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THE ENTREPRENEURSHIP MIND

I. COURSE DESCRIPTION

Upon completion of this course, students will develop an “Entrepreneurial mindset,” the underlying beliefs
and assumptions that drive the behaviors that allow entrepreneurs to succeed. Specifically, this course will help
the students in building their passion for creating their businesses. In today’s global entrepreneurial economy,
all members of society whether self-employed or employed by others will benefit from understanding and
embracing an entrepreneurial mindset.

II. DESIRED LEARNING OUTCOMES

At the end of the course, the student should be able to:

On the completion of the course, the student is expected to be able to do the following:

1. To understand the concept of entrepreneurial mindset.

2. To identify the various business environments, strategic management, and growth in both economic and
social endeavors of business ventures.
3. To develop their skills, social responsibility, and commitment.
4. To apply what they learned in school while in the corporate world or in a business venture.

Phases of Entrepreneurial Studies

Management Structure and Component

- It is designed as a form of ownership of the business which at the outset is known to the
investors. It shall also define the organizational structure of the organization and the
operational system that must be put in place. It shall be the duties and responsibilities of the
people in the organizational structure. Management should organize different operating
departments and delegate corresponding authority.
Marketing and Distribution System
- It shall deal with product demand analysis. It should have a competitive product advantage
over existing products or services and design the marketing program of the enterprise. It
should analyze market share and system of promotion, distribution, advertising media and
other marketing mix strategies to ascertain product market acceptance and patronage.
Production and technology
- Refer to the need in making the product or service. This refers to the machineries plant
location and another technical aspect in the making of the product. It shall describe the
physical layout of the building and the equipment that will be used in production. For services,
it shall specify the equipment that will be used and the manpower needed to render the
activity.
Financial Management
- Refers to the capital investment and sources of funding for the operation of the business. It
shall show financial projections over one-year and five-year programs and shall determine the
rate of return on investment. It must be able to show the return on equity and break-even
sales as well as the pricing sensitivity test.
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➢ Entrepreneurial Self-Assessment
Entrepreneurial Self-Test

Encircle your answer. (Entrepreneurship by Cristina B. Banastao & Solita A. Frias p.20)
Name: ______________________ Major: __________________

YES MAYBE NO
1. I am persistent
2. When I am interested in a project, I need less sleep.
3. When there is something, I want, I keep my goal clearly in mind.
4. I examine mistakes and I learn from them.
5. I keep New Year’s Resolution.
6. I have a strong personal need to succeed.
7. I have new and different ideas.
8. I am adaptable.
9. I am curious.
10. I am intuitive.
11. I take chances.
12. I see problems as challenges.
13. I take chances.
14. I will gamble on a good idea even if it is not a sure thing.
15. To learn something new, I explore unfamiliar subjects.
16. I can recover from emotional setbacks.
17. I feel sure of myself.
18. I am positive person.
19. I experiment with new ways to do things.
20. I am willing to undergo sacrifices to gain possible long-term rewards.
21. I usually do things my own way.
22. I tend to rebel against authority.
23. I often enjoy being alone.
24. I like to be in control.
25. I have a reputation for being stubborn.

Scores per answer

Yes – 3 points
Maybe - 2 points
No - 1 point

Score Interpretation
60-75 - You have the qualities of an entrepreneur
48-59 - You have the potential but need to push yourself
37-47 - You may not want to start a business alone
Below 37 - Self-employment may not be for you.

ENTREPRENEURSHIP AND THE ECONOMY

Entrepreneurship refers to the ability of an individual to determine and come up with the proper combination
of the resources available in the environment and transform this into an output of either goods or services and
obtain a fair profit at the price the entrepreneur sets. It entails the activities of spotting opportunities, identifying
and using resources in his environment, and making use of these resources in his environment, and making use
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of these resources to produce products and make profits out of them. It includes a set of behaviors, skills, and
attributes conducive to the development of innovation and creativity.

Entrepreneurship is a state of mind. It is not to be identified or measured with the type of business a person is
in or the size or success of that business. It is the total way of life for entrepreneurs. It is to do what one loves
to do.
An entrepreneur uses several factors to turn his idea into a profitable product.
1. Idea – is simply something an entrepreneur has already conceptualized or imagined, painting a more or
less clear picture in his mind, and giving him a clear plan of action. It is a clear blueprint in the
entrepreneur’s mind.
2. Raw materials – are the basic inputs that the entrepreneur uses to come up with his products. These
inputs come from his environment and are usually found to be in their unprocessed or natural states.
3. Capital – refers to the buildings, machinery, equipment, and tools used during production.
• An entrepreneur hires laborers – people directly responsible for the production process. The place
where all of these physical factors are found is generally called a (production) plant. Having all these
things allows the entrepreneur to have what he calls a business enterprise.
• When the inputs are transformed into outputs or what we call finished products, the entrepreneur
now brings these finished products to his market. A market is simply the buyers and the users of the
entrepreneur’s products. Technically, people who buy the product are called customers, while people
who use the product are called consumers or end-users.

Richard Cantillon – a noted economist and author in the 17th century who introduced the term Entrepreneur.
This explains why some consider him as the Father of the theory of Entrepreneurship. He viewed Entrepreneurs
as risk-takers.

CONTRIBUTION OF ENTREPRENEURSHIP TO THE ECONOMY

1. Entrepreneurship employs the various resources present in the economy.
2. Entrepreneurs need manpower for the business operations.
3. Entrepreneurship is the backbone of the economy.
4. An entrepreneur is in their ability to innovate goods and services.
5. An entrepreneur is in their ability to gain international popularity for their country.
6. An entrepreneur is willing to take risks, risks that society will otherwise be hesitant to take.

SOCIO-ECONOMIC BENEFITS FROM ENTREPRENEURSHIP

1. Promotes self-help employment
2. Mobilizes capital
3. Provides taxes to economy
4. Empowers individual
5. Enhances national identity and price
6. Enhances competitive consciousness
7. Improves quality of life
8. Enhances equitable distribution of income and wealth (p.2 – 14)

CATEGORIES OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

Micro, small, and medium enterprises (MSMEs) are defined as any business activity/enterprise engaged
in industry, agri-business/services, whether single proprietorship, cooperative, partnership, or corporation whose
total assets, inclusive of those arising from loans but exclusive of the land on which the business entity's office,
plant and equipment are situated, must have value falling under the following categories:

1. By Asset Size*
Micro: Up to P3,000,000
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Small: P3,000,001 - P15,000,000

Medium: P15,000,001 - P100,000,000
Large: above P100,000,000

2. Number of employees:
Micro: 1 -- 9 employees
Small: 10 -- 99 employees
Medium: 100 -- 199 employees
Large: More than 200 employees

BARRIERS TO THE GROWTH OF MSMEs

1. Poor access to finance
2. Obsolete technology
3. Low productivity
4. Lacks skills upgrading
5. Lack of Information
6. Inability to make entrepreneurial transition
7. Poor linkage among small, medium and large industries
8. Inappropriate location
9. Management incompetence
10. Poor market access
11. Lack of Infrastructure
12. Bureaucratic /cumbersome procedures
13. Severe global competition

CHALLENGES FOR SMALL BUSINESS

1. Running an enterprise on your own involves hard work and having to make most decisions on your own.
2. It is rather difficult to achieve economies of scale and cost-efficiency when capitalization and other
resources are not abundant.
3. Discounts in terms of buying raw materials are also limited for small business that tends to buy in smaller
quantities.
4. Inability to employ specialists or highly skilled laborers in their enterprise.
5. Better technology and better information (or production processes) may not necessarily be readily
available for small enterprises.
6. Access to greater financing presents yet another formidable challenge to entrepreneurs.

In the last five years, the MSME sector accounted for about 99.6% of the registered businesses in the country
by which 63% of the labor force earn a living. Around 35.7% of the total sales and value-added in manufacturing
come from MSMEs as well.

2. Questions for self-assessment:

1. List down the entrepreneurs that you know.
2. Who among them has impressed you the most?
3. Why have they impressed you?
4. Have you read any books about entrepreneurs or entrepreneurship?
5. If yes, which books? If not, why haven’t you ever happened to read such books?
6. Which book(s) have influenced you the most?
7. Why did these books influence you?
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ATTRIBUTES OF ENTREPRENEUR

Generally, we can categorize the study of Entrepreneurship into three – Entrepreneur, Enterprise, and
Environment. The smallest but very important category is the person for after all, the entrepreneur is responsible
for the existence of the enterprise. Next to the person is the Enterprise, encompassing the person. The largest
category is the Environment, encompassing both the Entrepreneur and the Enterprise.
Entrepreneur is a French word, “entrepredre” which means “to innovate” or “to undertake”. Apparently,
when this term was used, it referred to people who were considered inventors in the early days – people who
created new things or modified old things into newer ones.
Intrapreneur has also been called the internal corporate entrepreneur and even the corporateur. His or
her function is to introduce and produce new products, processes and services which in turn enable the entire
company to grow and profit. An intrapreneur is a person or a team of persons who start a new business venture
within an existing company.
Home-based business is a way to reduce operating expenses by holding office (and locating production
facilities) at home. The home-based entrepreneur must be able to tolerate isolation, be self-disciplined and self-
motivated, and weigh the effect on the family)

Key terms associated in defining who an entrepreneur really is:

1. An entrepreneur is somebody who has ideas and makes these ideas happen or come to life.
2. An entrepreneur must have some business skills.
3. An entrepreneur, like many other businesspeople, is somebody who assumes risks.
4. An entrepreneur desires to make profit.

Characteristics of the Average Filipino Entrepreneur

1. An entrepreneur has a slight tendency to be the first-born or the eldest in the family.
2. Most entrepreneurs tend to be married individuals.
3. Although emerging trends dictate that more and more women are venturing into business, men still
generally outnumber women in this field.
4. Many entrepreneurs start their significant business ventures in their thirties – early thirties for men, and
late thirties for women.
5. The important characteristic of an entrepreneur such as creativity, independence, and the ability to
handle uncertainty, apparently emerge during the individual’s teenage years.
6. The average educational attainment of entrepreneurs is a bachelor’s degree or a college degree.
7. The need for independence is a primary driving force that allows the entrepreneur to take risks to work
all the hours necessary to create a new business venture.
8. It has been found out that many entrepreneurs account their successes to a strong relationship with
parents, most especially with the father.
9. Contrary to popular belief, many entrepreneurs believe in the need for luck – having the right idea in the
right place at the right time.
10. Entrepreneurs and venture capitalists are usually in conflict. The goal of an entrepreneur is to be
independent and make the organization survive. The venture capitalist’s goal is to invest money and
make it earn on average for no more than five years.
11. Many entrepreneurs rely on professional management through external means.
12. Generally, entrepreneurs take pride in being doers.
13. Successful entrepreneurs are known to take calculated risks.
14. Entrepreneurs are known simply to be one with the group or fit into the crowd.
15. Entrepreneurs are known to fall in love with all the above – new ideas, new employees, and new financial
plans.
16. Rarely does it happen that entrepreneurs concentrate on just one single business venture. (p.27-37)
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• According to the Small Business Administration, successful entrepreneurs have five

characteristics:
– Drive, which is defined as the most important attribute. Entrepreneurs can expect long hours,
high stress, and endless problems, as they launch a new business.
– Thinking Ability, or the characteristic that encompasses creativity, critical thinking, analytical
abilities, and originality.
– Aptitude for Human Relations. This characteristic recognizes the importance of the ability to
motivate employees, sell customers, negotiate with suppliers, and convince lenders. Personality
plays a big part in success in this area.
– Communication Skills, or the ability to make yourself understood.
– Technical Ability speaks to the need of the entrepreneur to know their product and their
market. They must consider the long- and short-term implications of their decisions, their
strengths and weaknesses, and their competition. In short, they need strategic management
skills.

Roles of an Entrepreneur
➢ Perceives opportunities in the environment
➢ Takes risks
➢ Mobilizes capital
➢ Introduces innovations
➢ Organizes labor and production
➢ Makes decision
➢ Plans ahead
➢ Sells his product at a profits

There are several Types of Entrepreneurs:

1. Type A: a type A person is an idea person. He is someone who does not want to start a business because
they have no patience for the day-to-day running of it. What stimulates this type of person are ideas.
2. Type B: a Type B person is a crusader. This person wants to change the world. Type B uses the idea as
a starting point for the business
3. Type C: a type C person is independent. He is a lifestyle entrepreneur in that he wants the business only
to give him a certain lifestyle. Motivation is to work for himself.
4. Type D: a type D person is looking for ideas, waves, trends, and opportunities, to develop. He is content
to develop other people’s ideas. The idea is not important. What is important are the execution, the
organization, and the financial reward.

Basic Skills of an Entrepreneur

1. Ideation – simply refers to your ability to generate ideas.
2. Creativity – the ability to produce something new such as a work of art by using your talents and
imagination.
3. Innovation – is doing something different. It could be introducing either something new or different,
even if it is old enough.

Factors that Contribute to the Success of Enterprises

Figure 1: Factors that Contribute to the Success of Enterprises
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FACTORS OF SUCCESS ( Entrepinoy : Paths to Successful Entrepreneurship by Divina M. Edralin p6-

9)

LEVEL 1. ENTREPRENEUR DIMENSION (ED)

• refers to the entrepreneur who is core, seed, and the beginning of the enterprise. It focuses on the
entrepreneur’s qualities and some technical skills.

Personal Qualities include the fact that the entrepreneur:

- prefers moderate risks
- is self-confident
- seeks concrete feedback on performance
- is more concerned with tasks than people
- is achievement-oriented
- is hardworking
- possess Filipino values such as industrious, thrift, perseverance, self-control, and sincerity
Technical skill involves:
- Visioning/goal setting
- Organizing
- Implementation and follow-through
- Evaluation
- Networking
- Opportunity seeking
- Technical knowledge of the service/product to be sold

LEVEL 2: FIRM DIMENSION (FD)

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- Refers to the firm’s integration of business functions (marketing, production, finance, and
human resource development) and effective application of management functions
(planning, organizing, leading, and controlling)

BUSINESS ORGANIZATION FUNCTIONS

1. Marketing
- Product/service (type and demand)
- Price
- Place of Distribution
- Promotion
- Research
2. Production
- Product/service development/innovation
- Plant layout, size, and location
- Raw materials supply and utilization
- Machinery and equipment
- Methods used for efficiency and quality control
- Direct labor (skills competence)
3. Finance
- Availability and sources of funds
- Funds allocation
- Funds supervision
- Funds utilization
4. Human Resources
- Recruitment
- Development
- Compensation
- Maintenance
- Integration
Management Functions
- Planning (Short and Long term)
- Organizing (Structure and division of work)
- Leading (Motivate and Communication)
- Controlling (Monitor and Evaluate)

LEVEL 3: ENVIRONMENT DIMENSION (ID)

- Refers to the enterprise’s external environment such as the social, technological,
economic, and political-legal system vis-à-vis the local and global perspective.

Socio-Cultural and Demographic Factors

A society that:
- Fosters a culture of competition
- Emphasizes future orientation
- Encourages trade
- Confers social ranks in terms of actual achievements
- Looks at work as duty, and values honest and productive labor

Family members who have early training in:

- Independence
- Self-reliance
- Decision-making
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- Business
- Craft or trade
Technological
- Advancement (inventions and discoveries) related to technology, methods, machinery,
equipment, processes, and systems and procedures which are important inputs to the
operation of the business functions.
Economic
- Abundance of resources (manpower, financial, natural)
- Availability of credit facilities
- Low inflation rate
- Low interest rate
- High GNP
- High national productivity
- High employment rate
Political-Legal
- Legislation pertinent to the business and which provides incentives and support for the
industry
- Conducive peace and order situation
The success of the enterprise depends very much on how the entrepreneur will utilize personal and technical
skills in the effective and efficient management of the business, considering its environment.

INGREDIENTS FOR SUCCESS (Guide to Entrepreneur p 252-253)

• Sufficient Funding
• The right people
• A viable market niche
• Perseverance
• Luck
• Good strategic planning
• A sound business plan
• Drive and desire
• Business experience
• A good education

ADVICE FOR ENTREPRENEURS

• Do not start a business, just because you think you will be good at it.
• Do not start a business, just because other people think you will be good at it.
• Starting the business should be the one thing you want to do most, in life.

FURTHER ADVICE FOR ENTREPRENEURS

• Research your potential market

• Be sure there is a market for your product or service.
• Assemble the best people you can
• Do not solely from amongst the people you know. Recruit people you do not know.
• Make sure you have sufficient funds to get your product to market.
• Do not get discouraged if things do not go as planned. Plan to be flexible.

3. Question for self-assessment:

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1. Which of the following motivated you most to work?

____ Initiating new ideas
____ Implementing a developed idea
____ Having a certain lifestyle that you have always wanted
____ Developing new ideas
2. Based on your previous answer, which Type of Entrepreneur are you most likely to be?
3. Do you think you have enough motivation, to become an entrepreneur now? If not, what else do you
need to get started?

ENTRY OPTIONS

Reasons Why People Go into Business

1. Adventure
2. Creativity
3. Competition
4. Control
5. Earning Potential

Current and Thriving Business

1. Retailing (clothing store, bicycle shop, fashion boutique, etc)
2. Food and Recreation (fast-food franchises, restaurants, hotels, etc)
3. Services (transportation and public utilities, water transportation, etc)
4. Other Commercial Fields (Industrial, Wholesaling, delivery services, etc)

Sources of Entrepreneurial Inspiration

➢ Trade Journals
➢ Trade Associations
➢ Conventions
➢ Exhibits and trade shows
➢ Product Catalog
➢ Directories
➢ Personal interest or hobbies
➢ A wish list
➢ Others

Routes to Entrepreneurship

1. Family Business – one of the most successful routes to entrepreneurship

Model of Succession of Family Businesses

Stage 1. Pre-Business - the children become aware of some facets of the firm and industry.

Stage 2. Introductory – the children are exposed to business jargon, employees in the business, and the
business environment.

Stage 3. Introductory Functional – Children start to work as part-time employees.

Entry of Successor
Stage 4. Functional - Potential successor begins as a full-time employee whose functions include all non-
managerial functions.
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Stage 5. Advanced Functional – potential successor assumes managerial positions, which includes all
management positions before becoming president / general manager of the business enterprise.

Entry of Leadership
Stage 6. Early Succession – successor assumes presidency / general manager position. This includes the
period in which the successor becomes de jure head of the company.

Stage 7. Mature Succession – the successor becomes the de facto head of the company.

2. Franchising – a marketing system revolving around a two-party legal agreement whereby the franchisee
conducts business according to terms specified by the Franchiser.

People Involves in Franchising

Franchisee - An entrepreneur whose power is limited by a contractual relationship with a franchising
organization.

Franchiser – The party in the franchisee contract who specifies the methods to be followed, and the
terms to be met by the other party.

3. Buy-out – it means that the entrepreneur simply buys an existing business for sale on which he
introduces innovations and improvements.

4. Start-up Businesses –are those that are relatively started new by an entrepreneur. The business that
starts from scratch.

Types of Start-Up Businesses

1. Distributorship – an independent entrepreneur, company, or individual enters into an agreement or

contract to offer, sell, or distribute a particular product but is not entitled to use the manufacturer’s trade
name as part of its trade name.
2. Rack Jobber – involves an agent or buyer agreeing with a parent company to market its goods to
various stores employing strategically located store racks.
3. Wholesaler – a businessperson who buys directly from a producer or agents and sells the same product
in bulk.
4. Subcontracting – an entrepreneur who is responsible for aspects of the operations of the principal.

Stages of the Company’s Development or Life Cycle of Entrepreneurial Firms

Stage 1: Birth Stage – seed capital is needed at this stage. This stage is fighting for existence and survival.
➢ Establishing the firm
➢ Getting customers
➢ Finding the money
Stage 2: Breakthrough Stage or Early Growth Stage – early financing is designed to fund this stage after
the company is delivering a product or service. This stage is coping with growth and takeoff.
➢ Working on finances
➢ Becoming profitable
➢ Growing
Stage 3. Expansion Stage or Maturity Stage – the company needs funds to expand into new markets or
product lines. You may need venture capital to help you finance changes that you need to make to
expand your operation. This stage is for investing wisely and staying flexible
➢ Refining the strategy
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➢ Continuing growth
➢ Managing for success

The Causes of Business Failure:

1. Undercapitalization
2. Poor Business Location
3. Negligence to Public Policy
4. Unprepared to Risk
5. No New Product or Service
6. Unsatisfactorily Performance of Relatives
7. Irregular Attendance

4. Task Assessment: Identify one route of entrepreneurship that you want to push through. Why?

OWNERSHIP AND ORGANIZATION

Things to consider in Selecting the best legal form of Organization:

1. Ownership – how many owners will there be? Will their ownership be equal?
2. Management – will the owners also manage the firm?
3. Financing – how much money is needed to start or purchase the business and what sources might provide
it?
4. Liability – will the business be able to provide the incentive necessary to attract the managerial talent
needed for growth and success?
5. Taxation – What legal form will minimize the total tax load imposed on the business?
6. Retention of income – which form will provide the maximum income?
7. Protection – Will the asset values developed in the business over time be preserved if key persons become
unavailable because of illness or death?
- Sole Proprietorship
- Partnership
- Corporation
- Cooperative

FINANCING THE VENTURE

A new business project need not have a substantial start-up capital requirement nor does one
have to be a millionaire to start an entrepreneurial business endeavor.

Capital Requirements

From an entrepreneur’s viewpoint, capital is not all about or does not necessarily mean money. Some
entrepreneurs consider an idea (an innovative idea) as a form of capital that is much more precious than money.
From a financial viewpoint, however, capital comes in monetary terms and three forms as follows:

1. Fixed Capital – refers to the money needed to purchase fixed assets or capital goods. This includes
amounts meant for the acquisition of machinery, buildings, office equipment, and all those fixed assets
or the items needed in the provisions of services to the customer.
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2. Working Capital – after putting up the business with all the basic amenities and capital items in place as
preparation for operationalizing the business, the other capital requirements which refers to the working
capital, are needed to fund the day-to-day operations of the business. Working capital represents the
money or hard cash to support its normal short-term operations like payroll, utilities, etc.
3. Growth Capital – growth capital is not related to daily or seasonal requirements for funds of the business.
Capital is needed when an existing business is set to expand, and diversity changes its direction.

SOURCES OF CAPITAL

The Formal or Informal Sources

Fund sources could be obtained from formal or informal sources.
Formal sources mean sourcing or borrowing funds from organizations or institutions duly authorized by
the government or by law to extend financial assistance or other forms of support services to businesses and
industries. They include banks (both private commercial banks and government-owned or controlled financial
institutions), investment houses, lending investors, mortgage banks, pawnshops, credit card companies, and
others.
Informal sources include those fund sources other than formal sources mandated by law to provide
capital or financing to business organizations. This group includes the entrepreneur’s parents, brothers and
sisters, relative friends, suppliers, and other fund providers outside of the financial system.

➢ Republic Act 6977, - known as the MAGNA CARTA for Small Enterprises provided the necessary funds
for the development of entrepreneurs in the countryside. Under this act, are small and medium
enterprises engaged in industry, agribusiness, and other services. These funds could be availed by single
proprietorship, partnership, cooperatives, or corporations. The amount of operating capital investment
that can be availed exclusive of lands, buildings, or equipment is divided into the following categories:
a. Micro-enterprises Less than P50,000.00
b. Cottage Industries P50,001.00 P500,000.00
c. Small Enterprises P500,001.00 P5,000,000.00
d. Medium Enterprises P5,000,001.00 P20,000,000.00

The law intends to provide the promotion, growth, and development of SMALL AND MEDIUM
ENTERPRISES by assisting the government and RELEVANT AGENCIES (capitalize for emphasis) in tapping
local and foreign capital and the use of existing guarantee funds.

➢ Republic Act No. 6810 is the establishment of the MAGNA CARTA FR COUNTRYSIDE AND BARANGAY
ENTERPRISES, granting exemptions from any government rule and regulations and other incentives and
for other purposes.

LONG-TERM BORROWINGS
- Long-term as well as medium-term creditors, refer to organizations whose main
businesses are generally meant for providing such form of financial assistance. They include banks and
mortgage houses that provide funds or capital whose payments are made on a long-term basis. These
fund sources take the form of the following:
1. Mortgage – the form of fund generation by way of pledging a designated property as security or
collateral of the loan. If the need arises, the company can mortgage its equipment or real estate
property to the banks.
2. Bonds – these are forms of indebtedness of the issuing company that promises a fixed amount of
interest to the bondholders upon maturity or call by its holders.
3. Log-term commercial papers – LCPs are commercial documents issued by large companies with
credible track records. LPCs carry a fixed return promised by the issuer and hence, LCP holders are
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guaranteed returns by buying the LCP, regardless of the operational outcome of the business of the
issuer.
SHORT-TERM CREDITORS
- Short-term creditors take the form of financiers on a short-term basis lasting to one or
less. These creditors can serve as a stand-by credit facility to the entrepreneurs, which can be tapped
as needed. These types of creditors are:
1. Commercial banks – they are duty-bound to provide both short-term and long-term financing to any
viable business projects.
2. Merchandise Suppliers – Credit terms, with the merchandise suppliers being a form of financing,
should be explored to the fullest with the merchandise suppliers. Terms like consignment basis,
layaway plans, and similar arrangements can be made with the supplier.
3. Credit card companies – Credit cards are the most convenient yet the most expensive loan terms
you can find in town. Through it offers a stringent term loan, it would appear as cheap because one
does not need to have a business plan or collateral to get the amount needed. All that is needed by
a credit card-bearing entrepreneur is to walk to the ATM and withdraw the amount needed. The
option to tap a credit card should be made with prudence and extreme precautions – or a last resort
– because most credit card companies charge extremely high if not exorbitant rates.
4. Capital equipment supplier – in their desire to sell equipment, suppliers will often make every
favorable term available even to new companies. This is possible because the equipment itself
secures the loan. The contract may be a lease, held by the seller or leasing company, or a conditional
sales agreement, whereby the seller retains ownership or title until the last installment payment is
made and received.
5. Leasing companies – they make possible the procurement of capital items or equipment for the
company. This arrangement, however, can work the other way around if the entrepreneur holds the
design of the capital equipment. In such cases, capital equipment suppliers can make it possible for
entrepreneurs to buy the equipment, especially if it is custom-designed, one-of-a-kind equipment.
6. Receivable factors – there are many specialized organizations like credit and collection companies
or even individuals who take the risk of buying receivables at discounted rates. By selling the
receivables, the entrepreneur is relieved of the delay and cost of collection efforts at the same time
generates funds needed by the business.
7. Deferral of payables in general – when the economy is in a difficult situation or there are industry
or region-wide financial crisis, or when the money (cash position of the company is tight, most
companies (including the very large ones) lag in their payment of bills and loans.

Venture Capital Companies

- Venture capital companies refer to private and for-profit organizations that provide funds
to new business ventures by way of purchasing equity positions in new or young
businesses believed to have the potential to produce maximum returns within a short
period. The entrepreneur surrenders a portion of the ownership and control of the
business as a representative of the venture capital companies generally. Venture capital
companies hope to make an attractive profit when they sell equity at any time, they feel
necessary.
- Venture capital firms pool money from private investors and expect a high annual return
(20 to 40%) on their investment and usually invest in companies for a period of three to
seven years
Other Sources
Other than the sources, there are other fund sources, some of which are advantageous to prospective
entrepreneurs. These sources include the following:
1. Lending investors – these are small business organizations duly licensed by the Banko Sentral ng
Pilipinas (BSP) to provide quick financing with less paperwork as compared to commercial lending
sources like banks. These organizations generally require collateral like car registration certificates,
 15

real estate documents/certificates land titles, or post-dated checks corresponding to the monthly or
regular amortization schedule agreed upon.
2. Government institutions – these are special government financing packages meant for entrepreneurs
in need of funds as seed capital or assistance to those in dire need of funds like victims of calamities
or highly entrepreneurial individuals. Through its various agencies and instrumentalities, the
government has several financing programs meant for small and medium-scale enterprises, and
livelihood opportunities whose terms and conditions are better off compared with that of commercial
banks.
3. Non-government Organizations (NGOs) – There are non-government organizations whose mandates
or major programs are meant for upcoming small-scale entrepreneurs and providing financial
assistance to the underprivileged. These NGOs charge lower interest rates and with more noble
intentions as compared to commercial loan providers.
4. Political Sources – Some politicians are philanthropists and are, therefore, in a position to provide
grants or financial assistance for self-employment and livelihood projects without bothering to pay
later.
5. Friends and relatives – they are abounding or are just around willing to tap.
6. Purchase Order Financing. Also called PO financing, this scheme can be arranged with commercial
banks or financing institutions like the Technology and Livelihood Resource Center (TLRC). Standing
arrangements can be made with the bank or financing institution whereby for a fee (to the bank),
the bank will finance the production requirement of the company and upon delivery of the goods to
the client (buyer), payment will be made by the client directly to the bank or financing institution.
7. Employees – the corporation may seek to expand its capital base, so the possibility of having an
employee Stock Option Plan (ESOP) should be explored.

Angel Investors
• Entrepreneurs may share start-up capital with private investors as referred to by the
Entrepreneur’s Magazine. Unlike borrowing fresh capital from other sources who will charge you interest,
money from private investors or angels is not loans or interest-bearing capital sources outside your pocket.
Angel Investors – a wealthy private individual or group of businesspeople or professionals who provide
early-stage of capital to new companies, especially companies that can improve the community within a
specific industry or area of business interest or expertise.
-

5 C’s of CREDIT
To be able to avail the financing from the bank or any other commercial sources, prospective
entrepreneurs must be aware that lenders or creditors apply the basic principles of the so-called C’s
of credit. The major C’s of credit are as follows:
1. Collateral – The collateral is the entrepreneur or borrower’s guarantee such that in case the borrower
fails to repay the loan, the collateral will be foreclosed by the fund provided.
2. Capacity – This refers to the capacity of the entrepreneur or borrower to pay for the loan. Personal
possessions and assets of the existence of real estate properly on the part of the borrower, whether they
are declared as collateral or not, are an indication of the paying capacity of the borrower.
3. Character – this is more of the personal standing of the entrepreneur or borrower in his community as
well as his credibility. A track record of being a constant borrower and regular payor of his loan is an
indication of his character, which means a lot to creditors or lenders.
4. Contract – each loan or borrowing transaction must have a contract or agreement defining the obligations
of the contracting parties
5. Conditions – forming part of the major content of the contract are the terms and conditions outlined in
the contract or agreement. The conditions essentially refer to the terms or mode of payment, interest
rates, penalties, and sanctions in case of default, as well as provisions for the settlement of disputes as
necessary. Terms and conditions of the contract/agreement have to be mutually agreed upon by both
parties seeing to it that mutual concerns are addressed.
 16

Known to many is the other “C” of credit, which is connection or network. It is said that in his world it is not
much of what you know but whom you know. The connection and network of friends or entrepreneurs can
go a long way not only for entrepreneurial or business ventures but also in some other aspects.

Start-Up Operations, Getting Started in the Business

General Requirements in Putting Up a Business

1. Choose a Business – one of the routes of entrepreneurship

2. Search for a Business name
Business Name refers to the registered business identity (or name) of the business organization.
The business name may or may not reflect the nature of the business itself. As a matter of practice, the
business is usually represented by an acronym representing a shortcut version of a long business name,
and this is done for retail advantage.
Tips in Choosing the Business Name (Company Name / Brand Name)
a. Easy to recall or remember
b. Pleasant Meaning Creates Pleasant Feelings
c. Easy to Pronounce
d. Easy to Spell
e. Related to the Product

3. Register your Business name

Initial Registration:
Forms of Business Government Agency Function
Organization
Single Proprietorship Department of Trade and Industry Issuance of the certificate or
(DTI) registration of the business name
Partnership or Corporation Securities and Exchange Issuance of the certificate or
Commission (SEC) registration of the business name
Cooperative Cooperatives Development Issuance of the certificate or
Authority (CDA) registration of the business name

a) Registration of the business name with the Department of Trade and Industry, in the case of single
or sole proprietorship
b) Registration of the Articles of Incorporation and By-laws with the Securities and Exchange
Commission, in case of partnerships or corporations.
c) Application of necessary permit at the level of specific location (e.g. village, subdivision, or barangay)
d) Filing/application of Municipal or City permits or clearances where the base of operation of the
business (e.g., Mayor’s permit, Sanitary permit, building permit as necessary)
e) Compliance with certain specific permits or clearances may have to be applied for with some specific
agencies of the government before local government agencies can allow the full-swing
operationalization of the business (e.g., environmental clearance certificate)
f) Registration with the Bureau of Internal Revenue (BIR) for the tax identification number (TIN) and
other requirements under internal revenue laws and rules.
g) Printing of receipts/invoices of the company (after having applied for a permit to print receipts with
the BIR)
h) Registration of the business organization with the Social Security System (SSS), Philippines Health
Care Corporation, Home Mutual Development Fund, Inc. (PAG-IBIG Fund), and other government
agencies.
 17

4. Completing the application in Different Government Agencies for Business Registration

1. Municipal or City Hall – Business Permit

2. Barangays Hall – Barangays Clearance
3. Bureau of Internal Revenue – Tax Account Number
4. Social Security System – SS numbers
5. Pag-Ibig or Home Development Mutual Fund – Pag-IBIG Fund
6. PhilHealth or Philippine Health Insurance Corporation – Health Care System
7. Department of Labor and Employment – Recruitment or placement agency for local employment
8. Bureau of Food and Drugs – Food, Chemicals, Health-Related Product or Service
9. Technical Education and Skills Development Authority – Technical – Vocational Education
10. Department of Agriculture
11. Bureau of Fire Protection
12. Bangko Sentral ng Pilipinas ( Entrep Pinoy, p123-132)

Task Assessment: Download an application form from www.pbr.com and fill up the form

HOW TO RAISE YOUR CAPITAL

As a small businessman, you should know that money can be raised in various ways. First of all, money
can come from your pocket. This may be in the form of savings or proceeds from sales of personnel belongings,
like a car, house, and jewelry. This money coming from the owner’s resources is called the capital or owner’s
capital.

OTHER SOURCES OF SEED CAPITAL

Seed capital is needed at the start-up stage of your business. Sources are:
1. Family and Friends
2. Partner (s)
3. Life Insurance
4. Home Equity

DECIDING WHERE TO LOCATE

There are three crucial factors in the success of a business enterprise – the first is location, the second
is location, and the third is location. But it is nonetheless true that where a business is located can spell the
difference between success and failure – especially for a trading or service enterprise.
One of the first considerations regarding location is whether the prospective site is a residential,
commercial, or industrial area. Not only would you need a barangay clearance for the business, but you would
also need the tacit approval of the residents or homeowners’ associates in a residential area.
Here are other important considerations in deciding where to locate:
1. Raw Materials – how close are you to the sources of raw materials? Are the raw materials bulky and
difficult to transport?
2. Customers – how close are you to your target customers?
3. Transportation facilities – if your raw materials and/or products are heavy or bulky, examine the
availability and reliability of transportation facilities on the site.
4. Labor – can you employ people living in the vicinity?
5. Power and other utilities – are light and water available?
6. Waste disposal facilities – will there be a lot of waste by-products during processing?
7. Community – are there rules, regulations, and restrictions that will affect businesses like yours?
8. The decision to own or to rent – will you buy the site or rent it?

EQUIPPING YOUR BUSINESS

 18

Before you start acquiring machines and equipment for your manufacturing or service business, you
should first determine the manufacturing methods to use. Ask yourself the following questions:
1. What level of technology will I use?
2. Considering the level of technology I have chosen, what activities are required to convert the inputs (raw
materials, components, and supplies) into outputs (finished or semi-finished products or services)? These
activities are called operations. Operations are usually determined by the specialized functions of a worker
or a machine.
3. How can each of these operations be done?

ACQUIRING MACHINES AND EQUIPMENT

The kind of machines and equipment you need to acquire will depend on the level of technology you
have decided to use in your manufacturing operations. For any given operation, there is a wide range of
machines and equipment at your disposal, ranging from the semi-manual or pedal-type to the semi-automatic
machines, to the most high-tech and computerized devices.
Machines are also classified broadly according to purpose, into general and specialized purposes. General
purpose machines are those that have a wide range of capabilities in their field. It is best used in a situation of
low volume and high variability of the product design, or where conditions warrant flexibility. It is from these
machines that special-purpose ones have evolved.
A wrong decision may result in:
- Paying more than what you should to buy the equipment
- Having an equipment that you do not need
- Spending too much on the operation and maintenance of the equipment because of high
energy consumption, frequent machine breakdown, repair, costs, and so forth.
The following guidelines in acquiring machinery may be useful:
- Before buying equipment, identify exactly what you need it for.
- If your volume of production is low and your product designs are expected to change from
season to season, get a multi-purpose machine.
- Use of a specialized machine is indicated where a product with a special design is to be
manufactured in big quantities.
- Consider the price.
- Another consideration, aside from cost, is engineering features, such as power
requirements, maintenance safety features, and flexibility.
- Consider, too other terms of the purchase, such as after-sales service, assistance in
installation, maintenance and repair, warranty, training assistance, as well as promptness
of delivery.
- Buy your equipment from a reliable supplier.
- Consult other manufacturers who have experience in selling the same equipment.
- Consider also the option of having machines fabricated by local machine shops.

HIRING AND TRAINING PERSONNEL

Before starting to hire employees, it is important to know your manpower requirements first.

Recruiting Personnel
Now, if you know exactly the type and the number of people you need to hire, as well as their
qualifications, you can go ahead with the hiring process.
- Place “Help Wanted” advertisements in the newspapers and/or the radio
- Display “Help Wanted” signs prominently outside your factory or office and in other public
places.
- Check with placement units of schools and personnel offices of other companies.
- Check with employment agencies
- Ask employees, customers, and suppliers for people they know who might qualify.
 19

Selecting Personnel
There are various tools you can use to choose the best candidate for a certain job. These tools include
the following:
- The application form’
- The interview
- Written tests
- Practical tests
- Reference checks
- Medical examinations
Training Personnel
Once you have hired a person for employment, you may still need to train him. You must not overlook
the importance of training. These new skills, knowledge, and other information are imparted to the new
employee through the process of training and development. Often, in a small enterprise, the preferred method
of developing technical skills among employees is through on-the-job training. It is simply the coaching of
employees by supervisors, managers, or an older and more experienced worker at the workplace through actual
work.

PRODUCTION OF GOODS AND SERVICES

The creation of goods and services appears to favor big businesses. They have adequate funds,
machines, materials, modern technology, and management specialists to produce goods and services at a lower
average cost. Examples of these are the multi-national corporations, which dominate the global markets.

Production – may be defined as the processing and/or assembling of raw materials by workers using machinery
and equipment to produce a product or provide service.

Production is the creation of goods and services. Or it is the creation of utility. Utility means satisfaction. Goods
and services are produced to satisfy human wants or needs.

It requires a set of inputs to yield a set of outputs. These inputs may include materials, manpower, machinery,
methods, management, money, and moment (or time).

The raw material inputs are converted into finished products ready for market, through successive stages of
operation, assembly, finishing, and inspection. The operations may be machining, cutting, plating, boiling, gluing,
chemical reactions, weaving, and sewing.
-Operation represents the main step in a process, method, or procedure where the raw material is
changed into something else. For example, when yarn is processed, either through weaving or knitting, it
becomes a piece of fabric or cloth. Fresh fruit, when squeezed or pressed, is transformed into fruit juice.
- Assembly is putting parts together to form a final product. A radio set is formed by putting together
coils, resistors, transistors, and other parts. Not all production, however, has an assembly stage.
- Finishing may mean painting, varnishing, polishing, trimming, cleaning, and glazing, among others. A
piece of furniture is finished by spray-painting it, for example. Marble products, on the other hand, are said to
be finished when they are sanded or polished.
- Inspection makes sure that the operation has been carried out as to quality and quantity. Inspection,
at its simplest, may be done through any of the five senses – seeing, touching, hearing, smelling, tasting. It
may, however, be a more sophisticated activity, when using testers, gauges, and other measuring instruments.

Factors of Production
In economics, the major factors of production are:
1. Land, 2. Labor, 3. Capital, and 4. Entrepreneurial ability.

Costs of Production
 20

Costs of production represent the payments for the factors of production. These affect the ability and
willingness of entrepreneurs to produce. When production costs are high, prices go up. This decreases the
purchasing power of the consumers. This results to lower quantity demand for goods and services. In other
words, there is a decrease in sales, which is not favorable to producers or sellers.
The cost of a product is made up of three parts: direct materials, direct labor, and manufacturing
overhead.
Direct Materials are material inputs that become part of the product. Examples include the cloth used in
making ladies’ blouses, the wood used to make wooden furniture, the leather used in making shoes, and the
meat used in the making of ham.
Direct Labor includes the workers whose output is closely related to or associated with the making of the
product. Using the same example given above, the sewers for the garments industry, the carpenter and the
worker who paints the varnish on the furniture, the shoemaker, and the worker who cuts up the meat the ham,
are all considered direct labor.
Manufacturing Overhead are all other costs incurred in making of the products but do not become part
of the product. Examples of this type of cost are:
- The use of the buildings, machines, and equipment, and their maintenance and
replacement.
- Power, fuel, lubricants, water heating, and supplies used to keep the manufacturing
resources running.
- Salaries or wages of all workers who are not directly involved in the making of the
products, such as the owner, manager, and the foreman.
- Transport costs of raw materials; and
- Office costs such as stationery, printing, telephone, and postage

Making Production Efficiency Your Goal

As a production manager, you should be concerned with the economical and efficient utilization of inputs
to produce output. Productivity is simply defined as the arithmetical ratio between the amount produced and
the amount of all resources used in production. In other words, productivity is synonymous with efficiency in
utilizing inputs to produce outputs.

Productivity of materials – we can say that there is an increase of 10% in utilization of materials if a skilled tailor
can cut 11 suits from a bale of cloth, from which an unskilled tailor can only cut 10.

Productivity of labor – if a worker who has usually been producing 40 units of product per day was able to raise
his production output to 60 units because of improved work methods, then, the productivity of the worker has
increased by 50%.

Productivity of machines – a machine was observed to produce an average of 1,000 pieces of a particular
component per hour. Adjustments to the speed of the machine increased its production volume to 1,300 pieces
per hour. This means that there is an increase of 300 pieces over the volume previously produced. We can
therefore say that the productivity of the equipment has increased by 30% because of adjusting its speed.

Produce Quality Product

You are in business not only to earn profit for yourself but also to serve the needs of your target market.
For every product or service, you sell, you will get a corresponding return in terms of revenue or profit.
Conversely, the customer who buys your product expects to get his money’s worth in terms of the product’s
utility or functional value to him. As a good businessman, you have the moral obligation to manufacture the
product according to the customer’s specifications or expectations at the price he can afford and at the time he
needs it.

How to Develop and Improve Product Quality

You can achieve quality control by focusing your attention on the following areas:
 21

1. Control manufacturing information.

2. Control purchases and storage of raw materials
3. Control manufacturing process
4. Control finished products
5. Control measuring instruments and test equipment.
6. Control corrective action.

Manage and Control Your Inventories Properly

You need to keep sufficient stocks of raw materials, in-process, and finished goods to meet your
production and sales targets. This is called Inventory. Inventory management and control means that you must
take care not to have too much, not too little of the required stocks. In other words, neither overstock nor under-
stock.

How to Control the Inventory

The basic idea behind inventory control is to operate your business effectively with the least amount of
stock. To be able to do this, you should know:
➢ When to order
➢ How often to order
➢ How much to order

To be able to answer the above questions, you should know how to distinguish between stock goods and
seasonal goods because each kind is controlled differently.
Basic stock goods are those, which are either always sold at as much the same rate or regularly used in
production. For instance, in a food store, these would include rice, flour, cooking oil, and the like. In the garments
store, these would be t-shirts, socks, and underwear. In a furniture factory, these include standard-size planks,
plywood sheets, nails, screws, glue and varnish.
Seasonal goods are those that move quickly at some time and slowly than others. In a bookstore, these
would include notebooks, books, and other supplies that sell heavily in-store and during the opening of classes.
In the garments store, these would be warm clothing, umbrellas, and raincoats during or just before the rainy
season. In a toy factory, these could be colored plastic pellets for use in the production of plastic toys before
the Christmas season.

The Importance of Marketing

Marketing is an activity that the entrepreneur will be involved in for as long as the business exists.
Marketing is more than just advertising the fact that the entrepreneur is in the business of producing or providing
something.
Any form of business must exist not because of the existence of a product or service that the entrepreneur
has developed, but because of the preconceived notion that there is a sure market of market potential for the
product or service.
The marketing concept is made up of three components. The first component is the customer needs and
wants; the entrepreneur develops an organization-oriented marketing strategy to accomplish its goals.
The second component of the marketing concept is the organizational integration. Whether an
entrepreneur owns a start-up company of 3 staff, he or she hurdles to integrate a customer focus as a philosophy
for all the people in the company.
The third component of the marketing concept is goal achievement. Marketing is oriented towards sales
volume as a success measure but is essential to strive not just for sales, but also for effective marketing that
contributes to profitable sales.

Channel Distribution
Channel distribution refers to the marketing institutions and interrelationships responsible for the physical
flow of goods and services from the producer or manufacturer to consumers or industrial users. Middlemen or
agents are involved in the movements of goods and services from the producer/manufacturer, and more
 22

discounts and incentives are needed, this means diminishing factor to an entrepreneur’s profit. The entrepreneur
can use any of the following modalities whichever is appropriate for his business:
a. Direct marketing
b. Wholesalers
c. Agents

Pricing
Price is the value placed on goods and services offered to the public. A product or service may be paid
in the form of money, or it could be paid with other goods and/or services. For this transaction to take place, a
value is placed on the product or service.

Basic Pricing Principles

The price you charge to your customers or clientele will have a direct bearing on the success of the
business; hence, this aspect must be given due diligence and care. In pricing a product or service, the following
will serve as a fundamental guideline:
➢ All prices must cover costs.
➢ The best and most effective way to lower sales prices is by lowering the costs.
➢ Prices must be regularly upgraded to reflect market developments.
➢ Prices must be established to ensure sales.
➢ Product utility, longevity, maintenance, and end use must be judged continually, and target prices should
then be adjusted accordingly.
➢ Prices must be set to preserve order in the marketplace; and
➢ Prices must be fixed to support an overall corporate goal.

Pricing a Service
Among service providers, the pricing of services rendered varies with the type of business, but the same
three elements are present in every situation. The three elements include:
1. Labor Cost – this includes salaries, wages, and benefits paid to the employees, as well as
contractors/subcontractors who performed, supervised, or managed the service business.
2. Overhead expenses – these items include indirect expenses required to operationalize the business.
These expenses include insurance premiums, equipment depreciation, business forms, rentals, office
supplies, dues, and membership payments. Vehicle maintenance and all those intangible costs associated
with the manufacture of products or the rendering of services form part of these costs.
3. Profit – this refers to the amount of income earned after all costs of producing and providing the service
have been met. When calculating the price of a service profit is applied in the same manner as mark-up
on the cost of the product.

The Role of Finance in an Enterprise

The role of money in a business enterprise can be compared to the function of blood circulating in the
human body. Ant activity or undertaking involves money or cash. Money is involved in the continuous expense-
revenue cycle of the business if it is operating. Money is needed to purchase the tools and equipment, materials
and supplies, and other needs of the enterprises, and to pay for the expenses incurred, such as salaries and
wages of the employees, electric and power bills, rentals, and other expenses. On the other hand, when a sale
is made, the business receives money in payment for the goods, products, or services rendered. Money received
will then be used to pay for materials, salaries, and so forth.

The Flow of Funds in a Manufacturing Firm

Financial Decisions:
1. Contributions from stockholders
2. Long-term borrowings
3. Purchases of fixed assets
 23

4. Purchases of raw materials for

5. Purchases of raw materials on
Production Decisions:
6. Processing of raw materials into work-in-process related
7. Payment for direct labor and other manufacturing costs other than depreciation
8. Depreciation charges as determined by depreciation policy
Sales, Credit, and Collections
9. The sales effect
10. Credit sales
11. Cash sales
12. Collection of accounts receivables
Financial Decisions:
13. Dividend payment
14. Payments of interest and prime of long-term debt
15. Payments of interest and prime of short-term debt

Functions of a Financial Manager

a. Treasurership – it involves the provision of funds, custody of funds, or the cashier’s function, credit and
collection, and investment. It is the role of the treasurer to see to it that there are sufficient funds to
provide for all the needs of the various operating units.
b. Comptrollership – another function is to see to it that the funds are effectively and efficiently utilized. It
involves financial planning, accounting records and reports, tax administration, government reporting,
and internal control.

Financial Planning is important because the funds of the enterprise are limited and must be allocated properly
to the best interest of the business. A financial plan is a course of action for obtaining and using the money that
is needed to implement the goals of the business organization. Three steps involved in financial planning:
1. Establishing objectives – these should be clear and specific to determine their cost or budget.
2. Budgeting – a budget is an estimated or projected program of expenses and incomes over a specified
future period.
3. Identifying the sources of funds – there are four ways to finance a business enterprise:
a. Income from sales
b. Owner’s money and sale of shares of stock
c. Borrowing from friends, relatives, and financial institutions, and issuing bonds, and
d. Sale of some property of the enterprise as a last report.

Budget
A budget is a business plan expressed in terms of money and units for a definite period in the future.
The budget, therefore, includes the expected performance for a given period (objective of the firm) and the
allocation of resources to the different activities (production, marketing, and administration) to attain the said
objectives. The budget serves as a guide in the conduct of operations during the period. The budget sets the
standard performance. This is then compared with what happened. Often, the comparison shows deviations (or
variances as they are commonly referred to). It is in the analysis that the management exercises supervision
(control) and monitors the activities towards the given objectives or goals.

The preparation of a budget follows the sequence shown below:

1. Set the objectives of the business. A business objective may take any of the following forms:
➢ A target profit as a reward for the owner’s investment.
➢ A target sale of several units; or
➢ A share of the market.
2. Forecast the volume of sales that the business will achieve for a given period.
 24

3. Assess the costs that will be incurred in producing and selling the planned volume of sales, including the
cost of providing administrative support.
4. Determine the budget period.
5. Compare costs and sales income.

Establish whether the objective can be attained, if not, then:

➢ Investigate whether you can increase sales income.
➢ Investigate if costs should be reduced.
➢ As a last option, accept a lower output than what was originally set.

Cash Management
➢ To keep the business going, it must have sufficient cash readily available for its immediate needs.
Therefore, you need to keep a close watch over your cash. This practice is called “Cash Management”. There
are two primary objectives in cash management, namely:
- Provide adequate cash to meet the needs of the business; and
- Safeguard cash from loss due to theft, fraud, other criminal manipulations, and carelessness.

Planning Cash Requirements

First, make a sales forecast or estimate of your future sales.
Your sales forecast may be done on a daily, weekly, monthly, or yearly basis. It is easier for you to make
estimates daily, then, forecast your sales from day to day. Let us say, for example, that you have decided to go
into the business of selling cold fruit juice in the town plaza. Let us say that you feel you can dispose of one big
plastic container of juice daily, which will fill 50 glasses at P5.00 per glass. Your sales forecast would then be:
Daily Sales Forecast
Mon Tue Wed Thu Fri Sat Sun Total
Unit 50 50 50 50 50 50 50 350
(glasses)
Amount 250 250 250 250 250 250 250 1,750

Weekly Sales Forecast

1st week 2nd week 3rd week 4th week Total
Unit (glasses) 350 350 350 350 1,400
Amount 1,750 1,750 1,750 1,750 7,000

Your monthly sales forecast would then be an accumulation of the weekly forecast. Sales forecasts may
also be based on several factors, such as the weather, major activities, or events, such as town fiestas, school
openings, Christmas and other holidays, religious celebrations, harvest season, or opportunities to be maximized
by carrying other products.
For ongoing business which has been established for quite some time, forecasting is done by referring
to their past performance. Methods that can be used are the straight-line method (constant increase in sales
forecast based on average increase per year) or the geometric or percentage increase method (the increase in
sales forecast is based on a certain percentage).

Arithmetic straight-line method

For example:
Sales 2022 120 units
Sales 2021 90 units
Total Increase 30 units

Average increase per year: 30 units / 3 years = 10 units/year

 25

Sales forecast would then be:

Year Computation Sales (units)
2022 (120 + 10) 130
2021 (130 + 10) 140
2020 (140 + 10) 150
2019 (150 + 10) 160

Geometric or Percentage increase method

As in the above example, the business realized an increase in sales of 30 units from 2010 to 2013, or
33% in three years, or an average of 11% per year. Forecasting through this method would result in the
following:

Year Computation Sales (units)

2022 (120 + 11%) 133
2021 (130 + 11%) 147
2020 (140 + 11%) 163
2019 (150 + 11%) 180

After estimating the sales volume, you may now prepare the operating budget. The operating budget includes
the materials, labor, overhead, selling, and administrative budgets. Using again our cold fruit juice example, the
operating budget would show:

One-Week Operating Budget

January ___, 202__
Materials 1 container 2 containers
1 can pineapple juice P 25.00 P 50.00
½ kg. refined sugar at P14/kg 7.00 14.00
½ block ice 8.00 16.00
Subtotal 40.00 80.00
Labor (1 hour/container at P15/hr) 15.00 30.00
Overhead (cost of equipment at P 1.00 1.00
200/depreciation)
Total P 56.00 P 111.00

Let's assume that this venture has no selling and administrative activities. Thus, the figure above shows the
daily operating budgets of one-container and two-container, considering the additional volume, is shown below:

Material Labor Overhear Total

Monday P 40.00 P 15.00 P 1.00 P 56.00
Tuesday 80.00 30.00 1.00 111.00
Wednesday 80.00 30.00 1.00 111.00
Thursday 40.00 15.00 1.00 56.00
Friday 40.00 15.00 1.00 56.00
Saturday 80.00 30.00 1.00 111.00
Sunday 80.00 30.00 1.00 111.00
Total P 440.00 P 165.00 P 7.00 P 612.00

One-month operating budget

January ___, 202__
January Materials Labor Overhead Total
 26

1st week P 440.00 P 165.00 P 7.00 P 612.00

2nd week 440.00 165.00 7.00 612.00
3 week
rd
440.00 165.00 7.00 612.00
4th week 440.00 165.00 7.00 612.00
Total P 1,760.00 P 660.00 P 28.00 P 2,448.00
Start with your estimated monthly sales figures for the next six to twelve months. Your record of expenses
will serve as a guide.
Finally, with the operating budget as your basis, prepare your cash budget.

Cash Budget
Below are the steps in the preparation of the cash budget:
1. Estimate cash inflows
First, estimate the source of cash inflows (sales of products and services additional investment by owners,
proceeds from loans, collection of receivables) and the estimated amounts of receipts. In estimating the
expected receipts for the future period, the policy of the business or company regarding terms of sales
should be considered.
2. Estimate cash outflows
The following are the anticipated disbursements to be considered in estimated cash outflows:
- Cash purchases
- Payment of credit purchases
- Salaries and wages
- Administrative, selling, and overhead expenses
- Pre-payments like rentals, insurance, and the like
- Loans and interests
- Taxes
- Dividends or personal drawings of owners
3. Compare cash inflows vs. outflows
A detailed month-by-month comparison would determine the future surpluses and shortages of cash.
This provides information as to when to put in additional cash and when to use excess for other profitable
uses.
4. Preparing the daily cash report
Another tool to provide information on the current cash position, and in turn, ensure that there is enough
cash to meet the needs of the business, is the daily cash report. This is a summary of the cash balance at
the beginning of the day and receipts, disbursements, and cash balance at the end of the day.

Daily Cash Receipt

January ___, 201__

Opening Cash Balance P xxxxx

Add: Receipts
Cash Sales P xxxxx
Collections of Accounts Receivables xxxxx
Others xxxxx Xxxxx
Total Cash Available Xxxxx
Less: Disbursement
Cash Purchases xxxxx
Payments of Accounts
Payables xxxxx
Payroll xxxxx
Expenses xxxx Xxxxx
Closing Cash Balance xxxxx
 27

Dealing with Cash Shortages

If the cash budget shows certain shortages, it is time to look for sources of additional cash, first, from
internal sources and, if this is not sufficient, from outside sources, like banks and other financial institutions.
Cash may be obtained internally by:
- Restricting credit and speeding up collection
- Reducing inventories to a minimum, including finished goods, work-in-process, and raw
materials.
- Tightening up on trade relationships; and
- Selling what you can do without, like equipment, buildings, and real estate, securities
Dealing with Excess Cash
If the cash budget shows a heavy surplus at a certain period, this surplus must be invested in money or
the stock market. In this way, money is not kept but is used to earn additional returns.

Financial Statements
The financial statements are the means of conveying to interested parties, such as the owner,
management, and other interested outsiders (government agencies, banks, creditors, suppliers, suppliers,
customers), the performance of the enterprise for a given period (Income Statement), and its financial condition
as of a specific date (Balance Sheet) (p.142-186)

Balance Sheet
Balance Sheet is a formal statement that presents the financial conditions of the company as of specific
date. It shows what the enterprise owns (assets), what it owes (liabilities), what the owner has invested, and
the accrued expenses or losses (equity). Entries in the balance sheet are based on the conventional accounting
equation: Assets = Liabilities + Owners’ Equity. (p.143)

Cash Flow Statement

Cash is the most liquid of all assets and the efficient use of cash is one of the most important tasks of
management. The cash flow statement is a supporting document that shows the sources and purposes of cash
payments during an accounting period.
The cash flow is often prepared to give a complete picture of cash and disbursement for a period. A cash
flow can be used in the preparation of a cash budget. (p.147)

Income Statement
The income Statement shows the revenues realized by the business, as well as the costs and expenses
incurred in the realization of said revenues. This is also called the profit and loss statement. Transactions that
increase the owner’s equity are referred to as revenues. On the other hand, transactions that decrease the
owner’s equity are called expenditures. For a given period, the revenues realized are compared to the
expenditures to determine the result of the operation. If revenues exceed expenditures, the difference is called
net profit and is added to the owner’s equity in the balance sheet. If expenditures are more than revenues, then,
the result is referred to as net loss and is deducted from the owner’s equity. Just like the balance sheet, the
income statement may be prepared monthly, quarterly, semi-annually, or annually.
 28

ENTREPRENEURIAL STUDY

The entrepreneur must see for himself the kind of management control and how the business will be
able to generate its projected profitable investment.

The following steps in business formation have been done by entrepreneurs who applied a more scientific
study of business conditions. A business project either new or an expansion requires careful planning of the
project which will serve as a guide in the implementation. (Entrep Pinoy: Introduction to Entrepreneurship,
p.107-112)

GENERAL FORMAT OF ENTREPRENEURIAL STUDIES

I. Introduction
o The introduction contains the rationale and the background of the study undertaken. It should
include the importance of the project, the proponent background and their desire to establish
the business.
II. Project Summary
A. Name of the Firm
B. Business Location
C. Brief Description of the Business
1. Brief history or how the business was organized
2. Highlights of the findings in every phase of the business study
III. Management and Personnel Components
A. Proponents – this refers to the originators of the projects, their owners or equity holders in
the business. It describes the kinds of ownership whether sole proprietorship, partnership, or
corporation. It establishes business ownership and describes the management components
of the business organization.
B. Management
1. Organization Structure – this refers to the hierarchy in the organization ladder their
corresponding duties and responsibilities and their respective qualification for the position.
It should also specify the persons involved during the organizational periods or the pre-
operating activities and the functions in the operating period.
2. Personnel Component
a. Pre-operating Period – the persons in charge of activities in the pre-operation
activities.
b. Operating Period – this refers to the personnel that will be assigned the task of
handling the day-to-day operation of the business. It must have corresponding job
descriptions to avoid duplication of functions. Responsibilities and accountabilities
must be specified, and the control system must be put in place.
c. Development of Policy Manuals and Procedures – standard operating procedures must
be established to simplify decision-making and to pinpoint accountability for operation.
IV. Marketing Studies
A. Market Profile – this refers to the market segmentation for the distribution of the product or
service. The study must cover the possible users of the product and how to reach the market
segments.
B. Demand Analysis
1. Projected consumption in the first year of operation, then five years and ten years (for
class 8 weeks only)
2. Major segment users of the product and their location
C. Supply Analysis
1. Source of Product Supply
a. Foreign Suppliers
 29

b. Local Suppliers
2. Factor Analysis of the Past and Future Supply Chain
D. Competitive Analysis
1. Selling Price – this refers to the selling price of the product.
2. Competitions – it refers to the competing product in the markets as to its quality and
market acceptability.
3. Distribution and Cost of Transportation
4. Channel of Product Distribution – this refers to the means of reaching the target market
or it is the method or strategy to penetrate a particular market segment.
5. General Competitive Practice – it is an analysis of how competitors distribute the product
to existing end users.
E. Program Analysis of Marketing Strategies
1. Geographic Segmentation Strategy – this refers to the place of the target market and the
approaches to penetrate the market niche.
2. Psychographic Strategy – this refers to the educational background and the lifestyle of the
target market.
3. Demographic Segmentation Strategy – this refers to the target market as sex, age,
income, and other personal factors of the target market.
4. Pricing Strategy – this has something to do with the price index of any pricing strategy
that will attract customers.
5. Channel Distribution – the choices could be retailers, wholesalers, dealerships, franchises,
or direct marketing.
6. Promotion and Advertising – media network, personal selling, billboard, or any media
penetration strategy.
V. Production
A. Production Specification – it talks about the product or service that the entrepreneur will offer
to its target market.
B. Production Process – it is the detailed layout of the production process as the product goes
into the production line indicating the flow process, materials and equipment to be used, and
normal timetable that the product will be finished.
C. Plant Rated Capacity – this refers to the volume of production per shift per day or every month
considering target market consumption. It must also make projections for a year's forecast
and the technical factors involved.
D. Machinery and Equipment – it involves the kind of machine to be used, its sources, spare
parts, working guarantees, rated capacity per day, and the cost estimates involved in its
purchase.
E. Plant Location – a drawing of plant location and the vicinity map as to its accessibility or raw
materials, and the transport of finished product to the market. It must show advantages and
other plus factors for employees and other services.
F. Building and Facilities – it must describe the type of building that will be constructed or sketch
of the building plan, electrical plants, drainage, and other utilities. It must contain the cost
estimates involved and the total floor plan.
G. Raw Materials – it deals with the raw material requirements and their specification, source,
cost, terms of payment, availability, and possible long-term supply. It must also show
alternative suppliers of other sources.
H. Power Supply and Utilities – utilities refer to the supply of electricity, and water, and its
availability in the processing of the product.
I. Production Cost – this refers to the direct labor and administrative cost in the processing of
the products. Unit cost must be computed as the basis for pricing and marketing strategies.
VI. Financial Studies
A. For New Business Venture
 30

1. Total Project Cost – this has to do with the entrepreneur's fixed cost and the working
capital in the operation of the business.
2. Capital Investment Required.
3. Pre-operating cash flow and its relation to the timetable – financial projections for the first
year of operation, for the five-year operation in projected balance sheets and income
statement.
4. Supporting Schedules in the Financial Statement and Income
a. Collection Period for Projected Sales or Revenue
b. Inventory Levels
c. Payments for Purchases and Expenses
d. Production Costs, Administrative Expenses, Cost of Sales, and other Projected
Financial Expenses.
5. Projected Financial Estimates showing return on investment, return on equity, break-even
analysis, and price analysis. (see fs sample)
B. For Existing Project
1. Audited Financial Statement – last 3 years
2. Fixed Assets, Capital Investment, Depreciation used in Capital Assets
a. Balance Sheet
b. Income Statement
c. Cash Flow
3. Tax Assessment, Liabilities, and other Payables
4. Financial Trends and Ratio Analysis
5. Financial Cost for Administrative expenses, Production, and Selling Expenses
6. Financial Projection for the Next Five Years.
7. Financial Analysis for Return of Investment, Return of Equity, Break even Analysis,
Production Volume, and Price Analysis.

Task Assessment: Submit a Proposed Entrepreneurial Study

GREENTREPRENEUR STORE / SUBJECT POLICIES

Store Hours:
The store must open:
➢ Monday to Friday only
➢ 9 a.m. up to 5 p.m. or 8 am to 4 pm

Store Atmosphere:
➢ The store must offer a positive ambiance to the customers.
➢ The store should not give a cluttered look.
➢ The products should be properly cooked and clean.
➢ There should be no foul smell in the store as well any kind of insects.
➢ The floor, ceiling, walls and even outside store should be it clean.
➢ Make sure the customers are well attended.

Cash Handling
➢ Assign one person as a cashier in your schedule.
➢ Always maintain a record book and calculator in the cashiering area.
➢ Separate change fund (P200.00) and petty cash (P300.00) in your store.
➢ Always do counting and tallying of sales before and after the schedule or change of staff.
 31

Prevent Shoplifting/Safety and Security

➢ Don’t allow your friends/classmates/relatives inside the store.
➢ Frisking and checking of bags should be done after the duty.
➢ Make sure the personnel should handle the products carefully.
➢ Inform Adserve if there is a problem in the power supply or water supply immediately.

Customer Service
➢ Word of mouth plays an important role in Brand Promotion.
➢ Greet, smile, and assist your customers.
➢ Never compromise on the quality of products. Remember one satisfied customer brings five more
individuals to the store.
➢ The customers should feel safe with your product.
➢ Never be rude to the customer
➢ For customer complaints, incident reports should be done by the personnel who handle the
complaint.

Refunds and Returns

➢ In case of a return or refund, try to suggest a change of item.
➢ If the customer insists refund or return, an incident report should be done by the cashier or
manager on duty.

Visual Merchandising
➢ There should be adequate light in the store. Change the burned-out lights immediately.
➢ Don’t stock unnecessary things (bags/overstock packaging/etc.) at the store.
➢ Make sure the signage displays all the necessary information about the store and is installed at the
right place and is visible to all.
Training Program
➢ In case of hiring new staff, the store manager or daily manager is responsible for the training.
➢ It is the store manager’s responsibility to collate necessary reports (sales as well as inventory) and
submit them to the professor.

Inventory and Stock Management

➢ Inventory should be done either daily or weekly.
➢ Display of overstock packaging in the selling area is not allowed.
➢ Follow the FIFO policy.

Classroom / Store / Course Policy

Store
➢ The class will be divided into two groups to form a business organization.
➢ Each group will submit a proposed business plan.
➢ Each group should incorporate the Greentrepreneur Store Policies in the proposed business plan.
➢ Each group will man by the following position:
- 1 Store Manager – acts as head manager of the store
- 1 Secretary – for documents
- 1 Treasurer – for cash
- 5 Daily Supervisors – to supervise the day-to-day operation
- Sales Staff / Cashier – for handling customer transactions
- Kitchen Staff – for the production area
➢ Attendance:
- 1 Absent in the classroom meeting = 1 absent in the class record
 32

- 3 lates in the classroom meeting = 1 absent in the class record

- 5 lates in the store = 1 absent in the class record
- 1 absent in the store = 1 absent in the class record.
= Swapping of store schedule is allowed if approved by the manager/supervisor.

Capital
Two options for the initial capital:
A.
➢ Initial capital will be provided by the CB Department
➢ At the end of the business operation, financial statement should be audited by Mr. Romero, CPA
➢ Proceeds should be turned in to the University Cashier
➢ Proper turnover of cash and store should be documented.
B.
➢ Initial capital will be provided by the group.
➢ At the end of the business operation, the financial statement should be audited by Mr. Ferdinand
Romero, CPA
➢ 10% of the Gross Sales should be turned over to the University Cashier.
➢ Proper turnover of cash and store should be documented.

Grading:
➢ Class Standing :20%
• Attendance : 30%
• Recitation : 20%
• Quizzes : 30%
• Assignments : 20%
➢ Mid-term examination : 30% (written exam)
➢ Final Examination : 30% (written)
- If sales target achievement is 100% - to 110% = no written exam
➢ Final Product : 20% ( oral defense)
FINAL PRODUCT POINTS

Application of Learning in Business Ventures

As part of the course, students must demonstrate their understanding by
applying all learned concepts through real-world business ventures. The
assessment will be divided as follows:
• Proposal Submission:
Students must submit a comprehensive business proposal that outlines their 20%
planned venture, including market analysis, financial projections, and
operational strategy.
• Hands-on Application:
This involves implementing the proposed business, allowing students to apply
theoretical knowledge in managing daily operations, decision-making, and
problem-solving. 60%
• Sales Target Achievement:
Students will be evaluated based on their ability to meet predetermined sales
targets, which reflect the effectiveness of their business strategies and
execution.
20%

TOTAL 100 PTS.

 33

Important Reminders:
Grade of 0.0, if
➢ 3 major customer complaints either on food, store cleanliness, or cash.
➢ 3 absences for the term

COURSE RESOURCES:

 Asor, Winefreda B. (2009) Entrepreneurship in the Philippine Setting, Rex Book Store, 2009
 Awe, Susan C. (2006) The Entrepreneur’s Information Sourcebook,Libraries Unlimited, 2006
 Ken Blanchard...[et al.]. (2008) The one minute entrepreneur : The Secret to Creating and
Sustaining a Successful Business Currency Doubleday
 Banastao, Cristina B. & Solita A. Frias.(2008) Entrepreneurship, Katha Publishing Company, Inc.,
 Charantimath, Charantimath (2006). Entrepreneurship Development and Small Business
Enterprises, Darling Kindersley
 Nafees A. Khan.(2006) Fundamentals of Entrepreneurship, Anmol Publications
 Pereda, Pedrito Real, Purisima Pedrialva Pereda, and Marife Agustin-Acierto, Entrep Pinoy:
Introduction to Entrepreneurship, Purelybooks Trading & Pulishing Corporation, Manila 2012
 Gilles, Alexander and Reuben Mondejar, Guide to Entrepreneurship, Sinag-Tala Publishers, Inc.
Manila, 2012
 Paurom, F.Entrepreneurial Mind, 2021, Manila Philippines
 Medina,Roberto, Entrepreneurship and Small Business Management, 2018, Manila Philippines
 Kotler, Philip, Bowen, John T., Makens, James C., Baloglu, Seyhmus, Marketing for Hospitality
and Tourism, 7th Edition, Jurong, Singapore