Organizing a Business By: Mrs. Belen Apostol

Organizing a Business Most common reasons for business failures: Bad or improper management practices, including poor cost controls and poor hiring practices; Poorly focused and executed marketing or inadequate marketing; Poor location; Failure to invest in new products and efficient technology; and Lack of adequate financing.

Why persons engage in Business Provision of employment to people; Profits; Service to the community Personal satisfaction Means to earn a living Achievement of power; and Protection of one’s self and family

ENTREPRENEURSHIP To engage in business, a person or group of persons has two options: To buy an existing business, or To create a business that he will operate (entrepreneur)

ENTREPRENEURSHIP Functions of an Entrepreneur: To supply the capital of the firm; To organize production by buying and combining inputs; To decide on the rate of output in the light of his expectations about demand; and To bear risk involved in these activities

ENTREPRENEURSHIP Qualities of an Entrepreneur: Over – achievers Risk takers Self confident Hard workers Goal setters Accountable innovative

BUSINESS PROSPECTING A prospective businessman should Carefully scan the environment for other possible openings. Prepare a list of alternative business opportunities and he should make his choice from the list.

BUSINESS PROSPECTING Business Opportunities: Increasing demand for basic commodities due to an increase in population; Rising prices (or costs) of existing products like construction materials; Relaxation of government policies like the lifting of import restrictions; The development of new service concept like the issuance and delivery of passports through courier service;

BUSINESS PROSPECTING Business Opportunities: 5. The development of a new product concept like the engine that runs on water; 6. The increase demand for specialized services like manpower export services, health fitness services, management consultancy, and skills training; 7. The increasing requirements of the wholesale and retail industry.

BUSINESS PROMOTION Business Promotion – discovery and exploration of a business opportunity with purpose of converting it into a going concern. Three steps in business promotion: Discovering the idea for a new business; Determining the feasibility of the idea; and Assembling the needed resources to start a business.

BUSINESS PROMOTION Discovery The identification of an idea for a new business.

BUSINESS PROMOTION Determination of Feasibility Feasibility Study – detailed investigation of a Proposed business venture to determine its viability.

BUSINESS PROMOTION A Feasibility study includes: Management study including proponents, personnel, and organization; Marketing study Production facilities and the product; Taxation and legal aspects; Financing aspects; Profitability; and Social desirability

Feasibility Study Management study includes the following: The appropriate form of organization; The internal structure of the organization; The owners; and The staffing pattern of the organization.

Feasibility Study Marketing Study provides the following: The future total demand for the product; The competitive situation of the product in the industry; An estimated annual sales volume; Future selling prices; and The marketing program

Feasibility Study Technical Study provides the following: The manufacturing process selected; if applicable; The rated capacity of the plant; The design of the machinery; The location and lay-out of the plant; The specifications of the structures; and The requirements for operation

Feasibility Study Taxation study includes the tax burden applicable to the project.

Feasibility Study Financing study includes the source of financing for the project giving particular attention to selecting the most attractive financing scheme using factors of cost and availability.

Feasibility Study Profitability. shows the rate of return using various approaches.

Feasibility Study Social Desirability (optional) provide a description of the social returns applicable to the project. It presents the benefits that will be afforded by the project to the community. e.g. reduction of prices & provision for employment

Assembling the Needed Resources The resources needed: Initial capital required Essential properties Processes personnel

Assembling the Needed Resources Initial Capital Requirements: Cost of organization; Working capital; Acquisition of fixed assets; and Reserves.

Initial Capital Requirements Cost of Organization includes the payments made for permits and licenses, incorporation taxes, business name etc. includes lawyers fees for legal requirements, architect’s fees, etc.

Initial Capital Requirements Working Capital required to finance inventories and supplies; salaries and wages, power water, rent, insurance, transportation, advertising and sales promotion.

Initial Capital Requirements Fixed Assets may be acquired through purchase or lease. - business assets acquired for continued use in the production of goods or services. - e.g. land, machinery, buildings, furniture, fixtures and equipments

Initial Capital Requirements Reserve Fund – required to take care of difficulties encountered due to insufficient income generated by the firm.

Sources of Initial Capital Owners Creditors

Retention of Control Control measures to protect the interests of the promoter and founders. Leases Options and contracts Franchises and concessions Patents and copyrights

Retention of Control LEASE – an agreement over the use of real property for a period of time. - used to obtain initial control of the land and buildings

Retention of Control OPTION – an agreement where one person grants another to buy a certain property at an agreed price, at or within a stated future. Certain sums of money are required for options which may or may not be credited as part of the purchase price.

Retention of Control CONTRACT – an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration.

Retention of Control FRANCHISE – exclusive right granted by the franchisee to the franchisor for the operation of a public utility service, or the selling or distribution of a product in a specified area.

Retention of Control CONCESSION – right granted by the government to a concessionaire for the exploitation of natural resources placed at his disposal for a sum consisting of a minimal periodic payment plus a percentage of the income from sales.

Retention of Control PATENT – the right to make, use , or sell an invention during the patent period. - can be obtained for new products, new substitute for existing products as well as new production or marketing techniques. - patent holder may license others to make use of his invention in return for payment of royalties.

Retention of Control COPYRIGHT – legal device that gives the creator of a literary, artistic, musical, or other creative work the sole right to publish and sell that work. Copyright owners have the right to control the reproduction of their work, including the right to receive payment for that reproduction. An author may grant or sell those rights to others, including publishers or recording companies..

Valuation Property and services to be acquired by the new business project should have the correct valuation. Stocks are issued as payment for the required property and services, in some cases.

BUSINESS PROMOTION Promoting a business may not succeed Due to any of the following: Overvaluation of property and services; Inadequate sampling or overestimation of the potential market; Underestimation of expense of establishing a business; Inability to raise sufficient capital

BUSINESS PROMOTION 5. Managerial and personnel difficulties; and 6. Unforeseen changes in the state of the entire economy

BUSINESS PROMOTION PROMOTER - person responsible for the formation of a company. - sees opportunity for a new business - interests other people in it; - makes the business’ blueprint; - arranges for the initial funds, labor, and skills required - sets the business going.

BUSINESS PROMOTION The promoter is motivated by any or a combination of the following: The promoter’s fee Shares of stock or bond in the new business project; A management position in the new business project; A new customer for his products or services; and The desire to contribute to the economic growth of the local community

BUSINESS PROMOTION Promoters may be classified as follows: Professional promoters – they are those whose main occupation is business promotion. Side-line promoters – they are persons who perform promotion activities occasionally; Banking promoters – they are banking institutions which provide business promotion services to their clients;

BUSINESS PROMOTION Promoters may be classified as follows: 4. Financial promoters – they consist of investment houses engaged in the promotion of certain business ventures through the sale of securities; 5. Subdivision promoters – they are those engaged in the development of new subdivisions.

LIABILITY OF PROMOTERS Temporary Trustee – a promoter cannot legally bind the firm into contracts and deeds unless approved by the owners or the board of directors. - cannot act as the agent of a corporation still to be formed, he does not have a principal to represent.

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