Principles, Tools, and

Techniques
Subtitle
Principles, Tools, and Techniques

A business is just a small position of an

industry. It is an undertaking by a person or a
group of person who are partners, or of
stockholders who own a juridical entity known as
corporation. Its main objective is to earn more
profit to the owner.
Business Organization
1. Sole Proprietorship
 This is generally the simplest way to set up a business. A sole proprietorship is owned
by a single individual who is singly responsible for running the business and is
accountable for all debts and obligations related to the business
2. Partnership
 A partnership is an agreement in which two or more persons combine their resources
in a business with a view to making profit.
There are two types of partnership:
a. General Partnership
All owners share the management of the business and each is personally
responsible for and must assume the consequences of the actions of the other
partners.
b. Limited partnership
Some members are general partners who control and manage the business
and may be entitled to a greater share of the profit while other partners are limited
and contribute only capital, take no part in control or management, and are liable
for debts to a specific extent only.
3. CORPORATION
 Is a legal entity that is separate from its owners, the shareholders. No shareholder is
personally liable for the debts, obligations, or acts of the corporation.
 It can exist for a life of 50 years, which renewable for another 50 years. Owners have
limited liabilities. However, corporations are burdened by heavy taxes.
 Director and Officers – can bear liability for their involvement with the
corporation.

4. COOPERATIVE
 Is an entity organized by people with similar needs to provide themselves with goods
or services or to jointly use available resources to improve their income.
 Cooperative members have an equal say in decision making with one vote per
member regardless of number of shares held, there is open and voluntary
membership and surplus earning is returned to the members according to he amount
of their patronage.
Small, Medium, and
Large Scales Businesses
 Small, Medium, and Large Scales Businesses

It is also important to study the classification of businesses as to the size based on the worth
of the business assets.in the Philippines, total assets for micro business are worth below 1,500,001.
For the small business, total assets are from 1,500,001 to 15,000,000. Medium business has total
assets from 15,000,001 to 60,000,000. Any business with assets is excess of 60,000,000 is
considered large scale.
For any form of business organization, the business must be registered with the appropriate
government agencies. In the case of sole proprietorships and partnerships, 100% must be owned
and capitalized by Filipinos. For corporations, at least 60% of the outstanding capital stocks must be
owned by Filipino citizens. Business activity conducted may be within major sectors of industry,
services, practice of profession, or operation of tourism- related businesses and agri-business.
The choice of which form of business organization may be a personal preference of the
owner, based on his objectives, his available resources, and the scope of operations.
Tools in Evaluating a
Business
 Tools in Evaluating a Business

According to a guide developed by North Carolina’s Business and Technology Development Center, the
key factors that must be considered in analyzing the industry are the following:
1. The geographic are which your business will cater to. It is limited to local areas? Or will it cover a region, the
entire country, or even the international market?
2. The size and outlook of the industry. What trends can be identified?
3. Description of the product.
4. The buyers have to identified. Who are your target costumers?
5. The regulatory environment. Are the local, national laws that will restrict the business? One needs to
identify government regulations specific to the chosen industry.
6. The need to identify the leading businesses in the industry, and to provide company information on the most
successful businesses that you will be rip against.
7. Factors that will affect the growth of the business.
The SWOT Analysis
The SWOT Analysis

The SWOT analysis was created in the 1960s by business

gurus, Edmund P. Learned, C. Roland Christensen , Kenneth
Andrews , and William D. Book in their book, Business Policy, Text
and Cases ( Irwin 1969).
SWOT, analysis which stands for Strengths, Weaknesses,
Opportunity, and Threats, is an analytical framework that can
help a company meet its challenges and identify new markets.
 The Framework can help identify the business's risks and
rewards, it is also means of identifying the internal and the
external forces that may affect the business, it is very helpful in
assessing new ventures. The usually included as internal factors
are:
1. Financial Resources
2. Physical Resources
3. Human Resources
4. Access to Natural Resources
5. Current Processes
 When we speak to external forces, these are those that affect a
company, an organization, an individual, and those outside their control.
These may include:
•Economic Trends
•Market Trends
•National and Local Laws and statues as well as Political, Environmental
and Economic Regulations;
•Demographic Characteristics of the Target Market
•Relationships with Supplier and Co-Owners
•Competitive Threats
Figure 3.1. Table for SWOT Analysis
 Table 3.1. SWOT Analysis Template

Strengths Weaknesses
• Government incentives • Difficulty of organization
• Low capital requirements • Costly set-up
• Market acceptance • Possible pollution problems
• Experienced leaders • Lack of training of workers

Opportunities
• Project may replace imported good available in
the market
• Will improve employee welfare
• Improved company reputation
Threats
• Entry of competitors
• Time consuming production processes
• Opposition from residents in the community
Porter’s Five Forces of
Competitive Position
Analysis
 Porter’s Five Forces of Competitive Position Analysis

Porter's Five Forces was developed in 1979 by Michael E. Porter

of Harvard Business School. He identifies five forces that determine the
competitiveness and attractiveness of a market and which seek to
locate the power in a business situation, its current competitive
position, and the strength of a position that an organization may enter
into. This five forces help in identifying if new products or services are
potentially profitable. Once the area where the power lies is identified,
then areas of strength can be pinpointed and exploited, solutions to
weaknesses may be proposed, and possible mistakes avoided.
 Threats of new
entrants

Rivalry
Bargaining power among Bargaining power
of suppliers existing of buyers
competition

Threats of
substitute
products of
services
Figure 3.2. Porter’s Five Forces of Competitive Position Analysis
Porter’s Five Forces of Competitive Position Analysis

1. Supplier Power - it is important to assess how much power the supplier

has in his ability to drive up prices. A supplier enjoys his power if there are a
few suppliers of an essential input and they therefore control the supply of
that input. Another source of power Is how unique the product or services
is. The more unique the product, the easier it is for the supplier to drive up
the price. In the same manner, a supplier who has a relatively bigger size
and strength in the market enjoys the power of driving up prices. The
magnitude of the cost of switching from one supplier to another is likewise a
factor such that when cost of switching is high, buyers of suppliers would
prefer to stick it out with one supplier, thus, giving the supplier the power of
raising prices.
2. Buyer Power - If a supplier can enjoy the power to drive prices up, it is also possible for
a buyer to drive prices down. An assessment needs to be made on of how easy it for
buyers to drive prices down. The smaller the number of buyer in the market, the greater is
the power enjoyed by the buyer. Likewise, the more important an individual buyer is to the
organization, the greater his power is. The buyer's cost of switching from one supplier to
another is also a determinant of the extent of the buyer's power to bring prices down. If
cost is minimal, then it will be easy for the buyer to switch to another supplier and bargain
on lower prices of the input.

3. Number of Competitors - the number and capability of competitors in the market will
also impact on the attractiveness of the market. If competitors are numerous and offer
basically similar products and services, the market will be less attractive. Low capability of
competitors to meet the market's current needs will serve as an attractive opportunity for
the firm.
4. Possibility of Substitution - when it is easy to substitute products in a market, it is
expected that the buyers will switch to alternatives in case of price increases. The
suppliers will enjoy less power to drive prices up and the market will be less attractive.

5. Possibility of New Entrants - when investors see that a market is profitable, they will
desire to join the bandwagon and get a share of the profits. But when new investors
enter a market, the share of the participants in the market will be divided among more
people and will therefore decline, thus, eroding profits. However, if barriers to entry
prevent new participants from entering the market, profits will be maintained among the
existing participants.
Importance of Porter’s
Five Forces Analysis
 Importance of Porter’s Five Forces Analysis

The Porter's Five Forces Analysis is a significant tool for organization to

understand the factor affecting profitability in a specific industry and can help to
form decisions on whether or not to enter a specific industry, whether or not to
increase capacity in a specific industry and also for developing copositive
strategies.
Under this theory, a business more attractive, the greater the supplier's
power to drive prices up, the less the buyers power to drive prices down, the less
the number of competitors in the market, the more differentiated the product or
service is the less the substitutability of the products for similar goods, and the
more difficult it is for new entrants to participate in the market (Charted Global
Management Accountant 2015).