CHAPTER 8

Production of Goods and Services

Learning Objectives:
• Identify the importance of business planning.
• Enumerate the factors and other necessities on how to manage and start a business
successfully Identify the different parts of a business plan.
• Discuss and learn how to develop a business plan.

Introduction
Venturing into a new business or doing any form of innovation in a business organization
demands or necessitates a plan. A business plan that is well-researched and well-done is by itself
an insurance against the illusive success that every entrepreneur is looking forward to.

Preparing a business plan is not easy. It is a well written, honest-to-goodness document

prepared by the entrepreneur that will convince the investor to invest, or it is a tool to sell your
business story to financial resources and should be recognized. It is the direction and guide of the
entrepreneur as to what is to be done and how to do it. It details out what is to be achieved over a
certain period of time.

ORGANIZING AND PLANNING THE ENTERPRISE

It is a written document prepared by the entrepreneur that describes all the relevant
external and internal elements involved in starting a new venture. It is an integration of
functional plans such as marketing, finance, manufacturing, and human resources. It also
addresses both short-term and long- term decision-making for the first three years of operation.

The business plan also takes care of the concerns of the potential investors in the business
project, the suppliers, the funding requirements, and all required to commence the business and
hopefully make it a successful business venture. (Hisrich and Peters)
Other definition of a Business Plan from the books of Entrepreneurship
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 the
available resources and is responsive to the needs of the community. It is also:

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

Business planning involves the attainment of goals and the ways to accomplish such
goals.

Principles of Planning
Here are some principles of planning which have general application, particularly for micro
and small business:
1. Realistic Planning: Grounded on available resources - human, financial, and physical -
ensuring feasibility and practicality.
2. Needs-based Planning: Objectives align with community needs, discerned through
observation, personal interviews, and questionnaires, ensuring relevance and societal
impact.
3. Flexibility: Adaptability to changing resource needs and economic conditions, allowing
for adjustments to maintain effectiveness and relevance over time.
4. Start Simple: Begin with straightforward projects to build momentum and establish a
foundation for more complex endeavors.
STAGES OF BUSINESS PLANNING (by Professor Philip Kotler)
1. Unplanned stage. At the start of the business, the owner-manager is busy looking for
funds, customers, materials, and equipment. He has ho time for planning. His entire
attention is devoted to the daily operations of his business in his intense desire to survive.
2. Budgeting system stage. Eventually, the owner-manager realizes the need to develop
and use a budgeting system.
3. Estimated income is made to facilitate the orderly function of the growing enterprise.
4. Annual Planning stage. The owner-manager drafts an annual plan. He can use either the
top-down planning or bottom-up planning. In a top-down approach, he provides the goal
and let. The employee complies with it. While in a bottom-up approach, he encourages
his employees to participate in planning the goals and strategies.
5. Strategic Planning stage. As the business enterprise becomes bigger, a long-range
planning is needed.
6. The plan should indicate the time, which should be allowed for each activity. It may be
necessary to establish a target data for completing the activity.
7. The plan should specify the required resources and their corresponding costs.
8. The plan should designate the officers who will be held accountable for the
accomplishments of the objectives.

COMPONENTS OF BUSINESS PLANNING

1. SWOT (Strengths, Weaknesses, Opportunities, and Threats). The chances of a product or
service can be evaluated through the SWOT analysis. Every product or service has Its own
strength, weakness, opportunity, and threat. Planning should include the Improvement of the
product/service to survive competition.
2. Objectives, these should be specific and realistic. Such objectives can be daily, weekly,
monthly, and yearly.
3. Strategies. These are ways of accomplishing the objectives. Such ways are stated in the
financial, production, marketing, and organizational plans of the enterprise.
4. Time Frame. In business, time is gold. For this reason, an entrepreneur must be efficient in
time management.
Characteristics of a Sound Business Plan
1. Objective
2. Clear
3. Logical and simple.
4. Flexible
5. Stable
6. Complete and integrated

WHY DO WE NEED A BUSINESS PLAN?

There are several reasons why a written business plan is necessary:
1. to project general picture of the business project;
2. to serve as a guide in implementing the business or project;
3. to serve as a major input to investment decisions or major expenditures;
4. to serve as reference or guide to policy formulation and development;
5. to serve as guide for operational matters;
6. to serve as a reference for a bank loan or financing purposes;
7. to determine/estimate the detailed technical and financial requirements; and
8. to serve as an overall guide for the proponent or entrepreneur.

David Gumpert believed that business plan Is a selling point. With a business plan, you sell
the entire company as a package. He cited the following reasons for doing a business plan as
follows:
1. to sell yourself as a business;
2. to obtain a bank financing;
3. to obtain investment funds;
4. to arrange strategic alliance;
5. to obtain large contracts;
6. to attract key employees;
7. to complete mergers and acquisition; and
8. to motivate and focus your management team.
OUTLINE OF A BUSINESS PLAN
A business plan is a comprehensive document outlining the goals, strategies, and
operational details of a business venture. There are many books and Literature about the format
of doing a business plan. Anyone of them can be used as a guide in full or in part depending on
the context and scale of the business proposition.
As a rule, however, the business plan format should have at least four major components,
namely: the marketing plan, technical plan, financial plan, and the organizational plan.

Sample Format
From Hisrich and Peters
I. Introductory Page
A. Name and address of business
B. Names and addresses of the principals
C. Nature of Business
D. Statement of Financing needed
E. Statement of confidentiality report
II. Executive Summary
III. Industry Analysis
A. Future outlook and trends
B. Analysis of Competitors
C. Market segmentation
D. Industry Forecasts
IV. Description of Venture
A. Product(s)
B. Service(s)
C. Size of Business
D. Office equipment and personnel
E. Background of entrepreneurs
V. Production Plan
A. Manufacturing Process (amount subcontracted)
 B. Physical Plant
C. Machinery and Equipment
D. Names of suppliers of raw materials

VI. Marketing Plan

A. Pricing
B. Distribution
C. Promotion
D. Product of Forecast
E. Controls
VII. Organizational Plan
A. Form of Ownership
B. Identification of partners or principal shareholders
C. Authority of principals
D. Management-team background
E. Roles and responsibilities of members of organization
VIII. Assessment of Risk
A. Evaluate weakness of business
B. New technologies
C. Contingency plan
IX. Financial Plan
A. Pro forms income statement
B. Cash flow projections
C. Pro forma balance sheet
D. Break even analysis
E. Sources and applications of funds
X. Appendix (contains back-up material)
A. Letters
B. Market research data
C. Leases or contracts
D. Price list from suppliers
 Outline of a Business Plan From other books of entrepreneurship:
• Cover sheet: Name of business, name of principals, addresses, and phone numbers
• Business Goals

Strategies
• Table of Contents
Section 1: The Business
A. Description of Business
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 2: Financial Data
A. Sources and Application of funding
B. Capital equipment list
C. Balance Sheet
D. Break-Even Analysis
E. Income Projections (profit and loss statements)
a. Five-year summary
b. Detail by month for first year
C. Detail by quarter for second, third, fourth, and fifth years
d. Notes of explanation
F. Cash Flow Projection
a. Detail by month for first year
b. Detail by quarter for second, third, fourth, and fifth years
Notes of explanation
G. Deviation Analysis
H. Historical financial reports for existing business
a. Balance sheet for past five years
b. Income statement for past five years
c. Tax returns

236 Section 2: Financial Data

A. Sources and Application of funding
B. Capital equipment list
C. Balance Sheet
D. Break-Even Analysis
E. Income Projections (profit and loss statements)
a. Five-year summary
b. Detail by month for first year
с. Detail by quarter for second, third, fourth, and fifth years
d. Notes of explanation
F. Cash Flow Projection
a. Detail by month for first year
b. Detail by quarter for second, third, fourth, and fifth years
C. Notes of explanation
G. Deviation Analysis
H. Historical financial reports for existing business
a. Balance sheet for past five years
b. Income statement for past five years
c. Tax returns

Section 3: 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
• Evaluate personal resources, community resources, government assistance, skills,
management experience, raw material availability, interest, and human relations.
• Analyze market demand, competitors, market share estimation, customer interest,
quality/price comparison, and profit potential.
• Choose a suitable business location based on proximity to customers, availability of
facilities, cleanliness, affordability, and accessibility to suppliers.
• Prepare a financial plan including objectives, required funds, expenditure allocation,
funding sources, expenses, and expected ROI.
• Prepare a production plan considering equipment rental/buying, product design/quality
improvement, production capacity, inventory control, and scheduling.
• Prepare an organizational plan selecting a suitable business structure, understanding legal
requirements, appointing officers/employees, and defining duties/responsibilities.
• Prepare a management plan outlining goals, objectives, strategies, customer policies, HR
development, and social responsibility programs.

Importance of Business Planning:

• Eliminates business risk

• Minimizes cost of production
• Detects weaknesses in business operations

Rules to Observe:

1. Maintain neatness for a professional appearance.

2. Ensure grammatical correctness through editing.
3. Maintain honesty and avoid exaggeration.
4. Use layman's language for clear communication.
5. Ensure services are sustainable and rules are followed.
Musts for Business Plan and Feasibility Study:

1. Proper arrangement with executive summary and table of contents.

2. Appropriate length and appearance.
3. Clear expectations for short and long-term goals.
4. Explanation of benefits to users.
5. Detailed description of product or service and overall business.
6. Evidence of marketability.
7. Financial justification for sales strategies.
8. Detailed product development and manufacturing process.
9. Management portrayed as experienced and skilled.
10. Believable market and financial projections.
11. Concise and clear oral presentation ability.

Why Prepare a Plan:

• Minimize or eliminate the risk of losing money on a poor business idea.

• Avoid costly mistakes.
• Determine financial requirements.
• Program activities in advance.
• Evaluate actual performance against set targets.
• Fulfill pre-requisites for approaching financial institutions for loans.

The Intricacies of Enterprise Planning:

• Planning is a mental process considering all factors affecting the enterprise.

• Crucial for avoiding details that could endanger the firm's survival.

Step 1: Idea Generation and Opportunity Identification:

 • Open-minded approach to explore all opportunities.
• Use brainstorming to generate ideas.
• Ask questions focusing on different demographics (e.g., baby, teenager, woman, old
man).
• List all ideas, regardless of how silly they may seem.
• Group exercise can generate at least 50 ideas in 30 minutes.

Step 2: Informal Screening:

• Select about 10 project ideas from the generated list of 50 ideas based on personal
interests, experiences, and investment willingness.
• Narrow down the selection to three best ideas.
• Criteria for selecting the top three ideas include:
o Marketability of the product
o Availability of raw materials
o Availability of technology
o Availability of skilled workers
o Investment requirement
o Perceived profitability
o Government priority or support
o Environmental considerations
• Prepare a table to assign points to each criterion (10 points highest, 1 point lowest) based
on general perception.
• Additional criteria and weights can be added for a more sophisticated analysis.
• The process is informal, relying on subjective judgments rather than hard data, but it
facilitates the selection process.

Step 3: Analysis of the Situation:

Resource Analysis:
 • Evaluate the entrepreneur's and the firm's resources, categorized into the 7 "Ms": Money,
Materials, Manpower, Machines, Methods, Management, and Moment (time).
• Recognize strengths and weaknesses to prepare action plans to leverage strengths and
minimize weaknesses.

Environmental Analysis:

• Assess factors in the environment that can affect the business, considering opportunities
and threats.
• Factors include economic situation, socio-cultural environment, technological
environment, political environment, peace and order situation, physical climate,
infrastructure facilities, population trends, and others.
• Example: Growing population in Caloocan City could be an opportunity or a threat
depending on competition in the longganisa business.

Values Analysis:

• Examine aspirations, goals, vision, and mission of the entrepreneur and the business.
• Represents the kind of service the entrepreneur wishes to provide to customers.
• Resource analysis indicates what the firm can do at the start, environmental analysis
indicates what the firm may do, and values analysis indicates what the firm wants to do.

Matching the entrepreneur with the project

The statement highlights the importance of aligning a firm’s capabilities and desires with
the opportunities and threats it faces. This alignment requires a detailed plan across various
business functions like marketing, production, organization, and finance. Additionally,
evaluating social, environmental, and cost-benefit aspects ensures the sustainability of the
business or project.
Market plan

To develop a market plan, one must analyze competitors, their products, promotions,
distribution, and pricing. Assessing supply and demand is crucial; if supply exceeds demand,
entering the business may not be wise, but if demand surpasses supply, it presents an opportunity.
Once favorable conditions are identified, a detailed marketing plan focusing on target customers,
product features, promotions, distribution channels, and pricing should be prepared.

1. Production Process

- Analyze the entire production workflow from raw materials to finished products.

- Identify key steps, including material sourcing, processing, assembly, and quality control.

- Determine sequence and timing of each production step to optimize efficiency.

2. Production Machinery and Equipment

- List required machinery and equipment for each production step.

- Ensure compatibility of machinery with production process and quality standards.

- Consider factors such as capacity, speed, accuracy, and maintenance requirements.

- Procure necessary machinery and ensure proper installation and setup.

3. Maintenance and Upkeep

- Develop a maintenance schedule for all machinery and equipment.

- Regularly inspect and service machinery to prevent breakdowns and ensure smooth operation.

- Train staff on proper usage and maintenance procedures.

4. Quality Control Measures

- Implement quality control checkpoints at various stages of production.

 - Utilize testing equipment and procedures to ensure product quality.

- Train staff on quality standards and procedures to maintain consistency.

5. Workforce Allocation and Training

- Determine staffing requirements for each production step.

- Allocate tasks and responsibilities to optimize workflow.

- Provide training to employees on machinery operation, safety protocols, and quality control
procedures.

6. Contingency Planning

- Develop contingency plans for potential disruptions such as equipment breakdowns or supply
chain issues.

- Identify backup machinery or alternative suppliers to mitigate risks.

- Establish protocols for responding to emergencies to minimize downtime and maintain

production continuity.

The organization plan

- outlines the structure and management of the business, following the marketing and
production plans. It begins by defining the firm's ownership structure, such as sole
proprietorship, partnership, corporation, or cooperative. The plan includes an
organizational chart depicting the hierarchy and functional areas like marketing,
production, finance, and administration. Duties, responsibilities, qualifications, salaries,
and benefits of personnel are detailed. Additionally, pre-operating activities are scheduled
using a Gantt chart, covering tasks like business registration, business plan preparation,
financing negotiations, facility construction, hiring, and more.
Financial Plan Overview

- Translates business plans into monetary terms.

- Utilizes data from marketing, production, and organization plans.

Total Project Cost

- Comprises total fixed assets, working capital, and pre-operating expenses.

- Fixed assets include building, land, and equipment.
- Working capital covers short-term expenses like materials, labor, and utilities.
- Pre-operating expenses include registration fees and consultant fees.

Source of Financing

- Indicates where funds for the business will originate.

- Can be from the proponent, co-owners (equity contribution), or borrowed funds
(creditors).
- Borrowed funds may come from relatives, friends, banks, or other sources.

Financial Statements

Profit and Loss Statement (P&L)

- Details sales and expenses incurred or projected.
Balance Sheet
- Presents assets, liabilities, and equity.
Cash Flow Statement
- Outlines projected cash expenses and disbursements.

Financial Analysis
- Evaluates profitability, liquidity, and marketability.
- Compares data from P&L and balance sheet.

Business Health Comparison

- Analogizes business health to human health.
- Considers profitability, liquidity, and marketability.

Social-Cost Benefit Analysis

 - Examines benefits and costs to society.
- Benefits may include employment generation and tax contributions.
- Quantifies these benefits in the business plan.

Organizing the Enterprise

- Business comprises people, including owner, managers, supervisors, and workers.
- Workers are the backbone of the organization, manning production lines and
supporting administrative and marketing operations.

Management and Motivation

- Machines work, but people think; importance of choosing and managing personnel.
- Organizing people formally is crucial for effective operations and recognition by
government and public.

Small Business Enterprise

- Owner-manager plays a central role, often performing various management functions.
- Small enterprises may start with owner-manager handling most tasks independently.

Types of Small Business

- Micro business: Owner is the principal worker, may employ assistants.
- Bigger small business: Owner directs the work of employees.
- Various definitions exist, but common characteristics include owner involvement and
limited scale.
1. it is privately-owned.
2. It has few or no layers of management; and generally,
3. It has Insufficient resources to dominate its field of business.

The Magna Carta for Small Enterprise (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 are Inclusive of
those arising from loan, but exclusive of the land on which the particular business entity's office,
plant, and equipment are situated, must have value feeling under the following categories
Micro less than Php 50,000
Cottage Php 50,001 Php 500,000
Small Php 500,001 Php 5,000,000
Medium Php 5,000,001 Php 20,000,000

Features of a Small Business Enterprise

1. Low capital, high labor intensity, and limited financial resources, often seen in retail and
service sectors.
2. Specialized skills and services tailored to specific client needs, such as car and appliance
repair, tailoring, baking, and real estate.
3. Thrives in small, overlooked markets in rural communities, catering to local demand with
businesses like sari-sari stores and small restaurants.
4. Often adaptable to changing economic conditions without requiring extensive feasibility
studies, minimizing losses.
5. Operates within the marketplace, providing firsthand knowledge of customer preferences
and needs, allowing quick response to demands.
6. Family involvement in operations common, with owner-manager often employing
relatives or townmates as the business grows.
7. Capital typically sourced from family savings or loans from relatives and friends.
8. Operates in a small, community-based area, with owner and employees residing locally.
9. Size of the enterprise is small relative to the industry, focusing on niche markets rather
than dominating entire industries.

Choosing Your Role in the Business

1. Consider your education and training:

- Engineering and technical background may lead to production management.
- Accounting or finance education may suit financial management roles.

2. Reflect on your experience:

 - Past roles and experiences may indicate suitable responsibilities.
- Draw on skills from previous jobs or industries.

3. Assess your interests and aptitude:

- Interest and natural abilities can guide role selection.
- Personal traits like outgoing nature may align with sales, while technical skills may suit
production management.

4. Evaluate your available time:

- Consider time constraints and other life roles.
- Balance business responsibilities with personal and family commitments.
- Avoid overcommitting by focusing on key roles that match your skills and availability.
5. Advantage of a Broad View
- Entrepreneurs benefit from considering multiple management functions rather than focusing
solely on one or a few.
- Narrow focus on specific functions can lead to "nearsightedness," where entrepreneurs overlook
the broader aspects of the business.
- Nearsightedness is akin to seeing only what is close and immediate, missing the larger picture.
- For example, excessive focus on production without attention to sales can result in surplus
inventory that customers no longer want.
- Successful businesses require attention to production, marketing, finance, and personnel
management in tandem.
- Neglecting any one aspect can detrimentally impact the overall business performance and
success.

Choosing people to work with you

Establishing clear expectations and boundaries from the outset is crucial for maintaining
professionalism and efficiency in the workplace, especially when recruiting from among family,
friends, or acquaintances. By outlining the ground rules, both parties understand what is expected
in terms of performance, attendance, and other aspects of the job. This helps avoid
misunderstandings and ensures that the relationship remains focused on performance rather than
personal ties. Additionally, clearly defining compensation, benefits, work hours, and conditions
sets the foundation for a fair and transparent working relationship.

How do you determine your employee requirements? The following guidelines may be
useful:
1. First of all, list down the different tasks that have to be done In the business. Some
preliminary questions to ask are:
• Marketing - Who will sell the products? Who will deliver the products to the buyers?
To the distributors? Who will handle promotion and advertising? Who will take care of
the customers after the products have been sold?
• Production - Who will make the products or deliver the service? Who will operate the
equipment? Who will maintain them? Who will take charge of inspection and quality
control? Who will keep track of raw material stocks and finished product inventory?
• Finance - Who will keep the records? Who will do the accounts? Who will prepare the
weekly payroll? Who willcollect the recelvables and settle the payables? Who will hold
the petty cash?
• Administration - Who will take care of ordering supplies, preparing sales contracts, and,
renewing business permits? Who will handle personnel records? Who will handle
business communications, Inquirles, and other administrative matters?

Determining employee requirements involves identifying the specific tasks and roles
necessary for the smooth operation of the business. Here's a step-by-step approach based on the
guidelines provided:

2. List Tasks: Begin by listing all the different tasks that need to be accomplished within each
functional area of the business: marketing, production, finance, and administration.
d. Marketing: Identify tasks such as selling products, product delivery, promotion,
advertising, and customer support.
e. Production: Determine tasks related to manufacturing products, operating
equipment, maintenance, inspection, quality control, and inventory management.
 f. Finance: List tasks including record-keeping, accounting, payroll preparation,
accounts receivable and payable management, and petty cash handling.
g. Administration: Identify tasks such as supply ordering, sales contract preparation,
business permit renewal, personnel record management, and handling business
communications

1. In business planning, the financial analysis will determine if the project will be implemented
or not. From this list of tasks, cross out the tasks that you are taking for yourself. The tasks
that remain in the list are those for which you will hire other people. Translate the tasks into
job designations or titles. Then, determine how many employees you will need for each job
title. Remember that some of the tasks may be combined and assigned to only one position.

For example, your bookkeeper may also be your secretary/ administrative assistant, your
driver may also be your messenger, and so on. Below is a sample list of positions with number of
people number of people required.

Sales manager 1
Sales assistant 2
Cutter/designer 1
Sewers 4
Inspector/stock clerk 1
Bookkeeper/secretary 1
Driver/messenger 1

As mentioned above, it is assumed that the entrepreneur will be the general manager, production
manager, finance manager, and personnel manager.
2. Next, for every position, list all the qualifications required in terms of skills, education and
training, experiences, and personal characteristics. Include age, gender, and other
requirements, which you feel important for a certain job to be performed well. For example,
for a bookkeeper-secretary, the requirements might be:
• Female, single, 18-30 years old;
• Commerce/business administration graduate;
 • Must know how to use fax machine, photocopying machine, and Microsoft Office
computer software (Excel and Word);
• Must know how to compose business letters;
• Preferably with six months experience In bookkeeping and/or secretarial work; and
• With pleasant personality
3. It Is also advisable at this point to determine salarles and wages to be pald for every position
you have. Applicants need to know how much you are willing to pay them. Determining your
employees' compensation rates is a critical decision to make because:
• On one hand, labor costs affect the profits of a business (thus, theoretically, you can
reduce labor costs by paying low wages).
• On the other hand, the wages you will pay will be one of the most Important factors that
will motivate your employees to stay long in your company (thus, it is possible that low-
paid employees may not work as hard and as long as highly-paid workers do).
4. Once you have done Nos. 1 to 4 above, you can begin the process of recruiting, screening,
and selecting the people to work with you in your new business.
CHOOSING THE LEGAL FORM OF YOUR BUSINESS
Sole proprietorship
A sole proprietorship is a business owned by only one person. It is the simplest
organization to form. Most business, including large ones, started as a sole proprietorship.

In a sole proprietorship, you and your business are one. Your income and the business
income are one. In other words, your business income is taxed as personal income. Decision-
making is centered on the owner or proprietor who assumes total responsibility for all decision.
If the business succeeds, he reaps all the profits. If it fails, he suffers all the losses, including the
obligation to pay the debts. When the sole proprietor dies, the life of the business also ends.

Partnership
A partnership is formed when two or more partners come together to be joint owners of a
business. A partnership allows the pooling of resources (money and other business assets) and
talents (skills, experience, management know-how). All the partners share profits equally, unless
otherwise stated in the Partnership Agreement.
Corporation
A corporation or a company involves five or more persons owning the business. A
corporation is a "legal person" in the eyes of the law. Itis called a legal person because the law
allows it to do most business acts that a natural person can do. Of course, it is different from a
natural person who breathes, walks, and talks, like you and me. But as legal person, the
corporation:
• has legal rights and responsibilities;
• can own and dispose of property; and
• can enter into contracts.

The ownership of a corporation is divided into units known as "shares of stocks. The buyers
of these stocks, called stockholders, also become part-owners of the business. Management of a
corporation is vested on a board of directors elected by the stockholders on a regular basis.

A corporation runs its affairs based on terms and prescription specified in its By-Laws and
Articles of Incorporation.

Unlike the first two legal forms, the life of a corporation does not end with the death of a
stockholder or by the stockholder's disposal of his stocks.

The description provided outlines the characteristics and functions of a cooperative as a

distinct business entity:
• Ownership and Structure: Cooperatives consist of a group of individuals, whether
producers, traders, or consumers, who join together to achieve common goals such as
accessing economies of scale. Unlike corporations, ownership in a cooperative is not
divided into shares of stock; instead, members collectively own and operate the
cooperative.
• Purpose and Surplus: Cooperatives are typically established to provide goods or services
to their members at more affordable costs than traditional retailers or middlemen. While
 profit generation is not the primary objective, any surplus generated from cooperative
operations is shared among the members.
• Types of Cooperatives: There are various types of cooperatives, including consumers'
cooperatives, farmers' cooperatives, producers' cooperatives, and credit cooperatives.
These cooperatives may engage in activities such as common marketing, procurement of
raw materials, shared production facilities, and collective borrowing of capital.
• Regulation and Taxation: Cooperatives are registered with the Cooperative Development
Authority (CDA) and may apply for tax exemptions. However, individual members are
typically responsible for paying income taxes on their share of the cooperative's profits.
Overall, cooperatives offer a collaborative and mutually beneficial approach to business,
allowing members to leverage collective resources and expertise to achieve common objectives.

The Legal Forms of Business Organization:

LEGAL FORM ADVANTAGE DISADVANTAGE

Sole proprietorship • Allows you to be your • Makes you liable to all
own boss the risks and losses
• Easy to start • Has limited access to
• Allows you to keep all capital and other
profits resources
• Gives you complete • Demands long hours of
control hard work on your part
• Does not allow sharing
, of responsibility
Partnership • More money available • Control of business is
shared and is thus
• More "heads" limited
contribute to the
• Profits are shared and
success of the business
are thus reduced
• Losses are shared
• Consequences of a
among the Partners
 • Risks are also shared poor decision made by
a partner
• Planning and problem- • Decision made by a
solving are partner is binding to
participatory other partners
• Liability for debts is
unlimited
• Property invested
becomes the joint
property of all.
Corporation • Capital Is easily raised • Major decision cannot be
done by the owners
without approval of the
board of directors
• Corporate and
• Individual profits, in the
form of dividends, are
taxed separately (double
taxation)
• More expenses are
involved
• More rules and
regulations to comply

Cooperative • Capital is easily raised • Control of the business

• Liability is limited is shared
• More people benefit form • Ideas and decision
• Owners (members) may made by board have to
employ managers with be accepted by the
relevant qualifications
• profits earned
 • May be tax-exempted
general membership

The decision to register your business or operate informally, also known as the
underground economy, involves weighing various factors and considerations.

Advantages of operating informally include avoiding taxes, paying lower salaries, and
not being obligated to provide benefits such as sick leave or contribute to social security.
Additionally, informal businesses may perceive themselves as free from government intervention
and control.

However, informal businesses also face risks such as harassment by law enforcement and
potential exploitation by corrupt officials. For example, unlicensed vendors may face challenges
from authorities seeking to enforce regulations or extort money through "protection" payments.

On the other hand, registering your business offers several benefits, including legal
recognition, access to government assistance programs and incentives, and the ability to enter
into contracts and engage in formal business transactions. Registered businesses also have
recourse to legal protection in case of disputes with customers or suppliers lately, the decision to
register your business depends on factors such as your long-term

Ultimate goals, the level of risk you are willing to accept, and your willingness to comply
with legal and regulatory requirements.
How to Register your Business
Where to register your business depends on the legal form you have chosen for your
business.

Choose legal form: Sole proprietorship, partnership, corporation, or cooperative.

Sole Proprietorship:

• Register business name with BDT-DTI

• Obtain business clearance from Barangay Captain

• Get permit from local government

• Obtain Tax Identification Number (TIN) from BIR

• Register business and employees with Social Security System

• Register with DOLE if 5+ employees

Partnership/Corporation:

• Register with Securities and Exchange Corporation (SEC)

• Follow sole proprietorship registration steps

Cooperative:

• Register with Cooperative Development Authority (CDA)

• Register cooperative name with DTI

• Obtain permit from local government for cooperative operation.

• Get Tax Identification Number (TIN) from Bureau of Internal Revenue (BIR).
 • Optionally register cooperative employees with Social Security System (SSS) and
Department of Labor Employment (DOLE).

The following are general guidelines and requirements in registering with the DTI, the local
government unit, the BIR, and the SSS.

To register your business name with the DTI, go to the office in the city or province where
your business is based. Complete an application form in five copies and pay a registration fee.
Have at least three alternative business names ready, as your preferred name might already be in
use.

The following are the requirements in registering with DTI:

For Sole Proprietorships For Partnership and For Cooperatives

Corporations

• Applicant must be 18 • Certified true or • Certified true or

years old or more photocopies of articles of photocopies of articles of
incorporation or cooperation, by-laws, and
• Two recent passport- size
partnership, by-laws, and CDA registration
photos of applicant
registration certificate certification
• Proof of Filipino approved by the SEC
• Certificate issued by CDA,
citizenship, if applicant
• If foreigners own 40% or in case of increase of
acquired this by
more of the capital, the capitalization
naturalization, election or
SEC certificate must
other means provided by
specify that this is in
law
accordance with the
• Proof of Filipino Foreign Investment Act of
citizenship (e.g. birth 1991
certificate. Voter's ID)
• In case there is an increase
in capital, a certificate
 issued by the SEC

To register with the Mayor's Office for a business permit, start by obtaining clearance
from your local barangay office, which typically incurs a small fee. Then, visit the business
licensing section of the Mayor's Office. Be prepared to pay various fees, including for sanitary,
garbage, and inspection services. The total fees may amount to around One Thousand Pesos
(1997 rates).

You need a number of documents to obtain a license or permit from the Mayor's Office.
These are:

For Sole Proprietorships For Partnership and For Cooperatives

Corporations

• DTI registration certificate • Location map of business • Location map of

of business name establishment business establishment

• Location map of business • barangay clearance • barangay clearance

establishment
• SEC registration certificate • CDA registration
• Barangay clearance certificate
• Articles of partnership or
• Community Tax incorporation Plus, depending on type of
business, any of the following:
• Certificate of proprietor • Current Class "C"
certificate • Building occupancy
Plus, depending on type of
permit
business, any of the following: • Community Tax,
Certificate of the partners • Mechanical inspection
• Building occupancy permit
Plus, depending on type of • Electrical inspection
• Mechanical inspection
business, any of the following:
• Pollution clearance
• Electrical inspection
• Building occupancy permit
• Location clearance
• Pollution clearance • Mechanical inspection • Sanitary/health
certificate
• Location clearance • Electrical inspection
• Police clearance
• Sanitary/health certificate • Pollution clearance

• Police clearance • Location clearance

• Sanitary/health certificate

• Police clearance

To operate legally in taxation matters, you must obtain a Tax Identification Number (TIN)
from the Bureau of Internal Revenue (BIR). This is necessary for various purposes including
obtaining official receipts, invoices, and having your books of accounts stamped by the BIR. It's
advisable to get these documents printed by a BIR-accredited printing press to ensure they are
officially stamped.

The BIR also charges a fee from VAT-covered enterprises (P1,000, 1997 rates). VAT-
exempted businesses, however, are not charged any fee.

Here are the requirements for registering with the BIR:

For Sole Proprietorships For Partnership and For Cooperatives

Corporations

• Photocopy of DTI • Photocopy of SEC • Photocopy of CDA

registration registration registration or business
85/236 permit
• Photocopy, if mayor's • Mayor's permit
permit
 Cooperatives who want to apply for tax exemption are required to fill up BIR Form
1702A-1 ("Annual information/income tax return of exempt organization") in lieu of income tax
forms.

Registering with the SSS

To ensure coverage for yourself and your employees, registration with the Social Security
System (SSS) is necessary. If you employ staff, it's mandatory; if not, you can register as self-
employed. SSS offers various benefits like sickness, retirement, and loans. Both the government
and employers contribute to the fund ensuring these services.

Here are the requirements for registering with the SSS:

For Sole Proprietorships For Partnership and For Cooperatives

Corporations

• Photocopy of mayor's • Photocopy of articles of • (Cooperatives, as a rule,

permit partnership or do not have to register
incorporation with the SSS, but their
• Employer's date record
employees do.)
• Employer's data record
• Initial or subsequent list
Initial or subsequent list
of employees
of employees (The last
two requirements should
be signed by the
managing partner of a
partnership or the highest
ranking officer a
corporation.)
Registering with the SEC (only for corporations and partnerships)

If your business expands and you wish to transition from a sole proprietorship to a corporation or
partnership, you must register with the Securities and Exchange Commission (SEC).
Alternatively, you can choose to establish your business directly as a corporation. Ultimately, the
decision depends on your preferences and business needs.

The requirements for SEC registration are:

• Verification of proposed name of your firm. If it has been registered by any other name,
you have to change your proposed name and repeat the process.

• Six copies of the following (for stock corporations):

- Articles of incorporation

- By-Laws

- Undertaking to change corporate name

- Treasurer's affidavit

- Bank certificate of deposit

- Authority to verify bank accounts

- Registration data sheet/subscribes information sheet

- Statement of assets and liabilities, if subscription is paid in property

Needless to say, you must be ready to pay filing and miscellaneous fees.

If you want to speed up the process of registering your corporation, SEC has express
forms available at its offices. A separate set of forms is also available for partnerships.

Other Registering Agencies

The discussion so far has covered fundamental registration processes necessary for
businesses to establish legality and formality in their operations. Certain types of businesses also
require registration with specialized government agencies. These agencies typically regulate and
oversee specific industry sectors, offering incentives and assistance to registered firms while also
exercising control functions.

Here is a partial list of these specialized agencies:

• Food and Drug Administration (FDA), for firms manufacturing drugs, cosmetics, and
food products

• Fiber Development Authority, for businesses engaged in processing and trading of fiber
and fiber products

• National Food Authority (NFA), for traders and processors of rice, corn, and flour

• Land Transport Franchise and Regulatory Board, for land transport services (jeepney
lines, taxicab, and bus operation)

• Maritime Industry Authority, for sea transport services

Summary and Conclusion

Business planning is essential for guiding businesses toward their objectives, facilitating
resource allocation, and mitigating risks. Key factors for successful business management and
startup include market research, financial planning, team building, marketing, and continuous
learning. A well-developed business plan comprises several components, including an executive
summary, company description, market analysis, organizational structure, products/services,
marketing strategy, financial projections, implementation plan, and risk analysis. Developing a
business plan involves thorough research, goal setting, outlining the plan, seeking feedback, and
regular review and revision. Ultimately, a meticulously crafted business plan serves as a
roadmap, enabling entrepreneurs to navigate challenges, capitalize on opportunities, and achieve
long-term success in their ventures.

Fair pricing involves setting prices that balance profitability with customer satisfaction.
Basic principles of pricing include understanding customer segments, pricing strategies, and
value-based pricing. When pricing services, factors such as cost, market demand, and perceived
value must be considered. Registering a business involves multiple steps such as selecting a
name, determining the legal structure, obtaining licenses and permits, registering for taxes, and
complying with industry-specific regulations. Overall, fair pricing and proper business
registration are essential for building a successful and legally compliant venture.

In conclusion, business planning is a critical process for the success of any venture. It
provides a roadmap for achieving organizational goals, helps in resource allocation and risk
management, and facilitates informed decision-making. By understanding the factors for success
and following a structured approach to develop a comprehensive business plan, entrepreneurs
can increase their chances of building a sustainable and successful business