CONTINUATION…

MACHINES

 Most businesses would not be able to

operate without the aid of machines.
 Machines can be described as the ‘best
friend’ of manpower in producing goods
and offering services.

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  The facilities must be strategically
placed in the manufacturing site or
in the service delivery area
EQUIPMENT  The sizes and shapes of the facilities

AND OTHER and equipment affect the entire

operations process, so the site must
FACILITIES adapt to how big or small the pieces
of equipment are.
 The entrepreneur must also allocate
space for the storage of equipment,
including the parking of delivery
vehicles.
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Telecommunications and Information Technology
 Telecommunications and information technology equipment is mandatory.

Advantages of having telecommunications and information

technology equipment in a business.

 Landline phones- order-taking, telemarketing with business partners and customers.

 Mobile phones- mobile marketing, social media marketing, marketing research,
internet promotions etc.
 Laptop and desktop computers- internet marketing, marketing research, online
banking, preparing reports such as financial statements, business case, inventory
reports etc.
 POS Machines- charging customers’ debit or credit card, tracking sales, storing data,
analyzing purchases.
 Accounting and inventory software- monitoring sales and all business transactions.
 Web site- order-taking, 24/7 marketing,having online conversations with customers,
collecting customers information.
 Many business establishments
are now including social media
access to avail and promote
their products and services
 The responsibility of the
entrepreneur is to protect these
pieces of equipment physically
and against fraudsters who will
be using these information to
malign or steal from the
business. These machines carry
confidential information.

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  The supplier must have a consistent and sufficient
amount of raw materials and supplies that can
accommodate the demand of the entrepreneur.
 The entrepreneur should decide what route to
choose when it comes to materials requisitioning.
MATERIALS Options include:
a. manufacturing own products or offer services.
b. outsourcing of manufacturing or service
activities to a third party;
c. and purchasing own product or service from
present suppliers.

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 OUTSOURCING
-is the process of appointing a third party manufacturer to do the
manufacturing operations of the business.
PATENT
-is the right to protect the entrepreneur regarding the product or service.
TRADEMARK
-is a sign or symbol that helps distinguish the product from others.
MULTIPLE OUTSOURCE PARTIES
-having multiple outsource parties can be advantage because of the following:
a. it helps continue the operation even if one of the third party stops.
b. the entrepreneur will have greater bargaining power on the price and
scope of the product.
c. the entrepreneur may have a choice to switch to other parties if one of
them does not perform well.
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 LOGISTICS

 Entrepreneurs/manufacturers can also venture into

distributing their products on their own without the aid
of a distributor or agent.
 Entrepreneurs/manufacturers is responsible for
manufacturing, warehousing, transportation, inventory
management, marketing, and selling the product or
service.

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 WAREHOUSING TRANSPORTATION INVENTORY
- isstoring the -the process of -should also be
finished goods efficiently tracked religiously
transferring the by the entrepreneur
manufactured in manufacturer. Each
products to retailers
a facility. inventories in the
or consumers.
warehouse,
distribution hubs,
and manufacturing
sites should be
monitored.

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THE BUSINESS MODEL
 According to Don Deebelak in his article “Developing a
Great Business Model”, the entrepreneur must adapt
the dynamics of traffic lights in developing the
business model.
 There are three “green lights” or the positive signals
that can help entrepreneurs develop ideal business
models and eventually succeed.
 There are also three “red lights” or negative signals
that entrepreneurs should be wary of.
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 The Green Lights
1. Target high-value customers- these customers are often
misinterpreted as affluent or high-end customers, but this is not
always the ease.
2. Offer products or services with great value- the value proposition
and unique value proposition should always kick in a compelling
reasons for customer to choose your product or services.
3. Offer products or services with reasonable profits- there are two
ways of achieving reasonable profits; (1) increasing mark up and
(2) decreasing operational costs.

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 The Red Lights
1.Satisfying the customer becomes too costly and irrational- the entrepreneur must
calculate the cost and profit associated with serving the customer before pursuing the
business.
Here’s are the customer satisfaction costs, that can impede the success of an
entrepreneur.
a. Warranty
b. After sales costs
2. Being a market leader is difficult to sustain- one of the characteristics of an ideal
business model is capitalizing on the business’ stature as a market leader through
improving the features and benefits of its existing products or services.
3. Return on investment (ROI) takes too long and too small- entrepreneurs did venture
in a business enterprise because they want to earn profits for the purpose of sustainability.

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 THE FINANCIAL PLAN
 This is the portion of the business plan that speaks of the product or
service performance. It also provides the entrepreneur financial data
such as liquidity, cash flow, and financial standing of the business.
 Financial plan also gives the entrepreneur bases for his or her decisions
in financial matters such as offering credit terms to customers, applying
for a bank loan, expand, or sell the business.
 Financial management begins when the entrepreneur starts to raise
capital for the business venture, Capital is the money that will be
allocated by the entrepreneur to establish a business. It shouldn’t be
mixed with the personal money of the entrepreneur. A business is
separate entity and should not be mixed with the personal finances of
the entrepreneur.
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  Collateral- refers to a high value asset that is
submitted by the business to the bank when
applying for a loan will be subject for
repossession if the business defaults.

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Factors Affecting Estimation of Revenue
Revenue- is the output of a sale wherein the sales price exceeds the cost to produce the product or render the service.

1. The economy and the external primary target market- the entrepreneur must be able
to incorporate the overall health of the economy in its estimation of projected
revenue.
2. The external competitors- the entrepreneur must devise a comprehensive competitive
profile matrix- a chart that details the relevant data of both direct and indirect
competitors and how these factors affect profitability.
a. Direct Competitors- are those that offer exactly the same product/ product
lines or services as the entrepreneur.
b. Indirect Competitors- are those that do not offer exactly the same product
or services but influence or affect the entrepreneurs market share.
3.The internal business- the entrepreneur must also devise his/her own marketing
strategies based on external and internal scan and from the competitive profile matrix.
With these data, the entrepreneur can now craft effective strategies that can outweigh
those of the competitors.
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Computation of Gross Revenue

Step 1. Compute for the market universe or total market

The entrepreneur must derive the figure that represents the market
universe or the total market to understand how big the market is.

Example:
Mr. Antonio Castro owns a big sari-sari store named Antonio Castro store in
Barangay Bacani, San Miguel, Bulacan. He noticed a number of his customers get their
remittances from their OFW relatives in the city proper. They use the remittance
afterward to buy basic goods from Mr. Castro. With this, Mr. Castro became interested
with the remittance business, because he thinks he will have a substantial number of
customers who will claim remittance through him. Moreover, he thinks that the
remittance center and the sari-sari store are complementary businesses because after
claiming the remittance, the beneficiary will also buy from his store. Mr. Castro wants
to know the market size for remittances.
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Mr. Castro will have an easy time because the data are readily available from the Bangko Sentral ng
Pilipinas (BSP). BSP reports that remittance to the Philippines reach $24.3 billion in 2014. That’s
now big the market is in the Philippines. He has to break it down though to Bulacan remittances so
he can determine the share of his province in the remittance pie in his town, and then his barangay.
From here, he can calculate the potential market share.
To illustrate the computation of market size, assume that Mr. Castro became interested also in
selling cellphone prepaid load, because 95% of the people in his barangay have cellphones and most of
them are on prepaid. Mr. Castro wants to know the market size of the prepaid load business in his
barangay. He has the following data:
• Cellphone owners in Barangay Bacani- 5,000
• Number of times the customers buy load per week- 2
• Average amount of load customers buy- ₱100

Market size= total number of customers × number of times the customers buy the product or avail
the service per year × average amount per purchase/service availment

Market size= 5,000 × (2 times in a week × 4 weeks = 8 times per month × 12 months = 96) 96 × ₱100
per load purchase
Market size of cellphine prepaid load in Barangay Bacani = ₱48,000,000
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Step 2. Compare the market share of the competitors
According to the competitive scan of Mr. Castro, there are five stores in
his barangay that dominate the prepaid load market. Their total combined
market share is 80%. They are the same in terms of store size, and all of
these stores are wholesalers. Aside from these five, there are four retailer
stores in the community that haven’t ventured yet in the prepaid load
business. Therefore, Mr.Castro still has 20% of the overall market size to
tap, which is equivalent to ₱9,600,000 competing with the four retailers.

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Step 3. Plan to capture remaining market share
Mr. Castro must devise business strategies on how to tap the remaining market
and not let the new retailers overtake him. Some of the strategies that he can employ is
to provide marketing promos to customers (e.g., for every ₱30 load, they can get one free
candy or a loyalty reward where customers can get ₱30 free load when they load ₱100 for
five times.) This is an application of a differentiation strategy. If competitors try to copy
it. Mr. Castro must think of another strategy to differentiate his service from them. He
can focus on customer experience, whereby customers, even without going to the store,
can buy load using their social media accounts. This saga of creating various
differentiation strategies will be an iterative process just to capture and maintain the
remaining market share. If he differentiation strategy is really compelling, Mr. Castro
can even acquire the market share of market leaders. It is good to set targets, but these
targets will be dependent on the external and internal factors previously mentioned.
Assume in this example that Mr. Castro sets the target at 40% of the remaining market
share, which is ₱9,600,000. The target annual market is ₱9,600,000 × 40% = ₱3,840,000

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Step 4. Prepare a realistic five-year projected annual revenue
Mr. Castro must set a realistic and achievable five-year projection that incorporates the
contingencies and the external internal factors discussed. He must monitor the growth or
decline of both the market size and his market share. If the movement in market size and
market share is not proportional, then Mr. Castro can already glean roughly what is happening.
If the market size is growing but the market share is not growing, then there is something
wrong with the strategies of Mr. Castro. If market size is not growing but the market share is
growing, then Mr. Castro must be doing a good job in serving customers; thus, he is eating
market share of the competitors. Assuming Mr. Castro is optimistic that he will able to
differentiate and grow the business, he is looking at a 5% growth in a year 1 due to adjustments
and difficulties he will encounter, 15% growth in years 2 and 3, and 20% growth in years 4-5.
Table 4.2 shows Mr. Castro’s projected annual gross revenues from his prepaid load business.

Table 4.2. Sample projected annual gross revenues for Mr. Castro
Year 1 Year 2 Year 3 Year 4 Year 5

₱4,032,000 ₱4,636,800 ₱5,332,320 ₱6,398,784 ₱7,678,541

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 Income Statement
• The entrepreneur must prepare an income statement, which is a
financial statement that details the computation of net revenue
deducting cost of sales, expenses, and taxes from the gross revenues
generated.

Because the gross revenues have been already identified for the next
five years, it is now to account the costs and expenses associated with
the sale of prepaid load:
-Cost of prepaid load 95% of the selling price
-Marketing cost, cost of mobile phone, and other administrative costs –
1% of the selling price
-Income tax is assumed to be 20% of gross profit

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 Year 1 Year 2 Year 3 Year 4 Year 5

Sales 4,032,000.00 4,636,800.00 5,332,320.00 6,398,784.00 7,678,541.00

Less: Cost of 3,830,400.00 4,404,960.00 5,065,704.00 6,078,844.80 7,294,613.95

sales
Gross profit 201,600.00 231,840.00 266,616.00 319,939.20 383,927.05

Less: operating 40,320.00 46,368.00 53,323.20 63,987.84 76,785.41

expenses
Net income 161,280.00 185,472.00 213,292.80 255,951.36 307,141.64
before tax
Less: income 32,256.00 37,094.40 42,658.58 51,190.27 61,428.33
tax
Net revenue 129,024.00 148,377.60 170,634.24 204,761.09 245,713.31
after tax
 Before Mr.Castro became a fully dedicated sari-sari store, remittance, and load center owner,
he incurred business startup costs. Here are the common costs associated with starting up a
business:
1. Business registration fees to be paid to the municipality or city hall.
2. Business name registration with the Department of Trade and Industry (DTI)
3. In some cases, accountant or lawyer fees to assist in establishing the business
4. Cost of machines for manufacturing or delivery of services including transportation vehicles
5. Factory or building rental fee or acquisition cost of factory or building
6. Overhaul cost of factory or building
7. Working capital that can last for a minimum of three months
All properties, plants, and equipment (except for land) are subject to depreciation.
Depreciation refers to the value reduction of the noncurrent asset primarily due to natural
wear and tear and other value-reducing factors.
.

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  The entrepreneur must also prepare a balance sheet to account for the
assets, liabilities and capital of the business. A balance sheet is a core
financial statement that describes the financial position of the business.
 A balance sheet is composed of three elements: (1) assets (2) liabilities
and (3) owners equity or capital. Assets represent the resources of the
business that are expected to have future economic value. Assets are
divided into current assets, which are mostly the liquid assets that can
be exchange to cash for more than one year. Liabilities are what the
business owes to another person, a financial institution or any creditor.
Owners equity or capital is the funds allocated by the entrepreneur to
run the business. The accounting equation should always be balanced as
represented by the formula:
Assets = Liabilities + Owners equity

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 Going back to Antonio Castro Store, here is the balance sheet as of 31 December 2015
for the three businesses, i.e., sari-sari store, remittance center, and load businesses.

Antonio Castro Store

Balance Sheet
As of 31 December 2015
Assets
Current Assets
Cash ₱1,000,000
Accounts receivable 200,000
Sari-sari store inventory 800,000
Load inventory 500,000
Prepaid expenses 1,000,000
Total current assets ₱3,700,000

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 Noncurrent assets
Land ₱2,000,000
Delivery van 700,000
Accumulated Depreciation delivery van (100,000)
Other long-term investments 300,000
Total noncurrent assets ₱2,900,000

Total assets ₱6,600,000

Liabilities
Accounts payable to supplies ₱800,000
Notes payable 200,000
Business loan 900,000
Total liabilities ₱1,900,000
Owners equity
Antonio Castro Store, Capital ₱4,700,000
Total owners equity ₱4,700,000

Total liabilities and owners equity ₱6,600,000

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 Cash flow statement
 another very important financial statement is the statement of cash flow.
 cash is the most important asset of a business, it may look as if the business is
earning enough as seen in the income statement but doesn’t mean that the
business has no cash flow issues.
 The entrepreneur must allocate cash to pay suppliers and creditors as well at is
employees. If the business runs out of cash, the entrepreneur should have an
option to borrow from the bank or a reputable financial institution provided he or
she has a good track record in paying his or her obligations.
 It is prudent to estimate projected cash flow on a monthly basis to ensure that the
cash balance is positive all the time. Sources of positive cash flows include service
or sales revenues, fees, interest income, and dividends from investments and
loans. Sources of negative cash flows include operational expenses, investments,
machine purchases, and payment to suppliers and creditors, to name a few.

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 Table 4.4. Sample projected cash flow statement for Antonio Castro Store (in Philippine peso)

Start up Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

month
Starting cash 10,000 2,000 5,200 8,400 11,600 14,800 18,000
balance

Add: positive 0 8,000 8,000 8,000 8,000 8,000 8,000

cash flow

Less: negative 8,000 5,000 5,000 5,000 5,000 5,000 5,000

cash flow

Add: 0 200 200 200 200 200 200

depreciation

Ending cash 2,000 5,200 8,400 11,600 14,800 18,000 21,200

balance

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 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Starting cash 21,200 24,400 27,600 30,800 34,000 37,200

balance

Add: positive 8,000 8,000 8,000 8,000 8,000 8,000

cash flow

Less: negative 5,000 5,000 5,000 5,000 5,000 5,000

cash flow

Add: 200 200 200 200 200 200

depreciation

Ending cash 24,400 27,600 30,800 34,000 37,200 40,400

balance

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 The income statement, balance sheet, and statement of cash flow are the
basic financial statements that should be religiously prepared, monitored,
and analyzed by entrepreneurs no matter what type of business they are
in. These are tools that help them direct their business decisions to be
strategic and effective. Entrepreneurs should not leave all of these tasks to
their accountant or a trusted officer. They have to know their numbers by
heart.

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 THANK YOU!!!

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