Chapter 5 Continuation : IDEATION, INNOVATION,

AND CREATIVITY

IDEATION

The beginning of a business endeavor is ideation. This should be the first investment of anyone
who seeks to be an entrepreneur; and to be called an entrepreneurial business opportunity, such
idea has to be new, or if not, should be innovative. The best source of ideas are the consumers or
the market in general, since they are the ones who are in need for a certain product or service.

Ideas that are worth a business should be the one that has a market now and in the future. This
could be a product, a service system, and the like, which could fall in any of the following
categories:

1. Need/want drives
2. Time-saving drives
3. Money savings
4. Unique or incorporating strong competitive advantages
5. Link to personal interest, preferably passion

The more idea a person produces, the more original and the better quality ideas one will find
among them. When you come across an idea, you should put it in writing.

The most common way of developing ideas is as follows:

 Recognizing the need. Develop an idea or a product that can satisfy a need, and respond
to the need by establishing a business concern.
 Improving an existing product. The result of consumerdissatisfaction to the existing
product could open the door to introduce innovations or improvements.
 Recognize trends. Entrepreneurs should be able to recognize the opportunity to develop a
product and set trends that can make them leading entrepreneurs.
 Be aware of everything. There is no other way to know about what is happening around
you, but to research and read.
 Questions and assumptions. Anybody can question the relevance or quality of any
product or services, provided, that there is an effort to improve the product.
 Naming it first, then, develop it. If you have the idea, study it and develop it to something
that is worth a business.
Earlier, it is said that ideation is the beginning of a business. A wrong choice of idea could be the
cause of business failure, so ideas need to be evaluated if it can be profit potential.

Once you generate an idea, it has to be protected because it can make you a potential
millionaire, like in the case of Bill Gates. There are many ways of protecting your idea from being
stolen or claimed by others, and losing the opportunity to be known as the creator and the
originator of the ideas. Aside from this, no company will pay you a royalty if the idea presented is
not legally protected. The following are the ways of protecting your ideas:

1. Confidentiality Agreements. It specifically provides that a signer will not share the idea to
anyone. This is a typical agreement or contract where one should ask advise to a patents
attorney or those with experience and expertise in the intellectual property rights.
 2. Patents. These gives the inventor exclusive legal rights to exclude anyone else from
manufacturing, selling, importing, or using an invention during the life of the patent. The
three general classifications are: Design, Utility, and Plants Patents.
3. Trademarks. This is a word, name, symbol, or device used by manufacturers on
merchants to identify their goods and distinguish them from others sold in the market.
This should be sed in conjunction with a business or a product, otherwise, this will not be
granted.
4. Copyrights. A copyright protects the creative works of composers, authors/writers, artists,
and others. This is the easiest form of protection for Intellectual Property.

ENTREPRENEURIAL CREATIVITY

Creativity, innovation, and entrepreneurs are inseparable. Creativity is an essential part of

innovativeness, the starting point of a process, which is skillfully managed, and brings an idea
into innovation. It is considered as a characteristic that is innate or inherent to every individual,
but the social environment can influence both the level and frequency of creative behavior. It is
particularly important to understand the role the environment can play.

ENVIRONMENTAL STIMULANTS TO CREATIVITY

1. Freedom - a sense of control over one's work ideas

2. Good Project Management - a manager serves as a good role model
3. Sufficient Resources - access to necessary resources
4. Encouragement management enthusiasm for new ideas.
5. Various Organizational Characteristics - a mechanism for considering new ideas
6. Recognition - a general sense that creative work will receive appropriate feedback,
recognition, and reward
7. Sufficient time - time to think creatively about problem
8. Challenge a sense of challenge arising from intriguing nature of the problem itself
9. Pressure - a sense of urgency that is internally generated from competition as a personal
sense of challenge
10. Outside Organization from a general desire to accomplish something important

If there is an environment conducive to stimulating creativity, there are also environmental

obstacles to creativity. These are the various organizational characteristics, which are an
inappropriate reward system, the lack of freedom in deciding what to do or how to accomplish
the task, and the organizational disinterest which result to lack of support, interest, or faith in
project. It could also be the inability of the manager to set clear direction and the reluctance of
managers and co-workers to change their way of doing things. Included also is the lack of
appropriate facilities, equipment, materials, and the time pressure to think creatively about the
problem.

THE CONCEPT OF INNOVATION

Innovation is doing something different. It could be introducing either something new or different.
Innovativeness is a characteristic of an individual, team, or organization. This is also the capacity
to create ideas and develop them to usable products or services.

IMPACTS OF INNOVATION
Efforts on innovation must have impacts - positive impacts. It must have a positive implication
that is supportive of organizational goals and objectives. The innovative accomplishment exists if
the following happens:

1. Effecting a new policy - creating change or orientation or direction

2. Finding new opportunities - developing an entirely new product or opening a new market
3. Designing a new structure changing the formal structure, reorganizing or introducing a
new structure
4. Devising a fresh method - introducing a new process, procedure, or technology for
continued use

Within the organization, the orientation toward innovation must come primarily from the higher
level of management. The elements of innovation orientation are as follows:

1. Value placed on creativity and innovation in general;

2. An orientation towards risks;
3. A sense of pride in the organization and its members, and the enthusiasm about what
they are capable of doing; and
4. An offensive strategy of taking the lead towards the future

The most critical aspect in making a decision to go into sel employment and entrepreneurship is
the context of ideation, innovation and creativity. The generation of idea and transforming it into
a busine venture can make or break a potential entrepreneur. The success of t business could
lead to personal prosperity of the owner and help in the economic condition of our country.

Innovation is not only for a change, but also for the search in excellence, not only in producing a
product, but also in the form of innovative systems and services. The innovativeness and the
creativity of an individual could be the greatest assets any business could have, so this should be
developed and properly taken care of.

The prospective entrepreneur has a variety of option in deciding what kind of business he is
going to put up. He can go on market scanning to see what is needed. He should not limit himself
in going into manufacturing of sari-sari store or market niche, but developing similar product or
service should be examined. Buying a franchise, being a subcontractor, innovating an existing
product, systems, or services, sponsoring a start up business, or acquiring an on-going business
concern are some of the business ideas which are very promising and could succeed eventually.

CHAPTER 6 :THE BUSINESS PLAN

ORGANIZING THE ENTERPRISE, PLANNING THE ENTERPRISE

CONCEPT OF A BUSINESS PLAN

"A well-written business plan is one that contains all information necessary for the financing
source to make a decision even without taking the entrepreneur."

- Anonymous
Authors Hisrich and Peters' definition of a Business Plan

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 as a
successful business venture.

David E. Gumpert's concept and definition of a Business Plan

A business plan is a document that convincingly demonstrates the ability of a business to sell its
products or services to make satisfactory profit and be attractive to potential backers. A better
definition: A business plan is a selling document that conveys the excitement and promise of
your business to any potential backers or stakeholders.

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:

Planning:

 What to do
 How to do it
 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. Planning must be realistic. It must be based on the available resources: human, financial,
and physical resources.
2. Planning must be based on felt needs. The objectives of an entrepreneur should fit the
needs of the people in a community. It can be known through observation, personal
interviews, and questionnaires.
3. Planning must be flexible. Resource needs and economic conditions change. Planning
should be adjusted to such changes to be effective and relevant.
4. Planning must start with simple projects.

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 equipments. He has no 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. Estimated income is made to facilitate the orderly function of the
growing enterprise.
3. 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 comply with it. While in a bottom-up approach, he encourages his
employees to participate in planning the goals and strategies.
4. Strategic Planning stage. As the business enterprise becomes bigger, a long-range
planning is needed.

CRITERIA OF EFFECTIVE PLANNING

1. The plan should state clearly its objectives. Such clear state- ment is necessary so that
those who will be involved in the execution of the plan will understand, accept, and
support it.
2. The plan should provide measures for a satisfactory accomplishment of the objectives in
terms of quantity, quality, time, and cost.
3. The plan should state the policies, which should guide people in attaining the objectives.
The plan should indicate what department or unit would be
4. involved in accomplishing the objectives. It may or may not spell out the procedures for
performing the required work.
5. The plan should indicate the time, which should be allowed for each activity. It may be
necessary to establish a target data for completing the activity.
6. The plan should specify the required resources and their corresponding costs.
7. The plan should designate the officers who will be held accountable for the
accomplishments of the objectives.

COMPONENTS OF BUSINESS PLANNING

1. SWOT. 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 in order 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.

Obtaining the facts for a business plan

Here are questionnaires to get necessary data:

1. What is unique about my product/service?

2. Who are my competitors?
3. How will my customers buy?
4. What is my share in the market?
5. What is the market potential?
6. Who are my customers and where are they located?
7. Where will I put my business?
8. How big should be my plant or place of business?
9. What equipment will I need and what size?
10. How will I treat customers?
11. What personnel do I need?
12. How will I organize my enterprise?
13. What kind of records do I need?
14. How much capital do I need? 15. How profitable will the business be?
15. How financially healthy will I be?
16. What is my break-even point?

OUTLINE OF A BUSINESS PLAN

There are many books and literature about the format in doing a or in part business plan. Anyone
of them can be used as a guide in full o depending on the context and scale of the business
proposition. As a general 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 (SWOT Analysis)

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

STEPS IN BUSINESS PLANNING

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

 Do you have the necessary funds?

 Do you have a skills or management experience?
 Does the government provide financial and technical assistance?
 Are raw materials available?
 Are you interested in such business?
 Do you have good human relations?

2. Analyze your market.

 Is there a good demand for your product?

 How many competitors are there in the market?
 What is your estimated share in the market?
 Who are your customers?
 Are they interested in existing products or services?
 Is it possible for you to offer better quality or a lowerprice?
 Is there a reasonable profit?

3. Choose a proper business location.

 Is it near your perspective customers?

 Are there facilities like electricity, water, transportation, and communications?
 Is the place clean, decent, and peaceful?
 Do you have a good alternative in case the best locationis expensive?
 Is it accessible to raw materials and other suppliers?

4. Prepare a financial plan.

 What are your objectives?

 How much money do you need?
 How will you spend the money?
 Where will you get the money?
 What are your expenses?
 How soon can you recover your money or investment?
 5. Prepare a production plan.

 Is it economical to rent or buy production equipment?

 Can you ensure or improve the product design orquality?
 Can your production facilities meet demand?
 Do you have inventory control?
 Do you have proper scheduling of production?

6. Prepare an organizational plan.

 What type of business organization is most suitable?

 Do you know the corresponding laws, policies, and requirements of your business
organization?
 Who will be the officers and employees of your enter- prise?
 What are their duties and responsibilities?

7. Prepare a management plan.

 What are your goals and objectives?

 What are your strategies?
 Do you have business policies for your customers?
 Do you have human resources development for your employees?
 What is your program for social responsibility?

Importance of Business Planning

1. Planning can eliminate business risk.

2. Planning can minimize cost of production.
3. Planning can detect the weaknesses of the business operations.

SOME RULES TO OBSERVE

1. Make it neat. Appearance is important and it can reflect the personality of the maker.
2. Make it grammatically correct. Be sure to have a final version of the write up corrected or
edited by professional or qualified editors.
3. Make it honest. Do not exaggerate or lie. Tell or write exactly as it is.
4. Write in layman's language. Communicate in simple language and not in technical jargon,
unless it is really called for.
5. Do not over emphasize your product or your business. Product or service is just part of
the business itself, and it requires a lot of other resources that are dependent on one
another.

MUSTS FOR BUSINESS PLAN AND FEASIBILITY STUDY

1. It must be arranged appropriately, with an executive summary, table of contents, and its
chapters or major topics in the right order or sequence.
2. It must be of right length and have the right appearance - not too long and not to short,
not to fancy and not to plain.
 3. It must give a sense of what the founders and the company expect to accomplish in the
Immediate (3 to 7 years) and into the future.
4. It must explain in quantitative and qualitative terms the benefits to the user.
5. The company's product or service and the business as a whole.
6. It must present hard evidence of the marketability of the product or service.
7. It must justify financially the means chosen to sell the product or service.
8. It must explain and justify the level of product development that has been achieved and
describe inappropriate detail the manufacturing process and associated costs.
9. It must portray management as a team of experienced people with the complementary
business skills.
10. It must contain believable and verifiable market as well as financial projections, with the
key data explained and documented under assumptions.
11. It must be easily and concisely explainable in a well- orchestrated oral presentation.

PLANNING AND ORGANIZING THE ENTERPRISE

Why Prepare a Plan?

 Minimize, if not eliminate, the risk of losing money on a poor business idea.
 Save on costly mistakes.
 Determine your financial requirements.
 Program your activities in advance.
 Evaluate actual performance against set targets, especially in terms of sales, costs, and
profits. Approach a financial institution for loans, in which a business plan is a common
pre-requisite.

The Intricacies of Enterprise Planning

Planning is a mental process that requires you to consider all the factors or elements that can
affect what you are planning for in this case, the enterprise.

However, it has to be done; otherwise, you can miss out on details that could endanger the
survival of your firm. Let us now look at each step and what it requires.

Step 1: Idea generation and opportunity identification

However, it is important to point out that you should open your mind to all the opportunities that
you see so that you will be able to explore all possibilities. The method used in this process is
brainstorming.

A good exercise for brainstorming is to ask the question: What products or services does a baby,
a teenager, a woman, or an old man need? In answering this question, you should focus on one
individual at a time for example, a baby then, list down all the products and services you can
think of that a baby needs. All ideas should be considered regardless of how silly they are. If you
do this process with some friends, you can generate at least 50 ideas in 30 minutes.

Step 2: Informal screening

After generating so many ideas and possible opportunities to be pursued, you should now select
about 10 project ideas (from the 50 ideas you generated), which interests you most. In the
informal screening, you do not have to study each idea in-depth. Instead, consider obvious
criteria, like your personal interests, your own experiences in relation to the proposed project,
and the amount of money you are willing to invest.

If you now have ten ideas, continue the screening process until you are down to three - the best
three, that is. This time, choose the best ideas based on the following criteria:

 Marketability of the product

 Availability of raw materials
 Availability of technology for making the product
 Availability of skilled workers
 Investment requirement
 Perceived profitability
 Government priority or support
 Environmental considerations

Step 3: Analysis of the situation

There are three sub-areas to be analyzed: the resource of the entrepreneur and the firm, the
environment, and the entrepreneur's values represented by the aspirations, goals, vision, and
mission of the firm.

Resource analysis. This simply requires the would-be entrepreneur to evaluate what knowledge,
skills, and material resources she has available to use in the business. These resources are
known as the 7 "Ms": Money, Materials, Manpower, Machines, Methods, Management, and
Moment (time). You either have these resources, have them in limited amounts, or have none of
them at all. Having them represents your strengths. Having little or none at all represents your
weaknesses. For example, if, as a would-be entrepreneur, you have enough money to invest in
the business, that is a resource or a strength. If you have gone through a training program in
meat processing, including longganisa- making, that is another resources or strength. On the
other hand, if you do not have the machinery and manpower to contribute to the business, you
lack resources, and therefore you are weak in this sense.

Recognizing your strengths and weaknesses, as a prospective entrepreneur, will facilitate in

preparing action plans to make use of the strengths and minimize the weaknesses.

Environmental analysis. There are many factors or conditions in the environment, which can
affect the business that you are planning to set up. There are factors which have a positive effect
in your business and you may consider them as opportunities. On the other hand, you may take
note of conditions, which will affect your business negatively; these are otherwise known as
threats. There are many things in the environment, which may either be opportune or
threatening to your prospective business. These include:

 The economic situation. Income levels of the population affect purchasing ability, and in
turn, affect your potential sales revenue.
 The socio-cultural environment will indicate the preference of the prospective customers
(for example, pork longganisa will not sell in a Muslim market, and so you can try chicken
or beef longganisa instead).
 The technological environment, if good, will enable one to make products cheaper, faster,
of better quality, or packaged more attractively, hygienically, or sturdily.
 The political environment, which could affect the business climate in the locality. A stable
and supportive political environmental will attract more business in the area; one that is
perceived to be unstable and indifferent will drive investors away.
  The peace and order situation.
 The physical climate, inasmuch as foul weather conditions (like the ones prevailing in
Batanes and some parts of the Bicol region) are not conducive to agricultural and
industrial operations.
 The availability of infrastructure facilities - like roads, ports, and harbors, and
communication, transportation, and banking facilities will influence the cost and efficiency
of doing business in a certain locality.
 Population trends where an increase or decrease will have implications on the prospective
market or buyers for the business.
 Others
Let me illustrate environmental analysis, using the longganisa example. Let us say that the
environmental analysis shows a growing population in Caloocan City, where the longganisa
business will be located. Will this trend be an opportunity or a threat? It can be either, depending
on the way you look at it. If you see more people going into the longganisa business, and
therefore, competing with you, then, a growing population is threatening your own survival in
business.

Values Analysis. Doing this requires the would-be entrepreneur to examine his aspirations or
vision and mission about the business. It also represents the kind of service he wishes to provide
his customers.

Resource analysis will tell us what the company is capable of doing at the start of the business; in
other words, it indicates what a firm can do; environmental analysis will tell us what the firm may
do; and value analysis will tell us what the firm wants to do.

Matching the entrepreneur with the project

What the firm can do and what it wants to do, given the opportunities and threats facing it, do
not always match. Therefore, a matching process is required. This matching process is done by
preparing a detailed plan of all the functional areas of business, namely: marketing, production,
organization, and finance. In addition, a social cost-benefit and environmental study is sometimes
also prepared to ensure the sustainability of the project or business.

Market Plan

In preparing the market plan, the person first has to study the existing situation in the market,
what the competitors are doing in terms of product or service lines, their promotional activities,
the middlemen who are handling their products, and their pricing schemes. After knowing what
the competitors are doing, the next step is to make estimates of the supply and demand, literally
counting the volume produced by the different suppliers as against the volume needed by
buyers. If the volume produced by all the known suppliers is more than the volume needed by
buyers, then, it is logical not to enter this type of business; on the other hand, if the volume
supplied is less than what is needed by the buyers, then, the business offers good market
opportunity.

Once the prospective entrepreneur sees good opportunities to go into the business he has in
mind, then, he should now prepare a detailed marketing plan. This plan will show the target
market or the specific group of customers the firm wishes to serve. Knowing the type of
customers and the situation in the environment, the proponent will now describe the product
features, the promotional activities, the channels of distribution and the pricing.

PRODUCTION PLAN

1. Product Specification
 2. Prodction Process
3. Production machinery and equipment
4. Now that you have a list of equipment, you can go ahead by making a similar table
for raw materials and other supplies. Here, you need to discuss the supply situation of
these materials, i.e. where and when they are available (some materials are seasonal,
while others are not).
5. Next, describe the utilities, such as water and light, the location and layout, and waste
disposal method. For the location and layout, you will need to make drawings.
6. After describing all the items needed for making longganisa, you may now prepare
a production schedule. With the help of the process flow chart, find out how long each
step takes (in minutes or hours), after which, you can draw up a production schedule for a
day. In our example, the grinder can process 20 kilos of meat in five hours. Since there
are other steps involved in making the longganisa, the remainder of the day will be
devoted to these other steps. But for now, we see that with a daily production of 20 kilos
of longganisa, your weekly volume will be 100 kilos.
7. Given the production schedule, you also determine your manpower
requirements including the skills required. A table of manpower requirements will also be
useful.
8. You will also need a schedule of the inventory you would like to keep for the raw materials
and other supplies, as well as the finished products.

Organization Plan

The organization plan follows the marketing plan and the production plan.

In writing the organization plan, the first thing to do is to describe the form of ownership of your
firm. In other words, say if your business will be a sole proprietorship, partnership, corporation, or
cooperative. Next, prepare the organization structure. Usually, this is done through an
organization chart - usually organized according to the four functional areas: marketing,
production, finance, and administration. The organizational chart is a useful tool to indicate the
hierarchy or the levels of authority, that is, who is responsible for whom and who reports to
whom. At the same time, the chart visually presents how the different tasks are grouped or
divided among the various personnel.

The organization plan also requires you to describe the duties and responsibilities of all those
involved in the enterprise, the required qualifications for the tasks, the corresponding salaries
and benefits, and the number of personnel required.

Financial Plan

The financial plan translates into monetary terms the various plans you have for the business.
From the marketing plan, you get information on sales; from the production and organization
plans, you get information on expenses. From these varied data, you can compute whether your
business can make money or not.

Among the financial schedules you are to present is the Total Project Cost, which is made up of
the following items: total fixed assets, the working capital, and the pre-operating expenses.
Examples of fixed asset include building, land, and equipment used in the business. Working
capital refers to amount of funds you need to pay for expenses, such as materials and supplies,
labor, and utilities needed for production within a relatively short period (say two weeks or one
month) after which the products can be sold; thus, generating funds for use by the business.
(Please refer to Chapter 16 on "Understanding the Basics of Accounting and Finance" for more
details on fixed assets, working capital, and other financing concepts and term.) Examples of pre-
operating expenses are registration fees and fees paid to a consultant or researcher who
prepared the feasibility study.

Source of financing. This section of the financial plan will simply indicate where the funds for
the business will come from. This presupposes, of course, that the proponent has determined the
total project cost. The funds may come from him and other co-owners, if any, in which case they
are known as equity contribution. It may come from borrowing money from relatives, friends,
banks, and other sources. These sources of borrowed funds are known as creditors.

Financial statements

The financial plan usually includes the following financial statements:

 Profit and Loss Statement (P&L) - presents details regarding sales and expenses
incurred or will be incurred by the business as of a given date.
 Balance Sheet - presents details of what the business owns (assets) and its value. It
presents the equity contributions of owners and liabilities to the creditors.
 Cash Flow Statement - presents in detail the projected cash expenses and
disbursement for a given period (Please refer to Chapter 16).
In a financial plan, all the statements prepared are projections or expectations of what the
enterprise intends to sell or to spend, how much will the assets be worth, and how much will be
put into the business in terms of owner's equity and loans from creditors.

Financial analysis basically consists of computations of profitability, liquidity, and marketability

(if applicable) of the enterprise based on the information from the profit and loss statement and
the balance sheet.

In this sense, the enterprise is like a human person. A health- conscious person regularly goes
through a physical examination - taking several tests to analyze the fitness of her heart, lungs,
blood pressures, eyes, cholesterol level, and others. If the tests show that something is wrong,
medication, diet, or some form of physical therapy is prescribed. You, as owner-manager, should
similarly be conscious of the "health" of your business. Profitability, liquidity, and marketability
are indicators of how "fit" or "sickly" an enterprise is. For example, if you find your business
continually incurring losses, or always out of cash, then, you should start worrying. It is a
symptom that your business is "ailing". You may need to examine this symptom to find what is
causing the problem. Only then can you prescribe "medication" or "solutions."

Social-Cost Benefit Analysis

Social-cost benefit analysis requires you to look at the benefits and the costs that will accrue to
society in general if your prospective business is established. Examples of benefits include
employment generated (you will be providing jobs to the unemployed) and taxes paid (you will
be contributing to government revenues which can in turn be used in building roads and other
facilities for the benefit of the general public). These benefits are quantified in your plan. ess

Organizing the Enterprise

When one thinks of a business enterprise, what comes to your mind? Factories? Stores? Markets?
Machines? Processed Products? Services? Surely, a business enterprise is all of these. But most
important of all, a business is all about people. It is made up of "warm bodies" without which
business will not run and will not even be conceived. Who are these "warm bodies?" Who are
these people? Well, the owner (or proprietor) is one; in fact, he is the most important person in
the business. Also important are the managers and supervisors. And last, but certainly not the
least, are workers, or those who are known collectively as the rank and file. They are, so to
speak, the backbone of the organization. These workers are the ones that man the production
lines and keep your administrative and marketing operations going. Together, these "warm
bodies" are known as your organization.

Have you heard of the expression "Machines work but it is people who think." Remember this
when you are choosing people to work with you. Remember this when you start managing,
motivating, and controlling them.

However, it is not enough to recruit your people. You have to organize them in a formal way; it is
up to you to choose the form that your organization should take. Then, you have to take steps to
make the government and the general public recognize your business organization.

Small Business Enterprise is Manageable

According to Stanley and Morse, a small enterprise is sometimes defined as "a manufacturing or
service enterprise wherein the owner-manager is not actively involved in production but performs
the varied range of tasks involved in guidance and leadership without the help of specialized
staff."

Implied in this definition is the pivotal or central role of the owner- manager in the business.
Indeed, many small enterprises begin with the owner-manager taking up most of the
management functions. In other words, the owner-manager starts by being his own production,
marketing, finance, and personnel manager. What about you? Would you also like to be "all
things" to your business? Well, it is not surprising for a small entrepreneur to want to be on top
and all around his business.

What then is a small business? There are two kinds of small business. The small business, where
the owner is the principal worker and he employs one or more assistant, which is also called the
Micro business, while the other one is the bigger small business, where the owner mainly directs
the work of the employees. These are not the only definition of small business. There are many
others. However, these are the common characteristics of a small business:

1. it is privately-owned;
2. it has few or no layers of management; and
3. generally, it has insufficient resources to dominate its field of business.

Choosing Your Own Role in the Business

In choosing your own responsibilities and tasks in your business organization, consider the
following factors:

1. Your education and training. Entrepreneurs with engineering and technical education
naturally want to be on top of their production operations. Those who took up accounting,
banking, and other related courses will see themselves as effective financial managers.
2. Your experience. The author knows of an entrepreneur who worked for many years as a
wood-worker, and later, as an installation foreman in a large wood-tile manufacturing
company. When he decided to go on his own, he established a small wood-tile production
business. Quite naturally, he installed himself not only as general manager, but also as
production manager. Similarly, you should consider your own experiences. Which of these
experiences might have prepared you to do certain management and technical
responsibilities? Were you a skilled worker or production supervisor? Then handle
production. Did you do well in sales some years ago? Then, manage marketing. If you are
an accountant or had some experience handling books and accounts, then, by all means,
be your own comptroller or financial manager.
 3. Your interest and aptitude. You may have neither the experience nor the training for a
certain management job, but you might have the interest and aptitude for it. For
example, if you are outgoing and cheerful, if you are naturally persuasive and persistent,
and if you genuinely like people, you will do well in sales, even if you had neither formal
experience nor training in it. If you have a knack for tinkering around, doing your own
carpentry, or making your own gadgets, you just might be a "natural" as a production
manager.
4. Your time. Do you think you will have the time to devote to all the management
responsibilities you want to take? Remember that there are only 24 hours in a day.
Remember, too, that you have other roles to play in life. You are not just an entrepreneur,
but also a parent, a spouse, a daughter or son, and a member of the community. So, if
you fancy being "all things"-production manager, marketing manager, financial officer - to
your business, think again. Think of the toll it may take on your health, well-being, and
family relationships. Nevertheless, if you think you can, then, go for it. After all, it has
been done by others before you.
5. 5. The advantage of having a broad view. On the other hand, entrepreneurs who choose
to concentrate on only one or a few management functions face the risk of being
"nearsighted." Nearsighted people see only the things that are close to them. They
usually "see the trees for the forest." What does this mean? Well, here is an example.
Suppose you put most of your time and attention on production. As you concentrate on
producing better, faster, and cheaper products, you neglect sales and you might wake up
one day with huge inventories of products that your customers no longer want. In other
words, you see production (the trees) as the whole business (the forest); while in fact the
whole business is production, marketing, finance, and people combined. Neglect one and
you neglect the rest.

Choosing People to Work With You

Initially, you may recruit your workers from among members of your immediate family, relatives,
friends, neighbors, or acquaintances. Whoever they are, be sure that they can do the job that you
hired them to do. Before taking them in, lay down the ground rules. Why? So that they are clear
about what you expect from them in terms of performance, attendance, punctuality, and others.
Conversely, they also need to know what they can expect from you in terms of compensation,
benefits, work hours, and conditions. If they are relatives or friends, you must make them realize
that, in coming in as employees, they are now relating to you in business and professional terms,
rather than on the basis of kinship or friendship. It is now a relationship based on performance.

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 will take collect the receivables 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, inquiries, and other administrative matters?
In business planning, the financial analysis will determine if the project will be implemented or
not.
 2. 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 required. 2.

 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

I will be the general manager, production manager, finance manager, and personnel manager.

3. 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 (Exce and Word);
 Must know how to compose business letters;
 Preferably with six months experience in bookkeeping and/or secretarial work; and
 With pleasant personality

4. It is also advisable at this point to determine salaries and wages to be paid 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).
5. 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. It is 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 sue and be sued in court; 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 on the basis of 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.

Cooperative

A cooperative is a group enterprise. It is made up of a number of producers, traders, or

consumers who want to produce or trade as a group so that they may avail themselves of
economies of scale, which individually, they will not be able to obtain.

Among the very first cooperatives are the consumers' cooperatives. These were formed by
individuals or families who want to supply themselves with goods or services at cheaper costs
than if they had bought these from a retailer or a middle man. Cooperatives then were
established not primarily for the purpose of making a profit. However, any surplus that results
from the operation of the cooperative is shared among the members.

Today, there are other types of cooperative that have emerged and prospered - including
farmers, producers, and credit cooperatives. Many producers' cooperatives engage in common
marketing, common procurement of raw materials, common use of production facilities, and
group borrowing of capital. A successful shoe manufacturers' cooperative in Marikina has close to
300 members and a capital share of P5 million. It has credit facilities that it extends to its
members.
Cooperatives are registered with the Cooperative Development Authority (CDA). Cooperatives
may apply for tax-exemption, however, its members, to whom the profits of the cooperative
ultimately go, have to pay income taxes. A cooperative is led by a set of officers collectively
known as the board of directors. In addition, several working committees are set, e.g. election
committee, membership recruitment committee, credit committee, and others which is headed
by a chairman. However, a number of people who will run the co-op office on a day-to-day basis
usually have to be hired. These include a manager and a bookkeeper.

Like a corporation, the life of a cooperative is neither affected by the death of any of its members
nor by a member's discount of share of his capital stock. However, it can be dissolved by a
majority vote of the board of directors and a resolution signed by at least two-thirds of the
general membership.

The Pros and Cons of Each Legal Form

Do you think you can now decide what legal form your business organization will take? Well, if
you are still undecided, do not despair. The table below will present to you the advantages and
disadvantages of each form of business organization and allow you to compare all four

The Option Not to Register

With all these discussions about the various legal forms of business, the author is assuming that
you want to register your business. But actually, do you? This question implies that you have an
option to register or not to register your business.

You may have heard of the so-called "underground economy." The underground economy is
composed of business, which are "informal" or unregistered. Some informal business sta
informal; others eventually "surface" and become formal.

There are advantages to staying "underground." An unregistered business does not pay taxes. It
can also pay salaries that are less than those prescribed by law. Further, an informal business is
not required to grant sick and vacation leaves and other fringe benefits, nor is it required to remit
SSS contributions.

In a sense, an informal businessman may be considered free from government intervention and
control. In another sense, however, he is more open to harassment by law enforcers. A common
example are sidewalk vendors who play "hide and seek" with policemen. Another example is
unlicensed stores and shops who pay "protection money" to government people who may
otherwise harass them or clamp down on their operations.

Another point to consider when deciding whether to register or not is that businesses need the
protection of the government in order to survive and grow. You need to be registered in order to
enter into business contracts and go into export. If a customer or a supplier violates an
agreement with you, you need to be registered in order to sue for breach of contract. When
selling to institutional buyers, you need to issue official invoices and receipts. Lastly, you need to
be registered in order to avail of most incentives and assistance programs offered by the
government.

How to Register Your Business

Where to register your business depends on the legal form you have chosen for your business.

 If you are to go into sole proprietorship, you are required to:

 Register your business name with the Bureau of Domestic
  Trade and the Department of Trade and Industry (BDT-DTI).
 Obtain a business clearance from the Barangay Captain of your place of business.
 Obtain a permit to do business from the local government unit (your city or municipal
government's business licensing office).
 Get a Tax Identification Number (TIN) from the Bureau of Internal Revenue (the branch
nearest you).
 Register your business and employees with the Social SecuritySystem for social benefits.
 Register with the Department of Labor and Employment (DOLE) office nearest you, if you
have five or more employees.
If you will go into partnership or corporation, you are required to register first with the Securities
and Exchange Corporation (SEC), after which you have to go through all the registration
described above for a sole proprietorship.

If you have formed a cooperative, you are required to:

 Register with the Cooperative Development Authority (CDA) office nearest you,

 Register the name of your cooperative with the Department of Trade and Industry (DTI)
office nearest you.
 Obtain a permit to operate the cooperative from the local government unit.
 Get a Tax Identification Number (TIN) from the Bureau of Internal Revenue.
 You may also register the employees of your cooperative with the Social Security System
and the Department of Labor and Employment..
The following are general guidelines and requirements in registering with the DTI, the local
government unit, the BIR, and the SSS.

Registering with the DTI

Register your business name with the DTI Office in the city or province where your business is
located. You will be asked to fill up an application form in five copies. A registration fee is
charged. Be prepared with at least three alternative business names; it is possible that some of
your choices have already been taken by previous registrants.

REgistering with the Mayor's Office (Local Government Unit)

The office of the city or municipal mayor is where you go to in order to get a permit or license to
go into business. The section to approach is the business licensing section or unit. Prior to this,
however, be sure you have secured a clearance from your local barangay. The barangay office
charges a small fee (Fifty Pesos, 1997 rates) for this clearance, which you have to present to the
Mayor's Office.

Be sure to bring some cash when you register with the local government unit. Aside from the
mayor's permit fee, you will be charged other fees, including sanitary, garbage, building
inspection, electrical inspection, plumbing inspection, mechanical inspection, fire inspection, and
working permit fees. Altogether, these 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.

Registering with the BIR

You need to go the Bureau of Internal Revenue (BIR) to get a Tax Identification Number (TIN), for
taxation purposes. A BIR registration is also a pre-requisite for you to get official receipt and
invoices printed. Your book of accounts also need to be stamped by the BIR. It is useful to have
your official receipt and invoices printed by a BIR-accredited printing press, which will take care
of having these form 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.

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

You are required to get additional registration with the Social Security System (SSS), especially if
you have employees. If you have none, you may still register as a self-employed individual. The
SSS provides sickness, retirement, loan, and other social services to employees of private
businesses. The funds for such benefit come from contribution from the government (SSS) and
from you, the employer.

Registering with the SEC (only for corporations and partnerships)

When your business grows and you want to organize a corporation or partnership, or partnership
in place of the single proprietorship you originally set up, you need to go to the Securities and
Exchange Commission (SEC). Of course, you may want to start as a corporation right away. The
decision is up to you.

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

What we have discussed so far are the basic registration procedures that business enterprises
need to go through in order to make their operations legal or formal. In addition, some specific
types of business need to register with specialized agencies of government. These agencies
generally exercise regulatory and control functions over industry sectors under their jurisdiction.
Some of these agencies extend incentives and assistance to the firms.

Here is a partial list of these specialized agencies:

 Food and Drug Administration, 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, 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
 Philippines Overseas Employment Administration, for firms engaged in recruitment of
workers for employment abroad
 Department of Education, Culture, and Sport, for owners of schools, universities, and
other educational institutions Department of Tourism, for hotels and other lodging
facilities for tourists
 Philippine Contractors Accreditation Board, for construction contractors Bangko Sentral ng
Pilipinas, for exporters in general
 Bureau of Food and Drugs, for exporters of drugs, cosmetics,and food products
 Philippine Coconut Authority, for exporters of coconut and coconut by-products Garments
Trade Export Board, for exporters of garments and textile
 Bureau of Fisheries and Aquatic Resources, for exporters of fish and fish products
 Bureau of Animal Industry, for exporters of animals and animal product and by-products
 Bureau of Plant Industry, for exporters of plants and plant products
 Bureau of Forest Development, for exporters of forest product