CHAPTER 7 - fixed cost changes

BUSINESS ENVIRONMENT RISKS

RISK MANAGEMENT FOR STARTUP
BUSINESS - laws, weather, natural disaster, community

RISK MANAGEMENT

- identifying areas of threat to the business. PERSONAL CONFLICT RISKS

- assessing the potential impacts and managing
- family obligations, illness/deaths
these.
- events of disaster that affect the home
INTERNAL RISKS - community involvement
- complacency
HUMAN RISKS

- death (owner, employee)

- illness (short/long term, indefinite) RISK IDENTIFICATION
- theft & fraud (product & inventory theft, time
- written business plan
sheet fraud, accounting & cash fraud)
- outside sources to assist in identifying
- low morale, dissatisfaction (failure to perform,
- business continuity assessment
sabotage systems; equipment/customers)

EQUIPMENT & INFORMATION TECHNOLOGY RISKS

- equipment breakdowns (new equipment
integration, worn older equipment, damage to
vehicles)
- information technology downtime (lack of
backup/ recovery system, updates and repairs,
power connectivity, lack of administrative
controls)
OTHER INTERNAL RISKS
- physical plant repairs (breaks in lines/ utilities,
routine maintenance)
- incidents (work related injuries, damage to
other’s property by employees, damage to your
property by others)
- cash flow changes (unexpected costs, loss of
credit lines, expenses to establish lines of credit)
EXTERNAL RISKS
COMPETITION AND MARKET RISKS
WARNING SIGNS
- excessive debt in relation to owner’s equity
- reliance on a small no. of customers
- reliance on one product
- reliance on one/ a small no. of vendors
- cash flow problems
- irregularities in accounting, bank/ time card
records
- irregularities in computer system administrative
reports
- high employee turnover rate
RISK EVALUATION
- identify needs for business continuity and
potential/ planned growth
- discuss risks with managers
- communicate risks to manager

- loss of clients/ customers & employees

- decrease in sale prices SWOT ANALYSIS (Strengths, Weaknesses,
- increase in vendor costs Opportunities, Threats)
- oil/gasoline price increases
OTHER RESOURCES INFORMATION TECHNOLOGY SYSTEMS

- small business administration - Do not share login info

- audit firm/ CPA - Protect systems w/ firewalls
- bank/ commercial lender - Institute level of access
- risk insurance provider - Perform other reports
- internet source - Sample transactions/ use trial transactions
- Conduct scheduled & surprise audits

COMPETITION
RISK MEASUREMENT
- Shop them
- effect on potential earnings & cash flow - Check advertising
- what would change in your business as a result - Product lines
- weighing costs versus the benefits of the - Pricing
control - Customer interaction
- Employee retention

IMPORTANCE OF RISK MANAGEMENT

- Cash flow ACCOUNTING & CASH CONTROL

- Stability - Separation of duties
- Credit - Dual control of cash
- Longevity - Levels of authority observed
- Periodic & surprise audits
- Insured deposits – FDIC
RISK CONTROL MANAGEMENT & IMPLEMENTATION - Plan for reserves in the budget

EQUIPMENT & VENDORS

- Inclusion in initial written business plan EMPLOYEE MANAGEMENT

- Readdress, monitor & update business plan
periodically - Pre- employment screening & background
- Insure equipment & use service plans checks
- Know your vendors & suppliers – backup - Job description & duties
relationships - Communicate clear expectations
- Cross train staff
BUSINESS CONTINUITY - Identify temp agencies that specialize in your
field
- Location to continue business operations
- Periodic evaluations & feedback
- Establish manual system
- Manage by being present/ walking around
- Train staff to continue operations
- Audit for payroll/ time fraud
- Backup operating systems, list staff duties &
- Benefits & compensation for retention
contacts
- Incentives to avoid injuries & damages
- Review contracts w/ vendors for provisions
- Know system provider backup & contingency
operational plans
BUSINESS WORK STRATEGY
How can you manage your own risks?
- Set work hours
- Plan work w/ balance
- Set realistic goals
- Train support staff/ an assistant
- Include in disability/ death in business plan
- Support system
- Anticipate family & home needs
PROTECTING YOUR BUSINESS FOR UNCERTAINTIES
MORE ON CONTROL MANAGEMENT
- Communication w/i org
- Routine assessment of physical plant
- Be alert to changes in the community & laws
- Awareness of news in the economy
- Utilize lines of credit only when needed
- Insure against damages from weather &
disasters
- Backup utilities – phones & generators
LEAD BY EXAMPLE
- Ethical and honest behavior will begin with
management
EXIT STRATEGY
- Included in business plan
- Revisit periodically
- Insurance payment & liquidation of assets
- Liquidation of assets w/o insurance
- Trustee to handle
- Family member
- Employees
HOW TO PROTECT YOUR BUSINES BRAND
1. Make sure your business papers are in order
2. Trademark your business
3. Be aware of intellectual property (IP)
infringement
4. Be your own brand police
5. Protect your home turf
6. Explain brand protection in your employee
handbook
7. Hire help
8. Use google alerts to safeguard your brand
9. Monitor your competitors
10. Think global
- Business establishment insurance
- Accident insurance for employees
- Business travel insurance
- Engineering insurance
- Surety
 Surety Bonds – the insurance company
promises to answer financially to the
obligee for the debt , default/ misconduct
of the principal.
 Contractor’s Bonds – required of
contractors in connection with contracts for
construction/ for the supply of labor.
 Bidder’s Bond – contract to supply material
& equipment for construction work is
placed for public bidding.
 Performance Bond - When a contract is
awarded to a contractor to undertake
construction work for the obligee,
the contractor is required to post a bond
which will guarantee that the principal (the
contractor) will perform the job according
to the terms and condition of the contract
and within the period specified.
 Judicial Bonds – filed in a court of law in
accordance with a statutory requirement.
 Court Bonds – filed by a party who is either
a plaintiff or defendant in a litigation case
that guarantees that he will honor/ pursue
the legal remedies of the courts.
 Attachment Bonds - When a complainant
(plaintiff) in a legal case has attached the
property of the defendant, the complainant
 is required to post this bond to guarantee
that the surety will pay the defendant all
his financial losses resulting from the
attachment of his property should the CHAPTER 7
plaintiff lose the case.
 Replevin Bond - Replevin is an action to LAWS AND REGULATIONS
regain possession of personal property.
LEGAL REQUIREMENTS FOR STARTING A BUSINESS IN
 Fidelity Bonds - A fidelity bond promises to
PH (Sole Proprietor/ Partnership/ Corporation)
reimburse the employer (the obligee) for
any loss of money or property that 1. Register the business with the corresponding
the employer might sustain due to the department/agency
dishonest acts of the employee (the 2. Obtain a business permit
principal) named in the bond. 3. Register w/ the Bureau of Internal Revenue
(BIR)
- Fidelity guarantee insurance
- General liability insurance for premises 4. Registering w/ the SSS, PhilHealth, PAG-IBIG
fund
operations
5. Additional requirements
- Property insurance
- Casualty insurance
- Money, securities & payroll robbery insurance
- Other business insurance HOW MUCH DOES A BUSINESS PERMIT COST IN PH
 Liability insurance for contractors - Business
1. Barangay Clearance (P500)
insurance that indemnifies a contractor in
2. Mayor’s/ Business Permit (P2,000)
the event he is held financially and legally
3. BIR Cert. of Registration (P500)
liable for bodily injury, including death and
4. DTI Business Name Registration Cert. (P200 –
property damage to third parties arising
Barangay, P500 – city/municipality, P1000 –
from his negligent acts or his employees
regional, P2000 – national)
arising out or in connection with the
contractor’s project.
 Liability insurance for security/ manpower
agencies - Business insurance that TAXES FOR SMALL BUSINESS IN THE PH
indemnifies a manpower/security agency in
EVAT – 12% (VAT rate in PH); is collected for all
the event he is held financially and legally
businesses by the BIR either on monthly/ quarterly basis
liable for bodily injury, including death
and property damage to client’s employees WAGE & SALARY TAX – Businesses should withhold &
and guests accidentally caused by remit their employees’ income tax. Businesses are in
the Insured’s assigned security charge of preparing the documents related to their
guards/personnel to his client/s. employees’ taxes & contributions.
 Liability insurance for event organizers -
Business insurance that indemnifies an AMUSEMENT TAX – charged for businesses such as
event organizer in the event he is casinos, clubs, etc. Also, on concerts and other related
held financially and legally liable for bodily entertainment events.
injury, including death and
BUSINESS & CORPORATE TAX – The corporate income
property damage to third parties arising out
tax rate both for domestic & resident foreign
or in connection with his hosting
corporations is 30% based on net taxable income.
or sponsorship of an event.
  “A motive is an inner state that energies,
activates/ moves & that directs behavior
toward goals.” – Bernard & Steener
WITHHOLDING TAX
NATURE OF MOTIVATION
 Dividend (15%) - Internal feeling of an individual
 Interest (20%) - A feeling prompt him to work more
 Royalty (30%) - Energies toward productive action
 Technical Fee (30%) - Motivation is linked to satisfaction
- An individual is motivated in totality.

TAX INCENTIVES FOR SMES

IMPORTANCE OF MOTIVATION
- DIRECT TAX
- INDIRECT TAX

CHAPTER 8

ENTREPRENEURIAL BEHAVIOR &

MOTIVATION
- Entrepreneurial Behavior is the result of
Entrepreneurial Motivation.

MOTIVATION – derived from “motive” w/c means inner

state of mind that activates, provokes & directs our
behavior towards the goal. The process that motivates a
person into action & induces him to follow the course of
action till the goals are finally achieved.
INTRODUCTION & DEFINITION OF MOTIVATION
 To motivate means to provide motive, to
impel people to action, and to create
incentives to work.
 “Motivation is the work a manager
performs to inspired, encourage, and impel
people to take required action.” – Lewis
Allen
 “The act of stimulating someone/ oneself to
get a desired course of action.” – Michael J
 “Motivation means stimulating people to
action to accomplish desired goal.” –
William Scott
- Improves morale of employees
- Lower labor turnover
- Improves goodwill of organization
- Creates cordial industrial relations
- Changes are more easily accepted by employees
TYPES OF MOTIVATION
POSITIVE MOTIVATION – results in willing co-operation
of workers by tempting them towards rewards/
incentives.
NEGATIVE MOTIVATION – creates fear amongst
workers by threatening them with demotions, pay cuts,
layoffs, etc.
INCENTIVES – something that stimulates a person to get
it by engaging in desired behavior.
  Financial Incentives – pay & allowances,
productivity linked incentives, bonus, profit
sharing, stock option, perks
 Non-Financial Incentives – status,
organizational climate, job enrichment, job
security, employee recognition, employee
participation
THEORIES OF MOTIVATION
MASLOW NEED HIERARCHY THEORY
- Based on human needs.
- Strong needs of an individual dominates the
other needs
- The second need does not arise till the first
need is satisfied.
MCCLELLAND’S THREE NEED MODEL:
NEED FOR ACHIEVEMENT:
- Drive to excel, advance & grow
- Desire to achieve something with own efforts
NEED FOR POWER:
- Drive to influence others & situations
- Desire to influence & dominate others through
use of authority
NEED FOR AFFILIATION:
- Drive for friendly & close interpersonal
relationships
- Desire to establish & maintain friendly
relationship with others.
People possess the above needs in varying degrees
& these needs may be simultaneously acting on an
individual. In case of entrepreneurs, the need for
achievement is more dominating.
ALDERFER’S ERG THEORY
- Existence, Relatedness and Growth Theory
 Existence Needs – basic & safety needs
 Relatedness Needs – satisfied by personal
relations & social interactions
 Growth Needs – self-actualization needs
- For the proper development of
entrepreneurship, relatedness & growth needs
are more important.
MOTIVATING FACTORS
INTERNAL FACTORS
- Educational background
- Occupational experience
- Desire to do work independently
- Desire to branch out to manufacturing
- Family background
EXTERNAL FACTORS
- Assistance from government & financial
institutions
- Availability of technology & raw material
- Demand of the particular product
ENTREPRENEURIAL TRAITS/ COMPETENCIES
- Initiative
- Looking for opportunity
- Persistence
- Information seeker
- Quality consciousness
 - Commitment to work
- Commitment to efficiency
- Proper planning
- Self-confidence
- Assertive
- Persuasive
- Effective monitoring
- Employees welfare
- Effective strategist
PERSONAL RELEVANCE

 Consistency w/ self-concept
DEVELOPING ENTREPRENEURIAL COMPETENCIES
 Values
- Gaining firsthand knowledge about  Needs
competencies  Goals
- Competency recognition
- Self-assessment
- Comparing to competencies NEEDS – an internal state of tension caused by
- Developing competencies & feedback disequilibrium from an ideal/desired state.

Motivation is an inner state of arousal that creates

energy to achieve a goal.

CONSUMER MOTIVATION – the needs, wants, drives &

desires of an individual that lead him/her toward the
purchase of products/ideas. (AMA)

MOTIVATION & EFFECTS

 High effort behavior

 High effort information processing &
decision making (Motivated Reasoning)
 Felt involvement (Enduring, Situational,
CATEGORIZING NEEDS
Cognitive, Affective, Response)

DRIVERS OF MOTIVATION
CHARACTERISTICS OF NEEDS IMPLICATIONS OF NEEDS & GOALS

- Dynamic - Enhance communication effectiveness

- Exist in hierarchy
- Internally/externally aroused
- Can conflict (approach-avoidance, approach-
approach, avoidance-avoidance)
TYPES OF GOALS
- Appeal to goals
- Manage consumers’ emotions
PERCEIVED RISK – extent to which the consumer is
uncertain about the personal consequences of buying,
using / disposing of an offering.

- Concrete or Abstract
- Promotion-focused or prevention focused
- Goals to regulate how consumers feel CIRCUMSTANCES CAUSING INCREASED PERCEIVED
- Goals to regulate what consumers do RISK

- Lack of information
- Newness
GOALS AND EMOTION - High Price
- Complex Technology
APPRAISAL THEORY – whether consumer feels - Brand differentiation
good/ bad about something depends on whether it
is consistent/ inconsistent with his or her goals.

- Normative/ Moral compatibility TYPES OF PERCEIVED RISK

- Performance
- Financial
- Physical (Safety)
- Social
- Psychological
- Time

CHAPTER 9

EVALUATING OPPORTUNITY
Opportunity assessment plan is NOT a business plan.

It should be:

1. Shorter
2. Focus on the opportunity, not the venture
3. Have no computer-based spreadsheet
 4. Be the basis to make the decision on whether to
act on an opportunity or wait until another,
better opportunity comes along
It should include:
1. Description of the product/service.
- What is the market need for the product/
service?
2. Assessment of the opportunity
- What market need does it fill?
3. Entrepreneurial self-assessment and the
entrepreneurial team
- Why will you be successful in this venture?
4. What needs to be done to translate this
opportunity into a viable venture?
- Examine each critical step.
SCANNING THE ENVIRONMENT
- Improvement of existing product/ introduction
of better quality new products
- Fulfilling the gaps of needs, wants & creation of
value to customers.
- Opportunities based on local market/ business
advantage (supply & demand, competition, etc.)
- Opportunities based on macro factors
(technology, political, etc.)
BUSINESS IDEAS
Based on:
- Work experience
- Hobby & interest
- Chance encounters
- Family business
- Suggestion
- Business networks
- Local needs, wants or problem
- Market trend
- Copying successful business model
- Franchise business
- Searching good opportunities
- Experimentation
- Building internal strengths
- Readings
- Good existing business for sale
SCREENING, ANALYSIS, SELECTION OF THE
OPPORTUNITIES
- By nature, business environment is always like a
competitive game, only the best will win the
competition.
- Needs to identify a business that he enjoys
doing & has the skill to produce high quality
product and can make this product at a cheaper
cost.
CRITICAL SUCCESS FACTORS OF AN ENTREPRENEUR
- Entrepreneurial Characteristic and Traits
- Knowledge and experience
- Soft Skills
- Adequate resources
- Good networking with potential customers &
suppliers
- Good viable business opportunities with many
positive & attractive environmental factors
 STRATEGIC PLANNING FOR SMALL BUSINESS

SWOT ANALYSIS (Strength, Weaknesses, Opportunities,

Threats)

- An entrepreneur can identify attractive and

favorable business opportunities that match
his/her strengths.