Introduction to business implementation
- 2. After much seeking and screening of entrepreneurial opportunities, the critical decision to seize one particular opportunity culminates in the establishment of an enterprise.
- 3. Presumably, all the market research has been done and the desired customer segment has been targeted. Likewise, the final location has been chosen and the new product has been designed and developed. These have all been part of the rigorous steps taken in preparing for entrepreneurship. Now is the time to set up the enterprise, plan its future, and mobilize the needed resources.
- 4. A Very Clear Purpose
- 5. The entrepreneur must be very clear about the purpose in establishing the enterprise. Whether it is for generating profits or feeding the family, making a difference in the industry or actualizing the self, the purpose must be compelling enough to motivate the entrepreneur.
- 6. The personal purpose of the entrepreneur is his or her personal mission. However, it may also well be the enterprise mission statement. As time passes, the enterprise begins to have its own life and may have a purpose separate from the personal mission of the entrepreneur.
- 7. The enterprise must state its mission statement clearly for: • the sake of the customers being wooed; • the investors who need to know what they are getting into; • the financiers evaluating the enterprise; and the government functionaries who must regulate the activities of industries and businesses.
- 8. A Very Compelling Vision
- 9. The entrepreneur must establish an enterprise on the basis of a very exciting business concept leading to a grand vision. If the business is just like any other business in the marketplace, customers will not take notice.
- 10. The entrepreneur must offer something new, something appealing, something different that says, "Take notice, I'm arriving with a bang!" In other words, the entrepreneur must present a winning business concept that manifests tremendous future possibilities.
- 11. Not by Any Other Name
- 12. Next, the entrepreneur must choose a very fitting name for the enterprise. A good name identifies the company very well. It communicates what the company is all about and what its products are all about. The entrepreneur must think long and hard about the name because he or she has to live with it for a very long time. Thus, the company name must project its very desired image.
- 13. A Company of Angels
- 14. In livelihood undertakings or microenterprises, it is common for entrepreneurs to embark on a business venture as a "lone wolf," not needing the capital or expertise of others. At best, it may be a "mom and pop" affair.
- 15. For small, medium, and large enterprises, the entrepreneur needs the capital and the expertise, or both of others. The choice of business partners here is a very critical one.
- 16. A mistake would mean years of internal squabbling. Thus, the entrepreneur must choose the "company of angels," partners who are well-meaning and like-minded. Angel investors provide capital to entrepreneurs knowing that there are risks involved.
- 17. However, they are prepared to support the entrepreneur because of the good business prospects they are seeing and their favorable character assessment of the entrepreneur. Angels also exert a lot of effort in choosing the correct partners. Angel investors may come in the form of senior relatives, close friends, and
- 18. Angel industrial partners are people who can contribute their expertise, experience, technology, contacts, and good character that will enable the enterprise to succeed. In exchange for what they bring to the deal, they may demand shares of stock or a percentage slice of the profit. For businesses that would rely heavily on industrial partners, the entrepreneur is well advised to make the best choice of such angel partners.
- 19. A Very Good Business Plan
- 20. The next step for the entrepreneur is to have a very good business plan. It is a wise thing to do in order to chart the course of the business properly and to focus the efforts of the entrepreneur.
- 21. The purposes of a business plan are: 1. Entice partners, investors, and bankers to fund a business venture. 2. Communicate what the enterprise is all about, what market it wants to serve. 3. Show what financial returns it could muster.
- 22. The business plan should contain important information about the following: • the business itself; • the organizers; • the management and technical people; • the financial structure; • its market potential; • its target market; • its projected sales, expenses, and profits; and • its probable risks.
- 23. The business plan should begin with the business concept and the vision for the enterprise in the next three to five years.
- 24. It should then declare the business purpose or the mission statement of the enterprise. This could be accompanied by a statement of values or business philosophy. The business plan should proceed to an enumeration of business objectives, key result areas, and performance indicators. An overall enterprise strategy should then be articulated to show how the performance indicators could be attained.
- 25. Next, the business plan should contain an executive summary of the following:
- 26. 1. the organizers and the key people behind the business and why these people have the resources, talents, skills, and technology to achieve success;
- 27. 2. the market being targeted and why there is enough market potential to justify the business;
- 28. 3. the products or services to be offered and why they are right for the market;
- 29. 4. how the business will be operated and organized, including all outsourcing, subcontracting, franchising, and licensing agreements;
- 30. 5. the investment capital required for the business and what exactly it would be used for;
- 31. 6. the technology, the technical expertise, the equipment, and materials suppliers to be utilized;
- 32. 7. the capital structure (short and long term debt, stockholders' equity) of the business;
- 33. 8. the operating budget, financial projections (income statement, balance sheet, cash flow), and return on investment prospects; and
- 34. 9. the risks in the business and the contingency measures to counteract them.
- 35. The business plan should then elaborate the contents of the executive summary. Each content must be justified convincingly by analyzing relevant information and making logical conclusions.
- 36. Also, for each of the major functional disciplines, such as marketing, operations, finance, human resources, and general administration, there should be a functional strategy that would show how the desired results could be obtained.
- 37. The concluding portion of the business plan should highlight the key messages for the intended readers of the plan.
- 38. For the investors, they should be given "fearless forecasts" on expected profits, dividends, and market values. The rights and obligations of investors must be spelled out For the financial institutions and other financiers, the financial statements must be synthesized in order to capture both the upside and downside prospects. Due diligence must be evident in the analyses and conclusions made.
- 39. For the government readers, the business plan should provide compliance statements with all laws and regulatory provisions.
- 40. Organizing and Structuring the Enterprise
- 41. The Business Plan must be able to estimate the capital required by the enterprise The capital required would be dictated by the investment in the assets of the enterprise
- 42. These assets are composed of the following: 1. The current assets, which are short-lived assets. They are composed of cash inventory, accounts receivables, and other current assets. 2. The long-lived or fixed assets. They are composed of property, plant, an equipment. 3. The other assets. They are composed of organizational and pre- operating expenses.
- 43. The assets of the enterprise are financed by its liabilities. These liabilities are composed of: (1) current liabilities such as suppliers' credit and other short-term credit; (2) long term debt; and (3) owner's equity.
- 44. The way the financial package is designed is called the capital structure of the enterprise. The simplest and easiest enterprise to organize is the sole proprietorship. In this structure, the owner or entrepreneur has sole control over the enterprise. He or she reaps all the profits and, also, all the losses. But he or she will also incur all the risks.
- 45. In sole proprietorship, there is no distinction between the owner and the enterprise. In sole proprietorship, the entrepreneur is personally answerable and obligated to fulfill all the terms and conditions of any business contract that he or she enters into. The sole proprietorship is mandated by law to register the business with the proper authorities. All businesses, in whatever legal form, are required to secure a mayor's permit or municipal license before they can operate in a locality.
- 46. Before getting this permit, there are clearances that must be obtained. These are the following: • Barangay clearance • Fire safety clearance • Certificate of electrical inspection • Certificate of occupancy • Department of Trade and Industry (DTI) certificate • Lease contract if space is leased • Locational clearance
- 47. There may be additional requirements depending on the type of business and the ordinances issued by the concerned local government. It is likewise the responsibility of any enterprise to register its business with the Bureau of Internal Revenue (BIR) for taxation purposes.
- 48. The official receipts of the enterprise must also be registered with the BIR. For a sole proprietorship, the tax identification number (TIN) of the entrepreneur serves as the enterprise TIN. If two or more persons bind themselves into a contract to contribute money, property, and expertise in a common venture with the intention of dividing the profits among themselves, then they would have entered into a partnership.
- 49. A partnership is vested with its own legal personality quite distinct and separate from its individual members. Thus, a partnership venture can own its own assets. It can incur its own liabilities. It can sue and it can get sued.
- 50. A minimum of two persons can constitute a partnership. However, there is no limit to the number of persons in a partnership.
- 51. There are two types of partnerships based on the liability of the partners: general partnership and limited partnership.
- 52. A general partnership is composed of partners who are liable individually and collectively to all those who have claims against them. Claimants can run after all the personal assets of all the partners.
- 53. A limited partnership consists of partners who have limited liabilities while others in the partnership have unlimited liabilities.
- 54. A limited partner is not personally liable for all the obligations of the partnership beyond his or her prorated capital contribution to the partnership.
- 55. The law requires that there must be at least one general partner in a limited partnership to assume the unlimited liabilities.
- 56. The limited partnership must add the word 'Limited' to its partnership name. In a partnership, the decision of one partner is binding to all the other partners.
- 57. There should be internal mechanisms and procedures followed to ensure this.
- 58. When the partners enter into a contract, they need the consent and knowledge of the other partners. In order to form a partnership, a binding contract must be signed by all of the partners.
- 59. They should decide on a partnership name and craft their Articles of Partnership.
- 60. These Articles of Partnership must contain all the operational requirements of the partnership. The partnership should obtain all the required government clearances, permits, and licenses.
- 61. It should get: • bank certificate of deposit on the money contributions of the partners; and • the approval for its partnership name from the Department of Trade and Industry.
- 62. Having obtained these documents, it should register and file its Articles of Partnership with the Securities and Exchange Commission (SEC). Needless to say, the partnership must also register with the SSS and the BIR, as well as other government instrumentalities that may have jurisdiction over its type of business.
- 63. The third form of business organization is the corporation. Like the partnership, the corporation also has a separate legal personality quite distinct from the investors who contributed money to the enterprise.
- 64. to the number of natural or juridical persons who can invest in the corporation.
- 65. The corporate form of business allows various combinations of funds to be raised from financiers and investors. Thus, bigger businesses favor the corporate form of business. This is due to its limited liability and flexibility in financing terms obtained.
- 66. There are four types of corporations, which are as follows:
- 67. 1. Stock Corporation. The Stock Corporation issues capital stocks divided into shares (or proportions of the total capital). Based on the submission of Articles of Incorporation to the Securities and Exchange Commission, the corporation is authorized to raise capital that has a corresponding number of shares.
- 68. At least 25% of the authorized capital, as stated in the Articles of Incorporation, must be subscribed to by stockholders at the time of incorporation. Moreover, at least 25% of the subscribed capital must be paid up by the subscribers at the time of incorporation. The rest of the 75% will comprise the unpaid capital subscriptions, which then represent the receivables of the corporation from the subscribers.
- 69. 2. Non-Stock Non-Profit Corporation. The Non-Stock Corporation is organized to carry out a purpose or purposes other than generating profits for investors. The Non-Stock Corporation usually has a social mission. Hence, all the surpluses (or profit equivalents) generated by the corporation are not distributed to the funders in the form of dividends. Rather, they are plowed back into the corporation or the foundation to contribute further to the attainment of its mission. The Non-Stock Corporation is governed by its Board of Trustees who are chosen and replaced according to the provisions of the Articles of Incorporation and the accompanying By-Laws.
- 70. 3. Close Corporation. The Close Corporation has Articles of Incorporation that limit the ownership of issued stocks to at most 20 persons. There are strict restrictions on the transfer of stocks. The stocks cannot be listed in any stock exchange nor can any public offering of shares be made.
- 71. 4. Corporation Sole. A Corporation Sole is a special form of corporation allowed by law, usually associated with the clergy.
- 72. The Corporation Sole is a trusteeship that is set up for the purpose of administering and managing the affairs, property, and temporalities of a church or group of clergy. The corporation must enter its name with the DTI and register with the SEC, SSS, BIR and all the other relevant government entities. In contrast to the sole proprietorship, where taxes are based on the total income of the owner in a gradually increasing proportion of the income, the corporation pays a stipulated percentage of its income tax (35% of income before taxes in the Philippines). Of course, other types of taxes are paid by business enterprises such as the value added tax, the real estate tax, etc.
- 73. The start-up corporation established by the entrepreneur (and his or her family or friends) is quite a long way from the politics of large corporations. However, the more ambitious entrepreneur must plan way ahead for this type of politics.
- 74. The entrepreneur must make a decision. "Do I want absolute control or do I want to become a very wealthy person because of the high value of my shares in the stock market?"
- 75. Meanwhile, at the start-up stage, who will the entrepreneur invite as co-investors in the enterprise? It begins as an issue of investor compatibility and investment flexibility, but eventually, it will become an issue of control as the enterprise grows and prospers.
- 76. A Merry Band of Men and Women After establishing the enterprise, the entrepreneur must meticulously screen and hire men and women who foster the cause and share the commitment of the enterprise. Good character and competence must be the two major criteria for hiring people.