Fundamentals of Corporation

9|Page
 Fundamentals of Corporation

Chapter II

The Government and Entrepreneurship

Objectives:

At the end of the lesson, the students should be able to:

Determine the determinants of investment; and

Determine the role of government in economic development

Abstraction

In underdeveloped economies, the government plays a major and active role in

economic development. Aside from setting up the economic infrastructures, like roads,
bridges, transportation, communication and electric facilities, the government is directly
involved in business and industry where the private business sector has no or adequate
investment. However, when the economy has developed, the government has to phase out
its economic activities in favor of entrepreneurs. At this stage, it is the private business
sectors that become the engine of economic growth. Because it is more efficient and
proper.

Although, entrepreneurs are risk takers, self-reliant and optimistic, there factor are
factors which encourage or discourage them to invest. Obviously, the primary factor or
determinant of investment is profit. This is brought about by several factors like peace
and order, income of the people, electricity, transportation and communication facilities.

It is very clear, therefore, that there is a very strong and direct relationship between
the government and entrepreneurship. It is the government that provides the basic
incentives to entrepreneurship accelerates economic development through more
employment, production and consumption. Precisely, this is the goal of the government
for the people. Hence the great interest of the government in the promotion of
entrepreneurship.

This chapter presents the role of the government, determinants of investment, and
factors or entrepreneurship. Moreover, the various programs of the government for micro
and small enterprises are outlined.

Determinants of Investment

Profit is the first consideration in investment. It is profit that stimulates businessmen

to go in the business. Only the government can possibly engage in business without
profit. However, profits depend on population, income, peace and order, political stability,
government policies, and other external economies of scale like energy, transportation
and communication facilities. The internal economies of scale, such as management,

10 | P a g e
 Fundamentals of Corporation
technology, working conditions and financial incentives, also help in the attainment of
profits for the enterprise.

The entrepreneur has control or influence in the operations of the internal economies
of scale. For instance, he can prove management. He can change his technology. He can
raise the salaries of employees. But in the case of external economies, the entrepreneur is
greatly dependent on what the government can perform. Only the government has the
resources to maintain peace and order. Entrepreneurs would not construct highways and
national communication network. This is the jobs of the government. Besides, it is too
expensive for entrepreneurs to undertake such projects.

In the case of income and population, these constitute markets for the entrepreneurs
or investor. More people increase the number of buyers, and higher incomes likewise
increase of the number of buyers. Government which believe that peoples are important
in economic development do not practice population control. They argue that japan and
other rich countries have more peoples than the poor countries like the Philippines and
African countries. They claimed that the solution to poverty is not to control population
growth, but to create more production and employment.

The role of the government

In a democracy, the fundamental function of the government is to serve the best

interest of the people. Those who run the government are called public servants. Their
salaries come from the people through their tax payments. Hence they should serve the
people well.

During the 1700s in Europe, particularly England, the Laissez Faire system of
government was practiced. The none-interference of the government in economic activities
led to the growth of capitalism. The capitalist, however, abused their powers and privilege.
They exploited their workers in terms of low wages and long hours of work, usually
17hours a day. They also paid very low prices for the raw materials produced by farmers.
These miserable situations happened during the height of the industrial revolution in
England. The evils of the laissez fair policy created great social reformers like Karl Marx
and Robert Owen. Their crusade against the capitalist spawned the birth of labor unions
and government programs for the workers.

The bitter English experience offers a good lesson to government of nations. The role of
the government is to promote the welfare of all sectors- producers, consumers, employees,
businessmen and the rest of society and the economy. It is, of course, difficult to strike a
happy balance of support among all members of society. But a good government always
considers a social justice as the basic yardstick in the public administration. The welfare
of the poor and powerless must always get the first attention and assistance from the

11 | P a g e
 Fundamentals of Corporation
government. As long as sick and weak societies exist, a healthy economy and stable
government cannot be achieved. Hungry people obey no laws.

Support of entrepreneurs

As explained earlier, entrepreneurs play a very important role in economic

development. They are the ones who create goods, services and jobs. Considering our poor
economy, there is clearly a great need for more and more entrepreneurs in our country.
Prices of goods are high because their supply is scare. Jobs are few because economic
activities are also few. In japan and other industrial countries, they experience labor
shortages due to so much activity win agriculture, trade and industry. They used
machines and important labor from poor countries with labor surplus.

With proper and adequate assistance programs, our government can develop a larger
entrepreneurial economy. Priorities should be focused on micro and small enterprise.
Such mass and community base projects utilize local labor, material, management and
technology. Hence the poor masses are benefited.

The key factor of development of the Ramos government its people empowerment.
Actually, in a truly democratic society this is the essence of government. As Lincoln said,
a government is for the people, for the people and by the people. The best way to empower
the people is to improve their knowledge, skills and values. Then give them reasonable
financial and technical support to organize their enterprises. But these are not the last
inputs of the government. The government should likewise provide the necessary
programs in the forms of peace and order, transportation and communication facilities,
fiscal and monetary policies, electricity and other favorable assistance in order that the
people can productively use their power for their own interest

The legendary former president of Tanzania, Africa, Julius Nyerere, said:

“development is people’s development of themselves, their lives, their environment . . .

freedom is essential to development, not just a product of it. . .. but it should not be freedom
to exploit. People cannot develop if they have no power can organize their own power in
their own interest.

Government Assistance Program

1. Peace and order. Countries with news of forthcoming rebellion or revolution

cannot attract investments. The various coups of rebel soldiers have driven away not a
few big foreign investments. Also, kidnappings of foreigners and rich Chinese have
discouraged investors. In fact, some big Chinese businessmen went abroad. The NPAs
likewise contribute to the decline of investment in the rural areas. Businessmen have to
pay revolutionary taxes to the NPAs in exchange for their safety and that of their
enterprise.
12 | P a g e
 Fundamentals of Corporation

2. Political stability. There is political stability when there is no frequent change in

the government, especially through the use of force or violence. In our country,
government policies are not stable. Every change in administration is also a major change
in government policies. This is not conducive to entrepreneurship. The pr ograms of the
government change as soon as a new president assumes his office. There is nothing
wrong with change if it is for the better. But Philippines politics is different. There are
many political debts to pay big businessmen who contributed campaigns funds. As a
result, favoritism creeps in to the prejudice or disadvantage of small businessmen who
have no economies.

3. Price stability. Price are stable if there are no abrupt changes or fluctuation in the
prices of goods and service and in the exchange rates. When the value of the U.S. dollar
falls, importers are happy, not the exporters. When prices keep on increasing, investors
are reluctant to their business. It is hard to plan costs of production and project profits
when prices are not stable.

4. Taxes. These are needed to fund government projects and programs. However, the
payment of taxes should be based on the ability to pay scheme. Tax incentives can
encourage entrepreneurs. Many foreign investors choose other countries due to their fair
tax programs. The lagay system is a form of additional tax. There is “highway tax”
imposed by men in uniform for products coming from the provinces. There is also the
“NPA tax” in the rural areas.

5. Infrastructures. These constitute the foundation of economic development. Roads,

bridges transportation, communication and electricity are vital to business. Without
them, trade, commerce and industry remain primitive and limited. In the Philippines, the
beautiful super highways have no real economic value if these are not linked to the farms.
Until now, many remote farms have no farm to market roads. Because of this
shortcoming, the supply of products has become scare in urban centers. And yet in
remote agricultural villages, there is surplus. This is not favorable to village producers
because they cannot market their products.

6. Education and training. It has been said that real development is people
development. Money, machine, land and material are only productive if people know how
to use them properly. Knowledge and skills are not enough. If productive resources
benefit only a few, it is not wisely utilized. What is more needed is relevant social values,
aside from knowledge and skills. The bible says the fruits of the earth should be enjoyed
by everyone. The best ways to develop the mind. body and spirit is through 1education
and training. The school system should infuse into the minds of students the importance
of social responsibility to our productive resources; to our environment, to our
communities and to our fellow men.

13 | P a g e
 Fundamentals of Corporation

7. Public administration. Entrepreneurs prefer efficient public administration. In

dealing with the various government agencies, red tape and “expending fee” are
encountered. To put up just a simple business, there are numerous requirements.
Securing such requirements from various government agencies, takes time, not to
mention the many fees to pay. Such cumbersome procedures are naturally very
frustrating, especially for those prospective entrepreneurs who are unschooled. The
government should simplify business requirements and place these in just one office or
building. This will save time, effort and money. In addition, government clerks should also
be efficient and courteous.

8. Production technology. A side from skills training, the government should provide
simple production technology which is accessible to the masses at a nominal price or even
free. At present, the technology and livelihood resources center (TLRC) has been
conducting livelihood and technology courses for business opportunities to aspiring and
practicing entrepreneurs. Examples of such courses are: how to make fiberglass products,
how to operate a pawnshop, how to grow bonsai, how to process meat and fish, how to
manufacture candles, and many others. Other non-governmental organizations (NGOs)
are also actively engaged in similar livelihood projects for the benefits of low-income
groups.

9. Marketing assistance. Encouraging the poor to become entrepreneurs without

corresponding marketing assistance is an exercise in the futility. It is foolish to encourage
people to produce goods if there are no markets. Marketing assistance may be in the form
of promotions, identification of buyers, and ways of reaching the buyers. The department
of trade and industry appears to be active in the export promotions and foreign business
development. It is hoped that DTI is helping small entrepreneurs.

10. Financial assistance. Funds are important to poor entrepreneurs. In fact, many
people would like to go to small or micro business if they have the capital. To encourage
the growth of an entrepreneurial economy, adequate and cheap credit facilities should be
made available to the masses. These are many pro-poor credit programs which appear in
newspapers. Like KKK program, of the Marcos regime, it benefited only top government
officials, instead of the poor. Even the low-cost housing program of the program of the
government is beyond the reach of ordinary employees. It requires about P7,000 monthly
incomes to qualify for unit in such housing projects.

Here is example of a press release about credit programs for entrepreneurs; “More
than 200 leading institutions have set aside P16.836 billion for lending to small
entrepreneurs, the Department of Trade and Industry reported yesterday (manila bulletin,
1992).” The sad news article farther stated that the allocated amount exceeded by P7.249
billion the minimum amount that banks are required to allocate for small lending under
the Magna Carta for small businesses. In this connection, the business Guarantee and
Finance Corporation was created to guarantee the loans to small enterprises engaged in
14 | P a g e
 Fundamentals of Corporation
manufacturing and processing and services. Government financial institutions have their
credit programs for rural entrepreneurs. Likewise, foreign government through their
agencies, like USAID and JICA, extend credit facilities to entrepreneurs.

Government Programs for Entrepreneurship

As stated earlier, both government and non-government organizations, as well as

foreign agencies, offer financial and technical assistance to micro and small
entrepreneurs, particularly for those in the rural communities. This portion of the chapter
presents several reprints issued by the Bureau of Small and Medium Business
Development of the department of the Trade and Industry.

These materials are not only useful to students, but also to others who are interested
in setting up their micro or small business. They provide detailed services in the forms of
loans and skills taring.

The following reprints are “Magna Carta for Small Enterprises,” “Kalakalan 20,”
“micro-enterprise development program,” “self-employment loan assistance program,” and
Training programs for small and medium enterprises,” all these informative materials of
the DTI are envisioned to promote entrepreneurship in order to create more jobs and
incomes, thus alleviating poverty which is one of the major thrusts of the present
administration.

15 | P a g e
 Fundamentals of Corporation

Chapter III

Characteristic of Entrepreneurs

Objectives:

At the end of the lesson, the students should be able to:

Define entrepreneur;
List the characteristics of entrepreneur;
Choose the best solution in making a business; and
Interpret the determinants of a successful entrepreneurship.

Abstraction

Entrepreneurs are certainly not supermen. Neither do they perform miracles. They are
just human beings. But they are different from many of us.

They possess several positive characteristics which are responsible for their
business success. For instance, they have self-confidence, leadership and creativity. Not
many of us have these qualities. Most of us shy away from business. We prefer to be
employees doing jobs which do not required great risks like bankruptcy. The optimism
and positive thinking of entrepreneurs make a great difference between success and
failure. Positive thinking produces favorable results. We get what we deeply and think
believe.

Being hardworking and opportunity seekers, entrepreneurs acquire more profits.

Moreover, in the process, they also create better goods and services for the consumers.
Through their innovations, they contribute to the improvement of the standard of living.
So, they do not help the economy, they also help society.

Entrepreneur Defined

There are several definitions or meanings of entrepreneurs here are some of them:

1. Cantillion defines an entrepreneur as one who bears uncertainty, buys labor,

and materials, and sells products at uncertain prices.

He is one who risks and makes innovations on the factors of production.

2. in French concepts, an entrepreneur is an adventurer, undertaker, and

projector. He is to supply and communicate capital.

16 | P a g e
 Fundamentals of Corporation

3. to Schumpeter, an entrepreneur is an innovator. He does new things in a new

way. He supplies new products; makes new techniques of production; discovers new
markets; and develops new sources of raw materials.

4. Peter Drucker says that an entrepreneur always searches for change, responds
to it and exploits it as an opportunity.

5. say, an economist, explains that an entrepreneur is one who shifts economic

resources from an area of lower productivity to an area of higher productivity and greater
yield.

6. the American Heritage Dictionary defines an entrepreneur as a person who

organizes, operates, and assumes the risk for business ventures.

The pure entrepreneurs are those who launch their own ventures from scratch.
They develop scares resources into successful business by their instinct for opportunity,
sense of timing, hard work, and idea-producing activity. They accelerate the
development of our economy.

8. according to Geoffrey Meredeth, author of the practice of entrepreneurship,

entrepreneurs are people who have the ability to see and evaluate business
opportunities, to gather the necessary resources and to take advantage of them, and to
initiate appropriate action to ensure success.

Characteristics of Entrepreneurs

Characteristics are distinguishing traits are qualities, like honesty, courage,

integrity or punctuality. Entrepreneurs have many favorable interdependent
characteristics which make them successful and extra ordinary persons. However, their
business success depends on realistic goals and hard work. Usually, goals are
achievable if these are based on the abilities, interest and resources of individuals. Here
are the most important characteristics of entrepreneurs.

1. Reasonable risk-takers. Entrepreneurs enjoy challenges. But they are careful

and calculating. So, they shy away from high-risk situations, because these may not be
attainable. However, entrepreneurs also avoid low-risk situations, because there are no
challenges. A risk situation exists when results are not certain. Either it is success or
failure. In business, it is profit or loss.

As a matter of fact, life has many risks. Whether we like it or not, we make
decisions the results which are not certain. We are lucky if we make right decisions. But
entrepreneurs are different. They gather complete data about the situation, analyze the
data, and make their decision. Since they are confident in their abilities and optimistic

17 | P a g e
 Fundamentals of Corporation
in the results of their decision, they are not afraid to make difficult decisions. In view of
the risk-taking abilities of entrepreneurs, they make things happen rather than let them
happen.

2. Self-confident. Entrepreneurs have strong faith in their abilities. They believe

they can be the best in their field. They do not accept thing as they are, because they
believe they can do things better.

Belief, affirmative thinking or positive thinking, enhances self-confidence. It has

been said that we succeed when we think success. Faith moves mountain.
Entrepreneurs are optimistic individuals or positive thinkers. They always think
success. Such deep faith drives them to work with more enthusiasm and perseverance
to reach their goals. The bible states:

“if you have faith as a grain of mustard seed. . . nothing shall impossible unto you.”

3. Hardworking. Successful people always attribute their success to hard work.

Thomas A. Edison said that success is 99 percent perspiration and 1 percent
inspiration. We can easily confirm this by observing top executives in governmental and
non-governmental organizations. They work far beyond the 8-hour schedule.

It is very seldom that lazy people succeed in life through their own efforts and
resources. On the other hand, success smiles on hardworking people. A Chinese, called
Chiquito in Tayug, Pangasinan, use to walk 5 to 10 kilometers every day in buying
empty bottles. Now, he is the richest Chinese in Tayug. There are many others who are
like Chiquito. They started with particularly nothing except hard work and
determination-and now they are rich.

Entrepreneurs, although they are hardworking, enjoy challenges and difficult

tasks, and they love their work. Thus, their being hardworking is not really a sacrifice.
When people love their work, it is not no longer work. It becomes a joy. In fact, people
who are always busy forget their worries or problems.

4. Innovative. Entrepreneurs are creative. They do things in new and different

ways. For example, they create new products or services, new methods of production,
new markets, and new blaze new paths of progress.

Innovations are introduced to benefit both the economy and society. Changes are
made in response to the needs of people. For instance, the high cost of production serve
as an opportunity for entrepreneurs to introduce a technology that can reduce costs of
production. Much better, they should introduce an innovation which creates jobs for the
jobless masses. According to the legendary Mohandas Gandhi, the progress of a country
depends not on mass production, but on the production of the masses.

18 | P a g e
 Fundamentals of Corporation

Innovation have provided as a products and services of modern citizens. We have

wonder drugs, colored TV, computers, robots, cellular phones, cars, airplanes, home
appliances, and many more trappings of modern life. Without innovations, we would still
remain in our primitive stage of development. However, on the negative side, innovations
have given us pollution and diseases. Entrepreneurs therefore should not only innovate
for profit, but also ensure the protection of our environment.

5. Leadership. Entrepreneurs are leaders by the very nature of their functions.

They are people who are task-oriented. They are effective planners, organizers and
implementers and they are achievers. Here are the essential leadership qualities.

- Selfless dedication
- Purpose and vision
- Courage
- Conviction
- Enthusiasm
- Integrity
- Tact
- Hard work

Leaders treat fellowmen like human beings. They respect human dignity, and are
aware of other human needs like belongingness, security, fulfilment and love.
Entrepreneurs do not exploit their workers or employees. Instead, entrepreneurs
promote the welfare of their employees. When Jose Yulo, owner of the sprawling
Cnlubang Estate (about 7,000 hectares), was still alive, he gave numerous benefits to his
farm workers, like free housing, free water, free electricity, free rice, and sugar, free
hospitalization and free education. He even installed TV sets in street corners of the
residential community of his hacienda for his workers. At the time, TV sets were still
scares and expensive for ordinary employees. Thus, his workers loved him. They did not
even like to be under the land reform program of the government. The preferred Yulo’s
program.

6. Positive thinkers. Entrepreneurs are positive thinkers. They think of success

and bright sides. Such success consciousness leads entrepreneurs to success. Success
begets success. Dr. Charles Flory, a noted American psychologist, said that wealth does
not always come to the most intelligent or to the most ambitious individuals, but to
those individuals who think money.

There is nothing wrong with thinking and acquiring money and more money if it is
used properly. Those who have plenty of money can satisfy their legitimate human
needs, and be able to help others, especially the poor. There are many rich
entrepreneurs who are actively engaged in civic and humanitarian projects.
19 | P a g e
 Fundamentals of Corporation

Individuals who always think of failures and other negatives thoughts get exactly
what they think. Their failures consciousness or defeatist attitude gives them failure
after failure. The poor became poorer because they think of poverty. While the rich
became richer because they think wealth.

7. Decision-maker. Entrepreneurs make decisions. They cannot avoid this. Being

creative or innovative, they always make decisions on how to improve their products,
how to create new markets, how to increase consumer’s satisfaction, or how to maximize
profits. The success of their business depends on their ability to make the right
decisions.

Decision-making has six distinct phases:

1. Identifying the problem;

2. Gathering the data about the problem;

3. Analyzing the data;

4. Formulating alternative solutions;

5. Selecting the best solutions; and

6. Implementing the solution/decision.

The aforementioned phase of decision making is a scientific method of decision

making. However, implementation of the decision is a different matter. It requires
leadership which involves skills in dealing with people.

In fact, there are many unschooled entrepreneurs. Yet they are successful. They
do not know anything about scientific method of decision making or modern
management strategies, such as PERT-CPM, forecasting methods, break-even point
analysis, or linear programming. They just rely on experiences, ideas or hunches. They
are not afraid to make decisions because of their risk-taking nature and self-confidence.

Choosing the Best Solution

The problem has to be identified and defined. Then gather the data relevant to the
problem. Organize and analyze the data to be able to come up with alternative solutions.
The next step is to determine the best solution. Naturally, the best solution is measured
in terms of profitability. But is the solution implementable?

In the final analyzes, it is the implementation of the solution that counts. A best
solution which cannot be put into practice Is not a solution. Peter Drucker, a renewed

20 | P a g e
 Fundamentals of Corporation
economist and management consultant, mentions four criteria choosing the best
solutions:

1. presence of risk

2. economy of effort

3. time factor

4. availability

An ideal is one that does not create another problem, and it is most economical in
terms of time, labor and money. But of course, the final determinant is the availability of
resources. For instance, are there competent employees, adequate funds, necessary
materials and facilities to implement the decisions or solutions.

Implementing Decisions

Entrepreneurs are generally careful. They implement their decisions on a trial

basis or limited scale. This is to test the feasibility or profitability or their decisions. If
they happen to be right in their decisions, they implement their business projects in full-
scale. The idea is that if they were wrong in their decisions, their losses have been
minimized.

However, the problems of implementing a decision can be eliminated or minimized

if the decision has been the product of group action. As a democratic process, the
beneficiaries, the affected ones and those concerned in the implementation should be
involved indecision making process. In community development, the implementations
and beneficiaries of the project must be involved from planning to the implementation of
the project.

Japan has many successful entrepreneurs, because it considers employees the

most important resources of business. Employees are involved in planning, decision-
making and implementation. Top management allows them to participate actively –
within their areas of competence - in the vital aspects of business. Through this
approach, it is much easier to implement programs or projects. This is planning from
below participative management. A former president of a poor country said, “planning
from the top is planning for the top.” Obviously, such kind of planning is not only
undemocratic, but also ignores the rights and capabilities of people.

21 | P a g e
 Fundamentals of Corporation

Concept of The Filipino Entrepreneur

The development Bank of the Philippines defines the qualities of an entrepreneur;

1. Self-reliant. An entrepreneur counts mainly on his own efforts, and succeeds

mainly by doing a good job. He relies principally on his own merit and work. His self-
reliant is founded on hard work.

2. Risk-taker. He rises to a challenge and transfers problems into opportunities.

His daring is built on his competence which is marked by openness to new ideas, new
skills and new developments. Despite his setbacks and makes, he is willing to start all
over again.

3. Industrious. He has a strong sense of pride in the workmanship of his

product. He is quality conscious in all the components of his business. He also precise
in counting costs and ensuring the value of money for his product or service.

4. Humble. The true entrepreneur has the humility and single-mindedness of

purpose. Where there is a chance to earn, no matter how lowly the task, he is at work
patiently, unmindful of his social status. To him rolling up his sleeves, getting his hands
dirty is nothing to be ashamed of. Patience is his badge of security. Humility is the
quality that enables him to build a business from resources or opportunities, simple
needs and humble begins.

5. Helpful. He learns how to work with others from different fields, conscious that
with their help, effectiveness can be multiplied. He thinks of others, especially those
working for him, and of that opportunity for advancement he can provide for them.
Through appropriate words and works, he shows that he truly cares for their personal
welfare and development.

6. Creative. He has a sense of perseverance and a spirit of initiative. Never

satisfied with things as they are, he continues to improve, trying new and better ways of
doing things. And when difficulties, frustration and failures come, he is never
discouraged. Often, out of these, come something new-another success, another problem
solved, another opportunity opened, another “first”.

7. Happy. The joy of this entrepreneur lies in the satisfaction of a costumer, whom
he puts first over everybody else. He therefore attends to the real needs of his customers
with dispatch, efficiency, and graciousness. A service-oriented person. he is a happy
man for he has discovered that the joy of giving is its own reward.

22 | P a g e
 Fundamentals of Corporation

Determinants of Successful Entrepreneurship

Business enterprise due to poor management. Being industrious is not enough. It

is efficient management that counts most in business success. The entrepreneur must
possess the following managerial skills:

1. Ability to conceptualized and plan. The entrepreneur must view all the
aspects of the business, such as product, price, cost, inventory, etc., in a related and
coordinated manner. He must be able to plan for the total operation of the business. His
ability to foresee future problems of his business is an excellent asset.

2. Ability to manage others. Management is getting things done by others. As the

business grows, more people are needed. The entrepreneur must be able to organize
work properly so that his employees can perform their jobs efficiently and effectively.
Good human relations and communications are very important for the entrepreneur. By
letting others achieve the objectives of the enterprise, the entrepreneur has more time for
conceptualizing and planning.

3. Ability to manage time and to learn. The entrepreneur is o generalist.

Especially when the business is still small, the owner does everything: clerk, salesman
and manager. In view of the various functions of the entrepreneur, he should be an
expert on time management. He should also acquire basic training in small business
management and specialized course in accounting, finance, marketing and personal
relations. A real entrepreneur does not actually stop learning. He can do this by reading,
attending seminars, or enrolling in college.

23 | P a g e
 Fundamentals of Corporation

Chapter IV

SMALL BUSINESS IS BEAUTIFUL

Objectives:

At the end of the lesson, the students should be able to:

Define small business;

Identify the features of small business; and
Explain the economic contributions of small business.

Abstraction

The title of his chapter is patterned after the book small is Beautiful by E. F.
Schumacher. In this book, he argued that in poor or developing countries small projects
are much better than big projects. Schumacher defended his recommendation by stating
the advantages of a small project in every village compared with a few big projects
scattered throughout the country. The author further said that such small projects
utilized local labor, local materials and local management, together with intermediated
technology. This kind of technology is between modern technology and primitive
technology.

In the same manner, small business is better than big business, especially in a
poor country. The poor masses cannot start with a big business. Obviously, their
business opportunities are found in micro and small businesses. Although small
business has its shortcomings disadvantages, it is most relevant to poor or developing
economies like the Philippines.

This chapter explains the definition of small business, the characteristics of small
business, and the differences between small and big business. Furthermore, the
advantages and disadvantages of small business are discussed. Also, the contributions
of small business to the economy are presented.

24 | P a g e
 Fundamentals of Corporation

Small Business Defined

Business is defined as an organized effort of individuals to produce and sell goods

and services in order to satisfy the needs of society. The primary objective of business is
to acquire profit. The individual who takes the risks in organizing and operating a
business is the entrepreneur as mentioned earlier. To organize a business, the
entrepreneur must combine four types of productive resources: human, financial,
material and informational.

What then is a small business? There are two kinds of small business. The very
small business where the owner is the principal worker, and he employees one or more
assistants. This is the micro business. The other one is the bigger small business where
the owner mainly directs the work of the employees. This is not the only definition of
small business. There are many others. However, these are the common characteristics
of small business:

1. It is privately owned.

2. It has few or no layers of management.

3. Generally, it has insufficient resources to dominate its field of business.

The Magna Carta for Small Enterprises (R.A. 6977) defines small and medium
enterprise as any business activity or enterprise engaged in industry, agribusiness and
or services, whether single proprietorship, cooperative, partnership or corporation whose
total assets, inclusive of those arising from loans but exclusives of the land on which the
particular business entity’s office, plant and equipment are situated, must have value
falling under the following categories:

Micro : less than – P50,000

Cottage : P50,000 – P 500,000

Small : P 500,000 - P 5,000,000

Medium : p5, 000,001- P 20,000,000

Features of a Small Business

1. A small business is low in capital but high in labor intensity. Most small
businesses do not have sufficient financial resources. So they cannot purchase big
machines or modern equipment. What is only possible for them to do is to use labor
instead of machine in their business operations. These usually in retailing and service
industries.

25 | P a g e
 Fundamentals of Corporation

2. A small business is efficient in specialized skill or service. It can well produce

goods or services that are designed to the particular needs of an individual or a few
clients. For instance, repair works on cars and appliances require individualized service.
Also, tailors, barbers, real estate agents and others provide services that require
specialized knowledge for specific needs.

3. A small business succeeds in small, isolated or overlooked markets. In rural

communities where markets are small due to the few residents, small business is viable.
For example, sari-sari stores, tailoring shops, small restaurant, and grocery stores are
profitable enterprise. Clearly, giant corporations cannot survive in small towns where
demand is limited.

4. A small business often operates in unstable markets. Big corporations are

careful in their investments. To be sure or safe in their business ventures, they conduct
market to feasibility studies to determine viability. This is actually the standard
procedure in putting up a business which involves huge resources in terms of money,
machines and materials. Such feasibility studies do not apply in most small business.
With little capital, they are not afraid to experiment or test the market. They can easily
respond to changing economic conditions. If these are not favorable, they can quickly get
out. Unlike big corporations, they have big buildings or large factories. It is not easy for
them to treat from a business without suffering from huge losses.

5. A small business is clear to the market place. Not a few small businesses
conduct their operations right inside the market place. Being closer to the buyers,
compared with corporations, they get first-hand information about consumer tastes and
preferences. Such advantage enables the small business to respond to acts as quickly to
satisfy new demand.

6. Generally, the owner of small business is also the manager. Most of our small
enterprise in the Philippines are like these. The owner-manager employs his wife and
children. If the business grows, the owner hires more employees, usually relatives and
town mates.

7. Capital comes from the owner or small group. In our country, small business is
usually financed by the family through its own savings and or loans. If ever the business
is funded by a small group, it comes from relatives and close friends.

26 | P a g e
 Fundamentals of Corporation

8. The area of operation is small. This means the business is community-based.

The owner and the employees live in the community where the enterprise is located.

9. The size of the enterprise is small in relation to the industry. For example, the
shoe industry is large one. But there are very many stores of shoes. Clearly, one shoe
store cannot dominate the market for shoes. In the case of big business, there are only
few enterprises like the bear industry, OPEC, car manufacturers, etc.

Difference Between Big and Small Enterprise

1. Small business as a group change through a cycle of births and deaths. In the
case of big enterprises, change is through expansion or contraction.

2. Small business risk or reward estimate is done by the individual owner who
either gets profit or loss, white in large corporations, the risk or reward calculation is
done by employee-managers. Such judgement has no direct stake in the livelihood of the
managers. However, in the case of small business, the loss can ruin the livelihood of the
owner and his family.

3. Small business has little or no economic power. On the other hand, big
business has tremendous influence on the economy, including the political sector. For
example, the transnational corporations control our global economy. In many poor
countries, transnational or multinational corporations can have their men elected to top
government positions. They have enormous funds to influence the results of the election
in their favor.

4. Small business serves markets which big business does not like to serve or
cannot serve effectively.

Advantages of the Small Business

1. Personalized relationship which customers and employees. Retailers and

shop owners deals with their customers on personalized services. The owners know
many of their customers by name. the small business owners are involved in social,
cultural, and political affairs in the community. Such personalized services or
relationship which customers are big economic advantage which big corporations do not

27 | P a g e
 Fundamentals of Corporation
have. There is also a close relationship between owners and employees. Because of his
good and informal relationship, efficient employees give their loyalty to their employers.

2. Flexibility in management. The owner being the boss and the manager, he
can easily introduce changes in his products or services, experiment on price strategies,
or change store hours to fit, market conditions. Furthermore, small business owners are
quick to learn changes in the needs and interest of their customers, and also the
activities of their competitors. So they can immediately respond to such situation.

3. Government incentives. The national government has been promoting the

organization of small enterprises. It extends both financial and technical assistance,
particularly production and marketing, to small entrepreneurs. Such programs of the
government are relevant to the nature of our economy. The masses have to be helped in
helping themselves. A micro business is possible for them through government guidance
and assistance.

4. Simple record keeping. Small enterprises require few and simple sets of
records. They may consist only of cash receipt journal which records all sales, and a
cash disbursement journal which records all expenses or payments.

5. Independence. Small business owners are the masters of their own destinies.
They are not employees. They make their own decisions. They do not apply for vacation
or sick leaves. They do not worry about being late, absent or lay off. To many
individuals, this is the kind of life they enjoy.

Disadvantages of the Small Business

1. Difficulty of raising capital. Without financial assistance from the

government, a small business has limited ability to obtained funds from others. Initially,
it is the owner who provides capital for his business. If additional funds are needed,
these can be obtained from relatives, friends or banks. In many cases, such loans are
not enough. The bank can only extend loan which is equivalent to about 60-70 percent
of the value of the property used as a collateral. In the case of big corporations, they can
sell shares of stock to the public to raise funds. Banks are more willing to give loans to
big business.

2. Risk of failures. A small business does not have enough financial resources to
survive bad economic conditions. Its inability to absorb losses and unforeseen events
forces the owner to go out of the business.

3. limited management skills. Owners of small businesses generally lack

management skills. They have no formal education or training in management and
28 | P a g e
 Fundamentals of Corporation
marketing. They just manage their enterprise through intuitions or practical business
techniques. In the case of big corporations, professional managers are hired to do the
job.

4. Lack of opportunities for employees. Most of the employees of a small

business are sales staff. Only very few of them become supervisors. In the Philippines,
small enterprise is family-owned. Those who are holding managerial and supervisory
positions belong to the family or relatives in most cases.

Why small businesses fail

-lack of experience
-lack of money
-wrong location
-Mismanagement of inventory
-poor credit practices
-poorly planned expansion
-unsound or too little analysis in choosing the business

Economic contributions of small businesses

Statistic on economic conditions favorable contributed by small businesses are

based on U.S. setting. There are no available data on the specific economic contributions
of small businesses in the Philippines. Nevertheless, it is obvious that in our country,
micro and small enterprises are numerous and rampant. Market vendors, sari-sari
stores, groceries, bakeries, restaurants, repair shops, and many others dominate our
communities.

In all villages and towns, there are micro enterprises. Only very few communities
have big enterprises. Most of them are located in the cities. Even without statistics,
small businesses greatly contribute to the generation of jobs and incomes for many
Filipinos. Hence, the thrust of the national government in the promotion of small
enterprises throughout the country. Such business opportunities are accessible to the
poor masses.

They introduce innovation

Invention and innovation are key factors in economic development. These are
responsible in reducing time, labor and cost of production. Based on the U.S. study,
small firms, and about twenty-four times as many as the largest firms. More than 50
percent of the major technological advances come from individual small companies. Here
are examples of innovations contributed by small individual enterprises:

29 | P a g e
 Fundamentals of Corporation
- Ball-point pen
- FM radio
- Instant camera
- Disposable razor
- Penicillin
- Xerox
- Zipper
- Paper clip

They create employment

Small businesses are the main providers of jobs. Almost all non-governmental
employees come from small businesses. In the united states, 97 percent of business
activities, and 43 percent of the GNP ($1.3 trillion) are contributed by small by small
business. They constitute the building block in the U.S. economic development and
other industrial countries. What is remarkable about small businesses is that they
perform activities which big businesses do not or cannot do.

They provide competition

Small businesses as a group, challenge big business in many ways. Thus, small
businesses tend to be more efficient and responsive to the needs of the consumers. In
their own particular fields and always, small businesses have a combined competitive.
By pooling their small resources, they acquire economies of scale. Therefore, they can
compete with big enterprises.

They fill needs of society and big businesses

Big enterprises, because of their large-scale and mass production, are not willing
or are not able to satisfy the special needs of smaller groups of consumers, while small
producers or sellers can profitability fit their products and services to the needs of
smaller groups of consumers. In addition, small business supplies the needs of big
businesses. For instance, many of goods sold by National BOOK Store come from small
businesses, such as bags, toys, decors, etc. big corporations in japan purchase spare
parts and assemblies from small family enterprises. In fact, parts of radios, TV sets and
watches are being assembled by families in rural japan. This is more economical for the
big corporations.

30 | P a g e
 Fundamentals of Corporation

Chapter V

THE SEARCH FOR BUSINESS OPPORTUNITIES

Objectives:

At the end of the lesson, the students should be able to:

Explain business opportunities;

Identify the best area for small business; and
Choose business.

Abstraction

Business opportunities are everywhere as long as there are people with money, and they
are willing to satisfy their needs. However, there are more business opportunities for
individuals who are creative, resourceful and risk-takers because they create
opportunities instead of waiting for opportunities to come. These are the real
entrepreneurs.

There are factors to take into account for business opportunities. These are
resources, skills, interests and economic needs. The resources, skills and interests of
entrepreneur should match the social and economic needs of the community. For
instance, are you really interested in such kind of business? Is there a demand for such
product or service? Do you have the resources and skills to undertake such business?

Likewise, the resources, skills and technologies available in the community are to
be evaluated. If these are not fully or efficiently utilized, then these are good resources of
business opportunities. Fame and fortune always favors the innovators and risk-takers.
They can create new products/services, or new ways of doing things. Thus, new and
more business opportunities are discovered.

This chapter discusses entrepreneurial activities in the community, resources in

the community, and the needs of the people in the community. In addition, exploring
market opportunities is explained.

Entrepreneurial activities

Business activities are concentrated in cities and other urban communities. The
primary reasons are that more buyers, more incomes and more facilities are located in
the said heavily populated areas.

31 | P a g e
 Fundamentals of Corporation
Apparently, there are more business competitors in the cities. This means it would
be very difficult for a new comer to penetrate the markets. But for real entrepreneurs,
such difficult situation provides a challenge. Hence, they are engaged to explore market
opportunities.

It is natural for buyers to look for goods and services which offer better quality,
lower price and more conveniences. Precisely, these are the basic features of consumer
satisfaction which entrepreneurs can develop. In our country, there are several
marketing innovations of goods and services, like the express teller of banks, 24-hours
service of some grocery stores, and home delivery service of food items.

The sears story

In the united states, sears, Roebuck Corporation introduced mail-order selling.

The farmers comprised its first market. Julius rosewald studied the specific needs of the
farmers in 1895. At that time, the American farmers were isolated from the channels of
distribution of good and services. Since individual farmers had low purchasing power,
and were very far from trading centers, they were neglected by businessmen. And sears,
Roebuck rose to the occasion.

To sears, roebuck, the untapped buying potential of the farmers us a group was a
rich market. To reach the farmers, sears, roebuck used the mail-order selling. It
produced the goods that satisfied the needs of the farmers. These were delivered to them
in large quantities at low prices, and with guarantee of regular supply. And sears made a
policy of “your money back and no question asked” if farmers were not satisfied.

Gradually sears, roebuck became successful. Form a retailer store, it expands to

other industries until it has acquired international reputation and customers all over the
world.

Business opportunities in rural communities

Our rural areas are abundant with cheap raw materials and labor force. Yet these
are underdeveloped and have greatly contributed to poverty in the rural communities.
Many rural folks are unemployed or underemployed. This results to low level income
among the people.

The productive resources in the rural sector are sleeping business potentials. Our
raw farm products can be a good source of agri-business. Other raw materials can be
transformed into toys, hats, bags, slippers, decors and etc.

Senate President Neptali Gonzales has learned during his political campaigns
throughout the country that entrepreneurs in Davao are exporting cupflowers to
Singapore; artisans in Cebu have elevated local stone craft to world-class status; piňa-
cloth weavers in Aklan have attracted the attention of international fashion designers;
the goldsmith of Bulacan have created jewelry that are admired even in a place as far as
32 | P a g e
 Fundamentals of Corporation
Dubai; and the automotive tinsmiths of Pampanga gets job orders from California. There
are other small entrepreneurs who have succeeded in selling their products to foreign
markets.

In a graduation speech before college students in Pampanga, Senate President

Gonzales cited the importance of entrepreneurship:

“in a feudal society such as ours, social status means a lot. And the college diploma
is a status symbol. It is perceived as a key to a door leading to a white collar job. But the
harsh realities say otherwise. A diploma does not guarantee employment. . . has it ever
occurred to us that there are more profitable opportunities in self-employment than in
white-collar jobs? Have we bothered to think seriously that there are many untapped
potentials in the countryside? Have we given sufficient, thought that there is a bright
future in agriculture, particularly agribusiness activities?”

Resources in the community

Business opportunities and success greatly depend on people. The efforts of an

entrepreneur are useless if he does not get the full support and operation of the
business enterprise. Any business firm is not an island. It depends on employees,
customers, suppliers, and others who contribute to its success. In short, people are the
most important resources. It is the people who organize and manage the other
productive resources, such as money, materials, machines and manpower.

In discovering business opportunities, the following factors or resources have to be

evaluated:

1. markets. The number of prospective buyers, the presence of competitors, and

the prices and quality of goods and services have to be analyzed. Are the needs of the
consumers fully satisfied? If not, then business opportunities exist in areas where
consumer satisfaction is weak or incomplete.

2. individual interests. Business interest of individuals vary. There are those who
are interested in agriculture. Other are inclined to industries. Not a few like to be
employees. Interest should match business opportunity for poultry or piggery, one
should be interested in such fields.

3. capital. money is very important in putting up a business enterprise. The

availability of funds should fit the type of business to be organized. One who has a
limited capital should start with a micro business. Many unschooled individuals started
with such business. And some of them are now big shots in the business world.

4, skills. The entrepreneur should have the proper skills in the business he is
going to undertake. For instance, if he is interested in food processing, like tocino,
longaniza, ham or corn beef, it is much better if he has the skills in such food
processing. If it is a travel business, the entrepreneur should have the experience or

33 | P a g e
 Fundamentals of Corporation
working knowledge about such business. It Is not advisable to depend completely on the
services of assistants or employees.

5. suppliers of inputs. It is not enough that there are sufficient buyers of goods and
services. It is equally important that there are steady suppliers of raw materials and
other inputs of the business. Obviously, if there are no materials to be used in
production, a businessman has nothing to produce and sell. If production is delayed due
to lack of materials, then it is not good for the businessman. His business is likely to
lose customers.

6. manpower. The success of any business enterprise primarily depends on the

efficiency of its employees. In putting up a business, make sure that experts or trained
personnel are available. This is an essential requirement to make the business feasible.
For instance, a basket-weaving enterprise needs workers who are good in such type of
work.

7. technology. Taste and preferences of consumers are not permanent. These are
heavily influenced by innovations. And innovations are the products of technology. New
products and new services represent improvement which are intended to improve
consumer satisfaction. Entrepreneurs should be aware of the presence of technology,
particularly new technology. This is an opportunity for them to avail of such technology
to improve their products or services, or introduce new ones in the market.

SWOT Analysis

There is always a need to evaluate business opportunities, whether these are

really economic opportunities and whether these are profitable. To be able to translate
business opportunities into profits, the SWOT analysis is applied. It studies the financial
resources, physical facilities, management capabilities, the market, production process,
information system, resources of supply and social environment. SWOT analysis is a toll
of evaluating the strengths, weaknesses, opportunities, and threats associated with a
particular product or services. SWOT is the acronym of strengths, weaknesses,
opportunities, and threats. Here indicators or SWOT:

Strengths of a product or service

- Cheap and abundant raw materials

- Sufficient fund
- Availability of technology
- Presence of skilled workers
- Management and technical expertise of the entrepreneur
- Good quality/service
- Ease of production
- Small capital
Weaknesses of a product or service

- High price
34 | P a g e
 Fundamentals of Corporation
- Poor quality/service
- Weak management
- Lack of skilled workers
- Irregular supply
- Unattractive design
- High costs of production
Opportunities of a product or service

- Big demand for the product/service

- Favorable government policy/support
- Scarcity of the product/service
- Poor quality of existing product
- Possibilities of good profit
Threats

- Shortage of raw materials at a given time

- Entry of many competitors
- Increasing costs of production
- Expectation of unfavorable government laws, such as taxes
- Deteriorating peace and order
- Emergence of unfair demands of workers through labor union activities

Linkages of resources

Enterprises which have established a strong growth future can increase their
efficiency or profitability through backward and forward integration. This is also called
backward and forward linkages.

Backward integration is the ownership or control of the inputs of production by

the enterprise. For instance, a poultry business is a heavy user of feeds which consist of
a mixture of palay, corn, fish and ipil-ipil leaves. To ensure a steady supply of feeds at a
lower price, better quality of the right quantity, the owner of the poultry business puts
up his own feeds production. This is another business opportunity, especially if such
business is profitable. Thus, he achieves two business objectives: he ensures the
efficiency of his poultry business, and he gets additional profits from his feeds business.

In the case of forward integration, it is the ownership or control of the marketing

system by the enterprise. Using the same example, the poultry owners sets up his own
distribution system instead of depending on middlemen to market his poultry products.
In short, the owner owns and controls the entire operations of his poultry business, from
production of feeds to marketing of poultry products. All the profits belong him. The
point here is that the entrepreneur can create business opportunities by exploiting
backward and forward integration, aside from ensuring the efficiency of his original
business.

Clearly, backward and forward integration provides business opportunities to

more innovative and hardworking entrepreneurs. In fact, when the business has already
35 | P a g e
 Fundamentals of Corporation
become big, it may resort to horizontal integration. This means it buys or controls some
of its competitors. However, this is considered an unfavorable business behavior form
the point of social interest because the enterprise reduces or eliminates competition
which is not good for the costumers. As a matter of policy, the government discourages
the creation of business monopolies, except in certain areas of business.

Product life cycle

Product have their own life cycle. Each product life cycle is composed of our
stages: introduction, growth, maturity, and decline. Some products have long product
life cycle while others have short ones. Here are the descriptions of the various stages of
a product, particularly its sales volume and profits.:

introduction. Consumer awareness and acceptance of the product are low.

However, sales gradually due to promotion and marketing activities. But at the start,
cost of development and market activities. But at the start, cost development and
marketing are high. This makes profit low or even incurs loss. There are relatively few
competitors, and the price is usually high. Buyers are individuals who wants to be the
first in the community to own the product.

Growth. Sales are rapidly as the product becomes popular. Due to competition and
lower average cost of production, prices fall. However, profits for the firm and industry
increases. To meet growing demand. Product distribution is expanded. Promotion stills
plays a vital role in the marketing of the product.

Maturity. Sales still risings at the beginning of this stage. But the rate of increase
has declined. At the later partner part, the sales curve reaches its peak while profits
begin to fall.

Decline. There is a sharp fall in sales volume while profit curve becomes almost flat
or horizontal. There is also a declined in the number of competitors. The only survivors
are those who specialize in the marketing of the product. Once the product is no longer
profitable, it is eliminated from the market.

Entrepreneurs should be aware of the duration of each stage of the product life cycle of
their product. If maturity stage is long, a new product maybe introduced between the
peaks of the profit and sales curves. If such stage is expected to remain for a short time,
the new product should be introduced earlier. Obviously, excellent knowledge about the
product life cycle of the products provides entrepreneur business opportunities to
continuously stay in business.

The needs of the community

The ultimate objective of business is profit. This is only possible it satisfies the
needs of consumers in a community. However, there are enterprising businessmen who
can create consumer needs for their own business interests. To some, such
36 | P a g e
 Fundamentals of Corporation
manipulation of human weaknesses through advertising is immoral. Businessmen are
presumed to be honest and sincere with consumers.

Entrepreneurs who are seeking business opportunities have to explore the

economic and social conditions prevailing in the community. Such conditions reflect the
needs of the community, such as food, clothing, housing, health, education and
recreation. The needs that are not properly satisfied are areas of business opportunities.
Assuming that these needs are adequately met, it does not mean that there is no more
room for business opportunity.

Entrepreneurs, by their very nature are innovative. There are capable of creating
new products. Considering that people have unlimited satisfaction or needs,
entrepreneurs can still exploit the insatiable nature of human beings. Business
opportunity exist as long as there is improvement in human satisfaction in terms of
price, quality and service. So, what is very important for a businessman is to identity the
needs of the people in the community, and then maximize the satisfaction of such needs.
A simple market research may be used in identifying the needs of the community, the
competitors and existing resources.

Market research

Planning business prospects and strategies requires complete and correct

information: potential customers, competitors and market characteristics. This can only
be done is a systematic manner through market research. Entrepreneurs must be
future-oriented. They must anticipate future changes in the market to be able to adjust
their business. Hence, the need for a continuous market research.

The best way to evaluate business opportunities is to conduct market research.

This is systematic and scientific. An entrepreneur can only make the right decision if he
has the right data about the needs and resources in the community.

Market research is the process of systematically gathering recording and

evaluating data regarding a specific marketing problem.

The steps in market research are:

1. defining the problem

2. making a preliminary investigation

3. planning the research

4. Gathering the data

5. analyzing the data

6. reaching a conclusion/decision

7. implementing and evaluating decision

37 | P a g e
 Fundamentals of Corporation

Uses of market research

Through market research the entrepreneur can be guided in identifying the

following:

1. profitable markets
2. saleable products/services
3. strengths and weaknesses of competitors
4. available resources
5. business risks
6. trends in consumers tastes and preferences
7. better marketing strategies
8. proper business location
9. new market opportunities
10. realistic business objective

Location of the business

The location of the enterprise is a vital factor in the success of a business. A prime
location is a great competitive advantage. All other things being equal, the one with a
better business location gets the maximum business. To be able to make the right choice
of the location, it requires a market survey. Low rents and attractive leaseholds may be a
trap in the proper selection a good location. However, location of the costumer may be
the most critical factor in selecting a business location:

- Population trends
- Income trends
- Consumer characteristics
- Retail sales trends
- Competition
- Transportation facilities
- Government policies
- Environment (health and sanitation)
- Electricity
- Water supply
- Communication facilities
- Peace and order
- Fire protection
- Parking space

38 | P a g e
 Fundamentals of Corporation

Chapter VI

Developing a Business Plan

Objectives:

At the end of the lesson, the students should be able to:

Define principles;
Explain planning;
Interpret components of planning; and
Illustrate the importance of business planning.

Abstraction

Planning in plain and simple language is thinking ahead. In business, it is thinking

ahead of objectives, strategies, financing, production, marketing, profit prospects, and
growth possibilities.

However, business planning should be realistic. This means planning is based on

available resources, and is responsive to the needs of the community. Otherwise,
planning is no different from dreaming. Not a few business and government projects fail
because their objectives do not match their resources.

This chapter presents the fundamental principle of planning, criteria of effective

planning, steps in business planning and format of a business planning and importance
of business planning are explained.

Business Planning Explained

Planning is – what to do.

- How to do
- When to do it
- What to expect in the future?

Business planning involves the attainment of goals, and the way to accomplish
such goals. A time frame is needed in attaining the goals. Supposing you want to
put up a poultry project. How do you do it? Do you have the funds? Do you also
have the skills and interest? Assuming there are no problem in money, skills and
interest, when are you going to start the project?

39 | P a g e
 Fundamentals of Corporation
Starting the business is not the end of business planning. Ultimately, it is
the consumer satisfaction that requires planning. This should be properly planned
because consumer satisfaction means business stability and growth. In financial
language, consumer satisfaction is profit. Thus, business planning is continuous
process until consumer satisfaction is maximized and sustained.

Principle of Planning

Here are some basic principles in planning which have general application,
particularly for micro and small business:

Planning must be realistic. It must be based in available resources-human,

financial and physical resources. If these are not enough, then it would be
impossible to implement successfully the project. Any planning which is not
supported by adequate resources is likely to fail.

Planning must be based on felt needs. The objectives of entrepreneur should

fit the needs of the people in a community. Such needs can be known through
observations, personal interviews and questionnaires.

Planning must be flexible. Resources, needs and economic conditions

change. Planning should be adjusted to such changes to be effective and relevant.
For instance, fundamental changes in government policies require changes in
planning the affected aspects of the business. Likewise, planning should be
responsive to the trends in consumer tastes and preference.

Planning must start with simple projects. In the Philippines, many people are
poor have no business experience. The most appropriate project for them is the
micro business. This requires very simple management and technology. It also
needs simple and few resources in terms of funds, materials and equipment. Such
simple business enterprise has a greater possibility of success. More importantly,
it provides a good training experience for operating a business. Later on, the
operator can engage in bigger business projects as he acquires more resources
and management experience.

Stages of Business Planning

Professor Philip Kotler, author of marketing management, said that there are
four stages of business planning. Business which have passed these stages are on
their too sophisticated planning. Many enterprises are classified in each of these
stages:

Unplanned stage. At the start of the business the owner-manager ii busy

looking for funds, customers, materials and equipment. He has no time for
planning. His entire attention is devoted to the daily operations of his intense
desires to survive.
40 | P a g e
 Fundamentals of Corporation
Budgeting-system stage. Eventually, the owner manager realizes the need to
develop and use a budgeting system. Estimated incomes from sales and expected
expenditures are made. This is done to facilitate the orderly functions of the
growing enterprise.

Annual planning stage. The owner manager drafts an annual plan. He can
use either the top-down or bottom-up planning. In top-down approach, the owner
manager provides the goals and let the employees comply with them. In the case of
the bottom-up approach, he encourages his employees to participate in planning
the goals and strategies of the enterprise. The first approach in planning is
autocratic while the other one is democratic.

Strategic planning stage. As the business enterprise becomes bigger, along-

range planning is needed. This is a three-or five-year plan. Such plan has
flexibility to able to adjust to changing conditions. An executives of the Xerox
corporation claims that some of their plans are being revised every day of the year.
At this stage, planning develops into more strategic character.

Criteria of Effective Planning

1. The plan should state clearly its objectives. Such clear statement is
necessary so that those who will be involved in the execution of the plan will
understand, believe, accept and support it.

2. The plan should provide measures for a satisfactory accomplishment of

the objectives in terms of quantity, quality, time and cost. These help in depending
responsibility and measuring results.

3. The plan should state the policies which should guide people in attaining
the objectives.

4. The plan should indicate what department or unit will be involved in

accomplishing the objectives. It may or may not spell out the procedures for
performing the required work.

5. The plan should indicate the time which should be allowed for each
activity. It may be necessary to establish a target a data for completing the
activity.

6. The plan should specify the required resources and their corresponding
cost.

7. The plan should have designated the officers who will be held accountable
for the accomplishment of the objectives. Sufficient authority should be delegated
to such offers/executives.

41 | P a g e
 Fundamentals of Corporation

Components of Business Planning

1. SWOT. The chances of a product or service can be evaluated through the

SWOT analysis. This is explained in Chapter 6. Every product or service has its
own strength, weakness, opportunity and threat. Planning should include the
improvement of the product or service in order to survive competition.

2. Objectives. These should be specific and realistic. Such objectives can be

daily, weekly, monthly, and yearly. For example, 10 percent increase in sales after
6months of operations. Environmental factors should be considered in formulating
business objectives. Peace and order, power supply and government policies affect
business activities.

3. Strategies. These are ways of accomplishing the objectives. Such ways are
stated in the financial, production, marketing and or organizational plan of the
enterprise. For instance, in the objective of increasing sales by 10 percent after six
months of operations, there are several ways of attaining it. One way is to
advertise the product. Another is to improve customer relations. It can be also
done by reducing the selling price, or a combination of the three ways.

4. Time frame. In business, time is gold. For this reason, an entrepreneur

must be efficient in time management. Every activity has its own time schedule.
Activities which are completed on time save money. Here is a sample time
schedule for a small business.

Characteristics of a sound business plan

1. objective
2. clear
3. logical and simple
4. flexible
5. stable
6. complete and integrated

Obtaining the facts for a business plan

Facts about prospective business can be obtained from research surveys,

government agencies, accountants, bakers, and lawyers. Here are the
questionnaires to get the necessary data:

- What is unique about my product/service?

- Who are my competitors?
- How will my costumers buy?
- What is my share in the market?
- What is the market potential?
42 | P a g e
 Fundamentals of Corporation
- Who are my customers and where are they located?
- Where will I put up my business?
- How big should be my plant or place of business be?
- What equipment will I need and what size?
- How will I create customer?
- What personnel do I need?
- How will you organize my enterprise?
- What kind of records do I need?
- How much capital do I need?
- How profitable will the business be?
- How financially healthy will I be?
- What is my break-even point?

Outline of a business plan

 Cover sheet; name of my business, name of principals, address and phone

number
 Business goals
 Strategies
 Table of contents
Section one; the business

A. Description of Businesses
B. Product/Service
C. Market
D. Location of Business
E. Competition
F. Management
G. Personnel
H. Application and Expected Effect of Loan (If Needed)
I. Summary

Section two: financial data

a. sources and applications of funding

b. capital equipment list
c. balance sheet
d. break-even analysis
e. income projections (profit and loss statements)

1. five-year summary
2. detail by month for first year
3. detail by quarter for second, third, fourth, fifth years
4. notes of explanation

43 | P a g e
 Fundamentals of Corporation

f. cash flow projection

1. detail by month for first year

2. detail by quarter for second, third, fourth, fifth years
3. notes of explanation

g. Deviation analysis

h. historical financial reports for existing business

1. balance sheets for past five years

2. income statements for past five years

3. tax returns

Section three: supporting documents

Personal resumes, personal balance sheets, cost of living budget, credit reports,
letters of reference, job descriptions, letters of intent, copies of leases, contracts, legal
documents, and anything else relevant to the plan.

Steps in business planning

1. evaluate your personal resources and interests, and the resources of the
community.

- do you have the necessary funds?

- do you have the skills or management experience?
- does the government provide financial and technical assistance?
- are raw materials available?
- are you interested in such business?
- do you have good human relation?

2. analyze your market.

- is there a good demand for your product or service

- how many competitors are there in the markets?
- what is your estimated share in the market?
- who are your costumers?
- are there interested in the existing product or service?
- is it possible for you to offer a better quality or a lower price?
- is there a reasonable profit?

3. choose a proper business location.

- Is it near your prospective customers?

44 | P a g e
 Fundamentals of Corporation
- are there facilities like electricity, water, transportation and
communication?
- is the place clean, decent, and peaceful
- do you have good alternatives in case the best location is expensive?
- is it accessible to raw materials and other supplies?

4. prepare a financial plan

- what are your objective?

- how much money do you need?
- how will you spend the money?
- where will you get the money?
- what are your expenses?
- how soon can you recover your money or investment?

5. prepare a production plan.

- is it more economical to rent or buy a production equipment?

- can you ensure or improve your product design or quality?
- do you have inventory control?
- do you have proper scheduling of production?

6. prepare an organizational plan

- what type of business organization is most suitable?

- do you know the corresponding laws, policies and requirements of your
business organization?
- are you aware of the advantages and disadvantages of each type of
business organization?
- who will be the officers and employees of your enterprise? What are their
duties and responsibilities?

7. prepare a management plan.

- what are your goals objectives?

- what are your strategies?
- do you have business policies for your costumers?
-do you have human development for your employees?
- what is your program of social responsibility?

The Importance of Business Planning

Putting up a business is not a game of chance. It is not a win or loss activity.

However, there are always risk in business. Some of these can be avoided. Others cannot
be avoided like natural calamities, but their effects can be minimized.

45 | P a g e
 Fundamentals of Corporation
Planning can eliminate business risks because it carefully studies the competence,
interest and resources of the entrepreneur against the needs of customers, together with
the presence of competitors. Through marketing research or feasibility study, the
entrepreneur can determine whether it is profitable to set up a certain kind of business
or not.

Planning can minimize cost of production. The resources of production such as

money, materials, machines and manpower are properly used and scheduled according
to plan. The entrepreneur monitors and controls every aspect of the business operations
to prevent unnecessary waste. This results to economy and efficiency. Without planning
production inputs are wasted more often than not.

Planning can detect the weaknesses of the business operations. In planning goals
and objectives are formulated. Alternative strategies are designed on how to attain the
objectives and goals. The various resources or inputs are also indicated to support the
strategies. If the goals and objectives have not been accomplished according to time
frame, there is something wrong with the operation. The entrepreneur can then
reevaluate his planning.

Successful planning is highly dependent on adequate and accurate information.

This is much needed of customers, and the strengths and weaknesses of competitors.
Such data give the entrepreneur the ability to make the right goals and effective
strategies. In addition, any entrepreneur who follows the principles of planning is most
likely to succeed in his business.

46 | P a g e
 Fundamentals of Corporation

Chapter VII

ORGANIZING THE ENTERPRISE

Objectives:

At the end of the lesson, the students should be able to:

Define organize;
Explain organization;
Illustrate forms of business organization; and
Show steps in starting a new business.

Abstraction

When one starts to organize a business enterprise, it is pre-summed that he has

conducted a feasibility or market study. That is, he knows his resources, the strengths
of his competitors, and so forth.

However, what counts most is the personal characteristics of entrepreneur. Hard

work, determination, creativity, enthusiasm and human relations can make the
difference between success and failure. Many successful businessmen started from
scratch. Now, they are millionaires. Some of them have not even acquired college
education. We have this kind of entrepreneurs in our own communities.

In organizing an enterprise, there are several types of business organizations to

choose from. These are the sole or single proprietorship, partnership, and corporation.
The cooperative is also considered a business organization, although its basic motive is
service to the members and the community.

In view of the importance of cooperatives to the poor, this chapter has allocated a
substantial portion to such topic. This is also in line with the policy of the government of
promoting the organization of cooperatives as a means of reducing poverty. This chapter
explains the reasons for going to business, types of business organization, organizational
structure, and how to reduce the risks of starting a business, among others.

The Levi’s Story

More than one hundred years ago, a young man from Bavaria went to the United
States as an immigrant. His objective was to seek his fortune. Little success at first
encouraged him to return to his country. But he decided to try prospecting for gold in

47 | P a g e
 Fundamentals of Corporation
California. At that time all roads led to California. Likewise, luck was not for him as a
gold prospector.

However, the young man recognized the needs of his fellow gold prospectors for
sturdy and durable work pants. Exploiting his talent for tailoring and using his last
money, he put up his tailoring shop. Over the years his business prospered. Until it
became transnational in operations. The name of the young immigrant is Levi Strauss.

He did not discover gold in California. But just the same he acquired something
worth more than gold. The Levi Strauss and company has become the largest apparel
company in the world. Famous chain stores throughout the world sell Levis jeans.
Annual sales have been recorded at $3 billion.

Why do you Go to Business?

Even if you have plenty of money, going to a business is not as easy and as simple
as it seems. You should first evaluate your interest, experiences, skills and the
community needs. For instance, are you good in human relations? Do you have social
contacts? Where in you in business before? Is your health fit for business? Is there a
good market for your projected service or product?

Aside from positive personal qualities as an entrepreneur, good planning and

preparation are essential in setting up an enterprise. Of course money and other
valuable resources are needed in business. But without paper planning and adequate
preparation, such resources may disappear. Such loss is unfortunate and unnecessary
since it can be prevented.

Putting up a business is an investment. As such it should take into serious

consideration the criteria of good investment, like safety of the capital, stability of
income and possibility of growth. Business is not really very risky- like speculation or
gambling – if it is well studied, planned and managed.

Here are the reasons why people go to business:

1. Personal satisfaction. They enjoy challenges and risk-taking ventures. Their

business success gives them a sense of fulfillment.

2. Family involvement. They feel it is their responsibility to continue the business

of their parents, especially if it is profitable. In our country, many of business
enterprises are family-owned, such as the Concepcion Industries, National Book Store,
Soriano Group of Companies, and other particularly small enterprises.

3. Independence and power. They want to be the boss. They love to make their own
decision and implement them. If they are employees, they are obliged to follow policies,
report on time, and finished their work according to schedule. Some people are not
happy with such kind of life. they prefer independence, power fame and fortune.

48 | P a g e
 Fundamentals of Corporation

4. Social activities. There are people who are really born socializer. They love social
activities. Such extroverted personalities are good for business. They take advantage of
their social contacts to promote their business interests.

5. Profit expectation. Some individuals are greatly motivated by profit or the chance
to a mass wealth. Thus, they go to business. This is the best way for them to become
rich. In our country, most employees remain poor throughout their lives. On the other
hand, these who are engaged even in a small enterprise become prosperous. This is the
reason why the government has been encouraging the people to be entrepreneurs
instead of job seekers.

Checklist for going to business

Here is a test on your probable success in starting your business:

1. about you

- why do you want to put up your own business?

- do you have experience in the business you like to start?

- did you work before as a manager?

- do you have a business training?

- do you have money for your business?

2. about capital

- do you know how much you need for your business?

- do you know how much credit you can get from your supplier?

- do you know where to borrow in your funds are not enough?

- do you have estimated of your net income per year?

3. about a partner

- do you need a partner who has the money and skills?

- do you know the positive and negative points in choosing single proprietorship,
partnership or corporation?

- have you consulted an expert?

4. about your customers

- who are your customers?

49 | P a g e
 Fundamentals of Corporation
- do people need a store like yours?

- do people like live in the place where you intend to put up your business?

5. about your qualities

- are you a self-starter?

- how do you feel about other people?

- can you lead others?

- can you make decisions?

- can you take responsibility?

- are you good in planning and organizing?

- are you hard working?

- is your health good?

What is an organization?

Ban organization is a group of two or more persons who work together to attain a
common set of goals. A sari sari store owned and managed by a family is an
organization. In the same manner, Sun Miguel Corporation is an organization. A credit
cooperative is also an organization.

Organizing is a process of combining and coordinating resources and activities in

order to accomplish efficiently and effectively certain objectives. However, organizing has
a more important role. This is the proper development of human resources. The best
resources of the organization are its employees – not money, machines, materials or
buildings. Hence, the entrepreneur must hire the best and brightest, and then further
develop them in line with the philosophy of the organization.

Here is an inscription on the tombstone of Andrew Carnegie, who successfully

built a business empire:

Here lies a man

Who know how to enlist

In his service

Better men than himself.

50 | P a g e
 Fundamentals of Corporation

Organizational structure

Every organization has a structure which indicates positions and relationships.

These are shown by an organizational chart. Or course, in micro business like a sari-sari
store or a backyard piggery and poultry, positions and relationship are very few. In small
business enterprises, we have only the owner-manager, supervisor, book keeper and the
sales staff or workers. In the case of big corporations, they have several layers of
management. For instance, they have the board of director, president, executive vice
president, several vice presidents, assistant vice president, and many managers and
supervisors.

Choosing the form of business organization

In 1976 two young engineers worked together on an idea for a small computer for
personal use. Steven Jobs, then 21, and Stephen Wozniah, then 26, spent 6 months
designing a model and 40 hours building it. Their idea become a reality. Soon they had
an order for 50 of their personal computers.

With such order, the two engineers were practically in business. But they had no
resources. To solve the problems, Jobs and Wozniah became the workers. They used the
garage of Jobs as their production site. To finance their business, they sold a second-
hand Volkswagen van and a programmable calculator for $1,350.

So, they were ready for starting their business. They named their business
enterprise Apple Computer. The following year, 1977, the enterprise became a
corporation. In 1980 and 1981, shares of common stock were sold to the public. In only
six years, Apple Computer grew from a two-man operation into an international
corporation with more than 4,000 employees and with more than $1 billion annual
sales.

Forms of Business Organization

There are three most common forms of business organization in a capitalist

economy. These are the sole proprietorship, partnership and corporation. However, there
are other forms of business organizations, such as cooperative, joint venture and
syndicate. This chapter presents only the three most common forms, together with
cooperative. Many successful firms started from single proprietorship until they became
corporation.

Single proprietorship. This is a form of a business organization that is owned and

usually managed by one person. It is the oldest and simplest form of business
ownership. It also the easiest to start. Most of our businesses are in the form of single
proprietorship. They dominate the retailing, agriculture and service industries.

51 | P a g e
 Fundamentals of Corporation

The advantages of single proprietorship

1. Ease and low cost of formation and dissolution. It is easy and cheap to start, and
it also easy and cheap to dissolve. It requires small capital and there are legal papers
needed. Usually, only a license from the department of trade and industry and a
business permit from the city/municipality government are required. On the other hand,
if such form of business organization decides to close its operations, there are no legal
procedures to comply with. The owner has of course the obligation to pay his creditors.

2. Retention of all profits. All profits belong to the owner of the business. This is the
greatest incentive or reward to the entrepreneur. This is the reason why many
entrepreneurs prefer the sole proprietorship.

3. Independence and flexibility. The owner is the boss. He makes his own decision
and implements them in accordance with his will or wish. For instance, the owner
changes his style of management.

4. Tax advantage and less government regulation. The owner does not pay
several kinds of taxes. Usually, his earnings are taxed as personal income tax. Likewise,
the government has very minimal regulation and supervision over a single
proprietorship. The owners deal with the government when they pay their business
license, permits and taxes.

The disadvantages are:

1. Unlimited liability. This is the other side of profit. In case the business fails, the
owner assumes all the financial obligations. All his personal properties, including saving,
could be seized and sold to pay creditors.

2. Lack of stability. If the owner dies, it is the end of the business. However,
members of the family or close relatives can continue the business. This happens only if
such relatives are interested and business if profitable.

3. Limited access to credit. Banks and other financial institutions are usually not
willing to lend large amounts of money to single proprietorships. Assets of owners are
generally small to be used as security or collateral. Such disadvantage prevents owners
from expanding their business operations.

4. limited business skills and knowledge. In many cases the owner is the manager,
salesman, bookkeeper, messenger and janitor. There is no specialization.

Partnership. It is an association of two or more persons who acts co-owners of a

business. Each partner contributes money, property or services to their organization.
Most partnerships have two partners. They are usually engaged in accounting, law,

52 | P a g e
 Fundamentals of Corporation
advertising, real state and retailing. There are two types of partners: general partners
and limited partners. The liability of a general partner extends up to his contribution to
business. In our country, we have also capitalist partner and the industrial partner. The
former contributes money while the latter provides service or management.

The advantages of partnership are:

1. Easy to organize. Like single proprietorship, a partnership is relatively easy to

form, much easier than a corporation. The legal requirements include articles and by-
laws of partnership to be submitted to the Security and Exchange Commission,
verification of business name with SEC, registration of business name with the Bureau
of Commerce, registration with the Bureau of Internal Revenue for a TIN (tax information
number), business permit from the city/municipal hall, and registration of employees
with SSS.

2. Availability of more capital and credit. Partners can pool their resources –
properties, equipment and other – and can also use these for security in obtaining bank
loans. Supplier is willing to extend more credit to a partnership than to a single
proprietorship.

3. Retention of profit. Just like in the sole proprietorship, the partners get all profit
of their business. This simulates the partners to improve their operations.

4. Better business skills and knowledge. each partners contribute his skills and
knowledge to the organization. Such combination provides better management in terms
of planning, decision making and implementation, compared with a single
proprietorship.

The disadvantages:

1. Unlimited liability. Each general partner is personally responsible for all the
debts of the business. Even the personal property of a general partner can be taken to
pay creditors. However, in the case of a limited partner, only his investment is subject to
risk.

2. Lack of stability. A partnership is terminated in case of the death, withdrawal or

legally declare insanity of any one of the general partners.

3. Management disagreement. It is true that two or more heads are better than
one. But if they do not work in unity, conflicts arise. Suspicion or distrust may crop up
among the partners. Such negativity attitudes and unfair practice are likely to happen
among Filipino partners. It is common knowledge that capitals get experienced partners.
However, as soon as the capitalists learn how to operate the business, they kick out
their industrial partners.

53 | P a g e
 Fundamentals of Corporation

4. Idle investment. It is quite easy to invest money in partnership. But sometimes

it is difficult to get it out. For example, when partner decides to leave the organization,
his remaining partners may not buy his share. Such problem can be eliminated if it is
providing for in the articles of partnership that the remaining partners by the shares of
partners who are leaving the enterprise. Another option is for the leaving partner to look
for an outsider to by his share. This is possible if the business is lucrative.

Corporation. It is artificial being created by operation of law, having the right of

succession, and the powers, attributes and properties expressed authorized by law or
incident to its existence. United States Chief Justice Marshall defined corporation in his
famous 1819 decisions as “an artificial being invisible, tangible and existing only in
contemplation of the law.”

The shares or certificates of ownership of a corporation are called stocks. The

owners of stocks are called stockholders or shareholders. There are two types of
corporation: private or close corporation and Open Corporation. The first is owned by a
few individuals, usually relatives and friends. The other one is owned by any individuals
who buys share of stock which are openly traded in the stock markets.

The advantages of a corporation.

1. Limited liability. The liability of stockholders is only up to his shares of stock. In

case the corporation becomes a failure, creditors can only lay their claims on the assets
of the corporation, not on the personal assets of the stockholders.

2. easy to raise capital. Asia from bank loans, a corporation can sell shares of
stock to the public for additional funds. Individuals are more willing to invest in a
corporation due to limited liability, and they can sell their shares of stock.

3. Perpetual life. The life of a corporation does not end with the withdrawal or
death of key owners. It can exist for 50 years and subject to renewal.

4. Specialized management. A corporation can hire professional managers and

specialist. It has the funds to develop its human resources.

The disadvantages of corporation:

1. difficult to recognize. It is difficult and quit expensive to organize a corporation.

Sometimes, it requires the services of a lawyer and are accountant to prepare the legal
forms and financial documents. The legal requirements include submission of articles of
incorporation and bylaws to SEC, registration with SSS, BIR and DOLE, and acquisition
of a business permit from the city/municipal hall and a license from DTI. Depending on

54 | P a g e
 Fundamentals of Corporation
the products of the corporation, it also has to get approval from other agencies like
Central Bank, Bureau of Fisheries and Aquatic Resources, Food and Drug,
Administration or Bureau of Animal Industries.

2. Strictly regulated and supervised by the government. Government regulation

and supervision on corporations are closest compared with the other forms of business
organizations. Corporations have to comply with the government laws, policies and
regulations. They have to submit their financial reports every year to concerned
government agencies.

3. Some corporation are socially irresponsible. They sell worthless securities (stocks
and bonds), they pollute the environment, and sell substandard goods.

4. Formal and impersonal employee-employee relationship. A corporation has

several layers of management. The president and board directors seldom or do not
associate with the workers or clerks of the corporation. Nevertheless, there are few
corporations which strive to maintain a small business atmosphere in order to sustain
camaraderie in the organization.

The cooperative: an enterprise for the poor

The cooperative code defines a cooperative as a duly registered association of

persons, with a common bond of interest, who have voluntarily joined together to
achieve a lawful common social or economic end, making equitable contributions to the
capital required and accepting a fair share of the risk and benefits of the undertaking in
accordance with the universally accepted principles of cooperation, which include the
following:

1. open and voluntary membership

2. democratic control

3. limited interest on capital

4. division of net surplus

5. cooperative education

6. cooperation with other cooperatives

Objectives of cooperatives

1. to encourage thrift and savings among the members.

2. to generate funds and extend credit to the members for productive and
provident purposes;

3. to encourage among member systematic production and marketing;

55 | P a g e
 Fundamentals of Corporation
4. to provide goods and services and other requirements to members;

5. to develop expertise and skill among its members;

6. to acquire lands and provide housing benefits for the members;

7. to promote and advance the economic, social and educational status of the
members; and

8. to establish, own, lease or operate cooperative banks, cooperative wholesale and

retail complexes, insurance and agricultural/industrial processing enterprise, and
public markets.

Types of cooperatives

1. Credit cooperative. Promotes thrift among its members and create funds in order
to grant loans for productive and provident purposes.

2. Consumer’s cooperative. Procures and distributes commodities to its members

and no-members.

3. Producer’s cooperative. Undertake joint production in agriculture and industry.

4. Marketing cooperative. Engages in the supply of production inputs to members

and markets their products.

5. Service cooperative. Undertakes medical and dental care, hospitalization,

transportation, insurance, housing, labor, electric light and power, communication and
other services.

6. Multipurpose cooperative. Combines two or more of the business activities of the

different types of cooperative.

Organizing a cooperative

For membership, there should be a minimum of 15 natural persons. They should

be citizens of the Philippines who are residing or working in the intended area of
operation of the cooperative. However, before organizing a cooperative, the core group
(leaders) should first study the following:

- Felt need
- Volume and business
- Availability of qualified officers
- Adequacy of facilities
- Opportunities of growth

56 | P a g e
 Fundamentals of Corporation

If the aforementioned factors are not favorable, it is not advisable to organize a

cooperative. To determine the viability of a proposed cooperative, the cooperative
development authority requires the submission of an economic survey. This includes the
economic, technical, financial and management aspects of the projected cooperative.

Requirements for Registration

The Board of Directors with the assistance of the members of The Documents
Committee shall prepare all the documents necessary for the registration of the
cooperative. Such documents shall be submitted to the Cooperative Development
Authority:

- Four copies of economic survey with a general statement describing the:

a. structure

b. purpose

c. economic feasibility

d. area of operation

e. size of membership

- four copies of articles of cooperation, together with bond of accountable officers.

- four copies of bylaws

- registration fee payable to cooperative development authority.

The dimensions of organizational structure

The risks of organizing an enterprise involve five major steps. The results of these
steps are often referred to as the dimensions of organizational structure. These steps
are:

1. Divide the work of the organization into separate parts. Assigns these parts to
positions within the organization. This is called job design. The result its specialization.

2. Group the various positions into manageable units. This is departmentalization

of the organization.

3. Distribute the responsibility and authority within the organization. The results
are centralization of the organization.

4. Determine the responsibility of subordinates who will report to each manager.

This called span of management.

57 | P a g e
 Fundamentals of Corporation

5. Distinguish between those positions with direct authority and those are support
positions. This is change of command.

Departmentalization

Jobs must be grouped into working units in line with the goals of the organization.
The common bases of departmentalization are by:

1. Function. All jobs that pertain to the same activity are grouped.

2. Product. All activities related to a particular product or product group are put
together.

3. Location. Activities are grouped based on a particular geographic area.

4. Customer. Grouping of activities in accordance to the needs of various

customers.

Decentralization of Authority

The extent of distribution of power from management to subordinates determines

whether an organization is centralized or decentralized. When a part of managers works
and power is assigned to a subordinates, this is called delegation. The latter involves the
granting of responsibility, authority and accountability. Responsibility is a duty to do job.
Authority is the power to do the job. Accountability is an obligation to do the job.

There is decentralization of authority when authority is widely spread in the lower

levels of the organization. On the other hand, if authority is concentrated at the upper
levels, there is centralization of authority. There are several factors which require
decentralization of the enterprise. One Is the external environment of the enterprise. If it
is complex and unpredictable, lower management should be allowed to make the
decisions. Another is if the decisions are not risky, then it can be delegated to the lower
levels of management. Also, if the lower level-management is competent in decision
making skills, top management is encouraged to decentralize authority.

Line and staff authority

Authority passes from the highest level to the lowest level. This is called line of
authority. The vice president reports directly to the president. The managers’ report
directly to the vice president. The supervisors report directly to the managers. There is a
direct responsibility in a line authority.

58 | P a g e
 Fundamentals of Corporation

In the case of staff authority, it is not part of the chain of command. Its job is to
provide support, advice and expertise to line authority. They have no accountability. For
example, the presidential adviser or assistant is a staff position.

Both line and staff officers are needed for the efficient operations of the enterprise.
The line managers make the decisions while the staff managers assist in the making of
decisions. However, in some cases staff managers can make decisions and can issue
directives. For instance, a legal adviser in a marketing department can decide the nature
of the contract. But he cannot change the price of a product.

Entrepreneurial consideration

1. Financial. The entrepreneur must be knowledgeable about the financial aspects

of business decisions. He must be able to know the following: what expenses to be
incurred, how much capital to be needed, and how much profit to get to sustain the
business and the owner.

2. Marketing. The entrepreneur must be well versed on the 4Ps of marketing:

product, pricing, place and promotion. The entrepreneur must have the right product to
satisfy the needs of consumers. But this is only the starting point. Such product must
also have the right price, the proper promotion, and the appropriate place it can be sold.

3. Managerial skills. These are vital to the growth and success of the enterprise.
The entrepreneur must be able to identify the strengths and weaknesses if his
personnel. He should be able to develop fully their managerial skills.

4. Overall personal decision-making process. The entrepreneur should have a

thorough evaluation of what is to be attained by going into a business, and what human
and financial resources are available and necessary. However, it is more important to
possess determination and optimism. Going to business is a personal as well as a family
commitment.

Put Up a New Enterprise or Buy?

Which is better to buy an existing firm or start a new one? Here are some
advantages of buying an established business?

1. It saves time, cost and effort of looking for a location

2. It has existing customers

3. Uncertainties regarding physical facilities, inventory requirements and

personnel needs are reduced. The owner of the existing enterprise can share the benefits
of his experience in the business and community.

59 | P a g e
 Fundamentals of Corporation

4. It may be available at a bargain price or cheap price due to quick sale.

On the other hand, buying an existing business enterprise has disadvantages

such as:

1. Location may no longer be convenient to customer caused by parking problems,

deterioration of neighborhood, change in pedestrian and traffic flows, among other
things.

2. Present owner/business may have a bad image in the community. Under such
situation, the buyer of the existing enterprise may face difficulties with customers and
suppliers.

3. Physical facilities may be outmoded which require expensive repairs or

renovations.

4. Inventory may be obsolete and of poor quality.

5. The price of the existing business may be too high.

Evaluating an existing enterprise

Purchasing an existing business enterprise requires a complete survey and

thorough analysis. It may be losing or may have some legal problems. Do not take the
words of the owner. The prospective buyer should make inquiries from employees,
customers, suppliers, competitors and banks. Here are some areas to evaluate:

1. Reasons for selling

- Retirement
- Illness
- Employment
- Opportunities somewhere
- Going abroad
- Financial problems
2. Earning power

- Profitability of the firm

- Financial statements for the last five years
3. Other factors

- Demand for the firm’s product/services

- Number of competitors
- Future trend of the industry
- Present location of the business

60 | P a g e
 Fundamentals of Corporation

Steps in starting a new business

1. Plan the business

2. Select the appropriate form of business organization

3. Scout for reasonable credit/financing

4. Choose a good location

5. Secure license/permits for the business operation

6. Set up records for financial, physical and personnel resources

7. Insure the business if necessary

8. Promote the business

9. Manage the business

10. Do your social responsibility

61 | P a g e