenue for a TIN (tax information number),
business permit from the city/municipal hall, and registration of employees with SSS.
2. Availability of more capital and credit. Partners can pool their resources – properties,
equipment and others – and can also use these for security in obtaining bank loans.
Suppliers are willing to extend more credit to a partnership than to a single
proprietorship.
3. Retention of profits. Just like in the sole proprietorship, the partners get all the profits of
their business. This stimulates the partners to improve their operations.
4. Better business skills and knowledge. Each partner contributes his skills and knowledge
to the organization. Such combination provides better management in terms of planning,
decision making and implementation, compared with a single proprietorship.
The disadvantages:
1. Unlimited liability – Each general partner is personally responsible for all the debts of
the business. Even the personal property of a general partner can be taken to pay
creditors. However, in the case of a limited partner, only his investment is subject to
risk.
2. Lack of stability. A partnership is terminated in case of the death, withdrawal or
legally declared insanity of anyone of the general partners.
3. Management disagreement. It is true that two or more heads are better than one. But
if they do not work in unity, conflicts arise. Suspicion or distrust may crop op among
the partners. Such negative attitudes and unfair practices are likely to happen among
Filipino partners. It is a common knowledge that capitalists get experienced partners,
However, as soon as the capitalists learn how to operate the business, they kick out
their industrial partners.
4. Idle investment. It is quite easy to invest money in partnership. But sometimes it is
difficult to get it out. For example, when a partner decides to leave the organization,
his remaining partners may not but his share. Such problem can be eliminated if it is
provided for in the articles of partnership that the remaining partners buy the shares of
partners who are leaving the enterprise. Another option is for the leaving partner to
look for an outsider to buy his share. This is possible if the business is lucrative.
Corporation. It is an artificial being created by operation of law, having the right of

succession, and the powers, attributes and properties expressed authorized by law or incident to
its existence. United States Chief Justice Marshall defined corporation in his famous 1819
decisions as “an artificial being invisible, tangible and existing only in contemplation of the
law.”
The shares or certificates of ownership of a corporation are called stocks. The owners of
stocks are called stockholders or shareholders. There are two types of corporations: private or
close corporation and open corporation. The first one is owned by a few individuals, usually
relatives and friends. The other one is owned by any individual who buys shares of stock which
are openly traded in the stock markets.
The advantages of a corporation are:
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1. Limited liability. The liability of a stockholder is only up to his shares of stock. In case
the corporation becomes a failure, creditors can only lay their claims on the assets of the
corporation, not on the personal assets of the stockholders.
2. Easy to raise capital. Aside from bank loans, a corporation can sell shares of stock to the
public for additional funds. Individuals are more willing to invest in a corporation due to
limited liability, and they can sell their shares of stock.
3. Perpetual life. The life of a corporation does not end with the withdrawal or death of key
owners. It can exist for 50 years and is subject to renewal.
4. Specialized management. A corporation can hire professional managers and specialists. It
has the funds to develop its human resources.
The disadvantages of a corporation are:

1. Difficult to organize. It is difficult and quite expensive to organize a corporation.
Sometimes, it requires the services of a lawyer and are accountant to prepare the legal
forms and financial documents. The legal requirements include submission of articles of
incorporation and bylaws to SEC, registration with SSS, BIR and DOLE, and acquisition
of a business permit from the city/municipal hall and a license from the DTI. Depending
on the products of the corporation, it also has to get approval from other agencies like
Central Bank, Bureau of Fisheries and Aquatic Resources, Food and Drug Admission, or
Bureau of Animal Industry.
2. Strictly regulated and supervised by the government. Government regulation and
supervision on corporations are closest compared with the other forms of business
organizations. Corporations have to comply with government laws, policies and
regulations. They have to submit their financial reports every year to concerned
government agencies.
3. Some corporations are socially irresponsible. They sell worthless securities (stocks and
bonds), they pollute the environment and sell substandard goods.
4. Formal and impersonal employer-employee relationship. A corporation has several
layers of management. The president and board directors seldom or do not associate with
the workers or clerks of the corporation. Nevertheless, there are few corporations which
strive to maintain a small business atmosphere in order to sustain camaraderie in the
organization.
The Cooperative: An Enterprise for the Poor

The Cooperative Code defines a cooperative as a duly registered association of persons,
with a common bond of interest, who have voluntarily joined together to achieve a lawful
common social or economic end, making equitable contributions to the capital required and
accepting a fair share of the risks and benefits of the undertaking in accordance with the
universally accepted principles of cooperation, which include the following:
1. Open and voluntary membership
2. Democratic control
3. Limited interest on capital
4. Division of net surplus
5. Cooperative education
6. Cooperation with other cooperatives
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Objectives of cooperatives
1. To encourage thrift and savings among the members.
2. To generate funds and extend credit to the members for productive and provident
purposes.
3. To encourage among members systematic production and marketing.
4. To provide goods and services and other requirements to the members.
5. To develop expertise and skills among its members.
6. To acquire lands and provide housing benefits for the members.
7. To promote and advance the economic, social and educational status of the members.
8. To establish, own, lease or operate cooperative banks, cooperative wholesale and retail
complexes, insurance and agricultural/industrial processing enterprises, and public
markets.
Types of cooperatives
1. Credit cooperative. Promotes thrift among its members and create funds in order to grant
loans for productive and provident purposes.
2. Consumers cooperative. Procures and distributes commodities to its members and non-
members.
3. Producers cooperative. Undertake joint production in agriculture and industry.
4. Marketing cooperative. Engages in the supply of production inputs to members and
markets their products.
5. Service cooperative. Undertakes medical and dental care, hospitalization, transportation,
insurance, housing, labor, electric light and power, communication and other services.
6. Multipurpose cooperative. Combines two or more of the business activities of the
different types of cooperative.
Organizing a cooperative
For membership, there should be a minimum of 15 natural persons. They should be
citizens of the Philippines who are residing or working in the intended area of operation of the
cooperative. However, before organizing a cooperative, the Core Group (leaders) should first
study the following factors:
- Felt need
- Volume and business
- Availability of qualified officers
- Adequacy of facilities
- Opportunities for growth
If the aforementioned factors are not favorable, it is not advisable to organize a
cooperative. To determine the viability of a proposed cooperative, the Cooperative Development
Authority requires the submission of an economic survey. This includes the economic, technical,
financial and management aspects of the projected cooperative.
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Requirements for registration

The Board of Directors with the assistance of the members of the Documents Committee
shall prepare all the documents necessary for the registration of the cooperative. Such documents
shall be submitted to the Cooperative Development Authority:
- Four copies of economic survey with a general statement describing the:
a. Structure
b. Purpose
c. Economic feasibility
d. Area of operation
e. Size of membership
f. Other pertinent data
- Four copies of Articles of Cooperation, together with bond of accountable officers.
- Four copies of Bylaws.
- Registration fee payable to Cooperative Development Authority.
The Dimension of Organizational Structure

The task of organizing an enterprise involves five major steps. The results of these steps
are often referred to as the dimensions of organizational structure. These steps are:
1. Divide the work of the organization into separate parts. Assign these parts to positions
within the organization. This is called job design. The result is specialization.
2. Group the various positions into manageable units. This is departmentalization of the
organization.
3. Distribute the responsibility and authority within the organization. The result is
centralization of the organization.
4. Determine the number of subordinates who will report to each manager. This is called
span of management.
5. Distinguish between those positions with direct authority and those that are support
positions. This is the chain of command.
Departmentalization
Jobs must be grouped into working units in line with the goals of the organization. The
common bases of departmentalization are by:
1. Function. All jobs that pertain to the same activity are grouped.
2. Product. All activities related to a particular product or product group are put together.
3. Location. Activities are grouped based on a particular geographic area.
4. Customer. Grouping of activities in accordance to the needs of various customers.
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Decentralization of Authority
The extend of distribution of power from management to subordinates determines
whether an organization is centralized or decentralized. When a part of a manager’s work and
power is assigned to a subordinate, this is called delegation. The latter involves the granting of
responsibility, authority and accountability. Responsibility is a duty to the job. Authority is the
power to do the job. Accountability is an obligation to do the job.
These is decentralization of authority when authority is widely spread in the lower levels
of the organization. On the other hand, if authority is concentrated at the upper levels, there is
centralization of authority. There are several factors which require decentralization of the
enterprise. One is the external environment of the enterprise. If it is complex and unpredictable,
lower management should be allowed to make the decisions. Another is if the decisions are not
risky, then it can be delegated to the lower levels of management. Also, if the lower level-
management is competent in decision making skills, top management is encouraged to
decentralize authority.
Line and Staff Authority

Authority passes from the highest level to the lowest level. This is called line of
authority. The vice president reports directly to the president. The managers report directly to the
vice president. The supervisors report directly to the managers. There is a direct responsibility in
line authority.
In the case of staff officers are needed for the efficient operations of the enterprise. The
line managers make the decisions while the staff managers assist in the making of decisions.
However, in some cases staff managers can make decisions and can issue directives. For
instance, a legal adviser in a marketing department can decide the nature of the contract. But he
cannot change the price of a product.
Line and Staff Positions
President
Consultant
Vice President
Legal
Adviser
Marketing Manager Production Manager Finance Manager
line authority
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Staff authority
Entrepreneurial Considerations
1. Financial. The entrepreneur must be knowledgeable about the financial aspects of
business decisions. He must be able to know the following: what expenses to be incurred,
how much capital to be needed, and how much profit to get to sustain the business and
the owner.
2. Marketing. The entrepreneur must be well versed on the 4Ps of marketing: product,
pricing, place and promotion. The entrepreneur must have the right product to satisfy the
needs of consumers. But this is only the starting point. Such product must also have the
right price, the proper promotion, and the appropriate place it can be sold.
3. Managerial skills. These are vital to the growth and success of the enterprise. The
entrepreneur must be able to identify the strengths and weaknesses of his personnel. He
should be able to develop fully their managerial skills.
4. Overall personal decision-making process. The entrepreneur should have a thorough
evaluation of what is to be attained by going into business, and what human and financial
resources are available and necessary. However, it is more important to possess
determination and optimism. Going to business is a personal as well as a family
commitment.
Put Up a New Enterprise or Buy?

Which is better to buy an existing firm or start a new one? Here are some advantages of
buying an established business:
1. It saves time, cost and effort of looking for a location.
2. It has existing customers.
3. Uncertainties regarding physical facilities, inventory requirements and personnel needs
are reduced. The owner of the existing enterprise can share the benefits of his experience
in the business and the community.
4. It may be available at a bargain price or cheap price due to quick sale.
On the other hand, buying an existing business enterprise has some disadvantages, such as:
1. Location may no longer be convenient to customers caused by parking problems,
deterioration of neighborhood, change in pedestrian and traffic flows, among other
things.
2. Present owner/business may have a bad image in the community. Under such situation,
the buyer of the existing enterprise may face difficulties with customers and suppliers.
3. Physical facilities may be outmoded which require expensive repairs or renovations.
4. Inventory may be obsolete and of poor quality.
5. The price of the existing business may be too high.
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Evaluating an existing enterprise

Purchasing an existing business enterprise requires a complete survey and thorough
analyses. It may be losing or may have some legal problems. Do not take the words of the owner.
The prospective buyer should make inquiries from employees, customers, suppliers, competitors
and banks. Here are some areas to evaluate:
1. Reasons for selling
- Retirement
- Illness
- Employment
- Opportunities somewhere
- Going abroad
- Financial problems
2. Earning power
- Profitability of the firm
- Financial statement for the last five years
3. Other factors
- Demand for the firm’s products/services
- Number of competitors
- Future trend of the industry
- Present location of the business
Steps in Starting a New Business

1. Plan the business
2. Select the appropriate form of business organization
3. Scout for reasonable credit/financing
4. Choose a good location
5. Secure licenses/permits for the business operation
6. Set up records for financial, physical and personnel resources
7. Insure the business if necessary
8. Promote the business
9. Manage the business
10. Do your social responsibility
Posttest
1. What does Unlimited liability mean?
a. In case the business fails, the owner assumes all the financial obligations.
b. If the owner dies, it is the end of the business.
c. Assets of owners are generally small to be used as security or collateral.
d. There is no specialization.
2. It is an association of two or more persons who act as co-owners of a business.
a. Organization
b. Partnership
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c. Cooperative
d. Sole proprietorship
3. Which of the following is an advantage of Partnership?
a. Unlimited liability
b. Management disagreement
c. Idle investment
d. Availability of more capital and credit
4. It is an artificial being created by operation of law, having the right of succession, and the
powers, attributes and properties expressed authorized by law or incident to its existence.
a. Corporation
b. Partnership
c. Organization
5. This type of cooperative promotes thrift among its members and create funds in order to
grant loans for productive and provident purposes.
a. Consumers cooperative
b. Credit cooperative
c. Marketing cooperative
d. Multipurpose cooperative
References
https://www.shopify.com/encyclopedia/enterprise
https://www.merriam-webster.com/dictionary/enterprise
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Chapter 6 – Managing the Enterprise

All business organizations have resources and goals. Resources require proper allocation
and efficient use. Goals must be effectively achieved. These and many more can made possible
through good and just management.
Without efficient and effective management, a business organization cannot survive.
Such kind of management is more needed in a very competitive market. It is survival of the
fittest, and the fittest is one that has the best management.
Peter Drucker, a world-class management consultant, said that the first function of a
business enterprise is economic performance. This is measure in terms of profit. Such economic
success means development and growth for the enterprise. Without profit a business organization
cannot sustain its existence.
Several topics are discussed in this chapter, such as functions of management, kinds of
managers and characteristics of successful management. Furthermore, the various theories of
management are explained.
1. Discuss the functions of management.
2. Enumerate the kinds of managers and characteristics of successful management.
3. Explain the various theories of management.
Pretest
1. It is a process by which a cooperative group directs actions towards common goals.
a. Cooperation
b. Management
c. Administration
2. These are tangible, physical resources which are used for production.
a. Human resources
b. Financial resources
c. Material resources
d. Informational resources
3. These are the most important resources.
a. Human resources
b. Financial resources
c. Material resources
d. Informational resources
4. Which of the following functions of management refers to the resources and activities of
the enterprise must be grouped in such way as to ensure efficiency and economy?
a. Establish goals of the enterprise and develop plans to attain goals.
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b. Organize people and other resources to achieve goals.

c. Maintain sufficient control system to ensure that the enterprise is moving well
towards its goals.
d. Lead and motivate people towards the goals of enterprise.
5. This is the ability to relate well with people is certainly a plus factor in business.
a. Diagnostic skills.
b. Conceptual skills.
c. Interpersonal skills.
d. Analytic skills.
Content
The International Harvester Story
In 1982, International Harvester experienced huge losses of almost $1.7 billion. Even the
price of its shares of stock plunged from $45 per share to $3 per share in 1979. From all
indications, the company was marked for economic death. Believe it or not, after one-year
International Harvester was back on its feet, and the company survived. Such economic miracle
due to wise and effective management.
International Harvester became famous for its agricultural trucks and farm equipment.
These were the only products the company produced. Such narrow are of business proved to be a
great disadvantage to the company. In the 1980s, times became hard for the American farmers.
This of course had direct and deep impact on International Harvester. Sales for farm equipment
greatly declined.
Donald Lennox, a senior vice president of Xerox Corporation was recruited to head the
International Harvester. He developed a plan to restore the economic health of the dying
company. The core of such plan was a major cost-reduction program. Several inefficient plants
were closed. Two thirds of the personnel were laid off. Some subsidiaries were sold. As a result,
operating costs were reduced by $1 billion. By late 1983, International harvester became healthy
again. However, Lennox was not yet without management problems. International Harvester’s
operations in Europe were still shambles. And it was still paying off some $3.5 billion debts. In
addition, its workers demanded for the restoration of their benefits which they had given up to
help the company in its economic recovery program.
Management Defined
There are many definitions of management. Joseph Massie, author of Essentials of
Management, defines management as a process by which a cooperative group directs actions
towards common goals. From the economist point of view, management is one of the factors of
production, together with land, labor and capital. Viewed by a sociologist, management is a class
and status system which requires an elite of intelligence and education.
Robert Hughes, author of Business, defines management as the process of coordinating
the resources of the organization in order to achieve its primary goals. Clearly, this is also the job
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of the entrepreneur. Most organizations depend on four kinds of resources: material, human,
financial and informational.
Management is both an art and a science. It is an art because management requires skills
or techniques in dealing with people in order to get things done or to achieve organizational
goals. Such art is mostly not in textbooks. It is simply an individual style of management in
response to particular situations. In the case of management as a science, it uses an organized,
clear and pertinent knowledge. Management is systematic and uses scientific methods of solving
business problems.
Production Resources
Material resources. These are tangible, physical resources which are used for production.
In industry, producers use steel, cement, glass, machines and equipment. In agriculture, farmers
use fertilizers, seeds, machines, tools and pesticides. In schools, they use books, chairs, rooms,
laboratories and other physical facilities.
Financial resources. These are funds. Business organizations need these for various
purposes. With sufficient funds, business organizations can implement their projects.
Human resources. These are the most important resources. It is the people who plan and
implement business activities. In view of the great importance of people, progressive
corporations stress human resource development through education and training of their
employees.
Informational resources. Correct and complete information is vital to the success of any
business organization. Without information, it is impossible to formulate good plans and
programs. Especially in decision-making, facts are very important. The entrepreneur must know
the needs of his customers, the strategies of his business rivals, technological developments, and
business policies of the government.
The Role of Management

In the Philippines, these is an abundance of human resources. We have also rich natural
resources. Such abundant human resources have remained idle and underemployed. In the case
of our natural resources, many have not been utilized for production. Unfortunately, it is the
foreigners who have been given the opportunities to exploit our cheap human and natural
resources. Their money and technology have provided them a natural advantage.
The private sector remains to be the engine of economic development. This is the
fundamental policy of the national government. In economics, it is always best to use the more
abundant resources for production. The role of management, therefore, should be to give top
priority to labor-intensive projects. These utilizes more labor and natural resources. Thus, our
idle labor force and underutilized natural resources will be productive.
The role of busines management should not only to maximize profits for its stockholders,
but also to help jobless. Our country has millions of jobless people. Such very precious human
resources constitute an enormous economic waste if they are not used in the production of goods
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and services. It is the social responsibility of management to employ such resources for the good
of the economy and society.
Basic Function of Management

1. Establish goals of the enterprise and develop plans to attain goals. Common to all
business organizations is the pursuit of profit. They may vary in strategies of achieving or
maximizing profits.
2. Organize people and other resources to achieve goals. Resources and activities of the
enterprise must be grouped in such way as to ensure efficiency and economy.
3. Lead and motivate people towards the goals of enterprise. The entrepreneur must be a
good leader and effective motivator. He must be able to stimulate his employees to give
their peak performance for the best interest of the enterprise.
4. Maintain sufficient control system to ensure that the enterprise is moving well towards its
goals. The entrepreneur must evaluate and regulate current activities to make sure that
goals are realized. In case activities are not on schedule or out of line, then corrective
actions can be done.
Characteristics of Successful Managers

Efficient and effective managers possess skills that are vital in performing their functions.
However, such skills are only productive if these are used properly. Here are the key
management skills:
1. Technical skills. Lower-level managers need technical skills. Although their subordinates
perform the technical job, they are better managers if they know the technical aspects of
the job. Even top-level familiar with the technical side of the job.
2. Conceptual skills. Concepts make a big difference between success and failure of a
business. The person who can conceptualize the future of a business is in a better position
to introduce innovations for business success. In fact, business opportunities are the
products of ideas or dreams. The one who conceptualized the paper clip became rich. A
gambler transformed a desert into an empire of wealth and pleasure. This former desert is
now the famous Las Vegas.
3. Interpersonal skills. The ability to relate well with people is certainly a plus factor in
business. An entrepreneur who understands the needs and motives of individuals, and
shows compassion and sincerity, is more likely to be successful, People are the most
important assets of an organization. Therefore, they should be treated with dignity.
4. Diagnostic skills. An entrepreneur or manager must be able to identify and evaluate the
problems of the enterprise. Such skills are needed to correct or prevent situations from
getting worse. A manager who can prevent problems from taking place is much better
than one who can solve problems.
5. Analytic skills. Analyses are essential in all aspects of the business operations. For
instances, analyses are needed in the formulation of goals and strategies. Such skills are
also needed in problem-solving and decision-making process.
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Management By Objectives (MBO)

The story of three stone cutters shows the real manager among them. They were asked
what they were doing. One stone cutter said, “I am making a living.” The other one answered “I
am doing the best stone-cutting in the entire country.” The third stone cutter said with a proud
voice “I am building a cathedral.” The last one, obviously, is the true manager. He has a vision
and considers himself part of the team.
Management by objective is based on teamwork and team results, according to Peter
Drucker. All members of the organization focus their efforts on the attainment of a common goal
of the organization. Each subordinate manager formulates his own objective in relation to the
objective of top management. Since all managers are all participants, they feel more receptive in
implementing the objective.
Each job in the organization contributes directly or indirectly to the objectives of the
organization. However, such contributions must be realistic and measurable. If not, these must be
corrected or lowered by team decision. For instance, the objective of the organization is to
increase sales by 10 percent. All units or sections of the organization should work together in
order to reach the objective. In the case of the three stone cutters, they should have one objective:
the building of the cathedral.
Theories of Management
Many years ago, entrepreneurs or managers applied only two ways of increasing
productivity of employees. One was the increase of five cents per hour of work and the other one
was removing unproductive workers. However, in our modern world, most managers have
learned better techniques of motivating employees to work more efficiently. Treating workers as
human beings – not as machines – they become more efficient. Here are some theories which
explain the factors that the responsible for employee efficiency:
1. Scientific management of Taylor. In early 1800, Frederich Taylor became interested in
improving efficiency of workers based on his bitter personal experiences as an employee
of manufacturing plants. He suggested that each job should be broken down into separate
tasks. Then management should determine the best way to perform such tasks, and the
job output to expect. Next, management should get the best person for each job and train
him to do the job properly. Finally, management should cooperate with workers to make
sure that jobs are done as planned. Taylor claimed that most people work only to earn
money. This paved the way for the emergence of the piece-rate system. Because of his
contributions to management. Taylor became the “father of scientific management.”
2. The Hawthorne Studies of Elton Mayo. Three experiments were conducted in 1927-1932
by Elton Mayo at the Hawthorne plant of Western Electric Company in Chicago. The
original objective of the experiment was to determine the effect of environment on
productivity. The first experiment was to determine the effect of lighting on productivity.
Lighting was varied in the workplace of one group, but not in the other group.
Surprisingly, both groups increased their productivity. The second experiment was to
determine the effectiveness of the piece-rate system. It was expected that faster workers
could pressure slower workers to produce more. But productivity did not change.
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The researchers conclude that human factors were responsible for the results of
the two experiments. In the lighting experiment, workers have a sense of involvement
being participants in the research. This made them feel that they are important part of the
organization. In the piece-rate experiment, the workers set the acceptable productivity for
them. As a matter of social acceptance, faster or slower workers were pressured to
support the group’s pace.
The Hawthorne Studies proved that human factors are as important as pay rates as
far as motivation is concerned. Subsequently, other studies were conducted. They
concluded that employees who are happy and satisfied in their work can be motivated to
perform better. So, management should provide a favorable environment to maximize
satisfaction of workers or employees.
3. Theory X and Theory Y of McGregor. These were explained in his book The Human Side
of Enterprise. Theory X assumes that workers dislike work. So, managers should force
them to attain the goals of enterprise. The managers make all the decisions while the
workers just take orders. In the case of Theory Y, it assumes that work is an important
part of the lives of people; that people are responsible and therefore committed to the
goals of the enterprise if these provide them personal rewards; and that enterprises do not,
in general, fully use their human resources. McGregor claimed that most managers act in
accordance with Theory X. He recommended Theory Y as the more effective guide for
managers.
4. Hierarchy of needs of Maslow. He assumed that people seek to fulfill a variety of needs.
Based on their sequence of importance, these needs are:
a. Physical/Physiological – food, clothing and shelter
b. Safety – job, security, health insurance and pension plan
c. Social – love, affection and belonginess
d. Esteem – respect, recognition and honor
e. Self-realization – fulfillment
The aforementioned hierarchy of needs provides a good knowledge and guide for
management on how to motivate its employees to work more efficiently. By their very nature,
people work hard ta satisfy their various needs.
5. Theory of Hertberg. He interviewed 200 accountants and engineers in Pitsburg City. The
purpose of the interview was to determine the factors that cause satisfaction and
dissatisfaction. The results were surprisingly unexpected. For instance, low pay may
make an employee feel bad. But it is not high pay that makes an employee feel good.
Herzberg discovered that factors most frequently associated with satisfaction are
achievement, recognition, responsibility, advancement and growth, together with work itself.
These factors are generally called motivational factors. Their absence, however, does not
necessarily result in dissatisfaction of employees. Factors that cause dissatisfaction, based on
interviews are supervision, working conditions, interpersonal relationship, pay, job security and
company policies and administration.
The theory of Herzberg clearly shows that there are specific factors which are responsible for
satisfaction and dissatisfaction. A sensitive and sincere management can benefit from such
theory. It is noted that high pay is not included as a case for satisfaction. But if this is given to
employeeds as a form of recognition or achievement, the it becomes a motivating factor.
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Contemporary Theory
Theory Z. This is the best combination of the features of Japanese enterprise and American
firms. The features of Japanese corporations are:
- Lifetime employment
- Collective decision-making
- Collective responsibility
- Slow promotion
- Holistic concern for employees
- Implied control mechanism
- Nonspecialized career paths
In the case of the American firms, their features are:
- Short-term employment
- Individual decision-making
- Individual responsibility
- Rapid promotion
- Explicit control mechanism
- Specialized career paths
- Segmented concern for employees
Theory Z integrates the features of both Japanese and American firms which are believed to be
the most suitable for American business. These are:
- Longtime employment
- Collective decision-making
- Individual responsibility
- Slow promotion
- Informal control
- Moderately specialized career paths
- Holistic concern for employees
Professor Willian Ouchi of the University of California, Los Angeles is the author of Theory
Z. In 1970s, he studied the characteristics of Japanese and American enterprises. He maintains
that the best features of American and Japanese firms should be fused. It appears that the essence
of Theory Z is the high level of participation of employees in decision-making. With Theory Z,
Ouchi and his followers believed that the United States can recapture its position as the world/s
primary nation.
The Need for Risk Management

Any business enterprise is faced with several risk possibilities. To sustain its business
viability or success, an enterprise should eliminate or minimize business risks, such as fire,
natural calamities, pilfering, robbery, strikes, accidents and so forth.
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The late Marlene Dietrich’s legs and Elizabeth Taylor’s eyes have been insured at
Lloyd’s of London. This organization provides service for safety and protection from the
unknown and unexpected.
In rich countries, most enterprises insure their products and properties against the risks of
doing business in the form of damage, theft, injury and other. Likewise, individuals insure their
families, properties and themselves. Entrepreneurs adopt risk management programs to eliminate
or reduce risks.
Risk is the possibility that a loss or injury will take place. In a modern world, risks are all
around us. For instance, car accident, destruction of properties by flood or fire, or physical injury
or even death. In business there is always risk, such as wrong business decision, poor
management or negative business environment.
However, if risks cannot be avoided, at least these can be reduced by the use of the
following:
1. Employee safety program
2. Proper safety equipment
3. Burglar alarms, security guards and guard dogs
4. Fire alarms, sprinkler system and similar safety measures
5. Accurate accounting and financial controls
Risk and Insurance Management

Risk is part of business. It can be both within the control or beyond the control of the
entrepreneur. To eliminate or minimize such risks, the entrepreneur must have a risk and
insurance program. The common types of non-criminal business risk are:
1. Fire. This is the first fear of any business owner. So, they eliminate their risks through
fire insurance. With such insurance, owners can recover their financial losses. However,
there are things which a fire insurance cannot protect, like lost customers, records and
other valuable assets. A much better risk protection program is fire prevention measures.
2. Natural calamities. These can ruin business. Floods, typhoon and earthquake are in most
cases not included in the insurance coverage. Entrepreneurs can only minimize risks from
natural calamities by proper choice of locations which are free from such disasters.
3. Personal liabilities. These are business-connected risks. For instance, a customer is
injured inside the store. A customer got sick in eating the product of the entrepreneur.
Such incidents may resort in lawsuits. Such risks can be prevented or minimize by proper
facilities or quality control program.
4. Economic problems. These have direct effects on the profitability of the enterprise.
Recessions, depressions, inflation and massive unemployment can reduce sales of goods
and services. Such economic problems lead to sharp fall in demand or purchasing power
of consumers. The ability to adjust to such changing economic conditions is a plus factor.
Another, adequate financial resources during bad times for business can be a good
protection from business losses.
5. Business interruptions. Strikes of employees and suppliers pose a great business risk.
Awareness of such problems can help the entrepreneur prepare for the unexpected. The
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entrepreneur must have good stockpiling strategy. However, a strong financial position
greatly helps the enterprise survive during such business interruptions.
6. Loss of key personnel. The resignation of important employees is a big blow to the
business enterprise. For example, resignation of an expert or technical specialist can
cause work stoppage. It is not easy to get replacement immediately.
Other Business Risks

There are business risks which are criminal in nature. Such risks are personally planned
or intended. These are:
1. Burglary. There is a need to protect inventories, supplies, equipment, etc. by providing
safety facilities. Others use dogs, guards and alarm systems.
2. Robbery. Installation of proper alarm devices, lighting facilities and other preventive
measures can eliminate robbery.
3. Shoplifting. Aside from professional shoplifters, other customers are possible threats.
Children pick goods without knowing they are committing a crime. Even in rick
countries, there are shoplifters. Mirrors and store layout can deter shoplifting.
4. Employee theft. Avoid temptations for employees, such as open storage rooms, desks,
cash registers and the like. There should be strict hiring policy for personnel involved in
the handling of money and products.
Posttest
1. This refers to the ability of an entrepreneur or manager to identify and evaluate the
problems of the enterprise.
a. Diagnostic skills.
b. Conceptual skills.
c. Interpersonal skills.
d. Analytic skills.
2. This type of management is based on teamwork and team results.
a. Management by Mission
b. Management by Objectives
c. Management by Vision
3. The Hawthorne Studies on Theories of Management is conducted by whom?
a. Elton Mayo
b. Taylor
c. McGregor
d. Maslow
4. This theory is the best combination of the features of Japanese enterprise and American
firms.
a. Theory X
b. Theory Z
c. Theory of Hertberg
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d. Hierarchy of needs of Maslow

5. It is the possibility that a loss or injury will take place.
a. Problem
b. Risk
c. Conflict
Reference
https://smallbusiness.chron.com/manage-business-enterprise-2987.html
https://www.ej4.com/blog/secret-managing-enterprise-accounts
https://www.sage.com/en-gb/blog/glossary/what-is-enterprise-management/
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Chapter 7 – Financial Management

Financial capital or funds are essential resources to the entrepreneur. These are the
lifeblood of the enterprise. The entrepreneur needs money in starting his business. He also needs
money for the development and growth of his business. In many cases, small entrepreneurs have
inadequate capital. Thus, it is important for them to be able to identify the sources of funds.
However, far more important is the ability to manage funds. There is a basic need to plan
and control financial resources. Without such ability, the enterprise is most likely to fail. Not a
few businessmen failed simply because they have no competence in budgeting their financial
resources relative to their business objectives. When they have the money, they do not know how
to use and control it.
This chapter presents topics such as financing the enterprise and the need for financial
management. In addition, developing the financial plan and evaluating the financial performance
are explained.
1. Discuss the need for financial management.
2. Develop a financial plan.
3. Evaluate financial performance.
Pretest
1. These are considered as the lifeblood of the enterprise.
a. Money
b. Employee
c. Financial Capital
d. Business Plan
2. It refers to activities that are concerned with securing money and using it properly.
a. Money making
b. Balance sheet
c. Financial Management
d. Financial security
3. It is the art and science of managing money.
a. Money printing
b. Finance
c. Income Statement
4. Which of the following is NOT considered as a Short-term financing?
a. Trade credit
b. Promissory notes
c. Loans
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d. Commercial paper
5. These are borrowed from banks and other financial institutions.
a. Trade credit
b. Promissory notes
c. Loans
d. Commercial paper
Content
Financial Management Defined
Financial management refers to activities that are concerned with securing money and
using it properly. The entrepreneur as financial manager must determine the best ways to raise
money. However, it is also important that the money should be used effectively in realizing the
goals of the enterprise. Clearly, good financial management requires planning. It starts with the
identification of the financial needs of the business.
Basically, finance is the art and science of managing money. This means it includes both
individual skills and methods of getting and using financing resources. Some people have plenty
of money, but they do not know how to use it. So, they become poor. On the other hand, others
have no money, but they know how to get and use it. So, they become prosperous.
Many wealthy entrepreneurs started from scratch. One good example is Henry Sy. He
was a door-to-door salesman of shoes. Afterwards, he put up a shoe store on Rizal Avenue. He is
now the owner of SM, a chain of department stores. Evidently, he knows how to use his financial
resources.
To be an effective financial manager, a good knowledge of economics is essential.
Theories of economics like, like law of diminishing returns, production theory, law of supply and
demand, price theory, and profit maximization, provide necessary inputs to financial analyses
and decision-making.
Economics is principally concerned with proper allocation and efficient use of available
resources in order to satisfy human wants. In a business enterprise, the human want is to
maximize profit by providing optimum consumer service or satisfaction. Such objective of profit
maximization can only be made possible through proper allocation and efficient use of financial
resources of the enterprise. The said financial ability is a mark of a good entrepreneur.
Financing the Enterprise

Many poor Filipinos wish they have seed capital in order to put up their own micro
businesses. In the rural areas, some folks like to put up backyard poultry or piggery projects for
additional incomes. In the cities, business-oriented individuals like to own a sari-sari store, a
small bakery, a beauty parlor, or a small restaurant. But they have no funds to start their modest
business.
However, it has been observed that the poor and unschooled persons are more
enterprising and risk-taking. They sell ballot, gulaman, barbeque, flowers and other essential
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items for the masses. Others just sell anything on the sidewalks. Apparently, they are happy and
have more money than factory workers and office clerks.
And yet such market vendors or street hawkers have no formal business training and they
obtain their capital from the Bombays and other sources with high interest rates. Such money
lenders offer the 5-6 scheme. That is a P1,000 loan is paid daily for 30 days at P40 a day. This is
equivalent to P1,200. So, the interest income of the money lender is P200 a month for his
P1,000. Despite the high cost of borrowing money from usurers, market vendors seem to be able
to sustain their daily micro business operations. Only it is rather unfortunate that they do not
know how to secure their funds from cheaper sources.
For the poor, cooperatives are the best sources of funds with very minimal interest. Other
good sources of seed capital are the non-governmental organizations (NGOs) and some
government financial institutions. However, the preparation of several documents as
requirements in loan application has been discouraging to many.
Cooperatives for Micro Business

A credit cooperative usually charges one percent interest plus a nominal service charge.
The cost of borrowing P1,000 is only about P12 to P15 a month. This extremely low compared
with the P200 interest from a 5-6 financing scheme. Another advantage is that the more a
member borrows from his cooperative, the higher patronage refund or dividend he gets. In a
cooperative, a portion of the net savings is returned to the members in the form of interest
payments for their saving and share capital and patronage refund for those who patronize their
cooperatives.
Successful cooperatives have been responsible for the economic and social upliftment of
poor people in all countries. In the Philippines, we have several successful cooperatives. One is
the farmers’ cooperative in Tarlac organized by Ka Dante Buscayno. Another is the San Dionisio
Credit Cooperative in Paranaque. It started in July 1961 with 28 members and P380 capital.
Today, it is the biggest community credit cooperative in the country. It has 15,000 members
(including special depositors) and P75 million assets.
Many members of the credit cooperative in San Dionisio were able to put up their micro
business. Others were able to purchase tricycles. Before, they had paid boundaries. Many young
people got their college and vocational education. All these benefits were made possible through
the assistance of the San Dionisio Credit Cooperative. The said cooperative has also a modern
medical-dental clinic equipped with X-Ray and ECG facilities.
Even giant institutions like the PLDT, CB and SMC have credit cooperatives. Their
members have been able to borrow huge amounts for housing and business. In the case of the
Lyceum of the Philippines Credit Cooperative, Inc., it started with 25 members and P5,000 share
capital in January 1990. In its 4-year operations, it has been able to lend P1.5 million to its
members.
Market vendors and other micro business can easily put up their credit cooperatives. They
only need 15 members and P2,000 share capital to start with. Credit cooperatives are effective in
driving away usurers or the loan sharks. With cheap and fast loans, cooperatives can help the
poor put up micro businesses.
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Other Sources of Funds

There are government and non-governmental organizations that extend both financial and
technical assistance to small entrepreneurs. We have the PNB, DBP and LBP. They have their
own programs for small ad medium-scale enterprises. In the case of NGOs, there are numerous
organizations that extend financial assistance to small enterprises, such as the Meralco
Foundation governments, through their embassies and international organizations likewise have
their assistance programs for micro and small businesses.
For entrepreneurs who are not really poor, they put up their business with their own
funds. If these are not enough, they borrow from friends, relatives and ultimately from financial
institutions. In the case of big firms, they sell shares of stock to the public. Or they borrow from
the banks.
Here are some sources of funds:
1. Short-term financing (one-year or less)
a. Trade credit. Goods are delivered to retailers on consignment basis. This
means they have to pay the goods within 30 to 90 days. Such credit line
applies to retailers with good reputations or established business relations.
b. Promissory notes. This is a written pledge by a borrower to pay a certain sum
of money to a lender at a specified future date. Such loan entails an interest.
c. Unsecured bank loans. Commercial banks grant unsecured short-term loans to
their customers at interest rates that vary in accordance with their credit
ratings. Borrowers with high credit rating get lower interest rate.
d. Commercial paper. This is a short-term promissory note issued by big
corporations. Commercial paper is secured only by the reputation of the
issuing corporation. There is no collateral involved. Big firms with excellent
credit reputation can easily raise large amount of money from financial
institutions.
2. Long-term financing (more than one-year)
a. Loans. Many firms finance their long-range activities from loans borrowed
from banks and other financial institutions. These require collaterals such as
land, equipment and machinery. Terms of payment are indicated in a loan
agreement.
b. Stock. This is certificate of ownership. A stock is classified as common and
preferred. Holders of common stock can elect directors and can decide major
corporate actions. In these cases of preferred stockholders, they have no
voting rights. But they have priority in claiming for profits and assets of the
corporation. In general, only established corporations sell additional shares of
stocks to the public to finance their business projects.
c. Bond. This is a certificate of indebtedness. It pledges to repay a specified
amount of money with interest. Such certificate indicates also a maturity date.
Big corporations issue bonds to raise funds for their business activities.
Bondholders have the first claim on the assets of the issuing corporation in
case it gets bankrupt. Bonds are classified as debenture bonds, mortgage
bonds and convertible bonds. Debenture bonds are supported only by the
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reputation of the issuing corporations. Mortgage bonds are secured by the

assets of the issuing corporations, while convertible bonds can be exchanged
with shares of common stock.
The Need for Financial Management

Next to people, money is the most important resource of any business organization.
Without money, there is no business at all. Money is needed to start a business. Money is needed
to sustain activities like production and marketing. And yet some managers do not realize the
vital role of money. They do not use it wisely. As a result, their business fails. Even enterprises
with surplus funds cannot sustain their growth in the long run if their funds are mismanaged.
Good financial management can ensure the following:
1. Financing priorities are established in accordance with organizational objectives.
2. Spending is planned and controlled in line with established priorities.
3. Adequate funding is available when it is needed, now and in the future.
4. Funds are obtained and used efficiently.
Developing the Financial Plan

A financial plan is a course of action for obtaining and using the money that is needed to
implement the goals of the business organization. Once the plan is in action, the performance of
the organization is monitored and evaluated in terms of the attainment of the goals. Just like any
other plan, financial planning should be flexible and realistic.
Here are three steps involved in financial planning:
1. Establishing objectives. These should be clear and specific to determine their cost or
budget. Objectives should be realistic. That is, they can be supported by available
resources in terms of human, material and financial inputs. Otherwise, such objectives are
not attainable.
2. Budgeting. A budget is an estimated or projected program of expenses and incomes over
a specified future period. Incomes come from estimated sales while expenses are based
on both fixed and variable costs of operations of the business, like salaries, rentals,
materials, taxes, payments of water, electricity and others.
3. Identifying sources of funds. There are four primary types of financing a business
enterprise: a) income from sales, b) owner’s money and sale of shares of stock, c)
borrowing from friends, relatives and financial institutions and issuing bonds, and d) sale
of some property of the enterprise as a last resort.
Evaluating Financial Performance

Plans are simply written statements. These are useless if they are not implemented. In the
government, there are numerous plans and programs which are very good. But many of them
have not been implemented for lack of funds.
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The entrepreneur as a financial manager should adopt ways of monitoring and evaluating
financial performance. Interim budgets (weakly or monthly) may be prepared and compared with
interim reports of sales and expenses. Such comparison can pinpoint areas which need additional
or revised planning. As a matter of fact, one fundamental principle of planning is that planning
must be a continuous process. This means planning should be tailored to the changing needs of
buyers, prices of productive resources, and policies of the government. In evaluating financial
performance, weaknesses and errors are discovered. These can be corrected immediately before
they become major problems.
Clearly, the bottom line of financial management is the efficient use of funds. This is
only possible if individuals with competence, honesty and integrity are employed. However,
competence is not enough. There are several stories of excellent fund managers. But they
disappeared together with the money of the corporations.
The Balance Sheet

The two most important financial statements of an enterprise are the income statement
and the balance sheet. The former compares the sales revenues and operating expenses in a given
period, usually one-year. If revenues are greater than expenses, it means profits. If the case of the
balance sheet, it is a statement of the financial condition of an enterprise at a given point in time,
usually on yearly basis.
The balance sheet is composed of three basic parts: assets, liabilities and capital. It shows
what the enterprise owns, what it owes, what the owner has invested, and the accrued profits or
losses. Entries in the balance sheet are based on the conventional accounting equation:
Assets = Liabilities + Capital
The assets of the enterprise are classified as current assets and fixed assets. Current assets
and fixed assets. Current assets are cash and those that are convertible into cash within one year.
Fixed assets are properties like land, building, equipment, machine, vehicle and the like. In the
case of liabilities, these are debts of the enterprise, such as taxes, loans and other payables.
Capital or net worth represents the contribution of the owners to the enterprises. Examples are
retained earnings and invested capital.
LYCEUM CREDIT COOPERATIVE

Balance Sheet
As of December 31, 2020
Assets
Current Assets:
Cash P14,291.11
Loans Receivable P134,500.98
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TOTAL ASSET P148,792.09
Liabilities & Members’ Equity

Members’ Equity
Share Capital P120,426.35
Retained Earnings P28,365.74
TOTAL LIABILITIES & P148,792.09
MEMBERS’ EQUITY
Prepared by:
Name of Accountant
Noted by:
Name of the President
cc: Cooperative Development Authority
Members
File
LYCEUM CREDIT COOPERATIVE

Income Statement
For the Year Ended, December 31, 2020
Revenues:
Service fees P4,278.00
Membership fees P110.00
Interest Income P21,284.87
TOTAL P25,672.87
Less Expenses:
Honorarium P3,514.00
Office Supplies P19.00
Miscellaneous Expenses P179.00
Interest Expenses P5,078.52
NET INCOME P 16,882.35
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Distribution of Net Income

Education & Training fund P1,400.00
Reserve fund P12,584.65
Patronage refund P2,897.70
Prepared by:
Name of the accountant
Noted by:
Name of the President
cc: Cooperative Development Authority

Members
File
Features of a Good Accounting System

1. Simple to understand
2. Flexible and adaptable to changing needs
3. Inexpensive to operate
4. Little time to operate
5. Handy and convenient to use
Basic Books to Keep
1. Purchase journal – for credit purchases.
2. Sales journal – for credit sales.
3. Cash disbursement journal – payments on cash basis.
4. Cash receipt journal – all cash sales and payments from credit customers.
Posttest
1. This is a short-term promissory note issued by big corporations.
a. Trade credit
b. Promissory notes
c. Loans
d. Commercial paper
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2. Which of the following is NOT considered as Long-term financing?

a. Loans
b. Stock
c. Bond
d. Commercial paper
3. How can you ensure a financial management?
a. Financing priorities are established in accordance with organizational objectives.
b. Spending is planned and controlled in line with established priorities.
c. Adequate funding is available when it is needed, now and in the future.
d. All of the above
4. This refers to the estimated or projected program of expenses and incomes over a
specified future period.
a. Establishing objectives
b. Budgeting
c. Identifying sources of funds
5. These are cash and those that are convertible into cash within one year.
a. Liabilities
b. Current asset
c. Fixed asset
d. Capital
References
https://www.lsbf.org.uk/blog/news/importance-of-financial-management/117410
https://www.managementstudyguide.com/financial-management.htm
https://www3.fundsforngos.org/financial-management/2-what-is-financial-management/
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Chapter 8 – Production of Goods and Services

The creation of goods and services appear to favor the big business. They have adequate
funds, machines, materials, modern technology and management specialists to produce goods
and services at a lower average cost. Examples are the multi-national corporations which
dominate the global markets.
However, there are some market situations where a small or even micro business has the
comparative advantage in the production of goods and services. For instance, in the field of
cottage industries, like toy making, basket weaving or in personalized services, the big
businesses are at a disadvantage. In the rural areas of Japan, most cottage industries are being
done in the houses of farmers and fishermen.
In the past, U.S. giant car manufacturers made huge profits in producing big cars. The
American did not like small cars produced by Japan and some European countries. But in the
mid 1970s, the situation changed in favor of the small cars. Thus, the Americans started
importing Japanese and European cars. At that time, there was an oil crisis and gasoline price
became very high. These plus the much lower prices of Japanese cars have forced the Americans
to change their car preferences.
The lesson here is that producers should always consider the economic environment and
other forces affecting the demand for goods and services. This chapter presents topics like
factors of production, inventory control, quality control, scheduling, and productivity, among
others.
1. Enumerate factors of production,
2. Discuss inventory and quality control, scheduling, and productivity.
Pretest
1. Why the creation of goods and services appear to favor the big business?
a. They have adequate funds, machines, materials, modern technology
b. They have more independence
c. They have plenty of incentives from the government
d. All of the above
2. It is the creation of goods and services.
a. Management
b. Crafting
c. Production
d. Equipping
3. It refers to both physical and mental efforts like the works of farmers, fishermen,
workers, clerks, lawyers, teachers, doctors, etc.
a. Land
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b. Labor
c. Capital
d. Entrepreneurial ability
4. Which of the following is NOT considered as a factor in production?
a. Land
b. Labor
c. Capital
5. It pertains to machines, equipment, buildings and other physical resources which are used
in the production of goods and services.
a. Land
b. Labor
c. Capital
Content
The Nature of Production
Production is the creation of goods and services. Or, it is the creation of utility. Utility
means satisfaction. Goods and services are produced to satisfy human wants or needs. Others
define production as the process of converting resources into goods and services.
In transforming resources into products, the principal actor is the entrepreneur. He
decides the proper combination of resources, such as the application of more labor and less
machine, or the reverse. He also decides what to produce, how to produce, when to produce and
where to produce. Obviously, the ultimate consideration in such management decisions is profit.
And this is only attainable if buyers are satisfied with the goods and services for sale.
Producing a product or service which is new in the market comes from an idea. Then the
idea is planned and developed into a product or service. For true entrepreneurs, this is not
difficult because they are creative or innovative. In the case of giant business enterprises, they
have R and D (research and development) departments. Their job is to create new products or
innovative existing products.
Factors of Production
In economics the major factors of production are land, labor, capital and entrepreneurial
ability. The following are their definitions:
Land – includes natural resources such as forests, mountains, and bodies of water like
rivers, lakes and seas.
Labor – refers to both physical and mental efforts like the works of farmers, fishermen,
workers, clerks, lawyers, teachers, doctors, etc.
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Capital – pertains to machines, equipment, buildings and other physical resources which
are used in the production of goods and services. This is an economics definition. In other
concepts, capital refers to seed money which is utilized for starting a business.
Entrepreneurial ability – coordinates the other factors of production such as land, labor
and capital. It is the spirit of the enterprise. Without such ability, the other productive resources
tend to be inefficient.
Input-Output Relationship
Inputs Outputs
Money Shoes
Machines TECHNOLOGY Bags
Materials Books
Manpower Rice
Management Houses
information Cars
The aforementioned illustration of input-output relationship indicates that productive

resources, such as materials, money, machines and others have to undergo a processing stage
before they are transformed into products, like shoes, cars, appliances and others. Such process
of production is referred to as technology. Clearly, enterprises which apply proper and efficient
technology have the economic advantage in terms of costs, quality and quantity. Naturally, such
enterprises are the winners in the market.
Costs of Production
Costs of production represent the payments for the factors of production. These affect the
ability and willingness of entrepreneurs to produce. When production costs are high, prices go
up. This decreases the purchasing power of the consumers. This results to lower quantity
demanded for goods and services. In other words, there is decrease in sales which is not
favorable to producers or sellers.
Producers must choose productive resources which are abundant in supply, because these
are much cheaper than scarce resources. Cheaper inputs mean lower costs of production. In terms
of profits, lower costs of production favor the producers. In the rural areas, there are many raw
materials that can be used for the creation of products. Their use should be maximized not only
to produce goods, but also to create jobs for the rural poor.
The total costs of production is the sum total of expenses in producing a product or
service. It is also equivalent to the sum of fixed cost and variable cost. The former remains
constant regardless of the volume of production while the latter changes in proportion to the
volume of production. Rents are fixed cost while expenses on raw materials are variable cost. If
there is no production, there is variable cost, but there is fixed cost. Total costs divided by the
number of goods produced equals average cost or unit cost.
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Rules of Production
TR = Total Revenue (income)
TC = Total Cost (expense)
When TR is greater than, TC, produce more.
When TR is less than TC, stop producing.
When TR is equal to TC, maintain production.
The above rules apply in a long-run period. TR being more than TC means profit. The
opposite is business loss. When TR = TC, it is breakeven. This means no profit, no loss. But
there is payment for the entrepreneur. Thus, it is still good to maintain production.
Here is an illustration of the components of TC:
Factors Payments
Land Rent
Labor Wage
Capital Interest
Entrepreneur Normal profit
Total factors Total costs of production
So, the entrepreneur still enjoys a financial reward in the form of normal profit. When TR
is above TC, there is pure profit. Such profit is the difference between market price and cost of
production.
Under the short-run period, the rules of production are:
When TR is greater than VC, operate.
When TR is less than VC, shut down.
Variable cost (VC) refers to the operating expenses like salaries, cost of raw materials,
office supplies and bills like water, telephone and electric. If TR is more than VC, it is still good
to continue business, assuming TR is less than TC. The fixed cost (FC), which is part of TC can
be recovered in the long-run period of business operations. For instance, the case of SM Mega
Mall. The fixed costs amount to hundreds of million pesos representing the expenses on the land,
building, machines and other expensive equipment like escalators. Such huge expenses cannot be
recovered in a few years time. However, if the TR of SM is more than its VC, the enterprise is
already lucky.
Relevant Technology
Technology refers to the process of transforming resources into goods and services.
Clearly, big enterprises are capable of using high technology which requires modern machines
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and less number of workers. However, in our country such technology is not relevant considering
our depressed socio-economic conditions.
Based on the book Small is Beautiful by Schumacher, less developed countries like the
Philippines should adopt “intermediate technology.” This technology is between primitive
technology and modern technology. It is more efficient than primitive technology and cheaper
than modern technology. Intermediate technology requires local labor and material and simple
management.
Our country has an abundant supply of idle labor and raw materials. Entrepreneurs can
utilize such cheap resources for the production of goods and services. Such business venture can
reduce the problems of unemployment and can be contribute to the economic development of our
country, especially the rural areas where most of the poor live.
Produce or Purchase
In producing certain products, there are parts or components that are needed. Is it better
to produce or purchase such components? Not a few small businessmen just buy components for
economy. Producing components require the use of resources, such as machines, money,
equipment, materials and technology. Most business enterprises do not have these productive
resources. So, they prefer to purchase. However, the decision to produce or purchase components
does not only involve economics, but also other factors which are essential in the production
process, such as:
1. The quality needed. If the components are of poor quality, then the entrepreneur has good
reasons to produce them rather than purchase them. However, there are many firms
which specialize in the production of components. These can offer better quality
components.
2. The quantity demanded. If few units are needed, it is better to buy the components.
Specialized firms can produce components at a lower price and better quality. On the
other hand, a demand for large quantities on a continuous basis favors the entrepreneur to
produce such components.
3. Availability of supply. If supply of components is sure and dependable, the entrepreneur
can rely on suppliers for his production needs. On the other hand, unreliable supply
causes delay in production. This results to lost sales and possible layoff of workers. Such
situation requires the entrepreneur to produce the components.
4. Production requirements. This is the most important determinant whether to produce or
purchase the components in the production of a product. Producing a component requires
machine, space, money and materials. If the entrepreneur does not have money for these,
then it is better for him to purchase. In case he has the money, he has to consider if such
money could be used better elsewhere. Ultimate, the entrepreneur has to evaluate the unit
cost or average cost in producing the component. More often than not, it is better for
small business to purchase their components for production.
How to Purchase
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An entrepreneur has to buy his inputs for production. This is not as simple as it appears.
The needed inputs must be available at the right time, proper quantities, and at a minimum cost.
To ensure the above requirements, the entrepreneur must select his suppliers and must have
purchase planning.
It is always advisable to get backup suppliers even if current suppliers are efficient.
Strikes or breakdowns of equipment of regular suppliers certainly stop their flow of supplies. If
these happen, then the entrepreneur has an alternate supply of materials from backup suppliers.
Here are the criteria for selecting good suppliers:
Price. A small difference in price, say 5 centavos, is a big amount of money if large
quantities are purchased in one year. Some suppliers offer free delivery and big discounts for
large purchases. These are advantages for the entrepreneur.
Quality. Price and quality should be evaluated. Usually, high quality materials have
higher prices. What is necessary is minimum quality, as long as the materials are suitable for
their intended uses.
Reliability. Suppliers who cannot deliver their materials on time can ruin the business of
an entrepreneur. Even if their supplies are of high quality and at low price, if they cannot meet
their delivery schedule, they are still not good suppliers.
In the case of purchase planning, its objective is to balance two opposing forces: absence
or lack of materials for production and over supply of materials. If there are no materials for
production, work is temporarily stopped. Clearly, this is not a good business for the entrepreneur
and his workers. On the other hand, a large stockpile of materials is also not good. It constitutes
idle money.
An important factory in purchase planning is lead time. This is the time that elapses
between placement of an order and receipt of such order. The entrepreneur can depend on
various mathematical models on how to optimize the timing of orders and to manage ordering
costs. A good model is the EOQ (economic order quantity). It determines when order should be
placed.
2∗S∗O
EOQ= √
c
S = usage in units per period
O = order cost per order
C = carrying cost per units
Example:
S = 160, O = P5, C = P1
2∗160∗P 5
EOQ= √
P1
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EOQ=√1,600
= 40 units
Inventory Control
Inventories are stocks of goods and materials. There are three types of inventories:
1. Raw-materials inventory. These are stockpiles of materials for inputs of production.
2. Work-in-process inventory. These are partially completed products that require further
processing.
3. Finished-goods inventory. These are completed goods for delivery to customers.
Each of the said inventory has a storage cost and a stockout cost. The latter refers to the cost of
running out of an inventory. For finished products, the stock-out cost is loss of sales. There are
no products to sell. To minimize such costs, there must be an inventory control. Computers are
useful in inventory control. Small businessmen can avail of micro-computers or personal
computers to keep track of inventories.
Scheduling
Scheduling is the process of ensuring the delivery of materials at the right place and right
time. Such materials can be raw materials, semi-finished goods or finished goods. Raw
materialist may be moved from the storage facility to the work station. The finished products
may be transported from the warehouse to the stores or customers. The movements of such
materials or products require specific time to avoid delays.
The PERT (Program Evaluation and Review Technique) is used to monitor and control
scheduling of activities. Under PERT, all the major activities of the project are first identified.
The completion of each activity is called event.
The events are sequenced and are given numbers representing hours, days or months for
their completion. The activities are represented by arrows. The path that requires the longest time
from the first event to the last event is called critical path. The activities along this path should
be scheduled and controlled. A delay in just one activity causes a delay in the completion of the
whole project.
PERT Diagram for Printing this Book
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Sample design
(2) Over Cover proof
Cost preparation (7) approval (1)
Book
estimate (3)
design (6)
Proofreading Printing binding
start (10) (20) finish
Manuscript
evaluation Typesetting Final proofreading
(12) (60) Page (8)
Editing (30) preparation
(6)
O event
( ) number of days to complete activity
activity
The critical path runs from events 1, 4 and 5 to even 6 which takes 102 days, rather than
connecting events 1, 2, 3 and 6 which takes only 11 days. It proceeds to events 7, 9, 10 and event
11. Note that even a delay of 6 days in the preparation of the book. However, a delay in any
activity on the critical path, like editing, typesetting or evaluation, will surely prolong the
number of days of publication.
Quality Control
Quality control is a process of insuring that goods and services are produced in
accordance with their designs and specifications. Enterprises which have established their
reputations for quality are very strict on quality control. Quality has become the central point of
their business. In a very competitive market, quality is a sure winner.
There are two ways to ensure the quality of products. One is the formation of quality
circle. A group of employees officially meet to study and solve problems of quality. Another is
through inspection. This is being done at various times during production. Visual inspection is
enough for certain products. However, for others products like part of airplanes and nuclear
reactors, X-ray inspection may be needed.
Clearly, the principal objective of quality control is to sustain the standard or reputation
of the enterprise. Such objective is in line with the goal of the enterprise to maximize customer
satisfaction. High quality attracts more customers which results to more profits. Besides, without
quality control, more rejects or factory defects are produced. This is additional cost of
production.
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Productivity
Productivity is the efficient creation of goods and services. If worker A can finish 10
dolls a day while worker B can finish 8 dolls a day, then the former is certainly more efficient,
quality being the same. Productivity is measured by the number of products produced.
Productivity is a product of various factors. It can be the work place, such as lighting,
ventilation and sanitation. If these are not favorable, they reduce productivity. It can only be an
economic factor, like salary, overtime pay and other monetary incentives. If these are fair or
generous, they increase productivity. Human relations can likewise affect productivity. If
management treats its employees with dignity, respect and justice, productivity is improved.
Employees are the most important productive resources of any organization. If they are
trained and treated properly, they are capable of attaining peak performance. For this reason,
progressive business enterprise never stop developing their employees through education and
training. Japanese firms are successful because they love their employees. They consider them as
members of their families. Whatever financial needs their employees have, they get their
company’s assistance.
Posttest
1. Which of the following is an example of production input?
a. Shoes
b. Bags
c. Money
d. Cars
2. It is considered as an production output.
a. Materials
b. Information
c. Management
d. Houses
3. It represents the payments for the factors of production.
a. Price of product
b. Costs of production
c. Producers
d. Consumers
4. What is the total income of production?
a. Total Cost
b. Total Revenue
c. Total Prince
d. Gross Income
5. It is the process of ensuring the delivery of materials at the right place and right time.
a. Timing
b. Time frame
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c. Scheduling
d. Delivery
References
https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-2-factors-of-
production
https://www.cliffsnotes.com/study-guides/economics/theory-of-the-firm/production-of-goods
https://www.rosenpublishing.com/product/production-goods-and-services
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Chapter 9 – Marketing for Small Business

During the ancient times, marketing was done through barter. With the introduction of
money, the flow of goods and services from producers to consumers became faster and more
efficient. At present the marketing system has become modern through the help of modern
payment system and modern transportation and communication facilities.
What is obvious to all of us, except those in primitive societies, is that marketing has
contributed greatly in improving our material standards of living. We have modern appliances,
elegant houses, beautiful cars and other symbols of convenience, prestige and wealth. Of course,
the poorest of the poor are only witnesses to such conspicuous consumption of the affluent
society.
Small business, particularly retailers, can well serve the needs of poor consumers,
especially in the rural areas where big businesses hardly exist. This chapter presents various
topics, such as major consumer behavior, developing marketing strategies and introducing new
products. In addition, pricing strategies, distribution channels and breakeven analyses are
discussed.
1. Cite some consumer behavior.
2. Discuss marketing strategies and introducing new products.
3. Explain pricing strategies, distribution channels and breakeven analyses.
Pretest
1. How does marketing done during the ancient times?
a. Exchange stocks
b. Through broker
c. Trading
d. Through barter
2. It is as a set of human activities directed at facilitating and consummating exchange.
a. Consuming
b. Marketing
c. Production
d. Pricing
3. It is the performance of business activities that directs the flow of goods and services
from producer to consumer.
a. Consuming
b. Marketing
c. Production
d. Pricing
4. A market is people with:
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a. Needs to satisfy
b. Money to spend
c. Willingness to buy
d. All of the above
5. Which of the following is NOT a key to the business success of most of successful
enterprises?
a. Train all employees to be courteous
b. Remember that dissatisfied customer tell others about their experiences
c. Listen others about your business
Content
Marketing Defined
Professor Kotler defined marketing as a set of human activities directed at facilitating and
consummating exchange. The definition of Kotler includes three elements: (1) two or more
persons who are potentially interested in exchange, (2) each person having things of value to
offer to the others, and (3) each of them is capable of communication and delivery.
The American Marketing Association defines marketing as the performance of business
activities that directs the flow of goods and services from producer to consumer. Marketing is not
just a single activity, but a process. It is a process of establishing natural satisfaction in exchange
relationships between buyer and seller.
Professor William Stanton explains that marketing is a transaction intended to satisfy
human needs. Aside from goods and services, ideas, people and places are also marketed. Prof.
Stanton also defines market as –
A market is people with:
- Needs to satisfy
- Money to spend
- Willingness to buy.
Major Marketing Functions

1. Exchange Functions
a. Buying
b. Selling
2. Distribution functions
a. Transporting
b. Storing
3. Facilitating functions
a. Financing
b. Standardizing
c. Grading
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d. Risk-taking
e. Marketing information
Marketing Concept vs. Selling Concept

Selling is one of the oldest professions. But not marketing. The latter is relatively a new
subject. Marketing includes an integration of various functions, such as marketing research, new
product development, advertising, customer service, distribution and selling. So, selling is only
part of marketing.
The marketing concept determines the needs of the customers first, then develops the
product and service to satisfy such needs. In short, marketing is customer-oriented. On the other
hand, the selling concept uses a reverse strategy. The enterprise makes the product first. Then it
uses various ways of persuading people to buy the product. The focus of selling in on the needs
of the seller instead of the buyer.
The marketing concept has been put into action by many successful enterprises like
Eastman Kodak, Ford Motor Company and Apple Computer. To implement the marketing
concept, an enterprise must:
1. Get information about its customers and potential customers.
2. Determine customers’ needs and how well the products of the firm and its competitors
satisfy such needs.
3. Direct the marketing resources and activities of the firm to improve products and
services, together with reasonable prices for customers’ maximum satisfaction.
Importance of Consumer Service

Stew Leonard is the owner and operator of one of the largest and most successful
supermarkets in New England. His rule No. 1 is that the customer is always right. His rule No. 2
is that if the customer is wrong, see rule No. 1. Customers are the most valuable assets. And yet
they are easily lost.
Since customers are the business of the enterprise, all employees should be trained in
customer service. For business to prosper, the entrepreneur should put the customer first in his
business. This is the key to the business success of the IBM Corporation and other successful
enterprises. The following are some approaches in customer service:
1. Train all employees to be courteous. When a customer feels that he has been poorly
treated, he does not usually go back to the store. Customers feel irritated when salesgirls
do not pay attention to them. Waiting for a long time to get a product or service reduces
customer satisfaction. People like to patronize stores with employees who are not only
courteous, but also efficient.
2. Coddle the customer. It is customers who give business to the enterprise. No customer,
no business. He should be treated like a king. Wise enterprises cheerfully refund money
or replaces goods to their customers without questions. It is more expensive to acquire a
new customer than to keep an old one.
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3. Remember that dissatisfied customer tell others about their experiences. A customer who
feels he has been poorly treated tells others about his bitter experience with a store or
firm. Hence the need to observe always courteous and efficient customer service.
4. Listen others about your business. As an entrepreneur, listen to your customers, family,
employees, competitors and advisers. Evaluate what you hear. Then improve your
customer services.
Marketing Plan
A marketing plan is an outline of actions designed to achieve a specific set of goals. As
mentioned earlier in this book, a plan should be realistic. That is, it should be based on available
resources. Likewise, a marketing plan must be compatible with marketing resources and the
external environment of the enterprise. The latter greatly affects – and in most cases
uncontrollably – marketing operations. The external environment consist of:
1. Economic forces – such as inflation and unemployment which directly influence the
purchasing power of the consumers. For instance, when prices are high, people can only
buy a lesser number of goods and services.
2. Societal forces – like social and cultural values and traditions that greatly affect the
choices of goods and services by consumers. For instance, many Western habits are not
allowed in the Middle East for religious reasons.
3. Political forces – in the form of government laws and policies that regulate marketing
activities. These can be favorable or unfavorable. For instance, unreasonable taxes
dampen the growth of marketing. An unstable government discourages both local and
foreign investments.
4. Technological forces – such as new methods and new machines that can be both positive
and negative to marketing. Entrepreneurs can avail of the benefits of better technology to
improve the quality or reduce the cost of production. On the other hand, technology can
make existing products obsolete. Technology has given Japan a comparative advantage in
the production and marketing of certain products. Clearly, it is technology that makes the
industrial products of the rich countries much better than those in the poor countries.
Developing a Marketing Plan

1. Asses the marketing environment:
- Present and potential market
- Marketing program/strategies
- Availability of resources
2. Formulate specific marketing objectives:
- Reasonable
- Realistic
- Relevant to firm’s goals
3. Choose a target market with strategies on:
- Product
- Pricing
- Promotion
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- Distribution
4. Monitor and evaluate the operations of the marketing program through:
- Marketing research
- Marketing information system (computer-based)
Consumer Behavior
Success in marketing depends on the ability of the entrepreneur to identify and
understand the behaviors of consumers. Such characteristics of consumers can be studied
through marketing research. Of course, in the case of micro-business, there is no need for formal
research. This is just an additional expense. Behaviors of buyers can by analyzed through
observations and interviews. Those who are in business for a long time already know consumer
behavior.
A entrepreneur can easily satisfy the needs of consumers if he knows their behaviors.
Such knowledge and understanding of consumer behaviors create mutual benefits for both seller
and buyer.
In buying consumer behavior, the following should be considered;
1. Who buys?
2. What do they buy?
3. Where do they buy?
4. When do they buy?
5. How do they buy?
6. Why do they buy?
Why Do Consumers Buy?

As an entrepreneur you should know the reasons why people buy a certain product or
service. Such knowledge provides you with not only a competitive advantage, but also an
opportunity to increase your sales. People have various needs. Naturally, they like to satisfy such
needs by buying the corresponding goods and services. Human needs are created by economic,
social, educational and cultural influences. Specifically, people buy a certain product for the
following reasons:
1. The product satisfies their basic needs. All basic needs like food, clothing, shelter,
transportation, medicare, education and other are saleable, because people need such
products for survival.
2. The product gives them convenience. Examples of these products are washing machines,
vacuum cleaners and other tools and appliances. Such convenience saves them time and
effort.
3. The product provides a future. People buy products for investment purpose, like stamps,
paintings, coins and other antiques. They also buy stocks and bonds of stable
corporations hoping to get more incomes in the near future.
4. The product offers fame. Not a few people buy products not for their uses but for their
status symbols. For example, some unschooled natives in some South Pacific islands
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display their Parker pens in full public view. Those who wear Rolex watches experience
great pride and high social status.
5. The product protects them. People buy health, life and fire insurance for protection. They
also buy alarm and safety devices for protection against thieves. For example, we have
safety boxes for our important documents and safety vaults for our money.
Developing Marketing Strategies

According to Professor Philip Kotler, a marketing strategy is a consistent, appropriate and
feasible set of principles through which a particular enterprise hopes to attain its long-run
customer and profit objectives in a particular competitive market. Such strategy takes into
consideration the following factors:
1. Competitive size and market position of the enterprise
2. Resources, objectives and policies of the enterprise
3. Marketing strategies of competitors
4. Buying behavior of target market
5. Stage of product-life cycle
6. Character of the economy
Basically, marketing strategies are the tools of achieving the goals of the enterprise. Every
marketing strategy must have a marketing mix as well as a target market. Marketing strategies
consist of (1) product strategy, (2) price strategy, (3) promotion strategy and (4) distribution
strategy.
Marketing mix consists of the ingredients of marketing. These are the product, the price of the
product, the promotion of the product, and the distribution of the product. Such combination is
designed to reach the target market. The latter refers to the buyers who are willing and able to
purchase goods and services. The target market can be segmented based on their:
- Age
- Race
- Education
- Social classes
- Sex
- Income
- Occupation
- Urban/rural residence
Introducing New Products

Products have their life cycles, from introduction to growth and maturity and finally to
decline. Because of this nature of product life, there is a need to introduce new products or
improved products. However, small enterprises, due to their limited resources, have the
disadvantage of introducing new products. On the other hand, the said entrepreneurs can avail of
the financial and technical assistance from the government. Moreover, they have greater
flexibility in developing new products compared with big corporations.
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Introducing new products is not without problems. In many instances, new products fail.
Small enterprises often claim that limited financial resources are the major cause of product
failures. Nevertheless, a deeper analysis of the problem shows that product failure is due to the
product itself. Here are the main reasons of new product failures:
1. Inadequate market analysis about market needs and size.
2. Product defects such as poor quality and design.
3. Underestimated costs resulting to higher prices.
4. Poor timing in developing the product.
5. Competitors driving away the new products with lower prices.
6. Inadequate marketing effort to support the new product.
7. Weak sales force for lack of training and motivation.
8. Wrong channels of distribution.
Promotions
The two most widely methods of promotion are advertising and personal selling.
Advertising utilizes the media: newspaper, magazine, radio, television, bill board, mail and
yellow pages. Personal selling is done on a person-to-person basis with a customer.
Advertising has several objectives. Among other things, the more important ones are to
increase sales, to introduce a new product, or to sustain an established business. There is no
magic formula for successful advertising. However, the proper way of creating an advertising is
to evaluate the products, services, competitors and customers. Of course, the last one is the
critical factor. Advertisings must be able to identify their customers – their buying habits, the
newspaper they read, and their favorite radio and television stations. Advertising is expensive.
Most small business spend on the basis of what they can afford.
In the case of personal selling, this is an area where small business has an advantage. In
fact, people patronize a small business with its personalized customer service. Effective personal
selling greatly depends on efficient sales force. Selling skills can be improved by selecting
suitable individuals, providing regular and frequent training and granting attractive and fair
compensation plan. In contrast, big business gives more emphasis on advertising. It is more
expensive if it depends on personal selling.
Distribution Channels
Products move from the producer to the consumer either directly or indirectly. If it is
direct, producers deliver the goods to the consumers. If it is indirect, a middleman sells the goods
to the final users. A middleman can be a wholesaler or a retailer.
The right distribution channel depends on the target market. All other things being equal,
the most economical and most profitable channel of distribution should be chosen. The relevant
factors in selecting the most appropriate distribution channel are:
1. Who are the buyers?
2. Where are they located?
3. How can they be reached?
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4. When do they buy?

The aforementioned characteristics of buyers can indicate their population and location. It is
cheaper for a producer to deliver products directly to a large number of buyers who are
concentrated in a very few adjacent areas than in many scattered regions. Likewise, product
characteristics influence the choice of distribution channel. For instance, perishable products
should be delivered through direct marketing.
Pricing Strategies
Price is the value of a product or service expressed in money. In our capitalist economy,
price allocates goods and services. Those who have more money acquire more goods and
services. The government of course interferes in the pricing system to protect the consumers
against unreasonable prices.
In business, the apparent objective of pricing is to maximize profit. This is only possible
in a monopoly or oligopoly. But in a market situation where there are many competitors, pricing
is planned to meet stiff competition, to improve market share, or to get a fair return of
investment. Nevertheless the bottom line in pricing is the cost of production. Enterprises that are
more efficient have lower costs of production. Therefore, they can charge lower prices than their
inefficient business rivals.
There are several pricing strategies. For example, some businessmen post P4.98 instead
of P5.00. Others place “Buy one, take one.” Still there are those who combined several low price
items and mark the package P9.95, instead P2.50 per item.
There is also the prestige pricing. A very high price is set to project an aura of quality and
status. In the case of new products, an entrepreneur may adopt penetration pricing. A very low
price for the new product is offered. The objective is to develop a large market for the new
product as soon as possible.
Not a few entrepreneurs believe that pricing is the only way to compete. It does not pay
to underprice just to get customers. It is not fair to competitors. Besides, it invites price
competition. It is much better to offer non-price competition in the form of:
- Quality
- Service
- Convenience
- Delivery
- Safety
- Guarantees
- Cleanliness
- Easy credit options
Break-Even Analysis
Break-even analysis compares total revenues (TR) with total cost (TC). TR represents
income while TC represents expense of the enterprise. When TR is greater than TC, there is
105 | P a g e
profit. On the other hand, when TC is greater than TR, it means loss. But when TR equals TC, it
is break-even. That is, there is no profit and there is no loss.
Break-even analysis is a tool used by economists in solving managerial problems. Even
government agencies and other organizations depend on break-even analysis in projecting their
revenues, costs and profits. For instance, an enterprise may use break-even analysis to determine
the effect of projected decline in sales on profit. Such analysis may be used also to determine the
number of unites an enterprise must sell in order to break-even. Here is a formula for:
FC
Break-even point sales volume ( BEPSV )=
USP−UVC
FC = Fixed Cost
USP = Unit Selling Price
UVC = Unit Variable Cost
Example: How many units must be sold in order to break-even?
FC = P100,000, USP = P10, UVC = P5
P 100,000
=20,000 units
P 10−P 5
FC +VC
Break-even point selling price (BEPSP) =
Q
FC = Fixed cost
VC = Variable cost
Q = Quantity
Example: What should be the unit price to break-even?
FC = P100,000, VC = P20,000, Q = 30,000
P 100,000+ P 20,000
=P 4
30,000
Break-Even Graph
A break-even graph assumes that the average variables cost (AVC) is constant.
Therefore, this makes TC a straight line. AVC is derived by dividing total variable cost (TVC)
with the number of outputs. It is further assumed that the price of enterprise is not affected by the
number of outputs it sells. Thus, TR is a straight line. TR is equal to price times quantity or
number of outputs. Here is an illustration of break-even point by means of a graph:
Break-even point showing profit and loss positions
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TR TC
Revenue
Cost Profit
50 --Break-even
point
Fixed Cost
Loss
50 Quantity
The graph shows that the break-even quantity is 50 units and the break-even price and
cost is P50. Therefore, the price and cost per unit is P1. If the enterprise can only sell below 50
units, it is loss, because TC is greater than TR. Clearly, the enterprise has to sell more than 50
units to make profit where TR is greater than TC. Profit is maximized at a point where the
difference between TR and TC is biggest.
Posttest
1. Like social and cultural values and traditions that greatly affect the choices of goods and
services by consumers.
a. Political forces
b. Economic forces
c. Technological forces
d. Societal forces
2. Which of the following factor is NOT needed om assessing the marketing environment?
a. Present and potential market
b. Marketing program/strategies
c. Availability of resources
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3. What do you need in order to monitor and evaluate the operations of the marketing
program?
a. Marketing research
b. Business plan
c. Consumer
d. Employee research
4. In buying consumer behavior, the following should be considered EXCEPT:
a. What do they buy?
b. Where do they buy?
c. When do they buy?
d. How much is they’re money?
5. It is a consistent, appropriate and feasible set of principles through which a particular
enterprise hopes to attain its long-run customer and profit objectives in a particular
competitive market.
a. Business strategy
b. Marketing strategy
c. Financial strategy
References
https://sproutsocial.com/insights/guides/small-business-marketing-101/
https://www.smallbusiness.wa.gov.au/business-advice/marketing/8-steps-to-marketing-your-
business
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TEC 103 Entrepreneurship

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TEC 103 – Entrepreneurship

E – xcellence and Enhanced Competence

TARLAC STATE UNIVERSITY

The Dimension of Organizational Structure..................................................................................62

Chapter 8 – Production of Goods and Services.........................................................................................86

Chapter 1 - Characteristics of Entrepreneurs

Desired Learning Outcomes

Choosing the Best Solution

However, the problems of implementing a decision can be eliminated or minimized if the

Concept of the Filipino Entrepreneur

dispatch, efficiency, and graciousness. A service-oriented person, he is a happy man for

Determinants of Successful Entrepreneurship

Chapter 2 – Small Business

Features of a Small Business

Differences between Big and Small Enterprises

Advantages of the Small Business

Disadvantages of the Small Business

Why Small Business Fail

Economic Contributions of Small Business

They introduce innovation

They create employment

They provide competition

They fill needs of society and big business

b. Small business has little or no economic power.

Chapter 3 – Business Opportunities

The Sears story

Business Opportunities in Rural Communities

Resources in the Community

Weakness of a product or service

Opportunities of a product or service

Product Life Cycle

The Needs of the Community

Uses of Market Research

Location of the Business

Basic Phases of Business

For services, a description of the types of service(s) to be rendered, the equipment,

General Format of Project Stury

II. Summary of the Project Study

III. Proponent, Management and Personnel

C. Project Time-Table (Optional) through GANTT Chart or PERT-CPM

IV. Market Feasibility

E. Proposed Marketing Program

VI. Financial Feasibility

d. Elements of production cost – selling, administrative

The Marketing Program

The Technical Feasibility

The Financial Feasibility

Management and Manpower Requirement

Contribution to the Philippine Economy

Limitations of the Project Study:

Chapter 4 – Business Plan Development

Stages of Business Planning

Criteria of Effective Planning

Components of Business Planning

Characteristics of a Sound Business Plan

Obtaining the Facts for a Business Plan

Outline of a Business Plan

Steps in Business Planning

- Is there a reasonable profit?

The Importance of Business Planning

TARLAC STATE UNIVERSITY

Chapter 5 – Organizing the Enterprise

b. Who are your customers?