BUSINESS IN GENERAL

LEARNING OBJECTIVES:

At the end of the chapter, the student is expected to understand the following:

1. Definition of Business and Development of Business

2. Elements of Business System
3. Relationship Between Business and the Economy
4. Why People go into Business and
5. Factors to be considered in choosing a Business

INTRODUCTION

Ideally whenever a business is planned to be put up, the owners or prospective managers
must first make the policy decision necessary to established it, (the business). The forms of
ownership must be decided. All necessary factors must be taken into consideration before you
can start your own business.

BUSINESS

It has been defined as an organization of people with varied skills, which uses property or
talents to produce goods and services, which can be sold to others for more than their cost.

Business is 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.

Profit – is the main objective of business which distinguishes it from charitable

institutions and government agencies.

KINDS OF BUSINESS

Business activity may be divided in three kinds:

1. Industry
2. Commerce
3. Services

This classification is based on the nature of the principal activity performed by the business
enterprise.

1. Industry Business – involves the conversion of raw materials into finished products or
goods.
 ● involves application of labor in the processing of raw materials to become finished
products so that greater usefulness becomes possible.

● It is primarily concerned with the creation of form utility or production of goods that
are either “Consumer Goods” or “Production Goods”.

Consumer Goods - goods for final consumption for the satisfaction of wants.

Producers Goods - goods like textiles, raw materials, machines, lumber use by producers for
further processing.

FACTORS OF PRODUCTION-ELEMENTS OF A BUSINESS SYSTEM

Fig. 1- Elements of a Business Systems

LAND

It is the place where the business is put up. Land also pertains to all the natural resources.

LABOR

It refers to the physical and mental input of the people who are involve in the production
of goods and services.
CAPITAL
 It refers to the money needed to buy materials, equipment machines and salaries and
wages of those individuals responsible in producing goods and services.
ENTREPRENEURIAL ABILITY

It is the ability or capacity of an entrepreneur, manager, or the owner of the business to

handle, run the business.

Industry is further sub-divided into:

Extractive Industries - include farming, fishing, mining etc. They are characterized by the
extraction of goods from natural resources.

Manufacturing industries - use materials and supplies turned out by the extractive industries
change these raw materials into various articles of materials for further production of
goods and new products.

(Fig. 2 – A business enterprise in relation to other members in the system)

2. COMMERCE BUSINESS

It is the process of buying and selling where the goods are moved from the point of
production to the point of consumption. It involves the distribution of form utilities.

3. SERVICES BUSINESS
 Is primarily concerned with services rendered for the satisfaction of the needs and wants of
the consumers these are sub-divided into:

a. public and community service

b. professional or trade service

Examples of the public/community service:

a.1 transportation companies

a.2 MERALCO, ISECO electric companies
a.3 motion pictures producers
a.4 newspaper publishers
a.5 internet

BUSINESS LIFE CYCLE:

The business cycle goes through the phases of recovery, inflation, recession and depression.

Stages:
1. Product development
2. Testing and introduction
3. Rapid growth of demand
4. Steady-state demand
5. Phase out

RELATIONSHIP BETWEEN BUSINESS AND THE ENVIRONMENT

Environment - anything that surround us. It may either be:

A. INTERNAL ENVIRONMENT – they are the so called CONTROLLABLES” within

the control of the company, deals with the anatomy of the business or entire body
system of the company or business.

examples:
 a.1 Organization structure
a.2 policies
a.3 management
a.4 product services

B. EXTERNAL ENVIRONMENT – they are the so called “UNCONTROLLABLES”

outside the company, the society, the outside forces. It includes the economy,
customers culture and practices, suppliers and the politicians as seen in Fig. 2 & 3.

ECONOMICS - come from the word “oikonomia” started as “home economics – which means
management of the house hold.

The business firm produces goods and services from the factors of production, consumers in
turn, buy these goods and services. Business firms thus contribute to the country’s economic
growth.

Gross National Product – (GNP) defined as the total market value of goods and services
produced by a country in any given period.

PAYS FOR THE GOODS AND SERVICES

A PRODUCES GOODS AND SERVICES

PROVIDES FOR THE FACTORS OF PRODUCTION

PAYS FOR THE FACTORS OF PRODUCTION

(Fig. 3 Relationship between business & the economy)

POLITICAL ENVIRONMENT
What is politics?

It is a competition for influences and position. It is also a means by which society faces
up to issues and decides how to resolve them. It is a quest for human betterment by public
means. In short it is the purposeful activity by which man seek to live a better life.

Political setting is a control of administrative life for all government officials such as
there is a great influence of politics and politicians in all government business operation for the
purpose may be of using society’s larger interest.

All administrator, policy making body within the government are political they are
concerned in policy formulation, they administer policy that really affect the company or
business.

Government policies that affect business:

a) monetary policies
b) licensing/business permits
c) economic policies (globalization)

SOCIO CULTURAL ENVIRONMENT

Society represents the whole social organization includes the totality of social
organization – the peer groups interacting to another in many ways.

Culture - are human created beliefs, customs, practices acquired by men as a member of
the society.

The successful entrepreneur attains a position of prestige in the community because of his
many contributions to society especially in terms of general jobs to many people and providing
needed goods and services.

INTERNATIONAL BUSINESS ENVIRONMENT

An important factor in the management of any organization is the increasing

internalization of business activities. International business activities range from exporting goods
to other nations to establishing manufacturing operations in other nations. These activities
present new challenges to managers.

The trading of goods and services across national boundaries result from the principle of
competitive advantage. Factors determining a country’s competitive advantage include the
presence of natural resources, adequate quality and quantity of labor and capital, available
technology, and the cost of these resources.
EXPORTING & IMPORTING
An organization may become involved in international business activities by exporting,
importing or manufacturing in a foreign country.

EXPORTING- refers to the selling of an organization’s goods in other country.

IMPORTING- is the purchasing of goods and services from a foreign country.

REASONS FOR EXPORTING:

1. If production process requires high volume to reduce cost per unit, the home market may
be too small to absorb the output, thus the output may be sold overseas.
2. The demand for the firm’s product may be seasonal and irregular. By expanding the
firm’s market to other countries, production costs may be lowered by more effective
production scheduling.
3. All products undergo what is called the product life cycle when the products are first
introduced, there is usually a big demand and the introducing firm is the only supplier. As
the product reaches maturity, this competitive edged is reduced and can be maintained
only by creating new markets, where it re-enters the growth stage.
4. In selling goods or services, the organization may face competition as stiff as it does in
the Philippines, thus its marketing cost may be reduced. By established goods in new
overseas markets, the organization is also able to increase its profits without risking new
product development.

POSITIVE VALUES OF A FILIPINO ENTREPRENEURS

1. PAKIKIPAGKAPWA TAO

There are many ways in making our cultural values favorable to entrepreneurship. For
example our value of pakikipagkapwa tao (human relations) which covers our concern for
“hiya” (loss of face), pakikisama (togetherness), pakikibagay ( adjusting and
adopting to other people) malasakit ( concern) “utang na loob” (debt of gratitude) amor
propio ( self-esteem) and bayanihan ( cooperative spirit)

these values are favorable to entrepreneurship because it is against any form of exploitation
of another.

2. BAHALA NA

By nature, Filipinos are malakas ang loob (strong hearted and not timid). The fact is that
many of us pursue our plans and projects even if we are not sure of future developments or
events that may affect their accomplishment.

3. PAKIKIPAGSAPALARAN
 The saying “Ang taong talagang duwag, tomatakbo’t walang sugat”, shows that we as a
people do not consider it honorable to surrender before uncertainty or challenge. We are very
quick to adjust to new and strange situations. It is not surprising why there is plenty of
mobility among of countrymen; and it is not unusual to find inter-province migration as
precipitated by the love for “pakikipagsapalaran” (adventure). That is risk taking.

WHY DO PEOPLE ENGAGE IN BUSINESS?

People engage in business because of the following reasons:

1. POWER - some are engaged in business or enters into a business because they expect to
rise up in their position.

2. PROFIT - businessman engage in business not only for social standing but their desire
for profit.

3. SERVICE TO THE COMMUNITY - some business man are not doing things just
because of profit but as a part of a their public service.

4. PERSONAL SATISFACTION - business does not only mean to provide livelihood,

source of income or our “daily bread, but its they “way of life”, search for own
self-fulfillment.

5. LIVELIHOOD - we engaged in business to earn a living.

6. SOCIAL APPROVAL – business has a social standing in the community. Before they
look upon businessman, and pay greater attention of lawyers, doctors’ priest but at this
point in time they enjoy in the society equal to or even higher than any other calling.

7. PROTECTION – sometimes we inherit a business and we can pursue the business.

The factors identified above are the motivational factors. These factors can be clearly explained
and directly linked with needs theory.

FACTORS TO BE CONSIDERED IN CHOOSING A BUSINESS:

1. Available funds - availability of funds definitely limits the type of enterprise that may be
formed by an individual, partnership or corporation.

2. Special aptitude and interest - one must consider his personal attitudes and interest.
Training, education and experience – one must have adequate training, educational
background and experience. Of course, a common layman cannot produce spare parts or
goods.
3. Social status of the business - social standing of the business affects the individual, integrity
of the store, “the select” establishment in a given community.

4. Competitive situation - rivalry among business establishment.

5. Demand and Supply - is another factor that must be evaluated before a final decision is
made to enter a given business.

Demand - is the desire for a particular product or goods.

Supply - is the quality of goods that the seller is willing to sell at a particular time and price,
how much will be offered for sale.

LEGAL FORMS OF BUSINESS OWNERSHIP

The organizational form which a business enterprise assumes is determined by the owner
or the enterprise in accordance with its objectives and the resources available. One of the first
questions which anyone starting a business must ask himself is: Which is the best form of
ownership for me to use?

The legal forms of ownership are as follows:

1. SOLE PROPRITORSHIP - a form of business organization organized and managed by

only one person. It is possible that the capital in this form of business comes from the
collective contribution of members of the family or among friends, however, for the
business to be considered a sole proprietorship it should be registered in the name of only
one person.

The simplest form of ownership and the most prevalent particularly in small enterprise.

This form is well suited to professional and service enterprises such as dental clinics,
architectural offices, repair shops, landscape gardeners.

2. PARTNERSHIP - it is stated in the Civil Code Art. 1767 that “by the contract or partnership
two or more persons bind themselves to contribute, money, property or industry to a common
fund, with the intention of dividing the profit among themselves”.

A partnership acquires juridical personality upon agreement of the partners; such agreement
is required to be in writing, if the capital of the partnership is P8,000 of more and must be
recorded in the Securities and Exchange Commission.

Partnership may be classified:

a. as to object:

a.1 Universal partnership - one where the partners contribute all their property into a
common fund, with the intention of dividing it, as well as its profits.

a.2 Particular partnership - may be establish over a determinate thing, it uses or fruits for
the accomplishment of a specific undertaking, or the exercise of a profession.

b. as to liability:

b.1 General partnership - most common form of partnership and the oldest form of business
ownership. It is a contractual relationship that may be entered into by any person, who
possess the right to contract in his own right and partners are liable pro-rata.

b.2 Limited partnership - partners are liable only for the amount of their investment in the
partnership. They take no part in the active management. A limited partner may
contribute cash, but not service.

KINDS OF PARTNERS:

1. General partners - one who liability to third person extend to his personal property, he may
either be a capitalist or industrial partner
2. limited partner - one whose liability to the third person is limited only to his capital
contribution.
3. Capitalist partner - one who contributes money, property to the common fund.
4. Industrial partner – one who contributes his services, talents, skills, abilities but not
property.
5. Managing partner – one who manage the affairs of the business. He may be appointed in
the Article of Incorporation.
6. Liquidating partner- one who take charge of the winding up of the partnership upon
dissolution.
7. Ostensible - one who take active part and known to the public as a partner.
8. Secret partner - one who take active part in the business but its not held out as a partner. It
could also be known as “sleeping partner.”
9. Silent partner - one who does not take active part and not known or held out as a partner.
10. Dormant partner – one who does not take active part and not known or held out as a
partner.
11. Nominal partner – a partner who exist only in name, one who is no partner at all they are
only using his name for business or prestige.
12. Junior/Incoming – a person lately or about to be taken.
13. Retiring/Senior - one who withdraw from the partnership.
2. CORPORATION - is an artificial being, created by law, having the right of succession and
powers, attributes and properties, expressly authorized by law or incident to its existence.

It has a personality separate and apart from the individual members/stockholders who as natural
persons are merged in the corporate body.

It is a form of business organization and that it is an “association of individual organized under a

“charter” granted by the state.

Charter - is the corporation law of the Philippines. The charter entitles the business to exercise
its power or privileges as a corporation.

FORMS OF ADVANTAGES DISADVANTAGES

OWNERSHIP
SOLE PROPRIETORSHIP a. Easy to set up. /start. a. Demanding on
(ONE PROPRIETOR) b. Decision making is left owners’ personal
relatively to owner line.
b. Growth limited
owner’s financial
means.
PARTNERSHIP a. Relatively easy to set up. a. Dissolution of
( TWO OR MORE) partnership by any
personal rifts
between partners.

b. Checks and balances c. Equal profit sharing

maintained with two despite unequal
parties around. attention and time
given by partners to
business.

DISTINCTION BETWEEN PARTNERSHIP AND A CORPORATION:

PARTNERSHIP CORPORATION
AS TO THE MANNER OF CREATION:
- organized by mere agreement - created by law
AS TO THE NUMBER OF
ORGANIZER:
- at least 5 but not more than 15
- may be organize by 2 or more incorporators.

AS TO POWERS:
 - may exercise any powers authorized - can exercise only the powers expressly
by the partners provided, it is not granted incident to its existence.
contrary to law, morals, good customs
or public policy.
AS TO MANAGEMENT:
- when mgt. is not agreed upon, every - the power to do business is vested to the
partner is an agent to the partnership. board of directors/trustees.
AS TO THE EFFECT OF
MIS-MANAGEMENT
- A partner as such can sue a co-partner - the suit against a member of the board of
who mis-manage. directors who mis-manages must be in
the name of the corporation.
AS TO DISSOLUTION:
- may be dissolved at any rate, anytime by - you can dissolve with the consent of the
the will of the partners. state.

SIMILARITIES:

1. Partnership and corporation have a juridical personality, separate and distinct from that of
the individual composing it.
2. Like partnership a corporation is composed of an aggregate individual.

COOPERATIVES

A cooperative is a voluntary business organization formed by its member for purposes of

collectively carrying on a business activity for the direct benefit of the members.

It is a non-profit enterprise, owned and democratically control on a mutual basis by

members who participate in the savings generated by the cooperative proportion to the patronage
given by the individual member to the association.

Such organizations are based on the four cooperative principles:

a. open and democratic membership

b. democratic control (one member, one vote)
c. limited interest on capital
d. patronage refund (distribution of savings to member in proportion to their participation in
the business of the cooperative.)

KINDS OF COOPERATIVES

1. CONSUMERS COOPERATIVE
2. MARKETING COOPERATIVE
3. PRODUCERS COOPERATIVE
4. FINANCIAL/CREDIT COOPERATIVE
REVIEW QUESTIONS:

1. What are the elements of a business system? Which is the most important?
2. How would you differentiate a partnership from that of a corporation?
3. Explain the role of business enterprise to our economy.
4. Of the three forms of business ownership, which is the more stable and why?

START A NEW BUSINESS OR BUY AN EXISTING ONE?

A good and practical answer is “it depends”, because we have to consider the nature and
kind of business you have, there are business, where it takes long develop products and
markets. You may be better of buying into a company that already established products in
the market but for some reason or another also needs fresh equity or fresh approaches, it
depends on the availability of opportunities for acquisition and it also depends on your
personal biases.

THE PROJECT FEASIBILITY STUDY:

The project feasibility study, sometimes called a project study or a feasibility study evaluates
the viability of a business undertaking. The undertaking may be a new or proposed venture,
or an existing business.

The preparation of project study covers:

1. the collection of data through research work which is significant to all areas of
undertaking;
2. the analysis of the collected data; and
3. the formulation of recommendations, based on the analysis

VARIOUS ASPECTS OF PROJECT FEASIBILITY STUDY

I. MARKET ASPECT

The marketing aspect is considered the life blood of virtually all project feasibility
studies for the extent of the data and information gathering because the succeeding
aspects depend largely on it. This serve as a basis of the financial section through the
projected demand. This aspect includes demand, supply demand and supply gap
analysis, marketing program and the projected sales. The objective of the marketing
aspect of a feasibility study is to determine the quantity of the product that can be sold at
a certain price given the competitive situation.

II. ORGANIZATION & MANAGEMENT ASPECT

 The overall implementation plan is discussed in the organization and management study.
This aspect includes a study of the officers and key personnel, basic considerations in forming
the organizations, form of ownership, organizational chart, and project schedule. The objective
of the management aspect of a feasibility study is to determine the option of effectiveness of the
organizational set up and the qualifications of individuals who will make up the organization.

III. TECHNICAL ASPECT

After having determined the market size and area, product demand and growth, the potential
and technical feasibility of the project may be analyzed. The technical soundness analysis will
be considered complete if all pertinent technical aspects of the project have been taken into
account in the analysis and if the planned construction or procurement conforms to accepted
engineering standards and practice. The objective of this portion of the feasibility study is to
determine to what extent the project meets the technical soundness criteria.

IV. FINANCIAL ASPECT

The financial aspect of the project feasibility study quantifies the results of the
marketing, technical, management, taxation and legal phases of the project study and
expresses in peso terms the possible outcome of operating the project.
The major parts of the financial study are:
a. statements of assumptions;
b. possible sources of outside financing;
c. projected financial statements;
d. details of various amounts contained in the projected financial statements; and
e. Analysis of the financial projections

V.SOCIO ECONOMIC ASPECT

The objectives of the socio-economic aspect of the feasibility study is to determine how project
will affect:
a. income, considering the benefits it will give to families and individuals;
b. taxes, indicating the amount of revenue it could raise for the government
c. prices, considering the influence of the proposed project on supply of goods and foreign
exchange balances;
d. local producers, considering the use of locally manufactured machines, raw materials and
labor;
e. the community, in terms of benefits the proposed business will directly or indirectly share
on the development of the place, community and the nation.
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