Business in General

Business in General

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Learning Objectives

What is Business?Is any activity involved in the production and distribution of goods and services, aimed to meet the economic needs of consumers with an objective of eventually earning profit.

Relationship Between Business and the EconomyEconomyBusinessPays For The Goods & ServicesProvides The Factors of ProductionsProduces Goods & ServicesPays For The Factors of Productions The role of business is to produce goods and services which consumers need.

The business firm produces goods and services from the factors of production provided by the society. Consequently, to produce goods and services, the business firm has to purchase materials, components, or semi-finished goods from other producers.GNP/GDPIndustries

Elements of A Business SystemBusiness EnterpriseCAPITAL (Money)LABOR(Manpower)LAND(Materials)Entrepreneur(Management Skills)Economics is the study of how a society produces and distributes its desired goods and services. It deals with how society uses its resources to produce goods and services. These economic resources to produce are called Factors of Production.

Land All Natural Resources and the Land itself.Labor Physical and mental inputs of the people who produce the goods and services.Capital Money needed to start the business operationEntrepreneur Buys and organize these factors to provide goods and services.

In return, he profits if his products are in demand and inherent in all business ventures.

What is Profit?It is the difference between the income an entrepreneur receives from the sales of his goods and services and the expenses he incurs to produce them . Formula: Income - Expenses

Profit is important in business. It is the prime motivator. Entrepreneurs produce goods and services that consumers are willing to buy.

Why People Engage in Business?People engage in business because of the following reasons: Power Profit Service to the Community Prestige Livelihood Social Approval

Abraham W. Maslow Hierarchy of Needs

Physiological Essential for survival (Food , Shelter, Clothing, Sex, Air, Water)Safety Need Desire for security, stability, or protection against dangerSocial Need Need for group belongingness, affection, love and friendshipSelf-Esteem Need Self-recognition or group satisfactionSelf-Fulfillment or Self-Actualization Realization of personal goal or ambition.

Kinds of Business 3 KindsClassifications are based on the nature of principal activity performed by the business enterprise:

Industries involve the conversion of raw materials into finished products or goods and the application of labor upon raw materials so that greater usefulness becomes possible. E.g. Farming, Fishing and Mining. Manufacturing industries use materials and supplies turned out by extractive industries and change these raw material into various articles of materials for further production of goods and new products. E.g. Nokia, Honda, Sony, Shell etc.Commerce involve the process of buying and selling where the goods are moved from the point of production to the point of consumption. It involves purchasing and the actual investment of capital in the merchandise handled with the intention of reselling at a profit. SM, Rustans, Robinsons etc.Service Enterprise primarily concerned with the satisfaction of the needs and wants of the consumers. Divided into:a. Public and Community Service (Meralco, Transport Services;) andb. Professional or Trade Service (Law Offices, CPAs, Repair Shops, etc.)

Kinds of Economic SystemThe most common and prevalent are:

Capitalism a system in which the means of production are owned and operated by private individuals. It is a system of economic organization wherein privately-owned capital, and property rights are privately invested with the ultimate aim of personal gain.

Socialism the ownership of production and capital by the government and the regulation by society, as a whole, of the process of production and distribution, and of the giving of essential services.

Communism stands for the collective ownership by the government of consumption goods and production goods. The state owns and controls all means of production.

These terms have been defined in different ways. Very few countries have a pure capitalistor a pure communist economic system.

Phases of Economic DevelopmentCriteria in Classifying Phases of Economic Development

Means of LivelihoodHunting and Fishing Phase Ancestors obtained food by hunting and fishing.Pastoral Phase Presence of large number of livestock.Handicraft Phase Items or objects were made by skilled and trained manual laborers (sculptures, jewelry, furniture)Agricultural Phase Concept of land ownership. Began to work as a farmer or a fisherman.Industrial Phase Presence of manufacturing companies. Machineries were used.

B. Extent of Economic ActivityHousehold Economy The needs of the family were satisfied first through the contribution of the family members.Village Economy Economic and social relations spread among various families.National Economy Grouping of villages into bigger and broader social units.International Economy - Country expands its economic relationship through international trade.

Phases of Economic Development (cont)Criteria in Classifying Phases of Economic Development

C. Medium of ExchangeBarter Economy Done during primitive era, exchange was done which was the direct exchange of goods for goods, services for services, goods for services or services for goods.

Money Economy There came to circulate in the market certain objects, such as bars of metal, buttons, tools, and utensils which were stable in value, durable and generally accepted by the public. Money was used as the medium of exchange.

Money and Credit Economy Due to increase in volume and frequency, it became imperative to allow others to purchase ones goods or engage ones service with payments to be paid at some future date.Credit is the power to obtain economic goods and services in exchange for the promise to pay the agreed equivalent at some future date.

Legal Forms of Business OwnershipSole Proprietorship a form of business ownership organized and managed by only one person. Capital comes from the collective contribution of member of the family or among friends. It should be registered in the name of only one person.

Partnership a business organization where two or more persons contribute money, property, or talent to carry on a business. Agreement is required to be in writing, if capital partnership is P3,000 or more. Maybe limited or general partnership.

Corporation is an artificial being created by the operation of law, having the rights of succession and the powers, attributes and properties expressly authorized by law.

Advantaged and Disadvantages of the 3 Main Forms of Businesses

The major determinants of business forms are the type of business, the size of investments, the type of risk-taking involved, and your own general objectives and personal biases.

Other Specialized Business FormsCooperative Owned by members to provide goods and services that they all need, and managed in their interest.

Franchise is a written contract granting permission to operate a business to sell products and services in a set way. The company that owns the product or service and grants the rights to another business is known as the Franchiser, while the company that purchasing the rights is the Franchisee.

Start A New Business or Buy An Existing One?IT DEPENDSIt depends on the nature and kind of business you have.Businesses takes long to develop products and markets (trading)Better off buying a company that already has established products in the market but needs fresh quality or fresh approaches.It depends on the availability of opportunities for acquisition.Sufficiently interested in a business but you dont have the best preparation for it, better of getting into an existing operation with the option to learn the ropes and gain control.Look at the classified ads banks or financial institutions selling companies and businesses.It depends on your personal biasesSo you want to have the satisfaction of building a new organization or would you derive greater satisfaction in being around a company that has been losing?Can you cope with bad habits that employees established or develop a new team within a new organization?

The Project Feasibility StudySometimes called a Project Study or a Feasibility Study evaluated the viability of a business undertaking.The undertaking may be a new or proposed venture, or an existing business.May or may not have an expansion program.Merely considered as a procedural requirement for securing financing or government assistance.OBJECTIVE to guide the project promoters, business executives, and financial managers in determining the actions they must take on a project in order to bring about its successful operation.

The Project Study covers:

Collection of Data (through research work)Analysis of the collected Data, andFormulation of Recommendations, based on the analysis.

Various Aspects of Project Feasibility StudyMarketing AspectConsidered the life blood of virtually all project feasibility studies.Serves as the basis of the financial section through projected demand.Includes: demand, supply, demand and supply gap analysis, marketing program and the projected sales.OBJECTIVE: To determine the quantity of the product that can be sold at a certain prove given the competitive situation.

Organization and Management AspectIncludes the study of the officers and key personnel, basic considerations in forming the organizations, form of ownership, organizational chart, and project schedule.OBJECTIVE: To determine the option effectiveness of the organizational set-up and the qualifications of the individuals who will make up the organization.

Various Aspects of Project Feasibility Study (cont)Technical AspectPertinent technical aspects of the project, planned constructions.OBJECTIVE: To determine to what extent the project meets the technical soundness criteria.

Technical Requirements of the ProjectPrior to projecting technical feasibility, the technical requirements of the project must be analyzed:Stating:Quantity and quality of products to be produced.Specifications of raw materialsSupplies to be usedLabor needed, both skilled and unskilledUtilities NeededWaste Disposal MethodsManufacturing ProcessB. Providing estimates of total projects cost and enumerating the major items of capital cost.C. Listing down in detail estimated production cost and overhead cost that will go into the operating of the proposed plan.D. Major technological development in the industry should be taken into consideration.

Various Aspects of Project Feasibility Study (cont)Financial Aspect Quantifies the results of the marketing, technical, management, taxation and legal phases of the project study. Expresses in peso terms the possible outcome of operating the project

Major Parts of the Financial StudyStatement of AssumptionsPossible sources of outside financing if cannot be met by proponentsProjected financial statementsDetails of various amounts contained in the projected financial statementsAnalysis of the financial projections

OBJECTIVES:To make a realistic, complete and conservative estimate of total cost to put up the project.To determine amount of capital financingTo make complete, safe and realistic projections of operating cost and revenues.To determine whether the project will be able to pay the total debt.To determine the necessary financial arrangement to insure the project have cash needed when required.To determine the companys earning performance, soundness and liquidity.

Various Aspects of Project Feasibility Study (cont)Socio-Economic AspectShould be pre-convinced not only for profit but also for social and economic benefits.Even more worthy of establishing a business unit if it will be for the welfare of others rather than simply for the wealth or power of the proprietor.

OBJECTIVES: To determine how the project will affect:Income, considering the benefits it will give to families and individuals.Taxes, indicating the amount of revenue it could raise for the government.Prices, considering the influence of the proposed project on supply of goods, and foreign exchangeLocal produces, considering the use of locally manufactured machines, raw materials, and laborThe community, in terms of benefits the proposed business will directly or indirectly share on the developments of the place, community and the nation.

Parties Requiring Project Feasibility StudyManagement of On-Going ConcernsTo determine the feasibility of expansion programs.To set reasonable price of an existing business which they are considering to take over.2. Proponents or Promoters of New Projects.To ascertain the viability of new projects.To select or improve the project specifications in terms of form business organization, location, market, distribution channel, plan capacity, sources of financing and other designs.3. Stockholders.To decide on the sales of existing companies and if so, to set the selling prices.To find out if an investment in a project or an existing enterprise is still attractive.4. Lending InstitutionsTo ascertain the advisability of lending to a new project or existing undertaking.To define the conditions to be imposed in order to safeguard the position of the institution5. Government OfficesTo determine if a project is entitled to governmentTo specify the level of incentives to be granted.

Limitations of Project Feasibility StudyA project feasibility study is primarily based on the forecast of demand, prices, new products coming in, technological developments, amendments of laws, changes in tariff rates, sales revenues, cost and expenses, and available financing.

Certain required information is usually not available.The one preparing the study may not be professionally competent, and hence the opinion he forms may be deficient. Professional competence is an opinion on the project based on analyses.Though required data is available, and the one preparing is competent, the study is still a FORECAST. Results do not usually tally with the actual events.

**The project study still offers the advantage of consulting the most realistic basis of calculated action to implement or stop a project. Hence, project studies minimize the profitability of business failures.

The Entrepreneur and the ManagerEntrepreneurs Most almost business firms are managed and owned by them. They start the business, risking time and capital, they make all management decisions.Way of life is a combination of creativity, challenge, hard work, and satisfactionMust conceives an idea out of his own visualization then turn the idea to reality.Puts in long and unremitting hours of work and takes financial risks. Requiring a lot of energy and self-discipline.

When the business becomes more complex.

ManagersProfessional experts in finance, marketing, personnel production, or data processing.Usually employees in the business enterprise.Main role is to maximize the use of resources, to make decisions, to generate profits, and to sustain the growth of the business.

**Successful entrepreneur attains a position of prestige in the community because of his many contributions to society especially in terms of general jobs to many people and providing needed goods and services.

Social and Economic Contributions of EntrepreneurshipEntrepreneurship Creates EmploymentNeed to hire or employ at least one or two other people in order to get things done.Entrepreneurship Improves the Quality of LifeEntrepreneurial ventures contribute significantly to the continuous improvement of living standards, making life easier and comfortable.3. Entrepreneurship Contributes to More Equitable Distribution of Income Taxes.When income is more evenly distributed, entrepreneurship also grows. People will have more money with which to buy the products and services they need.4. Entrepreneurship Utilizes and Mobilizes Resources for Greater National Productivity.The PH will develop faster economically if none of its resources were left idle or unused.5. Entrepreneurship Brings Social Benefits Through the Government.With the revenues the government collects from taxes, duties and licenses paid by the entrepreneurs, the government allocates for communities for infrastructures facilities.

Business RegistrationPurposes:

To establish the legal personality of the business To obtain a Permit to Operate (PTO)To comply with the requirements of special regulatory or promotional programs of government

Two Government AgenciesSecurities and Exchange Commission (SEC) Registering partnerships and corporationsBureau of Trade Regulation and Consumer Protection (BTRCP) Single Proprietorship

Two Key AgenciesBureau of Internal Revenue Revenue CollectionSocial Security System Promotion of Social Justice

Normal SequenceSEC and BTRCPBIRLocal Government UnitSSS

Dept. of Trade and Industry (RA 3883) No two businesses would have the same or similar names.

Positive Values of A Filipino EntrepreneurPakikipagkapwa Tao (Human Relations) does not cheat to customer by overpricing etc.Bahala Na (Let Fate Decide the Outcome) pursue plans and project even seems unsurePakikipagsapalaran (Adventure) do not surrender before uncertainty or challengeGaya-gaya (Imitations) more creative and innovativeUtang na Loob, Hiya, Awa, Bayanihan (Debt of Gratitude, Loss of face, Compassion, Cooperative Spirit) willing to assist us simple from goodwill.Kasipagan (Industriousness) dealing with Juan TamadPagtitipid (Thrift) Frugality, being wise spenders and savers.Pagtitiis or Mapagtiis (Enduring) not easily to give upPagtitimpi (Self-control) capacity to bear emotional or physical stress.Katapatan (Sincerity) or Kalinisan ng Loob (Purity of Heart) honest in our dealings with others.

International Business EnvironmentRange from exporting goods to other nations to establishing manufacturing operations in other nations.

Training of goods and services across national boundaries result from the principle of competitive advantage. Factors determining a countrys competitive advantage include the presence of natural resources, adequate quality and quantity of labor and capital, available technology, and the cost of these resources.

What is Exporting & Importing?Exporting - refers to the selling of an organizations goods in other country.Importing - the purchasing of goods and services from a foreign country.

The organization may establish its own internal structure. This may require special expects in international accounting, finance, marketing, and law.

Reasons for Exporting & Importing Exporting:If the production process requires high volume to reduce cost per unit, the home market may be too small to absorb the output. Output may be sold overseas.The demand for the firms product may be seasonal and irregular. By expanding the firms market to other countries, production costs may be lowered by more effective production scheduling.Product Life Cycle Creating new markets, where it re-enters the growth stageSelling its established goods in new overseas markets, organization is also able to increase profits.

Importing:The goods may be needed but not available in the importing country (crude oil)Many foreign-made products have prestige value and are demanded by the home market (French perfume, sports cars)Some foreign goods are less expensive due to lower production costs.

Multinational Corporation (MNC)Measure used to determine if a business is multinational include percentage of total sales by majority-owned foreign affiliates, percentage of earnings due to foreign operations, and percentage of new capital investment destined for overseas facilities.

MNC is defined as any business that maintains a production, assembly, sales or service presence in tow or more countries.