CHAPTER 1

Entrepreneurship and the

Entrepreneur
A.Entrepreneurship as a Self-employment Decision
B.The Concept of Entrepreneurship
C.The Entrepreneur: The Individual that Steers
1 Who is the entrepreneur
2 What makes the successful entrepreneurs
A.The Myths, Fears and Excuses of People who are
Not Entrepreneurs
B.The Advantages of Becoming an Entrepreneur
A.ENTREPRENEURSHIP AS A SELF-
EMPLOYMENT DECISION
Entrepreneurship is basically aimed to gear someone
towards self-employment. It also generally pertains to
engaging in small and medium-sized business. An
entrepreneur learns the tenets of entrepreneurship so he
can put up and operate his own business, whatever the
size or magnitude. But it is not an easy thing to
undertake, especially if one is fresh from college or has no
business experience.
 If an individual merely desires independence for the sake
of independence, or wants to go into business because he
wants to be his own boss, he may be sorely disappointed. A
practicing entrepreneur has probably more bosses than he
realizes. Here are some of them:
 the various government regulatory bodies
 the suppliers who control material flow, and sometimes
credit and sales policies
 the financial creditors and stakeholders
 the demands and cycles of the market
 the demands on the entrepreneur’s personal life
A.The Concept of Entrepreneurship

Historical context
Entrepreneurship started in France after the French Revolution.
It was the start of Capitalism and end of Feudalism the word
entrepreneur was coined by Jean Baptiste Say, a renowned
French economist. Say argued that the concept of
entrepreneurship, though closely tied with the theory of
economics and society, is independent of the classical economics
and is unable to coexist with it. The classical capitalism, which
was propagated by Adam Smith, spouses the optimization of what
already exists. It focuses on acquiring the most out of the existing
resources and establishing equilibrium or balance. This is similar
to the economic practice that we have at
 present. Entrepreneurship, on the other hand, sees change as
normal and healthy. It promotes doing something different rather
than making the existing better. Entrepreneurship is a
manifestation of opposition as it upsets and disorganizes the
existing market.
In the early twentieth century, Joseph Schumpeter, also an
economist, used Says ideas as the groundwork of his book The
Theory of Economic Dynamics. He postulated that it is not
optimization and equilibrium but rather the dynamic disequilibria,
brought about by the innovative entrepreneur that brings a
healthy economy and is the central reality for economic theory and
practice.
 Entrepreneurship
In the discussions of business ventures, the word
entrepreneurship, entrepreneur, entrepreneurial and
entrepreneurial process will always arise. Entrepreneurship is
what the entrepreneur actually does, entrepreneurial is the
approach and the entrepreneurial process is where the ventures
are engaged in.
There have been a lot of attempts to capture the definition of
entrepreneurship that encompasses its complexities. In fact, this
word brings into mind a lot of attributes. If we ask people their
concept on what entrepreneurship is, it will not be surprising to
have several varied ideas. Here are some examples:
Webster Dictionary definition:
… (Entrepreneur) one who organizes, manages and assumes the risk
of business or enterprise. {Enterprise – 1. a project or undertaking that is
especially difficult 2 a: unit of economic organization or activity; esp. a
business organization b: a systematic purposeful activity 3: readiness to
engage in daring action: INITIATIVE}
Economists’ description:
… consists in doing things that are generally done in the ordinary
course of business routine; it is essentially a phenomenon that comes
under a wider aspect of leadership. (Cantillon 1725)
 at least in all non-authoritarian societies, constitutes a bridge between
society as a whole, especially the non-economic aspects of that society, and
the profit-oriented institutions established to take advantage of its economic
desires. (Jean Baptiste Say 1803)
In… entrepreneurship, there is an agreement that we are taking about a
kind of behavior that includes initiative taking organizing or reorganizing of
social economic mechanism to turn resources and situation to practical
account and the acceptance of risk. (Joseph Schumpeter 1934)
 … the dynamic process of creating incremental wealth. This wealth is
created by individuals who assume the major risks in terms of equity, time,
and/or career commitment of providing value for some product or service.
The product or service may not be new or unique but the entrepreneur must
somehow infuse value by securing and allocating the necessary skills and
resources. (Rondstat 1984)
… is a process of innovation and new-venture creation through
four major dimensions – individual, organization, environment,
process – and aided by collaborative networks in government,
education and institutions. (Kuratko, et al. 1995)
 There is no exact definition. It reflects the nature of
entrepreneurship: dynamic and fluid. There is a risk of
mismatching who the entrepreneur might be. Either we
include people and business that are not likely to be
entrepreneurial in nature of exclude those we recognize as
entrepreneurships. Entrepreneurship is a distinct
character of institution or an individual. Therefore, the
understanding of this concept is better enhanced by
knowing the individual that steers: the entrepreneur.
A.The Entrepreneur: the Individual that Steers
C.1. Who is the Entrepreneur?
The person behind entrepreneurship is the
entrepreneur possessing certain characteristics and
different traits which make them unique. In order to have
a better understanding of who the entrepreneur is we
must identify the tasks, roles, characteristics and
approaches that allowed him to create new wealth and
generate value.
The word entrepreneur originated from the French word
entreprende, which means “to undertake”. When JB Say,
during the 1800’s conceived the idea of the entrepreneur
and entrepreneurship, he saw the entrepreneur as the
individual as who “shifts economic resources out of an area
of lower and into an area higher productivity and greater
yield”. Commonly, people see the entrepreneur as the one
who manages, organizes and takes risk in businesses.
The undertakings and actions of an entrepreneurs
throughout the broadened its definition. Today,
entrepreneurs are also innovators. They are independent
thinkers. They have initiative, the proper perspectives, the
management skills, the knowledge to harness and the guts
to take risks. They have within themselves the desire to
have a competitive edge. They are optimist accordingly.
They also fail and learn from their failure. They have
people skills. Most importantly, they all know
management concepts. And managements techniques.
(Other characteristics will be cited later on)
On the question “Is your neighbor who started a fastfood
restaurant already an entrepreneur?” the answer is “not
necessarily”. All he did was do what others have done
repeatedly in the past. He created new demand nor new
satisfaction. On the other hand a firm such a Jollibee is
entrepreneurship in nature. Although, it did not invent
anything, it designed and set standards for its processes.
Jollibee was able to upgrade its yield, create new market
and generated new customers.
It is the entrepreneurship’ actions that
differentiate them from businessmen, managers,
investors and the likes. It is what greatly defines
the individual and the process. Uniqueness of their
roles and tasks made them vital to the market. They
provide change and the continued stimulation in the
business world.
 Who is the Entrepreneur?

1. Entrepreneurs Take and Accept 1. Entrepreneurs Process Market

Risks Information
2. Entrepreneurs Own Ventures 1. Entrepreneurs Bring
3. Entrepreneurs are Managers Innovations
4. Entrepreneurs Establish New 2. Entrepreneurs Provide Market
Ventures and Develop Existing Efficiency
Ones 1. Entrepreneurs Maximize
5. Entrepreneurs Identify Investment
Opportunities in the market Returns
6. Entrepreneurs Apply Their 1. Entrepreneurs Provide
Expertise Leadership
Entrepreneurs Take and Accept risks
“It is quite common label for an entrepreneur to be called a risk – today.
Today, the business environment provides uncertainties. Risks are involved
and plans can have unexpected outcome. In this context, the entrepreneur will
take risks. Entrepreneurs are recognized to have skills in managing high-risk
business. They are able to hold their grounds amidst uncertainties.
An example is in the field of telecommunications. We all know the benefits,
which the mobile phone brings. But this technology will not stay long that way.
Stiff competition may render it obsolete. There is no guarantee that the
investment may be recouped. The entrepreneur takes the risk away by
developing the technology and managing the venture to ensure financial
returns.
Entrepreneurs own ventures
Owning a venture also characterizes the entrepreneur.
Entrepreneurs find greater pleasure in working on the
business, which they own. However, this notion may be
quite misleading since there is a distinction between the
owners (principals) and the entrepreneur who runs the
company. If an entrepreneur owns the business than he
assumes the dual role of being the investors and the
manager.
Entrepreneurs are managers
Entrepreneurs are always managers but managers may not be
entrepreneurs. But they can learn a lot from each other. Here are
some guidelines that differentiate the managerial mindset from
the entrepreneurial mindset.
The entrepreneur is a creator; the manager is a custodian.
The entrepreneur is not a problem-solver but a problem finder.
He searches for market needs, opportunities, or overlooked
resources and creates the mechanisms or means, which can be
filled, maximized or used. On the other hand, the manager is a
problem solver. He, with the problem already there, given the
context and situation, exercises his skill in solving it.
Entrepreneurs are driven by fresh opportunities but managers
are anchored in current systems, resources and activities.
The entrepreneur takes risks; the manager seeks stability.
The entrepreneur does not take the usual track. The managers cling to
the maintenance of profit, preservation of aspects and other previously
established measures of performance in being accountable to superiors and
subordinates.
The entrepreneur is personally responsible; the manager is merely responsible.
What’s the difference? Because the entrepreneur is personally committed
to the success of the venture, and because his business are solely his own, its
failure or success is his own making and be recognized. Whereas the
manager is not the sole decision maker, nor the necessary factor in the
success or failure of the venture. He merely shares responsibility.
The entrepreneurs achieve; managers attain targets.
Managers often rely only in limited-time based or profit targets
(things attainable for a given period or given purpose) thus, they
limit the scope of what is achievable in the venture.
Entrepreneurs focus on the achievements on a larger scale: The
creation of a new product or the successful “invasion” of a new or
highly competitive market. Accomplishment and the processes
leading to it are more important to the entrepreneurs rather than
their resulting rewards.
The entrepreneurs are future oriented; managers are now-
oriented.
Entrepreneurs may see success even if the business is
down. This is true especially for the entrepreneur who is
himself laying the groundwork for future growth and
success. He is willing to forgo the “now” profits in favor of
the potentially large “someday” profits. Managers, on the
contrary, are very much contented with the development
on immediate basis. His foresight is limited to a very short
period of time.
The entrepreneurs thrive on chaos; managers thrive on structure.
Because the entrepreneurs set his own goals, makes his own
decisions, responds to the demands of the situation and not of
predetermined processes or structures, “invents” mechanisms and
methods for dealing with situational problems, does not follow
“real time” in relation to profit, and focus in the internal rather
than external rewards, the entrepreneur is quite comfortable
under pressure and thus, is better able to deal with the unexpected
when it comes up.
Managers cling to order and structure to meet their deadlines,
timetables, schedules target, rules, and routines. Their corporate
and financial life are governed. Thus, when unexpected disrupts
the order, managers are slow to adjust often waiting for that order
to resume only to find out that it is no longer responsive or
Entrepreneurs establish new ventures
and improve existing ones
Establishing new ventures is again one of
the perceptions attached to the entrepreneur.
Entrepreneurs organize different elements of
the ventures such as people, machine,
materials, etc. By being able to do this, he may
create a new business that fits the ideas he
has or improve an existing venture by
expanding it or developing it.
Entrepreneurs identify opportunities in the market
Opportunities are ever-present. One must be observant
to actively seek it out. These may be ideas and
information, which are actually gaps in the market. This
gap provides market potential to those who find them. The
entrepreneur is tireless and eager in searching and
identifying these opportunities. But the process does not
stop there; he pursues the opportunity, add innovative
ideas and test it in the market. The entrepreneur gives
market value to this opportunity by exploiting it.
Entrepreneurs apply their expertise
Entrepreneurs are individuals with distinct characteristics.
Entrepreneurs are able to identify the area where they are good.
They sharpen their skills to be of value to investors. An example is
the special to make proper investment decisions by allocating
resources properly.
Entrepreneur process market information
Entrepreneurs have keen eyes on the market scene. They are
constantly on the watch for any possible information that may
prove vital. This makes them valuable to investors, as they possess
valuable information needed to make markets more efficient.
Entrepreneurs bring innovations
Innovation is the changing or alteration of the existing
to bring out a new product or idea. Being innovative is a
must for entrepreneurs. They are able to add or create
value and make something new. They find new
combinations of economic factors (capital, labor and
materials) and utilize them to increase productivity. The
proper combination of these creates value. It is also with
innovation that new ideas and product develop. It is with
innovation that the entrepreneur is able to “stir” the
market.
Entrepreneurs provide market efficiency
The economic system is a complex one. It presents
pictures of strategies and approaches. What the
entrepreneurs do is to provide market efficiency by
optimizing the distribution of resources. By providing
efficiency, they satisfy both producers and consumers.
Entrepreneurs maximize investment returns
Investors look for individuals who would not only
guarantee return of investments but attainment of profit
as well. Entrepreneurs do that by creating and managing
organizations to give long term benefits to the investors.
Entrepreneurs provide leadership
Leadership is a crucial part of the entrepreneur. He has to
organize and consolidate all the factors to succeed. The
entrepreneur has to pull the team together to drive towards the
goal. He has to muster the support of the investors, consumers,
and the people within the business.

C.2 what makes the Successful Entrepreneur?

History is the full of personalities who succeeded as

entrepreneurs. They are people who worked hard to attain that
dream. They came from all walks of life and decided to take
control of their lives. They wanted to explore and test their limits.
They are the successful entrepreneurs.
1.Entrepreneurs Are In Good Physical Health
Entrepreneurial processes takes a lot of energy
and effort to accomplish. Health and physical
condition of the entrepreneur must be well
maintained. There are times when the business
would require a person to perform strenuous
activities like traveling and going to other
engagements. There is also tremendous stress in
meetings, workshops and planning. The
entrepreneur needs a healthy mind and body.
2. Entrepreneurs Have Superior Conceptual Abilities
Aside from the basics skills, entrepreneurs should also have the
ability to look at things with a comprehensive perspective. The
innovations and inventions depend largely on the entrepreneurs’
ability to recognize and relate various concepts to he or she may
meet the requirements and see potentials.
3. Entrepreneurs Have The Broad Thinking of the
Generalist
Entrepreneurship requires a person to know several tasks the
business requires. It is very different from an individual who
works in a company where specialization is a must. In the
company, there are other departments to help the employee. In
entrepreneurship, on the other hand, a person must be ready to
face the different tasks that the business requires.
4. Entrepreneurs Have High Self-confidence
Entrepreneurs are quite certain of their abilities.
They rely on themselves in different situations.
They have little doubt in their ability to excel.
5. Entrepreneurs Have Strong Personal Drive
Entrepreneurs have the initiative to take action.
They do not have somebody to jumpstart their
actions. As entrepreneurs, they do not have bosses
to monitor and to motivate them.
6. Entrepreneurs Need to Control and Direct
There is a big responsibility and accountability in engaging in
entrepreneurial ventures. As such, there may be a time when the
entrepreneur must take full control and direct the venture
towards a much better position.
7. Entrepreneurs Have Only Moderate Interpersonal Skills
Entrepreneurs were found to have moderate interpersonal
skills. Some characteristics the entrepreneur possesses do not sit
well with everyone. Since the entrepreneur has a depth
knowledge of the business, he allows little room for democratic
environment because there may be people who will exploit this
space for their own interests.
8. Entrepreneurs Are Moderate Risks Takers
Entrepreneurs study and analyze situations very well
before taking any risks. They objectify the circumstances
to be able to “calculate” the moves they are going to take.
9. Entrepreneurs Have a Realistic Outlook
A grandiose plan is very seldom made unless it is
attainable. Entrepreneurs are attached to objective
realities. In this way they can be able to fully utilize
what their capabilities and avoid unnecessary efforts.
8. An Entrepreneur Has High Degree of Emotional Stability
Entrepreneurs know how to strike a balance between discouragement and
enthusiasm. There may be situation when the obstacles seem impossible to
cross. However, the entrepreneur is expected to handle the roadblocks by
maintaining a high level of enthusiasm to keep going despite the obstacles.
9. Entrepreneurs Have Low Need-Level for Status
Entrepreneurs focus on the end result rather than the perks that come
along in the business. They do not desire to live expensively especially if it
compromises the welfare of the business.
Warren Avis of Avis Rent-A-Car, enumerated the following “Personal
Prerequisites” that characterize an entrepreneurial personality from others.
1.Unencumbered Personal Life
Starting a business brings overwhelming
obligations and commitment, hence many
successful entrepreneurs remain unmarried. Or if
married, the family is small; and the spouse is
also involved on the business. Engaging in
entrepreneurship requires constant support and
understanding from the family. Successful
entrepreneurs have family and friends that pull
him or her towards the business and not away
from it.
2. Monomania
Entrepreneurs have a one-track mind. They live and breathe the
business. Entrepreneurs are willing to spend their whole day for
the business. They are also obsessed with independence.

3. Plenty of Staying Power

Patience is a virtue that the entrepreneurs have. It will always
take a longer time for the expected outcome to materialize. The
element of time is needed for the entrepreneur to master the
business. The entrepreneur must set target time frame for profit
realization and then give due allowance to it. If after some time the
venture is still struggling, a careful evaluation of different aspects
of the business is done.
4. High Energy Level, Nurtured by Periods of Relaxation
The passion and the intensity of work for the business is evident
in the entrepreneur. There is the willingness to accept challenges
to help the business succeed. But pacing should be taken,
otherwise, emotional and physical burnout is not far. Engaging in
worthwhile fun and relaxation will help in fueling up the “energy
reserves” for the coming busy days.

Good Judgment about People The

entrepreneur should be able to see the strengths and weaknesses
of people who would be working in the venture. There should be
acknowledgement of the skills of each one. Generally, the features
which entrepreneurs prefer in choosing partners or associates in
the business are related to appearance, personality, intelligence,
integrity, and status.
Furthermore, Warren Avis combines these
“personal prerequisites” with other essential
characteristics needed to become a successful
entrepreneur. These are:
1.A positive, can-do attitude
2.Psychological preparedness to lose the business
3.Sufficient start-up money
4.A determination to make your first product
profitable
5.A pragmatic approach to business and life
D. The Myths, Fears and Excuses of People Who are Not
Entrepeneurs

People have a lot of reservations in putting up their business ventures

and being on their own. Even with feasible ideas, they still hesitate in
pursuing them for varied reasons. Have you seen a new product that you
once thought of creating? Or seeing a certain business venture you once
conceived of entering but hesitated, and is now booming? Imagine where
would you be now if only you worked to put ideas into reality.
In the Philippine context, the encouragement of people to take-up
entrepreneurship is seldom. In the family, parents do not often support
entrepreneurial inclinations among their children. The prevalent culture is
to send the children to school to earn degree in college so they can land a job.
 Entrepreneurs are born
Actually, they made not born. Many thinks that the traits
entrepreneurs have are inherent characteristics and are
genetically determined. On the contrary, entrepreneurship is a
form of behavior that can be learned. It is an art and a discipline.
 Entrepreneurs are superhumans
Let’s face it, “big time” entrepreneurs intimidate people. They
perceive the person as a superior being beyond comparison. If you
continue to believe in this wrong perception, you are mostly like to
develop an inferiority complex. This will prevent you from
spreading your wings and soaring high. It will bar you from doing
things, which may bring you greatness. Yes, entrepreneurs may be
achievers but they are just like us. They did not just dream but
woke up and worked hard to realize that dream.
 Entrepreneurs are inventors
There may be a lot who invents but there are also lots who innovate. It is not a
requirement for one to invent. The entrepreneur just looked for new ways to bring value to
product. An example for this is Ray Kroc of McDonalds. He did not invent burgers and
fries, he just looked for new ways to make his products of new value to the costumers.

 Entrepreneurs are inherited business traits

Many people believe that successful entrepreneurs came from a family line of
business-minded people. They see that a person likely to become an entrepreneur if the
father or mother or anyone in the family is one. But if you were to on entrepreneurs, you
would find out that a lot of them came from families who do not have entrepreneurial
background. More so, there are entrepreneurs whose son and daughters did not engage in
business at all.
An entrepreneur in the family may be an influence. But surely the business traits are
not inheritable. Again, entrepreneurship is a discipline that can be learned.
 Entrepreneurs possess a definite characteristic profile
We have presented earlier the list of characteristics of the entrepreneur.
It is not an imposition that you posses it all. The list, though many in
numbers, may still be incomplete and inadequate. The list is there to a guide
and not to limit your entrepreneurial potentials and capabilities.

 The Gender-Difference myths ( Men are better entrepreneurs)

The Philippines may be considered as patriarchal society. – that is there
is a culture creating a “man-superior” mentality. But there are recent
effective attempts to re-educate and propagate the equality of genders.
In entrepreneurship, there is nothing that unwarranted advantage to any
gender. Men and women can be both effective entrepreneurs. There is no
truth that men should have different dreams from women and vice-versa. In
fact, we could now see the a significant number of females who are engaged
in successful ventures.
 Entrepreneurs are academic and social misfits
If you study the history of entrepreneurship in depth you will see that the
corporate scene does not give due recognition to the entrepreneur. Business
schools focus primarily on managing the corporate activity. The entrepreneur
was treated as a non-entity amidst corporate giants
But there are a lot of individuals who became successful entrepreneurs
after dropping out of school. One of them is Bill Gates of Microsoft. He proved
to the world that we need not be academically qualified to excel in an
entrepreneurial venture.
 Entrepreneurs are gamblers and risk takers
Gambling is a game of wild chance. An entrepreneur as a gambler is a
distorted impression because business ventures are likely to succeed if the
factors are carefully studied. The entrepreneurs’ moves are based on
calculated risks. Entrepreneurs are merely risk takers.
 Luck and money are the only things needed to become
entrepreneurs
Though money is an important factor, it is not the only prerequisite to
engage in business. There are other factors to be considered such as
managerial skills, timing, and even luck.
One would define luck as “being in the right place at the right time”. But
“luck” would not happen if you just sit tight and wait for it. Luck happens
when you are prepared whenever an opportunity exist and things turn out the
way you want them to. Entrepreneurs work to seek opportunities. They
prepare for the coming situations in order to succeed. This is why people
consider them as lucky.
 is why people consider them as lucky.
 Entrepreneurs experience a lot of failures
Yes this is true. But the difference is that an entrepreneur does
not see failures as the end but rather the beginning. The
entrepreneur has a different perspective in viewing failure. For
him it is the time to review the processes and methods and to
clearly outline the next moves so as not to repeat in failing. It is
time to take one step backward in order to move two steps forward.

The fears and excuses…

During the old times, people fear the forest because they do not
know what lies amidst. Now, they continue to destroy and denude
it.
A.The Advantage of Becoming Entrepreneurs
Are you full of enthusiasm in your present job? Do you feel that
you are overworked and underpaid? Are a slave of your job?
Not all individuals succeed in becoming entrepreneurs. There is
no guarantee that a new business will succeed either. But if you
take the bold step, you will reap the following benefits in the long
run:
Have the opportunity to create your own destiny
Employees are subject to what the company has to offer. Most
often, a long period has to pass you by before getting a
significant promotion. Often times, you work hard and feel that
your work went unnoticed. Being an entrepreneur allows you to
hold your destiny. Success depends on how much effort you
exert.
 Have the opportunity to be financially well-off
Money has become the measure of success and the measure of hard
work that has been spent. However, money is not the ultimate goal of
entrepreneurs. It is just a proof that your dreams have merits. Money is
just a means of bringing you the needed resources to fulfill your dreams. In
the final analysis, it will be the accomplishments and not the money.
 Have the opportunity of knowing yourself better
Employees work eight hours a day or more. A lot of times they feel that
their lives are not moving on. This is the feeling of discontent brought by
not optimizing your potentials. As entrepreneurs, you have the chance to
explore yourself, test your limits and manage your life it is a self-gratifying
experience to overcome the obstacles that come your way in being an
entrepreneur.
Have the opportunity to excel, be recognized and contribute to the
society
It is always inspiring to hear stories of successful entrepreneurs who
had modest beginnings. Unlike employees, entrepreneurs may be
known beyond the confines of their offices. They may be able to
employ other people. They serve as contributors to the society by the
lasting impact they make.
 CHAPTER 2

Entrepreneurship in the
Philippine Setting
A. A Glimpse of the Philippines
1. Demography
2. Filipino Values

B.The Trends and Issues in the Philippine Market

1. The Philippine Before the Colonial Rule
2. The Colonial Rule
3. After the Colonial Rule

C.The Need for Entrepreneurship in the Philippine Setting

D. Business Ideas in the Philippines

E. List of Government and Industrial Support

F. List of Private Sector Assistance

A. A Glimpse of the Philippines
The Philippines has a mountainous terrains. It has 30,000,000 hectares of
land. 7,100 islands compose the archipelago with Luzon, Visayas and
Mindanao as the largest regions. It is endowed with rich and diverse
resources. Since most of the mountains are former volcanoes, the land is fit
for agricultural activities. Rice, maize fruits and vegetable grows best in the
land Abaca, coconut, and sugarcane are just some of the products widely seen
around the country. Minerals such a gold, silver, copper, nickel, bauxite, and
carbon are just some important minerals that can be mined. There are also
reports of oil reserves that are present particularly in Palawan and in the
much-contested Spratly Islands. The country also has an abundant supply of
marine resources-fishes, corals, and marine vegetation- which are major
sources of income to many island inhabitants. These natural resources could
very well sustain the growth of the population if handled properly.
Furthermore, the country is rich in culture and tradition that can ascertain
the Filipino identity. Truly, it has the potential of becoming a great country.
1. Demography
The following are statistical data that will provide the reader
with glimpse of the Philippines. Though most of these are just but
numbers, inferences and market extrapolations can be used with
the data.
Area of The Largest Philippine Islands (in square Kilometer)
Luzon - 104,688, Mindanao - 94,630, Samar - 13,080, Negros -
12,710, Palawan - 11,785, Panay - 11,515, Mindoro - 9,735, Leyte -
7,214, Cebu - 4,422, Bohol - 3,865, others - 23,087 Total - 300,000
Source: Europa World Yearbook
Island Features: Forested - 42%, other (urban, water
underdeveloped) - 28% Arable and uncultivated - 15%, Arable
and cultivated - 11%, Plains and grasslands - 4%
Source: CIA World Factbook
Climate:
Eastern coastal areas - Dry season is from December to May
while the Monsoon and typhoon season is from June to
November.
Western coastal areas - Dry season is from March to May;
Monsoon and tuphoon is from June to February.
Language:
Official - Filipino (Tagalog -based dialect with elements from other native
language ) and English
More than 100 dialects are present. The fiveajor dialects are Tagalog, Ilocano,
Ilonggo, Waray, and Bicolano.
Religion: Roman Catholic - 83%, Protestant - 9%, Muslim - 5%, Others - 3%
Source: CIA World Factbook

Population (in millions):

Year 1996 1998 2000
69.3 72.6 76.3
In the latest 2000 National Statistics Office survey, the population of men
is slightly larger than women with the men at 38.4 million and the women at
37.9 million.
Population growth rate - - 2.3%
Population Destiny - 40% is located in urban centers
Age Distribution: Under 5 to 14 years - 39.6%; 15 to 64 years - 57%;
65 and above - 3.4%
Life Expectancy - 67 years

Employment Rate: 1999 - 91%; 2000 - 90.5%; 2001 - 88.6%

Unemployment Rate: 1999 - 9%; 2000 - 9.5%; 2001 - 11.4%
Inflation Rate - 2000 - 6.7%
1. Filipino Values
Existing values and culture of the people have significant effect in
business. They are among the factors that have to be considered by a starting
entrepreneur. These values and culture affect the buying decision.
Though the Philippines is an archipelago, these are common
characteristics in the values and culture of Filipinos. The country's long
history has preserved and stabilize these values. Even in the diversity of
people exemplified by the many regional cultures and dialects, these value
characteristics remained up to this day. The Filipinos in dealing with their
everyday lives, including business, manifest them. They are worth knowing
for the entrepreneur because it will help him deal with the business
environment more effectively.
 There are books, both by local and foreign authors, describing
the characteristics common to Filipinos. It is interesting to note
the assertions of the authors especially in projecting what are
perceived to be negative Filipino traits. An example is the work of
Frank Lynch and James Fallow propagating the so called
"damaged culture" of Filipinos. The other mention the
characteristics prevalent among Filipinos and then criticize the
people for preventing these perceived in appropriate attitudes.
With criticize due respect to these authors, their myophic
presentation of the general attitude, perception, and values of the
Filipinos create a misconception that these are core values that
have always been there to stay. In the book published by the UP
Institute for Small-Scale Industries titled "Introduction to
Entrepreneurship", it states that:
 For a long time, we have allowed people from other countries to judge us
and interpret our way of life. As a result, many of us have not developed
enough faith and pride in ourselves, as masters of our own destiny. For
example, we were made to believe that as Filipinos we were tamad (lazy),
segurista (one who doesn't take risk), mahilig makisaman (one who likes
to go along with the group, gaya-gaya ( copy-cat), ningas-kugon (one who
loses steam after a burst of enthusiasm), balat-sibuyas (overly sensitive) and
given to a fatalistic bahala na (let fate decide) attitude. All these traits were
seen negatively, and were cited as reasons for the underdeveloped state of our
country ...In fact, these very "negative" traits have positive side to them
unknown to foreigners who observe them. Understandably, as foreigners, they
had probably different sets values and so little familiarity with our own to be
able to make sound judgment with our way of life. What is hard to
understand, however, is that Filipinos not only listened but also believed and
agreed with them – with all their heart.
 As mentioned earlier the cultural values and traits of the Filipinos are the
result of their long and arduous history. These are products of their past
experiences. These may be considered as coping mechanisms that show their
tendencies to be resilient in various circumstances. But they are not totally
dysfunctional characteristics to be put aside or frowned upon. Filipinos must
overcome the notion that just because these traits exist, the Philippines will
remain underdeveloped.

The links with other countries before colonization, the colonization of the
Philippines by Spain (more than 300 years), America (45 years), and the brief
stay of Japan (3 years) have influenced Filipino culture and values. Each era of
colonization has left its imprints on the Filipino way of life. Nonetheless, it is
possible to cite certain general characteristics that will encapsulate a typical
Filipino. The next discussion will deal with Filipino culture and values in
relation to entrepreneurship.
 In a typical Filipino environment, entrepreneurship is not so focusing or
much encouraged at an early age. Children grow up focusing their time in
acquiring education and so they can later be employed. They were never
molded for a lifetime endeavor that was based on autonomy and
independence. However in families of Chinese decent, parents encourage their
children to start working early by helping in the family. The effect has been
the proliferation of business owned by the Chinoys (Chinese Filipinos). A
popular joke regarding a wealthy Chinese businessman goes like this:

An old wealthy Chinese businessman is on a deathbed. His eyesight

failing, he begins to ask his wife, "Where are the children?" His wife replies,
"They are all here." The man strains to see but cannot. He then rattles off
their names one by one: "Anna? Luis? Roberto? Jaime?" One by one, the
children reply, "Yes, father, I am here." Upon hearing the last child's reply, he
becomes furious and blurted out, "If you are all here, then who is minding the
store!"
You might be laughing at this joke but this shows somewhat the dedication of
Chinese families to their business.
Seriously, if you look closely at the Filipino culture, it can be observed that
somehow, it also fosters entrepreneurism. There is enough in our culture and
values as Filipinos that can make us cope up with the demands and
challenges of entrepreneurship. Here are some of them:
 Filipinos have shown excellent human relations. Filipinos have high regard
for pakikipagkapwa tao (human relations), which in turn elicits certain
values like pakikisama (desire to be with the goup), pakikibagay (adapting
to other people), and pagmamalasakit (deep concern for people). Even the
concept of bayanihan (spirit of cooperation) is anchored on this value.
Filipinos like to be in harmony with others. If necessary, they are willing to
sacrifice individual welfare and defer to group consensus for the
betterment of the family, group or community. They always maintain what
is known as SIR or "smooth interpersonal relationship" in their social
dealings.
 These attitudes fit well with entrepreneurship. They do not
favor exploitation of others. With these attitudes, the
entrepreneur is able to build rapport easily with those involved
in his business. This is aside from the fact that he engages in
something of value to others such as improving their lot. It is still
a common value among entrepreneur today to avoid
compromising the quality of their products or selling them at a
high price. Fairness is still a prevalent Filipino value today. And
this is what makes entrepreneurship a worthwhile undertaking
in Philippine business.
Filipinos uphold the value of self-esteem and good public image. They try to
belong socially while at the same time maintaining their self-esteem and good
public image. Though morally obliged to place the groups’ interests above
their own, they nonetheless try to preserve they dignity. The Filipino attitude
of amor-propio (a Spanish word meaning love of one’s self) and delicadeza
(also a Spanish word connoting sense of decency) reflects this assertion. The
Filipino tries to avoid making actions that would earn him mockery or
criticism. It is common for Filipinos to avoid getting mapahiya (loss of face,
humiliation) by not making moves that would warrant disapproval from peers
or the public. Even in conversations, problems like financial instability,
marital problems, etc. are seldom talked about to avoid getting maapahiya.
Hiya is a form of social propriety according to which individual behavior is the
principal measure gaining self-esteem and approval from the group. Similarly,
delicadeza demands that a person act properly in a manner that would
preserve his dignity by not offending the sensibility of another. It also calls for
a person to maintain an upright stature according to social norms. An erring
government official, fo example, can be asked by concerned sectors to vacate
the position out of delicadeza especially in times when his name has been
tarnished.
 In a sense, Filipino values and traits function in the form check
and balance with each other. For instance, an entrepreneur is
prevented for engaging in extreme pakikisama because of the need
for professionalism as required by delicadeza. At other times, he
may be motivated by amor propio in aspiring to do well in business
but his sense of hiya will temper his desire to outsmart his peers
and competitors because of pakikisama and SIR.

Filipinos are generally adventurous. This trait is a form of risk-

taking. It is common for us to see people coming from different
provinces migrating to urban districts especially in the greater
Manila area. If you ask them why they decided to migrate, their
common answer is they want to try their luck in Manila.
 Filipinos by nature are courageous. Even if there is cloud of
uncertainty, Fillipinos generally embark on proceeding with their
plans. If confronted with certain uncertainties, the usual answer is
bahala na (let fate decide). During times when they have financial
crisis in the province, the first option that comes to mind is “ang
makipagsapalaran sa Maynila”. This, I believe, is a kind of risk-
taking that also reflects the optimism of Filipinos in life. Many
Filipinos are below the poverty line exude this attitude. Even if
there are financial constraints, they are still bent on obtaining the
ambition they have set.
The above traits favor entrepreneurship because they reflects
values and attitudes conducive to a kind of undertaking that
requires courage, risk-taking, sense of optimism and determination
to pursue a goal despites some uncertainties.
Filipinos are noted for their ability to withstand crisis. Over the
past years, several crisis such as political, economic and natural
calamities have beset Filipinos. But they have natural strength of
character and a strong sense of faith in God which enable them to
face and withstand any crisis.

These could very well blend with entrepreneurism. In moments

when business face hardship, the Filipino entrepreneur can devise
ways of staying afloat. He knows what it takes to survive. But
there are still other good traits and values that Filipinos must
strengthen. According to a 1988 study by Senator Leticia Ramos-
Shahani, the country needs a moral recovery program that would
address the moral weakness of the Filipinos. These are:
Extreme personalism
Extreme family-centeredness (as exhibited by prevalent
nepotism)
Lack of discipline (example are the manana habit or
putting off what can be accomplished today for a later
time, and ningas-cogon attitude)
Passivity and lack of initiative (shown by some who
depend on others to get the work accomplished)
Colonial mentality
Kanya-kanya syndrome
Lack of self analysis and self reflection
A. Trends and Issues in the Philippine Market

1. The Philippines Before Colonial Rule

The historical experience of the Philippines is full of lessons that should be
learned. It can be seen that even before the colonizers came, the country is
threading a natural course of development similar to what the Western and
other ancient civilizations have gone through. The only difference is that the
latter have experienced it much earlier. There were traces of agricultural
activities in many parts of the archipelago. Early Filipinos knew cloth
weaving, logging, and mining. There were also signs that they knew how to
make metal and porcelain utensils. They have a system of governance and
records of their early literature. Their mode of production base on their
practices was well-defined. The earlier years showed that there were three
Societies presents at that time – semi-slavery and semi-communal, feudal and
primitive communal.
 The first type society was very prevalent. This was the society composed of
barangays. The barangay had a definite area of territory in which several
hundreds of people were present. There were lands owned by the raja and the
datu and there were lads for communal use which were supervised by the raja
and datu. The majarlikas supervised the timawa (farmers), which paid the rent
to the datus and rajas. There were slaves that tilled the land but did not have a
definite share of the harvest.

The feudal system was the most advanced system present during those
time. This was present in the Moro sultanates in Mindanao and Sulu there
were a bigger number of inhabitants in a sultanate where the area was
compared to the barangay. The sultan and datus ruled it with the former being
more powerful. The rulers supervised the communal lands and the lands that
they owned. Farmers paid rent to them. Religious teachers, scribes and
warriors also served the rulers.
 The primitive communal was the lowest society organization.
These can be observed from the Aetas in the Central Luzon and
other nomadic tribes. There was no private ownership of lands. The
tribesmen lived by fishing, hunting, and gathering. Everyone took
part in gathering food and the food collected was divided.
The Philippines is noted for trade and commerce even before the
Spanish colonizers came. Several artifacts like textile, potteries,
ceramics and iron weapon of Chinese origins have been found,
establishing the exchange of goods between them and the native
inhabitants. From AD 1300, there was a strong trade with the
Chinese. Other Asians soon came after the Chinese including
Indians, Arabs and other Southeast Asian neighbors. The Muslim
religion, especially in Mindanao, is a strong evidence of this
linkage.
2.The Colonial Rule
The arrival of the conquering nation, Spain, signaled the beginning
of the alteration of that development. Ferdinand Magellan
accidentally discovered the country. During this time, the feudal
system in Spain was at peak. The emergence of mercantilism and
manufacturing in Europe made it necessary for them to colonize
territories to obtain their raw materials. The Philippines became a
station for trade between Spain and China as well as other
neighboring areas. Under a conquering nation, the Philippines
received none but trivial tokens of development. The Spanish
regime cared less of the economic condition of the Philippines. The
natural and human resources of the Philippines were exploited,
notably through the galleon trade. Free speech was curtailed,
education was stagnated, and religion was used to pacify the
inhabitants from harboring dissent.
 Commerce was geared to meet the economic needs of Spain and
not for the development of the country. In the late 18th century, the
encomienda system was started, making the privileged ones amass
large tracts of agricultural land. This uneven distributions and
ownership of land caused some sporadic revolts to come out. One of
them was the organized revolt of 1896 which led to the weakened
hold of the Spaniards to an almost defeat. There was a sense of
pride among the Filipinos as this was thought to open a new road
to development. Spain was quick to react as by ceding the
Philippines to colonizers, the Americans, for a price of 20 million
dollars in the treaty of Paris.
 The United States emerged during the beginning of the 1900’s as a major
industrial power. It assumed an imperialist postured that wanted to take
advantage of the raw materials and resources other countries had to offer.
During their stay, the Americans instituted reforms and policies that would
ensure their presence eve if after they are gone. This is marked by a period
where the capitalist system was strengthened. Railroads and roads were
constructed, the educational system was created (a system whose features
were purposely intended to transplant the American culture), a formal
government was instituted, the right to suffrage was done all under the guise
of the so-called development and democratic principles.
The conquest of Japan brought the Philippines to a great deal of
devastation and economic depression. Their short-lived stay left the Philippine
with nothing but the remnants of war.
From these, we can infer that our experiences from our colonizers never
brought about the needed development of our country. On the other hand,
their stay only slowed down our progress towards economic self-sufficiency.
3.After the Colonial Rule
Several presidents of our country have come and
gone prior to the writing of this book. Each regime was
marked by distinct characteristics. This book will not
discuss those accomplishments and the downturns of
their administrations as there are references that may
give the detailed account of each. One thing is for sure
though. The policies and character of each
administration have left their imprints on the current
state of our country. The following discussions will
explore this situation.
 The Philippines can be fairly described as backward
agricultural. This is quite ironic since the country for many years
has been agricultural. Yet, there is very little development in this
field. Issues have been raised such as the uneven distribution of
land, the unfair sharing of tenants and the landlords favoring the
latter, the conversion of agricultural lands to recreational spaces,
etc. In fact, one need not go very far from the urban areas to
observe that farming practices continue to use the archaic method
such as the use of the carabao in plowing the fields. There is a wide
gap between the state of agriculture in developed countries and in
the Philippines. One need not travel too long to see the plight of
the peasants, which constitute the majority of the population.
 The Philippines can also be described as pre-industrial.
The country does not yet have the infrastructures and
industries that can make it qualify as an industrialized
nation. We do not have yet a metal refining industry
(even the needles we use for sewing are imported!), a car
industry, or any industry that can construct machines
needed for development. The Philippines has been
limited to assembly of parts imported from other
countries. The only industry flourishing is in the service
sector like transportation and food.
 It cannot be denied that foreign control is still present in our country.
Although not physically imminent, foreign countries have devised subtle
schemes which, in effect, make us dependent on them in our market and
economic activities. Intervention of different world organizations has its
effects on the country’s economy. The Philippines is a signatory in many
treaties as member of different world organizations [General Agreements on
Tariffs and Trade (GATT), Asia-Pacific Economic Cooperation (APEC),
Association of South East Asian Nation (ASEAN), among others], which raises
doubts as to its being beneficial to the country. Needless to say, the
Philippines constantly is subjected to the pressures exerted by these bodies.
The country’s present economic system is the Western-originated
capitalism. The economy is working under a free-market system. Our economy
is characterized by a mixture of private enterprise, which supplies goods and
services (public utilities like media, transportation, railways, education, etc.
The relationship between the supply and demand determines the quantity of
product that is produced and sold.
 Presently, the Philippines is implementing reforms in its
economy to jive with Globalization. Globalization, is an economic
policy that aims to remove artificial barrier in the market.
Examples are tariffs, taxes, levy, etc, in all countries so that there
will be less restricted flow of goods from one country to another.
The government is currently pushing for economic reforms such as
liberalization, privatization and rationalization to accommodate
the globalizing market. The Long-Term Philippine Development
Plan (LTPDP) is well under way towards implementation in the
country. This is reflective of the policies and reforms coherent with
globalization which is being instituted in the areas of labor,
education and health, among others, With the LTPDP it is
envisioned that in the year 2008, the country will be prepared for a
full-blast globalization.
 But the current situation is beset with constant criticism. We are seeing burdens plaguing
us. In the labor front, there is the constant rise in unemployment. The RA 6715 (formerly
Herrera Bill) is being questioned as it is aimed to restrict the rights to form unions and hold
strikes. Likewise facing criticism is the Omnibus Amendment to the Labor Code which
legalizes contractualization and requires apprenticeship period. There is a continued rise in
petroleum prices, rising ten times form the period of January to October 2000. Prices of basic
commodities as well as the transportation fare (from 3 pesos to 4 pesos minimum) have also
risen. Health care and education, which are supposedly insured, are not adequately provided
for. There is the continued plunge of the peso caused by the different scandals in the
government. Overall, the cost of living has significantly risen far beyond the reach of the
majority. Those who seek the greener pastures work outside the country. The millions of
Overseas Filipino Workers, who are mostly engaged in low-value-added work as maids, hired
laborers, dancers, waitresses, etc., are the ones maintaining the dollar of reserves of the
country. Despite this, they are earning the disdain of foreigners and face racial discrimination
of various forms in their place of work. These are some of the problems that we tackle
everyday, not to the graph corruption, the abuses of political and social elite, the social unrest
all over the country and the yearly natural climates we face. Surely, the problems mentioned
here do not contain all the hardships being felt by the Filipino people. These problems are
deeply imbedded in the social, political, cultural, and economic structure of country.
C.The Need of Entrepreneurship in the Philippine Setting

The previous part of this chapter was not written to convey the message
that the Philippine situation is hopeless. Or that we will drift aimlessly across
the world’s economic landscape while the other countries, many which are less
endowed with natural and human resources compared to us, are improving
and their way of life fitting the chart of progress. It was also not intended to
sneer at the political and economic elite nor say that the government is
incapable of providing either the direction or support, which create the
conditions for economic recovery. These accounts have been written to suffice
two purposes. First is to provide the readers with information regarding the
demographics and analysis of the country. Second, it is framework from which
entrepreneur could view the road in better angle. This information might be
used as a foundation in any decision and innovation the entrepreneur might
take. The conditions stated do not translate to a futility of a business start-up
but rather shows a picture full of opportunities and potentials.
 For people with entrepreneurial spirit, the harsh economic
condition is not a discouragement but rather a motivating factor.
The manifestation of the economic slump will appear to be
hurdles that need to be conquered. The present conditions,
summarily, might be taken as reference points to which
decisions, planning and executions could be based upon.
Furthermore, the poor economic conditions might also be viewed
as a transitory intermediate stage for the upcoming changes. A
smart entrepreneur will easily notice that the situation is
abundant in opportunities. But for those who are simply
contented with their present lives, this opportunities will
unnoticed.
 On the labor front, the trend in the Philippines may be likened
to what happened in the U.S. during the 80’s. During those times,
the Fortune 500 firms have more than 4 million workers layed-off.
By the end of 1980’s, there were 1.3 million enterprises started in
the U.S. including the newly self-employed which averaged
500,000 start-ups per year. The laying-off of employees and the
workforce is currently prevalent. Sadly, the number of small
business is not yet enough to accommodate the displaced.
Furthermore, amidst what is happening, there is still the culture
among parents to discourage their children from going
immediately into entrepreneurship. They persuade their sons and
daughters to take formal education and obtain a degree so they
could get a job in big companies.
 In Philippine schools, the interest in entrepreneurship
is a systematic one- the kind that is sweeping across the
country. Academic institutions have realized its
importance. The dynamic and creative process of
entrepreneurship has attracted scholarly inquiries and
entrepreneurial researches. There are schools that have
incorporated a variety of programs in response to the
demand on students for a practical education in
entrepreneurship. There are now subjects and courses
available for those who want to study entrepreneurship.
 Block and Stumpf have proposed the perceived the objectives of
entrepreneurship education. This will guide the entrepreneur in
knowing the level of knowledge he/she wishes to obtain. These are:
1. To acquire understanding of the concepts germane to
entrepreneurship.
2. To integrate business knowledge across functional areas and
synthesize action plans.
3. To identify and stimulate entrepreneurial drive, talent and skill.
4. To undo the risk averse bias of many analytical techniques.
5. To develop empathy and support for the unique aspects of
entrepreneurship.
6. To change attitudes towards growth and development.
 It has instituted the KALAKALAN 20, or the otherwise known
as R.A. 6810, the Magna Carta for Countryside and Barangay
Business Enterprises, which provides incentives for countryside
and barangay business enterprises plus exemptions from
bureaucratic restrictions. This was approved on December 14, 1989.
The Philippines also has in effect R.A.6977, or the Magna Carta for
Small Enterprise. This mandates the promotion and financial
assistance be given to entrepreneurs through the Small and
Medium Enterprise Development Council (SMED). Government
agencies also have some assistance programs for entrepreneurial
business (see part E of this chapter)
 Non-government Organization (NGO's). The private sector has shown its
relevance by providing assistance to small businesses. There are those that
offer technical skills training and even financial assistance (see part F of this
chapter). An example of this is the Executive Center for Professionals and the
Confederation of Overseas Filipino Workers, which had created the program
called "Balik Pilipinas Entre Pinoy Program". This is a training program
aimed towards the returning OFW’s to equip them knowledge and skills in
entrepreneurship. Training and funding coming from the NGO’s are sought by
cooperatives and individuals who want to try entrepreneurship. It can be said
that entrepreneurship has a lot of potentials in the Philippines. But
entrepreneurship has still a lot to go. Entrepreneurship researches are
needed to provide a clearer picture of the conditions. The researches made
should be effectively communicated not only to people but to policymakers as
well. Reforms and policies that encourage effort from the people to improve
their economic well being should be taken. The essence of entrepreneurship in
a country is expressed very well by Donald Sexton. He commented:
 “Knowledge about the entrepreneur should lead to
understanding and out of this understanding should come
both public and private policy designed to strengthen and
hasten the process of change. {But} ignorance about
entrepreneurship has lead to policies that discourage
rather than enhance the environment for venture
initiation. This, in turn, has resulted in a lower standard
of living throughout the world.”
Furthermore, Nolan et al have enumerated several
good reasons why foreign investments are advisable in the
Philippines.
 Ten Reasons for Doing Business in the Philippines

1.The Philippines is creating incentives to entice foreign investors opening

opportunities particularly in the areas of industrial and infrastructure
development.

2.Earnings and capital can be freely converted and repatriated.

3.A wave of privatization and deregulation has added substantially to the

investment attractions.

4.Philippines financial markets, while still volatile, have been most rewarding
emerging securities markets, posting remarkable performance in the recent
years.

5.The Philippines is one of Asia’s most accessible countries for many

Westerners because of its historic links with the Spain and the U.S.
6.At the crossroads of international shipping and air routes, this island nation is strategically
positioned as a perfect intermediary between Asia and the rest of the world. It is both a
potential source for those seeking suppliers worldwide and a prime location from which to
serve the rapidly growing Asian markets.

7.The country offers a skilled, highly trainable, and inexpensive labor force of more than 26
million people, many of whom speak English.

8.The Philippines has a long-established reputation as a significant exporter of agricultural

products, minerals, and other raw materials and commodity goods.

9.The Philippines’ reawakening industrial sector has already begun to produce and export a
range of competitive, higher-value-added industrial products and its effort at diversification
are succeeding. The country is fast becoming a competitive producer in regional and world
markets.

10.The nation’s population constitutes a huge domestic market for modern consumer goods.
Policies encouraging export mean a demand for imports of intermediate goods, high-tech
machinery, and raw materials.
D. Business Ideas in the Philippines
After tackling the foundations of entrepreneurship and the Philippine
perspective, there might already be readers who are interested in putting up a
business venture. There are a lot of business ventures that one might consider
setting up. Here are some businesses for consideration compiled from different
sources and also from practical observations.
Computer software and services
The Philippines currently does not possess the capacity to competitively
manufacture computer hardware. There is, however, a great deal of
investment that goes into software development, hardware assembly network
services, and computer services. With the influx of technological advances in
communications, there is a sure market for this business. This does not
require a large space. If you have a space where you can place computers,
printers, fax machines, phone lines, Internet connections, and copying
machine, add in some pens, papers and office supplies, you may have this
business.
Rooms for Rent / Inns / Lodging
Convert your extra space into money by letting someone rent a room. This
is especially profitable if your location is in the vicinity of tourist spots.
Travelers always look for a place to stay that has a “homey” ambiance and of
course, has an affordable price. Additional revenue is added if you can provide
food.

Lockers for Rent

Schools make money by putting up lockers and letting student use it for a
fee. If you have a big garage or an idle land, why not apply this concept. Put
up a lockers and let somebody rent it. Many people look for places where they
could store their materials. You need to have a good payment scheme and a
good security to provide good service.
One-Stop Appliance Repair Shop (Refrigerator, Air conditioner, Radio,
Television, etc. Repair Service)
There are a lot of people who took up vocational education. There
are technical trainings and seminars given by vocational schools
nationwide. You can employ graduates with these trainings or you
yourself may want to take up the training for a more personalized
touch. With the on-going purchase of appliances that need a
constant repair and maintenance after some time, you are sure to
have target markets.

Event and Party Planner

A lot of people avoid organizing parties. Often times, their busy
schedule does not allow them to fully prepare for the event. If you
like working out details and know where to get the required stuff
like balloons, decorations, cakes, venues, etc, this might be the
business for you. Phone lines and a flexible schedule are needed.
Meat Processing
Filipinos love to eat. In fact food vendors can be seen in almost every
street. Processing meat gives an added value to the meat being sold in the
markets. You may be able to supply tocino, longganisa, ham, and tapa to your
neighbors and even to canteen and market stalls. You may be able to supply
barbeques, dimsums, hamburger patties, fishballs, squidballs, etc. to those
who sell them on streets.

Food Carts
These have proved to be a lucrative business not only in malls but also on
streets. If you have a cart (presentable carts like those in malls), put in it
varieties of foods that you want to sell like candies, potato fries, peanuts, etc,
plus an honest and hardworking manpower, you are sure to have a good
source of money.
Fruit and Flavored Drinks
There has been an emergence of outlets and franchises that are making money in selling fruit
and flavored juices. The common sago for one has been added with a touch of innovation. They
have successfully innovated the concept of bringing the drinks to the public by providing colorful
containers and then sealing it. If you know how those different flavored drinks, this may be the
business for you. If you can be able to duplicate the taste of their product and sell it to a much lower
price, the business can be able to compete.
Hotdog, Barbeque and Burger Stand
If you have a good location this is a good business. This
business will “click” if it is located near schools, factories,
markets, and offices. If you do not have enough capital for a
franchise stand but believe that these food products will sell,
then this business is for you.

Car Wash and Minor Car Repairs

This is a business that has proved its income generating
capacity in middle class communities. Transport cabs and
jeepney drivers often have their vehicle washed. A car owner
would go to this business to avoid high charges of maintenance
for services like change oil, car cleaning, car wax and other
minor car maintenance. You may even go to neighbors and ask
if they want their car maintained if their schedules are busy.
This business does not require complex and expensive gadgets.
Signs and silkscreen printing
Every business, new or old, need signs to promote. They
look for stalls like this so that their ideas may be translated into
artistic figures and drawings that aim to attract people.
Silkscreen painting on the other hand is good because there are
a lot of companies or people (especially during elections) that
orders shirts, bags, caps, etc, to be printed for promotional
purposes.

Fashion Accessories
Men and women, especially the young ones, visit these
stalls to check out the latest in fashion accessories. They often
time look for those accessories similar to what their favorite
models, actors and actresses wear. Also, there is an added
attraction to the venture if you offer customized accessories that
suit the customer’s desire. If you know where to get beads,
buttons, brooches, sunglasses, hairclips, umbrellas, cups, hats,
and anything that is fashionable, this business is worth a try.
Junk Shop and Recycling Center
Some people look down on this business because it is
messy. But you would be surprised on how much money the
junkshop owner gets. Some people do not realize that some of
the things they throw away can still be fixed or made into
another item. Companies in the manufacturing industries get
their supply of containers glass bottles and plastic from them.
Even medicine bottles are sold. Old papers may be recycled into
new ones that may be sold. Junkshops recycle metal scraps and
sell them to metal companies. Even some households go to
junkshops to purchase scraps of metal that would be of use to
them. Besides, this business is legal; it does not hurt anybody
and most importantly, it makes money. The junk materials of
other people are really the true gems of another.
Raising Pets
This is a good business for animal lovers. You have a wide
variety of pet animals to choose from. Presently, raising dogs,
birds, fresh and salt-water fishes and even snakes and reptiles
fetch good money. A puppy with a good pedigree can be sold for
thousands of pesos depending on the breed. In fishes, if you are
able to increase their size, you are sure of having them sold to
collectors at a high price, especially the exotic ones. The same is
also true with birds and reptiles. This business can be both
profitable and fun at the same time.

Telephone Answering Service

Present technology allows calls to be transferred or
forwarded to other number. A company with a lot of clients or a
busy entrepreneur usually asks for this kind of service. All you
need is have are phone lines. You just need to take the call of the
business entity and then be sure to relay it to them. This is
recommended for those people who stay at home.
Softdrink and Beer Distribution
This is lucrative because of the number of variety stores
that sell beer and softdrinks, not to mention the canteens and
restaurants. Bottlers may be able to provide you with some
equipment, such as refrigerator and truck. Careful handling is a
must because broken bottles will reduce income. You may hire
delivery personnel to help your operation.

Water Refilling Stations

This is one of the ventures that experienced “boom” in the
last couple of years. There are available franchises that can help
you establish this business if you do not know where to get the
equipment and set them up. It will continue to be a good
investment.
Laundry and Ironing Services
Laundry and ironing of clothes is the usual routine of
household helpers. But finding a household help is hard
especially in the National Capital Region. But if you have
contacts of people willing to do laundry and cloths ironing then
why not start a business like this. Your busy neighbors will
surely be regular customers.

Flower Shop
This is a good investment if you know where to get the
supplies of flowers. Though there a lot off-peak seasons, sales
during peaks are really quite high. Also, flower shops are never
without customers because flowers are nice gifts to give.
Carpooling
If you live in subdivision, working in a busy business
district, and having a vehicle with a large seating capacity, this
may prove to put extra cash in your pocket. You may place an
ad of carpooling and the destination where the people will be
picked up and dropped off. It has a sure market, as there are a
lot of employees who want to escape the hassles of inconvenient
commuting.
These are just some suggested business that one can
venture into. This practical list came from suggestions of some
people who have started this business. Though there have been
entrepreneurs who have started them earlier, your sense of
entrepreneurship through creativity and innovation will give you
the competitive edge to be ahead of the rest. These business are
not fully saturated and there are still a lot of rooms left for
dynamic, hard-nosed entrepreneurs.
E. List of Government and Industrial
Support

Course Offered:
 Business Livelihood Courses
Dollar/Foreign Currency Trading
-Lectures on the status of foreign currency trading in the
Philippines. Learn the day-to-day currency fluctuating prices.
Know how to register the business on Forex. Learn how to do
actual currency trading, the Central Bank Forex policy, how to
distinguish the “original” from “bogus” dollar and other
currency (including coin). Learn how to select the site and type
of business to put up.
Fastfood Business Operations
-Lectures on planning, organizing, management, menu planning and
format, standardization of recipes and costing, kitchen layout, hygiene, and
sanitation.
Ceramic Artware Production
-Gives lectures and hands-on exercises in mold making, hand forming
methods, slip casting process, bisque firing, glazing and decorating techniques,
costing and pricing.

Jewelry Appraisal and Pawnshop Operations

-Lectures on the role and functions of a travel agent, organizing the
business, requirements for a travel agency set-up, rules and regulations
governing travel agencies, basic travel agency operations and office
procedures, professional code of ethics, the travel agency and other providers
of travel products – transportation, accommodations, etc.
Basic Course on Waitering and Bartending
-Lectures on presentation of service operating equipment,
menu planning, table settings and bar functions. Hands-on in
beverage and cocktail presentation and table setting.

Meat Shop Management and Meat Cutting (with field trip)

-Includes lectures on meat industry analysis, slaughtering
techniques for hogs and cattle, pork cutting and beef cutting,
cost analysis of fabricated meats and retail cuts, utilization of
excess meat for value-added display, store lay-out, storage
facilities, meat handling and hygiene, equipment requirements,
and cost and return analysis.
Reflexology
-Lecture and hands-on exercises in fundamental skills of
reflexology, basic concept anatomy and physiology, modern
technique for zone therapy, reflex massage, polarity therapy,
practice and health science, advantage and disadvantage of
reflex zone therapy and mastering reflexology points.

Management of Service Contracting Business

-Provides skills on how to manage service businesses like
janitorial, repair and maintenance, etc., marketing, entering into
contracts, submitting bids, business costing, time scheduling
and cash management.
Establishing an Export Business
-Includes lectures on registering the business, identifying
products for export, general export procedures, types of letter of
credit, preparing goods for export, collection of export proceeds,
types of export financing, preparing and attending trade fairs.

Catering Business Operation

-Lectures on the table setting technique and equipment,
menu planning and preparation, costing and pricing. Also
includes hands-on in table skirting, and napkin folding
techniques.
Acupressure Therapy (scientific Body Massage)
-Provides the fundamental theories of traditional Chinese
medicine, theory of five state of change, fundamental substance
of Zangfu organ, anatomy and points. Hands-on in mastering
acupressure techniques.
Glass Etching and Sand Blasting
-Lectures on production processes, materials and
equipment requirement, costing and pricing. Hands-on in
various method of applying protective resist on glass including
screen preparation by photostenciling.
Fresh Flower Arrangement
Offers lectures on creativity, balance, proportion, texture,
and color harmony, flower shop operation management.
Practice in making western and oriental arrangements, line,
plane, mas and abstract arrangement.
Decorative Candle Making
- Provides lectures and hands-on exercises in making floating,
carved, sand-cast, molded candle and scented candle.
Herbal and Bath Soap
- Lectures on material specification, product formulation,
preparation of extract, costing and pricing. Hands-on
applications on papaya soap , cucumber soap, germicidal
and moisturizing bath soap processing
Wood Framing
- Instructions on material sourcing, costing and pricing,
marketing, techniques and strategies. Hands-on in
measuring and cutting of frames and matmounts, assembling
and finishing wood moulding for framing.
Basic Reservation and Ticketing for Travel Agencies
- Lectures on introduction to the basic knowledge of Travel
Agency Ticketing Procedures and how to prepare a
passenger ticket.
Curtains and Cushions
Discussions on basic sewing techniques, material sourcing,
fabric selection and estimate of material yardage. Hands-on in
pinch-pleated, box pleated, cartridge and café, swags and jabots,
puff Austrian curtains, and cushions.
CHAPTER 3
THE ENTREPRENEURIAL MINDSET
A. Mission and Vision in Entrepreneurship

Vision is a fundamental element in becoming an entrepreneur. It is a powerful

motivating force that gives the entrepreneur a sense of perspective of what he hopes,
expects, and desires for his intended business. It is through vision that an entrepreneur is
able to picture in his mind the kind of new and better world he wishes to create. With vision,
an entrepreneur develops a sense of direction of where he wants his business to proceed.
Wickham characterizes vision as a destination, a ‘light at the end of the tunnel’ and a
signpost for planning which illuminates the entrepreneur in the process of translating his
dream into reality. An example of vision is that of Steve Jobs Apple Computer whose dream
was to establish a firm ‘that would provide microcomputers for the use of everyone from
school children to business people’. Microsoft, on the other hand, started with a vision which
expressed as a motto: “A Computer In Every Disk”. This served as its guiding force in its
history of explosive growth.
 WHAT VISION PROVIDES TO THE
ENTREPRENEUR
1.A sense of direction by being the ‘light at the end of the
tunnel’.
2.Helps the entrepreneur identify and define his goal or
mission
3.Guides in formulating action plans
4.Serves as a communication tool
5.Provides a sense of warmth and encouragement
6.Serves as a medium for attracting people for support and
for motivating them
7.Provides moral content to the endeavor
 It cannot be exactly ascertained how vision comes about, but it is definitely something which
result from a process of personally exploring, developing and constructing various possibilities
that arise from a recognized opportunity. Occasionally, a vision emerges slowly in the
entrepreneur’s mind, taking shape clearly later on or it may just present itself to the
entrepreneur quite suddenly. When an entrepreneur begins to see that ‘things might be
different to, and better than, they are currently’, this ‘mental image’ reflects his vision.
Mission, on the other hand, flows from the entrepreneur’s process of visioning. It is the
formal, articulated expression of what the entrepreneur hopes and wishes to achieve. It also
defines the scope and parameter of his vision. It takes its shape and form as a prescriptive tool
to help him clarify his options or decisions, communicate his value system and commit his
resources, time and energy to goals and targets he has chosen one furniture retailer has its
mission of, “offering a wide range of home furnishing, items of good design and function, at
prices so low that the majority of the people can afford them”. Another entrepreneur of Body
Shop aims to: “make compassion, care, harmony and trust as the foundation stone of
business.”
 In the field of entrepreneurship, vision and mission always go. Together and
both are indispensable to a starting entrepreneur who wishes to engage in a
particular business endeavor. Having a vision is not enough. An entrepreneur
must also have a formal and specific point of reference called mission. Mission
is the articulation of this vision through which the entrepreneur develops a
comprehensive but clear and identifiable perspective of what he wants to
pursue, e.g. a system, product, process or service, and the manner meaning
plans and strategies, by which he will make it happen, bearing in mind the
role that his value system, motivation, personal characteristics and degree of
commitment play in the undertaking. These attributes and characteristics
have been discussed in the earlier chapter.
To illustrate the significance of vision and mission for entrepreneurs, let us
recall the store of a great entrepreneur and Mall tycoon, Mr. Henry Sy. Henry
Sy came from a poor family in Manila. He started his meager living by
making and repairing shoes. He wasn’t able to finish high school and didn’t
have any skill besides shoemaking.
 But one thing that Henry Sy had vision. He had dreams of one day putting
up an establishment where people can find everything they wanted and
needed to purchase – a place where people can go to for everything they
needed. When Henry shared his dreams to is friends and family, they laughed
at him. Back then, nobody had ever thought about such a thing. They
discouraged him from his dreams and told him to concentrate on his work
instead.
If Henry `sy had listened to them, the Philippines wouldn’t have seen its
very first SM Shoemart shopping mall in 1980s. Today SM has branches in
almost every city nationwide. Henry Sy believed enough in his vision and his
ability, and within his lifetime he made his vision a reality.
In the same way, an entrepreneur must be both a visionary and a man
driven by action. Having a clear and unique vision for a business not only
gives it the passion and direction it needs. It also serves as a fuel and driving
force for the entrepreneur. This is where mission is necessary in order for him
to see his vision though.
B. Exploring Ideas and Opportunities
In entrepreneurial landscape, new ideas and opportunities are constantly
in the conscious mind of the entrepreneur. Entrepreneurs are attuned to
opportunities and always on the lookout for them. This process of
opportunity seeking is the one that makes innovation possible. The
entrepreneur generates ideas for innovation after exploring various
opportunities which, in turn, enables him to come up with different and
better ideas. For instance, an entrepreneur can innovate and improve from
what already exist, can be an opportunity for the entrepreneur to come up
with something new and different in the form of methods, materials, system,
product and process, among other things. This is what we mean when we say
that entrepreneurship is about creating the value through the creation of
something new that is different and better but not necessarily original for
the marketplace.
 In the context of entrepreneurship, the relationship between opportunity
and innovation is that opportunity provides the entrepreneur the chance to do
something differently and better. Thus, innovation is a means of exploiting a
business opportunity.
Opportunity offers the possibility of creating new value but it is often the
case that the value created may not be ‘pure’ as when an entrepreneur invents
a new product to be introduced into the market. The way in which this
opportunity can be recognized may take shape in the form of the following
combinations:
1. A new product
2. A new service
3. New means of production
4. New distribution route
5. Improved service
6. New networks and relationships
 New Product – this can be in a form of a physical device, which provides a
new means to satisfy a need or to solve problem. It may be based on
existing technology. It may be something that will add value to an existing
product.
 New service – this refers to the action or actions which will satisfy a
particular need or solve a particular problem.
 New means of production – this happens when the new means of
producing an existing product can deliver additional value, like producing
a product at a lower cost.
 New distribution route – a new way of getting the product to the end-
user, which the customer finds it easier, more convenient and less time-
consuming.
 Improved service – this means offering additional service element to the
product like offering training in the use of the product.
 New relationships – this can mean building relationship based on trust
which creates value by reducing cost in communication, monitoring and in
strengthening networks against fierce competition.
 It is therefore, important that an entrepreneur must have an open mind, a
creative approach and a special kind of insight to the way in which he
identifies opportunities and exploits them to his advantage. This certainly
requires creativity and inspiration, but just as important as he needs to have
the knowledge, skill and passion for learning and hard work to be able to
transform opportunity into an innovation.
Sometimes an opportunity can also arise from changes going on in the
market environment. This is brought about by the fact that change is a
reality, which every entrepreneur cannot avoid and this always leads to
progress in all facets of life. As a result, new trends, new tastes and new
demands to meet certain needs inevitably begin to emerge and must be
appropriately addressed. A keen entrepreneur will always be alert to scan the
environment and look for ‘gaps and voids’ left out in the constantly
progressing and changing marketplace. According to Peter Drucker, these
gaps provide opportunity conducive to innovation. Some of these gaps are in
the form of the following:
1.Unexpected Success and Failures
2.Deviation from Conventional Wisdom
3.The Need for a Process Creation or Process Revision
4.Change in Society Structure and Perceptions
5.Location
6.New Concepts
1. Unexpected Success and Failures

The success and failures can be sources of opportunities in that they can
provide a rich pool of new ideas to innovate better products or process than
what already exist.

Unexpected success happens when certain lines of product or service that

you do not expect to be a copout suddenly surges upward and generates
more profit than the ones you intend to sell. Or your product, initially
designed for a particular purpose, found another application. One good
example is the pharmaceutical product Minoxidil. It was initially designed
for heart ailments. But later frequent users experience rapid hair growth in
various body parts. Thus, the drug bought in the market as hair grower
and not for heart ailments. Now, customers use it, believing it has
formulations as hair grower.
No entrepreneur really wants to experience failure but it happens failure
comes from combination factors. There are failures that happen because of
lack of entrepreneurial skill, inadequate knowledge, poor decisions and
priorities, insufficient funds and lack of decisions and priorities, insufficient
funds and lack of dedication or commitment. But sometimes, even if an
entrepreneur has the needed preparation, competence and motivation, his
business may still suffer because of his failure to innovate based on the
changing perceptions of the market and expectations of the mark. One
reason why this happens, according to Peter Drucker, is when “…the
assumptions on which a product or service, and marketing strategy were
based, may no longer fit reality.” Perhaps customers have changed their
values and perception; while they still buy the same ‘thing’, they are
actually purchasing a very different ‘value’. In any case, if one is a keen
entrepreneur, he can take advantage of this failure and turn it around into
an opportunity for successful change and innovation.
2.The Deviation from Conventional Wisdom
In the US during the 1970s, it was a common belief
that only the US Postal Service may deliver mail. There
was also a common belief that there were laws that
prohibit other people to deliver mail. People were left with
nothing but to accept the service of the US Postal Service
no matter how inefficient. Frederick Smith shattered this
conventional belief when he established Federal Express.
Today, FedEx is a multi-million dollar business venture
which provides worldwide services.
3.The Need for a Process Creation or Process Revision
An observant entrepreneur can spot a gap in a particular process
and turn it into an opportunity for innovation. His approach and
way of looking at things enables him to identify a particular
process which needs improvement and, after understanding the
details, puts together missing links in order to come up with a new
and more efficient output. An example of this is the process of
making inter-bank withdrawals and deposits through ATM.
Before, it was not possible to withdraw or deposit from other
banks. Withdrawal is possible only in the branch where you are
banking. But now, Automated Teller Machines (ATM) are
available. It is possible to withdraw and deposit anywhere. The
introduction of this new process allowed easier banking
transaction to happen.
The structure of society now is very different from before and continues to evolve. This is
greatly influence by the influx of development and changes consumer perception bought about
by the evolution of the social, political, cultural and economic conditions. Thus, factors such as
population, age educational background, employment and income are seen as useful guides in
identifying opportunities.
For example, in the 1950s products and services are geared toward the agriculture sector
because that was the market segment that had purchasing power. Now, we have to consider
the growing number of professionals and “middle-class” consumers whose needs are
constantly changing. These needs, in turn, bring about new perceptions on the kind of product
or service that will gain acceptability in the market. About a decade ago, mineral water was
not popular. We cannot see water filling stations as we have them today. During that time,
nobody tried the idea of selling bottled water because it was the perception of that clean water
was abundant almost everywhere. And that the one supplied by NAWASA was considered
safe and potable. But this is very different now. Bottled mineral water and water filling
stations are abundant almost everywhere. Incidents of NAWASA water causing disease in
some areas due to old water outlets changed the perception of households in favor of mineral
water. Furthermore, the broadening base of middle-class families and educated people
influenced their preference for products that are suited to their changing needs.
4.Location
Location can be a source of opportunity to an entrepreneur. An opportunity
arises when an entrepreneur can use location as a means to cater to the
various needs of people coming to the area in an innovative way. For
instance, residents of an island usually undertake a business such as fishing
and marine resources-gathering. But if the island has the potentials of being
a good tourist spot for its clean sands and blue water, the area can be
developed as a resort and small cottages can be built for visiting tourists.

Another opportunity worth exploring would be eco-tourism. In the past, a

location teeming with wildlife attracts poachers to hunt animals to be sold
either in body parts or as live product in the market. Today, locations like
these are being preserved and animals are kept alive to serve as educational
and tourism venues for visitors.
5. New Concepts
Knowledge is the basic foundation of all innovations. As time
progresses, a lot of new ideas are constantly emerging on the way
we see things, entrepreneurs have to continuously learn and
develop new knowledge to be able to come up with other product or
service. Incidents of new knowledge being acquired to create value
are plenty. A classic example is in the development of computers.
People in the 17th century came with the binary system: a system
of numbers that is expressed by one and zero. This knowledge was
the foundation of Charles Babbage when he invented the first
calculating machine. With the onset of new information regarding
conductivity, electricity and other technical matters, the computer
was created and, until today, it uses and functions still continue to
evolve.
 As can be understood from the preceding discussion, opportunity
represents a gap or void which is pursued by innovation. And the way to
understand innovation is almost similar to the way the entrepreneur explores
and identifies an opportunity. Innovation derives its real meaning from the
fact that anything crated for the market whether a product or service, utilizes
the components of labor capital and raw materials.

In entrepreneurship, any innovators, are people who create new

combination of labor, money and materials and bring them to the market for
assessment by consumers. In this sense, innovation is understood in a much
broader concept than just inventing new product. Thus, it also refers to
combining various product components in order to come up with new and
different product, new services, new production techniques, new operating
practices, new ways of delivering the product and new ways of managing
relationships. Finally, an entrepreneur can further expand the scope of his
innovation in the form of combined innovation, such as a new product using a
new delivery system and carrying a new message
 Table 3-2
Rules for Successful Innovation
By: George Ballas and David Hollas (Authors of the Book
Making of an Entrepreneur)
1.Relative advantage over existing products.
2.Must be compatible with existing attitudes and beliefs.
3.It should not be complex
4.Benefits of innovation must easily be communicable.
5.The innovation should be divisible – users can try the
innovation without incurring a large risk.
6.Buyer must believe that innovation satisfies one of his
needs by giving some immediate benefit
C.1. What is the Business Plan?
The stability of the venture is greatly influenced by the foundations laid. Entrepreneurs
scan, analyze, and adapt their plans to whatever conditions that exist. A good business plan is
imperative in order to succeed in the playing field. A business plan is the written or codified
text containing pertinent information about the venture. It shows the venture’s different
attributes and supposed character. It should be the minimum document required in the start
of the business venture. It is designed to give its readers the clear picture of what the venture
is. It is the proof that adequate research and analysis have been given to the venture.
There are a lot of business establishments that do not have the written plan. Their reason
for this is that making a business plan requires time and financial resources to complete
which may be used in the initiation and the operations of the venture. Furthermore, they say
that written documents will just restrict them from making flexible adjustments in the plan.
On the contrary, the business plan is an effective tool for the entrepreneur. It should be
treated, in fact as a part of the business operations. It also serves as guide in running or
operating of the venture. Moreover, the development of the business plan allows the
entrepreneur to discover what new and additional information are needed about the venture.
C.2. What is the Role of the Business Plan?
It communicates to people
The business plan is a way of articulating or revealing to the
proponents and public the nature of the venture. It contains vital
details concerning the business like its product, of a market
approach and extent of viability. It makes the readers interested in
the venture. It is “packaged” to bring about the interesting
features of the business. Generally, the business plan provides
information that gives emphasis to technology or type of
innovation, target market and financial aspects. It is assigned to
relate all the major players of the business – investors, customers,
employee and suppliers.
It permits constant change
The business plan must also evolve into one that is
relevant to changing conditions. It serves as a guide for the
entrepreneur to constantly recheck his ideas and concepts.
It provides the entrepreneur with organized data from
which he could research for new information. This new
information, together with the experiences of the venture
allows further analysis and synthesis of the plans to create
a refined version. With the business plan, the
entrepreneur will see what is around him so he can better
move beyond uncertainties.
It is a call to action
A written document, once properly presented, can convince more people as
compared to a verbal communication. A good business plan which is done in
good presentation will attract potential people to be a part of the business
endeavor. It is a powerful tool in arousing entrepreneurial interest to those
who will read it.
C.3. What should the business plan contain?
There is no definite way of writing the business plan. Every business plan is
unique in itself because it reflects the intent and the situation of the business.
In writing the plan, one must always put in mind that the document is
important. It is not just another ornamental document. It should contain the
key elements needed to produce results notably to influence investors to join
the business and customers to patronize it. A good business plan is not only
about format but contents as well. It must show relevance to existing
conditions. Therefore it should be based on sufficient research and should
present sound analyses from the data obtained.
A business plan is like a map. It tells you what to expect and what
alternative routes you can take arrive at your intended
destination. A number of studies have indicated that successful
entrepreneurs set realistic goals and plan and knew how they are
going to attain them. Planning helps you to work smarter rather
than harder. It makes you future- oriented and motivates you to
achieve the results you want. Perhaps most importantly, the
process of completing a business plan enables you to set the
degree of commitments you need, in order to successfully operate.
Through a plan, you significantly increase your chances of
success if you focus on five areas which entrepreneurs sometimes
overlook.
1. Realism: it is easy to be excessively optimistic about a new idea. Planning
helps to prevent you from viewing the future in ways that the facts do not
support.
2. Outside Advice: Planning enables you to recognize problems that the call
for outside sources of information and assistance.
3. Recognizing change: the nature of markets and consumers needs
changes rapidly. Planning cannot predict change but it helps you to
recognize it and to define your business strategy accordingly.
4. Balancing growth: small business tend to either grow too fast for the
capital base or too slow to maintain cash flow. Planned growth enables you
to plan your capital needs in advance and to ensure that funds are
unavailable when you need them.
5. Result – orientation: A detailed business plan enables you to monitor
results against an established set of goals and standards.
Preliminary Evaluation
An understanding of the advantages and limitations of a business opportunity
is a prerequisite for developing an elective business plan Essential strategic
factors are those elements which are absolutely necessary for the business to
succetx1 They can vary enormously from one business to another "I he types of
strategic factors that you might examine include
 The need for a certain size or type of target market segment
 Availability of a certain type or range of products
 Dependence on a highly reliable source of supply.
 Required size, location or layout of physical facilities
 Availability of an essential service such as water, electricity,
telecommunications, or transportation
 An assured line of finance. on reasonable terms.
 The need for highly skilled or experienced manpower
A number of uncontrollable factors can affect the operation of the
business. It is important to identify them in advance so that you
an devise ways to make them work in your favor Uncontrollable
factors consist generally of external influences such as:
 competition
 economic and financial conditions
 legal regulations and political conditions
 social and cultural trends
 technology
Controllable factors relate to the internal functions of a business
which give form and substance to the business plan. The objective
is to make these factors work for you in a position of strength
Controllable factors usually fall into the following categories.
C.4. Planning to Plan

Business plans are done differently and are unique. No two

business plans are done in exactly the smile way. Nevertheless, you
need to have a systematic method for approaching a project.
Figure 2.1 is an approach which you can modify to suit your own
circumstances.
The first step in the planning process is the identification of a
business opportunity. It may be an idea for a new business, the
purchase of an existing business, buying into a franchise or the
expansion of a business which you already operate. Rarely does one
systematically search for and find a business opportunity. Rather,
it often tends to emerge unexpectedly or you stumble upon it
 The second step is to conduct a personal inventory to determine if there is a
good fit between the type of business opportunity that you have identified and
your own personal characteristics, knowledge and experience. The operation of
a business represents an extension of your own goals, values, and capabilities.
If the opportunity does not fit very well, then perhaps you should not pursue it
any further. If you are satisfied, however, that this opportunity fits you
particularly well, then you will have the confidence and the commitment to
proceed with a preliminary evaluation
A preliminary evaluation enables you to gain more insight into what the
prospective business can and cannot do. Its purpose is to identify what
strategic factors are essential for the business to succeed. Which of these
factors you can control, and which factors you cannot control. This will enable
you to recognize what strengths and weaknesses the business is likely to have,
what opportunities you can exploit, and what risks may jeopardize success.
Preliminary Evaluation
An understanding of the advantages and limitations of a business opportunity.
is a prerequisite for developing an elective business plan. Essential strategic
factors are those elements which are absolutely necessary for the business to
succeed. They can vary enormously from one business to another. The types of
strategic factors that you might examine include:

 The need for a certain size or type of target market segment.

 Availability of a certain type or range of products
 Dependence on a highly reliable source of supply.
 Required size, location or layout of physical facilities.
 Availability of an essential service such as water, electricity,
telecommunications, or transportation.
 An assured line of finance on reasonable terms.
 The need for highly skilled or experienced manpower.
A number of uncontrollable factors can affect the operation
of the business. Ito important to identify them in advance
so that you can devise ways to make them work in your
favor. Uncontrollable factors consist generally of emoted
influences such as:
 competition
 economic and financial conditions
 legal regulations and political conditions
 social and cultural trends
 technology
Controllable factors relate to the internal functions of a
business which give form and substance to the business
plan. The objective is to make these factors work for you
in a position of strength. Controllable factors usually fall
into the following categories:
 purchasing
 production
 labor
 marketing
 finance
Preliminary Evaluation is very useful in a business. A
preliminary evaluation enables you to recognize how to maximize
your internal strengths to take advantage external opportunities,
and how to minimize your internal weaknesses and exposure to
internal risks. Having identified and evaluated the essential
strategic factors, you will have make a seat-of-the-pants
judgement about the attractiveness of the whole idea and whether
or not it is worthwhile to do a business plan.
You can hire people to do the work in the business but you must
not hire someone to do the planning. The plan is for your business
and n must reflect your visions and targets. You are the only one
who can put it all together
D. Guidelines in the preparation of a business Plan
The careful preparation of a business plan represents a unique opportunity
to think through all aspects of operating a business. As an operating tool, the
plan provides you with the means to examine the consequences and
determines the human and financial resources necessary to launch or expand
your business.
All this can be done on paper without the expense or trial-and-error
operation. Your business venture that is doomed to fail. If your proposed
venture is at best marginal, the business plan also provides you with the
chance to test the motivation, commitment and technical expertise of
partners This is .done by having your partner plan and document the
business activities that will be his or .r responsibility there is no easier way
to determine if your partner has the necessary commitment and expertise
Finally. And perhaps most importantly, ' business plan provides the
information needed by others to, valuate your venture, especially if you will
need to seek outside financing. A thorough business plan automatically
becomes a complete financing proposal which will meet the requirements of
 The following guidelines are applicable to a wide range of businesses which
an entrepreneur may pursue Common sense should be used in applying the
guidelines to your specific business.

The introduction
The introduction should stay the objectives of the plan or proposal as simply
as possible If the plan is to be used by your key employees, the introduction
should be a brief description of how the plan is to be implemented
If the plan is also to be used as a financing proposal, the introduction should
specify who is asking for finance, how much money is required, the purposes
for which the funds will be used, and how the funds will benefit the business If
the funds are in the form of equity, indicate that rate of return the investor
may expect If the funds are to be borrowed, indicate when they will be repaid
The industry
You must indicate the present status and prospects for the industry in which
the proposed business will operate. Discuss any new products, new markets
and customers, and any other national, regional or economic trends that could
have an impact on your venture.
The business
You need to briefly describe what sort of business you are in or intend to
enter. Indicate its name, how organize (proprietorship, partnership,
company), and its main activities (retailing, service, manufacturing,
wholesaling or sore, combinations). Describe its location, and the layout of
facilities. B., sure to relate anything of importance about your kind of
business that and you have learned from people such as trade suppliers,
banks and other business people
The product or service
You must describe exactly what you are going to sell
Indicate the primary end use of your product or service as
well as any important secondary uses Emphasize those
factors which make your product or service unique or
superior to that which is already on the market. Discuss
any opportunities for the expansion of your product line or
the development of related products or services. If the
product, process, or service requires any design or
development before it is ready to be placed on the market,
the nature and extent of the work (including costs) should
be fully documented.
The market

Identify your customer profile

Who will be your customers? You can classify customers groups having common characteristics such
as age, sex or geographical location. What are their buying motives-price, quality, service, convenience
or perhaps necessity?

Determine the sue of the total market

How much should they be spending on your product or How many potential customers exist within
your trading area? Can this market be expanded? Why?

Assess the competition

What have you learned of their operations? Who are your nearest competitors? Explain why you think
that you can capture a share of their business or keep them from capturing a share of yours. What is
their share of the total market?

Estimate your sales

Based on the previous three steps, estimate the sales that you expect to attain over the next three
years. Be careful - make sure your climates line up with the facts. This information is critical to your
financial forecast.
Marketing strategy
Here, you must explain your general marketing philosophy and strategy
that develops from the assessment of the mark, It should identify your target
market, show how you are going to satisfy that market, indicate your pricing
policy and explain your tactics for advertising and promotion. Do not forget to
keep track of your marketing costs because they go into the financial forecast.
Management
If your business plan is to be used as a financing Proposal this section is
particularly important Venture capitalists and lenders invest as much in
people as they in particular business propositions. For this reason, you need
to demonstrate the capabilities and capacity of your management team and
its advisers. Outline the personal history of the principals and show how
their work experience relates to the venture. State their duties and
responsibilities and indicate the salaries they expect to draw from the
business. Be sure to list your advisers such as your solicitor, accountant,
insurance broker and banker.
 Labor

You need to determine and document your manpower needs now and over the coming years.
Will they be permanent or casual, full or part-time? What skills are required and are the
people you need available'? What will be the costs?

Financial forecasts

Financial forecasts represent your best estimates of future operations. If the business
already exists, you must show its current financial position before proceeding to the
forecasts. If your business plan is also a financing proposal, you need to insert a statement
showing the application and the expected effect of the new funds 'flic financial plan is
concerned with two issues - liquidity and profitability Liquidity refers to the need for
sufficient cash to pay your bills as they become due. Liquidity estimates are based on
projected cash receipts and disbursements - by art documented in the form of forecasted cash
flow statements. Profitability estimates are based on the sales estimates in your market
analysis and the expenses related to achieving that sales - they are documented in the form
of forecasted income statements or profit and loss statements. Financial forecasts should be
shown monthly for the first year and quarterly for the succeeding two years.
Supporting exhibits
Particularly when the business plan is used to seek financing,
you should include copies of documentary evidence to substantiate
your claims. Examples of supporting exhibits are:
 detailed resumes of principals
 credit information
 quotations or estimates
 letters of intent from prospective customers
 leases or buy/sell agreements
 legal documents
 census or demographic data,
 design plans or engineering specifications
A SAMPLE PRESENTATION OF A BUSINESS PLAN

The introduction
HARVEY'S PRIDE CORP. (IIPC) is seeking a loan of
P33,000 to purchase property, car, out improvements, repay an
existing bank loan and provide sufficient working capital to
expand an existing wholesale/retail seafood market This loan will
be secured by a first mortgage over the property and the
guarantees of the principals Terms offered are 15 per cent
interest (reducible) and repayments of six equal half-yearly
installments in May and September.
 The Industry

According to the National Statistics Office, the consumption of seafood has

been growing at an average rate of 4 2 per cent per year over the last ten
years. During the past three years, however, growth rates have averaged 5.7
per cent per year.
Several new developments indicate that the increase in consumption of
seafood will continue
 The increased price of meat and meat products makes seafood increasingly
attractive substitute
 The renewed emphasis on diet and nutrition features increased,
consumption of seafood
The declaration of the 200-km limit will encourage the Philippine fishing
fleet to increase their catches and provide a greater quantity of local fresh
seafood.
 The business
HARVEY’S PRIDE is a wholesale/retail seafood market operating as a
proprietary company It specializes in selling extremely fresh seafood At
present, 60 per cent of sales are to the retail trade Plans provide for an
expansion of wholesale sales where profits are higher because of lower labor
costs and greater inventory turnover.

HARVEY'S PRIDE has been operating for two years in leased premises at
No 5 Jose Avenue, Parañaque, Metro Manila. The principals have secured an
option to buy the premises for P22,000 Jose Avenue is part of the Coastal
Highway, a heavily traveled tourist route
The principals have performed major leasehold improvements including
interior decoration and installation of a walk-in freezer. The building
includes a 135 M2 sales area, a 12 n 12 cutting room and a further 80 ih2 of
space which is currently unused and available for expansion.
The Product
HARVEY'S PRIDE sells premium quality seafood to
both the wholesale and retail trade The business already
has a reputation for selling only the freshest seafood
obtainable Availability of supply fluctuates depending
on the season and the weather, but the firm's policy is to
carry a complete line of all local seafoods.
Long range plans call for the installation of fish
smoking equipment. This will expand the product line
and provide an outlet for unsold inventory.
The market
HARVEY'S PRIDE is committed to provide premium quality seafood at competitive prices
to customers within 40 kin of Manila Bay The retail demand is seasonal while the
wholesale demand is constant and increasing.

According to the most !went census figures from the National Statistics Office, there are
25,000 people living within a 40 km radius of Manila Bay - making up approximately 5,300
households. This figure nearly doubles during December and January when holidaymakers
come to Manila Bay area

The most recent Household Expenditure Survey by the National Statistics Office
indicates that the average weekly household expenditure on seafood is 81 cents or about
P42 per year. Therefore. The current demand for seafood in the target market is about
P222, 600 per annum. This figure should increase by 5 to 10 per cent per annum.

I here are two seafood operations competing directly with HARVEY'S PRIDE:
Blue Ring Fish Sales. 17fis is a clean, two-man operation specializing, in cheaper fish. It
sells directly to housewives .from truck and does some wholesale trade, which the operators
hope to expand. It would account for no more than I5 per cent of the market.

Roger’s Seafoods. This firm has the largest proportion of the wholesale trade. It operates
three trucks The principal, Roger Ballo as planning to open a retail store. Since he is getting
on in years, he may be planning, to give up part of the wholesale trade. Roger’s.

Seafoods would account for 40 per cent of the current market.

HARVEY’S PRIDE (HPC) accounts for approximately45 per cent of the market with last
year’s sales of P67,500. However, the most recent Retail Sales Survey shows that sales of
seafood in Manila Bay area were below market potential and an opportunity exists to
increase not only the total market but also its share of it Sales estimates are included in the
Financial Forecast.
 Marketing strategy
HARVEY’S PRIDE (HPC) has developed an image and reputation of
quality, fresh seafood at competitive prices. It will continue to convey this
image to its two market segments - retail and wholesale.

To the retail trade, it will specifically promote convenient location, the

benefits in the diet and the savings of seafood compared to meat. It will
complement its quality image with clean, attractive facilities and excellent
service. Promotion will be based primarily on newspaper advertising and
display.

HPC will make direct approaches to the wholesale trade. There are
seventeen restaurants and eleven food markets constituting most of the
wholesale business. HPC will emphasize consistency of supply, convenient
location and delivery service, quality and volume discounts.
Management

The principals in HARVEY'S PRIDE are Mr. Richard Amor and Mr. Edward Murillo.
Mr. Amor was born in Manila in 1944 and lived there all his life. He has been self-employed
since he left school and operated a fishing trawler out of Manila Bay for twelve years. He
recently completed the Associate Diploma in Small Business at the Philippine College of
Advanced Education.
Mr. Murillo was born in Makati in 1939. He served for ten years in the Philippine
Navy before joining the seafood division of a large food company. y. He has had direct
experience with hiring, training and is operations in fish packaging and marketing.
Mr.Amor is well known at the Fisherman's Cooperative and throughout the local
community. He is particularly experienced in the wholesale side of the business. Mr. Murillo
is experienced in the retail trade and. will be responsible for the control of costs and
inventory. Salaries for the principals will be P500/month in the first year, P750/month in the
second year and P1000/month thereafter. Profits will be distributed equally between the
principals after any reinvestment for expansion.
 The firm has engaged the services of the following advisers:
Accountant - Mr. George Escribe, CPA
Solicitor- Mr. Tony Portolo
Bank- Philippine National Bank (PNB)

The firm has also joined the Philippine Seafood Traders' Association
which provides inter-firm comparison information to its members through
the Manila Marine University.

Labor

HARVEY'S PRIDE (I-IPC) will engage one part-time sales assistant

whose duties will be selling seafoods over the counter to retail customers.
During peak periods, the firm will employ a fish cutter on a casual basis.
The duties of this position will be to help prepare seafood for the wholesale
trade. Suitable labor is available and Mr. Murillo is experienced in training
and direct employees.
In resume, the following is an example of an outline of
a comprehensive business plan:
1.Cover Sheet
 Business Name, address, phone number, web-sites, c-mail
address
 Date

2.Table of contents
3.Executive Summary
 Description of the business Concept and the Business

 The Opportunity and Strategy

 The Target Market and Projections

 The Competitive Advantages

 The Economics, Profitability and Harvest Potential

 The Team
 The Offering
4.The Industry and the Company and its Product(s) or Service(%)
 The Industry
 The Company and the Concept
 The Product(s) and the Servicc(s)
 Entry and Growth Strategy

6.
Market Research and Analysis
 Customers
 Market Size and Trends
 Competition and Competitive Edge
 Estimated Market Shares and Sales
 On-going Market Evaluation
.The Economics of the Business
 Gross and Operating Margins
 Profit Potential and Durability
 Fixed, Variable, and Semi-variable Cost
 Months to Breakeven
 Months to Reach Positive Cash Flow
7.Marketing Plan
 Overall marketing strategy
 Pricing
 Sales tactics
 Service and warranty policies
 Advertising and Promotion
 Distribution
8.Design and Development Plans
 Development Status and Tasks
 Difficulties and Risks
 Product Improvement and New Products
 Costs
 Proprietary Issues
9. Manufacturing and Operations Plan
 Operating Cycle
 Geographical Location
 Facilities and Improvements
 Strategy and Plans
 Regulatory and Legal Issues
10. Management Team
 Organization
 Key Management Personnel
 Management Compensation and Ownership
 Other Investors
 Employment and Other Agreements and Stock Option and
Bonus Plans Board of Directors
 Other Shareholders, Rights, and Restrictions
 Supporting Professional Advisors and Services
11. Overall Schedule
12. Critical risks, Problems and Assumptions
13. The Financial Plan
 Actual Income Statements and Balance Sheets
 Pro Forma Income Statements
 Pro Forma Balance Sheets
 Pro Forma Cash Flow Analysis
 Break Even Chart and Calculations
 Cost Control
 Highlights
 14. Proposed Company Offering
 Desired Financing
 Offering
 Capitalization
 Use of Funds
 Investor's Return
15. Appendixes
 Brochures Describing the Products
 Letters of Recommendation or Endorsements
 Future Activities
What are the benefits of having the Business Plan?

The business plan functions in many ways thus making it an essential

business tool. It provides a strong foundation of research and analysis
that allows the entrepreneur to objectively look at the venture. At times,
when the entrepreneur is busy in juggling the details of the business, the
business plan helps in k e eping the focus and creativity on track. It
allows the information and experiences to be fine-tuned to the essence of
the venture. It shows forecasts and measuring points that allows the
charting of progress. It is a useful finance-raising tool since it serves as a
communication that does not only inform but might also clinch
investors and customers to be a part of the entrepreneurial venture.
The business plan provides clear directions showing what road to take
for growth, expansion, consolidation and eventually success. Due to
constant changes, periodic validity and relevance check must be done.
•Tips in Preparing A Good Business Plan
A well-developed and conceived plan will surely muster the
support of the people around the venture. As such, it must be
carefully thought of and discussed among the circle of parties
involved in the venture. It must be written well to convey the
messages the entrepreneur wanted to tell the readers. Bottom
line, it should capture the support the business needs from those
who read it. Here are some helpful tips in making a good one:
1. Prepare an objectively short plan
2. Explain thoroughly and honestly
3. Refer to a Third Person
4. Always consider pitfalls
5. Stick to one business
6. Emphasize the target customers
7. Keep the Plan neat and logically organized
8. Capture the readers' interest
 Prepare an objectively short plan
There should be a consideration of the value of the readers’ time. The
Business Plan must be concise and direct to the point. It must not be too
short to exclude the essence and vital information.
 Explain thoroughly and honestly
The reader should not be left confused or antagonized after reading the
Business Plan. The questions that might arise during their reading should be
answered by the document itself. The projections should not be exaggerated.
The reader must be satisfied after reading the documents. Maintain the
integrity and the transparency of the plan since this is an essential document.

 Refer to a Third Person

The Plan should be grammatically denote the third person. Avoid
personalizing the plan.

 Always consider pitfalls

 It is always helpful to show room in cases of unforeseen
events. Always have an alternative or back-up plan. This will
show that the venture is reality-based. Also, this adds
credibility to the entrepreneur, as there is the discussion of
critical risks or problems in the future. This will give the
investors’ confidence in the venture because of the foresight in
untoward cases.
 Stick to one business

 Emphasize the target customers

Investors are easily convinced if the venture shows clearly a
target market.. It gives them the assurance that there would be
sales in the operation.
 Keep the Plan neat and logically organized
An organized and neat business plan reflects the venture. ouu should not submit a plan
that is with stains or with crossed-out ord. A logical arrangement should be followed; meaning
the table (content should not be in the last part and the appendix on top. If these are neglected,
the readers will doubt the seriousness of the entrepreneur in pursuing the idea.
 Capture the Readers' Interest.
It is a fact that lenders and investors are also reading a lot of business proposals. Make the
Business Plan as interesting as Foible by showing the distinct feature of the venture. Also,
graphs. Illustrations, and color use may be of help.

The business plan is the document presented to banks or investors to obtain financial
capital. Aside from it being written well. The entrepreneur should avoid these mistakes
Broome4 enumerates as this may translate to a denied bank loan and investor thumbs down.
Never

 Submit a "rough copy", perhaps with coffee stains on the pages and crossed out words in the
text, causing lenders to question whether the entrepreneurs take their ideas seriously.
 Use outdated financial information or industry comparison, leaving doubts about the
entrepreneurs' planning ability.
 Use unsubstantiated assumptions by not explaining the "whys" of ever). Point in the plan.
 Fail to consider prospective pitfalls. Bankers can conclude that ideas act not realistic.
 Fail to understand the financial information. Even if outside sources, venture used to
prepare the projections, owners must fully comprehend the Information.
 Overlook the importance of outside influences. Owners need to discuss the potential impact
of competitive factors as well as the economic environment prevalent at the time of request.
 Give no indication that they have anything at stake in the Lenders expect
entrepreneurs to have some equity capital invested in the business.

 Be unwilling to personally guarantee any loans. If the business owner, aren't

willing to stand behind their company, why should the bank? "

 Demand unrealistic loan terms lenders want to find about business viability
before discussing loan terms.

 Focus too much on collateral. Even for cash-secured loans, bankers look
toward projected profits for loan repayment. The emphasis should be on cash
flow.
A. Avoiding the Pitfalls in Planning
Creating and developing a Business Plan is an important accomplishment. It is a great
reference of the venture and the people around it. Caution must be taken, however, to carefully
consider the ideas to be infused in it. Here are some tips to help you avoid the errors made by
entrepreneurs.

1. Set Realistic Goals

2. Involve everyone in the venture
3. Make a workable document
4. Balance the attention you give to every aspect of the plan
5. Set the target market
6. Anticipate possible problems
7. Establish performance standards
9. Show maturity
10. Show commitment and dedication
 • Set Realistic Goals

A common mistake committed is by not setting an attainable goal.

Entrepreneurs sometimes fail to objectify their targets because of too
much enthusiasm in accomplishing the goal. They sometimes tend to
overshoot things by setting unattainable time frame, processes, priorities
and financial projections.

A good remedy for this is to set a time frame with definite period of a
definite action.

 Involve everyone in the venture

There is a tendency for other managers not to appreciate and
adhere to the plan if it is made without them. If just a single person
makes the plan, there is a possibility that it is the individual alone who
understands what is written. It is an ego-boosting activity if people
interested in the venture are included in the planning stage.
 Make a workable environment

S ome e nt rep re ne ur s ma ke a mista ke of conceptualizing a rather complex and

huge business plan. It ends up as an unaccomplished paper. And if ever it is done,
people are discouraged from using it.

 B a l a n ce t h e a t t e n tion y o u g i v e t o e v e r y a sp e c t o f t h e p l a n

Every part should be given due allotment. Avoid disproportionate actions to be

given to a few aspects like finance and marketing. Do not confine or limit the scope of
the activity.
• Set the target market
It does not necessarily mean that a product or service is marketable just because it is
clever innovation. Establish certain market segments that would see the benefits of what
the venture has to offer. Never assume that the customers will appreciate products and
services just because the entrepreneur does so.
 Anticipate possible problems
An over enthusiastic entrepreneur has the tendency not to be objective. There are times that
he fails to think of possible obstacles that may come along the way. He creates an illusion of a fail-
proof venture. A good remedy for this is to objectively look at the existing conditions and lay out
alternative plans in cases of deviated outcome.

 Establish Performance Standards

There should be ways for which you may be able to gauge performance. A reference point
should be established to provide a constant analysis for progress. An established performance
standard shows that the business is keen on uplifting the quality of the goods. Identify
parameters that charted.

 Show maturity

In doing the business plan, the entrepreneur must show his/her maturity in handling the
business. A sign of maturity is saying what you mean directly without encouraging
antagonistic response due to the unsupported claims. He/she must avoid attempting to
demonstrate ideas that are not hilly understood. Do not let your venture fail by creating a
perception among the readers that you constantly miss or commit errors in specifics.
 • Show commitment and dedication
Use the business plan and do not just neglect it. Show that on really
mean the success of the business by not missing 'appointments, by
avoiding procrastination and by demonstrating financial commitment to
the venture.

After preparing the plan, the next issue is then to use it. The business
plan is too valuable document to waste. It is a product of time, effort,
research and analysis. Therefore, it should not only be given to investors,
to the banks or to the customers. What is written in the business plan
must also be implemented in the actualization of the business. Application
of the plan is the only way to validate it and test if those written are
applicable. The experiences in its application must be duly noted as these
provide the new data for its improvement and development. Roger
Thompson, in the article Get hill lake from Your Plans, listed common
mistakes in developing the business plan as well as the remedies for each.
 Single-purpose use. Entrepreneurs typically prepare a plan to raise
money and seldom give thought of actually using it. Remedy: Stress
implementation. The plan must include specific objectives for key
managers and a plan to accomplish them.

1. One-person commitment. If one person writes the entire plan (for

example, the company president), key managers are unlikely to be fully
committed to it. Remedy: Involve all members of the management team in
preparing the plan. Have each member write a section of the plan.
2. Benign neglect. Once completed, the business plan sits on the shelf and
collects dust. Out of sight, out of mind. Remedy: Make a follow up of the
plan. Schedule regular meetings to discuss the plan and the progress made
in accomplishing the goals and objectives.
3. Unworkable document. Managers create a plan that is huge and complex
that it discourages everyone from actually using it. Remedy: Give the plan
life by developing octet action summaries for each department. As
managers: update progress on their responsibilities at periodic meetings.
4. Unbalanced application Sometimes, managers give disproportionate
amount of attention to one portion of the plan - marketing or finance, for
example. Remedy: Get balanced participation from key managers and
employees in all areas of the company. Plus, focus 90 percent of your plan on
what you will accomplish and how you will accomplish it within the next
year.
5. Disillusionment. Managers get disillusioned when the scenario laid out
in the plan fails to develop. Remedy Develop contingency plans – both
positive and negative. What happens if...
6. Too action-oriented. Action-oriented managers tend to forget about the
plan once it is completed. They want to get back to the "real world" of
business. Remedy: Encourage these managers to use their action-
orientation to develop plans for their areas of responsibility.
7. No performance standard. Too often, managers fail to establish
measurable standards in the plan. Remedy: Encourage managers to
establish specific, measurable objectives in their respective areas.
8. Poor progress control. Implementing the plan is without control because
progress reports are lost in the jumble of everyday business. Remedy: Hold
regular meetings to discuss progress of the plan and nothing else.
9. Early consumption. The plan becomes outdated because no one bothers
to update. Remedy: Update the plan every six months. That way you never
run out of plan.
ENTREPRENEURIAL
OPTIONS:
Start-up, Buyout, or Franchising
• For a new entrepreneur, the decision to own and
operate a business is a result of his serious
exploration of ideas and sensible evaluation of
opportunities. Accordingly, this is a well thought-out
process which also entails identifying the product he
will sell according to his vision and objectives,
analyzing the possible market for his product and
developing as well as operationalizing the plans
needed to realize his vision and objectives. Along
with this framework is the process of deciding which
of the three common options he will choose to create
and organize a new business, buy an existing one or
buy a franchise.
• A sensible entrepreneur would always
consider serious issues before going into business.
Very often, the decision to engage in a particular
business would minimize the possible waste of
time, energy and resources if it is made after
carefully addressing this issues in the form of
guide questions for the startup entrepreneur.
• TABLE 4 – 1
• GUIDE QUESTIONS IN CHOOSING THE BUSINESS TO ENTER
• Do I have the needed capital to enter into and compete successfully in the
business?
• How soon can I get back my investment?
• Will I live long continue running the business?
• What is the level of risk involved? Am I willing to take that risk?
• Am I psychology prepared to lose the business?
• How much time and effort is required of me in running it?
• What is the potential for this business to succeed
• Do I have the ability, traits and resources needed to make the business to
succeed?
• Is this business something that I would enjoy?”
• Would I prefer a franchise, a buyout or create a new one on my own?
• A. Creating A New Business
• Longnecker calls the method of establishing a business from
scratch as startup, which is the route that that usually comes to
mind when discussing about entrepreneurship. The reasons for
the popularity of a startup among entrepreneurs are varied.
Some entrepreneurs want others to recognize that the new idea
or product and the success that goes with it is all theirs. They
find it exciting and satisfying to be able to put to use the latest
ideas, processes, and facilitates in running a business. The
challenge that goes with doing something new puts the
entrepreneur passionately at work. Also, some entrepreneurs get
a feeling of fulfillment in their autonomy and freedom to run the
business, i.e., to obtain fresh inventory, choose the facilities and
technology and in selecting the personnel they need.
• Startup can be significant option for
entrepreneurs under certain favorable
circumstances. One is the market for a product has
expanded and is not adequately served. Another
would be when existing suppliers are failing to
meet the needs of certain customers. In this case, a
‘new product or service’ is needed and a new
business of a ‘new type’ is justified.
• Other
reasons for starting a business from scratch
may also move entrepreneurs to pursue this
option. These are:
1. If the entrepreneur has a newly recently invented
or newly developed product or service.
2. When the entrepreneur wants to take
advantage of an ideal location, product or service,
equipment, employees, suppliers, and financial
backers.
3. If the entrepreneur wants to avoid problems
and undesirable commitments in policies, contracts
and procedures involving other firms.
• Advantages and disadvantages
• In creating a business from scratch. There are a number
of advantages and disadvantages to you as an entrepreneur.
You’ll have the opportunity to orient the business towards
your own personal goals. When you have complete flexibility
in selecting your target market, product and service strategy,
competitive strategy, location and facilities, then it is much
easier to innovate and make further improvements. You also
can design the business around the policies and procedures
which you select and you can train your employees your own
way. You also avoid the ‘goodwill’ expense of buying an
existing business along with the possibility of unknown or
contingent liabilities. Moreover, you will not risk inheriting
any preexisting ‘ill will’ from previous customers, suppliers,
creditors, or employees.
• But starting a business also has some disadvantages. It
has the highest uncertainty about the market demand
for your new product or service. Also, it takes time and
energy to create an image, build patronage, work the
bugs of new systems and (procedures), and reach a
break-even level of sales. Meanwhile, a staff must to be
hired, contacts developed with suppliers, and a
marketing plan implemented. Also, there are added
risks that investment will not be reoccupied, unexpected
competition may emerge and potential customers may
be more difficult to attract than you had anticipated.
And then there is this significant risk that the time lag
between your investment and cash flow will turn out to
be too long.
• Creatinga new business, therefore, can be a high-risk
option especially because the possibility of failure is said
to be higher than in acquiring a franchise or buying an
existing one. There are uncertainties and lots of
uncontrollable factors to consider. To a startup
entrepreneur, any error in judgment can be costly since
the business is organize around an entirely new product
or service. On the other hand, if the adventurous
entrepreneur can properly address those challenges and
concerns, he will reap lots of exceptional rewards in the
end.
• B. Buying an Existing Business
• A startup entrepreneur may also decide to just acquire an
existing business and he can resort to do any of the following
options to his benefits. He may decide to purchase only the
assets or he may buy the business as a whole. In rare instances,
he may decide to buy only the name. When he buys only the
assets, he is not responsible for any liabilities that were
previously incurred by the seller. But when he buys the whole
business, he takes control of the assets and also assumes all
outstanding liabilities, including hidden or unknown debts.
Sometimes these liabilities will not surface if the financial
statements are audited. In this case, the entrepreneur must
protect himself by putting an indemnification clause in the Deed
of Sale regarding unreported debts of the seller.
These are certain reasons why a startup entrepreneur may prefer to acquire
an already existing business. Some of the reasons that motivated him to do
so, are listed in Table 4 – 2 below:
TABLE 4 – 2
WHY ACQUIRE AN EXISTING BUSINESS
• There are already available personnel with know-how.
• Facilities and technology are already available.
• There is an existing product with an existing market.
• The location of the business is favorable.
• The business has an established relationship with banks and trade
creditors.
• The business is generating profit.
• The business has an existing good will.
• When a startup entrepreneur buys an existing
business he buys what someone has already
started. He is buying the location, premises,
equipment, inventory, customers, staff, and good
will, which have been developed by the seller.
That can make it much easier for him to get
established. But he could be bring a big mistake if
he does now know the owner’s real reasons for
selling it.
• There are many reasons why a seller may offer his
business for sale but usually he will not tell the real
reasons for doing so. It is, therefore, important for the
startup entrepreneur not to take the seller’s explanation
at face value and instead find out for himself why the
owner is trying to get rid of the business. There may be
underlying problems that will seriously affect the
business soon or in the future. Also, the entrepreneur
should have working knowledge of the basic tools in
analyzing the financial condition of the business he is
buying. If necessary, he should get professional
assistance especially about financial and legal matters.
• Table
4 – 3 below presents some common reasons why
owners sell their business:
 TABLE 4 – 3
COMMON REASONS FOR SELLING A BUSINESS
• Demand for the product is declining. Growth potential is
poor.
• Owner is ill or getting old.
• Business if unprofitable.
• Owner wants to relocate to another area.
• Existing franchise is discontinued or terminated.
• Owner decide to seek employment in another company.
Advantages and disadvantages
• Buying an existing business has initial advantages to the
startup entrepreneur in the form of immediate income from
sales to existing customers and savings in time and effort
needed to equip and stock the business. Also, the acquired
business has a proven location. Established relationships
with suppliers and creditors, and existing employees.
Buying a going concern as a package may finally turn out to
be cheaper than trying to create a new one. It is much
simpler to finance a single purchase transaction, and a
proven track record makes finance easier to obtain. Finally,
when one purchases a running business, the risk of failure
is significantly less than if he tried to start the same
business from scratch.
• Thesevarious advantages are summarized in Table 4-4 below.
While they appear very significant, a wise entrepreneur must
study each very carefully.
• TABLE 4 -4
• ADVANTAGES OF BUYING AN EXISTING BUSINESS
• Increases the likelihood of successful operation to the new
owner.
• It has a proven location.
• Profits can be earned sooner.
• Thetime, cost and effort needed to do a thorough planning is
eliminated.
• Presence of an established clientele.
• Stock inventory is already available.
• Suppliers are already established.
• Equipment and technology are already available.
• The resources and capabilities are known in advance.
• Financing is restricted to a single purchase transaction.
• On the other hand, if you are a startup entrepreneur, there are
also potential disadvantages in your option to buy an existing
business. Initially, you are stuck with the previous owners bad
decisions. For example. The existing stock may be unsaleable,
choice of equipment and fixtures may be outmoded, some of the
employees may not be suitable. or the location may prove to be
poor. You could pay too much for the business if you misjudge and
overestimate the value of goodwill, and there could be
unexpected expenses if the business turns out to be rundown. If
the previous owner had a bad reputation, you are likely to
inherit the ill will le by some customers and the poor morale
among employees. These important disadvantages are
highlighted in Table 4-5 below. It is important that they must be
given consideration and evaluated against the advantages
presented earlier.
 TABLE: 4-5
DISADANTAGES IN BUYING AN EXISTING BUSINESS
• I. The new owner inherits the had reputation of the seller.
• 2. Existing inventory and lines of product may not conform to buyer's best
judgment.
• 3. Some of the personnel inherited may not be useful to the business.
• 4. The inherited clientele may not be most desirable for the business.
• Some precedents set by former owner (policies, practices, etc) may be
difficult to change.
• 6. The existing facilities and layout may not conform to modern standards
and may be expensive to modernize.
• 7. If the location is rented, the landlord's attitude and practices may not be
conducive to a pleasant and profitable relationship.
EVALUATING AN OPPORTUNITY TO BUY
• Aftercarefully considering the potential
advantages and advantages of the buyout
decision, it would be good for a startup
entrepreneur, as buyer, to make a
comprehensive evaluation of the entire
option by asking himself and answering the
following questions:
1. What has been the trend of profits for the firm?
By trend of profits we mean more than merely the
past year. At least 5 }tars should be reviewed. To
find the answer the buyer must (a) ask for copies of
accounting audit reports, (b) review the firms
books, (c) study copies of bank deposits for the
period, and (d) study copies of income tax returns
for the past 5 years. If the seller (or his agent) is
not willing to provide these items, the buyer
should be suspicious of the claimed profitability.
2. Is the business growing, declining or relatively
stable? The prime measure here is sales volume.
Authenticity of sales claims should be verified.
Audit reports are most valuable. Sales records,
both cash and credit, are essential.
3. Are profits consistent with sales volume? The
buyer-entrepreneur must know some basic
comparative analysis of data on sales and profit for
his type of business. Any significant variations up
or down, from standard profits for this line of
business within a particular industry may need
further investigation.
3. Are profits consistent with sales volume? The
buyer-entrepreneur must know some basic
comparative analysis of data on sales and profit for
his type of business. Any significant variations up
or down, from standard profits for this line of
business within a particular industry may need
further investigation.
4. Why does the present owner wish to sell?
There may be entirely legitimate reasons for his
decision, such as health, age or desire to more to
another province. The potential buyer must assure
himself that the current owner is most merely
looking for a chance to sell at an inflated price or
because of serious problems in the firm's
operations.
5. Does the balance sheet for the firm reflect a
sound current financial condition? If the buyer-
entrepreneur knows the basic financial ratios such as the
current ratio, quick ratio and proprietorship ratio rules,
he will be able to approximate the financial soundness of
the business. He can confirm the soundness of the assets.
Are the accounts receivable current or a collection of long
past due accounts? Is the inventory, composed of fresh,
modem merchandise, or does it include much obsolete
merchandise, which will be bard to sell? Only by
investigation of the accounts receivable ledger and
inspection of the inventory will he find the answers.
6. Are the fixed assets properly valued considering
their cost and depreciation charges? Are they
modem? Are they in good condition? The answers are to
be found in purchase invoices, amounts of depreciation
charges for the past years recognition of modem versus
old equipment and thorough checking of its condition by
inspection and operation.
• 7.Are expenses in line with average statistics for this
type of firm? The answer here is to refer again to
comparative statistical data within the industry-
recognizing line of business while percentage lease?
What are those percentages? What is the landlord's
attitude toward the business? If one of the chief lease
and an option the firm is the location involved, the
Options should be in writing.
• 9.
What is the competition in the area? By buying
instead of organizing a new firm, one competitor has
been eliminated. The nature of remaining competition
mon is still important. It should be known. Chances for
successful completion with other firms should be
reviewed as carefully as if a new firm were planned.
• 10.What are the present owner's plans when he
sells? Too often new buyers find that the seller is in
competition with them soon after the sale. The best
assurance against this is a clause in the sales
agreement stating that “the seller agrees to not engage
in the same business in the same town or location for
five years”
11. Will I need any of the present employees? Are
they satisfactory? Honest sellers will usually give a
prospective buyer an honest evaluation of their
personnel. They may even assist in choosing only
superior employees if they are going out of business for
good. Interviews with employees and observations of
their activities on the job can assist the potential buyer
in the making any necessary decisions.
12. Will I need any of the present employees? Are
they satisfactory? Honest sellers will usually give a
prospective buyer an honest evaluation of their
personnel. They may even assist in choosing only
superior employees if they are going out of business for
good. Interviews with employees and observations of
their activities on the job can assist the potential buyer
in the making any necessary decisions.
13. What is the customer and neighborhood
attitude toward the firm? Interviews with customers
within or outside the gore and door-to-door neighborhood
surveys are the vital devices to find answers to this
question. Some ill will may be discovered but ways to
overcome it can be devised. The important thing is to
know what customers and neighbors think of the firm.
14. What is the reputation of the firm among
businessmen of the area? Visits to surrounding firms
or service clubs will provide answers. The seller may be
known as a "poor payer, a dealer in defective products or
one whose business gives bad service. Again, if any of
these opinions are discovered, they do not in themselves
cancel the idea of purchasing the firm, but nays should be
devised to change its reputation if possible. Information
is important.
• 15.
Are there any nationality, religious or political
factors in the area which would discourage
purchase? It still remains true today that if a
community is predominantly of one religious group, one
nationality group or even one political group,
businessmen who are not members of that group have a
tougher time in developing successful business. A
sensible entrepreneur should check the facts.
• 16. Do suppliers regard the seller favorably?
Although any ethical attitude discovered might be
overcome, relations with owns valuable distributorships,
it is important suppliers arc a measure of business
competence. If the firm maintenance is assured.
• 17. Is the community to be served growing?
Population growth means new potential customers. It
also means new competitors in most cases. Being
established gives existing firms the first chance to
maintain preeminence.
• 18. Are all liabilities correctly stated on the
balance sheet? It is important for the buyer-
entrepreneur to check individual contracts and other
obligations in detail. The best protection for the new
buyer is a clause in the sales agreement providing that
any other claims or liabilities are those of the seller.
• 19.Would the investment make as high a return as
could be made by starting a new firm? The answer
usually is found in the purchase price, to which we will
now turn attention. We know that profits can be
realized sooner, but we must also consider the future
situation.
 ROW MUCH SHOULD BE THE ACQUISITION
COST OF THE BUSINESS?
• When a stamp entrepreneur buys in an existing
business, the price which he pays should be based on its
potential to earn a profit. As a first step, it is advisable
for the buyer to analyze the past financial statements
and income tax records. Some analysis must be done .
Have sales and profits been increasing or decreasing?
What b00 been the rate of return on the owner's
investment?
• Sometimes, there is a need to obtain an industry profile
of the business that you, as start-up entrepreneur are
buying. Comparison of the seller's figures with an
industry profile will uncover any material discrepancies
which you will want to discuss with him. This noes° help
you to discover any operating problems that may affect
your decision to buy the business or how much you are
willing to pay for it.
• There are two basic methods used to determine the
value of a business. The first method is based on
expectations of future profit and return on investment.
It is called the 'capitalized value' method. The second
method is valuing the business on the basis of the
appraised value' of the assets.
Capitalized value
• The amount of money that a startup entrepreneur
would need to invest at a specified rate of interest in
order to earn an income equal to the profit potential of
the business is called capitalized value. The interest
rate used is the rate of return for investments involving
similar risks. The capitalized value can be found by
dividing the annual profit by the specified interest rate.
• Forexample, suppose you have projected that a
business is capable of earning P25,000 per year over the
next five years after paying all of its expenses including
your own salary. If the investment in this business is as
safe as, let's say, a bank time deposit rate of 10%, you
could adopt this rate to capitalize the profits and arrive
at the following capitalized value for the business:
• Capitalized value = P 25,000 =P250,000
10%
• However, no investment at present is as safe as time m,
in a stable bank. There are other investments which
give a d bra yield but they are risky and not common.
The effect of securing higher rate of interest on
investment would be a lower capitalized value. Thus, if
we assume that we can earn an interest of 25 per -11 on
an investment, the resulting capitalized value would be
as folio cent

Capitalized value = P25,000 = P100,000

25%
• Two factors are important in determining
capitalized value. First, the capitalized value is very
sensitive to changes in the capitalization rate. A startup
entrepreneur has to be sure to study the rates used to
value the same types of businesses with the same risk.
Also, he must keep in mind that he is valuing long-term
profits. If there is a risk that the profits will not be
sustained over the long term, then he will need to
increase his capitalization rate to compensate for the
increased risk.
• Appraised value
The majority of business purchases are based on the
net value of the assets to be transferred. It consists
basically of establishing exactly what assets are going to
be transferred and appraising their current market
value. Generally, the assets to be transferred are stock,
sales and office supplies, fixtures and equipment and
goodwill. If the business sells on credit, the buyer-
entrepreneur will have to consider whether or not he
wants to take over the accounts receivable. Since none of
the assets are likely to be new he will need to take their
remaining useful life into consideration when he has
them valued. It is important to be sure that stock is
saleable and that accounts receivable are collectible.
• As a buyer-entrepreneur, you must also make sure that
the s off any debts of the business before you make
settlement on your contract of purchase. Ensure there
are no mortgages, back taxes or other creditor-claims
against the assets, which you are buying. It is generally
not a good idea to assume any of the seller's liabilities.
Occasionally, however, these can represent a source of
dancing for you. It you do assume any of the vendor's
liabilities, their value must be subtracted from the value
of the assets to arrive at the net asset value of the
business
• If the asking price is greater than the net asset value of
the business, the difference is an intangible asset known
as 'goodwill'. The asset that you are buying represents
the ability of the business to earn greater profits than if
you started the same business from scratch. The value
of goodwill should not be any greater than the difference
between the capitalized value and the net asset value.
Since few businesses that are put up for sale are
producing extra profits, the problem of valuing goodwill
is not usually a pressing one.
• Negotiation
The product of the negotiation process is a formal contract
covering the details of the purchase. There are a number of matters
in which the buyer-entrepreneur and the seller may have
differences. For example, the seller is interested in the best price,
getting paid as quickly as possible, favorable tax treatment on gains
from the sale, avoiding any continuing liabilities associated with
the business and avoiding any contract terms that are not in the
seller's interest. As a buyer-entrepreneur your interest is in looking
for the lowest price, extended payment terms, a favorable tax basis
for resale and depreciation and warranties that will give you extra
protections. The central issue in negotiation is usually the price.
What is actually paid for a business can be quite different from
what it is worth. In other words, price and value are not the same
thing. The price paid reflects the negotiating positions of the
parties. Is the seller's desire to sell stronger than buyer's desire to
• Thismight be true if the seller is selling because of age,
health or financial reasons and the value you receive
may be greater than the price you pay. On the other
hand, if the buyer-entrepreneur is unable to enough
money to purchase the business, the seller may offer to
accept deferred payment provided you will agree to a
higher price to this case, you are paying a price that is
greater than the Value et 4 business.
 Many new problems will emerge when both parties engage
4 discussing and finalizing the contract. At this Point, the buyer-
entrepreneur and the seller will probably have reached
agreement on price, assumption of liabilities and terms of
payment. To protect your interest, it is always better to solicit
outside professional advice on a number of other matters in the
contract What if the sellers financial statements turn out to be
inaccurate or false What if the seller has undisclosed liabilities
which have ant been taken into account in arriving at the price?
What if some of the assets which you are purchasing do not
actually belong to the seller, What if substantial changes occur to
the business between the exchange of contracts and settlement?
What if the seller decides to open a competing business next
door? These questions reflect the uncertainty of your position as a
buyer-entrepreneur. It is important to get the protection you need
and have them formally written into the contract.
C. Franchising
A start-up entrepreneur may decide to go into
business by simply buying a license to local] Jollibee or
Pizza Hut. This practice is known as franchising. The
Past franchising all over the world In the US alone, the
sales in the franchising industry in 1991 were $758
billion as compared to the billion in 1980.1 Here in the
Philippines, there are projected sales of 82 billion pesos
for year 2000 and 100 billion pesos for year 2001. There
have been significant numbers of Filipinos wanting to
own or operate a 'lurch' cant indicates the growing
acceptability Filipinos of franchising business among
Filipinos.
 Colonel Harlan Sanders himself founded Kentucky
Fried it a global business on Card made it global
business through franchising. In his words “franchising
is quickest and most successful way to become
entrepreneur Another franchising experts, Andrew that
‘franchising is not considered a way of life.’
As a backgrounder, the franchise which means
freedom, privilege or immunity from burden. During the
feudal ages in Europe, the local landlords would grant
right to the subordinates to hold or attend markets or
fair. The landlords then were the first franchisor and the
subordinates the first franchisee.
One of the first franchise agreements was during the
nineteenth cowry when Singer Sewing Machine Company
granted distribution franchises to their dealers. Singer was
the first to have written franchise contracts. In the late
1880's, cities began giving franchises to the newly
established electricity companies. After World War II there
was the expansion of motels, drugstores, variety shops and
employment agencies which exhibited franchising
principles. In lows, products and services started to
franchise in the U.S. In 1955. Ray Croc started to franchise
a fast-food chain called Mc Donald's. The franchising boom
came in 1960's and 1970's when fast-food outlets started to
franchise. In the Philippines. The 70's were marked by the
introduction of Jollibee and Mc Donald franchises.
• Franchising Concepts
There are common concepts that pertain to the discussion of
the topic on franchising. These are the following:
• Franchise - it is an agreement whereby an independent
person is given exclusive rights to sell a specified good or
service.
• Franchising - is a marketing system based is legal -
'cement wherein one party (franchisee or franchiser) s given
the right to handle business as an independent owner but is
required to abide by the terms and conditions specified by
the other party (franchisor). For the franchisor, therefore,
franchising means selling the franchise. While for the
franchisee or franchiser, franchising is understood to mean
buying a franchise.
• Franchisor - refers to an entity that owns the
franchise name and distinctive elements (such as
patent. trademark. signs and symbols) which grants
others the right to sell its product.
• Franchisee or the franchise buyer - it is the entity
that buys to operate business using the name, product,
trademark, service ma• product and business format of
the franchisor under the terms and conditions of the
franchise contract.
• Franchising contract- it refers to the legal document
involving two parties (franchisor and franchisee)
specifies the obligations, primarily of the franchisee and
the conditions under which the latter will conduct
business.
2. Benefits of Franchising
• According to Megginson, both the franchiser and the
franchisee can benefit from franchising. For the
franchiser, this guarantees faster expansion and greater
market penetration for his business. In effect, this can
result to lower operating costs. For the franchisee,
getting a franchise gives him better brand recognition
and less-costly share in local and national promotion of
the product. Furthermore. The franchisee can avail of
management training at less cost. In some cases, the
franchisee can also enjoy financial assistance from the
franchiser.
• D. What are the Types of Franchising?
• Generally,franchising is divided into two types: the
Product and Trademark Franchising and the Business
Format Franchising. The former is further subdivided
into the Manufacturer-Retailer
• Franchise,
the Manufacturer-Wholesaler Franchise and
the Wholesaler-Retailer Franchise.
• The Product and Trademark franchising involves an
arrangement wherein the franchisee is given the right
to manufacture and/or distribute a widely recognized
brand or product. The franchisor has very little control
over how the business is operated but it demands that
the franchisee maintain the integrity of the products.
Examples of these are franchises in the soft-drink
industry, gasoline service stations and automobile and
truck dealerships. There are three types:
•1. Manufacturer-Retailer Franchise
•2. Manufacturer-Wholesaler
Franchise
•3. Wholesaler-Retailer Franchise
• Manufacturer-Retailer Franchise.
This is a franchise in which the
franchisee buys from the manufacturer
(franchisor) and then directly sells it to
the end consumer. The franchisor gives
right to the franchisee to use its name,
trademarks, logo and other identifying
marks. The franchisee meanwhile
maintains a distribution outlet that sells
and stocks the franchisor's products.
• Manufacturer-Wholesaler
Franchise. In this type, the
manufacturer (franchisor) sells to the
franchisee partially completed products.
The franchisee is given the right to
complete the products using the
manufacturer's name, trademark, logo
and other identifying marks then
distribute and sell the product to the
retailer.
•• Wholesaler-Retailer Franchise. It is a type of
franchising in which the wholesaler is the franchisor that
grants the retailer (franchisee) the right to retail the
product but use the wholesaler's name, trademark, logo or
other identifying marks. At times, the franchisee may be
permitted to carry other products and distribute to other
companies. The Business Format franchising, on the other
hand, is a relationship wherein the franchisee is granted
the right to use the franchisor's entire marketing system
along with the colitis assistance and guidance. Aside from
marketing, this will also advertising, strategic planning,
training, production of operation manuals and standards
and quality control guidance. This is the most popular
franchise structure which may be seen in a multitude food
and non-food franchises.
 E. Advantages and Disadvantages of
Franchising
• Like
any other business, franchising too has its
advantages and disadvantages. Any start-up
entrepreneur should carefully weigh the options
based on the gains and drawback before making
the decision.
• The
following are the advantages when an
entrepreneur engages in franchising, meaning, he
obtains a license to operate a franchise locally:
1. Possibility of failure is lessened.
2. Increase in new market location through urbanization of local
areas.
3. Customers tend to patronize a specific franchised service or
product.
4. Customer loyalty and preference for a successful brand name
5. Better management through training provided by the
franchisor.
6. Technical and other assistance is easily accessed from the
franchisor.
7. It is easier and faster to build good reputation and gal
recognition
8. A better assurance that the business will be profitable.
9. Obtain greater purchasing power.
10. High performance standards.
11. Advertising cost is less.
Lesser Possibility of Failure. This is perhaps
the most important reason why one contemplates
on franchising. Franchises have a high degree of
resiliency in the industry According to the
Philippine Franchising Association (PFA), out of
the 177 foreign franchises that 'as included in the
studies, only nine have ceased operations. This try
to a 95% franchise success rate in the Philippines
Increase in new market location. There are
areas that have been targeted as key areas for
development. There are key provinces like the
Calabarzon (Cavite, Laguna Batangas, Rizal and
Quezon) and the Mimaropa (Mindoro, Marinduque,
Romblon and Palawan), certain parts of Mindanao,
etc. that has been identified as potential economic
potential zones. The growing numbers of the
population has resulted to the creation of several
establishments like new roads, schools, malls and
subdivisions. Businesses are looking at these areas
for the potential of supplying the demands of
people
 Customer preference for a franchised product or
service. Franchise possesses certain unique
characteristics. These are what their regular customers
look for because they like it. Transportation
developments make it easier for people to reach from
one place to another. In these places, people look for a
tried and tested business that will satisfy their needs.
For example, there are a lot of travelers from Manila
who look for Jollibee or Mc Donald's when they reach
the provinces. They find a sense of security in the
ambiance and quality of food offered by these fast-food
outlets. The uniformity of the products as well as the
services offered by the franchise gives the customers a
'homey' feeling.
Advantage in using a successful brand name. The
franchisee acquires the franchisor's advertised trademark or
brand name. Trademarks and brands are not just symbols or
designs printed on the product. It communicates to people. The
reputation enjoyed by a widely accepted brand or trademark is
enough for people to buy the product. Here in the Philippines,
there are people who have actually interchanged the product
type with their brand name or vice versa. For example, in a
variety store, it is not uncommon for people to ask for Colgate
in purchasing toothpastes. If a person asks for a beer, also in a
variety store, the attendants will give San Miguel Beer's Pale
Pilsen unless the buyer specifies what he or she wants. People
ask for a Pen when actually they want marker pens, or calling
a photocopied material a Xerox. Having a successful brand
name ensures the business on certain degree and customers.
• BetterManagement through The training
from the franchisor. This franchisee receives
training from the franchisor. This is one
prerequisites of a franchisee-franchisor
agreement.
• Betteraccess to technical and other assistance.
The franchisor gives the needed support to make the
task of start-up and continued operation easier. Site
selection advice, facilities layout, employee selection
management training are just some of the help the •
franchisors give. Perhaps an important assistance it
gives is the financial aspect. There are cases where
the payment for the franchise is staggered thereby
helping the new franchise cope up with in the start-
up period. Furthermore, teaming up with a
franchising operation increases the possibility of
financial assistance to be granted to the franchisee.
• Ease in building reputation. In franchising,
the franchisee does not have to worry about
creating the much-sought reputation unlike in
establishing a new business wherein there is the
possibility of lean sales because of lack of
recognition. The franchisee will reap the benefits
of joining an organization whose safety, efficiency,
quality, trough and product have been
established. The franchisee Kill enjoy immediate
recognition as a part of big organization.
• There is a higher uncertainty of profit in a new
business as compared to a franchise. In
franchising, one may be able to use the safes of an
existing franchise in a nearby place to project the sales
of another franchise that is about to be put up. Plus,
the existing franchise outlets will guide the
prospecting franchisee to select one, abich attracts
buyers. • Greater purchasing power. Franchisees are
able to get supplies, equipment, services, etc at a lower
price Better assurance that the business will make
money. simply because they are a part of a big
organization. Purchasing power is achieved due to
volume discount on purchases made collectively by the
organization.
• Franchising also pose some disadvantages. These are:
• 1. High cost of franchise.
• 2. Operation is controlled by the franchisor.
• 3. presence of tierce competition.
• 4.Pressure to continuously make the product acceptable
to the market.
• 5. Problems associated with expiration of the franchise.
• Highcost of buying a franchise. Franchise fees in
the Philippines, may range from P20, 000 to 50 million
pesos. Of course the well-known franchises charge
higher franchise fee. The initial capital may also include
expenses for pre-opening, training, personal ' — Ina)
predicaments depending on the franchise contract and
other predicaments depending on the franchise contract.
• The operation of business is controlled by the
franchiser. One of the main characteristics of
franchises is uniformity. It is quite common for
franchise agreements to state that the franchisee must
movement of the entrepreneur because actions and
decisions that may be taken, with regards to the
franchise, it must be within the parameter set.
• Freecompetition. The franchise service is an
attraction to customers. That is why a lot of newly
created business imitate what is an established venture
offers.
• Pressure to continuously meet market
expectation. The franchise organization needs to
develop and continue on retooling its strategy to
differentiate it from its competitors.
• The expiration of the franchise. Franchise contracts have
expiration dates. When the termination date is reached, the
franchise have to h renegotiate once again the contract. Termination
may be advantage or a disadvantage depending on the condition of
the business. This is a disadvantage because, let's say that the
franchise years, there may be times when the franchise is a big sales
during the period when the contract is about to expire. Instead of
concentrating on the sales, the franchisee will now have to divide the
time in renewing the contract while at the managing the outlet. Also,
renewing contracts means spending one time coding. In addition,
applying for a new contract does not mean that the franchise contract
may be renewed. There may be grounds, herein the franchisor might
have seen the incapacity of the franchisee in maintaining the outlet.
Or maybe there have been grave errors committed that warrants the
renewal not to be granted like -delays of royalty fees, poor sanitation
and maintenance of the outlet, etc. The approval depends on the
assessment of the franchisor.
F. What does a Franchise Provide?
• Like other businesses, franchising also requires commitment.
The time, effort and the money that one would spend on
franchising should surely merit 'an investigation by both the
franchisee and the franchisor. The franchisor not only looks at
the location of the outlet but also, usually, on the financial and
management capability of their prospective partners. In return,
the franchisee has to make sure that it is able to meet the
expectations of the franchisor. The following are the factors or
considerations that both the franchisor and franchisee always
look into, in the process of negotiating and finalizing the
franchise undertaking. In each of these factors, the franchisor's
preference or perspective carries a bigger weight in order for the
franchising relationship to materialize.
• 1. Business Name
• 2. Market research
• 3. System ideals and the Operating Manual
• 4. Proprietary marks
• 5. Experience
• 6. Good judgement of the franchisor
• 7. Training
• 8. Location assistance and approval
• 9. Store layout and construction supervision
• 10. Exclusive area coverage
• 11. Procurement programs
• 12. Hiring assistance
• 13. Grand opening assistance
• 14. Marketing strategies
• 15. Effective Field service
• 16. Research and development
• Business Name The franchisee may have a different company
name but its products should have the names that are patented
by the franchisor uniform pith the other franchise outlets.
• Market Research The marketing research of the franchisor
should benefit the Franchisee It serve as guide to help the
franchisor in evaluating segment the proper location,
promotions, personnel, distribution and the target.
• System Ideals and the Operating Manual The system ideals
are written on the operating manual which should be provided
by the franchisor. It describes how things should be conducted
in the operation of the system. The operating manual maintain
the standards of the franchise. Communicates the complete
operating Procedures necessary to maintain the standards of the
franchise.
• Proprietary Marks Includes the logo, slogans and printed
signs that show distinction of the franchise. The franchisee is
allowed to use the patented marks of the franchisor.
• Experience This is an important service that the franchisor
provides to the franchisee With the vast experiences of the
franchisor, the franchisee avoids mistakes committed by a new
and growing company.
• Good Judgment of Franchisor Along with the experience
comes the knowledge gained through past mistakes and
successes. The franchisor, especially those whose franchise
organizations have been existent for a long tune, has been
endowed with the wisdom to judge circumstances. T1te
franchisee may be able to get sound advice from the franchisor
regarding the business.
• Training Franchisors provide training assistance to the
franchisee. This is a critical aspect of the franchise because
training does not only provide knowledge of the operation but
more importantly, it highlights and emphasizes the contextual
framework for the franchisee. Furthermore, the continuous
training provided by the franchisor organization avoids poor
management.
• Location Assistance and Approval Unlike in other countries,
particularly in the United States, prospective franchisees have
to look for suitable location where the business establishment
will be built. Franchisees have to be critical in assessing the
location. Franchisors, however, can guide the franchisee by
giving ideas on where a franchise would likely get more sales.
They will be' the ones to inspect the location and judge ifit is
deemed fit for the business.
• Grand opening Assistance The opening is a highlight event of
the franchise outlet. It is common to see businesses employing
propaganda so that many may know of their opening day. Also,
the opening day is when all of the kiting and plans will be
operationalized. It may be possible that some glitches may occur
at the operation. The franchise organization management and
staff lend a helping hand to make sure that everything goes
smoothly stalling at day one.
• Marketing Strategies The franchisor is generally familiar
with tested and proven strategies to guide the franchisee to
remain competitive. It includes aspects of advertising and
different promotional tactics designed to ensure continued
profit.
• Effective Field Service Franchisors also provide well-trained
and knowledgeable ales personnel to help the franchisee resolve
difficulties in the workplace.

• Research and Development The franchisee must see to it

that the business does not remain stagnant. The franchisor
spends time to ensure that improvement in products, services,
equipment, operation processes, etc will happen. Research and
Development is necessary to beat the competitors.
G. Choosing a Franchise
1. Why an Entrepreneur may buy a Franchise. There are many reasons
why an entrepreneur may decide to into go business by acquiring a
franchise. These are:
1. Earning depends on the effort
2. Opportunities for unlimited income
3. Personal Satisfaction
4. Tax Benefits
5. Freedom to pursue the job you want
6. Assurance of continuous employment
7. Eliminates the difficulties in starting-up
8. Ease in operationalizing the business plan
9. Benefits of having an established system
10. Benefits from quality research and development
11. Quicker start-up
12. Probability of Success is High
• Earning depends on the effort A lot of people feel
restrained by working in a company. They are not contented
with the salary they receive. The amount of compensation
they receive does not reflect in the income they get. When
you operate your own franchise, the success depends on how
hardworking you are. It is very different in working in a
company wherein even if so much effort is exerted, the
income cannot exceed the salary cap. Owning a franchise
opens an opportunity to have unlimited income.
• Opportunities for unlimited income A common
similarity among wealthy people is that they own business.
Owning a franchise gives one the chance to cam relatively
large sums especially if the franchise is a real crowd-
drawer. Succeed in running a business and gain financial
strength.
• Personal Satisfaction Success may be measured in
two ways: by the amount of money and property one
acquires and by the amount of personal satisfaction
gained in doing certain matters. There are a lot of
wealthy individuals that will declare that although
having money bring benefits, personal fulfillment
brought about by achieving dreams, making a
management turnaround, employing people, etc. are
more self-gratifying.
• TaxBenefits owning a business venture may spell a lot
of perks for the entrepreneur. The entrepreneur can
spend substantial amount for a car, travel, etc. and
reflect it as company expenditure.
• Freedom to pursue the job you want owning a
franchise allows a person to choose whatever type of
work he/she wants to do in the operations. Having a
franchise s that the entrepreneur will never be laid off,
fired or fired. This allows certain degree of flexibility
unlike in working for a company wherein you are
confined to a rigid description of your job.
• Assurance of continuous employment Unlike
working for a company where there is uncertainty of
tenure, the entrepreneur has say on the continuity of
the venture. The entrepreneur's capability to manage is
a big factor in the business process. Good management
allows quality time with the family, friends or for
recreation
• Eliminates the difficulties in starting-up The
franchisor's experience puts the franchise in middle of
the race. In starting a business, the entrepreneur starts
from scratch. Franchising eliminates those start-up
years that are very crucial stages of the venture.
• Easein operationalizing the business plan Starting
a franchise eliminates the nitty-gritty of a business
start-up. The entrepreneur does not have to worry too
much about the business plan because it has been done.
All the entrepreneur needs to do is to actualize what the
franchisor has provided.
• Benefits of having an operationalized system This is
an advantage for the entrepreneur as a lot of time be saved
for just thinking of effective systems for the business.
Franchise organization, with all its experiences and tes 'ess
provides a big plus factor in business success in the form
business methods.
• Benefits from high quality research and development
Franchise organizations, especially those enjoy a degree of
has a responsibility to develop itself to maintain that status
success. Thus, research and development is a part of their
operations Franchisees obtain the benefits of this research.
This is what the royalties, advertising, and other annual
fees bring to the business. This is very different in starting
own business be the entrepreneur may be tied to making
profit and neglects the research and development aspect.
• Quicker start-up The preparations Prior to start-up
are less time for a franchise as compared to starting a
business. The initial preparations for franchising have
already been made by the franchisor.
• Probability of success is high There are surveys that
will reflect the over-all success of franchising not only in
the Philippines but in other countries as well. The
Philippine Franchising Association cites that 95% of
franchises have made profit Projection of sales in
franchising is as equally promising.
• Considerations in Selecting Franchises
Though franchising offers to certain degree, smaller
amount of work in comparison to starting a new business,
it comes with it nonetheless, significant preparations. The
prospective franchisee should take the initiative to
investigate the franchise. The entrepreneur should study
the franchise well before buying. One should ask questions
about the franchise and it is imperative that all doubts be
sufficed. One may ask the owner of an existing franchise to
answer all the questions the entrepreneur has. Or, one
may also ask professional advice especially in contracts
offered. Never commit the mistake of buying a franchise
without a thorough location. In evaluating what franchise
to acquire, the following points are important to consider:
• Cost of investments. The amount to be shed for a
franchise is substantial. There are franchises that may
cost to just over ROM to an amount of 50 million pesos.
The prospective 'franchisee must have knowledge of how
much money he/she has and the amount he/she wanted
to invest. A franchise requires more than the franchise
fee to be spent. These are usually the financial
considerations of owning a franchise in the Philippines.
1. Cost of investments
a. Franchise Fee
b. Set-up operation
c. Operational expenses and purchases
d. Royalties e. Advertisements
2. Franchisee's preference and interest
3. Location of the franchise
4. Reputation of the franchise organization
5. Franchise support and assistance
6. Possibility of obtaining a master franchise
•- Franchise fee. Depends upon what type of business.
Here are of some franchise fees asked Philippine Peso.
gala a. by franchisors. Note:all amounts are in
Philippine Peso handed out by the brochures handed out
by the companies given.
• Majestic Ham -500.000
• Candy World - 690.000
• Candy Bouquet -500,000
• Speed Drinks .300,000
• Korean Palace- 500.000
• Business Depot - 500.000
•-Set-up operation. These are expenses incurred tor the
renovation or the construction of the building. This also
includes those that will be spent for the arrangement and
decoration of the building There are franchises that have
this in the franchise contract but there are lots that do not.
The setup operation fees depend on the size of the location
and the facilities required.
•- Operational expenses and purchases. At the start, the
franchisee may have to shell out some amount to ensure the
flow of operation since the initial sales may not be enough
to cover the needed expenditures.
• -Royalties.This is the amount paid to the franchisor
periodically. Usually royalties are per year basis.
Franchisors ask for 5 to 15% from the franchisee. This is the
mode of income of the franchisor
•-Advertisements. Franchisees are required to pay some
designated amount for advertisements. This is a
relatively. small amount compared to the franchise
outlet would get especially if the advertisement is good.
Advertisement also covers the promotions in the grand
opening that usually cost about P10,000 to P20,000.
Also another 2-3% of the gross sales should be allotted
by the franchisee to its local store marketing.
• Franchisee's Preference and Interest. Though not a
very important factor, having a business that fits the
entrepreneurs’ personality may help entice him/her to
do the job extraordinary well. The entrepreneur may
find the work not as a work but as a way to enjoy
him/herself. f. There are businesses that require the
presence of the owners. If franchisee is interested in the
line of work and operations, then there should be no
problems on this. Nevertheless, it does not mean that
one has to be a good cook or an experienced
0restaurateur to have a food franchise since adequate
training will be provided by the franchisor.
• Location of the Franchise This is the extremely
important oar in the business. One should have look for
a location that has access to a sizeable number of
people, has floor area that may accommodate customers
has available parking space for customers service
vehicles. But sometimes. Even if the location has and for
these. The franchisor may not approve the franchise
application. In the Philippines, there is no study yet of
the correlation of the amount of sales versus the number
of people passing in relation to a location. This is simply
because business owners will not disclose the amount of
income they make thereby, making it difficult to
forecast the sales with respect to a location.
• Reputation of the Franchise Organization. One
should check the franchise organization before joining
in. It is not a joke to have a franchise. Check if the
franchise organization provides what is listed in the
previous discussion. Don't jump unless you know where
you'll fall.
• Franchisor Support and Assistance. Prospective
franchisees should check whether the franchise
organization has continuing services offered like product
and service development, promotion and public relations
design, quality control programs and no ant and
administrative programs.
• Possibility of obtaining a master franchise. A
master franchise is a franchise that is offered by a
foreign franchisor to a single party in the Philippines. It
may also apply to a local company that has plans of
extending its operations to other places and wants to
apply their management style in all the stores. They are
the ones that offer sub-franchises to other people
interested in the business, usually, the costs of master
franchises are smaller than the sub franchises. For
example. McDonald's, an international food chain has a
master franchisor here in the Philippines in the person
of George Yang. Prospective franchisee must approach
Golden Arches Development Corporation to be able to be
granted a McDonald franchise in the Philippines
• 3.
Does the franchise have what it takes to be
successful?
• Table 4-5 below enumerates the factors necessary to
ensure that the franchise chosen has the potential for
eventual success They reflect the conditions needed to
establish a long-term and stable relationship. These are
"must haves" that the franchisor franchisee relationship
should enjoy. In other Words, a successful franchise is
dependent on the shared commitment of both the
franchisee and the franchisor to make the franchise
succeed.
 TABLE 4-5
FACTORS NECESSARY TO A SUCCESS` EUL
FRANCHISE
1. An effective organization.
2. A clear reputation on products and services to carry,
uniformity.
3. Policy control on operating assets 4. se goods and
services for quality and
4. Regulation on the use of the franchisee's business
premise
1. Territorial protection by the franchisor
2. Geographical limits and restrictions to the franchisee.
3. Exclusivity and focus in business relationship.
4. Restrictions on transfer of the franchise.
5. Protection clause to the franchisee after expiration of
contract
6. A vision, philosophy and culture harmonious to both
franchisor and franchisee.
7. Reasonable provision for expansion
8. Continuous improvement and implementation of effective
systems to guarantee superior operations
9. The franchise is recognized as something that provides
value-added benefits to the franchisee.
10. Franchise disagreements are easily resolved between the
parties.
••An effective organization The franchisee-franchisor
relationship is based on the parameters that have been
set. The structure then must reflect an operative system
that guarantees communication and commitment within
the constraints arising from the contract. The structure
should offer security to both the franchisor and the
franchisee.
•Aclear regulation on products and services to
carry There is a justification as to why the franchisors
only allow certain products and services to be offered by
the franchisee. They allow a limited scope that is within
their expertise. It is also done to ensure uniformity of all
the franchise outlets. mere are instances wherein the
franchisor allows some franchisee to experiment on
adding some variants because the franchisor also knows
that franchisees are excellent sources of innovation. An
example of this is the product Big Mac of McDonalds.
This is an innovation by a franchisee here in the
Philippines. That is why you can not see a product like
this in other countries.
• Policy control on operating assets, goods and services for
quality and uniformity The reason for this is the same as the
previous one.
• Regulation on the use of the franchisee's business Premises
There are times when the franchisor tries to lease or sublease the
premises from the franchisee. This is done so that the franchisor
may have the control over the franchisee and effectively control
the business. This is an additional cost to the franchisor but then
the franchisor is sure that the business continues even if the
franchisee does not warn to. Petroleum giants like Caltex, Shell
and Petron practice an example of this. These companies lease the
location of the gas stations from the franchise owner. If the
franchise owner sees that he/she cannot continue with the
business for any reason, the companies will look for another
willing franchise owner to continue the business at the same place.
The former owner will now receive only the monthly lease for the
use of location.
• Territorial protection by the franchisor The exclusive
territories given by the franchisor is a great invitation to
potential franchisees to try their business. Franchisees are more
inclined to join franchise or especially if they know that they
will experience no competition coming from in t their vicinity. s
however may find a difficulty Franchisor going the same brand
in their vicinity.

• Geographical limits and restrictions to the franchisee As

an effect of the given exclusive territory, franchisors prohibit the
franchisees from engaging business outside their territorial
limits. This allows the franchisee to hilly exploit the assigned
territory the franchise outlet has. This is also done to prevent
overproduction which may compromise the quality of the goods.
• Exclusivity and focus in business relationship Also, the
contract will include relationship exclusivity. Franchisors
prohibit franchisees to engage business with a competitive
business. This prohibition is necessary to safeguard confidential
information like the revenue and the product and service
knowledge. This will also allow the franchisee to channel all the
efforts on the franchised business. The prohibition on exclusive
relationship does not only apply to the franchisee but may
extend to immediate families. This would usually warrant
contract termination if violated.
• Restrictions on transfer of the franchise The franchise
contract stipulates the details for approval of the transfer and
the terms of transfer. It will also indicate that the franchisor
shall not unreasonably withhold approval of a transfer. But in
actual, franchisors usually restrict the transfer of franchises,
unless in extreme cases, in order to effectively manage the
franchisee. The franchisor has the right of first refusal and
denies the proposed transfer especially if the franchisor has
sufficient grounds that lead him/her to believe that the transfer
will not benefit the organization.
• Protection clause to the franchisee after expiration of
contract This is a critical element of the contract. Usually,
franchise contract is from 5 to 10 years for local franchise and
25 years for a master franchise of a foreign organization There
are different conditions that pertain to the expiration of the
contract. There are contracts that provide the conditions for the
granting of succession. There are also contracts that provide a
condition that the franchisee cannot establish a business that
will compete with the franchise organization, which he she
belongs to once.
•A vision, philosophy and culture harmonious to both
franchisor and franchisee The philosophy and culture are
determinants of the actions of each party. These are the
perspectives that would reflect upon the action taken by each.
Though the contract and guidelines exist, there will be times
these written documents will fail to address a particular
instance. These moments call for actions depending on the
discretion of the franchisee. It is important that both party have
the mutual trust and confidence that their moves is in
accordance to the thrust of the organization. The franchisor has
the responsibility to organize activities that would allow for a
regular communication among franchise holders and all the
participants of the franchise. There should be venues where
sharing of ideas, resolving of disputes, planning and creating of
innovations are possible.
• Reasonable provision for expansion. Expansion is a factor
in determining the success of a franchise organization.
Chapter 5D
ADVERTISING AND
PROMOTION
• It
is important for a manager-entrepreneur to
note that many customers do preliminary
shopping in their homes through newspaper and
magazine advertising, television and radio
commercials and direct mail literature before
they visit a store. When customers go to a store,
they usually go to the ones whose name,
products and services are familiar to them
through advertising.
In making purchases, customers almost always
go through the following steps:
1.They are made aware of the product or service
through advertising.
2.They are stimulated to know more about it by
the advertising appeal.
3.They go to a store to investigate.
4.They analyze benefits and compare value.
5.They then make a decision, helped sometimes
by point-of-sale promotion and intelligent
selling.
6.They are satisfied and they buy.
 Sensible owner-entrepreneurs always look beyond
material features and search out the intangible appeals
buy in order to understand the job which their
promotion will have to do job which their promotion will
have to do. People do not buy things – they buy goods
that satisfy their wants. Every product or service has
some benefit that the customer must see and want
before he makes a purchase. The owner' appeals. As an
entrepreneur promotes, some appeals will he get better
results than others. Stick with these and reject weaker
ones. In deciding on appeals remember that women
generally read advertising more than men and buy
approximately 80 percent of all necessities.
A.DECISIONS IN SALES PROMOTION
Effectively sales promotion is generally backed-up by six
important decisions.
Decision 1: Determine the policy on your image
What is the public image an owner-entrepreneur wants to ante
or present? Establishing an 'image' is important because it will
influence everything he does in sales promotion selecting an
image is like choosing the personality for his business If the
personality is easily recognized and pleasing. His business image
is established. For example, if you were to select the image of
'exclusive fashions,' all factors must reflect high fashion - the
decor of the entire store, the window and interior displays, the
advertising, packaging materials, the salespeople as well as the
buying and pricing decisions.
Decision 2: Determine your market area
As an effective entrepreneur, this should be relatively easy if
he had carried out his marketing research effectively. A good
starting wine is to work out a description of the geographical
areas within which he does business. This depends largely on his
location and what he sells. The distance the customer is from his
location is also an important consideration in setting the
boundaries of his market. Can he buy the same item from
another shop that is closer? How long does it take customers to
walk or drive to his place of business? People normally go to the
biggest place they can get to most easily try to examine the area
around - this place of business in terms of the case with which
people can get to it and to the competitors. The objective is to
draw an approximate sketch of the entrepreneur's market area.
Decision 3: Decide what at to promote
For instance you were the owner-entrepreneur, after on your
business image and determining your market area, the next
important step is to decide exactly what items you want to
promote. A small start-up business the goods and services you do
promote should be the ones your customers want to buy. Keeping
in mind their wants and your image, you can then select items of
the ' 4 quality and fashion in the right quantity and fashion… in
the right quantity … to sell at the right time at the right price.
Keep in mind your image and reputation. If you have spent
considerable time, expense and effort in trying to offer real
values, it is important to keep this in mind when selecting
merchandise for special promotion.
In deciding what to promote, plan something exciting. For
instance, when planning a major promotion, try to find an
appealing theme and build around it. Select a theme that
captures the imagination … like an Easter Special or a
Valentine Sale. The theme should fit the store image and
the time of the year. It should be one that will make good
advertising copy and suggest some interesting ways to
decorate the store. A good theme will keep customers
coming back and at the same time help boost the morale of
the salespeople.
The following buying appeals or motives may be used in
developing a theme to make a coordinated sales promotion
campaign. There are basic reasons why people buy
merchandise from a shop or a store:
 Social approval or status;
 Health or well-being;
 Profit, saving or economy;
 Stylishness or fashion;
 Convenience or comfort;
 Love or friendship;
 Security
Decision 4: Decide where to promote
Determining where an owner-entrepreneur will promote
depends on many factors, such as how much of the merchandise
you have for sale, the nature of the merchandise you have for sale,
the nature of the merchandise and how much money you believe
should be use for promotion. For example, in considering the
nature of the merchandise alone, if an item has news value, use
the news advertising. If the item has strong and desirable visual
qualities, show it off in your window and store displays. If it can be
identified by a word description, promote it on the radio. If item
meets the requirements for both displays and radio, consider using
television.
If you have relatively small amount of the item for sale, an
entrepreneur cannot afford the cost of extensive advertising.
Neither can you afford the damage to your reputation by having
customers find that the sale merchandise is all gone early in the
day for which it was advertised. How much you have to spend, of
course affects your decision about where to promote. The item
itself, the quantity you have and your advertising budget will help
you guide in deciding what medium –or combination of media-to
use there are media outside your place of business. Outside media
include newspapers, direct mail, hand-bills, classified advertising,
outdoor signs, motion picture theatre advertising, radio and
television. Examples of inside media are handbills, manufacturers’
literature, gift novelties, window displays, interior displays,
blowups of advertisements, signs, posters and merchandise
attachments such as tags and labels.
An owner-entrepreneur should remember his principal should
sales tool your salespeople. Salespeople should be familiar with
the advertising and store displays as well as with the
merchandise they sell. If goods are moved from their customary
location to make room for a special display, the salespeople
should know and understand the reason for it.

Decision 5: Decide when to promote

As a rule, do not hold sales for long periods of time. As an
owner-entrepreneur, you can have too many promotional events
depending on the image and reputation of your business. It is
usually, best not to schedule sales are held too often for too long,
people will think the sales prices are really the normal pieces.
Some of the factors which will help an owner-entrepreneur
determine when to promote are:
 Cake factors-Holidays and special dates such as Christmas,
Mother's Day, Easter and Rizal day.
 Cinematic factors-Merchants can be prepared ahead of time;
for example, being ready to feature raincoats on rainy days
and shorts during hot season.
 Traditional factors-Retail customs and traditions, such as
Valentine Special sale on February.
 Special factors-Those characteristics of your store or
community-such as Midnight Sale, Tiangge's and special
opportunistic events like Mall Anniversary sale. Graduation
days, school openings and other local affairs may be good times
for special events.
When you have decided about the general period of the
promotion, the days in the week or in the month must
be chosen. Some stores have found that certain days
bring better results than other days. For instance,
holding special sale events on a cash basis on payday is
more productive than holding them on ordinary days.
Employees have more money just during paydays and
the day after.
The right timing for sales promotion is also essential. A
sales promotion calendar up for the timing and
coordination year will help you insure that that various
types of promotion efforts are to begin and end.
6: Decide how much to spend
How much to spend for advertising and promotion is a vital ingredient in the
entrepreneur's business. First, you should have overall plans for the year. He
may decide that he is going to spend fixed peso amount in total for the year
Another approach is for the owner-entrepreneur to develop a sales promotion
pattern for each promotion allowing enough flexibility in the plan for
refinements and updating of refinements and updating of material. Take a
look at the sales record for the same period last year and after considering all
factors which might influence this year's alas estimate the sales for the
coming period-year, month, week and even the day. After analyzing the
situation, decide on the sales goal for the period and set up a sales promotion
budget. Some of the factors to consider in determining the amount to spend
on sales promotion are:
 Location - A neighborhood bookstore needs more
promotion than an airport bookstore.
 Size of trading area - A farm equipment dealer serves a
wider area than a city shoe repair shop and needs wider
promotion.
 Age - A new store needs more promotion.
 Policies - A women's shoe store needs more promotion
than a bakery shop.
 Size in a community - A small store in a large
community needs proportionately more advertising.
 Competition - More promotions may be needed in one
situation than in another to meet or surpass
competition.
H. FUNCTIONS OF ADVERTISING
Advertising aims to develop long-term customers. In order to develop
and keep loyal customers, your advertising should he designs to inform,
persuade and remind them about the entrepreneurial business and what it
offers. In the past, advertising only needs to inform An entrepreneur-trader
would simply announced that he had just received a shipment of goods and
customers would beat a path to his door that worked well in times of
scarcity, but advertising had to take on the second function of persuasion
when mass production created an abundance of competing products. Now
people can choose between different products, different brands and different
suppliers. In addition to telling people that his product or service is available,
they need to behold them about its uses, benefits and superior features so
that they will be persuaded to try it. And finally, advertising needs to
continually remind those who were persuaded to buy why they are satisfied
where they bought it.
 Your advertising program will depend on your type of
business. If you have a quality, non-promotional small
business (for the example, an exclusive luggage shop),
your advertising budget should largely devoted to regular-
priced merchandise advertising and to institutional or
prestige advertising. You will need large amounts of
clearance advertising however, at the end of selling
periods or goods. Seasons in order to get rid of slow
movers and make way for new goods.
 If an owner-entrepreneur has a semi-promotion & small
share of the advertising business (for example, a ladies'
high- fashion shoe store), the largest will go to pushing
run shoe also need a sizeable sum of special priced lines,
but he covering traditional promotion advertising sales
events. If he has a well-rounded advertising program he
will have only an occasional need for clearance advertising
If he has a promotional business (for example, a discount
budget will be applied to the special appliance shop), the
bulk of his comparatively large advertising promotions
that he depends on.
B.1. SELECTING ADVERTISING MEDIA
The time and place that an owner-entrepreneur advertises
are just about as important as what you say Your objective
is to get your advertising message to good prospects, and
this means choosing which medium to use to spread your
message To reach the prospects, he must determine his
best media of communications (le could use newspapers
(city, neighborhood, shopping); direct mail (letter,
bulletins, manufacturers literature): radio-television spots
(time? when? what?) or programs (prestige, public service):
telephone and city directories (long range, not immediate).
Newspapers
Newspapers are the retailer's primary medium because at
an given time, they reach the greatest number of
consumers An owner! Entrepreneur can be sure that a
newspaper's readers are three or font times the announced
circulation because almost every copy is seen by several
readers. A newspaper is a shopping guide for consumers in
its circulation area It gives them information not only on
what is available, where and at what price, but it also
advertises interesting community events and other
services that will draw people into a trade area -
recreation, entertainment, food and convenience.
Use of a local newspaper for advertising will depend on
how much of the market area is covered by the
newspaper's circulation. If the bulk of your start-up
business is drawn from only a small portion of the area
that the paper covers, an owner-entrepreneur will be
paying a premium for advertising that does no good. Very
small neighborhood businesses might do well to look at
the possibility of using limited circulation, neighborhood
or shopping papers for advertising within a specified area.
However, check the readers and possible client's interest
of such papers. In some areas, well-edited neighborhood
papers are read with great interest, but in others they are
thrown away or regarded as a nuisance.
For instance, a start-up entrepreneur may think that he
cannot afford to advertise in the newspaper because the
volume of sales will not support the advertising expense.
However, look into the possibility of contract rates. By
using only one newspaper and by following a prearranged
advertising schedule, he will probably find it possible to
buy regular advertising at a preferred rate. He probably
will not have his own advertising staff, but he can get a
lot of help-particularly with copy preparation and layout-
by working with his newspaper's advertising staff
Chances are they will have a stock of attractive standard
cuts or can prepare custom cuts for him at minimum cost.
Radio and Television
Because of the high cost involved, owner-entrepreneurs
need to use radio and television effectively for the most
pan, rates base been so high that only a big organization
with high-volume sales could support advertising through
this media. But by using 'time rates and group
advertising, it is possible to make significant efforts to
bring costs within the budget of the smaller advertiser for
start-up business like yours 'Spot' announcements, worded
appropriately and timed correctly, get good results and are
not too expensive for small advertising budgets.
Before you buy radio or television advertising, consider
several factors just as you would in newspaper
advertising For instance„ if you buy time from a station
that has an effective range of 100 kilometers in every
direction, you may be charged a rate calculated on the
entire broadcast range - even though your own trade area
may extend only 2 kilometers in any direction from your
location This is the premium you will pay to get your
message to the people within a few kilometers of you.
Flyers and Leaflets
Another effective advertising for mart-up entrepreneurs is
the use of leaflets or flyers It is the most preferred
medium in retail advertising h is still an important tool
for small retail and service business and the most
economical means of small-volume Leaner advertising is
more readily controlled than other forms of promotion
because it is distributed directly by the business :rime the
advertising and it is cheap to produce The flyers can he
distributed over the specific area that is expected to give
the greatest mien and they can also be passed out in the
More even if it's just as small business you can put it out
On the counters for customers. Another technique is to
insert them in packages and accounts Flyers can be costly
if not properly distributed The people you hire to
distribute them must be trustworthy, or else you are apt
to find your message being thrown away or otherwise
misdirected Also to be considered is community reaction
to flyers. Some people resent, finding unsolicited
materials at their door or in their letterbox.
Direct mail
Direct mail has many of, the advantages of flyers and it is
also a bit more dignified and personal because it can be
directed to an individual customer. Direct mail is more
selective than newspaper, radio and television, or flyers
To ensure adequate but controlled coverage, use a
selective mailing list compiled from your own business
records or from various sources in your community
Telephone and city residence directories are also useful
for this purpose Direct mail is usually somewhat more
expensive than flyer advertising but it will give you
greater latitude because.
• You can say more
• You can try novel ideas on selected clients
• You have a better chance to get across your business
'personality'.
• You can use a more personal approach and appeal
• You can save some postage by including direct mail
ads with other mail such as monthly accounts.
Handling your own advertising or using outside
help
There is really no direct answer as to handling your Own
advertising or using outside help. Too many variables are
concerned the size and nature of your business, the sales
volume you hope to produce and the kind of market you
want to reach. Sometimes you may need professional help
in your advertising, sometimes you may not. Remember
that if there are times when a specialist can help with
other small business functions, there are probably times
when an advertising specialist would be able to advise you
about your advertising program.
An owner-entrepreneur can get some useful ideas for your ads from
suppliers, trade associations and trade publications. Your
newspaper, radio or television station can also provide aid and
counsel. You may warn to hire the services of an advertising agency
but many agencies are not set up to handle relatively small
accounts. Should you find one that will take you on and one which
you can afford to hire, it can take much of the detail work and most
of the ad execution off your hands. Be sure that you and the agency
agree from the beginning on the purposes of the campaign.
imagination can attract new customers help the owner-entrepreneur
pursued image firmly in the minds of the public. There is no single,
simple and establish the start-up business's way of creating the
perfect advertisement.
There are however, some entrepreneur create simple rules which with a little
experimentation cats the Owner effective advertisements for the start-up
business.
Size. Is the ad large enough to do the job expected of it?
Does it omit important details or is it overcrowded With nonessential
informations?
Headline. Does the headline express the major single idea about the
advertised?
The headline should usually be an informative statement and not simply a
label
Illustration. Does the illustration (if one is used) expresses the idea that the
headline conveys?
Merchandise. Does the ad offer merchandise having wide appeal, special
features, price appeal and timeliness?
Mediuum. Is a newspaper the best medium for the ad, or would other sources
such as: direct mail, radio, another-direct mail, radios or television be more
appropriate?
 Believability. To the objective, nonpartisan reader does
the ad rings true or does it perhaps sound exaggerated
or somewhat phony?
 Typeface. Does the ad use a distinctive typeface-different
from those of competitors?
 Spur to action. Does the ad stimulate prompt action
through devices such as use of a coupon, statement of
limited quantities or announcement of a specific time
period for the promotion or impending event?
 Sponsor identification. Does the ad use a specially prepared
signature cut that is always associated with the store and that
identifies it at a glance? Does it include the store location, hours,
telephone number and whether telephone and mail orders are
accepted?

 Location is the ad situated in the best spot (in both section and
location)?

 Merchandise information. Does the copy give the basic facts

about the goods or does it leave out information that would be

important to the reader?
 Layout Does the arrangement of the ad and the use of
white space makes the ad easy to read? Does it
stimulates the reader to look at all the contents of the ad?
 Haman interest Does the ad-through illustration
headline and copy - appeal to customers' wants and
wishes?
 'You' attitude. Is the ad voitten and presented from
the customers point of view (with the customer's
interests clearly in mind) or from the store's?
D. BUDGETING FOR ADVERTISING
The percentage-of-sales approach to advertising
budgets is used more often than any other method
Depending on your capacity as an owner-entrepreneur, it is
simple and easy to use, but it has some weaknesses Using
the sales forecast for the budgeting period is better than
using past sales figures because it recognizes advertising's
contribution to the current selling effort.
 The percentage-of-sales you should put into
advertising depends on a number of factors If you are
competing against a larger firm with a correspondingly
larger advertising budget. you may need to use a larger
percentage of sales even though you cannot match the
larger firm peso-to-peso.
If an owner-entrepreneur is introducing a new or
improved product line. if he is opening a new store or a
new department in present store, or if he is making any
significant changes in the nature of his business or his
image. he may need to put forth some extra advertising
effort.
 Planning an advertising budget means that he will
need to think carefully about what results to expect from
the advertising. Are you looking for an increase in total
sales? Are you interested in more sales of a particular
product line? Are you trying to defend yourself against a
competitor? Stan by determining the total amount of
money available for advertising. Then break it down
according to how it will be most effectively used.
PERSONAL SELLING

Sales training can be the single most important

factor in a successful selling operation. The poor
public image that salespeople have today is, in large
part, due to the fact that many are untrained or
improperly trained in the art of selling.
 Sales training is particularly vital to the medium-sized
owner-entrepreneur The majority of these businesses are
engaged in retail sales, and it is precisely in this field
that the poorest selling job is being done Part of this poor
showing is the result of the low wages offered to retain
sales assistants. These people are often paid a straight
salary, and one that is insufficient to attract competent
personnel but poor pay is only part of the story An
equally important reason for the sorry state of retail
selling is the lack of training and guidance given to the
salesforce
 How can selling be improved? Some owner-
entrepreneur thinks it cannot and offer as a solution
the use of self-service shopping. The large firms are
aware of the problem of inadequate retail selling, and
many of them are allocating greater sums of money to
their advertising budgets in an effort to pre-sell their
products However, selling can be improved-by the use
of effective sales training
 What is the selling process? Selling can be divided
into a five-step process. The salesperson!
1.Prepares for the sales interview through the pre
approach;
2. Gains interest by the approach;
3. Creates a desire with the presentation;
4 .Establishes confidence by answering objections;
5 .Secures action by closing the sale.
 These five steps may be found in the selling procedure
of almost any successful sales interview. However, in
retail selling customers usually come to the store. They
do so because of an advertisement or because they want
something they believe the store is selling Therefore,
when they enter the store, we can usually assume that
their attention and interest have already been aroused In
most retail situations, then, the pre approach and
approach are of minor importance and the salesperson
can focus on the last three steps in selling-making the
presentation, answering objections and closing the sale.
 Let us look at the whole selling process step by step.
1. Pre approach - The main purpose of this first step is
to secure enough information about the customer to
make an effective . approach An manager-entrepreneur
should discover every fact of value in making an
effective approach and in quickly securing the
customer's favorable attention and interest. The pre
approach may be likened to research or planning for the
sales interview. Notice that the stress is on obtaining
information about the customer.
2. Approach - In the approach, the objective is to gain
interest and put the customer in a receptive frame of
mind. As a manager-entrepreneur, you must sell
yourself before you can sell the product. The customer
must be interested or favorably impressed by you before
they will even talk to you. Did you ever brush off a
salesperson before allowing them to state their
proposition simply because they made an unfavorable
first impression?
F. WHY PEOPLE DO NOT BUY

For instance you are an entrepreneur that deals with

selling, you do not have to be in selling very long to learn
that sometimes something seems to go wrong in the sales
relationship and the sale is lost. The fact is that most
people do not like to feel they are being sold. Somehow
we resent the idea that we can be persuaded to buy
anything. Often we enter a sales situation with a
negative attitude, and when the salesperson approaches,
we are looking for a reason to say 'no.'
 It is the impression you make during the first 25 words
you speak that is most important. The effective
salesperson will recognize the buyer's attitude and will
use the opening remarks to get the customer in a 'yes'
mood and to become favorably acquainted. One method is
to ask a question about the product that requires a 'yes'
answer or that reflect a positive attitude. If a woman is
examining a blue vase and you ask her isn't that a pretty
shade of blue?,' she cannot very well say no because she
was obviously admiring it. If she says yes, the ice has been
broken for the beginning of a sale.
CHAPTER 7: THE
LEGAL FORM OF
OWNERSHIP
 When thinking about the legal form, start-up
entrepreneurs should thinking about the legal form
chosen for the new firm this means determining what will
be the status of the business in the eyes of the law. Very
important consequences are at stake if this is not done.

More than 99 percent of businesses in the Philippine

arc organized legally. as (I) single proprietorships, (2)
partnerships or (3) corporations. It is our intention here to
evaluate the characteristics, advantages and
disadvantages of these three legal forms
When confronted with the choice of a single
proprietorship, a partnership, or a corporation, many
believe that the corporation intended only for large firms.
All three of these legal forms one availableness e to snail
firms. Different factors may affect the choice in a
particular cam. In all cases, all three forms should be
looked at carefully. Some of the items which will affect the
decision include plans, for expansion, product or service
being .1d, needs for raising capital now and in subsequent
years, liability characteristics of the planned firm, the
proprietor's available investment funds, need for
continued life of the firm, alternatives for particular
locality bringing desired people into the firm and legal
requirements
THE SINGLE PROPRIETORSHIP
By definition, a single proprietorship is a business owned and
operated by one person. The owner and the business arc
synonymous in the eyes of the law. All assets in the firm are
owned by the proprietor subject only to the liabilities he has
incurred in its establishment and operation. The proprietor is
solely responsible for its debts, incurs any loses, assumes all its
risks, provides all its capital and provides its total management.
The only requirement for its establishment is that the owner
obtains any licenses required in his city, country or state and
start operations.
This simplicity in establishment has probably accounted for
the popularity of this legal form of operation. This choice may
represent neglect of other factors which would indicate another
legal form.
ADVANTAGES OF SINGLE PROPRIETORSHIP

The proprietorship form has several advantages, such

as:
1.Simplicity of organization
2.Owners’ freedom to make all decision
3.Owners; enjoyment of all profits
4.Minimum legal restriction
5.Ease of discontinuance
6.Tax advantages
 These alleged advantages should be carefully reviewed
to distinguish between mere characteristics and true
management advantages. Some thoughts in this regard
are as follows:

1.Simplicity of Organization. If the new entrepreneur

chooses a legal form of organization only because of its
simplicity of organization, he is probably
demonstrating that he lacks overall business
competence and a thorough knowledge of legal forms
and that the type of owner who is always looking for
the easiest way to make decisions.
2. Owner’s freedom to make all decisions enjoy all
profits. One advantage of the proprietorship is that the
owner is free to make all decisions and to receive all the
profits completely. This benefit is however, true also of a
closed corporation. If the same entrepreneur has his
business incorporated for 100 shares of common stock and
is required by law you have 5 stockholders/incorporators,
he can give 1 share to his wife, 1 share each to his
children and retain 96 shares in his name.
Abner evaluation of these items is the following:
1 The Owner's Lack of Ability and Experience. The
new entrepreneur may truly lack these qualifications. It
is to guard against this possibility that experience is
recommended for those planning to own their own firms.
Sound college courses in management arc available to
college students. Participation in management consulting
courses can be tremendously helpful. Moose without
formal study in management can learn much from
working for other firms in the same line of business.
Testing one's own competence through studios of good
business texts should hot prelude to investing in and
opening a new firm. Only when the entrepreneur feels
that he knows a great deal about the particular firm he
proposes should he proceed It should be pointed out,
however, that this feature of the entrepreneur's capability
is not inherent in the legal form of organization to chooses
Lack of ability and experience can ruin a partnership or a
corporation just as easily as it can a proprietorship.
2 Limited Opportunity for Employees. This point has
been overdone as a disadvantage of the proprietorship.
Aggressive, capable employees may indeed desire more
rewards faster than the firm can provide them You can
indeed promote some people only sofas, and the best
thing you can do for them is to promote them out the
front door. But let us realize that if the same firm is a
partnership or a small firm corporation, the employees'
environment. Potential rewards and promotions for
employees are the same Small firms generally face the
problem of keeping good employees. All large firms fact
this problem..
Also, probably a refreshing thought in this regard is that
small firms have not fully utilized profit sharing.
Bonuses, or a share in the ownership of the firm in order
to keep key people on the Payroll. Possibilities of stock
ownership in a corporation add to these benefits. Good
employees are a firm’s most valuable asset the problem of
obtaining and keeping them is not solved merely through
the choice of a legal form.
3. Difficulty in Raising Capital. This can be a problem,
on the average, two men have more capital than one. It
follows that, on the
.
average, new men would have more
to invest providing the capital needs of a new however. If
it does exist small business. Not all firms have this
problem, however the firm, he would restrict his
alternatives in raising the capital. When he has seriously
restrict his alternatives in raising adequate capital the
problem of building a sound financial structure for his
firm, he can compare its investments needs with his
available funds and make a decision in this regard.
4 Limited Life of the Firm. Discussions of this feature
of legal forms are usually restricted to the partnership
form of organization but it also applies to
proprietorships. What is involved is the matter of legal
discontinuance of the firm. Untimely, unanticipated, or
unplanned removal of the proprietor from operation of
the business may have ramifications for creditors of the
firm. Restrictions on credit granted may be founded in
this matter of limited life. An owner's record for
stability, honesty and capability can largely overcome
this practical problem. When these are unknown, as in
the case of a new fine, it may have some application.
5 Unlimited Liability. By far the greatest disadvantage of the
proprietorship is its inescapable feature of unlimited liability.
This disadvantage is one, which applies directly to the owner. It
means that, even though he believes he has invested only part of
his total capital in the business, he is liable to the full extent of
his total assets for the liabilities of the firm. A damaging lawsuit
lost, a judgment for injuries suffered by a customer on the
premises, a serious accident involving injuries to outside persons
are some of the things which can create liabilities far beyond
anything anticipated when the firm was planned. It is this
feature of the proprietorship that causes many men when aware
of unlimited liability to put their homes in their wives' names in
order to remove the home from being available to pay such
claims.
The present divorce rate in our country hardly makes
this a recommended procedure in all cases. The owner's
savings accounts, his investments, and any other assets
are liable in these cases. As we noted earlier, in the
proprietorship legal form, the owner and the business are
synonymous and all his assets, not just those he thinks he
invested in the firm, are liable to pay its debts. Insurance
protection can be provided, of course, this matter will be
discussed in a later chapter.
THE PARTNERSHIP

Two or more start-up entrepreneurs may also forma Partnership

to start a business. A partnership is usually defined as an
association of two or more persons to car, on as co-owners of a
business for profit. Partnerships are based upon a partnership
agreement, also known as the articles of copartner ship. The
partnership agreement should always be reduced to writing, even
though this is not a legal requirement. It should cover all areas of
possible disagreement among the partners. It should define the
authority and the rights and duties of each partner, and the
hams to such authority. It should include an agreement on how
profits and losses are to be divided.
 Their treatment need not be the same. In the absence of an
agreement to the contrary, profits and losses arc divided equally
among all partners. Partners may make special arrangements to
pay members of the firm for services rendered, interest on
capital investment, time spent or advance drawings before the
balance of profits is to be divided in an agreed ratio.
Many successful partnership firms have been dissolved
because of serious disagreements between original partners that
were not anticipated be the partnership agreement.
Thoroughness in this matter overemphasized.
Advantages of the Partnership

The following advantages of the partnership form of

organization are usually cited in business books:

1.Ease of organization
2.Combined talents. judgment, and skills
3.Larger capital available to the firm
4.Maximization of personal interest in the firm
5.Definite legal status of the firm
6.Tax advantages
With the benefit of our previous discussion of the
Proprietorship, we can quickly evaluate these alleged
advantages. Ease of organization should not be a management
consideration in starting
. a new firm. Greater financial potential
is true only in average terms; personal interest of partners
should be no greater than if each had stock in a corporate form
organization, and definite legal status can be important to
creditors. In most income brackets, a group of partners would
pay has total federal in to, tax than the owner(s) would under
either of the other chief legal for, Advantages of potential
substance, then, as compared with the proprietorship, seem to
be possibly greater capital available, generally less income tax
on the same net profits and a positive legal status. As compared,
only the tax consideration would remain as a potential
advantage.
Disadvantages of the Partnership
The partnership has some very real
disadvantages, which can be serious to well-
meaning people who start their firms in good
faith. Four disadvantages merit brief
discussion:
1 Unlimited liability
2 Limited life
3 Divided authority
4 Danger of disagreement
1. Unlimited Liability. Just as this condition
applied to the proprietorship, it is even more serious
in the partnership. Not only is a partner liable for
debts he contracts for the firm, but he is also
responsible to the full extent of his resources for debts
contracted by his partners.
2 .Limited Life.
Any change whatsoever in the list of partners
automatically ends the life of the existing partnership,
and a new legal entity must be created by the
remaining partners. Admission of a no partner, death
of an existing partner and withdrawal of any partner
arc cases in point. Restatement of all assets and
readmission of all liabilities and individual capital
accounts arc part of the process. This is also known as
mandatory dissolution.
3 .Divided Authority.
It is one thing for two entrepreneurs of different hoes
of expertise to combine their talents in a partnership.
Each can clearly defined areas of operation. Other areas,
however, such as policy for the total fin, financing plans,
personnel management and ideas on expansion, can
create divided authority and delay decisions for rho firm
Some activities always seem to provide possibilities of
conflicting authority.
4. Danger of Disagreement.
The ever-present Possibility of disagreement between
the partners/entrepreneurs can be extremely serious.
Even though a very though partnership agreement is
written, clauses arc subset to various interpretations,
some partners may willfully exceed clearly defined
authority and discontent can develop between the
partners. Only honest and capable men of great mutual
respect should engage in partnerships.
Types of Partners
Partnerships are usually either general partnerships or limited
partnerships. A general partnership is one in which tech partner
carries the unlimited liability for the firm, debts A limited
partnership is one in which some partners may have their
liability limited to the extent of their investment. It must have at
least one general partner who carries the unlimited liability
obligation Withdrawal of a limited partner dues not dissolve the
partnership, as withdrawal of a general partner will do Limned
partnership agreements must usually be filed with a government
official Without notice as to the acceptance of a limited partner,
all partners are considered to be general.
 There are many other special types of partners which new firm
planners may wish to investigate. Secret partners are those who
play an active role in the business but arc not identified to the
public as partners. Silent partners are those who are riot active in
operations but share in the profits. Dormant partners are those
not active and not known to think Nominal partners are really
not partners at all but allow the public to think they are by their
action and words. Special circumstances may make it necessary
to choose these types of partners, but their use is not normally
recommended. The limited partnership, on the other hand,
enables .many new firm planners to obtain capital that might
otherwise not ha been available. In most such cases that we have
reviewed, the corporate form of organization would have served
everyone’s purpose in superior manner.
Advantages of the Corporation
These are the advantages of the corporation as a
form of organization:
1 Limited liability to stockholders
2 Perpetual life
3 Ease of transferring ownership
4 Ease of expansion
1. Limited Liability to Stockholders.
Rather than risk his entire assets to the debts of the
business, the new entrepreneur or investor in stock buys
his shares at a given price, and this investment is the
total liability to which he can be subjected Only those
assets, which are turned over to the firm in exchange for
the shares become corporate property. Total corporate
liability is the assets listed on its balance sheet. No
longer need the new entrepreneur fear the unexpected
Judgment against him as a threat to his other assets.
2. Perpetual Life. If all the stockholders of a given
corporation died on the same v the business would
go on as a legal entity. Shares would pass to the
heirs of the original owners of the stock would
inherit a going concern.
3.Ease of Transferring Ownership. Any
stockholder can sell his shares when he desires.
Formal transfer of stock certificate titles can be
easily facilitated so that a new certificate can be
issued in the name of the new owner of the shares.
Operations of the company will not be affected by
this transfer.
4. Ease of Expansion of the Company. Although
additional stock sale is not the only way to raise capital
for expansion, it is usually easier to sell additional stock
when expansion is contemplated. Many businesses can get
permission from the Securities and Exchange
Commission to sell more stock than originally planned for
sale. The balance is held as "authorized but not issued"
stock. It should appear on the balance sheet in the Net
Worth section for informational purposes. If all
authorized stock has been sold, a corporation may request
permission to sell additional stock when an expansion is
contemplated.
Disadvantages of the Corporation

The chief disadvantages are

1 Expense of organizations
2 Capital stock tax

1. Expense of Organization. There is an expense in

organizing a corporation. The use of a lawyer is
recommended when applying for registration with the
Securities and Exchange Commission. Requirements for
registration include specifying the business activity in
which the firm will engage, types of stock it desires to
issue and quantities of each to be authorized.
How then, will the new entrepreneur decide upon his legal
form of organization? As previously mentioned, he will
consider the importance of unlimited liability, the
protections available through public liability insurance,
his expansion plans, the nature of his product, dangers
inherent in the service or product and the relative
incidence of risks in normal operations which might
provoke lawsuits and judgements against him. Through
the potential of preferred stock, a corporation can attract
investors who prefer dividends to increase market price.
Preferred stock does not normally carry voting power and
the planner is able to keep control of his company by
retaining 51 percent of the voting common stock.