ENTREPRENEURIAL MIND

Authors: HELEN A. BAESA, MAE  JOSE MIGUEL LUIS REYES, PhD.  CRYSTALYN LUMAGUE LPT  RENZO L. REYES,
MAED  MARK JAYSON BERBOSO MAED  JASON SANTOS, MBA AMABELLE BERNADETTE A. ALCARAZ, MBA

Page 1
 INSTRUCTIONAL MATERIAL
in
THE ENTREPRENEURIAL MIND

Prepared By:

HELEN BAESA, MAE

Page 2
 TABLE OF CONTENTS

Title page……………………………………………………………………………..1
Table of Contents…………………………………………………………………....2
Syllabus……………………………………………………………………………….3

UNIT 1: A PERSPECTIVE ON ENTREPRENEURSHIP………………………………14

Chapter 1 Building Wealth…………………………………………………………14
Chapter 2 Entrepreneurship, Philippine Economy and
Cultural Values ……………………………………………………...23
Chapter 3 Who is an entrepreneur………………………………………………..34
Chapter 4 Business Opportunity in Small Business……………………...……..46

UNIT 2: KEY TO SUCCESS…………………………………………………………… .53

Chapter 5 Developing Business Plan…………………………………………….53

Chapter 6 Managing the Enterprise………………………………………………75
Chapter 7 Marketing for Small Business…………………………………………86
Chapter 8 Production of Goods and Services…………………………............ .102

UNIT 3: CREATING BUSINESS ENTERPRISE……………………………………….120

Chapter 8 Organizing the Business Enterprise…………………………………120

Chapter 9 Managing a Small Business Finance……...……………………….. 139

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 BS ENTREPRENEURSHIP ORIENTATION

COLLEGE: College of Business Administration DEPARTMENT: Entrepreneurship

COURSE CODE: EC 102
FACULTY: Helen A. Baesa

WEEK TOPICS OBJECTIVES LEARNING OUTCOMES LEARNING LEARNING

RESOURCES ACTIVITIES
/DURATION
(Please see
description
below)
Week ECE
1 Orientation Become familiar Acquire Undergradu Ice
with the knowledge and ate Student Breakers
University University develop an Manual – 20
vision, vision, mission, awareness of the BOR mins
mission, goals and vision and Resolution
goals, objectives, and mission of the No. 85, Video
objectives, academic Bulacan State Series of Viewing
university/coll regulations; University as 2016 – 20
ege rules and manifested in mins
regulations, satisfactory A Day in the
and course scores in Life of a Five-
syllabus. writtenexaminatio College Minute
nsn.; Student in Paper –
BulSU 5 mins

Multimedia
(Presentatio
n slides and
Pre-
recorded
Lecture
Videos)
Week Wealth The student is • Be aware of the Module Consulta
2 Creation expected to importance of tion
understanding and

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 give definition managing money in Power Point
of the wealth reaching financial Presentatio
creation goals. n
Explain the Create a budget
plan.
importance of
wealth creation
Discuss the Latest
wealth creation Investments
plan Ngayong
Explain the 2022 na
reason of Magpapaya
investing man Sa 'Yo!
| Chinkee
Tan

Week Entrepreneur- Identify the Identify Module Consulta

3-4 ship and factors that entrepreneurial Power tion
Philippine affects the concept, Presentatio Quiz
Economy business knowledge, n
establishments process, skills
in the and values
Philippines through case
Explain how the study, lectures,
economy grows group activities
Discuss how and seminars
entrepreneurshi which promote
p could improve and develop
the quality of entrepreneurial
life mindset.

Analyze the
economic
condition and

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 entrepreneurial
environment of
the Philippines
through a forum
or a round table
discussion
highlighting the
status and
challenges
besieging the
Philippine
economy and its
business
enterprises
Week Philippine Know the One page Module Consulta
5 Culture, reasons why Reflection Paper Power Point tion
Entrepreneur growth and on Philippine Presentatio
ship and development Culture, n
Development differ between Entrepreneurship
countries; and Development
Define the true
meaning,
purpose, and
contribution of
entrepreneurs;
and
Be
knowledgeable
about Filipino
values and their
effect on
entrepreneurshi
p.
Week Who is an Discuss the Develop Consulta
6 entrepreneur significance of entrepreneurial tion
? knowing oneself skills and traits. Quiz
as part of being Answer the case
successful study.
entrepreneur
Identify some
character traits
that are
common among
successful
entrepreneurs

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 Emulate the
different
attributes of an
entrepreneur
Week Business Identify the Create Product Consulta
7-8 Opportunities factors to Innovation tion
consider in Prepare SWOT Quiz
evaluating the Analysis
business
potential of an
idea
Week MID-TERM Submission of Online
9 EXAMINATIO Recorded Written
N Product Examina
Innovation tion
Presentation
Week The Project Define business Create business Consulta
10-11 Feasibility plan who plan tion
Developing a prepares it, who
Business reads it, and
Plan how it is
evaluated.
Discuss the
aspect of
business plan;
and
Discuss the
importance of
business
planning.
Week Managing Define Apply the Module Consulta
12 Enterprise management business Power tion
List the concepts, Presentatio Quiz
functions of frameworks, n
management theories and Recorded
Summarize the ethics and key Discussion
basic roles of a factors to success
manager such as https://haiilo
Enumerate the management, .com/blog/b
guide to marketing, usiness-
become production and transformati
effective and financial in the on-2020-
successful formulation of the guide/
manager business plan.

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 Explain the
theories of
management
Discuss the risk
management.
Week Marketing Understand the Describe Module
13 Small function and techniques to Power Point
Business role of consider when Presentatio
marketing in an creating a n
organization; marketing plan.
Identify the four
components of
the marketing
mix; and
Discuss the
concept of
market
segmentation
and
Identify
approaches in
segmenting the
market

Week Production of Define Understand the MODULE Consulta

14-15 Goods and operations input–process– Power Point tion
Services management; output framework, Presentatio Quiz
Enumerate the the extensions of n
factors of it, and apply them You Tube -
production; to a wide range of Factory
Summarize the operations Tour
importance of
production
Understand the
planning;
Explain the cost content of an
production; operations
Discuss the strategy and the
relevant decisions
technology involved.
Explain the
various types of
inventories; and
Identify the key
elements of
product design.

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Week Organizing Discuss the Draw an Module Consulta
16 the elements that organizational Power Point tion
Enterprise influence a structure. Presentatio Quiz
firm’s business Prepare job n
organizational description and Video
structure job specification. Presentatio
Explain how n
specialization
and
departmentaliza
tion are the
building blocks
of the
organizational
structure
Distinguish
between
responsibility
and authority
Differentiate
decision making
in centralized
and
decentralized
Organizations
structures
Explain the
differences
between
functional,
divisional,
project and
international
organization
Differentiate the
job description
and job
specification
Understand
how the
informal
organization is
different from
the formal
organization

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 Identify the
various forms of
business
organizations
Week Managing Define the Prepare financial Module Consulta
17 Small financial statement such Power Point tion
Business management as balance sheet Presentatio Quiz
Finance Identify the and income n
possible statement.
sources of
capital for
entrepreneurs
Enumerate the
C’s credit.
Explain the
financial plan
Discuss the
financial
statement

Week Final Submission of Online

18 Examination Business Plan Written
Examina
tion – 2
hours

LEARNING ACTIVITIES
1. READING AND STUDYING MODULES
2. ONLINE DISCUSSION, INTERACTIVE LEARNING ACTIVITIES, SHARING
3. ICE BREAKERS – introduce themselves to each other and have a sharing on what
they would like to learn and their expectations in the course.
4. CASE STUDIES AND PROBLEM-BASED ACTIVITIES– Apply concepts learned
in class to a “real-life” situation.

5. FIVE MINUTE PAPER - At the end of class, the students are assigned to write
down their most eye-opening revelation or biggest questions on the topics for the
day. This activity will let them reflect on learning and build writing skills.
6. USING VIDEOS TO AMPLIFY LEARNING - After the video clip has been played,
set a timer for 3 to 5 minutes and have students write down any thoughts that come
to mind about what they have seen. Also, the students are asked to find a video
that fits a certain criterion concerning the video they just watched.

Prepared by:

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MRS. HELEN A. BAESA
Associate Professor 2

Noted by:

MRS. AMABELLE BERNADETTE ALCARAZ

Program Chair, Entrepreneurship

Approved by:

DR. EMERLITA S. NAGUIAT

Dean, College of Business Administration

UNIT 1: THE PERSPECTIVE ON ENTREPRENEURSHIP

Chapter 1 Building Wealth
Chapter 2 Entrepreneurship and the economy
Chapter 3 Who is an entrepreneur
Chapter 4 Business Opportunity in Small Business

TITLE OF THE LESSON: Wealth Creation

DURATION: 3 Hours
INTRODUCTION
A lot of business owners experience struggle when it comes to wealth creation because
this is rarely taught nowadays, and they end up hiring professionals to manage their
wealth.That is why some of the objectives of this lesson include the introduction of the
concept of wealth creation, how to manage income, how to increase income, and also
how to choose the right investment. The lesson also presents wealth creation
opportunities that apply to all types of individuals.
Suitable techniques and procedure:
▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES:
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These are some expectations for the student after this comprehensive lesson:
• The students will know what is wealth creation.

• The students will discover the importance of wealth creation and investing.

• The students will discuss the wealth creation plan.

• The students will explain the reason for investing.

PRACTICAL EXERCISE/QUESTION: Pre-test

As a student, how would you create wealth?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
LESSON PROPER/COURSE METHODOLOGY

What is WEALTH BUILDING?

Wealth building is the process by which long-term income is created through
multiple sources like savings, investments and many more income-generating assets.

What are the three steps to building wealth?

Mainly, to accumulate wealth over time, you need to do just three things: (1) Make
money, (2) save money, and (3) invest money.

Tips to build wealth from nothing:

1. Have a clear understanding on what is wealth creation and the hows of it.
2. Settle and pay your debts.
3. Avoid the tendency of spending unnecessary expenses.
4. Have a disciplined mindset.
5. Reduce Conventional Debts.
6. Save and Invest.
7. Pay it Forward

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 Wealth Creation
During this pandemic, all nations struggle to obtain financial stability. It has a
tremendous impact on our economy.
Many people define wealth creation based on different factors- increasing the level
of money, getting rich or investing to increase money. It differs depending on the
characteristics and behavior of a person. In Economics, Wealth Creation is the increase
in the number of assets owned by an individual, a family, community, organizations, and
country. Since economics is associated with scarcity, when there is an increase in the
resources, especially scarce resources, that can also be considered wealth creation.
In the area of entrepreneurship, Wealth Creation is defined as the combination of all
financial planning and investment of assets owned by an individual, family, or company.
It includes planning for the future like getting married, having children, the costs of
education, tax services, estate planning, and retirement planning. From this meaning, one
can see that wealth creation is important in our lives and it entails different functions in
our lifetime. Yet, one must remember that to be successful in wealth creation, needs,
wants, and goals must be understood, organized, and prioritized first, to be able to meet
the growth opportunities of wealth.
Furthermore, wealth creation entails the use of one's imagination and hard work to be
able to produce a huge amount of money. Hereby, wealth creation is all in the mind of a
person. It is the way a person thinks that will help him/her do something unique that leads
to wealth creation and possibly a way out of poverty.
On the other hand, wealth creation is also defined as the process of producing a supply
of assets like stocks, gold, cash, bonds, and real estate; that is considered to be sufficient
in generating a stable source of income to help in livelihood. As once said by Robert
Kiyosaki, "Don’t work for money, let money work for you." Also, it is important to
start early, as assets appreciate more in the long run.

Importance of Wealth Creation

1. Regular source of income. Good investments can provide a source of income. It

can help individuals pay bills in the future or even after retirement. It also helps in

providing emergency cash or fund in times of need or for special events and

occasions.

2. Healthy Retirement. Building wealth is a requirement for a healthy and happy

retirement. Wealth creation is specifically important to those who are near their

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 retirement years for it can help them enjoy the present without worrying about the

future.

3. Goal-based investing. As explained above, the first step in wealth creation is

determining your goal. In this way, you know what to do, and what to achieve, and

it will also help you push yourself harder to achieve that goal. A goal-based

investing always helps in achieving targeted wealth. Having a goal also works well

with finances, for it helps individuals to budget income and save more.

Ideal Wealth Creation Plan

Since Wealth creation is a part of a financial plan, here are some steps to consider in
planning wealth creation.
1. Creating a budget

2. Invest rather than just saving.

3. Understand the impact of inflation on saving.

4. Investing in appreciating assets

5. Becoming Debt-free.

6. Cutting on unnecessary expenses

7. Don’t mix insurance with investments

What Is Budget?
A budget is the estimation of income and expenses over some time. It is commonly
compiled and evaluated periodically to achieve a certain amount. Creating a budget is for
everyone that wants to track their money and how they spend it.
Creating a Budget in Five Steps
1. Know your after-tax income. After getting your regular paycheck, the amount

you receive after all the deductions like loans, insurance, etc. is made is your after-

tax income. If you have other types of income perhaps you make money from side

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 gigs deduct the costs and taxes you incur in that gig, and that will be your after-tax

income.

2. Select an appropriate budgeting plan. The budget should be able to cover all

your needs. Choosing the appropriate budgeting plan can help you in achieving

your financial goals and at the same time help you in fulfilling your needs.

3. Track your progress. It is important to always track your progress. In this

way, you will know how fast or slow you are in achieving your goals.

4. Automate your savings. Always automate, so that the money you've saved for a

particular purpose goes there with minimal effort on your part. You can choose an

accountability partner that will help and support you in doing your budget and

achieving your financial goals.

5. Revisit your budget as needed. You'll never know when to change your budget

again. It can be due to an increase in income, increase in expenses, or priorities.

Therefore, do not forget to adjust your budget accordingly.

Investment
Investment is an asset or item gained with an end goal of appreciating and producing
income. In economics, investment is the act of acquiring assets or goods that will not be
consumed today but will be used in the future. In the area of finance, investment is term
coined referring to a monetary asset purchased with the expectation of becoming a
source of income in the future or in other ways similar to it.
Investment is an asset that is designed to allow money to grow over some time. The
wealth created from investing can be utilized as savings, income when you experience a
shortage in the budget, payment of loans, purchase of another asset, etc.

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Categories of Investment
1. Ownership Investments- a type of investment in that assets are owned and
purchased by an investor. Examples include stocks, real estate properties, and bullion,
among others. Having a business and funding is also an example.
2. Lending Investments - bonds are the main instrument when it comes to lending
investment. The money you invest is used to fund banks to give loans to other people
and also the government to fund some projects.
3. Cash Equivalents - these are the type of investments which can easily be converted
into cash, with a minimal level of risk.
Reasons to Start Investing
1. To Keep Money Safe
Money conservation is one of the central reasons people invest. Most of the time, people
save and invest money so that they can have something to spend when they need to buy
something, when there are unexpected expenses, to safeguard the future, and also to
save up for retirement.
2. To Grow Money
Another objective of investing is to secure that it grows into a huge amount over time. The
appreciation of capital is normally a long-term goal that helps secure future finances. To
grow money into wealth, one must consider different investment options that will have a
significant return depending on the amount invested. Some of these investments are
associated with a high level of risk, but at the same time, the return of the money is also
at a high level.
3. To Have a Stable Income
Investing can also help in earning a steady source of income. It can be your primary
source of income or secondary. An example of an investment that pays out regularly
includes fixed deposits that have a regular interest. Another is buying stocks from
companies that pay investors dividends. This type of income-generating investment can
also help in paying your everyday expenses and also in saving some extra money in the
future.

4. To Achieve Financial Goals

Investing can help in achieving short-term and long-term financial goals without
experiencing trouble or too much stress. Some investment options have a high liquidity
level with short lock-in periods, on the other hand, some investment options have a long
lock-in period and are not very liquid. An individual can choose the most ideal type of
investment to be able to achieve financial goals. It can be an investment with short lock-

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in periods if one wishes to use the money instantly, or it can also be an investment with
long lock-in periods if one wishes to use the money in the future.

Understanding the Impact of Inflation on Savings

Inflation is the result when prices of goods and other services increase in a specific
economy. It can be the rise of the prices of food, clothing, transport, housing, etc. As the
price increases, people suffer, and also their capability to consume different goods and
services decreases. Inflation that is too high is not good for individuals and the economy.
Furthermore, inflation reduces the value of money. Therefore, the value of the money you
saved today will not have the same value in the future due to inflation.

ACTIVITY # 1
TRUE OR FALSE
Direction: Write the word true if the statement is right and false if the statement is
wrong.
________ 1. Wealth creation is about growing your money to achieve various financial
goals.
________ 2. Building wealth is a requirement for a healthy and happy retirement.
________ 3. A budget is the retirement estimation of income and expenses.
________ 4. Investing can help in earning a steady source of income.
________ 5. Saving is vital and provides money security and freedom.
________ 6. Inflation reduces the value of money.
________ 7. Cash equivalents are the assets are owned and purchased by the
investor.
________ 8. Investment is designed to allow money to grow over some time.
_________9. Inflation is the estimation of income and expense.
_________10. Wealth creation is the process of producing a supply of assets like cash,
stock, and bonds.

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REFLECTION
Based on the discussion of Lesson 1 – Wealth Creations, what part did you enjoy the
most? What are your learnings? Also, is there anything in the lesson that you could
apply or use in your life?
LEARNING INSIGHTS

• Wealth creation is the process of creating a pool of assets (stocks, bonds, real
estate, gold, and cash), which could be self-sufficient to generate a stable source
of income to aid livelihood.
• The importance of wealth creation is a regular source of income, for healthy
retirement and goal-based inventory.
• The value of your savings can be reduced through inflation.
• Appreciating assets are a pretty nifty way to grow your net worth because in some
cases, their value will increase without any effort needed on your part

POST-TEST:

MATCHING TYPE
DIRECTION: Match column A to column B. Write the capital letter on the space provided.

A B
_________ 1. Appreciating assets. A. Wealth
_________ 2. Estimation of revenue and expenses B. Inflation
over a specified future time.
_________ 3. The contract that offers financial C. Saves up for retirement
compensation in case of death or
disability.
__________4. Measures the value of all assets D. Certificates of Deposits
of worth owned by a person.
__________ 5. Reason to start investing. E. Budget
__________ 6. Refers to the increase in the prices of most F. Wealth Creation
goods and services.
_________ 7. Asset or item acquired with the goal G. Insurance
Of generating income or appreciation.
_________ 8. Service or play you purchase with the H. Life Insurance
The intention of guarding against loss of
life, and property.
_________ 9. Things to give up to become I. Economic Crisis
debt free.

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_______ 10. Investment service that combines J. Eating constantly
financial planning and investment
advice.
K. Investment

FINAL REQUIREMENTS

Read an article about wealth creation. Make a reaction paper.

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UNIT 1: PERSPECTIVE ON ENTREPRENEURSHIP

TITLE OF THE LESSON:

• Entrepreneurship, Philippine Economy and Cultural Values

DURATION: 3 HOURS
INTRODUCTION:

The Philippines is considered a developing country and its level of development is

considered medium development. It is ranked #112 out of 187 countries. According to the
Millennium Development Goals, the Philippines is doing well in the attainment of some of
its goals, particularly hunger reduction, However, a cause of concern is the indicators
referring to jobs, which shows that most Filipinos do not have enough access to the
necessary well-paying jobs. Entrepreneurship is thus, seen to be a possible way of
addressing this problem by encouraging people to start businesses and be self-employed,
as well as create jobs for others.

Suitable techniques and procedure:

▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES:
• identify the factors that affect the business establishments in the Philippines
• explain how the economy grows
• discuss how entrepreneurship could improve the quality of life

PRACTICAL EXERCISE/QUESTION: Pretest

TRUE OR FALSE:
__________ 1. The Philippine economy is composed of business enterprises,
households, and the government.
__________ 2. Entrepreneurship is the key factor in economic development.
__________ 3. Manpower is the utmost important resource used in business.
__________ 4. Entrepreneurship improves the quality of life.

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__________ 5. Lack of information is the barrier to the growth of Philippine SME’s.
__________ 6. The government should interfere in economic activities.
___________7. Technology helps the business and it increases production.
__________ 8. Entrepreneurship brings social benefits through the government.
___________ 9. Filipino have a high sense of adventure.
___________ 10. Honesty promotes ethical business practices.

DISCUSSION AND EXPLANATION OF THE LESSON:

THE PHILIPPINE ECONOMY

HOW DOES AN ECONOMY GROW
1. The Philippine economy is composed of business enterprises, households, and the
government.
2. There are economic freedoms, like free competition, free choice of investments, and
prices, which are determined by the interface between the factors of demand and supply.
3. The quality of people through their skills and values are the main determinants of
economic growth.
4. There were inhabitants in the Philippines about 250,000 to 300,000 years ago. They
arrived from other countries through land bridges. They had primitive economic existence.
More civilized migrants came in later years.
5. Our country was a slave of three colonial masters: The United States, Japan, and
Spain. Nevertheless, the Chinese subjugated the retail trade even earlier than the
Spanish time. The Spanish rule introduced the tobacco monopoly and galleon trade for
the benefit of top-ranking Spanish citizens. Similarly, the Americans exploited our
agricultural economy. Japan completely ruined our economy.
6. The Philippine government got its political independence in 1946, but not economic
independence from the US. The import control program of President Carlos Garcia gave
breathing space for Filipino entry. However, they did not last because the US had its own
of dominating the Philippine economy.
7. Under Martial Law rule, the friends of the Dictator controlled the Philippine business.
Democracy was reinstated finally upon the assumption of Corazon Aquino as president.
Under her administration. The engine of economic development has been given to the
private business sector. The Ramos government has continued most of the good
programs of the Aquino administration.

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8. The national government, in its effort to lessen poverty, has been encouraging the
growth of entrepreneurship. It has some financial and technical assistance programs for
the unfortunate who are interested in putting up their micro businesses. Even some NGOs
are enthusiastically involved in entrepreneurial projects for the poor.

HISTORY OF ENTREPRENEURSHIP

A Brief History of Entrepreneurship;

• Earliest Period
• Middle Ages
• 17th Century
• 18th Century
• 19th Century & 20th Century

Figure 1
History of Entrepreneurship

RESOURCES USED IN BUSINESS

• Raw materials are the inputs that a business uses to manufacture its finished
products. There are unprocessed materials like metal stock or unrefined natural
resources that businesses use in the manufacturing processes to produce finished
goods to sell to consumers.

• Capital is a term for financial assets. These are funds detained in deposit accounts
and/or funds gained from distinct financing sources. Capital can also be linked with
the capital assets of a company that entails significant sums of capital to finance or
expand.

• The market is simply the buyers and users of the entrepreneurs’ products.
Technically, people who buy the product are called customers, while people who use
the product are called consumers or end-users.

• Manpower can mean "labor force," "workforce," "workers," or simply "people," and
applies to both men and women. In business, we need manpower who is right to the
job. It is the utmost important resource used in business.

• Technology is science or knowledge put into practical use to solve problems or

invent useful tools. It is important in the business enterprise because it increases
production.

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• Supplier person or business that offers a product or service to another entity. The
part of a supplier in a business is to offer high-quality products at a good price from a
manufacturer to a distributor or retailer for resale.

• Information, helps the entrepreneur to manage the business enterprise.

Information is valued because it can affect behavior, a decision, or an outcome.

• Interest. It is individual attention and focuses on his business. To succeed in your

business owners shall give their full effort in managing their venture.

SOCIO-ECONOMIC BENEFITS FROM ENTREPRENEURSHIP

• Promotes self-help and employment

• Mobilizes capital
• Provides taxes to the economy
• Empowers individual
• Enhances national identity and pride
• Enhances competitive consciousness
• Improves quality of life
• Enhance equitable distribution of income and wealth

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 Figure 2
The Ultimate List of Best Business Ideas in the Philippines

BARRIERS TO GROWTH OF PHILIPPINE SMEs

Over the years, the following have been determined to be the major reasons why
entrepreneurship has not developed in the country:
• Poor access to finance
• Obsolete technology
• Low productivity
• Lack of skills upgrading
• Lack of information
• Inability to make the entrepreneurial transition
• Poor linkage among small, medium, and large industries
• Inappropriate location
• Management incompetence
• Poor market access
• Lack of infrastructure
• Bureaucratic/cumbersome procedures
• Severe global competition

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The Role of Entrepreneurship in Economy Development
1. Entrepreneurship bids an economical and faster technique of distributing goods and
services that hastens economic development.
2. Entrepreneurship is capable of generating jobs, income, goods, and services.
3. Entrepreneurship improves the quality of life.
4. Entrepreneurship contributes to a more reasonable distribution of income, and
therefore, comforts social unrest.
5. Entrepreneurship uses and mobilizes resources to make the country fruitful.
6. Entrepreneurship brings social benefits through the government.
7. Entrepreneurship has several definitions. Any person who takes the risks and invests
his resources to make something new or better is engaged in entrepreneurship. This
applies not only to business; it can also be applied to social services.
8. Economic development is a process, while economic growth is a product of economic
development, both economic and non-economic factors constitute the determinants of
economic development. In less developed countries, economic human conditions by
reducing or eliminating poverty, disease, injustice, illiteracy, and exploitation.
9. Development and Growth Theories.
A. Laissez-Fare Theory explains that the government should not interfere in
economic activities.
B. Keynesian Theory explains that the government should play a key role in
economic development.
C. Ricardian Theory is the theory of David Ricardo focuses on agriculture playing
a major role in economic development.
D. Harrold-Domar Theory, conceptualized by Sir Harrold of England and Prof.
Domat of the US claims that the usage of machines leads to more products.
E. Kaldor Theory, by Nicholas Kaldor, maintains that the key factor is technology.
This theory explains that the use of modern technology in the production of goods and
services has been accountable for the economic success of highly developed countries.
F. Innovation Theory, developed by Joseph Schumpeter, stresses the role of
innovators or entrepreneurs in economic development.
10. The contributions of entrepreneurship are:
1) Development of new markets
2) Discovery of new source of materials
3) Mobilization of capital resources.

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 4) Introduction of new technologies
5) Creation of employment.

11. Due to the urgent need for a Fillipino entrepreneurial economy, it would be better for
Filipinos to be in charged of the productive resources for their paybacks.
12. The government can help entrepreneurs through several assistance programs on the
following: Peace and Order, Political, stability, Taxes, Infrastructure, Education and
training, public administration, Production technology, Marketing Assistance, And
Financial Assistance.
13. We have seen that entrepreneurship directly affects the social and economic
development of people. The more society engages in entrepreneurial undertakings, the
more it is likely to develop economically and socially.

How does an economy grow?

A. Theories of economic growth may be classified into three broad groups. One group
consists of theories viewing economic growth as a natural and inevitable process. The
second group of theories explains economic development as a rational process
brought about when men respond to opportunities in the environment to promote views
of economic development as a result of seemingly economically irrational yet physically
and sociologically satisfying activities of enterprising men. We shall labor these groups
as general, economic, and socio-psychological theories.

B. General explanations of economic development

1. Economic development proceeds conferring to a master plan or "Law of Nature"
2. Economic development is brought about by an "Invisible Hand"
3. Economic development is brought about by "Cultural Diffusion"
4. Racial heritage limits the economic development of people.
5. Climatic conditions determine the energy levels of people and in turn the rate of
development.
6. The challenge of the natural environment is responsible for the rise of civilization.

C. Economic explanations of economic development.

1. Technology improvements and division of labor lead to development.
2. Population changes affect development.
3. Entrepreneurship is an important factor in development.

D. Socio-Psychological explanation of economic development.

1. According to the work of Talcott Parsons, Individuals in modern societies are:
A. Unemotional

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B. Interested in themselves
C. Able to relate to others in terms of their social roles or their ability to do a job
D. Known for their accomplishments
E. Able to relate to others in specific economic terms.

2. In contrast, member of traditional societies tends to:

A. Be emotional
B. Be more interested in the general welfare of the community
C. Relate to others in terms of their unique qualities
D. Be known for who they are: and
E. Tie up economic relationships with all sorts of other relationships. Involves kinship
and political, religious, and other social structures.

Philippine Cultural Values

The Philippines is rich not only in natural resources but also in human resources. In
general, Filipinos working overseas are known to be successful, hardworking individuals
who can speak English and relate well with fellow workers of different nationalities and
cultures.
Despite our many positive traits, we have not developed enough faith and pride in
ourselves as people who make things happen and control our destiny. Consequently,
other nationals have misguidedly branded Filipinos. According to some foreigners,
Filipinos tend to be:
• Lazy, indulgent, and prone to relax and take things easy (Juan Tamad)
• Avoid taking risks (Segurista, Mahina ang loob)
• Adjust and compromise with the group even if, one wants to do something else
(Sobrang makisama)
• Oversensitive to criticisms so that one stops what he is doing when it does not
meet the approval of others (balat-sibuyas)
• Lack of perseverance and persistence (ningas-kugon)
• Fatalistic (bahala na)
• Put one over each other (gusto laging sikat o bida & alimango or crab mentality)
• Lack of originality and creativity (Gaya-Gaya)

Filipino Values Favorable to Entrepreneurship

1. Pakikipagkapwa – is all about how we treat others and relate with other people.
2. Making Filipino values promote risk-taking or
3. Lakas ng loob
4. Bahala Na – is backed up by the belief that whatever happens, we will know what
to do to help ourselves when the time comes.
5. Gaya-Gaya – our ability to learn and adapt to new ways of doing things may also
be seen in our imitation talent.
6. Pakikipagsapalaran – Filipinos have a high sense of adventure, excited by the
prospects of new things, new places, new people, or new jobs.

7. Katapatan – as a value promotes ethical business practices.

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a. Our values promote harmonious labor-management relations.
b. Our values promote social mobility.
8. Sipag –one important Filipino characteristic is diligence, being hard working.
9. Katipiran
10. Pagkamatiisin – Filipinos, as a rule, are matiisin (enduring) in the face of
suffering or adversity.
11. Pagtitimpi – or self-control is another manifestation of Filipinos endurance.

ACTIVITY # 3
A. Identify the Filipino values that is being described in each statement. Choose
your answers from the box below.

1. Filipinos tend to leave their circumstances to God and tend to say “whatever
will be will be”
2. Since the Filipino try to be sincere and amicable in working with others, they
become good managers and employees in their own workplace.
3. This refers to the relationship of Filipinos to one another, regarding others as
equal.
4. This refers to to the long tolerance and patience of Filipinos enabling them to
endure many things and circumstances.
5. Our ability to learn and adopt new ways of doing things may also be seen in
our talent for imitation.

B. Give your answers for the following questions in not less than five (5) sentences.

How can the Filipino Culture and Values help in building a business?

REFLECTION
Based on the discussion of Lesson 3 – Philippine Culture, Entrepreneurship, and
Development, what are your learnings? How can you apply your learnings in your life?

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SELF ASSESSMENT [10 points]: True or False
________1. In economic development, knowledge, skills, values, and the quality of
people are the main determinants of economic growth.
________2. Laissez-Fare Theory explains that the government should not interfere in
economic activities.
________3. Keynesian Theory explains that the government should play a key role in
economic development.

________4. Innovation Theory, developed by Joseph Schumpeter, stresses the role of

innovators or entrepreneurs in economic development.
________5. Entrepreneurship brings social benefits through the government.
________6. "Invisible Foot" brought the economic development.
________7. Under Martial Law rule, the enemies of the Dictator controlled the Philippine
business.
________8. Kaldor Theory, by Nicholas Kaldor, maintains that the crucial factor is
technology.
________9. "Cultural Diffusion" brought the development of the economy.
________10. Ricardian Theory is the theory of Martin Ricardo focuses on agriculture
playing a major role in economic development

TO-DO:
Recall one invention that brought a huge impact in your lifestyle in many ways.
Remember it by evaluating how creative and valuable it was to you.

______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________ .

REFLECTION /LEARNING INSIGHTS

• Entrepreneurs are often thought of as general assets to be cultivated, motivated,

and remunerated to the utmost possible extent. Great entrepreneurs can modify
the way we live and work. If effective, their innovations may progress standards of

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 living, and in addition to generating wealth with entrepreneurial undertakings, they
also create jobs and contribute to a growing economy.
• Entrepreneurship is vital for several reasons, from endorsing social change to
driving innovation.
•

UNIT 1: Perspective on Entrepreneurship

TITLE OF THE LESSONS:

• Who is an entrepreneur?

DURATION: 4 Hours
INTRODUCTION:
The operation of a business enterprise can be an extremely challenging job. Many
who dared to try failed, and only a few of them succeeded. Their success levels however
are different for some of them became highly successful while some of them are either
moderately or slightly successful. Those who failed also had different degrees of failure.
This shows us that entrepreneurship is not for everyone. But we can determine
beforehand if a person is a good prospect by answering important questions for those
interested in entrepreneurship.

Suitable techniques and procedure:

▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES:
After this comprehensive lesson, the students are expected of the following:
• Discussing the significance of knowing oneself as part of being a successful
entrepreneur
• Identifying some character traits that are common among successful
entrepreneurs
• Emulating the different attributes of an entrepreneur

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PRACTICAL EXERCISE/QUESTION: Pretest

TRUE OR FALSE:
DIRECTION: Write the word True if the statement is right and False if the statement is
wrong.

__________1. An entrepreneur is an individual who manages a business enterprise.

__________2. Employees and entrepreneurs have different outlooks about holidays.
__________3. Economic growth starts with new businesses generating wealth for the
population.
__________4. Business management skill is to enhance skills in multi-tasking and
delegating subordinates of their responsibilities.
__________ 5. Entrepreneurs should always plan for the total operation of the business.
__________ 6. Hard work is the key to success.
__________ 7. Financial skills are the ability to look at problems, situations, projects,
and operations.
__________ 8. Usage of software and other digital approaches for managing and
tracking sales and revenue are being practiced by the entrepreneur.
__________ 9. Time management skills help set deadlines and achieve objectives.
__________ 10. The entrepreneur should be able to organize work properly.

DISCUSSION AND EXPLANATION OF THE LESSON:

The Entrepreneur
According to Schumpeter (1950), an entrepreneur is a person who converts a new
idea or invention into a successful innovation. He is someone who has ideas, makes
these come to life, has ideation, creativity, and innovation, assumes risks, and desires to
make a profit.

HOW EMPLOYEES AND ENTREPRENEURS DIFFER

1. Employees think without starting. Entrepreneurs start without thinking.

Employees’ future growth is octenyl restricted because they doubt their skills
instead of starting positively. On the other hand, entrepreneurs, with a little
knowledge at hand, start their work and do not waste time worrying about
perfecting such skills because they believe in learning new things ahead.

2. Employees wait for the right time. Entrepreneurs work without waiting for
the time they deem perfect or right.

Different excuses are found by employees for the completion of their tasks which
is why they keep on postponing their goals. On the other hand, entrepreneurs start

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 their work because of love, patience, and dedication, which are their three main
boosters. They always grab the opportunity, coming up with a variety of plans as
they understand the brevity of opportunities.

3. Employees and Entrepreneurs differ in the aim of promotion

Employees aim for getting a better position and higher salary in the company while
entrepreneurs work hard intentionally the acquire new ideas to uplift their business
dreams.

4. Employees and Entrepreneur differ in the way their handle their dreams
and plans

Regardless of how extravagant your dreams may be, if you do not plan for them,
they will always remain as dreams. Employees dream of their plans. While
entrepreneurs have a solid plan for their dreams as they also come up with a
proper strategy.

5. Employees think ‘Money is everything. Entrepreneurs know ‘Time is

everything. Employees and entrepreneurs have different priorities.

Employees invest in money and look for safe returns only while entrepreneurs
believe that time is money and for them time is everything; thus, they are ready
to work for longer hours with no profits because they believe in wealth
generation.

6. Employees and entrepreneurs handle frustration differently.

Employees handle frustration by going through some mundane routine and

eventually lose their interest and become arrogant towards their co-workers and
family members. While entrepreneurs think that problems are temporary, they
simply do what they do because they love it.

7. Employees and entrepreneurs handle insecurities and freedom differently.

Employees contract themselves because of future insecurities while entrepreneurs

live life on the edge calculating the right amount of risk to be taken for every
strategy.

8. Employees and entrepreneurs work differently.

Employees work for the approval of their superior, hence more load work pile up
on their side. While entrepreneurs work having a classification of urgent and not
urgent.

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 9. Employees are under a particular job category while entrepreneurs make
their profile.

Because employees fall under a particular job, they have to perform tasks
according to their job profiles regardless of their interests. On the other hand,
entrepreneurs perform general tasks and thus freely enjoy autonomy and
independence.

10. Employees and entrepreneurs handle mistakes differently.

Employees tend to blame, justify, and complain. While entrepreneurs have a

mindset that they are responsible for all their decisions therefore they just openly
accept their mistakes instead of suppressing them.

11. Employees and entrepreneurs have a different outlook on holidays.

For employees, holidays are opportunities to relieve themselves from the stress
they get from the office as they unwind for a weekend trip. While entrepreneurs
also wait for holidays, weekend trip helps their productivity to increase.

12. Employees break down after failure. Entrepreneurs wake up after a failure.
Employees and entrepreneurs handle failure differently.

Failure is inevitable. Not embracing failure will lead them to losing their confidence,
thus looking at the failure as a dead-end. Entrepreneurs see opportunity in every
failure. After being knocked down, they do not let their failures affect their
enthusiasm. They recover and improve with every fall.

The Environment as a Factor

Entrepreneurship is likely to thrive in an environment that is friendly to
entrepreneurship. Nature provides us with examples of what happens to organisms in
certain environments; for instance, giant clams grow only in the ocean, not in the river.
The coconut palm will normally not grow in Sweden because it is designed by nature to
live in saltwater and freshwater rivers are too hostile to it. Coconut trees grow naturally in
the tropics and because Sweden has a cool, temperate climate they won't survive there
because they're not their natural habitat. Economic environments may be classified as
follows:
o those fully supportive of entrepreneurship;
o those moderately supportive of entrepreneurship; and
o those not supportive of entrepreneurship.

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 Figure 3
Economic Environment of the Entrepreneur

Entrepreneurs succeed easily because of economies’ full support while the exact
opposite may make the entrepreneurs have the opposite outcome too.

The Entrepreneurs Personality

Every person’s personality is unique and different from others. Each personality
has a corresponding type of job that fits it.
What Is Personality?
Personality is the pattern of characteristics that are used to distinguish one person
from another. This consist of the traits, values, motives, genetic blueprints, attitudes,
emotional reactivity, abilities, self-image, intelligence, and visual behavior of a person.
One of the researchers made by psychologists about personality is that one made
by John L. Holland (Ivancevich, 2001). His proposal indicates six personality types. They
are as follows:
1. the realistic type
2. the investigative type
3. the artistic type
4. the social type
5. the enterprising type
6. the conventional type

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 Figure 4
Six Personality Types

Characteristics of Entrepreneurs
o Self-awareness
o Self-motivated
o Courage
o Confidence
o Positive Thinkers
o Patience
o Decisiveness
o Experience
o Knowledge
o Information-Seeking
o Perseverance
o Drive
o Risk-Taking
o Innovative
o Opportunity-Seeking
o Demand for efficiency and quality
o Systematic Planning and Monitoring

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REWARDS OF BEING AN ENTREPRENEUR

Being an entrepreneur benefits a person in many ways. Some of those are the
following: (1) You can set your schedule; (2) You believe in what you do; (3) Your
workplace can vary; (4) You are the own boss of your work; (5) You get to see your work
change lives; (6) You become a business leader; and (7) It’s dynamic and exciting.

RISK OF BEING AN ENTREPRENEUR

Like any other profession, entrepreneurship also comes with risks and some of
these are as follows: (1) No guarantee of secured or steady salary; (2) Sacrificing
Personal Capital; (3) Relying on Cash Flow; (4) Unpredictable interest in your product or
service; (5) Trusting Key Employees; (6) Betting on a Crucial Deadline; (7) Committing
Personal time and health; (8) Emotional Risk, and (9) Risk of Scaling.

ROLES OF ENTREPRENEUR

Entrepreneurs Are Innovators

Entrepreneurs usually have observations regarding the rapid changes in

technology and they tend to fill in the voids. As they are aware of the negative
consequences and the losses of some occupations caused by technology, they see
these as opportunities which is why they innovate by creating new products and services
which become an advancement in technology. Entrepreneurs look for the needs of their
customers and through innovating, they fulfill them.

Entrepreneurs Create Jobs

These new companies by the entrepreneurs become engines of job creation as

they start new businesses, they will need to hire employees. This makes them at the
leading edge of the economy and source of the energy which drives economic growth.

Entrepreneurs Raise Standards of Living

The process of entrepreneurship wherein entrepreneurs innovate the needs in the

marketplace and eventually use their talents to find a solution and eventually start a new
business and hire employees creates wealth for the population. Research shows that an
increase in productivity improves the standard of living for a population resulting in
employees’ efficiency.

Entrepreneurship Creates Economic Growth

Economic growth starts with new businesses generating wealth for the population
and when entrepreneurs invest their own money in developing innovative products and
services.

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ENTREPRENEURIAL SKILLS

Business management skills

This is the ability to enhance your skills of multitasking, delegating subordinates of their
responsibilities, and decision-making about the health and profitability of your business.
Teamwork and leadership skills
To be a successful entrepreneur also means taking on leadership roles and working as a
member of a team. This means you will mostly be both a supervisor and you will need
leadership skills in motivating your team.
Communication and listening
Effective communication through active listening during meetings will help you work with
others to build your business. This includes clear messages through emails, content
marketing, social media, and other advertising methods which can bring positive influence
in reaching your target market.

Customer service skills

You need effective customer skills if you want to establish a connection with your
customer. Also, it will help you provide the products or services to the market.

Financial skills
Leaning from a financial planner, reading financial guidebooks, and using financial
software are ways to help you organize and keep track of the financial processes in your
business.

Analytical and problem-solving skills

Successful entrepreneurs may also have exceptional analytical and problem-solving
skills. This is because there can be many aspects of building a brand or business that
can require difficult decisions, finding solutions to obstacles, and using creative thinking
to develop plans and strategies that will help you achieve your business goals.
Critical thinking skills
This addresses the ability to look at problems, situations, projects, and operations from
different perspectives which helps in decision-making and solving problems. Critical
thinking skills can also help you make changes in strategic planning and evaluating
approaches to improving your business.

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Strategic thinking and planning skills
Having such strategic skills and planning skills will help you find ways in beating out your
competition, growing your market reach, or implementing effective strategies to reach
your goals.
Technical skills
Usage of software and other digital approaches for managing projects, tracking sales and
revenue, and measuring the performance of business growth is being practiced by
entrepreneurs with efficient technological skills.
Time management and organizational skills
This helps to break down tasks into manageable to-do lists. Time management skills also
help set deadlines and achieve objectives for yourself and your team.
Branding, marketing, and networking skills

How to improve entrepreneurial skills

While there are many different methods you can use to develop your entrepreneurial
skills, here are some 5 steps you can consider: (1) Take a course; (2) Attend events and
workshops; (3) Seek out experienced mentors; (4) Build your leadership skills; and (5)
Learn few to manage finances.

DETERMINANTS OF A SUCCESSFUL ENTREPRENEURSHIP

1. Ability to conceptualize and plan.

> They must view all aspects of the business, such as product, and price.
cost, inventory, etc. in a related and coordinated manner.

> They must be able to plan for the total operation of the business. His ability
to foresee future problems of their business is an excellent asset.

2. Ability to manage others.

>Management is getting things to be done by others. The entrepreneur

should be able to organize work properly so that employees can perform
their jobs efficiently and effectively. Through this, employees may achieve
the objectives of the enterprise then the entrepreneur has more time for
conceptualizing and planning.

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 3. Ability to manage time and to learn.

>An entrepreneur is a generalist. Especially if the business is still small, the

owner does everything. He should be an expert in time management.

> A real entrepreneur doesn’t stop learning. He or can do this by reading,

attending seminars, or by enrolling in college or special courses that will
enhance the skills he/she has.

4. Ability to adapt to change

>Entrepreneurs, being innovative or creative, quickly respond to changes

for comparative advantage.

POST-TEST:
CASE STUDY

Petra’s Cosmetics: I’ll Walk Alone.

The Bayaua family of Tuguegarao City, Cagayan takes pride in their tradition
which is service in the military. In fact, Sergio Bayaua was an officer with the rank of
major in General Emilio Aguinaldo’s army during the Philippine Revolution against the
Spaniards in 1898. His son Donato served as an officer in the Philippine Army during
the American regime and fought the Japanese in 1942. Donato’s son, Fernando, also
became an army officer and retired as a colonel. These three prominent members of
the Bayaua clan received medals for the courage they have shown in combat. Friends
and neighbors regard them as exemplary role models for their children and they think
of them as the epitome of machismo.
However, Fernando’s pride for his family went away when he discovered his
son applying make-up on his face, an exhibition of unmanly behavior. Later on, his
son was selling cosmetics in the amount of Php 12,500 and it also turned out that
Pedro was able to convince nine other ladies to buy from his cosmetics.
Because of his interest in selling, Pedro chose to enroll in a business course as
he tried to support himself by selling cosmetics. Knowing that his son did not succeed
in anything he did, Fernando was deeply disappointed.
Despite of his emotional hurts from his father, Pedro graduated from college
and formally started his career in entrepreneurship like his uncle Teodoro and still
persevered to operate a cosmetics retail shop.
Source: Entrepreneurship and Small Business Management,2010
Do you think Pedro’s personality will not be a hindrance to his dream of being a
______________________________________________________________________
successfully entrepreneur? Explain your answer. Maximum of 10 sentences.
______________________________________________________________________
______________________________________________________________________

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______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
__________________________________________________________ .

REFLECTION/LEARNING INSIGHT:

• Entrepreneurs are a different breed - they think different, act different and live
differently than the rest of society
• Entrepreneurs are focused on moving forward, they are always looking toward the
future. Entrepreneurs are very goal-oriented and know exactly what they want.
• Business is an art, and not everyone knows to master this art. Some people have
the inborn qualities to be successful entrepreneurs, and others work to develop
these qualities. No matter which of these descriptions best fits you, everyone can
benefit from continuing to improve on these important characteristics.
• Some guides provide clues and one of them indicates that two complementary
factors determine success or failure in entrepreneurship. These factors are the
environment and the personality of the entrepreneur.

UNIT 1: PERSPECTIVE ON ENTREPRENEURSHIP

TITLE OF THE LESSONS:
• Business Opportunities in Small Business

DURATION: 4 Hours
INTRODUCTION:
There are many business opportunities for an individual with a creative mind. All
business starts with an idea, and it is said that creativity, through innovativeness and the
capacity of bringing businessman and an entrepreneur.
A smart entrepreneur may decide to have a small or large business, but it is
important to follow the process of identifying and evaluating the various options in
generating ideas that can be transformed into a profitable business endeavor.

Suitable techniques and procedure:

▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

Page 40
OBJECTIVES:
• identify the factors to consider in evaluating the business potential of an idea

PRACTICAL EXERCISE/QUESTION: Pretest

If you start a business, what would it be?

Upload our answer in MS one drive. Think about your reasons for choosing this
business.

DISCUSSION AND EXPLANATION OF THE LESSON:

The Search for Business Opportunity
In selecting a business, the option should not be based on luck and immature thinking,
but on a thorough evaluation and systematic process.
In discovering business opportunities, the following factors on resources have to be
evaluated:
1. Markets. This refers to the number of prospective buyers, competitors, the
price, and the quality of goods and services that have to be studied.
Business opportunities occur in areas where consumer satisfaction is weak
or incomplete.
2. Individual Interests. Business curiosity of individuals should match business
opportunities. For example, if one is a good cook, he could enter the food
business.
3. Capital. This serves as the fuel that retains the business operational. The
availability of funds should be suitable for the type of business to establish.
4. Skills. The entrepreneur should have the appropriate skills in the business
he is going to undertake.
5. Suppliers of inputs. There must be fixed suppliers of raw materials and other
inputs to the business.
6. Manpower. The achievement of any business also depends on the
competence of its employees.
7. Technology. Entrepreneurs should be aware of the existence of technology
to expand their products or services or introduce innovations in the market.

Among the productive resources, people are the most significant because they are
the ones who establish and manage the other product properties such as money,
materials, machine, and manpower.

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 Other opportunity-seeking processes that can guide a prospective entrepreneur as
to what kind of business to establish are as follows:

1. Look at other successful businesses/entrepreneurs. Look up to other

entrepreneurs as role models that could be an inspiration, by doing what they have done
or doing it even better.
2. Respond to a problem area. The solution to a problem might be transformed
into a business venture.
3. Home-Based Business Option. These must not be taken for granted, for there
are some big businesses that started as small businesses at home.
4. Linkage of Resources. The entrepreneur can produce his input instead of buying
them.

The best way to evaluate business opportunity is through Market Research, which
is defined as the study of all problems in marketing a product.
The Steps in Market Research are:
o Defining the problem
o Making a preliminary investigation
o Planning the research
o Gathering the data
o Analyzing the data
o Reaching a conclusion
o implementation and evaluation decision

Through Market Research, the entrepreneur can be directed in identifying

profitable markets, new market opportunities, saleable products, available resources,
business risks, trends in consumer tastes and preferences, better marketing strategies,
proper business location, and the strengths and weaknesses of competitors, and realistic
objectives.
Location of the business is a key factor in business success, selecting a location,
the population, income, competitor, government policies, peace and order, and others are
being considered. This requires a market survey.
To be able to render business opportunities into profits, the SWOT (Strength,
Weakness, Opportunity, and Threat) Analysis is applied. These are tools for evaluating
the strengths, weaknesses, opportunities, and threats associated with a particular product
or service. In knowing this, the entrepreneur must be able to have an idea or a
precautionary measure even before the start of the business. Excellent knowledge about
the life cycle of the products provides the entrepreneur business opportunities to

Page 42
continuously start in business. The following are the description of the various stages of
product recycling. According to Fajardo, products have their life cycle. It is composed of
four stages: Introduction, Growth, Maturity, and Decline. Some products have a long
product life cycle, while others have a short. Here are the descriptions of various stages
of the product cycle, particularly sales volume and profit.
Introduction. If consumer awareness and acceptance of the product are low,
launch through the use or marketing activities which take the profit low due to cost or
development and marketing activities.
Growth. To meet the growing demand, product distribution s expanded. Sales rise
rapidly as the product becomes popular.
Maturity. Sales are still rising, but the rate of increase declined. In the latter part, a
sale reaches its peak, while profit begins to fall.
Decline. There is a sharp fall in sales, while the profit curve becomes almost flat or
horizontal. There is also a decline in the number of competitors. The only survivors are
those who specialize in marketing the product. Once the product is no longer profitable,
it is eliminated from the market.
Entrepreneurs should be aware of the duration of each stage of the product life
cycle.
Venturing into a business project demands a sensible and clear choice as to which
area or business concern to deal with. In the selection process, one has to start by
focusing on a particular business sector.
1. The service-based business. Common examples of service-based businesses
are consultancy, barber shops, repair shops, beauty parlors, caregiving,
designing works, rendering professional services, such as engineers, dentistry,
medical doctor, and others where there is no need to manufacture something
2. Trading or product-based business. It is a buy-and-sell business that can
happen in your storehouse, showroom, or any other structureless environment.
Selling includes a lot of customer exchange and requires a great deal of
determination on the entrepreneur’s part. An example of this is putting up a
grocery store, bakery products, or general construction materials.
3. Manufacturing business. This is a manufacturing or production-based business
by creates a product. Manufacturing can be as simple as making hand-painted
T-shirts or ceramic vases and now, the most widespread is candle making,
which can be done in your home.
4. License business opportunities. If you had some problems in launching a
product or service, it is a good idea to look for licensed business opportunities.
Franchising is a business format somehow very alike to licensed business
operations.

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 5. Distributorship. This is where an independent entrepreneur, company, or
individual comes in into an arrangement or contract to offer, sell, or distribute a
specific product, but is not allowed to use the manufacturer's trade name as part
of its on-trade name. In the Philippines, distributors represent foreign companies
who can sell products to dealers strategically located all over the country.
6. Rack Jobber. This involves an agent or buyer entering an agreement with a
parent company to market its goods to various stores utilizing strategically-
located store racks.
7. Wholesalers. These sell the product of manufacturers or producers to retailers
and other distributors who have direct dealings with the end users or customers
8. Subcontracting. This is a familiar form of the business format in the garments
sector, as well as the shoe industry. This involves signing up an arrangement with
a major producer to complete a set of product components at a pre-agreed price.
9. Vending machine routes. These are placed in various places or locations. The
entrepreneur needs to have a substantial capital outlay as he had to pay for the
vending machine, including the stocks to be vented.

What is ideation?

• Business starts with ideation.

• Ideation should be the first asset of anybody who seeks to be an entrepreneur.

Ideas that are value a business should be the one that has a market today and in
the future. This could be a product, a service, and the like, which could be in any of the
following types.

a. Need/want drives
b. Time-saving drives
c. Money savings
d. Unique or incorporating strong competitive advantages
e. Link to personal interest, preferably passion

The most common method of developing ideas is as follows:

• Recognizing the need
• Improving an existing product
• Recognizing trends
• Be aware of everything

Page 44
 • Questions and assumptions
• Naming it first, then develop it

Entrepreneurial Creativity
Innovation, creativity, and entrepreneurs are inseparable. Creativity is a vital part
of innovativeness, the starting idea of a process, which is skillfully managed and carries
an idea into an innovation.
Environmental Stimulants to Creativity
a. Freedom
b. Good Project Management
c. Sufficient Resources
d. Encouragement
e. Various Organizational Characteristics
f. Recognition
g. Sufficient Time
h. Challenge
i. Pressure
j. Outside Organization
SUGGESTED READINGS, AND WATCHING:

✓ Macatanghay, Leah Alvino, Entrepreneurship, Don Bosco Press Inc., 2015

✓ Asor, Ph.D., Entrepreneurship in the Philippine Setting, REX Publishing, 2009
✓ Hisrich, R., Peters, M., & Shepherd, D. (2009). Entrepreneurship
(8th ed.). Irwin, PA: McGraw-Hill

SELF ASSESSMENT [10points]: True or False

________1. Ideas that are worth a business should be the one that has a market now
and, in the future.
________2. Markets. This refers to the number of prospective buyers, competitors, the
price, and the quality of goods and services that have to be analyzed.
________3. If you had some difficulties in launching a product or service, it is a good idea
to look for licensed business opportunities. Franchising is a business format somehow
very Similar to licensed business operations.
________4. To be able to translate business opportunities into profits, the SWOT
(Strength, Weakness, Opportunity, and Threat) Analysis is applied.
________5. Creativity is an essential part of innovativeness, the starting point of a
process, which is skillfully managed and brings an idea into an innovation.

Page 45
Identification:
________1. This serves as the fuel that retains the business operational. The
availability of funds should be suitable for the type of business to establish.
________2. The achievement of any business also depends on the competence of its
employees.
________3. These are tools for evaluating the strengths, weaknesses, opportunities, and
threats associated with a particular product or service.
________4. Sales are still rising, but the rate of increase declined. In the latter part, a
sale reaches its peak, while profit begins to fall.
________5. This refers to the quantity of prospective buyers, competitors, the price, and
the quality of goods and services that have to be studied.

Task to Do
List down a business idea that you think has the potential to succeed, if adopted. Why
do you think it has the potential to succeed?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
___________________________________________

Reflection/Learning Insights

• Entrepreneurs are often thought of as general assets to be cultivated, motivated,

and remunerated to the utmost possible extent. Great entrepreneurs can change
the method we live and work. If successful, their innovations may progress
standards of living, and in addition to generating wealth with entrepreneurial
ventures, they also create jobs and contribute to a growing economy

Page 46
UNIT 2: KEY TO SUCCESS

Chapter 5 Developing Business Plan

Chapter 6 Managing Enterprise
Chapter 7 Marketing in Small Business
Chapter 8 Production of Goods and Services

TITLE OF THE LESSON:

Developing a Business Plan
DURATION: 8 hours
INTRODUCTION
Before we begin the discussion of the business plan, the reader needs to know the
different types of plans that may be part of any business operation.
Planning, a process that never ends for a business, is an essential stage of any new
venture for every entrepreneur. Once the entrepreneur has a better sense of the market,
product, or services to be marketed, the plan will finally be finalized along with the
management team, and the financial needs of the venture. As the venture evolves so
does the planning. For any given organization, it is possible for financial plans, marketing
plans, human resource plans, production plans, or sales plans may be short-term or long-
term, or they may be strategic or operational, which may be found. This will also differ in
scope depending on the type or size of the business. Regardless of their types, they all
come up with one important purpose and that is to provide guidance and structure to
management in a rapidly changing market environment.
Some experts feel that the business plan does not ensure that an entrepreneur will be
successful. These researchers indicate that there are many entrepreneurs such as Steve
Jobs, Bill Gates, and Michael Dell that succeeded without a business plan. However,
there is also strong evidence from many in this field that believes that an inexperienced
entrepreneur can gain significant learning experience by engaging in the preparation of a
business plan, especially when many variables and uncertainties are involved in the
venture launch. Even without a completed business plan, the entrepreneur would have
been forced to think through many important scenarios that may be involved in the market.
Even the above entrepreneurs would have thought through many of these scenarios. The
process involved in preparing a business plan is ultimately what is important since
planning in future stages of the growth of the venture will be necessary.
Suitable techniques and procedure:
▪ Practical Exercise/Question

Page 47
 ▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES:
At the end of the lesson, the student is expected to:
• define what the business plan is, who prepares it, who reads it, and how it is
evaluated
• have an understanding of the scope and value of the business plan to investors,

lenders, employees, suppliers, and customers

• be able to identify information needs and sources for each critical section of the

business plan

• discuss the aspect of the business plan

• explain the importance of a business plan

PRACTICAL EXERCISE/QUESTION: Pre-test

Think about this question?

If I were going to do something important, would I plan before I did it?

Write your answer (yes or no) on a piece of paper. Be prepared to discuss your answer
in class.

LESSON PROPER/COURSE METHODOLOGY:

The Business Plan

The business plan, a written document prepared by the entrepreneur, describes all the
relevant external and internal elements involved in starting a new venture. It is often an
integration of functional plans such as marketing, finance, manufacturing, and human
resources. The business plan must address the integration and coordination of effective
business objectives and strategies particularly when it involves technology and a complex
marketplace. It also addresses both short-term and long-term decision-making for the first
three years of operation. Thus, the business plan or, as it is sometimes referred to, the
game plan or road map answers the question, where am I now? Where am I going? and
how will I get there?
 The stability of the venture is greatly influenced by the foundations laid. A business
plan is a written or codified text containing pertinent information about the venture. It
shows the venture’s different attributes and supposed character. The business plan is
designed to give its readers a clear picture of what the venture is. It is proof that adequate
research and analysis have been given to the venture. A business plan is an effective tool
for the entrepreneur, and it is also served as a guide in running or operating the venture.
The entrepreneur must prepare the business plan and he or she may also consult with
many other sources in its preparation. Entrepreneurs scan, analyze and adapt their plans
to succeed in the playing field. Professionals like lawyers, accountants, marketing
consultants, and engineers are of good use in the preparation of the plan. Some of these
needed sources can be found through services offered by the Small Business
Administration (SBA), the Senior Corps of Retired Executives (SCORE), small-business
development centers (SBDCs), universities, and friends or relatives. Actual samples or
outlines from the internet are provided as a means of information for business planning
and most of these are free of charge. Often, entrepreneurs will hire or offer equity
(partnership) to another person who might provide the appropriate expertise in preparing
the business plan as well as become an important member of the management team.
Employees, investors, bankers, venture capitalists, suppliers, customers, advisors, and
consultants who read the business plan are expected to often affect its actual content.
Since this is being read for different purposes, the business plan must also satisfy the
needs of everyone, being prepared by the entrepreneur to address all the issues and
concerns of each group.
A business plan is important to entrepreneurs, potential investors, or even new personnel
for this helps them determine the growth, strengths, and weaknesses of the business.
Moreover, this provides a strong foundation of research and a clear direction that shows
the road to take for growth, expansion, consolidation, and eventually success. This also
benefits the entrepreneur as it guides him in organizing his or her planning activities as it
also helps communicate his ideas to others, eliminating business risk and minimizing the
cost of production. Besides, the business plan helps secure financing for the business,
keeping the focus and creativity on track.
Principles of Business Planning
Planning is an essential process of building a successful business that is updated
regularly and not just in the first part of the business.
Plans Must Be Ongoing
As Dan Debelak stated in his book Successful Business Models, “Everyone’s
business changes every year, and often every six months.”. This shows us that we cannot
create an initial plan and expect it to last the same till the end for good business planning
is ongoing regularly because competitors, customers, and all other business factors
change.
Plans Must Consider Your Competitive Advantage
It is essential to know your competitors and have an evaluation of the advantage
you have or you can create over them and use this advantage as a key component as
you plan your business.
Plans Must Incorporate Short- and Long-Term Goals
Crisis and problems usually come up in every business and as you deal with these
as they arise, you must include your long-term vision with corresponding goals without
making the mistake of focusing only on the present issues of your business. Moreover,
you must not only survive the crisis now but continually make progress.
Plans Must Relate to the Bottom Line
If your plans improve sales, increase efficiency, and/or reduce costs, this business
plan can be helpful as it adds up to a better bottom line.
Plans Must Include Strategies
For your business to prosper, your plan must also have a real strategy that tells
you the details of how to do what you already planned to do.
Plans Must Affect the Customer
According to Debelak, “Great customers are probably the most important element
for a highly profitable business.” Therefore, if you want to keep your customers, it is
important to make sure that your plans relate to their needs and satisfaction.
Why Some Business Plans Fail
There are a lot of possible reasons why some business plans fail but here are
some of the common factors as to why failures happen in business planning: (1) The
entrepreneur set unreasonable and immeasurable goals and objectives: (2) The
entrepreneur has not yet fully committed to the business; (3) The entrepreneur lacks
experience in business planning resulting to also lack of sense of potential threats to the
business; and (4) The business plan did not meet any customer need.
Setting objectives requires the entrepreneur to be well informed about the type of
business and the competitive environment. Objectives should be specific and not so
mundane as to lack any basis of control. For example, the entrepreneur may target a
specific market share, units sold, or revenue. These objectives are measurable and can
be monitored over time.
The 7 Stages of Starting and Running a Business

Seed Stage
This is the stage wherein your business is still just in your mind as you focus on
matching the business opportunity with your skills, experience, and passions. This is also
the stage of your business lifecycle wherein you decide on a business ownership structure
as you find professional advisors and business planning. Usually, businesses at this stage
will rely on cash from their owners, friends, and family. Other potential sources can be
suppliers, customers, and government grants. However, businesses at the seed stage
experience the challenge of market acceptance and the pursuance of one niche
opportunity. It is also important to remember not to spread money and time resources too
thin.

Start-Up Stage
In this stage, your business must establish a customer base and market presence
along with tracking and conserving cash flow because your business now exists in legal
terms. Like in the seed stage, the business’s money comes from the owner, friends,
family, suppliers, customers, or grants. In this stage, you must learn what profitable needs
your clients have and check if your business is on the right track.

Growth Stage
Your business’s revenues and customers are already increasing. As many new
opportunities and issues are coming, so does the competition. That is why businesses in
this stage are challenged in dealing with the constant range of issues requiring more time,
money, and effective management. Businesses in the growth stage focus on dealing with
increased sales and customers through running the business more formally. This stage
of the business lifecycle acquires its money sources from banks, profits, partnerships,
grants, and leasing options.

Established Stage
In this stage, your business focuses on improvement and productivity for it has
now matured into a thriving company with a place in the market that requires better
business practices along with automation and outsourcing to improve productivity. Since
you already have loyal customers, your sales growth is not explosive but manageable
and your business life has become more of a routine. However, the marketplace is still
competitive so stay focused on the bigger picture concerning the issues like the economy,
competitors, or changing customer tastes. In this stage, your business acquires its
resources from profits, banks, investors, and the government.
Expansion Stage
In this stage, the business chooses to gain a larger market share and find new
revenue and profit channels as it adds new products or services to its existing markets.
However, this stage will require complementing planning and research on your existing
experience, and capabilities for switching to irrelevant ones will be dangerous. In this
stage, the business acquires its resources from joint ventures, banks, licensing, new
investors, and partners.
Decline Stage
The business must search for new opportunities and business ventures in this
stage as it also cut costs and find ways to sustain cash flow. Businesses come to this
stage for several reasons but common to these is the change in the economy, society, or
market conditions which decrease sales and profits. In this stage, the business will be
challenged to drop sales, profits, and negative cash flow considering the biggest issue on
how long the business can support negative cash flow. Businesses at this stage may also
consider moving on to the final lifecycle stage which is the exit. Money sources come
from suppliers, customers, and owners.
Exit Stage
This business lifecycle stage may mean cashing out all the years of hard work or
shutting down the business. Selling businesses under this stage requires an in-depth
analysis of the real value in the current marketplace. On the other hand, closing such
businesses will challenge the entrepreneur to deal with the financial and psychological
aspects of a business loss. Therefore, it is important to have a proper valuation of the
company and legal buy-sell agreements set up already along with a business transition
plan. For money sources, it is recommended to have a business valuation partner as you
consult with your accountant and financial advisers for the best tax strategy for selling or
closing out the business.
The seven stages of the business lifecycle may not chronologically happen.
Businesses have different phases and timeframes so do their lifecycles. However,
success beyond such changing lifecycles will depend on the ability to adapt to such and
understand where your business fits in the lifecycle which will guide you to expect or
foresee upcoming obstacles and eventually decide for the best of the business.
 7 Tips for Creating Effective Business Plans
1. Build a clear vision.

2. Set realistic goals.

3. Consider different time frames.

4. Use business analysis.

5. Choose target people.

6. Indicate department or unit will be involved in attaining the objectives.

7. State policies.

8. Specify the required resources and their corresponding costs.

9. Be logical, rational, and considerate.

10. Periodically review your business plan.

The Parts of a Business Plan

Upon preparing the business plan, it is important to take note that such a business
plan must be comprehensive enough so that potential investors well understand the
complete picture of your venture, as it helps the entrepreneur in clarifying his or her
business.

OUTLINE OF A BUSINESS PLAN

I. Introductory Page

A. Business Name and address, Company Logo, Tagline

B. Name(s) and address(es) of principal(s), phone number, websites, Email

address, Facebook account

C. Nature of business

D. Statement of financing needed

E. Statement of confidentiality of the report

II. Table of Contents

III. Executive Summary—Two to three pages summarizing the complete

business plan

Vision

Mission

Goals

Objectives

Key to Success

Capital Needs/How the money will be used?

Loan if any/How it will be repaid with interest?

III. Industry Analysis

A. Outlook and trends

B. Analysis of competitors

C. Market segmentation

D. Industry and market forecasts

IV. Environmental and Industry Analysis

V. Description of Venture

A. Product(s) /Service

B. Competitive Comparison

C. Size of business

D. Office equipment and personnel

E. Background of the entrepreneur(s)

F. Future Product/Innovation

VI. Production Plan

A. Manufacturing process (amount subcontracted)

B. Plant Location

C. Plant Layout

D. Physical and Equipment

D. Names of suppliers of raw materials

E. Storage System

F. Waste Disposal

VII. Operations Plan

A. Description of the company’s operation

B. Flow of orders for goods and/or services

C. Technology utilization

VIII. Marketing Plan

A. Pricing

B. Distribution

C. Promotion

D. Product forecasts

E. Controls

F. Target Market

G. Packaging
H. Positioning

I. Direct Competitor

J. Business SWOT Analysis/ Direct Competitor SWOT Analysis

IX. Organizational Plan

A. Form of ownership, Advantages/Disadvantages of form of ownership

B. Identification of partners or principal shareholders

C. Authority of principals

D. Organizational structure

E. Job Analysis

1. Job title

2. Duties and Responsibilities

3. Qualification needed for the position

4. Salary

F. Policies, Rules, and Regulation

G. Capital Requirement

H. Operating Expenses

X. Assessment of Risk

A. New technologies

B. Contingency plans

XI. Financial Plan

A. Assumptions, Cost of goods

B. Projected Balance Sheet

C. Projected Income Statement

C. Projected Cash Flow Statement

D. Break-even analysis

F. Sources and applications of funds

XII. Appendix (contains backup material)

A. Owner’s Resume

B. Letters of reference

C. Letter of Intent

D. Market research data

E. Leases or contracts

F. Price lists from suppliers

G. Contracts with suppliers

H. Contracts with customers/clients

I. Brochures/pictures of the products and materials

J. Registration of business/forms

Figure 28
 The Business Plan Outline

Introductory Page
This cover page must give a brief summary of the following: the business name,
company logo, tagline, and address of the company. Some other information is the name
of the entrepreneur(s), telephone number, fax number, e-mail address, Facebook
account, and Website address if available. This title page describes the company and its
nature. This is one of the most important parts for the investors can already determine
the amount of investment needed without having to read through the entire plan.
Table of Contents
A table of contents serves as a road map of your plan to the ready therefore it should
consist of major sections, subsections, exhibits, and appendices.
Executive Summary
Once the business plan is written, an executive summary which is about two to three
pages in length may now be prepared. In this part, the potential investor can already
determine if the entire business plan is worth reading therefore this part must stimulate
the interest of the potential investor. Thus, it should highlight concisely and convincingly
the key points in the business plan. It involves the vision, mission, goals, and objectives.
If the small business organization is intending to borrow money or is seeking capital from
investors, the following must be indicated:
1. The capital needs of the business.

2. How the money will be used.

3. What benefits will be derived by the business from the loan or investment; and

4. In the case of a loan, how it will be repaid with interest, and in the case of

outside investment, how profits will be generated.

Environmental and Industry Analysis

In this part, trends, and changes existent on a national and international level that may
impact the new venture will be identified for the proper context of environmental and
industry analysis. It is the assessment of external uncontrollable variables that may
impact the business plan.
Description of Venture
The description of the venture must begin with the mission statement of the
company which consists of the nature of the business and what the entrepreneur hopes
to accomplish. Moreover, this mission statement of business definition will guide the firm
through long-term decision-making. This section must also be detailed because investors
will determine the size and scope of the business through this part. Some important
factors must also be clearly described and understood here such as (1) products or
services; (2) the location and size of the business; (3) necessary personnel and office
equipment; (4) the background of the entrepreneur(s); and (5) the history of the venture.
Production Plan
This section is important if the new venture is a manufacturing operation. The
complete manufacturing process will be described here depending if it is subcontracted,
or carried out in whole or in part by the entrepreneur in any of the cases the discussion
of these items will be important to any potential investors in assessing financial needs.
Operations Plan
This section consists of the flow of goods, services from production to the
customer, inventory or storage of manufactured products, shipping, inventory control
procedures, and customer support services. The business needs this section may it be
manufacturing or non-manufacturing because a non-manufacturer will need the
chronological steps in completing a business transaction through this part.
Marketing Plan
This is where the distribution, promotion, and price of the products or services will
be explained and described. This section also comes with research evidence about
critical marketing decision strategies and forecasting sales. The budget and appropriate
controls are needed for marketing strategy decisions. Potential investors regard the
marketing plan as critical to the success of the new venture. As this will be an annual
requirement for the entrepreneur, he or she must make sure this will come out to be
comprehensive and detailed enough for the clear understanding of the investors
regarding the goals of the venture and the strategies to be implemented in achieving the
goals.
Organizational Plan
This part, will be described if the form of ownership of the venture is a
proprietorship, partnership, or corporation, in any case, it will also be helpful to provide
an organizational chart showing the line of authority and the responsibilities of the
members of the organization.

Assessment of Risk
This is the part wherein potential risks to the new venture will be indicated, and
such discussion of what might happen if these risks become reality and there will be a
discussion of the strategy that will be used in preventing, minimizing, or responding to the
risks if they occur.
Financial Plan
In this part, the necessary potential investment commitment and the indication of
whether the business plan is economically feasible are determined.
Appendix
You will see any unnecessary in the text of the document such as the letters from
customers, distributors, subcontractors, or any documentation of information that is
secondary data or primary research data used to support plan decisions here in the
appendix. Besides these, leases, contracts, or any other types of agreements initiated
and price lists from suppliers and competitors may be added.
The Marketing Plan
It is an important written statement of marketing objectives, strategies, and activities to
be followed in the business plan. The marketing plan should be prepared annually,
assessing the goals and objectives for the next year, and should be integrated with the
firm’s more long-term strategic plan (three- to five-year plan). The market plan shows the
ways how will the entrepreneur compete and operate in the marketplace and meet the
business goals and objectives of the new ventures. Once the strategies of how the
business will operate have been established, the entrepreneur can assign costs to these
strategies, which then serve the important purpose of establishing budgets and making
financial projections.
The marketing plan, like any other type of plan, may be compared to a road map used to
guide a traveler. This part of the business plan intends to answer three basic questions:

1. Where have we been? This question requires essential information about the

company such as its background, its strengths and weaknesses, some

background on the competition, and its opportunities and threats in the

marketplace, merely focusing on its history.

2. Where do we want to go (in the short term)? This is where the marketing objectives

and goals of the new venture in the next 12 months come in.

How do we get there? This question addresses the specific marketing strategies, the
timeframe and duration, and the people responsible for the activities.
 Management should understand that the marketing plan is a guide for implementing
marketing decision-making and not a generalized, superficial document.
Characteristics of a Marketing Plan
The marketing plan should be designed to meet certain criteria. Some important
characteristics that must be incorporated in an effective marketing plan are as follows:
• The accomplishment of the company mission or goal must be strategic.

• It must be factual.

• It must provide for the use of existing resources. Allocation of all equipment,

financial resources, and human resources must be described.

• The marketing plan must be appropriately described by the organization.

• It should be continuous so that each annual marketing plan can build on it

as it successfully meets the longer-term goals and objectives. It should be

simple and short. A voluminous plan will be placed in a desk drawer and

likely never used. However, the plan should not be so short that details on

how to accomplish a goal are excluded.

• It must be flexible. Changes, if necessary, should be incorporated by

including what-if scenarios and appropriate responding strategies.

• It must have performance criteria that will be monitored and controlled.

Steps in Preparing the Marketing Plan

1. Defining the Business Situation

The situation analysis reviews where we have been and responds to the first of the
three questions mentioned earlier in this chapter. It also takes into consideration both the
environmental analysis section of the business plan and the industry analysis section.

2. Defining the Target Market: Opportunities and Threats

 Either from the industry analysis or the marketing research done earlier, the
entrepreneur should know who the customer or target market will be. Knowledge of the
target market provides a basis for determining the appropriate marketing action strategy
that will effectively meet its needs.
Opportunities are external factors that affect the organization favorably giving it a
competitive advantage. While treats are factors that bring potential harm to the
organization.
3. Considering Strengths and Weaknesses

Strength is the part in which an organization excels- a strong brand, loyal customer base,
a strong balance sheet, unique technology, and so on may separate such an organization
from the competition. While weaknesses hinder the organization to perform at its optimum
level and these are the areas needed to be improved such as weak brand, higher-than-
average turnover, high levels of debt, an inadequate supply chain, or lack of capital.

4. Establishing Goals and Objectives

Before any marketing strategy decisions can be outlined, the entrepreneur must
establish realistic and specific goals and objectives. All the preceding goals and
objectives are quantifiable and can be measured for control purposes. However, not all
goals and objectives must be quantified. A firm can establish such goals or objectives as
researching customer attitudes toward a product, setting up a sales training program,
improving packaging, changing the name of the product, or finding a new distributor. A
limited number of goals or objectives to between six and eight is recommended. Too
many goals make control and monitoring difficult. These goals should represent key areas
to ensure marketing success.
5. Defining Marketing Strategy and Action Programs

A product is a good or service offered by the company to customers, fulfilling existing

consumer demand. Or if not, this compels such consumers to think that they need the
good or service. To succeed in this industry, the life cycle of a product must be understood
along with the dealings such as how much businesses can charge for it, where they
should place it, and how they should promote it in the marketplace.
Price is what the marketers link to the product’s real and perceived value, however,
there are also times when there occurs such supply costs, seasonal discounts, and
competitors’ prices. In other instances, the cost consumers pay for a product may be
increased or decreased depending on the marketers if they deem it appropriate.
The place is where the location, distribution, and ways of delivering the product to the
customer occurs.
 Promotion refers to the use of different methods to convey the values and benefits of
your products to your customers such as direct marketing, sales promotion, advertising,
and personal selling.
6. Budgeting the Marketing Strategy

This process is also essential in effective planning decisions all the more if the
entrepreneur will follow the procedure of detailing the strategy and action programs to
meet the desired goals and objectives, there and then the costs must be reasonably
clear so that anyone who will review the written marketing plan will understand these
implications.
7. Implementation of the Market Plan

The marketing plan is a commitment of the entrepreneur to a particular strategy

and not a formal superficial document to outside financial supporters or suppliers.
It is intended to be a formal vehicle for answering the three questions posed earlier in
this chapter and a commitment to adjust as needed or dictated by market conditions.
Monitoring the Progress of Marketing Actions
In this process, such specific results of the marketing dependent on the specific goals
and objectives are being monitored and tracked. Any “weak” signals from the monitoring
process will provide the entrepreneur with the opportunity to redirect or modify the existing
marketing effort to allow the firm to achieve its initial goals and objectives. In addition to
monitoring the progress of the existing plan, the entrepreneur should also be prepared
for contingencies.
The Organizational Plan
Organizational structure is a viewing glass that shows the task allocation,
coordination, and supervision that are directed toward the achievement of organizational
aims. Also, individuals see their organization and its environment through this, and they
can know how their opinions and views shape every decision-making process.
Designing the Organization
Initially, the entrepreneur might find it difficult to delegate such tasks to other employees
thinking that he or she can do everything in the organization. However, it is a need for the
organizational structure to expand to include additional employees with defined roles in
the organization through effective interviewing and hiring procedures to ensure that the
employees will grow and mature in and with the new venture.
All the design decisions involving personnel and their roles and responsibilities reflect the
formal structure of the organization. In addition to this formal structure, there is an informal
structure or organization culture that evolves that also needs to be addressed by the
entrepreneur. Although we are speaking of an organization culture rather than an
organization design, the entrepreneur can have some control over how it evolves. Since
issues related to this culture can be just as critical as the formal design of the organization
for ensuring a successful and profitable enterprise, they will be discussed in more detail
in the next section of this chapter. For many new ventures, predominantly part-time
employees may be hired, raising important issues of commitment and loyalty. The
organization’s design will be the formal and explicit indication of what is expected of the
members by the entrepreneur. Some of the expectations are (1) organizational structure
which includes the jobs of the members along with their relationship with each other; (2)
planning, measurement, and evaluation schemes that reflect the goals and objectives of
the venture; (3) rewards; (4) selection criteria for every position; and (5) training on or off
the job in the form of formal education or learning skills.
The organization’s design can be quite simple—that is, one in which the entrepreneur
performs all the tasks (usually indicative of a start-up)—or more complex, in which other
employees are hired to perform specific tasks. As the organization larger and more
complex the organization gets, the preceding areas of expectation become more relevant
and necessary. As the organization evolves, the manager or entrepreneur’s decision roles
also become critical for an effective organization. As an entrepreneur, the manager’s
primary concern is to adapt to changes in the environment and seek new ideas. When a
new idea is found, the entrepreneur will need to initiate development either under his or
her supervision or by delegating the responsibility to someone else in the organization. In
addition to the role of the adaptor, the manager will also need to respond to pressures
such as an unsatisfied customer, a supplier reneging on a contract, or a key employee
planning to quit. Another role is that of allocator of resources. The manager must decide
who gets what. This involves the delegation of budgets and responsibilities. This can be
a complex and difficult process for the entrepreneur since one decision can significantly
affect other decisions. The final decision role is that of the negotiator. Negotiations of
contracts, salaries, prices of raw materials, and so on are an integral part of the manager’s
job, and since he or she can be the only appropriately authoritative person, decision-
making is just necessary.
Development Timeline
A development timeline is a schedule that you use to highlight major milestones and
monitor progress and make changes. It is often useful to illustrate timelines as Gantt
charts. The timeline helps you track major events, delegate responsibilities for project
tasks, and schedule activities to best execute those events. In addition to plotting future
milestones, it is a good idea to illustrate which development milestones you have already
achieved as of the writing of the business plan. Finally, keep in mind that, as the old-age
says, ‘‘time is money.’’ You will have to work hard to meet deadlines, especially in those
industries where speed to market is critical.
Team Bios and Roles
Every story needs a cast of characters, and the best thing to do is to identify first
the key team members and their titles. The CEO role may often be assumed but it will be
more practical to state that the company will seek a qualified CEO if you are still young
and have limited business experience. In these cases, the lead entrepreneur may assume
the role of Chief Technology Officer (if she develops the technology) or Vice President of
Business Development. However, do not let these options confine you. The key is
persuading your investors that you have the best team possible and that your team can
accomplish the excellent plan you are proposing. A relatively simple flat organization chart
is often useful to visualize what roles you have filled and what gaps remain. It also
provides a road map for reading the bios that follow. A record of success must be
demonstrated by the bios depending on if you have previously started a business which
in this case, there is a need to highlight the company’s accomplishments and if not, the
accomplishment in the last job will be enough.
Capital Requirements
Capital requirements refer to the amount of money a firm needs to pay for regular
expenses and upcoming projects. Let us look at Eren Zachary, a small business owner.
In his case, the capital requirements are the funds he needs to pay salaries to his
employees next Friday, the rent and utility payments due on the first of the month, and
the first installment for the design of a new advertising campaign.
We can also calculate capital requirements in our home life. You might need funds to pay
for your rent or mortgage at the end of the month, cash on hand to cover groceries and
incremental expenses, and some extra to set aside toward a vacation next summer.

The Financial Plan

The financial plan provides the entrepreneur with a complete picture of how much and
when funds are being acquired by the organization, where funds are going, how much
cash is available, and the projected financial position of the firm. It provides the short-
term basis for budgeting control and helps prevent one of the most common problems for
new ventures—lack of cash. The financial plan must explain to any potential investor how
the entrepreneur plans to meet all financial obligations and maintain the venture’s liquidity
to either pay off debt or provide a good return on investment. In general, the financial plan
will need three years of projected financial data to satisfy any outside investors. The first
year should reflect monthly data. This chapter discusses each of the major financial items
that should be included in the financial plan: projected income statements, projected cash
flow, projected balance sheets, and break-even analysis.
What is Feasibility Study?
A feasibility study is an assessment of a proposed plan, product, project management
tool, or new execution method. Also, this establishes whether a company, team, or
organization will succeed in a satisfactory manner and within a reasonable period.
Feasibility Study vs. Business Plan
A feasibility study is used to determine the workability and profitability of a business
venture and is normally completed before the business plan. This includes calculations,
analysis, and estimated projections while a business plan is consisting of strategies to be
established and implemented to grow the business.
Feasibility Study Characteristics and Best Practices
A feasibility study will usually provide a clear picture of the budget, schedule, and logistical
strengths and will allow you to adjust the scope of your proposition so that it will fit your
abilities. Besides this, this study will also bring out opportunities that were not obvious
from the start, improve the focus of your members as well as the success rate of projects,
provide an assessment of team trends and characteristics and clarify the need for the
project.
A feasibility study must answer these five essential questions:
1. Is this plan technically feasible?
This question addresses the evaluation of all the hardware, software, and other
technical assets you have at your disposal and whether they meet the requirements of
your new project.
2. Is this plan legal?
This question addresses the requirements, laws, and regulations to complete this project.
3. Is this plan operationally feasible?
This question determines if the proposed project is reliable, maintainable, and affordable
as a solution to the problem you would like to solve.
4. Is this plan feasible within a reasonable period?
This question addresses the need for enough time to complete such a project because if
not, you will find yourself dropping the ball on deadlines and quality for your deliverables.
5. Is this plan economically feasible?
This question addresses whether this project will provide the supposed value needed to
justify its cost and this can be assessed using different factors such as (1) projected
profitability, (2) the total cost of completion, and (3) estimated investment by outside
ACTIVITY:
Create a business plan. Follow the format on the table discussed in the lesson
“Business Plan”.

REFLECTION
Based on the lessons of Unit 3, what part did you enjoy the most? What is your
learning? Also, is there anything in the lesson that you could apply and use in your life?

LEARNING INSIGHTS:
• Business plans and feasibility studies are analysis and decision-making
tools used by companies.
• The business plan is valuable to the entrepreneur, potential investors, or
even new personnel, who are trying to familiarize themselves with the
venture, its goals, and objectives.
• There is much importance of business planning such as it can eliminate
business risk, detect the weaknesses of the business and minimize the cost
of production, etc.
• Business plan elements are management/organizational plan, marketing
plan, production/operational plan, and financial plan.

POST TEST:
IDENTIFICATION
DIRECTION: Write the correct answer in the space provided. No erasure.
_________________ 1. Describes how the product/services will be distributed, priced,
and promoted.
_________________ 2. This section should begin with the mission statement of the
company mission of a new venture.
_______________ 3. Refers to a good or service that the company offers to the
customer.
________________ 4. Determine the potential investment commitment needed for the
new venture.
________________ 5. Assessment of a proposed plan, product, and project
management.
________________ 6. It might include inventory or storage of manufactured products
________________ 7. Cost consumers pay for a product.
_______________ 8. Defines how activities such as task allocation, coordination, and
supervision.
______________ 9. It should be describing the complete manufacturing process.

TITLE OF THE LESSON:

Managing Enterprise
DURATION: 3 Hours
INTRODUCTION
Putting up a business is not easy. The owner needs to determine and evaluate the
resources that he will use for his business. It is important to set and achieve goals so to
meet the business goals the entrepreneur needs effective and efficient management.
The business enterprise cannot survive without a good and just management.
Wise management is necessary for business. There are many problems encountered by
the manager such as competition. In this situation, the big factor is they have good
management.
Topics such as management definition, functions of management, basic roles of a
manager, theories of management, and risk management are discussed.
Suitable techniques and procedure:
▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES/ COMPETENCIES:
At the end of the module, students are expected to:
• define management
• list the functions of management
• summarize the basic roles of a manager
• enumerate the guide to becoming an effective and successful manager
• explain the theories of management
• discuss the risk management.
PRACTICAL EXERCISE/QUESTION: Pres-test

Consider the following question?

Are you a leader?

Write your answer (yes or no) on a piece of paper? Be prepared to discuss your
answer.

LESSON PROPER/COURSE METHODOLOGY

DEFINED MANAGEMENT?
Management is the accomplishment of goals through the collection of people
together and using available resources efficiently and effectively. Management is also
viewed as human action, including design, facilitating the production of useful outcomes
from a system. This thus serves as a pre-requisite to also manage other people/
Robert Hughes, an author of Business, defines management as the process of
coordinating the resources of the organization to achieve its primary goals. Organizations
depend on their resources like materials, manpower, capital or funds, and accurate
information.
Management is both an art and science. It is an art because management requires
skills or techniques in dealing with people to meet organizational objectives. Art, it is
simply meaning an individual style of management in response to particular situations.
Science uses organized clear and pertinent knowledge. Management is systematic and
uses scientific methods of solving business problems. It is the art of maintaining,
developing, and allocating resources for the attainment of organizational goals.
THE ROLE OF MANAGEMENT
The main role of managers is to develop and carry out the management process
to meet the needs and constraints in the internal and external organizational environment.
This process includes the four key functional areas of the organization such as planning,
organizing, leading, and controlling which will be later on discussed.
Moreover, the manager’s role is to guide the organization in the accomplishment
of goals while combining and using the available resources. The managers also strive to
encourage every individual which will lead to reaching organizational goals and also some
kind of discouragement to such activities which will be a hindrance to accomplishing the
organizational objective.
FUNCTIONS OF MANAGEMENT

The four basic functions of management namely- planning, organizing, leading, and
controlling are processes for the creation, execution, and realization of the goals of your
organization. These four processes must be followed in chronological order to succeed.

Planning
In this process, there is an establishment of organizational goals, and the creation of a
course of action to achieve them as the manager also sets a strategic decision as a plan
for achieving the said objectives. During the planning stage, the managers usually have
an in-depth analysis of the current state of affairs of the organization to evaluate what
resources he or they can use to meet the objectives.
The manager also evaluates the internal and external factors that may be a possible
affecter on the execution of the plan. Some of the affecters are economic growth,
customers, and competitors. Besides this, a realistic timeline for the achievement of the
goal based on the organization’s available finances and resources is being established
as they also seek the approval of other departments and executives.
There are three several approaches to planning namely (1) Strategic planning which is
executed by an organization’s top management creating goals for the entire organization.
This type of planning analyzes such factors as the strengths, weaknesses, and threats
and plans how to compete in its environment. Usually, strategic planning lasts three years
or more. Next is the (2) Tactical planning which is the shorter version of planning which
takes a year or less to accomplish. This is executed by the organization’s middle
management and this planning typically aims at a specific area or department such as
facilities, production, finance, marketing, or personnel. And the last one is the (3)
Operational Planning which is the tactical version of achieving a strategic plan and goals
creating a timeframe for the operation of the strategic goal.

Organizing
This is the process of distributing the resources and delegating tasks to personnel to
achieve the established goals in the first part, the planning stage. In the organizing stage,
managers tend to work with different departments to also create a conducive and
productive working environment, considering their employees’ motivation and aptitude so
that they can properly match the roles to them.
An example of the organizing function is when the company’s brand manager who works
part-time cannot take on the essential responsibility of managing the campaign because
of the organization’s goal of initiating a new advertising campaign for a product. As a
result, the company may need to hire an advertising agency to help with the promotion of
the product.
Leading
This process focuses on the management of people which includes the act of
motivating and influencing their behavior for the achievement of the objectives of the
organization through positively connecting with them and giving them some token of
encouragement.
Leading consists of different leadership styles depending on the situation that has
to be adapted. Here are as follows: (1) Directing wherein the manager is leading with
just a little feedback or input from the employee; (2) Coaching wherein the manager and
employee work cooperatively, and build trust with team members making the manager
more receptive to input from the employees; (3) Supporting wherein the manager
focuses more on relationship-building because the employees have already fully
developed skills while sometimes the performance of the employees are still inconsistent;
(4) Delegating, wherein the leader mi minimally guides his or her employees and is more
concerned with the project’s vision rather than the day-to-day operations.

Controlling

This is the process of evaluation of the execution of the plan of the organization.
Adjustments are also made to make sure that the goal of the organization is achieved.
Managers perform tasks like training, monitoring, and evaluating employees for the
quality of their work. They also conduct performance appraisals to give employees
feedback and positive remarks on their work or they may also offer higher salaries or
incentives to employees who are performing well.

Managers may make adjustments through (1) Budget adjustments and (2) Staff
adjustments.

There are a lot of factors to be a successful and effective manager but here are some
important things to remember:

1. Lead your employees efficiently.

2. Gain professional and leading experience through volunteering and asking for help
to manage and produce events for an organization.
3. Learn to communicate with your team by listening to them.
4. Gain knowledge through project management, entrepreneurship, ethics, or human
resource management.
5. Be organized.
6. Prioritize time management.
7. Be a reliable manager.
8. Do not be afraid in delegating tasks to your employees.
9. Be an inspiration to your team.
10. Respect your employees.

Management by Objectives

This uses the top company goals in determining employee objectives and allowing
everyone in the company to see their accomplishments. As this shows how the activity
and outcome go together, this increases productivity and sets a sense of direction to the
employees, focusing on their efforts towards the attainment of a common goal of the
organization.

Need for Management by Objectives (MBO)

The management by objectives is a process that helps the employees in

understanding their duties at the workplace so that it will be clear to them what
performance is expected out of them. This thus avoids job mismatch and unnecessary
confusion. Moreover, management by objectives provides effective communication
among employees that results in a positive ambiance at the workplace.

Management by objectives is also needed for defining hierarchies at the workplace

to ensure transparency at all levels. This process serves as a benchmark for every
employee wherein each employee is given a list of specific tasks.

Limitations of Management by Objectives Process

This process sometimes ignores the culture and working conditions of the
organization happening. Also, this process is limited to targets and objectives which are
expected by the employees to achieve their targets and meet the objectives without
worrying much about the prevailing circumstance of the workplace. They are just
expected to perform tasks and meet deadlines.

THEORIES OF MANAGEMENT

Scientific Management of Taylor

Scientific management is a theory of management of evaluation and process of

synthesizing workflow process, boosting labor efficiency which is also called Taylorism,
the Taylor system, or the Classical Perspective. Frederick Winslow Taylor saw that relying
on tradition must be changed with processes developed following careful research of an
individual at the job. The central ideas of this theory consist of Taylor’s intention of using
and implementing the principles of the scientific method for the completion of specific
tasks.

Taylor’s scientific methods are set out under 4 principles which are as follows:
 1. The ‘gathering in’ shows the guidelines on how to do each job as it is also
developed into rules.
2. The ‘scientifically selecting’ is the process of selecting the right employees for
the activity and skill fit for them.
3. The ‘joint gathered in’ and ‘scientifically selected’ ensures that the person is
best suited for the job as it is also utilized by the scientific method.
4. The ‘expansion of the size of the management’ through the process of
observing, recording, and planning the work function.

The Hawthorne Studies of Elton Mayo

The Hawthorne studies, conducted by Elton Mayo, were intended to refocus on

the incorporation of the socio-psychological aspects of human behavior in the
organization on managerial strategy. This study proved that workers were more
responsive to social factors like people they worked with on a team and the manager’s
interest in their work. These studies also showed that even if financial factors are already
essential, the same goes for social issues in worker productivity.
The Hawthorne studies proved that social issues and job satisfaction affect the
work performance of the people, also showing that monetary incentives and good working
conditions are generally less important in employees’ productivity than their social needs.

Theory X and Theory Y

This theory was formulated by Douglas McGregor suggesting two perspectives of

human behavior at work.

Assumptions of Theory X

This negative view suggests that an average employee does not like work
intrinsically and would like to escape it whenever deem possible, therefore he must be
persuaded, compelled, or warned to achieve organizational goals. They often dislike
responsibilities and they resist change. This theory suggests that employees require close
supervision and formal direction.

Assumptions of Theory Y

This positive view shows that employees can see their job as relaxing and normal, not
requiring only threat, and forced to work, but they can achieve dedicated and sincere work
through self-direction and self-control. Employees’ loyalty and commitment to the
organization will be the result of a rewarding and satisfying job.

In correlation with Maslow’s theory, Theory X is based on the employees depending

on their physiological needs such as the safety need while Theory Y assumes that
employees see social needs and self-actualization needs are what is most dominant for
them.
Hierarchy of Needs by Maslow

Abraham Maslow proposed a classical depiction of human motivation showing the

five needs within everyone through the hierarchy of needs. Here are as follows:
1. Physiological Needs – this includes the basic needs of a person such as air,
water, food, clothes, and shelter, the basic amenities for life.
2. Safety Needs – These include job security, financial security, protection from
animals, family security, and health security which are the physical, environmental,
and emotional safety and protection.
3. Social Needs – this includes the need for love, affection, care, belongingness, and
friendship
4. Esteem Needs – this includes the internal esteem needs such as self-respect,
confidence, competence, achievement, and freedom while external esteem needs
are recognition, power, status, attention, and admiration.
5. Self-actualization Needs - this is the urge to become what you are capable of or
become the potential in you. This tackles the need for growth, self-contentment,
knowledge, service, creativity, and being aesthetic.

Implications of Maslow’s Hierarchy of Needs Theory for Managers

1. The managers must provide their employees with appropriate salaries for
purchasing their basic physiological needs. This can also be shown through giving
breaks and eating opportunities.
2. The managers must secure the safety and hygienic work environment and
retirement benefits of the employees.
3. There must be encouragement for teamwork and the organization of social events.
4. The managers must appreciate and give rewards to employees for the
accomplishment of their targets.
5. The managers can also give challenging jobs to employees’ skills and
competency.

Limitations of Maslow’s Theory

1. All employees are governed by a different set of needs,
2. In cases of starving artists as even if the artist’s basic needs are not satisfied, the
theory is not applicable for he will strive for recognition and achievement.
3. The theory is not analytically supported.
 Figure 5
Maslow’s Need Hierarchy Model

Theory of Herzberg

This is also called Motivation-Hygiene Theory or the dual-factor theory which was
suggested by Frederick Herzberg. This theory claims that the good and bad experiences
function on the same plane, showing that both satisfaction and dissatisfaction are not total
opposites. This is shown when you want to take away the dissatisfaction of the employee
by giving a higher salary offer will not necessarily mean that the employee will be satisfied.
In this theory, dissatisfaction is hygiene while factors that bring satisfaction are motivators.
 Factors for Satisfaction Factors for Dissatisfaction

Company policies

Achievement Supervision

Recognition Relationship with supervisor and peers

The work itself Work conditions

Responsibility Salary

Advancement Status

Growth Security

Figure 6
Factors of Satisfaction and Dissatisfaction

Frederick Herzberg concluded that job satisfaction and dissatisfaction are not different.
He suggested that the opposite of satisfaction is no satisfaction, while the opposite of
dissatisfaction is no dissatisfaction. This means that you will not create satisfaction by
bringing a remedy to the cause of dissatisfaction and neither you will add satisfaction by
eradicating the job dissatisfaction. A practical example is giving someone a promotion will
not make him satisfied if he is still having a hostile working environment, and the same
goes with someone who has a healthy workplace but does not have satisfaction factors
from the team.

Theory Z

This theory, invented by William Ouchie, promotes stable employment, high

productivity, and high morality and employee satisfaction suggesting that the loyalty of
employees is increased through the act of offering them a job that focuses on their well-
being. This theory assumes that the employees have a desire of entering into
partnerships with their employer and colleagues, giving them a form of a safe working
environment and possible development and training. This theory assumes that
employees believe that they can work well if they have the right support from
management. By definition, THEORY Z is a combined American and Japanese managing
style built solely on Japanese management philosophies which emphasized employees’
needs and is characterized by positive work-related outcomes such as long-term
employment, collective decision making, slow evaluation and promotion, holistic concern
for employees, and individual responsibility within a group context.
Business Risk

This refers to the factors that threaten the company’s ability in achieving its
financial goals. This is an indication that a company’s plans may not turn out as originally
planned, meeting its target, or achieving its goals.
Business risks can come from various external factors like rising prices of products,
growing competition, or changes occurring in the government.

How to Identify Business Risks

1. Identify the sources or triggers that can cause a problem, may it be internal or
external.
2. Start doing something for potential problems and do not wait for them to
become actual problems.
3. Involve employees in identifying risks for it is not the sole responsibility of the
managers.
4. Prepare a list of solutions or steps to address the business risks.
5. Detect patterns that may threaten the company by keeping a record of such.

Types of Risks in Business

All businesses experience risks and they all come in different forms. Some of those
are (1) Strategic risk which needs to be prevented through implementing real-time
feedback from the customers; (2) Compliance risk which comes from instances wherein
companies have to follow new rules set by the government; (3) Financial risk refers to
the capability of the company to offer installment payments for its customers and all other
factors concerning the financial health of the company, and (4) Operational risk refers
the threats within the system or processes of the business.

Causes of Business Risks

The first cause of business risk is the (1) Natural Cause which refers to the natural
disasters that lead to the loss of lives and property such as floods, and earthquakes, and;
(2) Human causes like being negligent at work, stoppages in work, strikes, and
mismanagement; and (3) Economic causes like increase in the price of raw materials or
labor costs, and interest rates.

How to Manage Business Risks

The first way on minimizing business risk is (1) To avoid the risk when possible and think
of alternatives not to face the risk; (2) to Prevent the risk by checking up on other external
factors and doing rounds of monitoring to such, and (3) Contain the risk while putting up
safety nets.
ACTIVITY:
Research what motivates people to follow a leader. Prepare a presentation to the class
about various theories about leadership and motivation. Make sure you discuss how this
would apply to business.

REFLECTION /LEARNING INSIGHTS:

• Management can be classified as an art because it involves personal skills in

dealing with employees and problems in a business enterprise. It is a science
because it applies methods, systems, and techniques.
• The basic functions of management are planning, organizing, directing, and
controlling
• Successful and effective managers have good leadership, experience in managing
a business enterprise, communication, knowledge, organization, time
management, reliability, delegation, confidence, and respect for employees.
• Some guides help the owner/manager to motivate the employees toward the job.
• Risk is part of the business enterprise. It cannot avoid but it can minimize or
reduced through employee safety programs, proper safety equipment, accurate
accounting, and financial controls, alarm devices, and other security measures and
it depends on business risk.

POST TEST:

IDENTIFICATION
DIRECTION: Write the correct answer in the space provided.
_________________1. Process of evaluating the execution of the plan and making
adjustments to ensure that the organizational goal is achieved.
_________________ 2. It is both an art and science.
_________________ 3. It is based on teamwork and team effort.
_________________ 4. Distribute the resources and delegate tasks to personnel to
achieve the goals.
_________________ 5. The father of scientific management.
_________________ 6. Assumers’ workers dislike the work.
_________________ 7. Provides a good knowledge and guidance for management on
how to motivate its employees to work more efficiently.
_________________ 8. The best combination of the features of Japanese and American
firms.
_________________ 9. Refers to a threat to the company’s ability to achieve its financial
goals.
_________________ 10. This shows that there are specific factors that are responsible
for satisfaction and dissatisfaction.
TITLE OF THE LESSONS:
• Marketing the Small Business

DURATION: 3 HOURS
INTRODUCTION:
Marketing is that function concerned with planning the conception, pricing,
promotion, and distribution of products or services that will satisfy the firm’s objectives.
Suitable techniques and procedure:
▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES:
•discuss the concept of market segmentation and identify approaches to
segmenting the market
PRACTICAL EXERCISE/QUESTION: Pretest

Think about these questions.

Do you always believe in advertisements?
Write your answer (yes or no) on a piece of paper. Be prepared to talk about examples
that support your position.
DISCUSSION AND EXPLANATION OF THE LESSON:

MARKET SEGMENTATION

Firms usually identify their target markets so that their products/services will find
the right consumers. They spend considerable time, effort, and money to identify their
respective target markets.

The process by which firms identify their particular target markets is called target
marketing.

Stages in Target Marketing

Market
Segmentation

Market
Targeting

Market
Positioning

Figure 7
Stages in Target Marketing

1. Market Segmentation. This is the process of dividing a market into smaller

groups, with needs and characteristics distinct from each other. This stage will be
discussed in detail later
 2. Market Targeting. Once a market is segmented, a firm chooses strategies from
the marketing mix, (i.e., product, price, placement, promotion) that will help
introduce a product to its specific target market.
3. Market Positioning. After specifying the target market, a firm is now ready to
position its products in the market. Using the chosen strategies from the marketing
mix, a firm implements specific plans to promote a product so that it can fare well
against its competitors.
Different types of consumers have different needs and want. There is a need for a
firm to find out which particular type of market segmentation strategy can
effectively address these consumer needs and wants in the form of products and
services.
Types of Market Segmentation

1. Mass Marketing. Companies initially employ mass marketing when no specific

market has been determined. This particular strategy rests on the idea that a
product can cater to everyone, and thus generate higher profits with lesser costs.
Henry Ford used this strategy to market his cars when he founded the Ford Motor
Company in 1908. At that time, Ford was the only automobile company brand that
catered to the middle class. Back then, people bought cars whose dominant color
was black. To a certain extent, mass marketing worked in an era when people
were not yet so particular and demanding with the products that they purchased.
In this of globalization, however, mass marketing strategies may not be as effective
as they were before.
2. Segment Marketing. Companies practice segment marketing to address the
specific needs of target segments. Unilever, for instance, uses this method to
pinpoint particular market segments for its products. The company`s Cream Silk,
for example, targets people who are not satisfied with just shampooing their hair.
These consumers like to apply hair conditioner after shampooing. To answer this
need, the developers of Cream Silk created a product variant that combines the
function of a shampoo and a conditioner.
3. Niche Marketing. Market segments are usually large groups. Narrowing them
down to smaller groups is called niche marketing. For example, market segments
 for people who buy in department stores can be further narrowed down in terms of
the socio-economic status of consumers. Rustan’s for instance practices niche
marketing by offering products/services that appeal to the more affluent segments
of the market. SM, on other hand, carries products/services that people from the
low-income brackets can afford.
4. Micro Marketing. In practicing micromarketing, companies pattern their marketing
programs to suit a particular group of people in a specific location. For example,
McDonald's offers products that appeal to the palates of Latinos.

Types of Consumer Market Segments

1. Demographic segmentation. Consumers can be segmented according to age,

gender, and economic status. Likewise, products are segmented according to the
age, gender, and income of the buyers. Signature clothes, for instance, are for
high-income earners. In the same way, there are clothes specifically tailored for
men and women. Marketers use different strategies according to the specific
segment they target. For example, marketers know for a fact that most women like
to wear clothes with bright colors. Nonetheless, marketers also know that price is
a factor often considered by minimum wage earners whenever they buy clothes.
2. Geographic segmentation. The market can be also divided according to location.
For example, firms selling air-conditioners do not expect their product to do well in
places with cooler weather conditions like Baguio. In the same way, there is no
significant demand for mink coats in the Philippines. In most tropical countries,
except in certain regions, products that insulate any term of "coolness" have a
limited niche in the market.
3. Psychographic segmentation. Psychographic segmentation classifies the
market population under these categories: personality, values hobbies and
interests, opinion, and lifestyle. The most common segment category targeted by
marketers is a lifestyle. People acquire various lifestyle patterns as they go through
the different stages of their lives. A couple with young children naturally has
 different consumption patterns as opposed to a couple whose children are already
grown-ups. The hobbies and interests of consumers are taken into account by
marketers. The buying patterns of consumers can be influenced by their interest,
for example, in basketball or by their opinions on environmental issues
4. Behavioral segmentation. This refers to the consumers who are first-time users
of a product/service. Consumers who are first-time users of a product/service
usually show apprehension and concern before and after purchasing it. For a
guaranteed repeat purchase, marketers should ensure that first-time users will be
satisfied with the product/service. In contrast, the attitude of loyal customers
toward marketing a product/service through word-of-mouth is motivated by their
previous experience of satisfaction.
Market Targeting

To properly evaluate market segments, a firm must consider the size of the target
segment. This evaluation should also take note of the firm's objectives and the status of
its resources. Once a target segment is identified and the firm wishes to focus on it, the
firm's marketers will evaluate the potential of that market segment. They must also resolve
whether the company has the resources to develop a product service for that segment of
the market. In target marketing, it is important to review the chosen market segment and
find out if it has undergone proper segmentation. Otherwise, the product/service to be
launched by a firm will suffer sales-wise.

Characteristics of Effective Segmentation

1. Measurable -The chosen market segment can be measured in terms of size,

location, and income, among others.
2. Accessible - The target market can access the product/service.
3. Differentiated - The chosen market segment is different and distinct enough.
4. Implementable - The marketers can utilize the different marketing programs
available in the 4P's of the marketing mix.
5. Acceptable-The product generates revenue for the firm.
 In target marketing, the appropriate strategy for a chosen market segment depends
on the firm's resources. Strategies also depend on the product variability. Products with
many variants need specific strategies to attract the different sub-segments of the market.

Market Positioning

Positioning is the process by which the benefits of a product/service are impressed

upon the minds of consumers. Effective positioning can unconsciously make consumers
associate a particular brand with generic or similar kinds of products. To illustrate this
point, take Xerox, one of the most popular brands of photocopying machines. Because of
its effective market positioning, most people associate and mistake Xerox with the act of
photocopying itself. By the same token, a lot of people refer to toothpaste in general as
"Colgate" even if they are using a different brand. Positioning is a tool for competitive
advantage. By emphasizing the brand's unique features, marketers will be able to
convince consumers of its value.

MARKETING MIX

The marketing mix refers to all aspects and activities in the 4 P’s of marketing,
namely product, price, placement, and promotion. Today's consumers are willing to pay
the price of a product that they believe will satisfy their needs and wants. These needs
and wants of consumers, however, are limitless and their satisfaction is not permanent.
Consequently, marketers constantly try to find ways to meet, through products/services,
the ever-changing demands of consumers.

Product

A product is anything that a firm offers to customers (both consumers and business
buyers) for acquisition, use, or consumption. Consumer goods, ideas, organizations, and
people are examples of products and services. To better understand what a product is, it
is important to discuss its parts levels. These parts/levels also constitute the main
characteristics of a product.
 Supplement
The add-ons of a
product such as
warranty, manner
of delivery, and
credit terms

Tangible
The
characteristics
of a product
such as size,
brand name,
packaging,
quality, design
and features

Center
The reason
why
consumer
buy a
product

Figure 8
Levels of a Product

Parts/Levels of a Product

1. Center. This part/level refers to the primary reasons and of consumers for
purchasing a product. For example, a laptop can be used both at home and in the
office. For users at home, the laptop can be used for Internet browsing, gaming,
and simple word processing. For office users, on the other hand, a laptop can help
in designing presentations, drafting business letters, and conducting research.
2. Tangible. This part/level pertains to the physical qualities/features of a product.
For instance, the tangible parts of a laptop include the screen, hardware, keyboard,
mouse pad, and speakers.
3. Supplement. Marketers offer supplements or add-ons to entice consumers to
make a repeat purchase of the product. Examples of supplements or add-ons
include free operating systems, a long warranty, flexible payment terms, and free
games.
Classification of Products

The three classes of products are:

1. Consumer Products. These are products bought by consumers for their personal
use and consumption. Most of these products are considered basic goods, and
consumers buy those most frequently. These products include soaps, detergents,
newspapers, cooking oil, spices, and bread, among others. Usually, marketers
distribute these products in large quantities and make them more accessible to
consumers.
Consumer products also pertain to specialized products bought by specific types
of consumers. Examples of these specialized products include luxury cars,
signature clothes, expensive jewelry, and five-star hotel accommodations.
Products/services like memorial plans and life insurance, on the other hand, are
consumer products that, unless marked extensively, some consumers don’t
purchase.

2. Industrial Goods. These are products/services used for the production of new
products. Depending on their use, industrial goods can sometimes be classified as
consumer goods. Examples of industrial goods include capital goods, raw
materials, repairs, supplies, and services. Heavy equipment used in factories,
large computer systems, buildings, and warehouses used in many manufacturing
firms are examples of capital goods. Vegetables, fruits, ore, and petroleum, on the
other hand, are examples of raw materials and repairs, supplies, and services
including maintenance of equipment and operating supplies. Other types of
services include consultancy work, head-hunting, and legal services.
3. Organizations/Places/Ideas/Persons. When people try to market their skills and
abilities, they become products. Job-seekers offer their services to land a position
in a company. Politicians market their platforms and credentials during the election
campaign to gain leverage and voters' support in their quest for public office. All
types of organizations market their firms to attract more customers, employees,
and investors. Places like Palawan are marketed to attract visitors and generate
 employment for the locals. In advertising companies, ideas are pitched to potential
clients.
Product Decisions

Marketers are faced with product decisions that they need to make to develop a
product that can attract numerous consumers.

1. Product Attributes. These pertain to the quality, design, and features of a

product. The quality of a product refers to its performance and physical condition.
A quality product is a product that is in good order and condition and performs well.
A product with unique features almost always does well in the market. To improve
a product's features, most marketers, do extensive research and as consumers for
their comments and suggestions. A good product design ensures marketability.
Marketers find ways to improve the product's competitiveness through innovative
designs. Cell phone manufacturers, for instance, continue to come up with trendy
designs and new features to convince more consumers to buy their products.
2. Branding. A brand is a symbol, name, design, or the combination of all three that
makes a product distinct from its competitors. Marketers protect the brand names
they carry by ensuring good product quality and performance. A product with a
good brand image and recall usually reap large profits for a firm. Brand names are
protected through business and intellectual property laws. Some firms use their
company name as their brand name. Kelloggs, Del Monte, and IBM are examples
of firms that practice this type of branding strategy. Conversely, firms like Unilever
carry numerous brands like Sunsilk, Clear, Cream Silk, Ponds, and Surf, among
others.
3. Packaging. This refers to the appearance and design of a product’s wrapper or
container. Marketers weigh different factors when it comes to packaging. In terms
of appearance, they consider the size, weight, and type of packaging material to
be used on a product. Marketers also take into account the taste of consumers.
They produce colorful, innovative, and creative packaging designs that are sure to
catch the eye of the consumers.
 4. Labels. Labels are attached to provide the consumers with the necessary
information about the products. Other than the product manufacturer's name,
labels also indicate the product's expiration date, nutritional contents, and
manufacturing location.
5. Support Services. Marketers also offer product support services to consumers.
Extending support services is a way for marketers to review and improve a
product/service's performance and quality. Consumers, on the other hand, avail
themselves of these services to resolve their difficulties and concerns with a
product/service. Examples of support services include tree car check-ups, laptop
or computer software troubleshooting, and electronics repair.

Price

Price is the amount that consumers pay in exchange for a product/service,

Marketers consider various factors before setting a price for a product. One such factor
is the marketing objective of the company. Some firms set low prices to maintain the high
demand for a product. There are instances, on the other hand, when the primary goal of
a firm is to maximize its profits. In line with this objective, the potential profits of a product
are analyzed.

Some firms set prices based on product research and Cost. This is the reason why
most electronic gadgets and drug therapies for rare and deadly diseases today are
expensive.

Prices can be also determined by the market structure wherein the firm operates.
In a perfectly competitive market, there are many buyers and sellers, Because of the
number of participants in the market structure, a uniform price is set for most products. A
monopolistically competitive market, on the other hand, features many sellers and
products with some form of differentiation and variety. In this market structure, most of
the sellers are owned and controlled by a single firm or manufacturer. Consequently, the
dominant firm/manufacturer is the one who sets the prices of products. In an oligopoly
where there are few sellers, one dominant seller can set the price and the rest will follow
suit. This tendency in the market structure is called price leadership. On the other hand,
firms selling a common product can collude and agree on setting a fixed and regulated
price for their respective products. Organizations such as OPEC (Organization of
Petroleum Exporting Countries) are an example of an oligopoly. Countries that belong to
this organization form a cartel and continuously collude with each other to set the prices
of oil and petroleum products in the world market.

Prices of products are also affected by the elasticity of demand. When consumers
quickly respond to a change in the price of a product, the demand for it is elastic.
Conversely, if consumers do not respond much to the change in price, the demand is
inelastic. However, there are instances when a slight change in the price of a product can
tremendously increase the demand for it. This trend is called perfectly elastic demand.
This occurs when consumers find a more favorable substitute for a product that had a
slight increase in its price. Quite different is the case when manufacturers of drugs set
higher prices on their products but still elicit the same demand for their products. This is
called perfectly inelastic demand. Most products under this category have no available
substitutes.

Another factor firms consider when they set the price of their products is the price
set for similar products by competitors. Some firms base their prices on the prices of rival
brands. Some firms will try to set the same price, while others set prices slightly lower
than those of their competitors. Lastly, another factor to consider is state intervention.
Price regulation laws are legislated by the government to monitor and control the price of
basic goods and services. In this case, firms have no choice but to set the prices of their
products according to what i8 mandated by the aforementioned laws.

Placement

The third P in the marketing mix is placement. Marketers sometimes call it the
product's channel of distribution. Marketers see to it that a product reaches its target
customers. In that account, all products intended for different types of consumers need
various channels of distribution. A marketing channel has degrees of intensity. Intensity
refers to the extent and number of intermediaries used by marketers for a product to reach
its target customers. A channel is intensive when a product goes through many
intermediaries. It is selective, however, when few intermediaries are utilized. And in rare
cases, when only one intermediary is needed, a channel is considered exclusive.
Marketing channels are important because they expedite product placement and
distribution. While the use of intermediaries entails additional costs, the ease of access
to products by consumers, in return, guarantees better profits for the firm or company.

PRODUCERS
WHOLESALER RETAILER CONSUMERS
(FIRMS)

Figure 9
Vertical Marketing System

The vertical marketing system (VMS) is the improved version of the conventional
marketing system. In VMS, the firm (producer), wholesalers, and retailers all work
together as one cohesive group to develop, promote, and distribute the products. In this
system, as in most cases, the firm owns and controls the wholesalers and retailers.

The horizontal marketing system, (HMS) on the other hand, involves two or more
firms working together to take advantage of a marketing opportunity. Movie producers
who do tie-ups with TV networks to produce and distribute a film are an example of a
horizontal marketing system.
Promotion

Promotions refer to the series of steps taken by firms to introduce a product to its target
consumers. There are different types of promotional techniques that firms can use to
market a product to consumers.

Major Types of Promotion

1. Advertising. It is defined as any paid form of non-personal and mediated presentation

of a product/service. Television, radio, brochures, billboards, and newspapers are the
platforms most commonly utilized by marketers to air, print, or post their advertisements.

2. Public Relations. These refer to the attempts of firms to build a good brand image and
establish a smooth and harmonious relationship with consumers. For most firms, the best
way to foster good public relations is to participate in various advocacy campaigns and
philanthropic activities.

3. Personal Selling. This method utilizes the firm's large sales force to make a direct sale
to target consumers. To accomplish this, the sales force employs the following marketing
programs: trade shows, sales presentations, and product demonstrations.

4. Sales Promotion. It involves the use of incentives on a short-term basis to boost

product sales. Examples of sales promotion techniques are discounts, premiums, and
coupons.

5. Direct Marketing. It involves direct communication with consumers to establish a good

rapport with them. Examples of direct marketing techniques include e-mails, text
messages, catalogs or online display ads, customer service counters, and hotlines.

Developing an effective promotional campaign requires several steps. Firstly,

marketers should identify the target audience or would-be receivers of the campaign's
message. The target audience may include the following: prospective Customers,
influencers, loyal customers, purchasing agents, and end-users. Marketers must know
their target audience since the content and form of a campaign's message must suit the
latter’s characteristics.
 Secondly, marketers should lay down their marketing communication objectives.
For this purpose, marketers must ask themselves these questions: Are the consumers
already aware of the product/service? How extensive is their knowledge about it? What
are their current product preferences? All these questions, in the final analysis, help
marketers in achieving their ultimate goal throughout the whole process: persuading
consumers to purchase their products or services.

Finally, after specifying the target audience's communication objectives, it is time

for the marketers to create the campaign's message. A convincing message should be
able to arouse and hold the target audience's attention.

The contents of a message must appeal to the rational thinking of the target
audience. Stating the benefits of a particular product is a sure way of stimulating the
intellect of consumers. Advertisements of detergents are good examples of commercials
that try to tap into the consumers' 1ogical reasoning or common sense. Conversely, some
advertisements appeal to the emotions of consumers. Most of these advertisements have
messages predicated on themes such as approval, acceptance, and self-worth.

Marketers also consider the structure and format of a message. There are
messages which contain delicate or sensitive topics that need to be communicated well
to avoid offending people or groups with different beliefs and sensibilities. Creators of
print advertisements, on the other hand, emphasize the format (e.g., highlighting the
headline of an ad) to communicate their message clearly and effectively.

SELF ASSESSMENT. Identification.

_______1. It utilizes the firm's large sales force to make a direct sale to target
consumers.
_______2. Marketers sometimes call it the product's channel of distribution.
_______3. This refers to the appearance and design of a product’s wrapper or
container.
_______4. This part/level pertains to the physical qualities/features of a product.
_______5. It classifies the market population under these categories: personality,
values hobbies and interests, opinion, and lifestyle.
_______6. It involves direct communication with consumers to establish a good rapport
with them.
_______7. there are instances when a slight change in the price of a product can
tremendously increase the demand for it.
_______8. The chosen market segment can be measured in terms of size, location, and
income, among others.
_______9. Market segments are usually large groups. Narrowing them down to smaller
groups.
_______10. The process by which firms identify their particular target markets.

TASK TO-DO

Think of at least three commodity products in your local grocery stores. Try to evaluate
the applicable marketing strategies for the products.

Commodity Products Marketing Strategies

Reflection/Learning Insights

• If the small business operator wants to succeed, the specific market he would want
to serve must be identified. The firm must be provided with sufficient information
on the target market regarding its need so that it may be adequately served.
• Market strategy planning is an important marketing activity that must be
undertaken.

UNIT 2: KEY TO SUCCESS

TITLE OF THE LESSON:
Production of Goods and Services
DURATION: 3 Hours
INTRODUCTION:
Business provides products and services. Owners of the enterprise utilize and
mobilizes production resources such as manpower, raw materials, funds, technology, and
supplier. They must be careful in creating goods and services. One of the objectives of a
business is to satisfy customers’ needs and wants.
There are many numerous products and services available in the market today
and market competition is one of the challenges for a business owner. In creating the
product, it is important to know the needs and wants of your market. It is important to
develop a good production plan.
The operations management discussed the factors of production, importance,
production planning the cost of production, relevant technology, various types of
inventories, and key elements of product design.
OBJECTIVES/COMPETENCIES:
In the end, you are expected to:
1. Define operations management;
2. Enumerate the factors of production;
3. Summarize the importance of production planning;
4. Explain the cost of production;
5. Discuss the relevant technology;
6. Explain the various types of inventories; and
7. Identify the key elements of product design.

PRE-TEST
TRUE OR FALSE
Direction: The following questions will determine the level will determine the level of
your knowledge regarding the basic concepts of Operations Management. Write True if
the statement is right and write False if the statement is wrong.
________ 1. Production is the process of making or manufacturing goods and
products from raw materials or components.
_________ 2. Production inputs may include materials, machinery, methods,
management, and money.
_________ 3. Finishing it may mean painting, vanishing, polishing, cleaning, and
glazing.
_________ 4. Inspection represents the main step in a process, method, or procedure
where the raw materials are changed into something else.
_________ 5. Storage is the raw material or product that may be stored temporarily or
permanently and transported or moved from one workplace to another.
__________ 6. Entrepreneurship is the art of taking on the economic risk involved in
bringing the other three factors of production together.
__________ 7. When total revenue is greater than total costs, production should be
stopped.
__________ 8. When total revenue is equal to the total cost, production should be
maintained.
__________ 9. When total revenue is less than total costs, this means loss.
__________ 10. Labor refers to both physical and mental efforts.

WHAT IS OPERATIONS MANAGEMENT?

This is the process of administering the best business practices for the
achievement of maximum levels of efficiency in terms of the use of company resources.
This includes the management of materials, machinery, technology, and labor in the
production of high-quality goods and services that will benefit the company.
Operations management focuses on people management and specific goals
marketing for your business. This also consists of getting the most out of the resources
of your company and involving your employees, technology, and equipment. It is also
important that the chief operations officer has a background in all sorts of areas that the
operation management will be dealing with so that all these components will be managed
properly.
OPERATION MANAGER
Job Description
General Purpose
Planning, directing, and coordinating, the operations of an organization are the
main general purposes of an operations manager. He makes sure that the performance
is ensured and improved, along with the productivity, efficiency, and profitability of
departmental and organizational operational operations with the use of effective methods
and strategies.
Main Job tasks, Duties, and Responsibilities
1. The operation manager coordinates and supervises the workings of various
departments in the organization.
2. The operation manager reviews financial statements and data and utilizes them to
improve profitability. It is also their task to prepare and control the budgets and
inventory.
3. Operation managers support the organizational goals through improving
processes and policies, and formulating and monitoring adherence to rules,
regulations, and procures.
 4. The task of coordinating and monitoring the work of various departments in
production, warehousing, pricing, and distribution of goods is being fulfilled by the
operation manager.
5. The operation manager also facilitates coordination and communication between
support services such as IT, HR, accounts, and finance.
6. The operation manager takes control of the planning and support of sales and
marketing activities.
7. Operation managers assist in the development of strategic plans for operational
activity as they also conduct implementing and managing plans of the operation.

Education and Experience

Below are some of the common requirements in the operations manager role.
1. He or she must have a college degree in business administration, commerce,
management, industrial technology, or industrial engineering.
2. He or she must have industry-relevant production experience.
3. He or she must have knowledge and experience in organizational effectiveness
and operations management.
4. He or she should have knowledge of business and management principles and
practices.
5. He or she must have knowledge of financial and accounting principles and
practices.
6. He or she must have knowledge of human resource principles and practices.
7. He or she must have knowledge of project management principles and practices.
8. He or she must have information technology skills.

Key Skills and Competencies

The operation manager must have (1) critical thinking and problem-solving skills,
(2) planning and organizing skills, (3) decision-making skills, (4) communication skills,
(5) persuasiveness, (6) influencing and leading, (7) delegating skills, (8) negotiating
skills, (9) conflict management skills, (10) adaptability skills, (11) stress tolerance, and
(12) teamwork.
NATURE OF PRODUCTION
Production is the conversion of resources into goods to satisfy human needs and
wants and eventually selling it to the market. The production process includes the
processing and assembling of materials using simple toads, machinery, and
equipment.
THE FOUR FACTORS OF PRODUCTION PROCESS
These are the four inputs needed for supply which is any resource being used in
the creation of a good or service.
 1. Land/Natural Resources

These all-natural resources are water, oil, copper, natural gas, coal, and forests.
These can be renewable and can range from land used for agriculture to
commercial real estate, as well as the natural resources from the land.

2. Labor

This factor of production involves any human input by people who contribute to
production and the quality depends on the skills, education, and motivation of the
workforce. According to the early influential political economists, labor is the main
source of economic value.

3. Capital

This factor refers to manufacturing resources such as factories and machines,

including the man-made goods used in the production of other goods like
hammers, forklifts, conveyor belts, computers, and delivery vans. According to
modern or neoclassical economists, capital is the main source of value.

4. Entrepreneurship

This factor is the art of taking on the economic risk involved in bringing the other
three factors of production together. This is the process of helping to build many
of the largest firms in the world as well as some of the small businesses in your
neighborhood contributing to economic growth.

COST OF PRODUCTION
This is the term referring to the total sum of money needed for the production of a
specific quantity of output. According to Gulhrie and Wallace, cost of production refers to
the payment or expenditures necessary to obtain the factors of production of and, labor,
capital, and management required to produce a commodity, representing money costs
that we want to incur to acquire the factors of production.
The key elements in the production costs are (1) Purchase of raw machinery, (2)
Installation of plant and machinery, (3) Wages of labor, (4) Building rent, (5) Interest on
capital, (6) Wear and tear of building and machinery, (7) Advertisement expenses, (8)
Payment of taxes, (9) Insurance charges, (10) The imputed value of factor of production
owned by the firm itself is also added in the production cost; and (11) The production cost
also includes the normal profit of the entrepreneur.
THE IMPACT OF RELEVANT TECHNOLOGY ON PRODUCTION

Modern technology indeed opened the door for multi-functional devices like the
smartwatch and the smartphone. Some computers are increasingly faster, more
portable, and higher-powered than ever before. With all these advancements,
technology has made the lives of many people easier, faster, better, and more fun.

It is an eminent fact that the knowledge of using tools and machines to do tasks more
efficiently is technology. And it brought a great impact on the advances of production
making it easier, quicker, and at a low cost. An example to show this is the automotive
industry which was constructing automotive with workers twenty years ago and today is
already constructing automotive with robots. With the help of new technology and hiring
fewer workers, a small firm will receive more production of units on average.

Advantages of technology in business

1. Technology makes communication faster.
2. You can now promote your business online.
3. You can now store up and find your business or office data on your personal
computer.
4. Technology makes hiring staff easier.
5. You can now monitor your staff from the different areas of your office using cameras.

Disadvantages of technology in business

1. Addiction to using online social websites like Facebook, Twitter, and Instagram
can waste your time.
2. Using the latest technology will be expensive for startup businesses.
3. Sticking to the usage of technology might result in employees not getting a
challenge in their work and their talent not growing.
4. Business becomes dependent on online which hinders work whenever the internet
gets disconnected.
5. Running your business online brings the possibility of some hackers stealing your
data and your employees leaking your company's important information like emails
of clients.

PRODUCTION PLANNING AND ITS IMPORTANCE

Production planning is the process of establishing the activities needed for the
satisfaction of current planned levels of sales as it also meets the firm’s general objectives
about the overall business plan which consists of profit, productivity, lead times, and
customer satisfaction. The purpose of production planning is to compare the sales
requirements and production capabilities as well as the production plan itself, along with
the supporting plans for materials and workforce requirements. Moreover, the primary
reason for production planning to for the establishment of production rates which will
result in the achievement of management’s objective of satisfying customer demand.

The production plan consists of direct communication and consistent dialogue

between the operations functions and the upper management and also between
operations and the firm’s other functions.

Production planning is a process used to ensure materials, equipment and

employees are all available in meeting production goals for a business. A detailed plan
showing how a company will reach its production goals and how long it will take to achieve
them is also provided which is being used to let customers be informed about how long it
will take before they can expect their orders.

RULE OF PRODUCTION

Some basic guidelines that wise entrepreneurs follow in how much to produce are
the following:

• When TR is greater than TC, produce more;

• When TR is less than TC, stop producing;
• When TR is equal to TC, maintain production.

Where:

TR = Total Revenue (income)

TC= Total Cost (expense)

This rule applies to a long-run period.

A more advanced guideline of production is:

• When TR is greater than VC (variable cost), operate;
• When TR is less than VC, shut down).

This rule applies to the short-run period.

WHAT IS INVENTORY CONTROL?

Inventory control is used to keep the right number of parts of products in stock for
purposes of avoiding other costly problems like shortages, and overstocks.
TYPES OF INVENTORY CONTROL

1. Raw materials inventory refers to the number of raw materials which are
owner’s possession specifically in the course of an accounting period. In the
beginning, there occurs an assessment of this type of inventory of the period
or at the end as it also Identifies the beginning and ending balance of the
inventory which can help identify the amount of usage of raw materials that
occurred during the period, and thus influence the process of ordering those
materials for future periods.

2. Work-in-progress (WIP), a production and supply-chain management term

partially describes the finished goods waiting to be completed. WIP consists
of the acquired raw materials, labor, and overhead costs. WIP is a
component of the inventory asset account on the balance sheet which is
subsequently relocated to the finished goods account and eventually to the
cost of sales.

3. Supplies inventory are stock of supplies that have been bought already
but not yet used or consumed.

4. Finished goods inventory is the term used for the number of

manufactured products in stock that are available for customers to
purchase.
 Classification and Advantages of Plant Layout

Layouts can be grouped into the following five categories namely: (1) Process layouts,
(2) Product layouts; (3) Combination layouts; (4) Fixed position layouts; and (5) Group
layouts, and the explanations of these are stated below.

1. Process Layout
In this layout, all machines perform a similar type of operations which are being
grouped at one location in the process layout and this is recommended for batch
production. The arrangement of facilities is being grouped according to their
functions here in this kind of layout. This is also normally used when the production
volume is not enough to justify a product layout.

Diagram of Process Layout

Figure 10
Diagram of Process Layout
Advantages
1. Machines are better used and fewer machines are needed.
2. The flexibility of equipment and personnel is possible.
3. Lower investment on account of comparatively a smaller number of machines and
lower cost of general-purpose machineries.
4. Higher level of utilization of production workplaces.
5. Highly flexible distribution of work to machines and staff.
6. The diverse load of work makes the job full of challenges.
7. Supervisors will know more about how things work in the department.
Limitations
1. There occur backtracking and long movements in the process of handling the
materials thus the materials handling efficiency is reduced.
2. The material handling which adds to cost cannot be industrialized.
3. Process time that reduces the inventory turnover and increases the in-process
inventory is prolonged.
4. Set-ups lower productivity.
5. Longer time for throughput.
6. By work-in-progress, space and capital are tied up.

Product Layout
Machineries and auxiliary services are placed according to the processing
sequence of the product in this kind of layout.
Product layout

Figure 11
Product Layout

Advantages
1. Smooth and logical product flow.
2. Less in-process inventory.
3. Fewer throughput times.
4. Minimum material handling cost.
5. It is possible to have a simplified production, planning, and control system.
6. Work transit and temporary storage occupy less space.
7. Handling systems and straight flow reduces material handling costs.
8. Bottlenecks and idle capacity are being eliminated by perfect line balancing.
9. The uninterrupted flow of materials shortens the manufacturing cycle.
10. The amount of work-in-process inventory is small.
11. The production can be learned and managed by unskilled workers.
Limitations
1. Stoppage of machineries downstream of the line is being caused by a breakdown of
one machine in a product line.
2. Major alterations in the layout are required by a change in product design.
3. The output of the line is decided by the bottleneck machine.
4. Comparatively high investment in equipment is needed.
5. Modification is required by a change in product.

Combination Layout’s Advantages and Disadvantages

Combination Layout
This is a combination of process and product layouts adding the benefits of both
types. It is possible to have a combination layout when an item is differently made in type
and size. Here, machines are being fixed in a process layout but the grouping process is
then arranged in a sequence to produce. Below is the figure showing a combination type
of layout for the manufacturing of gears of different sizes.

Figure 12
Combination Layout
Advantages

1. There is job enlargement and upgrade for the skills of the operators.
2. The workers are being identified with the products they are interested in or
doing.
3. There is greater flexibility in this kind of layout.
4. Lower layout capital investment.
Group Layout or Cellular Layout
Bringing an element of flexibility into the manufacturing system is a trend now
regarding variation in batch sizes and sequence of operations.
Group technology is the term used for the analysis and comparisons of items to group
them into families with similar characteristics. It is used in developing a hybrid between
pure process layout and pure flow line layout which is very useful for companies producing
a variety of parts in small batches for their advantage and economics of flow line layout.
This involves two basic steps: (1) Determine component families or groups, and (2) Apply
group technology to arrange the plant's equipment in processing a particular family of
components.
The basic purpose of group technology layout is to identify families of components in
which the requirements of the machines are grouped into cells.
Advantages
There is an increase in (1) Component standardization and rationalization; (2) Reliability
of estimates; (3) Effective machine operation and productivity; and (4) Customer service.
On the other hand, the group technology layout decreases (1) the paperwork and overall
production time; (2) work-in-progress and work movement; and (3) overall cost.

PRODUCT DESIGN is the blending of the user needs with business goals in helping
brands make consistently successful products. It is optimizing the user experience in the
solutions as they make for their users and help their brands by making products
sustainable for a long time.

The three key elements of product design are (1) Functional Use of the Product; (2)
Outward Appearance Design, and (3) Quality Delivered to Your Customers.
Fixed Position Layout
 Also called a project type of layout, the materials remain in a fixed place, and
tools, machinery, men, and other materials are transferred to the said location. This layout
is suitable whenever there is one or a few pieces of identical heavy products to be
produced and when the assembly is consisting of a large number of heavy parts, the cost
of transportation of these parts becomes quite great.
Fixed position layout

Figure 13
Fixed Position Layout
Group layout or Cellular layout

Figure 14
Group Layout or Cellular Layout

T h e F un cti o n al Use o f th e Pro d u ct

T he word f unct ion al means pr act ical and us ef ul, rat her t han at t ract ive.
Put t ing t his i nt o co nsid erat io n, st art t hinkin g ab out ho w u sef ul you r
product wo ul d be t o your cust o mer.

T h e O u tw ard Ap p earan ce De s i g n

T he out ward d esi gn an d look of t he product , dep end ing o n your

product , ca n b e min imal or d et aile d. O t her comp an ies d ecid e t o hire or
licens e art work and pat t ern d e signs t o sav e t ime or t hey also choose t o
have an i n - h ouse desi gn t e am in d evel opi ng t h e ov eral l des ign of t he
product .

T h e Q u ali ty Del i ver ed to Yo u r Cu sto mers

Taking consideration of the quality to get right in today’s marketplace is very

important as care must also be taken in the development of a very high-quality product.
Quality Control is the process of ensuring that a manufactured product follows a defined
set of quality criteria or standards and that it meets the requirements of the client or
customer.

Quality Control Duties and Responsibilities

1. Approval of incoming materials
2. Approval of in-process production
3. Approval of all finished products
4. Return of products for re-work if necessary
5. Documentary and update of inspection results
6. Keeping measurement equipment operation
7. Maintenance of a safe work environment
8. Coaching and mentoring junior employees
9. Updating job knowledge
10. The accomplishment of organizational mission

PRODUCTIVITY is a classic definition for the way to measure efficiency, the output that
comes from units of input.

SCHEDULING consists of arranging, controlling, and optimizing work and the loads in a
production process or manufacturing process as this is used for allocation of plan
machinery resources, plan human resources, plan production processes, and purchase
materials.

TYPICAL PROBLEMS IN PRODUCTION

1. Machine downtime is the period that shows an unavailable system.
Downtime or outage duration is the period that a system fails in the
provision of its primary function.
2. No materials or lack of materials when products will not be produced
completely and can’t be delivered because there are no materials, a lack
of materials for production or delayed arrival of materials or piece part
3. Lack of manpower. If there is no manpower to work, then no goods or
services will be produced.
4. Misprocessed products. It is rejected and needs to rework. Worse, it
might be scrapped if not reworkable, which is already a loss for the
business.
CHOOSING THE SUPPLIER
A. Considerations in selecting the supplier
• Quality
• Reliability
• Location
• Other services offered (credit, repair, etc.)
 WAYS TO BUILD GOOD SUPPLIER RELATIONSHIP
• Pay bills promptly
• Give sales representatives a prompt, courteous hearing
• Avoid abrupt cancellation of orders
• Make suggestions for product improvement and or cost reduction, whenever
possible
• Explain when rejecting bids

ACTIVITY

Mr. Eren Zachary Basaran operates a successful RTW Shop out of her home in a quiet
neighborhood. Lately, her neighbors have been complaining about the Eren Zachary’s
customers parking on the street when they come to pick up their orders. Describe the
possible answers to this problem.
Kindly upload you’re in MS One drive.

REFLECTION/LEARNING INSIGHTS:
• Operation management is the proper management of materials, machinery,
technology, and labor to produce high-quality goods and services that will benefit
the company.
• Production is the process of creating products and services that a firm sells to its
market. The processing and assembling of materials using simple tools,
machinery, and equipment are the production process.
• The factors of production are land, labor, capital, and entrepreneurship.
• Technology today has great importance on production. Every advancement in
technology makes production easier, quicker, and at a low cost.
• Production planning ensures materials, equipment, and employees are all
available to meet production goals for a business.
• Inventory control is to protect against making rash decisions and you also avoid
the pain and expense that come from overstocking inventory.
• There are many strategies for good operation management.

POST-TEST

IDENTIFICATION
DIRECTION: Write the correct answer on the space provided.

________________ 1. Refer to the good being produced.

________________ 2. Periods when a system is unavailable.

________________ 3. Confirmation that specified requirements have been met by a
product or service

________________ 4. It is the process of keeping the right number of parts and products
in stock.

__________________5. He has the great responsibility of dealing with strategizing,

forecasting, and overseeing the daily process.

__________________ 6. Used to allocate plant and machinery resources, plan human

resources, plan production processes, and purchase materials.

__________________ 7. Procedure or set of procedures intended to ensure that a

manufactured product or performed service adheres to a defined set of quality criteria or
meets the requirements of the client or customer.

__________________ 8. Analysis and comparisons of items to group them into families

with similar characteristics.

_________________ 9. It is rejected and needs to be reworked.

___________________10. Includes the proper management of materials, machinery,

technology, and labor to produce high-quality goods and services.
UNIT 3

CREATING BUSINESS ENTERPRISE

1. Organizing the Business Enterprise
2. Managing Small Business Finance

Duration: 12 Hours
TITLE OF THE LESSON:
Organizing Business Enterprise
DURATION: 3 Hours
INTRODUCTION:
Conducting a feasibility study is essential and a business plan or market study in
establishing a new business enterprise. We need to determine and evaluate the required
resources, prospective group of buyers, and the swot analysis. It is unusual to operate
his business alone. He needs manpower to assist him. This could mean hiring people
and the owner of the business should prepare the lists of responsibilities and
requirements needed for the job. The identified tasks can be accomplished if the firm is
meticulously organized, directed, and controlled. The owners need to manage the
financial aspect of the enterprise. It seems cash is the lifeblood of the business. The
project feasibility study and business plan are important because they will serve as
direction for your enterprise. The entrepreneur needs to develop a good and effective
business plan.
Suitable techniques and procedure:
▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways

OBJECTIVES:
• discuss the elements that influence a firm’s business organizational structure

• explain how specialization and departmentalization are the building blocks of the

organizational structure

• distinguish between responsibility and authority

 • explain the differences in decision-making in centralized and decentralized

Organizations structures

• explain the differences between functional, divisional, project, and international

organization

• differentiate the job description and job specification

• understand how the informal organization is different from the formal organization

• identify the various forms of business organizations

PRACTICAL/EXERCISE/QUESTION: Pre-test
Think about this question concerning your everyday life.
Write your answer on a piece of paper. Think how much it would be worth to you.

LESSON PROPER/COURSE METHODOLOGY

The Nature of Organizing
After establishing the plan, the manager can now start organizing. This overly complex
process involves the assignment of tasks, formation of the group of tasks into
departments, delegation of authority, and allocation and systematic review of resources
across the organization. Moreover, the organization includes the process of managers
coordinating with employees, resources, policies, and procedures to facilitate the goals
in the plan. The objective of this function is to produce an organizational structure for the
firm which indicates who performs which task and who supervises who.

What is Organizational Structure

Organizational structure, a system defining the hierarchy within an organization, including
each job and its function, is developed to establish how an organization operated and
assists another in obtaining its goals for future growth. An organizational chart below is
illustrated to show the structure.
 Figure 15
Example of Organizational Structure for Small Business

Figure 16
Example of Organizational Structure for Corporation
Example of Corporation Organization Structure
Determinants of Organizational Structure
To make it easy to communicate, carry out daily work tasks and monitor your staff
effectively, choose the appropriate organizational structure properly regardless of what
process you are in. This includes looking at the key characteristics of your business such
as its size, duration of operation, business strategy, use of technology, and the external
business environment.
Size of Your Business
The size of your small business also is one of the factors that bring impact your
organizational structure. Assessment of the size of your business includes the number of
how many workers, places, responsibilities, and departments or divisions in the
organization.
An example is illustrated to show how the size of your business works you're your
bakery has a few bakers, cashiers, and assistants, you will understand that your business
does not need a formal structure with separate departments because of its simplicity. On
the other hand, you will choose a formal structure grouped by function or division if you
have 200 employees with distinct departments and business units.

Level of Business Maturity

This determinant also affects your small business in its life cycle and it is shown if
you are just getting started, where you might have few employees and where the formal
structure is not yet needed since you can manage day-to-day operations easily. On the
other hand, you will likely find that your structure becomes more complex that you will
need to share authority with departmental or divisional managers to lead the business
efficiently as your business gets older and its demand grows.
Use of Technology
Your business is also greatly impacted by the usage of technology as it affects the
efficiency of your operation and communication. For example, online communication
through video chat has made it easier for managers to collaborate with suppliers and
other businesses, including online presentations and email, regardless of physical
location.
However, you must keep in mind the benefits of the technologies you employ in
designing your organization so that you avoid having redundant positions that waste your
time or money. An example to show this is an instance of not needing a separate logistics
department or manager when you have a small business employing supply chain
management systems that handle the tracking and ordering of inventory; while a company
that makes heavy use of online communication and employs a virtual workforce will need
an organizational structure that would best serve to manage remote employees
effectively.
Strategy and Organizational Success Factors
This is one of the five determinants of organizational design that deals with your
business’s strategy and the critical success factors you have chosen for meeting your
goals. Here are some examples to show that such a strategy depends on your business.
If your small manufactures basic clothing, your strategy may be focused on
reducing waste and increasing productivity to do so more cheaply and quickly than your
competitor while if your goal is to create innovative, high-tech products before any of your
competitors, a structure that handles the risks and pressures of a fast-changing
environment and allows for the easy sharing of ideas will be a good strategy.
External Business Environment
The external environment including your competitors, changes in the industry, and
economic conditions is as equally important as the internal needs of your business. You
must consider whether the external environment is stable or dynamic for your business
since such will determine whether a flexible organic structure or a more formal
mechanistic structure works best.
An example to show this practice is an established local bakery which is a more
stable business than an electronics manufacturer since the former would not need to
change more to meet customers’ demands and beat competitors than the latter.
Therefore, a mechanistic structure would likely be recommended for the bakery that
focuses on long-term efficiency and profitability. On the other hand, a design that
facilitates innovation and makes it easy to scale the business and handle change quickly
would likely be recommended for the electronics manufacturer.

The Building Blocks of Organizational Structures

Behind every great company, division, or team there is a great organizational
structure. A structure tailored to a company’s goals helps employees understand their
role in the company. Without a proper structure in place, an organization may fail to
function efficiently, or even collapse. Employees need to coordinate and share their ideas.
Top management provides clear instructions to avoid conflict.
There are six basic building blocks that managers can use in constructing an
organization which is also known as elements of organizing or organizational structure.
Elements of Organizational Structure
1. Job Specialization.

2. Departmentalization.

3. Delegation of authority.

4. The span of management.

5. Hierarchy of objectives; and

6. Degree of centralization

Job Specialization. This is a process wherein the employees gain education,

experience, and knowledge in a specific area of expertise helping the fulfillment of the
need for skilled workers.
Departmentalization. This is a process wherein activities are grouped into different
departments so that tasks can be performed by specialization within the organization,
both in private and public organizations.

Various Types of Departmentalization

1. Functional Departmentalization
This kind of departmentalization created departments based on the functions they
perform for the company has integration expertise and maximization of efficiency and
productivity. One example is grouping all the specialists related to finance under a finance
department, while marketing under that department and not vice-versa.
Some common functional departments are logistics, finance, manufacturing, accounting,
marketing, IT, and human resource wherein a group of like-minded conduct related
activities, shared knowledge, and skilled people in one place.

Figure 17
Example of Functional Departmentalization
2. Geographic Departmentalization
Multinational firms have their offices and departments all around the world based on the
regions to handle company activities. This is called geographic departmentalization,
wherein a company organizes departments along geographic lines. This kind of
departmentalization ensures that the cultural, social, and political need of the region is
met wherein the company is allowed to have an advantage coming from the low cost of
operations as they can easily capitalize on the local conditions as per their requirements.

Figure 18
Example of Geographic Departmentalization

3. Product Departmentalization
This kind of departmentalization groups all the activities about the delivery and
development of products in a specific department, making it fit for a large-scale company
that deals with manufacturing, marketing, and handling of multi-products, giving a full
bonus to every product and ensures specialized production facilities.

Figure 19
Example of Product Departmentalization

4. Process Departmentalization
This type of departmentalization occurs when a company groups activity by the
production processes wherein adequate material and manpower will be needed by the
departments to conduct their operations and tasks smoothly.
 Figure 20
Example of Process Departmentalization

Delegation of Authority
This is the process of transferring or assigning specific duties and responsibilities
to subordinates in an organization, coming in different forms, and leaders must be familiar
with these forms to make good delegation decisions.
There are different kinds of delegation and one is general delegation wherein
leaders assign responsibilities to train the next generation of leaders of organizations to
fulfill the mission and vision of the organization.
Another kind is crisis delegation where the duties and responsibilities are
assigned when a crisis occurs like when a leader is absent from the organization for a
prolonged time (e.g. hospitalized or attending to a sick relative). This delegation is
assigned to subordinates. In this kind of delegation, the leaders must remember that
during times of crisis, they must delegate responsibilities and duties for the organization
to continue operating and the leader is still responsible for the mistakes or errors
committed by his subordinates when carrying out the delegated duties.
Benefits of Delegation
Leaders benefit whenever they delegate some of their responsibilities and
duties and here are some of the benefits they get from the process: (1) The leader can
concentrate on areas where the organization will benefit most because some of the duties
are removed from him and transferred to his subordinates; (2) Leaders can train and
prepare future leaders through subordinates learning the hows of an organization at a
higher level acquiring them with the necessary skills they need when it is their time to take
over; (3) Leaders can boost the confidence of their subordinates showing them that they
can be trusted to do delegated work, and (4) Trust is formed and strengthened between
subordinated and leaders which results to a cohesive organization.
Challenges of Delegation
Like many other things, delegation also comes with challenges and here are some:
(1) Leaders find it difficult to delegate because they are afraid of being outshined by their
subordinates who performs the delegated work excellently; (2) Leaders find it difficult to
delegate because they are also afraid that they will not be recognized their subordinates’
work for recognition is important for moving up the leadership ladders in some
organization; (3) leaders are afraid that they will lose the trained subordinate and will
result to a rival organization using the subordinate to compete with the leader’s
organization (4) Leaders are afraid to delegate because they feel an important work has
been removed from their responsibilities which results for them to keep all their duties; (5)
Leaders find it difficult to delegate duties and responsibilities because of their
preconceived ideas about their subordinates; (6) Leaders find it difficult to delegate
because of their fear of being exposed as a leader who does not understand his/her job;
(7) Leaders keep all duties and responsibilities because of a shortage of staff; (8) Leaders
find it difficult to delegate because they fear that they will lose control of their subordinates
when they have too much knowledge of what is going on in the organization; (9) Leaders
find it difficult to delegate for their than their subordinates will not manage those duties
well; and finally leaders find it difficult to delegate some responsibilities because of
inadequate training of staff.

Tips in Delegation
Here are some ways to delegate effectively: (1) Leaders must give clear
instructions on what should be done for the delegated duties and when they are
completed; (2) leaders must avoid over-delegating their responsibilities to their
subordinates; (3) Leaders must always give praises to their subordinates whenever duties
are successfully completed, this tends to boost the confidence and morale of their
subordinates resulting to increasing productivity; (4) Leaders on the other hand must also
avoid micro-managing the subordinates for such will increase mistrust leading the
subordinates to think that the leader does not have confidence in them to complete the
assigned tasks; (5) Leaders must provide adequate information on the duties and
responsibilities of the delegated positions for efficiently performance of duties; (6) And if
ever subordinates will not be able to perform the duties well, leaders must reassure the
latter that such is a teachable moment and there is nothing to be afraid of; (7) Leaders
must always checkup on their subordinates asking them how are they doing their
respective delegated positions in order to also monitor their progress; and finally
subordinates must be trained before duties are actually delegated for without proper
training, subordinates will be hesitant to accept delegated positions.
Based on the given tips on delegating duties and responsibilities, we can see that
delegation is also on a basis of trust in the relationship of the leader and subordinates, as
this process does not always guarantee success on the delegated positions or duties.
However, without such delegation, leaders might be overwhelmed by the load of work,
thus making this process necessary.
Span of Management. The word ‘span’ is the number of subordinates a manager can
supervise, manage, or control effectively.
Hierarchy of Objectives. A business enterprise is expected to meet its objective which
most often is related to the realization of profits. It can be achieved through employees’
objectives like target sales volume / or target expenditures. This hierarchy of objectives
is an indication that managers are concerned with different kinds of objectives according
to the authority.
Degree of Centralization. This is a process by which the decisions within an organization
are determined by a selected group of individuals. An example of a scenario of
centralization is when top managers elect lower-level employees to speak on their behalf
regarding the issue or decision to be made. Such a process brings benefit to the company
because top managers can personally oversee all activities within the organization,
making them in a much better position to make a decision that is in the best interest of
everyone.
Decentralization is the complex multifaceted process of transferring the authority and
responsibility for public functions from the central government to subordinate or quasi-
independent government organizations and/or the private sector.
Establishing the Decision-Making Hierarchy
Decision-making is a mental process of choosing to produce an outcome that might be
an action, recommendation, or an opinion from a set of alternatives. However, choosing
to do nothing or be neutral is also a form of decision.

Difference between Problem Analysis and Decision Making

Problem analysis is the process of framing the issue by knowing its boundaries and
criteria and developing conclusions based on the available information. Analyzing a
problem may not always lead to a decision, although results are an important ingredient
in all decision-making. On the other hand, decision-making is the process of gathering
and considering data before making a choice.

Steps in Decision Making

Decision-making comprises a series of sequential activities that together structure the
process and facilitate its conclusion. These steps are:
1. Identify the decision.

2. Gather relevant info.

3. Identify the alternatives.

4. Weigh the evidence.

 5. Choose among the alternatives.

6. Act.

7. Review your decision.

1. Identify the decision

Before accomplishing this step, you must first distinguish the problem to be solved or the
question to be answered. Identifying this first will help you make the right decision or
answer to such.
2. Gather relevant information
After coming up with a decision, the next thing you must do is gather the information
related to the choice. You can do this by conducting an internal and external assessment
from the studies, market search, and evaluation from paid consultants. Avoid being
bogged down by too much information and facts that seem applicable to your situation
for this might only complicate the process.

3. Identify the alternatives

When you already have relevant information, you can now identify possible solutions to
your problem from the alternatives you have.
4. Weigh the evidence
After identifying the alternatives, try weighing the evidence for or against said alternatives.
Analyze your own organization’s wins and losses and identify potential pitfalls for each
alternative and compare those against the possible rewards.
5. Choose among alternatives
This is the part of the process wherein you decide after gathering all relevant
information, development, and consideration of potential paths to take.
6. Act
Once a decision has been made, it is time for you to act on it and develop a plan to
make your decision tangible and achievable. You can do this by developing a project plan
related to your decision, and then setting the team loose on their tasks once the plan is
in place.
7. Review your decision
Once you have arrived at your decision, try taking an honest look at it. Try asking
yourself questions like this- Did you solve the problem? Did you answer the question?
Did you meet your goals? If yes, remember and take note of what worked for future
reference. And if not, remember to learn from your mistakes as you start the decision-
making process again.
Difference between Authority and Responsibility
Authority and responsibility, which are the basic functions considered at the
primary stage in a management system, are also two different things. The term ‘authority’
refers to the power or entity assigned to an individual in making decisions and enforcing
laws, rules, and expectations. As Henri Fayol said, authority is “the right to give orders
and the power to exact obedience”, making it as founding stones of formal and informal
organizations.
On the other hand, responsibility, often considered as control and management
over something, refers to a duty to maintain and manage the assigned authority, which is
prone to follow and obey some specifically assigned rules to accomplish a task. According
to Davis, responsibility is defined as “an obligation of an individual to perform assigned
duties to the best of his ability under the direction of his executive leader.”
Forms of Organizational Structure
There are four forms of organizational structure. These are the following:
1. Line

2. Line and Staff

3. Functional

4. Multidivisional

5. Matrix

The simplest and oldest form of organizational structure is the line organizational
structure wherein the line of authority flows vertically from the topmost executive to the
lowest subordinate throughout the organization. This simple form of organization is
established where managers have direct authority over their respective subordinates
through the chain of command. This makes the managers in line organization full authority
to decide things and act to their related functions.
Merits of Line Organization:
This simple established kind of authority, line of authority, defines the authority,
responsibility, and accountability of a job. This is easily adapted to the requirement of the
organization as the managers have exclusive authority over their unit leading them to
make a change easily in the functioning of the unit when required. In line organization,
their definite authority at every level so that everyone can take decisions quickly.
Moreover, each employee knows to whom he or she is responsible and from whom they
receive their orders giving a confirmed scalar principle of an organization where one
subordinate receives orders from a single superior.
However, some demerits come from line organization. Firstly, the line executives are
generalists and not specialists. Secondly, all managers and supervisors handle their job
in their ways independently making the top-level managers overloaded with work resulting
in the top-level managers being overloaded with work. Since this is only one-way
communication, this is not suitable for a large organization for there is a possibility of
nepotism and favoritism. In the line of authority, there is a replacement problem during
absenteeism of top authority.
Line and staff organization structure consists of two types of authority relationship
exists- the staff and line authority. In staff authority, there is an authority to advise,
support, and serve the line managers. On the other hand, line authority practices all
managerial functions with the help of specialized skills of staff authority. These two types
of authorities are distinguished based on their role.
Line and staff organization structure share a couple of merits. Firstly, the line executives
are generalists and staff executives are specialists and they work together with
coordination. Because staff specialists give relief in critical matters, the top-level
managers are not overloaded with work. And since there is two-way communications,
feedback, and suggestion, there is better decision making and improvement in efficiency
making it suitable for a large organization because of its better utilization of personnel
skills and knowledge.
Along with these merits that come along, there are also demerits of line and staff
organization. In line and staff organizations, line managers may ignore staff’s advice and
complain that staff does not give the right type of advice while staff managers can
complain that their advice is not properly implemented therefore there is a possibility of
conflict between the line managers and staff managers.
 Figure 21
Example of Line and Staff Organizational Structure

Functional organization. All business activities of an enterprise are divided into a

number of fractions and each function is entrusted to a specialist in which each is known
as a functional specialist and authority delegated to him to known as functional authority.
In this kind of organization, a functional manager can exercise functional authority over
his subordinate but also over all subordinates in all other functional departments.
However, the principle of unity of command is not applied in his type of organizational
structure which is why the subordinate may be confused by the multiple command
system.
In a functional organization structure, a large organization is suited because each
department is given under the supervision of a specialist wherein every manager is an
expert in his field of knowledge which leads to the advantage of the best managerial
decisions. Even if failures and problems arise because of top-level managers, functional
managers are still capable and available to help overcome the issues through proper
decisions and specializations which provide growth and expansion of business activity.
However, the functional organization also tends to confuse subordinates on whose orders
to obey due to multiple systems of command which leads to a lack of mutual
understanding and coordination of activities of different departments. Also, since mutual
understanding is something to be improved in a functional organization, the decision-
making is delayed. Relationship among the departmental specialist is also informal,
hence, there is a lack of fixed responsibility,

Figure 22
Example of Functional Structure

Multidivisional Structure. Here, divisions within the company largely work

autonomously in completing a single task and controlling operations within a single
region, as they all work toward the overall good of the company. One of the companies
that show multidivisional structure is The Walt Disney Company which keeps its massive
entertainment such as its film, television, theme park, and other divisions to work toward
the goal of enriching the company and even cooperate to cross-reference content, each
division is still only responsible for its operation, making them not ultimately accountable
to other divisions within the company aside from upper management and administration.
 Figure 23
Example of Multidivisional Structure

Matrix. There are two or more types of organizational structures combined uniting such
organizational structures to give them balance. In this type of structure, one manager
usually is designated for functional activities and the other manager handles the more
traditional project. These roles are not organizationally fixed so they can organize both
and work on producing two products or services at the same time for the advantage
through matrix organizational structure.
 Figure 24
Matrix Organizational Structure

Formal and Informal Organizational Structure

An organization, a group of people working together for the attainment of specified
objectives, has two types namely: (1) formal organization, wherein two or more two
persons work for a common goal, following a formal relationship, rules, and authority for
compliance; (2) informal organization, a type of organization formed as a system of
social relationship when people meet and interact with each other in an organization.
What is Job Analysis?
Job analysis is the process of collecting data for the identification of the duties,
responsibilities, and specifications of a given job that will help find the right person to fill
in the role. This includes the level of experience, skills, and knowledge necessary to
qualify for the job.
Job Description vs. Job Specification
A job description is a comprehensive statement of detailed and in-depth
responsibilities and conditions of a particular job or position with a company to provide a
vital overview and information about what kind of employee is suitable for the particular
job.
On the other hand, a job specification is a collection of information for the
recruitment and selection process for the ideal candidate for the job, hence this must be
drafted meticulously. Its four components are (1) Educational qualification; (2)
Experience; (3) Skills and Knowledge; (4) Characteristics and Personality Traits.
 Figure 25
Job Analysis

Forms of Business Organization

Sole Proprietorship
Firms under sole proprietorship are owned by one person, making them
responsible for all day-to-day tasks of running a business, and all of the liabilities, debts,
and assets of the business. Many small businesses started as a sole proprietorship as
this is the easiest and least expensive form of ownership to organize and if desired, to
dissolve. Since this organization is owned by one person, he is in complete control to
make decisions he sees fit and profits from his business go directly to his tax return.
On the other hand, this makes the sole proprietors have unlimited liability and are legally
responsible for all debts against the business which gives the possibility for the business
and personal assets to be at risk. One more disadvantage of a sole proprietorship is that
the owner may have a hard time raising funds since these are often limited to personal
savings or consumer loans. Besides this, organizations under sole proprietorship may
have a hard time attracting high-caliber employees who desire to own a part of the
business. And lastly, some employee benefits like owner’s medical insurance premiums
are not directly lessened from business income (only partially as an adjustment to income)
Partnerships
In a partnership type of organization, two or more people share ownership of a
single business and should have a legal agreement regarding how decisions will be
made, profits will be shared, disputes will be resolved, and other questions about their
business making them jointly and individually liable for the actions of the other partners.
Although this is relatively easy to establish, time must be invested in the development of
the partnership agreement. And since decisions are shared, disagreements can also take
place. Moreover, one of the disadvantages of this type of organization is that employee
benefits are not deductible from business income on tax returns.
Types of Partnerships that should be considered:
1. General Partnership
In general, in partnerships, unless there is a written agreement that states
differently, partners have equal shares and responsibility for management, liability,
profit, or loss of the business.
2. Limited Partnership and Partnership with Limited Liability
This type of organization gives most of the partners to have limited liability and
input regarding management decisions which encourages investors for short-term
projects, or for investing in capital assets. This is more complex and formal than a
general partnership therefore it is not often used for operating retail or service
businesses.

3. Joint Venture
This kind of organization has some similar characteristics to a general partnership but
what makes it different is that this is clearly for a limited period or a single project.
However, with repetitive activities of the partners, they will be eventually recognized as
an ongoing partnership and thus, they must file as such and distribute accumulated
partnership assets upon dissolution of the entity.
Corporation
A corporation, considered by the law to be a unique entity, separate, and apart from those
who own it, can be taxed, sued, and can enter into contractual agreements. The
shareholders, who are owners of the corporation, elect a board of directors to oversee
the major policies and decisions. They have limited liability for the corporation’s debts or
judgments against the corporation and they can only be held accountable for their
investment in the stock of the company. However, it is also important to take note that
officers can be held personally liable for their actions, such as the failure to withhold and
pay employment taxes. This type of organization has a life of its own and does not
dissolve when ownership changes.
Like any type of organization, a corporation has a couple of advantages. Firstly,
corporations can raise additional funds through the sale of stock, and they may deduct
the cost of benefits it provides to officers and employees.
Unlike any other form of business organization, the process of incorporation
requires more time and money than other forms of organization as this is monitored by
federal, state, and some local agencies resulting to have more paperwork to comply with
regulations. Moreover, incorporating may result in higher overall taxes for dividends paid
to shareholders are not deductible from business income, thus, this income can be taxed
twice.
ACTIVITY:
1. Identify a small business in your area and draw an accurate organizational chart.

2. Collect data on the number of businesses operating in Bulacan classified as a form

of ownership.

REFLECTION/LEARNING INSIGHTS
• Organizing involves assigning tasks, grouping tasks into departments,
delegating authority, and allocating resources across the organization.
• The owner or manager needs to determine and prepare the job description and
job specification.
• The forms of ownership have their unique advantages and disadvantages. The
difference relates to effective control of the business, sharing of profits, and
potential for expansion.

POST-TEST:
IDENTIFICATION:
DIRECTION: Write the correct answer in the space provided. No erasure.

_____________________1. The process occurs when employees gain knowledge,

education, and experience.
_____________________ 2. Blueprint for recruitment and selection process.
_____________________ 3. Refers to the process of identifying and determining the
duties, and responsibilities of a given job.
_____________________ 4. Type of authority that reflects superior-subordinate
relationships.
_____________________ 5. Duty to maintain and manage the assigned authority.
_____________________ 6. A process that groups activities into different departments.
_____________________ 7. Tight to advise on improving the effectiveness of line
employees in performing their duties.
_____________________ 8. It shows the relationship and position in an organization.
_____________________ 9. Stands for power or rights assigned to an individual to make
decisions.
____________________ 10. It involves assigning a task, grouping tasks into
departments, and delegating authority.

UNIT 3: CREATING BUSINESS ENTERPRISE

TITLE OF THE LESSONS:
• Managing Small Business Finance

DURATION: 3 Hours
INTRODUCTION:
Business capital is an essential resource to the owner of the business enterprise. Funds
or cash are the lifeblood of the business. The entrepreneur needs money in starting,
managing an enterprise, development, and expansion of his business which in many
cases, small entrepreneurs have inadequate capital. Thus, identifying the sources of
funds and determining the assets and profits of the business is especially important.
Moreover, managing the funds is essential. Managing finances largely involves analyzing
the finances and financial statements of a business enterprise. To plan and control such
financial resources is equally needed for without such ability, is most likely to fail. Not a
few businessmen for the reason of having no competence when it comes to budgeting
their financial resources relative to their business objectives.
In this chapter, several topics about financing the enterprise and the need for financial
management will be discussed, along with these topics are developing the financial plan
and evaluating the financial performance.
Suitable techniques and procedure:
▪ Practical Exercise/Question
▪ Discussion and Explanation of the Lesson
▪ Additional Readings
▪ Self-Assessment
▪ Key Takeaways
OBJECTIVES:
At the end of the lesson, the student is expected to:
• define the financial management

• identify the possible sources of capital for entrepreneurs

• enumerate the C’s credit.

• explain the financial plan

• discuss the financial statement

PRACTICAL EXERCISE/QUESTION: Pre-test:

Think about this question:

Is it important for an entrepreneur to know basic accounting principles?

Write your answer (yes or no) on a piece of paper. Be prepared to discuss your answer.

LESSON PROPER/COURSE METHODOLOGY:

Financial Management Defined
Financial management is the process of securing money and using it properly
which includes individual skills and methods of getting and using financial resources. As
the money must be used effectively, financial management requires planning and the
identification of the financial needs of the business.
To be an effective financial manager, you must have good knowledge of economics.
Theories of economics like the law of diminishing marginal physical returns, theory of
production and cost, price theory, profit maximization, and the law of supply and demand
provide the necessary knowledge for financial analyses and decision-making. This I
because economics is principally concerned with the proper allocation and efficient
utilization of scarce resources with the goods that would satisfy human needs and wants.
Usually, many people want to maximize profit by the provision of optimum consumer
service or satisfaction which can be made possible through allocating and using the
financial resources of the enterprise efficiently.
Many wealthy entrepreneurs started from scratch. One good example is Henry Sy.
He was a door-to-door sale of shoes. Afterward, he became the owner of SM, a chain of
department stores but little did many people know that he once put a shoe store on Rizal
Avenue.
Sources of Capital for Entrepreneurs
Studies indicate that the most common sources of capital for entrepreneurs are
the following:
1. Self-funding

2. Funds from family members, relatives, and friends

3. Personal insurance policies

4. Commercial loans

5. Other entrepreneurs (partnerships, corporations)

6. Trade or supplier credit

7. Customers

8. Government sources

Self-funding. This process is the most-used form of financing by the majority of business
startups.
Funds from Family Members, Relatives, and Friends. When starting a new business
venture, capital from friends and family can be a tempting source of initial funding. Like
any source of capital, borrowing or taking on investments from those close to you has
upsides and downsides.
The Pros:
Receiving funding from family members has several benefits: (1) You must first
analyze if your idea is appealing to them because it will let you know them better than
other prospective investors; (2) It will be easier to present your idea with your family
members than professional investors; (3) You can be reassured that the company will
stay in the family because you know their income and the amount of money they can
afford to invest and there is a possibility that they become majority shareholders, and (4)
Family members will not always complain about overtime and short-term profits because
after all they are family and hopefully they are invested for the long run.
The Cons:
While there are many benefits from receiving funding from family members, the
downside of this is merely obvious- handling family money is so much harder than
investors’ money because the line between your personal and business life becomes non-
existent because of your overall familiarity with them that cripples the sense of
professionalism.
Other Sources of Funds
1. Short-term financing (one year or less)
a. Trade credit. Goods are delivered to retailers on a consignment basis. This
means they must pay for the goods within 30 to 90 days. Such credit line applies to
retailers with good reputations or established business relations.
b. Promissory notes. This is a written pledge by a borrower to pay a certain sum
of money to a lender at a specified future date. Such a loan entails interest.
c. Unsecured bank loans. Commercial banks grant unsecured short-term loans
to their customers at interest rates that vary following their credit ratings. Borrowers with
high credit ratings get a lower interest rate.
d. Commercial paper. This is a short-term promissory note issued by big
corporations. The issuing corporation is the only reputation that can secure a commercial
paper. There is no collateral involved. Big firms with excellent credit reputations can easily
raise a large amount of money from financial institutions.
2. Long-term financing (more than one year)
a. Loans. Many firms finance their long-range activities from loans borrowed from
banks and other financial institutions. These require collaterals such as land, equipment,
and machinery. Terms of payment are indicated in a loan agreement.
b. Stock. This is a certificate of ownership. A stock is classified as common and
preferred. Holders of common stock can elect directors and can decide major corporate
actions. In these cases of preferred stockholders, they have no voting rights. But they
have priority in claiming profits and assets of the corporation. In general, only established
corporations sell additional shares of stocks to the public to finance their business
projects.
c. Bond. This is a certificate of indebtedness. It pledges to repay a specified
amount of money with interest. Such a certificate also indicates a maturity date. Big
corporations issue bonds to raise funds for their business activities. Bondholders have
the first claim on the assets of the issuing corporation in case it gets bankrupt. Bonds are
classified as debenture bonds, mortgage bonds, and convertible bonds. Debenture bonds
are supported only by the reputation of the issuing corporations. Mortgage bonds are
secured by the assets of the issuing corporation, while convertible bonds can be
exchanged with shares of common stock.
The Need for Financial Management
Next to people, money is the most important resource of any business
organization. Without money, there is no business at all. Money is needed to start a
business. Money is needed to sustain activities like production and marketing. And yet
some managers do not realize the vital role of money. They do not use it wisely. As a
result, their business fails. Even enterprises with surplus funds cannot sustain their growth
in the long run if their funds are mismanaged.
Good financial management can ensure the following:
1. Under organizational objectives, financial priorities are established.

2. Spending is planned and controlled in line with established priorities.

3. Adequate funding is available when it is needed, now and in the future.

4. Funds are obtained and used efficiently.

Nature of Credit
While the term “credit” is used with a lot of different meanings, it can be generally defined
as the power to acquire goods in exchange of giving an equivalent at some future time”.
In layman’s terms, credit is a promise to pay money.
What are the 5 C’s?
The five C’s of credit are:
• Character: This focuses on the reliability and trustworthiness generally as a

borrower and how you have handled your debt obligations as the lenders will have

an evaluation of your credit score, credit history, bankruptcies, foreclosures, and

judgments.

• Capacity: This is all about your capability to repay your debt obligations which

also includes the level of your cash flow.

• Capital: This is the measure of your leverage. It will be a positive thing if you have

more equity because you will have lower leverage which will be checked by your

lenders and bank.

• Conditions: One of the things that banks and lenders check is the condition of

the market which include things like the industry, economic environment, the how’s

of the borrower, and many other things they want to know as they analyze the

impact of these conditions to that use.

 • Collateral: Unlike the other four characteristics, this factor has a lesser level of

importance compared to character, capacity, capital, and conditions, business and

personal assets do not usually require collateral for loans.

Credit Advantages and Disadvantages

Access to cash availability when there is a temporary cash-flow problem is provided by a
line of credit to households and businesses so that in times of major emergency expenses
arise or a short-term drop in income occurs, it will be possible to stabilize a budget.
It creates stabilization because it is a flexible loan that is usually obtained from a financial
institution. Some credit lines are available through alternative providers, such as a peer-
to-peer network. This loan then creates a cash flow cushion that prevents households or
businesses from tapping into their cash reserves.
A line of credit has several similarities with a credit card. You can access funds when it is
needed. You can repay what you have used at any time and use the credit whenever it is
needed, for as long as the account remains open.
Having a line of credit provides several advantages and disadvantages which must be
carefully considered to determine if this financial product is right for your budget.
List of the Advantages of a Line of Credit
1. It is usually cheap to use a line of credit than a credit card.
The benefits of having a credit card for immediate spending needs can usually be
appreciated by households and businesses. The only problem with a credit card is that it
will usually carry a high APR which has a standard of 29.99%. If you can be approved for
a line of credit, then the interest rates are usually lower than what you would find with a
similar credit card at the same credit score. You will have the same purchasing power
and be required to repay less over time.
2. It reduces the temptation to purchase unnecessary items.
From a consumer perspective, the availability of credit on a credit card, along with its ease
of use at the point of sale, makes it a temptation to purchase items that are not needed.
Spending on a credit card can be tempting to purchase items while a line of credit is
usually linked to a banking account, thus reducing impulse purchases for most individuals.
3. A line of credit makes cash availability happen quickly.
Compared to other types of credit, a line of credit can be processed in as little as 24 hours.
Even for larger credit lines, the turnaround for a line of credit is usually a few days. For a
credit card, it may be 2-3 weeks from the start of the application process. If you are dealing
with a home equity line of credit for your extra cash flow, you might be waiting several
months to have the availability you want.
4. It is usually an unsecured line of credit.
Most of the time, a line of credit is an unsecured loan that can be used at your discretion.
That is another similarity it has to the standard credit card. If you happen to default on the
debt for some reason, because it is unsecured, you are at extremely low risk of losing
important assets. Your credit score will take a hit for 7-10 years with a default, but for
some, that is better than losing a car, a home, or the building where your business is
operating.
5. The setting up’s cost of a line of credit is low.
The initial cost of setting up a line of credit is usually like that of having a credit card.
Some may even be free. Like the annual fee of a credit card, most credit lines have an
annual maintenance fee that is 200 pesos or less for the average consumer. Six-figure
credit lines may see higher maintenance fees. If you do not use the line of credit for a
specific time, usually 12 months or more, then another fee may apply to the account.
Otherwise, you will find that it doesn’t cost much to get access to the cash you need for
short-term issues with this lending product.
6. A line of credit is more flexible for the consumer.
With a line of credit, you are only borrowing the money that you need to have. The credit
is only accessed when you need to have it. You can use the same credit as many times
as you need to have it if you’re repaying what you use over time. In most circumstances,
you can use the line of credit for any purpose you may have. From a business perspective,
you may be asked to guarantee that the money will be used for business purposes and
not personal reasons.
7. There are multiple structures available for a new line of credit.
The most common structure of a new line of credit is called a “draw” option. It functions
remarkably similar to a credit card, allowing you to spend money as needed, on a credit
card, while making a structured monthly payment. Once you repay the full amount, the
monthly payment goes away. Another option is called “demand.” You would still access
the line of credit as you would with the draw method, but the full repayment can be
demanded by the lender at any time. The third option is a “balloon” payment. At the end
of the term, a large payment would be required, while smaller monthly payments would
be allowed.
8. You may draw up to 100% of your limit without restrictions.
Once you are approved for a new line of credit, you are permitted to withdraw up to 100%
of the approved limit you have been given. That makes it easier to handle large purchases
because you can approach a seller using cash. At the same time, you have a guaranteed
repayment schedule that allows you to budget for the new expense. Although fixed-rate
loans may be better for exceptionally large purchases because they have lower interest
rates, a line of credit tends to offer some extra flexibility.
List of the Disadvantages of a Line of Credit
1. A line of credit still has a higher interest rate than other lending products.
A line of credit is usually more inexpensive than the average credit card. It also tends to
have a higher interest rate than a home equity line of credit or a secured credit line. That
is because you are dealing with different layers of risk. If you have a secured loan, then
you are providing a guarantee to the lender. If you reneged on a secured debt, then what
you used for collateral can be claimed by the lender, even if you put your house up for
security.
2. The fees for a line of credit vary widely throughout the industry.
Upon applying for a credit card, you will find that the interest rates, the maximum amount
permitted, and other variables with this lending product will widely vary. You’re forced to
shop around with several different lenders to see what kinds of deals are available to you.
That means each application you submit generates a hard credit pull, which will negatively
impact your overall credit score if you have enough of them.
3. A line of credit operates under a different set of regulations.
Credit cards are regulated more heavily compared to a line of credit. It is important to
check on all the fees that might be charged when you open a new account. You must
check to see what penalty fees may apply. There may be additional charges for going
over your credit line, making a late payment, or not accessing your line of credit. This is
where you will need to spend a lot of time comparison shopping to ensure that you are
getting a good deal.
4. Almost all lines of credit come with an adjustable interest rate.
Some lines of credit come with a fixed interest rate. If you find one, stick with it if the offer
is fair. That is because most lines of credit have an adjustable interest rate. That means
the lender is permitted to increase your APR in the future, which means your payments
will go up whenever that happens. With a line of credit, a rate increase applies to the
existing balance and new chargers, which means a hefty increase, which might make it
impossible to meet your monthly payment obligations. Always look to see how often the
interest rate can be adjusted, and by how much, before agreeing to the line of credit.
5. There is still the temptation to overspend with a line of credit.
A line of credit might not provide the same temptation to spend that a credit card offers,
though that does not mean the temptation disappears. For people who struggle with
spending and tend to max out their personal or business credit cards, to make then it will
not be recommended to choose a line of credit. You may find yourself maxing out another
credit line, creating even more of a debt obligation to handle in the future.
6. A line of credit will almost always have a required minimum.
You must apply for a specific minimum amount when looking at a line of credit. Most
financial institutions have a $1,000 minimum for a new line of credit in the United States.
High-interest credit lines may be available at $500, though these are intended more for
people with a marginal credit score Some credit limits may be extended well beyond
$100,000, depending on your income and credit history.
7. There is no grace period for spending with a line of credit.
When you decide to access a line of credit, the interest on the amount you access will
begin to accrue immediately. Then the interest is charged on the outstanding balance on
the line of credit until the withdrawal made is fully repaid. That means you will pay more
for any purchase you make, unlike a credit card, which provides up to 28 days as a grace
period before interest will be applied to a purchase.
8. You usually need to have a good credit score to qualify.
For most new lines of credit, you will need to have a credit score of at least 690. You may
be required by some institutions to have a credit score of 750 or higher. You will also need
to have a strong credit history over the past 5-7 years, with minimal collection attempts or
negative public record entries. You must also provide an established record of income,
provide proof of employment, and self-employed individuals may be required to provide
tax documentation over several years. Business credit lines have similar requirements,
including consistent proof of sales, to be approved.
The advantages and disadvantages of a line of credit make it possible to stabilize
personal or business finances when there are emergencies or unexpected lapses of
income. Like any lending product, there are a variety of options available in today’s
marketplace. Some will make a positive impact and others will not. It is up to you to
perform your due diligence to ensure the line of credit you select can maximize the power
of your finances.
Developing Financial Plan
A financial plan is a course of action for obtaining and using the money that is
needed to implement the goals of the business organization. Once the plan is in action,
the performance of the organization is monitored and evaluated in terms of the attainment
of the goals. Just like any other plan, financial planning should be flexible and realistic.
Financial planning may be defined as an activity that “involves analyzing the
financial flows of the firm as a whole; forecasting the consequences of various
investments, financing dividend, decisions; and weighing the effects of various
alternatives”.
For the small firm, financial planning will mean knowing the profit objectives of the
firm, identifying the sources and uses of funds, and making decisions on various financing
alternatives.
 Here are three steps involved in financial planning:
1. Establishing objectives. These should be clear and specific to determine their

cost or budget. Objectives should be realistic. That is, they can be supported by

available resources in terms of human, material, and financial inputs. Otherwise,

such objectives are not attainable.

2. Budgeting. A budget is an estimated or projected program of expenses and

incomes over a specified future period. Incomes come from estimated sales while

expenses are based on both fixed and variable costs of operations of the business,

like salaries, rentals, materials, taxes, payments of water, electricity, and others.

3. Identifying sources of funds. There are four primary types of financing for a

business enterprise: a) income from sales, b) owner’s money and sale of shares

of stock, c) borrowings from friends, relatives, and financial institutions, issuing

bonds, and d) sale of some property of the enterprise as a last resort.

Importance of Financial Planning

Financial planning provides the small business operator with a detailed approach
to managing the financial activities of the firm. Decisions can be made in advance, thus
minimizing the risk of errors brought by making choices in the middle of operations
without the benefit of careful analysis
Evaluating Financial Performance
Plans are simply written statements. These are useless if they are not
implemented. In the government, there are numerous plans and programs which are
particularly good. However, many of them have not been established for a lack of funds.
The entrepreneur as a financial manager should adopt ways of monitoring and
evaluating financial performance. Interim budgets (weekly or monthly) may be prepared
and compared with interim reports of sales and expenses. Such comparison can pinpoint
areas report of sales and expenses. Such comparison can pinpoint areas that need
additional or revised planning. One fundamental principle of planning is that planning
must be a continuous process. This means planning should be tailored to the changing
needs of buyers, prices of productive resources, and policies of the government. In
evaluating financial performance, weaknesses and errors are discovered. These can be
corrected immediately before they become major problems.
The bottom line of financial management is the efficient use of funds. This is only
possible if individuals with competence, honesty, and integrity are employed. However,
competence is not enough. There are several stories of excellent fund managers. But
they disappeared together with the money of the corporations.

The Balance Sheet

The balance sheet, a formal statement that presents the financial profile of the
company as of a specific date is also a manifestation of the financial health of a firm. The
information becomes more relevant if compared with the company’s balance sheets of
previous years. The balance sheet is composed of two sections, namely: the “Assets”
section and the Liabilities and Owner’s Equity” section. This can be made on a monthly,
quarterly, semi-annual, or annual basis.
The relationship between the three main classifications in the balance sheet is
reflected in the accounting equation: Assets = Liabilities+ Owner’s Equity
*Balance sheet classifications

ASSETS - are items of value owned by the enterprise and include such items as cash,
claims from customers (also referred to as accounts receivable), goods for sale, land,
building, machinery, and equipment, and other property owned by the firm.
Assets are classified into three: current, fixed, and other assets.
1. Current assets-these consist of cash and other assets that will be turned into cash

within a year. Cash, marketable securities, accounts receivable, stocks or

inventories of raw materials, supplies, finished goods, and prepaid expenses are

some examples of this.

2. Fixed assets-these are assets that are acquired for long-term use. Land, building,

machinery, equipment, furniture, and fixtures acquired to be used in the business

are some examples of fixed assets.

3. Other assets-these include patents, goodwill, etc., which do not fall under the

above definitions.
LIABILITIES are amounts owed by the business. These are classified into current and
long-term.
1. Current Liabilities-these are obligations that are expected to become due

within the normal operating cycle. Accounts payable are amounts owed to trade

creditors for merchandise, raw materials, services supply, or other items which

were acquired on credit and thus, have not been paid for.

2. Long-term liabilities – are those due within a year. These are normally

borrowings from banks and other financial institutions. They are to be paid for

a longer period than the normal accounting cycle, usually three years or more.

Liabilities of this kind are normally documented by promissory notes and

backed by assets serving as security or collateral.

OWNER’S EQUITY – refers to the amounts invested by the owner/owners in the firm and
includes profits retained in the business. This represents the interest of the owner or
proprietors in the business. This is affected by the additional investment s or withdrawal
of the owner/owners and by the addition (deduction) of the net profit (loss) for the year.
Features of a Good Accounting System
1. Simple to understand

2. Flexible and adaptable to changing needs

3. Inexpensive to operate

4. Little time to operate

5. Handy and convenient to use.

Basic Books to Keep

1. Purchase journal – for credit purchase

2. Sales journal – for credit sales

3. Cash disbursement journal – a payment on a cash basis

 4. Cash receipt journal – all cash sales and payments from credit customers.

Income Statement
The income statement is a manifestation of the revenues realized by the business,
as well as the costs and expenses incurred in the realization of said revenues which is
also called the profit and loss statement. Transactions that increase the owner’s equity
are referred to as revenues. On the other hand, transactions that decrease the owner’s
equity are called expenditures. To determine the result of the operation, the revenues
realized are compared to the expenditures.
If revenues exceed expenditures, the difference is called the net profit and is added to
the owner’s equity on the balance sheet. On the other hand, if expenditures are more
than revenues, then the result is referred to as net loss and is deducted from the owner’s
equity. Just like the balance sheet, the income statement may be prepared monthly,
quarterly, semi-annually, or annually.
Income statement classifications
Primarily, two sections make up the income statement: revenues and
expenditures.
REVENUES of a business consist of the sale of goods or services during the period for
which the statement was prepared.
EXPENDITURES are all about production, selling, and other expenses incurred in
generating revenues. These expenditures are as follows:
1. Cost of sales- for trading, this includes the cost of the merchandise and the cost

of transporting or bringing the products to the firm. On the other hand, a

manufacturing firm’s cost of sales consists of raw materials used in producing the

products sold, the cost of labor to produce the products and other costs which are

necessary for the production of the products sold.

2. Selling expenses - These are expenditures incurred in making sales. Some

examples are salaries of salesmen, commissions paid, advertising or promotional

expenses, delivery expenses, etc. These are expenditures incurred in making

sales.
 3. General and administrative expenses - These consist of salaries of the office

personnel, rental, taxes, professional fees, and other payables necessary in the

overall administration of the business.

Net profit – when operating expenses are subtracted from gross profit, the remainder
is net profit. If the business receives revenue from sources other than sales, such as
rents, dividends on securities, or interest on money loaned, it is added to profit at this
point. For bookkeeping purposes, the resulting profit is labeled “net profit before tax”.
Break-Even Analysis
Break-even analysis is an especially useful tool in managing the finances of a small
firm. It is a means to determine at what point in a business activity the total revenues
equal expenses. Above the break-even point, the business will be making a profit; below
it, the firm will incur a loss.
Break-even analysis is used to determine the following information:
1. Sales in person for a period, resulting in a zero-net income.

2. Sales in pesos for a period, resulting in a reasonably calculated (and desired) net

income; and

3. Sales in pesos for a period, resulting in maximum net income for capacity

available.

Cash Flow Statement

Cash is the most liquid of all assets and the efficient use of cash is one of the most
important tasks of management.
The cash flow statement is a supporting document that shows the sources and purpose
of cash payments during an accounting period. The cash flow is often prepared to give a
complete picture of cash receipts and disbursements for a period. A cash flow can be
used in the preparation of a cash budget. A cash flow statement is an accounting report
that describes the way cash flows into and out of your business over a period. Because
it deals with actual cash coming in and going out of a business, it shows how much you
must pay your bills.
 HAB ENTERPRISE
Balance Sheet
As of December 31, 2021

ASSETS
Current Assets.
Cash P 14,291.11
Loans Receivable 134,500.98
TOTAL ASSETS P148,792.09

LIABILITIES AND MEMBERS’ EQUITY

Members’ Equity P120,426.35

Share Capital 28,365.74
TOTAL LIABILITIES AND MEMBERS EQUITY P148,792.09

Noted by: Prepared by:

_______________ ________________________
HELEN A. BAESA EREN ZACHARY BASARAN
President Accountant

Cc: HAB ENTERPRISE

Members
File
 Figure 26
Balance Sheet

HAB ENTERPRISE
Income Statement
For the Year Ended, December 31, 2021

Revenues:
Service fees P 4,278.00
Membership fees 110.00
Interest income 21,284.87
TOTAL P 25,672.87
Less Expense:
Honorarium P 3,514.00
Office Supplies 19.00
Miscellaneous Expenses 179.00
Interest Expenses 5,078.52 8,790.52

NET INCOME P16, 882.35

Distribution of Net Income

Education and Training fund P 1,400.00
Reserve fund 12,584.65
Patronage refund 2,897.70
Noted by: Prepared by:
________________ ________________________
HELEN A. BAESA EREN ZACHARY BASARAN
President Accountant
Cc: Cooperative Development Authority
Members
File
Figure 27
Income Statement

Format A. THE INCOME STATEMENT

SALES
(less) Cost of Sales
(equals) Gross Profit
(less) Operating Expenses
(equals) Operating Profit
(less) Non-Operating Expenses
(add) Non-Operating Income
(equals) Net Profits before Taxes
(less) Taxes
(equals) Net Profits after Taxes

Format B. THE CASH FLOW

Cash Receipts (Inflows)

Cash from Cash Sales
Cash from Collection of Accounts Receivable
Cash from Advances and Deposits made by Customers
Cash received from other sources

Cash Disbursements (Outflows)

Cash paid to suppliers
Cash paid for payment of debt principal and interest
Cash paid for salaries, wages, benefits, and allowances
Cash paid for representation, travel, and transportation
Cash paid to the government for taxes
Cash paid to utility companies
Cash paid to consultants, auditors, and lawyer
Cash paid to others
Net Cash Inflows (Outflows)

Format C. THE BALANCE SHEET

ASSETS LIABILITIES
Current Assets Current Liabilities
Cash Supplier Credit
Marketable Securities Accrued Expenses
Accounts Receivable Taxes Payable
Inventories Short term Debt
Other Current Assets Current Portion of Long
Term Debt
Total Current Assets Total Current Liabilities

Fixed Assets Long Term Liabilities

Land Bank Notes
Building Other Long-Term Liabilities
Machinery and Equipment
Furniture and Fixtures
Vehicles

Stockholders’ Equity
(less) Accumulated Paid in Capital
 Depreciation
(equals) Net Fixed Assets Retained Earnings
Total Stockholders ‘Equity

Other Assets
Total Assets Total Liabilities

Format D. FUNDS OF FLOW

Sources of Funds

Increase in Liabilities
Decrease in Assets

Uses of funds
Decreases in Liabilities
Increases in Assets

Net Sources (Uses) of Funds

ACTIVITY:
Prepare a simple financial statement of your dream business.

REFLECTION/LEARNING INSIGHTS:
• Financial management refers to activities that are concerned with securing money and
using it properly.
• The most common sources of capital for entrepreneurs are self-funding, funds from family,
personal insurance policies, commercial loans, other entrepreneurs, trade or supplier
credit, customers, and government sources.
• Entrepreneurs need to prepare the balance sheet, income statement, and cash flow
statement.
• Break-even analysis is very useful too in managing the finances of a small firm. It is a
means to determine at what point in a business activity the total revenues equal expenses.
POST-TEST

MULTIPLE CHOICE
DIRECTION: Encircle the letter only. No erasure.

1. Certificate of indebtedness.
a. Stock
b. Bond
c. Loan
d. Insurance
2. Which of the following does not belong to the group?
a. Salaries
b. Raw Materials
c. Bills
d. Self- funding
3. Refers to activities that are concerned with securing money and using it properly.
a. Financial Management
b. Marketing Management
c. Operation Management
d. Corporate Social Responsibility
4. It presents the financial profile of the company.
a. Balance Sheet
b. Income Statement
c. Cost of Goods Sold
d. Cash Flow Statement
5. Shows the revenues realized by the business.
a. Balance Sheet
b. Cash Flow Statement
c. Income Statement
d. Cost of Goods Sold
6. The lifeblood of the business.
a. Manpower
b. Cash
c. Technology
d. Market
7. When operating expenses are subtracted from the gross profit the remainder is;
a. Depreciation
b. Sales
c. Net Loss
d. Net Profit
8. Items of value are owned by the enterprise.
a. Assets
b. Liabilities
c. Equity
d. Expenses
9. Art and science of managing money.
a. Finance
b. Production
c. Marketing
d. Management
10. Example of Current Asset.
a. Machinery
b. Building
c. Cash
d. Patent