1

ENTREPRENEURSHIP

(For Senior High School, Applied

Subject, ABM Strands)

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UNIT I

INTODUCTION
TO
ENTREPRENEURSHIP
Learning Outcomes

 Discuss the relevance of the course:

 Explain the key concepts of common competencies

 Explain the core competencies in entrepreneurship

 Explore job opportunities for entrepreneurship as a career

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INTODUCTION

Entrepreneurial activities today have become very important and are

keys to economic development, including employment generation, depend upon

entrepreneurial behavior of a country.

Entrepreneurs are the reason for a large quantity of highly developed

industries which result to greater employment opportunities for unemployed youth,

increase in per capita income higher standard of living and increase individual

saving, revenue to the government in the form of income tax, value added tax,

export duties, and balance regional development.

Relevance of Entrepreneurship to an Organization

1. Development of managerial capabilities

2. Creation of organizations

3. Improving standard of living

4. Means of economic development

Concept of Entrepreneurship
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Entrepreneur

 Derived from the French verb enterprende, this means “to

undertake”.

 Are innovators, willing to risk and generate new ideas to create

unique and potentially profitable solutions, to modern day

 Comprehensively defined by Zimmerer and Scarborough (2005) as

someone who “creates a new business in the face of risk and

uncertainty for the purpose of achieving profit and growth by

identifying significant opportunities and assembling the necessary

resources to capitalize on them”

 who act on their business ideas.

Entrepreneurship

 Is a process of actions of an entrepreneur who is always in

search of something new to exploit new ideas into gainful

opportunities by accepting the risk and uncertainty of the

enterprise.

 Employs what Schumpeter called the “gale of creative

destruction” to replace wholly or partially inferior

innovations across markets and industries.

Entrepreneurial activities- can be incremental or disruptive.

a. Factors affecting Entrepreneurship

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1. Personality Factors

a. Initiative

b. Proactive

c. Perseverance works against all odd to overcome obstacle and is

never complacent with success

d. Problem- solver

e. Persuasion

f. Self – confidence

g. Self –critical

h. A Planner

i. Risk – taker

2. Environmental Factors

a. Political climate

b. Legal system

c. Economic and social conditions

d. Market situation

Core competencies in Entrepreneurship

1. Economic and dynamic activity

2. Innovation

3. Profit potential

4. Risk bearing

Activity 1
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Qualities of Entrepreneurs: A Self- Assessment

Find out if you are the sort of person that could set up and operate a business.
Check YES if the statement applies to you and check NO if doesn’t.
YES NO

1 I think a routine pattern of life with regular working hours suits

me best.

2 I have always thought and acted by myself

3 Sometimes I think I seem to achieve nothing

4 It is not good to start something unless you are going to finish it.

5 I am happier when I do not have to rely on other people

6 I often that I am the victim of events that I cannot control

7 In any bad situation I always get something good from it

8 It is very important to me that people recognize my success

9 I am not too ambitious so that I can avoid being disappointed.

10 I am prepared to take risk only after I have thought about all of

the possible consequences.

11 When I talk to a senior person I do not usually say what I mean.

12 People often tell me that I am good at understanding their point

of view.

13 The amount of money that I earn is more important than how

hard I work to earn it.

14 I usually work later than I plan

Interpretation: if you have more YES than NO, you have the making of an entrepreneur.
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Function of an Entrepreneur

1. Innovation

2. Assumption of risk

3. Research

4. Development of management skills

5. Overcoming resistance to change

6. Catalyst of economic development

Types of Entrepreneurs

1. Innovative entrepreneurs

2. Imitating entrepreneurs

3. Fabain entrepreneurs

4. Drone entrepreneur

5. Social entrepreneur
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Activity 2

Identify the entrepreneur who founded the following companies.

1. SM

2. Jollibee

3. Happee toothpaste

4. Zest- o

5. National Book Store

6. Mercury drug

7. CDO

8. Lactobacillus PAFI -Probiotic Bacteria

9. Customer relationship management (CRM)

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Career Opportunities for Entrepreneurship Graduates

1. Mid – level Management

2. Business consultant

3. Sales

4. Research and development

5. Not- for- profit fundraiser

6. Teacher

7. Recruiter

8. Business reporter

Some Myths about Entrepreneurship

1. Entrepreneurs, like leaders, are born, not made.

2. Entrepreneurs are academic and social misfits.

3. To be an entrepreneur, one needs money only.

4. To be an entrepreneur, a great idea is only ingredient.

5. One wants to be an entrepreneur as having no boss is great fun.

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RESARCH ACTIVITY

Research on the life of at least one of the successful entrepreneur cited in this

chapter. Find out what them make succeed. Cite lessons learned from their stories

of success. Find out how the entrepreneur, whom you selected to research on,

performed the 6 functions of an entrepreneur. Based on the types of entrepreneur

under what type of entrepreneur does he/she belong?

ACTIVITY 3

Satisfy the demands of the following.

1. Explain the relevance of Entrepreneurship in our country and to an

organization.

2. Enumerate and explain the concepts of entrepreneurship.

3. Briefly discuss the core competencies and factors affecting entrepreneurship

4. What are the function of entrepreneurs

5. Give examples of career opportunities for entrepreneurs.

6. Differentiate the types of entrepreneurs.

7. Shed light on 5 myths about entrepreneurship.

8. Imagine you were hired to teach the subject on entrepreneurship to senior

high school Students. Convince your students of relevance of the course.

9. Explain the concept of the core competencies in entrepreneurship.

10. What are the job and career opportunities for an entrepreneur? Explain each.
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UNIT II

DEVELOPING
A
BUSINESS PLAN
Lesson 1

Preparing a Business Plan

Learning Outcomes

 Explain what a business plan is, its focus, types and content

 Distinguish between a business plan and feasibility study plan

 Determine possible product/service that will meet peoples’ need by

accomplishing the new product /new service template.

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Business Plan

 A formal statement of a set of business goals, the reasons why they are

believed attainable, and the plan for reaching those goals.

 It contains background information about the organization or team

attempting to reach those goals.

Focus of a Business Plan

 Externally focus plans

 Internally focused business plan

Categories of a Business Plan

1. Business Plan For Profit

2. Marketing Plan

3. Project Plan

4. Business Plan

5. Operational Plan

Contents of Business Plan

1. Executive Summary

2. Project Background

3. Management and Personnel Feasibility

4. Production Feasibility
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5. Financial Feasibility

6. Socio Economic Feasibility

7. Project Implementation and Time table

 Who is the customer?

 What do they need?

 What’s in it for the customer?

 How does the company satisfy its stake holders?

Feasibility Study

 Is a major information source making a critical decision

whether to go or not to go into the business.

The advantages of writing down the results of the feasibility study are as follow:

 The findings can be set out in a clear and logical way, so that potential

lenders can understand the business and its likely risks/advantages. The

document helps the entrepreneur to clarify and focus his/her ideas.

 It is a reference material that can be used to plan long trm development of

the business.

 The plan can be regularly consulted and updated as a guide to the business

development.

 Mistakes can be made on paper rather than in the operation of the business.

 When the plan shows that a successful business is possible, it makes the

entrepreneur feel more confident to succeed.

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 It helps the entrepreneur to decide on how much money is needed and if

properly prepared, it gives the loan agency confidence that their money will

be repaid.

1. Conducting Feasibility Study

Question that can be answered by a feasibility study are addressed:

 Is there a demand for the product?

 Who else is producing similar products?

 What is needed to make the product?

 What is the cost of producing a product?

 What is the likely profit?

2. Comparison between a Feasibility Study and Business Plan

a. A feasibility study is conducted before a decision to proceed (go/no

go)

b. A business plan is prepared after a decision to proceed (go/no go)

c. A feasibility study provides an investigative function.

d. A business plan provides a planning function.

Feasibility plan Business plan

1. Is conducted before PLAN 1. Prepared after a

a decision to proceed decision to proceed

2. Provides an investigative 2. Provides planning

Function function
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ACTIVITY 1
Think of a product/service you want to introduce in the market
by accomplishing the New Product/Service template below.

NEW PRODUCT/SERVICE TEMPLATE

A. What is my product/service?

B. What does my product/service

do?

C. How is it different or better than

other products/services?

D. Who will buy the

product/service?

E. Why will the product/service be

promoted and sold/offered

F. How will the product/service be

promoted and sold/offered

G. Who are my competitors

ACTIVITY 2

Answer the following questions.

1. Explain what a business plan is and its focus.

2. What are the parts of a business plan? What does it contain?

3. Distinguish among the types of a business plan.

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LESSON 2

Market Analysis

Learning Outcomes

 Describe the unique selling proposition and value proposition that

differentiate one’s product/service from existing product/service

 Determine who the customers are in terms of:

Target Market

Customer requirements, and

Market size

 Validate customer- related concerns through:

Interview

Focus Group Discussion:

Survey
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Introduction

To start a business, the first thing to do is to find out what is the demand for

the product by conducting short market survey.

Sample questionnaire for a new product (Tomato Jam)

Question Answer
1. Do you eat types of jam? Yes No
2. Which types of jam do you like
best? List the types
3. Do you think would you like
tomato jam? Yes NoNot sure
1 2 3 4 5
Very Good Average Bad Very
Good Bad
4. What do you think of the color of
this tomato jam?
5. Do you like having the seeds in
the jam
6. What do you think about the
flavor of this jam?
7. Do you like the texture of the
jam?
8. What do you think about the jar?
9. What do you think about the
label?
10. What else do you like about this
jam?
11. Is there anything that I can do to
improve this jam?

ACTIVITY 1

Prepare a Survey Questionnaire for a new product you want to introduce in

Activity 1 in Lesson.
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SOURCES OF NEW PRODUCT/SERVICES

1. Consumer

2. Existing Products and Services

3. Distribution Channels

4. Government (Patent Office)

5. Research and Development

Methods of Generating New Products/Services

1. Focus Group

2. Brainstorming

Rules of brainstorming:

a. No criticism of ideas or suggestion.

b. Freewheeling discussion is encouraged.

c. Quantity of ideas is desired.

d. Combinations and improvements of ideas are encouraged.

3. Problem Inventory Analysis

Generating New Product/Services for Conventional or Innovative

Businesses

1. Conventional Business Scenario

Below are the ways to start conventional business.

a. Start a business that you are familiar with.

b. Start a business due to the needs of existing business contracts.

c. Gain business inspiration from your hobby or interest.

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d. Gain inspiration from an imported item.

e. Explore the possibility of import business.

2. Innovative business scenario

Here are some ways to introduce an innovative business.

a. Gain inspiration from the needs and wants of customers.

b. Gain an inspiration from the problems and issues that bothered

you and your peers.

c. Study the usual or existing solutions and venture in the alternative

solution.

d. List down existing products and find out their other uses aside

from what was stated.

ACTIVITY 2

1. Identify the product you wanted to introduce in lesson 1. Of unit II

2. Classify whether the product is a conventional or an innovative business.

Survey of Market Size and Values

A different set of questions is needed when assessing the size of

the market for a particular type of product and the value of the market (the

amount of the money spent on that product each month or year).

At the same time it is possible to gather information about the

types of people who buy a particular food and where they buy it.
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The information gathered from potential consumers can be

analyzed by the entrepreneur to get a good idea of the quality characteristics

of the product that consumers prefer, the total demand for the product and

the total value of the market.

This involves making a number of assumptions and it is

important to consider the following:

1) Are the people interviewed really representative of all potential

consumers?

2) Was the number of people interviewed enough?

3) Were people giving accurate information?

Sample questionnaire about market size and value

Question Answer
About the market size:
1. How often do you buy this Daily Weekly
product? Monthly
2. Do you buy different amounts at Yes No
different times of the year?
3. When are the times that you buy
the most?
4. How much do you buy each time?
5. When are the times you buy the
least?
6. How much do you time each time?
7. What is the amount of food in the
pack?
About the market value:
8. How much do you pay for of the
food?
9. What is the price difference for
larger or smaller packs?
10. Does the price change at different
times of the year?
11. When is the price highest?
12. When is the price lowest?
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About the customer:

13. Would you say that you have low, medium or high income in Low
Medium high
Your household?
14. To which age group do you belong? (check one only)

1-20

21-40

41-60

Male/Female M F

About sales outlets:

15. Where do you usually buy this food: (check one only)

Food Store

Local Shop

Kiosk

Supermarket

Others Write answer

ACTIVITY 3

Prepare a survey questionnaire for the product you want to

introduce in unit II, Lesson1.

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MARKET SHARE AND COMPETITION

Market survey and the calculation of market size and value are

important to find out whether the demand for a product really exists.

It is therefore important from the outset, to estimate the

proportion of the total market that a new business could reasonably

expect to have. This referred as the market share.

In many cases, new entrepreneurs over-estimate the share that

they could expect, with the result that production operates at only a small

proportion of the planned capacity.

These figures should not be assumed to represent the scale of

production that could be expected. Even if no one else is currently making

a product locally, t is likely that once a new business starts production

and is seen by others to be successful, thy too will start up in competition.

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Example – Estimates of market for a new food business with

different levels of competition.

No. of other Many Few One None

producers

Size of Large Small Large Small Large Small

competitors

Product S D S D S D S D S D S D

range

Market share 0- 0-5 5- 10 0- 5- 10- 20- 0- 10- 30- 40- 100

% 2.5 1 - 2.5 10 15 30 15 15 50 80

0 15

S= similar products, D= dissimilar products

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ACTIVITY 4

Prepare an estimate of market share for the product you want to

introduce in Unit II, Lesson 1 using the template below.

No. of other Many Few One None

producers

Size of Large Small Large Small Large Small

competitors

Product S D S D S D S D S D S D

range

Market share

Competitors

are very important to the success or failure of a new

business. The entrepreneur should recognize that there are

different types of competitors.

 General competitors

 Type competitors

 Brand competitors
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They also complete with the profit margin and level of service that

they offer to retailers and with special offers or incentives to customers.

Example of SWOT Analysis of a New Business in Relation to Competitors

My proposed Competitor A Competitor B

business
Strengths Production likely Good brand image Product is cheaper
to be sited close to and range of than A and sells
retailers that can products. well They offer
deliver at short good margin to
notice. retailers.
Weaknesses Difficult to find Products more Poor quality
good packaging expensive than B. product, poor label
uses synthetic design. I’m told by
colors and retailers that
preservatives. supplies are
irregular and not
always the amount
ordered.
Opportunities Retailers say Strong promotion Appears to be
demand for by A. expanding
products without deliveries to new
additives is areas according to
increasing. I can newspaper
produce without reports.
added colors
Threats There are few Cheaper products May have over-
wealthy than B expanded
consumers and distribution
price is most network and
important factor. failing network
I am not yet sure and failing to make
of production deliveries.
costs.
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ACTIVITY 5

Prepare a SWOT analysis of the product you want to introduce

in Unit I, Lesson 1 using the format below.

My proposed Competitor A Competitor B

business

Strengths

Weaknesses

Opportunities

Threats
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ACTIVITY 6

Satisfy the demands of the following. You may use the answer sheet

provided.

1. Copy firs learning outcome

2. What do you mean by determining who your customers are in terms of

a. Target market?

b. Customer requirement?

c. Market size?

3. Validate customer- related concerns through interview, focused group

discussion and survey.

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Lesson 3

MARKETING STRATEGIES

Learning Outcomes

 Describe the Marketing Mix(7Ps) in relation to the business

opportunity vis-à -vis:

0.1. Product:

0.2. Price:

0.3. Promotion:

0.4. Place:

0.5. Packaging:

0.6. Positioning:

0.7. People:

 Develop a brand name

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Introduction

 A start up or a company’s strategy combines all of its marketing goals into

one comprehensive plan.

 A good marketing strategy should be drawn from market research and focus

on the product mix in order to achieve maximum profit and sustain the

business.

 The marketing strategy is the foundation of a marketing plan.

The following questions will help in formulating the marketing strategies.

1. Who is producing products?

2. Where are the competitors located?

3. What is the quality and price of their products?

4. What can I do to make a new product that is better than those of the

competitors?

5. Why would customers or consumer want to change to a new product?

6. What offers or incentives do competitors give to retailers?

7. What are competitors likely do if a new product is introduced?

The 7 Ps in Business Opportunity

1. Product

2. Price

3. Promotion

4. Place
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5. Packaging

6. Positioning

7. People

Developing a Brand Name

 For a new business, creating and effectively marketing a new brand

name is one of the most challenging aspects of starting a business.

 For a new business, creating and effectively marketing a new brand

name is one of the most challenging aspects of getting out of the

proverbial starting blocks.

 Choose the wrong name and customers have no idea what your

business stands for or what it does.

 Choose the right name and customers immediately identify with your

value proposition. It’s an important step, so let’s review some of the

basics

The Significance of the Brand Name

Brand name will always be incredibly important even if

progressive business experts claim that the significance of brand names is fading. As

an entrepreneur, therefore it is important that you spend a considerable amount of

time and effort developing your brand name.

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How to Develop a Brand

1. Decide what is going to be brand

2. Do the research

3. Position the product or service

4. Write the brand definition

5. Develop the name, logo and tagline

6. Launch the brand

7. Manage, leverage, and protect the brand

8. Realign the brand to keep it current

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ACTIVITY 1
Let’s check for understanding
1. Product line can be described as .
a. All the products a company makes
b. All the products a company sells
c. The development of a single product over time
d. Brands that are closely related in terms of terms of their function and
benefits provided
e. The production facilities used to manufacture products
2. Why might a company introduce a fighter brand?
a. To open up high quality retail outlets
b. To complete with low price substitutes while protecting existing brand
reputations
c. To complete by cutting prices of existing brands
d. To obtain publicity and raise awareness for a new product launch
e. To reduce stock levels by selling off old stock at reduced prices

3. The strength of a brands position in the market place is built on six elements:
Brand domain, brand heritage, brand assets, brand personality, brand
reflection and .
a. Brand ownership
b. Brand packaging
c. Brand price
d. Brand values
e. Brand advertising
4. Global branding can be achieved in three ways; geographic extension of
existing brands, brand alliance through joint ventures and .
a. Brand repositioning
b. Brand promotion
c. Market penetration
d. Brand acquisition
e. Brand values
5. A good brand name should .
a. Appeal to young people
b. Sound like an animal or natural phenomena
c. Relate to the latest technology
d. Include the company’s name
e. Be distinctive and easy to remember
6. What is important when considering the notion of brand value?
Understanding the difference between lengths and .
a. Features
b. Quality
c. Depth
d. Variants
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7. For what is a family brand name used?

a. Individual products
b. Products aimed at young patents
c. All products
d. Products produced by traditional companies that are identified by the
founders family name
8. What is brand equity is:
a. Profit remaining after deducting production costs
b. Brands which do not harm the environment
c. Good value products
d. Financial value of a brand based on associated good will
e. Fair trading
9. Which one of the following is NOT a reason for a company to decide to re-
brand a product or service?
a. Merger or acquisition
b. Market awareness
c. Brand family
d. Corporate strategy changes
e. Legal problems

Activity 2

1. What are the 7Ps in marketing mix? Describe each.

2. Develop a brand name for the product you want to criticize in lesson 2?
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Lesson 4

The 4Ms of Operations

Learning outcomes

 Describe the 4Ms (Manpower, Method, Machine,

Materials) of operations in relation to the business

opportunity

 Develop the business model

 Forecast the revenues of the business

 Forecast the costs to be incurred

 Compute for profits

 Create the company’s five-year projected financial

statement
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INTRODUCTION

If Sales is the engine that powers Auto Salvage yards then

Production is the drive train that gets us where we are going. Production is both

reactive and proactive almost simultaneously. It reacts to what is sold today and

must meet the expectation set by sales team.

Production Driven by Sales

4 Ms of Production

1. Method

2. Manpower

3. Machine

4. Material

Measuring Production

Once the new processes are formalized and employees are trained

on how to perform, you can begin to measure for expected performance and begin

enforcing minimums. Do get also production standards and implementation

procedures. Once these standards are known, the manager is responsible in figuring

out how to motivate (by means of money/recognition) and train the employees to

reach these new standards.

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Production or Technical Feasibility

These series of questions below is helpful in deciding the

technical requirements of the business:

1. Are enough raw materials of the correct quality available when

needed for year-round production?

2. Is the cost of the raw materials satisfactory?

3. Are the correct size and type of equipment available for the expected

production level and is it at a reasonable cost?

4. Can it be made by local workshops? Are maintenance and repair cost

affordable?

5. Are sufficient information and expertise available to ensure that the

food is consistently made at the required quality?

6. Are suitable packaging materials available and affordable?

7. Are distribution procedures to retailers or other sellers established?

8. Is a suitable building available? What modifications are needed?

9. Are services (fuel, water, electricity, etc.) available and affordable?

10. Are trained workers available are their salaries affordable?

Contents of Production or Technical Feasibility

1. Production Planning

2. Raw Materials and Ingredients

3. Equipment required

4. Packaging
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5. Staffing Levels

Developing a Business Model

7 Steps Recommended in Establishing the Right Business Model

1. Size the value of the solution in the target segment

2. Confirm that the product or service solves the problem.

3. Test the channel and support strategy.

4. Talk to industry experts and investors.

5. Plan and execute a pilot or local rollout.

6. Focus on collecting customer references.

7. Target national trade shows and industry association groups.

Forecasting the Revenues of the Business and the Costs to be incurred

1. Start Up Costs

Start –up capital – amount of money that is needed

to buy the facilities and equipment, to register and license the

business and get the necessary certificates

Working capital- cost of raw materials, packaging,

staff training, product promotion etc. that have to be made before

the business begins to generate income from sales of the product.

The start -up capital and initial working capital are

calculated to determine whether the entrepreneur’s savings

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(known as the owner’s equity) will be sufficient to start the

business without a loan.

The requirement for working capital also continues as the

business develops and a ‘Cash flow’ should be prepared. Requirement for working

capital will differ among types of business. This is because of the seasonal nature of

the raw materials needed and other ingredients.

Example of Start- up costs for burger production

Start –up cost Php

Renovation of space for the store 10, 000

Equipment 13,500

Registration of business 2,500

Business Licence 2,500

Hygiene inspection and certificate 2,500

Raw materials and ingredients for 4 weeks production 9,275

Packaging(minimum order) 2,000

Staff training (equivalent to income from 2 weeks’ production value 15, 000

Initial production promotion 2,500

Staff salaries for 6 weeks 36, 000

TOTAL 95,775
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ACTIVITY 1

List down the start-up costs of the product you want to

introduce per Unit, Lesson 2.

2. Operating Costs

 Operating (or production) costs

 Variable costs

3. Income and profit

Income is calculated as:

Income = Selling price per unit x number of unit sold

Gross Profit (or gross loss) is the difference between the expected

income and the total operating costs over the first year, including

any loan repayments.

Financial Planning

If the gross profit indicates that the proposed business is

likely to be successful, it is then necessary to repeat the calculation of

monthly gross profit for one to five years.

This will then show whether there is sufficient cash

available to operate the business without the need for further loans.
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Example of cash flow forecast for Burger

Month J F M A M J J A S O N D Total

Income 50 60 90 120 150 19 21 22 25 27 27 29 2,17

(P’000) 0 0 0 0 0 0 0 0

Expenses 60 80 95 125 140 15 15 18 18 18 18 18 1,67

(‘P000) 0 0 0 0 0 0 0 0

Cumulativ (10 (30 (35 (40 (30 10 70 14 21 30 39 50 500

e ) ) ) ) ) 0 0 0 0 0
Profit/loss
(P’000)
Activity 2

Prepare a cash flow forecast of the product you want to introduce in unit II

Lesson 2 using the template below.

Template for Cash Flow Forecast for

Month J F M A M J J A S O N D Total

Income (P’000)

Expenses (‘P000)

Cumulative
Profit/loss
(P’000)
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Activity 3

As an employee at Professional Business Associates’ Financial

Services Department, you are asked to complete a financial projection for A-1
Lumber Company. Accomplished this form

Actual Projected
2017 2018 2019 2020 2021 2022
Income
Sales 450, 398
Interest 1,200

Gross Income

Cost of Goods 213, 074

Sold

EXPENSES
Labor 98,730
Electricity 9,105
Telephone 3,590
Postage 2,378
Insurance 14,400
Advertising 46,390
Office Supplies 14,903
Transportatio 34,071
n
Total
Expenses
Net
Profit(Loss)
% of Gross
Income
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Here are assumptions to consider:

Income

 The company is projecting sales to increase at 8% each year

 Interest income will remain at P1, 200 every year.

 Use the sum function to calculate Gross Income for YEARS 2017 through

2022.

 Cost of goods sold in 2018 will be 52% of sales.

 Cost of goods sold in 2019 through 2022 will be 45% of sales.

Expenses:

 Labor in 2018 will increase 5% from 2017.

 Labor will increase 2% per year in year 2019-2022.

 Electricity, advertising and transportation will increase 10% per year in year

in years 2018-2022.

 Telephone, postage, and office supplies will increase 5% per years 2018-

2022

 Insurance will increase 15% per year in years 2018-2022

 Use the sum function to calculate Total Expenses for years 2017 through

2022.

 Calculate Net Profit/Loss for years 2017 through 2022 (Gross Income- Cost of

Goods Sold – Total Expenses). Be sure to format any loss to show in

parentheses.

 Calculate % of Gross Income. Be sure to format as percent.

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Activity 4

1. Copy learning outcome no. 2, on Lesson 4.

2. What is meant by a business model? How do you develop it?

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UNIT III

BUSINESS

PLAN

IMPLEMENTATION
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LESSON 1

Starting and Operating a Simple Business

Learning outcomes

 Implement the business plan

 Operate the business

 Sell the product/service to potential customer

 Identify the reason for keeping business records

 Perform key bookkeeping tasks

 Interpret financial statement (balance sheet, income statement,

cash flow projections, and summary of sales and cash receipts)

 Prepare an income statement and a balance sheet

 Identify where there is a profit or loss for a business

 Generate an overall report on the activity

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Introduction

Even the most well-through-out business plan is just a piece of paper if it

isn’t doesn’t have plan for implementation .This is the portion of the business plan

where objectives are clarified, tasks are assigned with deadlines , and program is

charted to reach goals and milestones.

Guidelines for Successful Business Plan Implementation

1. Objectives

The objectives should be crystal clear and specifically

spelled out, since it will be used as a building block for the rest of the

implementation plan.

2. Tasks

This part details what must be accomplished to achieve the

objectives. Include a task manager for each step, so that roles are clearly

defined and there is accountability; enumerate tasks and assignments, with

description specifically plainly and generally stated: without getting into a

step-by-step, micromanaged explanation of how the tasks will be carried out.

3. Time Allocation

Each task should be paired with an appropriate time

frame for completion.

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4. Progress

The overall management team leader needs to be in

charge of monitoring each task’s progress and the completion percentage of

each objective.

Operating a Business

Business Registration Requirements

The following are the basic requirements to start

commencing a business in the Philippines:

1) SEC registration – for partnership or corporation

2) DTI registration – for registering your business trade name (BTR)

3) Mayor’s business permit- for getting the license to operate in the

city or municipality and payment of your local business taxes.

4) BIR registration- for getting TIN, official receipts and invoices,

registering your books of accounts, and paying your national internal

revenue taxes (Income tax, VAT or Percentage Tax, Withholding

Taxes, etc.,).

5) SSS, PhilHealth, and Pag-ibig Fund registration- for registering

yourself or company as an employer and for remitting your

employees’ contribution together with your employer’s share.

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Special Requirements

Aside from the basic requirements, there are also special

licenses or registrations that must be obtained by a business to start its operation.

For example, banks, financing company, lending company, pawnshops, money

chargers, money remittance business, and other financing institutions are required

to be registered with the Bangko Sentral ng Pilipinas (BSP). If you are

manufacturing and selling products related to food and drugs, you also have to

register with Bureau of Food and Drugs (BFAD). For schools and entities involved

in providing education, they should register with the Commission on Higher

Education and Department of Education.

Other Steps to Follow Before Operating a Business

1. Set up an accounting system or hire an accountant

2. Advertise the business.

3. Secure insurance for the business.

Selling the Product

Method 1- Showing Enthusiasms for the Product

1. Study the Product

2. Emphasize the perks of the product to customers

2.1. Will the product make the customer’s life easier?

2.2. Will the product create a sense of luxury?

2.3. Is the product something that can be enjoyed by many people?

2.4. Is the product something that can be used for a long time?

3. Ensure that the product has been adequately explained.

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Method 2- Connecting with the Buyer

1. Share your love of the product

2. Anticipate the customers’ motivations

3. Practice breaking the ice with customers

4. Convert the customer’s motivations into the product’s characteristics

5. Be honest about the product

6. Close the sale

7. Give customer time to consider

Method 3- Selling Product as an Owner Sales person

1. Familiarize yourself with all aspects of the product

2. Market the product

3. Review the sales performance

4. Trouble sales, if necessary

Keeping Business Records

Records – are the source documents, both physical and

electronic, that specify transaction dates and amounts, legal agreements, and private

customer and business details.

Developing a system to log, store and dispose of records can

benefit the business a systematic record allowing you to:

 Plan and work more efficiently,

 Meet legal and tax requirements,

 Measure profit and performance ,

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 Generate meaningful reports,

 Protect your rights, and,

 Manage potential risks

Best Practice and Record Keeping

Depending on the industry, keeping the following records may be

a legal requirement, but it is best practice to keep them for 5-7 years:

1. Employees accreditation certificates and licenses

2. Employees resumes and job applications

3. Performance reviews

4. Position statements and job advertisement

5. Customer records

6. Customer complaints

7. Details of any disputes with other businesses

8. Quotes given and won

9. Details of advertising

10. Insurance policies

Key Bookkeeping Tasks

Daily Tasks

1. Review Available Cash

2. Monitor Incoming and Outgoing Payments

Weekly Tasks

1) Record and reconcile transactions

2) File and upload receipts

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3) Enter unpaid bills from vendors

4) Pay vendors

5) Prepare and send invoices

6) Review projected

Preparation of the Financial Statement

Financial statements – determine the business’ financial position at

specific point in time and over a period of time. Information from the accounting

journal and the general ledger is used in the preparation of your business’s financial

statements: the income statement, the statement of retained earnings, the balance

sheet, and the statement of cash flows.

Income Statement

 Also called profit and loss statement, is most uniquely important

because it shows the overall probability of your company for the

time period in question.

 Information on sales revenue and expenses from both the

accounting journal and the general ledger are used to prepare

income statement.

 It shows revenue from primary income sources, such as sales of

the company’s products.

 Shows any revenue during the time period in question from

assets, such as gains on sales of equipment or interest income.

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 Shows the business expenses for the time period, including

primary expenses, expenses from secondary activities and, finally,

losses from any activity, including current depreciation.

 The bottom line of income statement is net income or profit. Net

income is either retained by the firm for growth or paid out as

dividends to the firm’s owners and investors, depending on the

company’s dividend policy.

Statement of Retained Earnings

 Shows the distribution of profits that are retained by the company

and which are contributed as dividends.

 Second financial statement to be prepared in the accounting cycle.

 Net profit or loss must be calculated before the statement of

retained earnings can be prepared.

 After computing the profit or loss figure from the income

statement, you can see what the total retained earnings to date are

and how much will be paid out to the investors dividends, if any.

Statement of Financial Position (Balance Sheet)

 Illustrates the firm financial position at a given point in time .

 The last day of the accounting cycle.

 Showing what the business owns (assets) and what the business

owes (liabilities and equity).

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Statement of Cash Flows

 This statement compares two time periods of financial data and

shows how cash has changed in the revenue, expense, asset,

liability and equity accounts during these time periods.

 Shows the firm’s financial position on a cash basis rather than an

accrual basis.

 Cash Basis- record of revenue actually received, from the

firm’s customers in most cases.

 Accrual Basis – shows and records the revenue when it

was earned.

Interpretation of Financial Statements

 Involves the use of comparisons to prior years, forecast and

competitors.

 Users can compare sales and expense figure, asset and liability

balances and cash flows to perform this analysis.

 Ratio analysis is widely used to support this process of comparison.

 Ratios are calculated using the figure already present in the

financial statement.

 Ratios are simply tool to try and assist understanding and

comparison.

 Raw data is equally useful when performing analysis

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Users of Financial Statement

1. Shareholders and Potential investors-

2. Suppliers and lenders

3. Management

Other potential users include:

1. Financial institution,

2. Employees

3. Professional advisors to investors, and

4. Financial journals and commentators

Ratio Analysis

 Financial Ratios- are mathematical comparison of financial

statement accounts or categories.

 Financial Ratios- are the most common widespread tools used to

analyze a business’ financial standing.

 Ratios – allows us to compare companies across industries, big and

small to identify their strength and weaknesses.

-Simple calculations based upon interactions in sets of data

 Financial Ratios

 Liquidity

 Solvency

 Efficiency

 Profitability
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 Market prospect

 Investment leverage

 Coverage

Ratios are of limited use on their own, thus, the following points should serve

as a useful checklist if there is a need to analyze data and comment on it:

1. What does the ratio literally mean?

2. What does a change in the ratio mean?

3. What is the norm?

4. What are the limitations of the ratio?

Focus of Analysis

Three key areas

1. Profitability

2. Liquidity

3. Efficiency

Profit Margin Ratio

Here are some of the key ratios that investors and creditors consider when

judging how profitable a company is:

The profit margin ratio, also called the return on sales ratio or gross profit, is

a profitability ratio that measures the amount of net income earned with each peso

of sales generated by comparing the net income net sales of a company. In other

words, the profit margin ratio shows what percentage are left over after all

expenses are paid by the business.

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Creditors and investors use this ratio to measure how effectively a company

can convert sales into net income. Investors want to make sure profits are high

enough to distribute dividends while creditors want to make sure the company has

enough profits to pay back its loans. In other words, outside users want to make

sure the company is running efficiently. An extremely low profit margin formula

would indicate expenses are too high and the management needs to budget and cut

expenses.

The return on sales ratio is often used b internal management to set

performance goals for the future.

Formula

Profit Margin Ratio= Net Income

Net Sales

Analysis

 The profit margin ratio directly measure what percentage of sales is made up

of net income. In other words, it measures how much profit is produced at a

certain level of sales.

 This ratio also indirectly measures how well a company manages its

expenses relative to its net sales.

 Liquidity ratios analyze the ability of a company to pay off both its current

liabilities as they become due as well as their long-term liabilities as they

become current. In other words, these ratios show the cash levels of a
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company and the liability to turn other assets into cash to pay off liabilities

and other current obligations.

 Liquidity is not only a measure of how much cash a business has. It also

measure of how easy it will be for the company to raise enough cash or

convert assets into cash.

Here are the most common liquidity ratios:

 Current Ratio- is liquidity and efficiency ratio that measures a

firm’s ability to pay off its short-term liabilities with its current

assets.

Formula

Current Assets
Current ratio=
Current Liabilities

Analysis

 The current ratio helps investors and creditors understand the liquidity of a

company and how easily will be able to pay off its current liabilities.

 This ratio expresses a firm’s current debt in terms of current assets.

 So a current ratio of 4 would mean that the company has 4 times more

current assets than current liabilities

 A higher current ratio is always more favorable than a lower current ratio

because it shows that the company can make current debt payments more

easily.
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If a company has to sell fixed assets to pay for its current liabilities, this

usually means that the company isn’t making enough from operations to support

activities

In other words, the company is losing money. Sometimes this is the resukt of

poor collections of accounts receivable.

The current ratio also sheds light on the overall debt burden of the company.

If a company is weighted down with a current debt, its cash flow will suffer.

Example
Charlie’s Skate Shop sells ice-skating equipment to local hockey teams. Charlie is
applying for loans to help fund his dream of building an indoor skate rink. Charlie’s
bank asks for his balance sheet so they can analysis his current debt levels.
According to Charlie’s balance sheet he reported P10,000 of current liabilities and
only P25,000 of current assets. Charlie’s current ratio would be calculated like this:
Current Ratio

P25,000.00
=.25
P10,000.00

Charlie has barely enough current assets to pay off 25 percent of his current

liabilities. This shows that Charlie is highly leveraged and highly risky. Banks would

prefer a current ratio of at least 1 or 2, so that all current liabilities would be

covered by the current assets. Since Charlie’s ratio is low, it is unlikely that he will

get approved for his loan.

Efficiency ratios also called activity ratios measure how well companies

utilize their assets to generate income.

Efficiency ratios go hand with profitability ratios.

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Accounts Receivable Turnover Ratio

 Is an efficiency ratio or activity ratio that measures how many times a

business can turn its accounts receivable into cash during a period.

 In other words, the account receivable turnover ratio measures how many

times a business can collect its average accounts receivable during the year.

A turn refers to each time a company collects its average receivables. If a

company had P20, 000 of average receivables during the year and collected

P40,000 of receivables during the year, the company would have turned its accounts

receivable twice because it collected twice the amount of average receivables.

This ratio shows how efficient a company is at collecting its credit sales from

customers in 90 days while others take up to 6 months to collect from customers.

In some ways the receivables turnover ratio can be viewed as liquidity ratio

as well. Companies are liquid the faster they can convert their receivables into cash.

Formula

Net Credit Sales

Accounts Receivable = Average Accounts Receivable

Analysis

 Since the receivables turnover ratio measures a business’ ability to efficiently

collect its receivables , it only make sense that a higher ratio would be more

favorable.
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 Higher ratios mean that companies are collecting their receivables more

frequently throughout the year.

 A ratio of 2 would mean that the company collected its average receivables

twice during the year. In other words, this company is collecting money from

customer every six months.

Higher efficiency is favorable from a cash flow standpoint as well. If a

company can collect cash from customers sooner, it will be able to use that cash to

pay bills and other obligation sooner.

Accounts receivable turnover is also an indication of the quality of credit

sales and receivables. A company with a higher ratio shows that credit sales are

more likely to be collected than a company with a lower ratio. Since accounts

receivable are often posted as collateral for loans, quality of receivables is

important.

Example
Boy’s bicycle Shop is a retail store that sells bicycle parts. Boy offers accounts to all
of the store main customers. At the end of the year, Boy’s balance sheet shows
P20,000 in accounts receivables, P75,000 of gross credit sales, and P25,000 of
returns. Last year’s balance sheet showed P10,000 of accounts receivable.

The first thing we need to do in order to calculate Bill’s turnover is to calculate net
credit sales and average accounts receivable. Net credit sales equals gross credit
minus returns (75,000-25,000=50,000). Average accounts receivable can be
calculated by averaging beginning and ending accounts receivables balances
((10,000+20,000)/2=15,000).

Finally, Boys accounts receivable turnover ratio for the year can be like this.
Account Receivable Turnover Ratio
P50,000.000
= 3.33
P15,000.00
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Boy’s turnover is 3.33. this means that Boy collects the receivables about 3.3

times a year or once every 110 days. In other words, when Boy makes a credit sales,

it will take 110 days to collect the cash from the sale.
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Activity 2

Compute the missing information in the given Financial Statements

using the accounting equation

Corpuz’s Delivery Service

Income Statement

For the Month of June,2017

Revenues

Delivery Fees P95,000.00

Interest Income ?

Total Revenues P96,545.00

Expenses

Salaries Expense P35, 500.00

Utilities Expense 6,800.00

Rent Expense 1 0,000.00

Supplies Expense ?

Insurance Expense 5,000.00

Depreciation Expense-Del. Equipt . 4,000.00

Depreciation Expense –Office Equipt . 2,500.00 70,900.00

Net Income (Net Loss) P

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Corpuz’s Delivery Service

Statement of Changes in Equity

For the Month of June, 2017

Corpus, owner’s Equity, June 1, 2017 P 50, 000.00

Add: Additional Investment P2, 000.00

Net Income

Total P 76, 645.00

Less Withdrawal

Corpus, Owner’s Equity June 30, 2017 P 66, 645.00

Corpuz’s Delivery Service

Statement of Financial Position (Balance Sheet)

As of June 30, 2017

Assets

Current Assets

Cash P 22, 200.00

Account Receivable

Supplies 15,000.00

Prepaid Rent 10, 000.00

Prepaid Insurance 5, 000.00

Total Current Assets P69, 500.00

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Non Current Assets

Property, Plant & Equipt.

Delivery Equipt. P 420, 000.00

Acc. Depreciation P 416, 000.00

Office Equipment P 60,000.00

Acc. Depreciation 2,500.00

Total Property, Plant& Equipment P 473, 500.00

Total Assets P

Liabilities & Equity

Current Liabilities

Notes Payable P 330,000.00

Accounts Payable

Salaries Payable 15, 000.00

Utilities Payable 6,355.00

Interest Payable 12, 500.00

Total Liabilities P

Owner’s Equity

Corpuz Capital, June 30, 2017

Total Liabilities & Equity P543, 000.00

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Corpuz Delivery Service

Statement of Cash Flows
For the Month of June, 2017

Cash Flows from operating Activity

Cash received from clients P60, 400.00

Cash payments to suppliers (10,000.00)

Cash payment to employees (13,800.00)

Cash payment for office rent ?

Cash payment for insurance (14, 000.00)

Cash payment for utilities (3,000.00)

Net cash provided by( used in) operating activities P?

Cash Flows from investing activities

Payments to acquire delivery equipment P?

Payments to acquire office equipment (15,000.00)

Net cash provided by(used in) investing activities (435,000.00)

Cash flow from Financing Activities

Cash received as investments by owner P250, 000.00

Cash received from borrowing?

Payments for withdrawals of owner (14,000.00)

Net cash provided by (used in) financing activities (446,000.00)

Net increase (decrease in cash) P?

Cash balance at the beginning of the period 0.00

Cash balance at the end of the period P22,200.00

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Activity 3

Interpret the Financial Statement of Corpuz’s Service Delivery as to the

following ratios:

1. Profitability

2. Liquidity, and

3. Efficiency

Activity 4

The following financial statement information is from five separate

proprietorships. Compute the missing information using the accounting

equation.

Company Company Company Company Company

A B C D E

December 31,2004

Assets P 66,000 P28,500 P 89,000 P70,000 ?

Liabilities 32,000 22500 35,000 P 20,000

December 31, 2005

Assets ? 30,000 91,000 66,000 60,000

Liabilities 28,000 23,000 ? 41,000 15,000

During year 2005

Owner investment 2,000 3,000 -0 -3,000 5,000

Net income (loss) 15,000 ? (7,000) ? 20,000

Owner withdrawals 8,000 5,500 3,000 2,000 10,000

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Activity 5

1. Which guidelines should you have in mind in order to implement your

business plan successfully?

a. Before starting a business

b. During business operation

2. Why do you have to keep business records? Explain .

3. What keep bookkeeping task are you supposed to perform and why?

4. Explain each of the following in a sentence:

a. Balance sheet

b. Income statement

c. Cash flow projection

d. Summary of sales

e. Cash receipt