FUNDAMENTALS OF BUSINESS MANAGEMENT 1

Professors: Ms. Cecilia Alexandria Godoy

Transcribed By: Angelika B. Linga BSA1-2

INTRODUCTION factors offered by the society like (labor, capital, land,

Business is everywhere– Looking around the
places where you in, there are lot of small-medium-or
even large business enterprises that offers their goods
and services in order to satisfy man’s needs and even
wants. But do you know how they came up with those
business ideas? Those are all products of imaginative and
creative mind together with some of innovative ideas of an
entrepreneur who conducts series of marketing research
and studies before its final presentation to the perspective
consumer or customer.
entrepreneur). While business deals with selling product
or services to a consumer, economics deals with supply
and demand of all products in the country. They are
related since performance of business in general affect
economy at large
→ Gross National Product – the total market value of
goods and services produced by a country in any
given period.

Likewise, this module will provide information that

will help person to know the concept of business, the
resources needed in starting a business, the process it
should take to be a registered business enterprise in
accordance to our law and give insights on the relation of
business to an individual and national economy.

LEARNING OUTCOMES:
After reading this module, the learner should be able to:
1. Explain the concept of business;
2. Analyze the relationship of business to man’s and
national economy;
3. Identify factors of production;
4. Cite some reasons why people engage in
business;
5. Identify the process needed in establishing a
business.
LESSON 1.1: CONCEPT OF BUSINESS
What is a Business?
A business is defined as an enterprise or
organization engaged in commercial, manufacturing, or
professional activities. The term business also refers to
organized activities of individual or team to create and
distribute goods and services aimed to meet the economic
needs of consumers with an objective of eventually
earning profit. Entrepreneurs usually start with conducting
a market research wherein they are studying the demands,
needs and wants of the community.
→ Business – any activity involved in the production and
distribution of goods and services, aimed to meet the
economic needs of consumers with an objective of
eventually earning profit.
RELATIONSHIP OF BUSINESS AND ECONOMY
Businesses provide goods and services that drive
economic output. The production of goods came from the
• The role of business is to produce goods and services
which consumers need.
• The business firm produces goods and services from
the factors of production provided by the society.
Consequently, to produce goods and services, the
business firm has to purchase materials, components
or semi-finished goods from other producers.
ELEMENTS OF A BUSINESS
The factors of production are resources that are
the building blocks of the economy; they are what people
use to produce goods and services. Economists divide the
factors of production into four categories: land, labor,
capital, and entrepreneurship.
The first factor of production is land, which refers
to all the natural resources that serves as raw materials
for the production of a certain goods. This includes not
just land, but anything that comes from the land. Some
common land or natural resources are water, oil, copper,
natural gas, coal, and forests. The income that resource
owners earn in return for land resources is called rent.

Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃1
 The second factor of production is labor. Labor is → Profit – the difference between the income an
the effort that people contribute to the production of entrepreneur receives from the sale of hiss goods and
goods and services. If you have ever been paid for a job, services and the expenses he incurs to produce them.
you have contributed labor resources to the production of
goods or services. The income earned by labor resources BUSINESS ENTERPRISE
is called wages and is the largest source of income for
most people.

The third factor of production is capital. Think of

capital as the machinery, tools and buildings humans use
to produce goods and services. Some common examples
of capital include hammers, forklifts, conveyer belts,
computers, and delivery vans. The income earned by
owners of capital resources is interest.

The fourth factor of production is WHY DO PEOPLE ENGAGE IN BUSINESS?

entrepreneurship. An entrepreneur is a person who Profit Motive
combines the other factors of production – land, labor, and
capital – to earn a profit. The most successful
entrepreneurs are innovators who come up with new ways
of producing goods and services or creating new goods
and services for marketing. Without the entrepreneur
mixing land, labor and capital in new ways, there would
not be many of the developments we see around us.
Entrepreneurs are a vital engine of economic growth
helping to build some of the largest firms in the world as Entrepreneurs in exchange of producing goods
well as some of the small businesses in your and services looks into two important aspect (a) primary
neighborhood. Entrepreneurs thrive in economies where is to earn profit (b) help in the enhancement and
they have the freedom to start businesses and buy advancement of today’s living. Profit could be measured
resources freely. The payment to entrepreneurship by deducting expenses from the company’s revenues.
is profit. Gaining profit in a business entity has a great impact
specially for small businesses: it allows a company to
secure financing from a bank, attract new investors to
fund its operations and grow its business.

Aside from profit motive, people engage in

→ Economics is the study of how a society produces and
distributes its desired goods and services. It deals
with how society uses its resources to produces
goods and services. These economic resources to
produces are called Factors of Production.
→ Land – all natural resources and the land itself
→ Labor – physical and mental inputs of the people who
produce the goods and services.
→ Capital – money needed to start the business
operation.
→ Entrepreneur – buys and organize these factors to
provide goods and services.
business because of the following reasons: power, profit,
service to the community, prestige, livelihood, social
approval, etc. Businessmen want to earn profit, serve" the
community, and achieve prestige because of certain
stimuli, and these are the motivational factors. These
factors can be clearly explained and directly linked with the
theory postulated by Abraham W. Maslow, an industrial
psychologist. According to his Hierarchy of Needs theory,
there are five needs of men that are to be satisfied
continually in the following order:

Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃2
 1. Physiological or Biological Need – the essentials
for survival, such as the need for food, clothing,
shelter, sex, air, water;
2. Safety Need – the desire for security, stability, or
protection against danger;
3. Social Need – the need for group belongingness,
affection, love, and friendship;
4. Ego or Self-esteem Need – the need for self-
recognition or group satisfaction;
5. Self-fulfillment Need – the need for the realization
of personal goal or ambition.
KINDS OF BUSINESS
Industries involve the conversion of raw materials
into finished products or goods and the application of
labor upon raw materials so that greater usefulness
becomes possible after the process in the industrial group
can be divided into extractive industries: farming, fishing,
and mining. The manufacturing industries use materials
and supplies turned out by the extractive industries and
change these raw materials into various articles of
materials for further production of goods and new
products.
Commerce involves the process of buying and
selling where the goods are moved from the point of
production to the point of consumption. Consumption
involves purchasing and the actual investment of capital in
the merchandise handled with the intention of reselling at
a profit.
Service enterprises are primarily concerned with
the satisfaction of the needs and wants of the consumers.
These are subdivided into: (a) public and community
service; and (b) professional or trade service, Examples of
the first group are transportation companies, MERALCO,
motion picture producers, and newspaper publishers.
Professional and trade services are businesses which
capitalize on personal skill and talent for rendering service.
Payment for such personalized service is usually in the
form of fees which are sometimes called retainer's fee.
Examples:
1. Industries
• Apple, Honda, San Miguel Brewery, Shell,
Purefoods
2. Commerce
• SM, Rustan’s, Robinsons, National Book store
3. Service Enterprise
• Public and community service
• Professional or trade service
Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃3
FORMS OF BUSINESS OWNERSHIP
Sole Proprietorship
→ These entities are owned by one person, usually the
one who is accountable for the day-to-day running of
business.
→ Sole proprietors own all of the business' assets and
the profits that it generates.
→ Organized and managed by only one person.
Advantages of Sole Proprietorship
→ Easiest and least expensive form of ownership to
organize.
→ Sole proprietors are in complete control, and within
the parameters of the law, may make decisions as
they see fit.
→ Sole proprietors receive all income generated by the
business to keep or reinvest.
→ Profits from the business flow-through directly to the
owner’s personal tax return.
→ The business is easy to dissolve, if desired.
Disadvantages of Sole Proprietorship
→ Sole proprietors have unlimited liability and are legally
responsible for all debts against the business. Their
business and personal assets are at risk.
→ Funds are limited with their personal savings or loans
→ May have a hard time attracting high-calibre
employees
Partnership
→ By the contract of partnership two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.
→ Two or more persons contribute money, property, or
talent to carry on a business.
Advantages of Partnership
→ Partnerships are relatively easy to establish; however
time should be invested in developing the partnership
agreement.
→ With more than one owner, the ability to raise funds
may be increased.
→ The profits from the business flow directly through to
the partners’ personal tax returns.
→ Prospective employees may be attracted to the
business if given the incentive to become a partner.
→ The business usually will benefit from partners who
have complementary skills.
Disadvantages of Partnership
→ Partners are jointly and individually liable for the
actions of the other partners.
→ Profits must be shared with others.
→ Since decisions are shared, disagreements can occur.
→ Some employee benefits are not deductible from
business income on tax returns.
→ The partnership may have a limited life; it may end
upon the withdrawal or death of a partner.
Types of Partnerships that should be considered:
General Partnership
Partners divide responsibility for management
and liability, as well as the shares of profit or loss
according to their internal agreement. Equal shares are
assumed unless there is a written agreement that states
differently.
Limited Partnership and Partnership with Limited Liability
“Limited” means that most of the partners have
limited liability (to the extent of their investment) as well
as limited input regarding management decisions, which
generally encourages investors for short term projects, or
for investing in capital assets. This form of ownership is
not often used for operating retail or service businesses.
Forming a limited partnership is more complex and formal
than that of a general partnership.
Corporation
A corporation is an artificial being created by
operation of law having the right of succession and the
powers, attributes and properties expressly authorized by
law or incident to its existence.
Advantages of Corporation
→ Shareholders have limited liability for the corporation’s
debts or judgments against the corporations.
→ Generally, shareholders can only be held accountable
for their investment in stock of the company. (Note
however, that officers can be held personally liable for
their actions, such as the failure to withhold and pay
employment taxes.)
→ Corporations can raise additional funds through the
sale of stock.
→ A corporation may deduct the cost of benefits it
provides to officers and employees.
Disadvantages of Corporation
→ The process of incorporation requires more time and
money than other forms of organization.
Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃4
→ Corporations are monitored by federal, state and
some local agencies, and as a result may have more
paperwork to comply with regulations.
→ Incorporating may result in higher overall taxes.
Dividends paid to shareholders are not deductible
form business income, thus this income can be taxed
twice.
KINDS OF ECONOMIC SYSTEM
1. Capitalism – a system in which the means of
production are owned and operated by private
individuals.
2. Socialism – the ownership of production and
capital by the government and the regulation by
society, as a whole, of the process of production
and distribution, and of the giving of essential
services.
3. Communism – stands for the collective ownership
by the government of consumption goods and
production goods.
CRITERIA IN CLASSIFYING PHASES OF ECONOMIC
DEVELOPMENT
A. Means of Livelihood
→ Hunting and Fishing Phase
→ Pastoral Phase
→ Handicraft Phase
→ Agricultural Phase
→ Industrial Phase
B. Extent of Economic Activity
→ Household Economy
→ Village Economy
→ National Economy
→ International Economy
C. Medium of Exchange
→ Barter Economy
A barter economy is a cashless economic
system where goods and services are exchanged
based on the agreement of the parties involved.
→ Money Economy
Through time and evolution, money was
used as a medium of exchange. Money solved the
problem of barter economy, when such objects
became standardized in value and regular in
appearance so that it became identified and
accepted by the general public as a medium of
exchange. Consequently, a monetary system
 evolved. Money is anything which is characterized
by its general acceptability, it redeem ability in
precious metals, or public acceptance in any
institution using it.
→ Money and Credit Economy
Credit is the power to obtain economic
goods and services in exchange for the promise
to pay the agreed equivalent at some future time.
Credit supplements money as a medium of
exchange. Modem business operations have
expanded through the availment of credit
facilities, because the use of credit makes
possible the growth of production and of sales.
FEASIBILITY STUDY AND ITS COMPONENT
A feasibility study is a study that takes into
account all of the related factors of a project — including
economic, technological, legal, and scheduling
considerations— to assess the probability of successfully
completing the project. Program managers use feasibility
reports to determine a project's pros and cons before
spending a lot of time and resources in it.
The Importance of Feasibility Studies
Feasibility studies are important to business
development. They can allow a business to address where
and how it will operate. They can also identify potential
obstacles that may impede its operations and recognize
the amount of funding it will need to get the business up
and running. Feasibility studies aim for marketing
strategies that could help convince investors or banks that
investing in a particular project or business is a wise
choice.
Components of a Good Feasibility Study
1. Marketing Aspect – to determine the quantity of the
product that can be sold at a certain price given the
competitive situation.
2. Organization and Management Aspect – it includes
study of the officers and key personnel, basic
considerations in forming the organizations, form of
ownership, organizational chart, and project schedule.
3. Technical Aspect – it determines to what extent the
project meets the technical soundness criteria.
4. Financial Aspect – it quantifies the result of the
marketing, technical, management, taxation and legal
phases of the project study, and express in peso
terms the outcome of the operating project.
Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃5
5. Socio-Economic Aspect – it determines how the
project will affect:
→ Income
→ Taxes
→ Price
→ Local producers
→ Community
PROJECT FEASIBILITY STUDY
→ Also called a project study or a feasibility study
→ Considered as procedural requirement for securing
financing or government assistance.
→ The objective is to guide the project promoters,
business executives, and financial managers in
determining the actions they must take on a project in
order to bring out its successful operation.
Project Feasibility Study Covers:
→ The collection of data (through research work) which
is significant to all areas of undertaking;
→ The analysis of the collected data; and
→ The formulation of recommendations, based on the
analysis.
HOW TO REGISTER YOUR BUSINESS?
Whether the type of enterprise you want to run in
the Philippines is a sole proprietorship, a partnership, or a
corporation, the basic legal requirements of starting a
business in the Philippines are the following:
1. Register the business with the corresponding
department or agency
Sole proprietorships must be registered with the
Department of Trade and Industry (DTI). Partnerships and
corporations, on the other hand, must be registered with
the Securities and Exchange Commission (SEC). The
name of the business is also included in the registration.
2. Obtain a business permit
Head to the local government unit of the place
you intend to operate your business in. Secure a
business or mayor’s permit. Each municipality has its
own specific requirements and procedures for the
registration of businesses, so be sure to check the
individual websites of these areas for more
information.
Many of the basic requirements include:
• DTI or SEC registration form
• Barangay clearance
• Zoning clearance
• Sketch of the location
 • Land title or contract of lease
• Community tax certificate
• Public liability insurance
• Occupancy permit
• Sanitary permit
• Environmental permit
• Fire permit
3. Register with the Bureau of Internal Revenue (BIR)
After obtaining the necessary documents and
permits, register the business with the Bureau of Internal
Revenue (BIR). Business owners need to get a Taxpayer
Identification Number (TIN) from the Revenue District
Office (RDO) within the registered location of the
business.
There are two kinds BIR forms you can fill out
depending on the type of business you’re starting. These
forms are:
• Form 1901 for people who are self-employed,
single proprietors, or professionals
• Form 1903 for partnerships and corporations
4. Registering with the SSS, PhilHealth, and Pag-IBIG
Fund
If you hire employees, register them with the
necessary government programs. The Social Security
System (SSS) is a social insurance program that collects
the monthly contribution of employees, along with the
share of their employer. The SSS gives employees health
and retirement benefits from their monthly contributions,
along with a variety of small loans. An SSS membership is
mandatory for all employees who are 60 years old and
below.
The Philippine Health Insurance Corporation
(PhilHealth) is another government agency that requires
monthly contributions from the employee and the
employer.
The Home Development Mutual Fund (Pag-IBIG
Fund) provides a variety of housing loans to employees.
Monthly contributions are deducted from the salary of the
employee.
5. Additional requirements:
Aside from the requirements mentioned above,
there are also other special requirements that businesses
need. These requirements depend on the nature of the
business and their corresponding industry. If you intend
to open a school or offer training or education programs,
register with the Department of Education (DepEd). For
Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃6
businesses that sell food products, register with the
Bureau of Food and Drugs (BFAD).
REGISTERING WITH THE DEPARTMENT OF TRADE AND
INDUSTRY
I. Purpose of Licensing
DTI, through its Bureau of Trade Regulation and
Consumer Protection (BTRCP), administers the
registration of business names.
II. Who are required to register
Procedures:
1. Pay a registration/processing fee (121.00 at 1992
rates)
2. Fill up the form and file it with the DTI Office attach
original receipt, and
3. with the form, file the basic supporting
documents.
For Single Proprietorship
→ For natural-born Filipinos, recent passport-sized
photo.
→ For aliens, Photostat copy of Alien Certificate of
Registration (ACR) for current year (bring original for
comparison); and certificate of authority to engage in
business in the Philippines from the Board of
Investments.
For Partnership and Corporations
→ If fully owned by Filipinos, Articles of Partnership or
Incorporation and Photostat copy of the SEC
Certificate of Registration.
→ If fully or partially owned by an alien, Articles of
Partnership of Incorporation; SEC Certificate of
Registration; and Certificate of Authority to engage in
business in the Philippines from BOI.
III. Requirements for Registration
A. Original Registration (New)
1. Individuals (Accomplished Application Form,
Accomplished Index Card, Two Passport
Sized Photos of Owner)
2. Entities (Accomplished Application Form,
Accomplished Index Card, Articles of
Incorporation/Partnership, SEC Certificate of
Registration)
B. Application for Renewal (for Individual Entities)
1. Application form
2. Old certificate of registration
IV. Estimated time processing
Processing time normally takes four days from
date of filing.

V. Validity of Registration
5 Years

VI. Accreditation
Compliance with the requirements of the law and
fulfilled the basic requirements of the industry for their
operation and are therefore reliable and competent to
practice the trade.

SOCIO ECONOMIC CONTRIBUTION OF

ENTREPRENEURSHIP
1. Entrepreneurship creates employment
2. Entrepreneurship improves the quality of life
3. Entrepreneurship contributes to more equitable
distribution of income taxes and
4. therefore, eases social unrest.
5. Entrepreneurship utilizes and mobilizes resources
for greater national productivity.
6. Entrepreneurship brings social benefits through
the government.

EXPORTING AND IMPORTING

Exporting, selling of an organization’s goods in
another country.

Importing, purchasing of goods and services from

foreign country.

Chapter 1 Module 1 Business: It’s Concepts and Role for Man and National Economy ┃7