Chapter 6

TAXATION AND LEGAL ASPECT

Under American Jurisprudence, the power to tax is considered inherent in

a sovereign State because it is a necessary attribute of sovereignty. Without this

power no sovereign State can exist or endure. The power to tax proceeds upon

the theory that the existence of a government is a necessity, and this power is an

essential and inherent attribute of sovereignty, belonging as a matter of right to

every independent State or government. No sovereign State can continue to

exist without the means to pay its expenses; and that for those means, it has the

right to compel all citizens and property within its limits to contribute, hence, the

emergence of the power to tax.

Taxation

Taxation is the process or means by which the sovereign (independent

State), through its law-making body (the legislature), imposes burdens upon

subjects and objects within its jurisdiction for the purpose of raising revenues to

carry out the legitimate objects of government. In simple terms, it is the act of

levying a tax to apportion the cost of government among those who, in some

measure, are privileged to enjoy its benefits and must therefore bear its burdens.

The business will be taxed according to

Legal Aspect Affecting the Business

 Ensuring legal compliance is crucial when starting a small business

in the Philippines as a sole proprietorship. The legal aspects involve choosing an

appropriate business structure, such as a sole proprietorship, partnership, or

corporation, each with distinct implications for liability and taxation. Establishing a

small business in the Philippines as a sole proprietorship involves obtaining

various permits and registrations to ensure legal compliance. The initial step is to

register the business name with the Department of Trade and Industry (DTI).

Following this, secure a barangay clearance from the local community where the

business operates. A Mayor's Permit or Business Permit is then necessary from

the municipal or city hall, renewed annually. To comply with tax regulations,

businesses must register with the Bureau of Internal Revenue (BIR) and obtain a

Tax Identification Number (TIN). If there are employees, registration with the

Social Security System (SSS) and the Philippine Health Insurance Corporation

(PhilHealth) is mandatory. Other clearances, such as fire safety inspection from

the Bureau of Fire Protection, may also be required. It's advisable to consult local

business registration offices and professionals to ensure all necessary permits

are obtained for the specific business and location.

Intellectual property protection, such as trademarks and patents, must be

considered to safeguard unique business assets. Adherence to employment

laws, tax compliance with the Bureau of Internal Revenue (BIR), and protection

of consumer rights are critical legal considerations. Additionally, businesses need

to navigate data protection and privacy laws, environmental regulations, and

health and safety standards. Establishing dispute resolution mechanisms in

contracts can also mitigate legal risks. Seeking legal advice and staying informed

about relevant laws are essential steps for legal compliance and the long-term

success of the business.

Forms of business organizations

Establishing a small business in the Philippines as a sole proprietorship

involves obtaining various permits and registrations to ensure legal compliance.

The initial step is to register the business name with the Department of Trade and

Industry (DTI). Following this, secure a barangay clearance from the local

community where the business operates. A Mayor's Permit or Business Permit is

then necessary from the municipal or city hall, renewed annually. To comply with

tax regulations, businesses must register with the Bureau of Internal Revenue

(BIR) and obtain a Tax Identification Number (TIN). If there are employees,

registration with the Social Security System (SSS) and the Philippine Health

Insurance Corporation (PhilHealth) is mandatory. Other clearances, such as fire

safety inspection from the Bureau of Fire Protection, may also be required. It's

advisable to consult local business registration offices and professionals to

ensure all necessary permits are obtained for the specific business and location.

Chapter 6

FINANCING, FINANCIAL ESTIMATES AND ANALYSIS

The business feasibility study, the focus is on how the venture will be

financed, financial needs estimated, and potential outcomes analyzed. The study

details the sources of initial funds and makes educated projections about
revenue and expenses. Key financial metrics, such as return on investment and

profit margins, are analyzed to assess the viability of the business, and identify

potential risks. Additionally, a cost-benefit analysis is conducted to weigh startup

costs against expected benefits. Seeking professional financial advice ensures

accuracy and reliability in these critical aspects of the feasibility study.

Financing (Source of Financing)

Using the power of savings, a group of innovative individuals—Mrs. Anton

Nikolai Anore, Mr. Ablay Zairus, Mr. Edryl Burce, and Mr. Paul Jasreil Cabanela—

have chosen a basic and dependable way to financing in the dynamic financial

landscape of the Philippines. They have combined their funds and have

accumulated a significant amount of capital—90,000 Philippine pesos. This

group's choice demonstrates not only their dedication to sound money

management but also their understanding of the advantages of using personal

savings as a source of funding.

By opting for savings over alternative financing sources, the business

follows a prudent and self-sufficient financial approach. Using their savings

instead of traditional loans gives them access to a safe and easily accessible

source of money, which enables them to make decisions quickly and freely. This

financial strategy emphasises the value of keeping liquidity in their financial

portfolios and also demonstrates a realistic and risk-averse mindset.

Moreover, using savings as a source of funding gives these people the

ability to start their own businesses, take advantage of investment opportunities,

or pursue other financial goals with a strong financial base. It demonstrates a

calculated and long-term approach to reaching their financial objectives and is

evidence of their confidence in their ability to negotiate the complex and dynamic

financial landscape of the Philippines.

Financial Estimates/Financial Analysis

To guarantee continued growth and viability, a small business must

perform a five-year financial review. The research dives into specific financial

assumptions over this time frame, including cash flow dynamics, spending

management, and revenue expectations. Through the analysis of past data and

the application of reasonable assumptions, small businesses can generate

precise projections that facilitate strategic decision-making.

This longer period of time makes it possible to thoroughly assess profit

margins, working capital requirements, and cost structures, which can assist find

possible areas for efficiency gains and improvement. A small business's ability to

recruit possible partners, secure loans, and win over investors can all be greatly

aided by a five-year financial study. It is a flexible tool that helps small firms take

advantage of new possibilities, adjust to market changes, and face obstacles

head-on in order to achieve long-term success.

Major Assumptions

Major assumptions need to be formulated to facilitate the preparation and clear

interpretation of computations that outline the anticipated future scenario for the

proposed product.
1. The annual growth rate for sales demand is 10%.

2. Raw material and production supplies costs experience a yearly increase

Funders Invested Amount
Yearly Yearly
Yearly Yearly
Yearly Yearly
Yearly Yearly

of 4%.

3. Personal funds will be the source of the ₱ 90,000 startup capital required

for business initiation and expansion.

4. Annual Income will increase by 5%?

5. The Contribution Margin sees a yearly improvement of 3%.

6. Packaging, Rent Expense, Office Supplies increases 2% per year

7. Depreciation expense is computed on a straight-line basis with an

estimated useful life of 5 years.

8. Utilities and transportation expense increase by 2%

Table:
Initial Capital Requirements

Table:
Pre-Operating Expense/Taxes and Licenses
 Schedule
Pre-Operating Expense/Taxed and Licenses
Legal fees and Licenses 2023 2024 2025 2026 2027
Barangay Clearance ₱500 ₱500 ₱500 ₱500 ₱500
Mayor’s Permit ₱500 ₱500 ₱500 ₱500 ₱500
Fire inspection fee ₱200 ₱200 ₱200 ₱200 ₱200
DTI Registration fee ₱530 ₱530 ₱530 ₱530 ₱530
BIR Registration ₱630 ₱630 ₱630 ₱630 ₱630
DOST or BFAD ₱500 ₱500 ₱500 ₱500 ₱500
Sanitary Permit ₱90 ₱90 ₱90 ₱90 ₱90
Health Inspection Fee ₱250 ₱250 ₱250 ₱250 ₱250
Documentary Stamp tax ₱30 ₱30 ₱30 ₱30 ₱30
Total 3510 3510 3510 3510 3510

Table Purchased of Raw Materials

Schedule
Purchased of Raw Materials
Item Quantity per Production Unit Price Amount
Monthly Yearly
Banana Stem 140 pcs 1,680 ₱15 ₱ 16,800

Screen 4 meters 4 meters ₱ 40.00 ₱ 160.00

1x1 Lumber 40 pcs 40 pcs ₱ 20.00 ₱ 800.00

Total ₱ 17,760

Table: Rental Expense

Schedule
Rental Expense
Ta
b Monthly Annually le:
₱3,000.00 ₱ 36,000
Salaries and Wages

Schedule 3
Salaries and Wages
Position Cost Per Month Cost per Annual
Sewer 13,500 88,000
Manufacturer 13,500 88,000
Total
 Table: Transportation Cost

Schedule
Transportation
Item Annually
Transportation ₱1,800.00
Table Office Supplies
Schedule
Office Supplies
Item Quantity Price Annual Cost
Ball Pen 1 box ₱60.00 ₱60.00
Notebook 8 ₱18.75.00 ₱150.00
Scissor 2 ₱135.00 ₱270.00
Calculator 1 ₱350.00 ₱350.00
Tape 1 ₱ 60.00 ₱60.00
Stapler 2 rims ₱150.00 ₱300,00
Bond Paper 10 ₱ 6.50 ₱ 6.50.00
Total ₱1,250.00

Table:
Packaging
Schedule
Packaging
Item Quantity Price Monthly Annual Cost
Box 30 ₱4.00 ₱120.00 ₱1,440.00
Plastic Twine 2meters ₱30.00 ₱60.00 ₱ 720.00
Tape 5 ₱20.00 ₱100.00 ₱ 1,200.00
Total ₱ 3,360

Table:
Office Furniture and Fixtures
Schedule
Office Furniture
Item Quantity Price Amount Estimated Depreciation
use Expense
 Office Desk 2 ₱ 239.00 ₱478.00 5 yrs.
Shelves 1 ₱500.00 ₱500.00 5 yrs.
Office Chair 3 ₱ 300.00 ₱ 300.00 5 yrs.
Electric fan 2 ₱ 300.00 ₱600.00 5 yrs.
Total 2,038

Table:
Equipment
Schedule
Equipment
Item Quantity Price Amount
Blender 3 ₱450.00 ₱450.00
Chopping board 2 ₱790.00 ₱790.00
Knife 3 ₱300.00 ₱300.00
Total 1504.00

Pre operating expenses

Schedule
Machineries
Item Quantity Price Amount
Sewing Machine 1 ₱2,500 ₱2,500.00
Blender 5 ₱700.00 ₱3,500.00
Total ₱6,500.00
Table:
Machineries

Table
Depreciation Expense
Schedule
Depreciation Expense
Item Cost Estim Depreciatio
ated n
usefu
l life
2023 2024 2025 2026 2027
Office 2,038 5 ₱407.6 ₱815.20 1,222. ₱1,630. ₱2,038
Furnitu 8 40
re/

Machi 6,500.00 5 ₱1,300.00 ₱2,600.00 ₱3,900 ₱5,200. ₱6,500

neries .00 00 .00
Equip ₱ 1504.00 5 ₱300.80 ₱601.60 ₱902.4 ₱1,203. ₱1,504
ment 0 20 .00

total 10,042 2,008.4 ₱4,016.8 ₱6,025 ₱18,03 ₱24,52

.2 3.6 0.00

Table
Statement of Goods Sold
Statement of Cost of Goods Sold
2023 2024 2025 2026 2027
Beg.
Inventory
Add:
Purchase ₱ 17,352 ₱18,046.08 ₱18,767.92 ₱19,518.64 ₱20,299.39
of Raw
Materials
Direct ₱88,000 ₱88,000 ₱88,000 ₱88,000 ₱88,000
Labor
Overhead:
Packaging ₱3,360 ₱3,427.20 ₱3,495.74 ₱3,565.65 ₱3,636.96
Cost of
Goods ₱ 108,712 ₱109,473.28 ₱110,263.66 ₱111,084.29 ₱111,936.35
Sold

Table
 Projected Demand and Sales
Demand and Sales 2023-2027
Demand 2023 2024 2025 2026 2027
Eco bag 22,800 25,080 27,588 30,347 33,382

Sales
Eco bag 570,000 627,000 689,700 758,675 834,550

Table
Projected Cost 2023-2027
Projected Cost 2023-2027
2023 2024 2025 2026 2027
₱ 17,352 ₱18,046.08 ₱18,767.92 ₱19,518.64 ₱20,299.39

Table Contribution Market

Contribution Margin
Product Quantity Price Cost Contributi
Name Produce Per per unit on Margin
Produ
ct
2023 2024 2025 2026 2027
 Table Projected Income Statement for the year ended December 31, 2023 -
December 31,2027

2023 2024 2025 2026 2027

Sales 570,000 627,000 689,700 758,675 834,550
2023 2024 2025 2026 2027
Less: Cost of
Cash
GoodsInflows
Sold ₱ 108,712 ₱109,473.28 ₱110,263.66 ₱111,084.29 ₱111,936.35
Cash,
GrossBegIncome 461,288 395,123.4
517,526.72 760,630.95
579,436.34 1,179,816.76
647,590.71 1,652,905.63
722,613.65
Partners
Contribution
Less: Pre-
Sales
Operating 570,000
18,450 627,000 689,700 758,675 834,550
Total Cash
Expense 660,000 1,022,123.4 1,450,330.95 1,938,491.76 2,487,455.63
Inflows
Less: operating
expense
Less: Cash
Rent Expense ₱ 36,000 ₱36,720 ₱37,454.40 ₱38,203.49 ₱38,967.56
Outflows
Office Supplies ₱1,250.00 ₱1,275.00 ₱1,300.50 ₱1,326.51 ₱1,353.04
Purchased
Salary of 21,520
₱88,000 ₱88,000 ₱88,000 ₱88,000 ₱88,000
Fixed Assets
Transportation ₱1,800.00 ₱1,800.00 ₱1,800.00 ₱1,800.00 ₱1,800.00
Purchased
Expense of ₱ 17,352 ₱18,046.08 ₱18,767.92 ₱19,518.64 ₱20,299.39
Raw Materials
Depreciation 4,303.2 4,303.2 4,303.2 4,303.2 4,303.2
Packaging
Expense ₱3,360 ₱3,427.20 ₱3,495.74 ₱3,565.65 ₱3,636.96
Direct labor
Total ₱88,000
149,803.2 ₱88,000
132,699 ₱88,000
133,458.9 ₱88,000
134,234 ₱88,000
135,024.6
Salary & Wages
Operational 97,940 ₱88,000 ₱88,000 ₱88,000 ₱88,000
Expense
Office Supplies 1,250.00 ₱1,275.00 ₱1,300.50 ₱1,326.51 ₱1,353.04
Income before
Rent 311,484.8
36,000 384,827.72
₱36,720 445,977.44
₱37,454.40 513,356.71
₱38,203.49 587,589.05
₱38,967.56
tax
Transportation 1,800.00 1,800.00 1,800.00 1,800.00 1,800.00
Less: Train
Expense 9,222.72 20,224.158 31,695.488 45,171.342 60,017.81
Law: 15%
Income for
Tax 9,132.6 20,224.158 31,695.488 45,171.342 60,017.81
exceeding
Total over
Operating 276,354.6 261,492.438 270,514.118 285,586.13 301,075.76
250k
Expense
Net income
Cash Balance, 302,262.08
186,355 364,603.56
760,630.95 414,281.95 1,652,905.63
1,179,816.76 468,185.37 2,186,379.87
527,571.24
end

Table Projected Statement of Cash Flow

for the year ended December 31, 2023 - December 31,2027
 Table Projected Balance Sheet
for the year ended December 31, 2023 - December 31,2027
CURRENT ASSETS
CASH 395,217.00
2023
TOTAL CURRENT ASSETS 2024
395,217.00 2025 2026 2027
Assets NON CURRENT ASSETS
CurrentOFFICE
AssetsEQUIPMENT 1,504.00
CashLESS: ACCUM. DEPRECIATION
186,355 -300.80
Total
FURNITURES AND FIXTURES 2,038.00
LESS: ACCUM. DEPRECIATION -407.60
Non- Current
Assets MACHINERIES 6,500.00
LESS: ACCUM.
Office Furniture & DEPRECIATION
13,516 -1,300.00
and Fixtures
TOTAL NON-CURRENT ASSET 8,033.60
Equipment
TOTAL ASSETS 1504.00 403,251.00
Machineries ₱6,500.00
Total 21,520
OWNER'S EQUITY
CAPITAL, BEGINNING 90,000.00
Less: Accumulated 4,303.2
NET INCOME 313,251.00
Depreciation
CAPITAL, END
Total non-current 17,216.8
Total Assets 400,862.2
TOTAL
Liabilities & EQUITY 403,251.00
Equity
Current Liabilities

Partners 90,000
Equity
Add: Net Income 302,262.08
Capital end
Total Liabilities &
Equity