LESSON 1

THE NATURE, AIMS, AND

ORGANIZING A BUSINESS
Course: Basic Finance
Instructor: JOHN EMIL T. NOCELO
 The Philippine Economy and the Role of Business
 Business Defined, Kinds, and Objectives of
Business
 Reasons for Engaging in Business
 Business Prospecting and Promotion
TOPIC 1: THE PHILIPPINE
ECONOMY AND THE ROLE OF
BUSINESS
The Philippine
Economy
Most Filipinos
dream of
affluence, but it
seems to be one
that is impossible
to attain.
 The low Graft and
The declining Unfavorable
productivity corruption in
value of the balance of
in the the
peso trade
workplace government
Despite the great obstacles hampering economic
growth, the Philippine economy continues to
grow, albeit very slowly.
 Business success has always been associated with
economic growth. Adequate capital, is a prerequisite
of the existence of business firms.
Business success is highly dependent on the
availability of capital. Apart from availability, its
proper management is a key ingredient in the survival
and growth of a business.
 Studies indicate that a major reason for business
failure is the businessman’s lack of sufficient skills in
managing finance.
THE ROLE OF BUSINESS
 Under the free enterprise system, the growth of
economy lies in the ability of private individuals to
achieve economic objectives.
 The quest for profit is usually undertaken by
engagement in business activities. Business firms and
government are oriented towards the provision of
goods and services to the society.
 Under the system, firms are free to compete with
each other. This atmosphere makes possible the
offering of new or improved products and services to
the society.
The standard of living is raised or lowered depending
to a large extent on the performance of business
firms.
Business is largely responsible for bringing into the
market a wide array of products and services that
were not previously available.
High-technology items find their way into the open
market.
This happened even
as the business
continues to provide
mankind with the
basic necessities.
 Profit-making has been adapted as a measure to
motivate enterprising persons to engage in business.
TOPIC 2: BUSINESS DEFINED,
KINDS AND OBJECTIVES OF
BUSINESS
BUSINESS DEFINED
Business is any lawful economic activity concerned
with the production and/or distribution of goods and
services for profits.
KINDS OF BUSINESS
Three main divisions
1. Commerce
2. Industry
3. Service
COMMERCE
Business firms that are engaged in the buying and
selling of goods and services. Also included are
trading, merchandising, and marketing. Examples of
commerce as a kind of business are supermarkets, dry
goods stores, peddlers, sari-sari stores, importers, and
many others.
INDUSTRY
Industries are those which are mainly concerned with
production. Goods produced are those which may be
intended for ultimate consumption and which are
called consumer’s goods, or those which are intended
for use of business and industry and which are called
producer’s goods.
The industry may be classified into the following
1. Genetic industries are involved in agriculture, forestry,
and fish culture
2. Extractive industries are businesses involved in the
extraction of goods from natural resources which include
mining, lumbering, hunting, and fishing
3. Manufacturing industries are those which convert raw
materials into finished products.
4. Construction industries consist of firms engaged in
building infrastructures.
SERVICES
A service business is one which sells services to buyers.
Service firms may be classified as:
1. Recreation such as movie houses, television, theaters, and the
like.
2. Personal such as restaurants, barber shops, transportation,
hotels, etc.
3. Finance such as banks, insurance companies, investment
houses, credit unions, and the like
OBJECTIVES OF BUSINESS
A business firm is established primarily for profit. At
times, however, short-term and long-term profits are
sacrificed in order to attain other goals such as:
1. Political influence;
2. Family control of the business; and
3. Community involvement.
TOPIC 3: REASONS FOR
ENGAGING IN BUSINESS
The first stage in business is
organization. Much of what will
help happen to the firm in the
later stages depends on the first
few steps in the organization
process.
The importance of the organizational stage cannot be
over-emphasized. Business failures have become a
common occurrence because of defects in planning at
the organizational stage. Business failures happen to
companies regardless of industry classification and
the amount of capital investment.
MOST COMMON REASONS FOR
BUSINESS FAILURES
1. Bad or improper management practices, including poor
cost controls and poor hiring practices;
2. Poorly focused and executed marketing or inadequate
marketing;
3. Poor location;
4. Failure to invest in new products and efficient technology;
and
5. Lack of adequate financing.
WHY PERSONS ENGAGE IN
BUSINESS
1. Provisions of employment to people;
2. Profits;
3. Service to the community;
4. Personal satisfaction;
5. Means to earn a living;
6. Achievement of power; and
7. Protection of one’s self and family.
ENTREPRENEURSHIP
To engage in business, a person or group of persons
has two options: (1) to buy an existing business, or
(2) to create a business that he will operate.
ENTREPRENEURSHIP
The person who chooses option two will be referred
to as an entrepreneur. He owns his business but his
functions are vastly different from those of another
type of business owner, the stockholder of a
corporation.
The entrepreneurs’ functions are:
1. To supply the capital of the firm;
2. To organize production by buying and combining
inputs;
3. To decide on the rate of output in the light of his
expectations about demand; and
4. To bear the risk involved in these activities.
Studies have shown that
successful entrepreneurs
are likely to be over-
achievers, and likely to
do well if they are also
reasonable risk-takers,
self-confident, hard
workers, goal-setters,
accountable, and
innovative.
TOPIC 4: BUSINESS
PROSPECTING AND
PROMOTION
BUSINESS PROSPECTING
When a determined individual has finally decided to
go into business, it will not be wise for him to grab
the first opportunity that comes along. First, he
should carefully scan the environment for other
possible openings. He should prepare a list of
alternative business opportunities and he should make
his choice from that list.
THE SEARCH FOR BUSINESS
OPPORTUNITIES
A person searching for a suitable business
opportunity should learn the ways of a talent scout or
a salesman looking for a prospect.
Business opportunities come in several forms. They could be a result of any of the
following:
1. Increasing demand for basic commodities due to an increase in population;
2. Rising prices (or cost) of existing products like construction materials;
3. Relaxation of government policies like the lifting of import restrictions;
4. The development of new service concepts like the issuance and delivery of
passports through courier services;
5. The development of a new product concept like the engine that runs on water;
6. The increasing demand for specialized services like manpower export
services, health and fitness services, management consultancy, and skills
training;
7. The increasing requirements of the wholesale and retail industry; and
8. Many other.
BUSINESS PROMOTION
Business promotion refers to the discovery and
exploration of a business opportunity with the
purpose of converting it into a going concern.
The three steps involved in the business promotion
are the following:

1. Discovering the idea for a new business;

2. Determining the feasibility of the idea; and
3. Assembling the needed resources to start the
business.
DISCOVERY
The indication of an idea for a new business is the
first step in business promotion. A seasoned CD
salesman may organize his own recording company.
A college professor may open his own school. A
retired military officer may set up a security agency.
DETERMINATION OF
FEASIBILITY
Once a choice has been made on the business idea to
adapt, its feasibility should be determined.
Oftentimes, a feasibility study is required. If the idea
is found not to be feasible, it should be discarded and
a new one considered for determination of feasibility.
According to the need, the study must contain some or
all of the following aspects:
1. Management study
2. Marketing study
3. Technical study
4. Taxation study
5. Financing study
6. Profitability
7. Social desirability
ASSEMBLING THE NEEDED
RESOURCES
Initial Capital Requirements (cost of organization;
working capital; acquisition of fixed assets; and
reserves)
Sources of Initial Capital (owner or creditor)
Retention of Control (franchise, patent, copyright,
contract, lease)
THE PROMOTER
The promoter is the person responsible for the
formation of a company.
The promoter is motivated by any or a combination of the
following:
1. promoter’s fee;
2. Shares of stock or bond in the new business project;
3. A management position in the new business project;
4. A new customer for his products or services; and
5. The desire to contribute to the economic growth of the
local community.
Liability of Promoters. The promoter undertakes to
pursue his job with the capacity of temporary trustee.
He cannot legally bind the firm into contracts and
deeds unless approved by the owners or the board of
directors.