Chapter 2: MICRO, SMALL AND MEDIUM ENTERPRISE

A. MSMEs Defined

Micro, small, and medium enterprises (MSMEs) are defined as any business
activity/enterprise engaged in industry, agri-business/services, whether single
proprietorship, cooperative, partnership, or corporation whose total assets, inclusive of
those arising from loans but exclusive of the land on which the particular business entity's
office, plant and equipment are situated, must have value falling under the following
categories:

B. By Asset Size*

Micro: Up to P3,000,000
Small: P3,000,001 - P15,000,000
Medium: P15,000,001 - P100,000,000
Large: above P100,000,000

Alternatively, MSMEs may also be categorized based on the number of employees:

Micro: 1 - 9 employees
Small: 10 -- 99 employees
Medium: 100 -- 199 employees
Large: More than 200 employees

C. Role and Importance of MSMEs

• MSMEs play a major role in the country's economic development through their contribution in
the following: rural industrialization; rural development and decentralization of industries;
creation of employment opportunities and more equitable income distribution; use of
indigenous resources; earning of foreign exchange (forex) resources; creation of backward and
forward linkages with existing industries; and entrepreneurial development.
 • They are vital in dispersing new industries to the countryside and stimulating gainful
employment. A country like the Philippines where labor is abundant has much to gain from
entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus, they generate jobs
in the locality where they are situated. In this sense, they bring about a more balanced
economic growth and equity in income distribution.

• MSMEs are quick in assimilating new design trends, developing contemporary products, and
bringing them to the marketplace ahead of the competition. MSMEs tend to be far more
innovative in developing indigenous or appropriate technology, which may be grown later into
pioneering technological breakthroughs.

• They are able to effectively increase the local content or the value added in final goods that are
processed and marketed by large manufacturing firms.

• MSMEs are notably skillful in maximizing the use of scarce capital resources and are able to
partner with large firms by supplying locally available raw materials in unprocessed or semi-
processed forms.

• Also, MSMEs can act as the seedbed for the development of entrepreneurial skills and
innovation. They play an important part in the provision of services in the community. They can
make an important contribution to regional development programs.

D. Types of Micro, Small and Medium Enterprise

MICROBUSINESS - is a type of small business, often unregistered, having five or fewer employees and
requiring seed capital of not more than 3 million.

Appraisal services Duplicating stand

Automotive trouble shooting Lugawan
Balut/Penoy Pedling Newspaper stand
Banana, Camote and Turon stand Notarial Services
Barbeque stand Pizza stand
Buco salad stand Plumbing service
Burger stand Tinapa, tuyo, daing stand
Butong pakwan, mani stand Rags production
Brokerage Re packing (paminta, vetsin)
Carwash Scrap buy and sell
Cellphone accessories Shoe shine and repairs
Cellphone repair Siomai in cart
Fishball cart Sorbetes vendor
Fruits and Veg. Stand Taho production
Sago, Gulaman T-shirt printing
House painting service Turo turo
Kakanin stand Tutorial services
T.V, electric fan repair Upholstery
Vulcanizing shop Watch repair
Sari sari store
Business Plan and Feasibility Study Preparation Services

SMALL and MEDIUM BUSINESS ENTERPRISE - - is a type of business having an employees of 10-199 and
requiring seed capital of not more than 100 million.

Types of SMBE
1. Manufacturing – involved in the conversion of raw materials into products needed by
society.
Examples:
Food processing Purified water station
Bags and Accessory manufacturing Sash and Decor works
Footwear manufacturing Soap Making
Furniture factory Toy manufacturing
Garment factory
Handicraft industries
Jewellery manufacturing

2. Service Business – providing various types of labor services in a wide variety of business
sectors.
Types of Service Business
2.1 Business service – those that provide services to other businesses.
Ex. accounting firms, janitorial services, security service, collection agencies.
Printing press, cargo forwarding, trucking, trade promotions, merchandising
business, security agency
2.2 Personal service – those that provide service to the person.
Ex. Tutorial, massage parlor, spa, beauty parlor, voice lesson, school bus,
Skin clinic, dental clinic, medical services, funeral parlor, flower arrangement

2.3 .Repair Services – provide repair services to owner of various machinery and
 appliances.
Ex. Auto repair, watch repair, plumbing services, aircon repair
2.4. Entertainment and Recreation – movie houses, arcade games, internet cafe,
Resorts, billiard, talent recruitment agency,
2. 5.Hospitality – hotels, motels, event planning, catering, travel and tour
2.6.Education services – Pre school, Grade school, High school, colleges

3. Trading Business – The business of buying and selling commodities.

Ex. Auto supply, Botique, fish dealership, Cellphone dealership, electrical store, grocery store,
Hardware store, furniture store, gasoline station, gravel and sand, LPG dealership, Magazine
Store, meat and poultry dealership, medical supply, real estate, pharmacy, rice dealership

4. Rentals – a piece of property available for renting

Ex. Apartment rental, billiard center, computer rental, warehousing

5. Agri and Aqua business - various businesses involved in food production, including
farming and contract farming, seed supply, agrichemicals, farm machinery, wholesale
and distribution, processing, marketing, and retail sales.
Ex. Broiler production, cattle fattening, dog breeding, poultry raising, hog raising,
Honey bee production, quail raising, tilapia raising, raising live stock, growing of
agricultural plants and crops, agriculture and aqua culture

Chapter 3: THE SEARCH FOR A SOUND BUSINESS IDEAS

This chapter will teach you the ways to discover a winning business idea by indentifying which one can
and will work for you, and how to narrow down your options and evaluate the feasibility of your final
choice.
Finding a good idea is easy, what’s difficult is having determination to start and see the venture through
the end. Most aspiring entrepreneurs spend too much time worrying despite of having unique and good
concept for their business. The result is that opportunity, that great product or service you are thinking
of , is already been taken by another entrepreneur who is more daring than you. Once, you’ve through,
act on your idea, do not waste time. Be realistic and start something you believe you can do.
A. Before Searching for Business Idea

The starting point for developing new business ideas lies inside the prospective entrepreneur rather
than in the marketplace, laboratory, business plan etc. You are the critical component - it is your
strengths and weaknesses which should dictate the areas in which to seek ideas and the likely scale &
scope of your business. At the end of the day, support for your business by financiers, suppliers,
customers etc. will also be a vote of confidence in your abilities to make it successful.
What angle are you coming from? Are you:

• An inventor who has a product/service idea?

• An innovator who has developed a new product/service?

• Out of work and want to create a job for yourself?

• An entrepreneur who wishes to create a business?

• A manager who wishes to develop a business?

Be especially aware that inventors and innovators does not necessarily make good business people.

Educational background
Any (special) business or technical qualifications?
Do you have a knowledge of finance & marketing?

Financial strengths
Have you access to personal or family funds or finance from other sources?
How much, how easily, what conditions and when?
How long could you survive without any (regular) income while your business develops?

Commitment
Why do you really want to start a business?
Are you in reasonable health?
Have you any/many family commitments?
Does the family fully approve of your proposal to set up your own business?
Are you willing to relocate/commute in order to pursue a business possibility?

Expertise & interests

Do you have insights into any business sectors or trades?
What are you good at or like doing?
Do you have a hobby/interest/talent which could become the basis of a business?

Personal qualities
Are you a resourceful, energetic and motivated person?
Have you a capacity to take lots of knocks and bounce back?
Are you realistic and practical? Are you a hard worker?
What do you dislike doing?

Prior experience
Where have you worked before?
 Have you done anything special, exceptional or unusual?
What work-related skills or expertise do you have

External contacts, resources etc.

What contacts have you in finance, business etc.
Have you or your family access to any under-utilized resources.
Do you know people who might help give you a start?

2. Finding the Business Idea

When looking around for business ideas, bear in mind that these could be based on any of the following
approaches:

• A manufactured product where you buy materials or parts and make up the product(s) yourself.
• A distributed product where you buy product from a wholesaler/MLM, retailer, or
manufacturer.

• A service which you provide.

You must narrow your search to specific market or product areas as quickly as possible. For example, the
"food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or do
you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is
better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics
and proves impossible to research and evaluate.

Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing
ideas which involve any prospect of price wars or are very price sensitive; of getting sucked into short-
lived fads; or of having to compete head-to-head with large, entrenched businesses.

Observe consumer behavior:

What do people/organizations buy ?
What do they want and cannot buy ?
What do they buy and don't like ?
Where do they buy, when and how ?
Why do they buy ?
What are they buying more of ?
What else might they need but cannot get ?

Look at changing existing products or services with a view to:

 Making them larger/smaller, lighter/heavier, faster/slower

 Changing their color, material or shape

 Altering their quality or quantity

  Increasing mobility, access, portability, disposability

 Simplifying repair, maintenance, replacement, cleaning

 Introducing automation, simplification, convenience

 Adding new features, accessories, extensions

 Changing the delivery method, packaging, unit size/shape

 Improving usability, performance or safety

 Broadening or narrowing the range

 Improving the quality or service.

Be on the look out for:

 Emerging Trends
For example, the population within your area may be getting older and creating demand for
new products and services.
 Expanding Market Niches
For example, local industries may be outsourcing more of their services.

Try the following approaches to locating ideas and suggestions:

 Brainstorm with your friends, associates

 Ask people for their ideas
 Use one idea to spark a better one
 Read relevant trade magazines (local, national and foreign)
 Skim through trade directories (local, national and foreign)
 Above all, open your eyes wide and try to spot the obvious gaps. By all means be inventive,
imaginative and original in your thinking but stay market- and consumer-orientated rather than
product-obsessed. We all know stories about people inventing a better mousetrap and never
getting a nibble from the market!!

C. Assessing Business Ideas

Once your short-list has been developed, you will need to start devoting substantial time to assessment,
research, development and planning. For a start, you could pursue the following tasks:
1. Discuss products/services with prospective customers
Would they buy from you, at what price, with what frequency etc.?
Why would they prefer your products to the competition?
Find out what they really think - there is a danger that people will tell you what they think you
would like to hear. Listen carefully to what is being said; watch carefully for qualifications,
 hesitations etc.; and don't brow beat respondents with your ideas - you are looking for their
views.
2. Assess the market using desk & field research
How does the market segment (by price, location, quality, channel etc.)?
What segments will you be targeting?
How large are these segments (in volume terms) and how are they changing?
What are the price makeups/structures?
What market share might be available to you bearing in mind your likely prices, location, breath
of distribution, levels of promotion etc.?
3. Analyze your competition
Who are they and how do they operate?
Are they successful and why?
How would they react to your arrival?
What makes you think that you could beat the competition?
At whose expense will you gain sales?
4. Consider possible start-up strategies
Will you be able to work from home or part-time?
Will you seek a franchise or set up as an in-store concession?
Will you start by buying in finished products for resale as a precursor to manufacturing?
Will you contract out manufacturing?
Will you buy an existing business or form an alliance?
Could you lease or hire equipment, premises etc. rather than buy?
How will you stimulate sales?
.

5. Set ball-park targets and prepare first-cut financial projections

Estimate possible sales and costs to get a feel for orders of magnitude and key components and
to establish a rough break-even point (when our sales might start covering all your costs). Our
Exl-Plan (for Excel) can be used to prepare 3/5-year financial projections (P&Ls, cashflows,
balance sheets, ratio analyses and graphs). It incorporates a Quik-Plan facility for doing quick
and dirty projections.
Avoid over-estimating likely sales and under-estimating costs or lead times. Better to be
relatively conservative. Don't confuse profits and cash - see the paper entitled Making Cashflow
Forecasts for further information - and make sure that you make adequate provision for working
capital.
6. Prepare a simple action plan
Cover the first year of operations to highlight the critical tasks and likely funding needed before
the business starts generating a positive cashflow. This is critical especially if you have to
undertake significant product or market development or need to give credit to customers.
7. Critically examine ideas from all angles
Can I raise enough money?
 Can I get a premises/staff etc.
Will the product work?
How will I promote and sell?
Think through possible problems. What would happen if sales took twice the expected time to
develop while costs escalated?

D. From Business Idea to Business Plan

Having firmed up on a specific idea and conducted preliminary research, you have several options
including the following:

• Undertake more detailed/specific market research.

• Do further product research, development, testing etc.

• Review and refine your proposed start-up and developmental strategies.

• Draft a detailed or outline business plan.

• Prepare financial projections.

• Start looking around for the key resources - people, money. premises, partners etc.

Most probably, you will start addressing all these tasks in parallel rather than sequentially. Other issues
which you may need to start thinking about include the following:

• Select a company or business name, logo etc.

• Decide how you will start trading - limited company, sole trader etc.

• Enquire into any licenses which might be needed, or regulations to be complied with.

• Think about where the business will be located.

• Look for professional advisers (lawyer, accountant) and a bank.

• Consider likely telephone/communications needs.

Bear in mind that, to develop a successful business, you must:

• Define precisely the nature of the business

• Offer clearly identifiable products or services

• Tap a real need or generate a demand for your product/service

• Operate within your expertise and resources

• Have realistic targets and have reasonable expectations