FIRST CITY PROVIDENTIAL COLLEGE

Brgy. Narra, Francisco Homes, City of San Jose Del Monte, Bulacan

Learning Module
College of Business Management
Second Semester

Subject: ENTREPRENEURIAL MIND Year: 3-BSOM, BSTM, BSHM

Lesson Number: 2 Learning Outcome #1

Topic: The Nature of Small Business

OBJECTIVES

1. Comprehensively define Small Business and its nature as described in Magnata

Carta for Small Enterprises.
2. Differentiate small businesses according to their types.
3. Understand and appreciate the contribution of Small Businesses in the Economy

KEY WORDS

Small Business
Market Share Approach
Total Assets Approach
Magna Carta for Small Enterprise (R.A.6977)
Manufacturing Business
Service Business
Wholesaling
Retailing
General Constructing Firms
 LESSON PRESENTATION

Give examples of “small business” that you are familiar with.

__________________________________________________________
__________________________________________________________
__________________________________________________________

Business size is one factor that does not prevent one from engaging in entrepreneurship. Since only a
small number of people have capital large enough to start a large enterprise, the bigger number of
people with minimal resources are forced to operate on a small-scale basis, if they decide on becoming
entrepreneurs.
People and their Number of Persons Possible Engagement in
Financial Capacity Entrepreneurship
Those with large amounts of
capital
Few Few

Those with small amounts of

capital
Many Many

Figure 1. Financial Capacity and Size of Business

WHAT IS A SMALL BUSINESS

Small business may be defined by using any of the two approaches: Market Share or Total Assets.

MARKET SHARE APPROACH TOTAL ASSETS APPROACH

Independently owned and operated and
which is not dominant in its field of
operation.
 The term “independently
owned” means ownership is by
a private individual, a
partnership, or a corporation.
 The term “not dominant”
indicates that a small business
does not control a sizable share
of its market.
When the total sales of a business firm
Having a total asset that fall within a
certain bracket. All enterprises with
total assets of Five million pesos
(P5,000,000) and below shall be called
small enterprises. (Magna Carta for
Small Enterprises R.A, 6977).
One of the disadvantages of the total
assets approach is that asset values are
affected by inflation.
 are less than one percent of the total
demand for its products, the firm may
be considered small business.
From the point of view of business
management, the market share
approach is defining small business is
more appropriate. This is so because
the target market share is an objective
more basic than other objectives.

PRIMER: MAGNA CARTA FOR SMALL ENTERPRISES

R.A. 6977 or Magna Carta for Small Enterprises, signed on 1991 January 24, an act to promote, develop
and assist small and medium scale enterprises (SMEs) through the creation of a Small and Medium
Enterprise Development (SMED) Council, the establishment of a Small Business Guarantee and Finance
Corporation (SBGFC), the mandatory allocation of credit resources to small enterprises and the
rationalization of government assistance programs and agencies concerned with the development of
SMEs.
What is a SMALL and MEDIUM ENTPRISE?
A small and medium enterprise is defined 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:

Microenterprise Less than – Php 50, 000

Cottage Php 50, 001 – Php 500, 000

Small Php 500, 001 – Php 5, 000, 000

Medium Php 5, 000, 000 – Php 20, 000, 000

Large Php20, 000, 001 - above

FEATURES OF A SMALL BUSINESS

1. A small business is low in capital but high in labor intensity.
2. A small business is efficient in specialized skill or service
3. A small business succeeds in small, isolated or overlooked markets.
4. A small business often operates in unstable markets.
5. A small business is closer to the market place
6. Generally, the owner of small businesses are also the managers
7. Capital comes from the owner or small group
8. The area of operation is small
9. The size of the enterprise is small in relation to the industry
THE DIFFERENCE BETWEEN BIG AND SMALL ENTERPRISES

SMALL BIG
ENTERPRISE ENTERPRISE

As a group change through a change is through expansion or

cycle of births and deaths contraction

the risk or reward calculation is

risk or reward estimate is done done by employee-managers.
by hte individual owner who such judgement has no direct
either gets profit or loss stake in the livelihood of the
management.

has tremendous influence on

has little or no economic
the economy including the
power
political sector

does not like to serve or

serves markets
cannot serve effectively

TYPES OF SMALL BUSINESS

Small business may be classified into five types:
1. Manufacturing
2. Service
3. Wholesaling
4. Retailing
5. General construction firms
Manufacturing – one involved in the conversion of raw materials into products needed by society.
The verb ‘to manufacture‘ means to make something using machinery on a large scale. The word
comes from the Latin ablative of ‘Manu,’ which means ‘hand,’ + ‘Factura,’ which means ‘a
working,’ from the past participle stem of the Latin word ‘Facere,’ meaning ‘to perform.’

The term may refer to a wide range of activities, from handicraft to high tech.

Example of manufacturing business: restaurants, bakeries, pharmaceutical industry, electronics,

chemical industry, etc.
Service businesses – those which provide service in one way or another. They may be further
classified into the following:
a. Business services – provide service to other business. Examples are accounting firms,
janitorial service firms, security service firms, collection agencies, and the like;
b. Personal services – provide service to the person. Examples are tutoring services, massage
parlors, voice lesson, and the like;
c. Repair services – provide repair services to owners of various machinery and appliances.
Examples are auto repair shops, watch repair shops, and the like;
d. Entertainment and recreation – includes movie houses, resorts, billiard pool centers, and the
like;
e. Hotels and motels, and
f. Education services – include Montessori schools for children, high school, and the like.

Wholesaling – refers to the activities of persons or establishments which sell to retailers and other
merchants, and/or to industrial, institutional, and commercial users, but who do not sell in large
amounts to final consumers. Examples are softdrinks wholesalers in local areas, dealers of supplies
and office equipment, grains wholesalers, and the like.
Retailing – covers all activities involved in the sale of goods and/or services to the final consumers.
The bulk of retailing activities are performed by small businesses. Examples are retail drugstores,
fast food shops, appliance stores, and others.

General construction firms – are those engaged in the construction of buildings whether for
private individuals or firms, or for the government. Many of them perform subcontracting jobs for
the bigger contractors such as installing electrical facilities and sewerage. Employ hundreds of
thousands of people and they operate mostly in the countryside.
ADVANTAGES OF THE SMALL BUSINESS
1. Personalized relationships with customers and employees
2. Flexibility in management
3. Government incentives
4. Simple record keeping
5. Independence
DISADVANTAGES OF THE SMALL BUSINESS
1. Difficulty of raising capital
2. Risk of failure
3. Limited management skills
4. Lack of opportunities for employees
ECONOMIC IMPORTANCE OF SMALL BUSINESS
1. Providers of economic opportunities for entrepreneurs and competition
2. Providers of products and services to consumers and innovation
3. Suppliers of products and services to other businesses
4. Distributors of products and services of other businesses
5. Supporters of government
6. Providers of employment
WHY SMALL BUSINESSES 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

Summary (Key concepts)

Businesses, especially small enterprises, are important segments of our society.

A small business is one which is independently owned and which is not dominant in its field of
operation.

Small business may be classified as manufacturing, service, wholesaling, retailing, and general
construction firms.

Small businesses are characterized by the following independent management, small capital
requirements, and mostly local operation.

Small businesses play an important role in the development of our economy. They provide economic
opportunities for entrepreneurs, products and services to consumers and industrial users, services to
other firms by way of distributing their products and services, payment of taxes to the government,
and employment.
ASYNCHORONOUS ACTIVITIES
Formative Assessment:
1. Give at least five (5) examples of the following business operations: (15 points)
a. Manufacturing
i. ______________________
ii. ______________________
iii. ______________________
iv. ______________________
v. ______________________

b. Service Business
i. ______________________
ii. ______________________
iii. ______________________
iv. ______________________
v. ______________________

c. Merchandising Business
i. ______________________
ii. ______________________
iii. ______________________
iv. ______________________
v. ______________________

2. Case 2. Angel Ball Construction Supply: Pretend (15 points)

Miss Angelita Ballesteros is currently trying hard to make a decision on whether or not she
should continue operating her construction supply business.

Angelita was raised by her parents as a God-fearing and decent person. She does not fail to go
to mass every Sunday. She graduated valedictorian at the La Salette High School. The
University of Sto Tomas awarded her a diploma in Business Administration with highest
honors.

It was while studying at UST when she met Hamilcar, a townsmate who was also enrolled in the
College of Engineering of the same university. He courted her and after some time, she agreed
to marry him one year after graduation. On the day of the nuptial, Hamilcar did not appear.
Angelita felt humiliated, but after a few months of desperation, she bounced back and got a job
in a commercial bank. Two years later, she was promoted supervisor and after a year she
became the manager of the branch. She began to think that a job in a bank does not provide her
with enough opportunities to prove her real worth. She entertained thoughts about operating a
small business. She resigned from the bank and started to make moves to effectively operate a
construction supply business.
 Angelita’s parents own a vacant 1, 000-square meter lot at the edge of the town’s business
district. Directly in front of the lot is the national highway and at its back is the city road. The
place is an ideal site for a construction supply business. He parents agreed to construct a
building to house her business on the condition that she would pay rent.

Just a month after she started operating, her assistant informed her of the need to convince a
top rated contractor to buy from them. Angelita agreed to meet him. A few days later, when
Angelita was in her office, her assistant came rushing to inform her that the prospect has
arrived to meet her.

Angelita was shocked when she saw that the potential customer was her former boyfriend.
Hamilcar shook her hand and asked how she was. She tried hard to hide displeasure and said
she’s fine. They talked for a few minutes and then he left.

Once more, Angelita felt a rising anger within her. She wants to avoid the guy, so she is
considering shifting to another type of business like that of drug wholesaling or hospital
supplies.

Question:
What would be your advice to Angelita? If you were Angelita, would you shift your type of business to
avoid the person you hate the most? Expound your answer.
 3. Fill in the blanks.
1. Small business may be defined through the market share approach or the ____________________
approach.
2. ________________________ means ownership is by a private individual, a partnership, or a
corporation.
3. A ______________________ is a business involved in the conversion of raw materials into
products needed by society.
4. _________________________ are types of service businesses that provide service to the person.
5. _________________________ refers to all activities involved in the sale of goods or services to the
final consumer.
6. To improve his economic standing, an individual could choose to be an employee, a
professional, or ______________________ .
7. If the small business succeeds, all profits accrue to the _______________________ .
8. The income of the employee is certain while that of the SBO is ______________________ .
9. The SBO is afforded the opportunity to gain control over his _________________________ .
10. Small business is characterized by independent management which means the
___________________ is also the manager.

Six Facets of understanding

12 points
Explanation: Define small and medium enterprise based on the Magna Carta for Small Enterprises.
Answer:

Interpretation: What is the point of small business is beautiful?

Answer:

Application: How can meeting minutes help in the success of business plans?
Answer:

Perspective: Micro business is suitable for our masses. Why?

Answer:

Empathy: Why are small enterprises important?

Answer:
Self-knowledge: How important are small businesses to our economy?
Answer:

Explanation, Application, Reflection (EAR)

6 points

Explanation:
Why is entrepreneurship identified with small business?

Application:
Relate the lesson to the current issues, trends, and problems in the business community, country, and
the world as a whole. How would small businesses solve the recurring problems in our economy?

Reflection:
State how this lesson affects you as a person and to your future.

NOTE: EAR written outputs must be 90-100 words

Total points: Formative Assessments

1. 15 points
2. 15 points
3. 10 points
4. Facets of Understanding – 12 points
5. EAR - 6 points

Total = 58 points

References:

Prepared by: MR. ANDY M. SALVATIERA

Teacher
Checked by: Anne Michelle J. Naig, MAed, MBA, CHP
College Dean
Approved by: Echel Simon-Antero, PhD
Vice President for Academic Affairs
CC: Estrella O. Simon, PhD
President