ORGANIZING A BUSINESS

WHY PERSONS ENGAGE IN BUSINESS

Prospective investors would want to engage in a business venture for one reason or another. They hoe to enjoy certain values, which are derived from such undertaking. These values include the following: Provisions 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.

WHY PERSONS ENGAGE IN BUSINESS

It is well-known that entrepreneurs venture into business for economic reason as a primary motive.

In the same light, some individuals think that the experience they have are much too valuable to be ignored, so they try to use it by operating a business.

Sometimes, situational conditions pave the way for persons to engage in business. Example : A person with disability who decided

to go into business because he cannot get employment anywhere.

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.

The person who chooses option two will be referred to as an entrepreneur. He owns his business but his functions are vastly different from those of another type of business owner, the stockholder of a corporation.

ENTREPRENEURSHIP

The entrepreneurs’ functions are: 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 the risk involved in these activities.

ENTREPRENEURSHIP

Studies have shown that successful entrepreneurs are likely to be over-achievers, and likely to do well if they are also reasonable risk-takers, self-confident, hard workers, goal setters, accountable, and innovative.

However, even if there are successful entrepreneurs, statistics show that there is also a big number of failures. This indicates that the task of the entrepreneur is not easy.

BUSINESS PROSPECTING

When a determined individual has finally decided to go into business, it will not be wise for him to grab the first opportunity that comes along. First, he should carefully scan the environment for other possible openings. He should prepare a list of alternative business opportunities and he should make his choice from that list.

THE SEARCH FOR BUSINESS OPPORTUNITIES

A person searching for a suitable business opportunity should learn the ways of a talent scout or a salesman looking for a prospect.

Like a talent scout, the prospective businessman should have the skill to choose an opening that will be commercial and will bring him enough revenues. Also, like a salesman, the prospective investor should have the skill to pick the right business opportunity from his list and which is of better quality than the others indicated in the same list.

THE SEARCH FOR BUSINESS OPPORTUNITIES

Business opportunities come in several forms. They could be a result of any of the following: 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;

THE SEARCH FOR BUSINESS OPPORTUNITIES

the development of a new product concept like the engine that runs on water;

the increasing demand for specialized services like manpower export services, health and fitness services, management consultancy, and skills training;

the increasing requirements of the wholesale and retail industry; and

many others.

BUSINESS PROMOTION

Business Promotion refers to discovery and exploration of a business opportunity with the purpose of converting it into a going concern.

The three steps involved in business promotion are the following: Discovering the idea for a new business; Determining the feasibility of the idea; and Assembling the needed resources to start the

business.

BUSINESS PROMOTION

Discovery The identification of an idea for a new business is

the first step in business promotion. The new business idea may spring from various

opportunities. The business promoter may also be induced to

consider certain product ideas because of the availability of materials.

BUSINESS PROMOTION

Determination of Feasibility Once a choice has been made on the business

idea to adapt, its feasibility should be determined. Oftentimes, a feasibility study is required. If the idea is found not to be feasible, it should be discarded and a new one considered for determination of feasibility.

BUSINESS PROMOTION

The feasibility study is a detailed investigation and analysis of a proposed business venture to determine its viability. According to the need, the study must contain some or all of the following aspects: Management study including proponents,

personnel, and organization; Marketing study; Production facilities and the product; Taxation and legal aspects; Financing aspects; Profitability; and Social desirability.

BUSINESS PROMOTION

Management Study. It is in this particular portion of the feasibility study where the following aspects are determined: the appropriate form of organization; the internal structure of the organization; the owners; and the staffing pattern of the organization.

BUSINESS PROMOTION

Marketing Study. This portion provide the following information: 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.

BUSINESS PROMOTION

Technical Study. In this particular aspect of feasibility study, the following requirements should be determined: 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 operations.

BUSINESS PROMOTION

Taxation Study. The tax burden applicable to the project should be shown in this portion of the feasibility study. An important factor that must be considered is that the design of the project must be such that the tax burden is legally minimized.

Financing Study. The source of financing for the project is discussed in this portion. Particular attention is given to selecting the most attractive financing scheme using factors of cost and availability.

Profitability. The rate of return using various approaches is shown in this particular aspect of the feasibility study.

BUSINESS PROMOTION

Social Desirability. This particular aspect is optional. When it is included, however, it should provide a description of the social returns applicable to the project. It should present the benefits that will be afforded by the project to the community.

ASSEMBLING THE NEEDED RESOURCES

Once the feasibility of a proposed business project is determined by experts, the proponent may proceed to assemble the needed resources.

This is made prior to the start of business operations. The resources needed may comprise of the following:

initial capital required; the essential properties; processes; and personnel.

ASSEMBLING THE NEEDED RESOURCES

Initial Capital Requirements. A new business project requires initial capital to take care of the following: cost of organizations; working capital; acquisitions of fixed assets; and reserves.

The cost of organizing a business includes payments made for business includes payments made for business permits and licenses, incorporation taxes, business name, and the like.

ASSEMBLING THE NEEDED RESOURCES

Working capital is required to finance inventories and supplies, salaries and wages, power, water, rent, insurance, transportation, advertising and sales promotion. Maturing obligations of the firm and the financing of credit sales will also require sufficient amount of working capital.

Fixed assets may be acquired through purchase or lease depending on the nature and requirements of the firm. Fixed assets refer to business assets, which are acquired for continued use in the production of goods or services. Example: land, machinery, buildings, furniture,

fixtures, and equipment.

ASSEMBLING THE NEEDED RESOURCES

A reserve fund is required to take care of difficulties encountered due to insufficient income generated by the firm. Failure to provide for this possibility may jeopardize the firm’s operation.

Sources of Initial Capital. A new business project may initially be financed by using any or a combination of various sources. The management of the firm about to start operations will have to use time and expertise to avail of credit facilities offered by suppliers and financing institutions.

ASSEMBLING THE NEEDED RESOURCES

A new firm may be financed by one or a combination of the two main sources of capital: The owners; and The creditors.

In single proprietorships and partnerships, the owner may use their savings or sell some of their properties to provide the initial capital.

Creditors consists of friends and relatives, the government, financing institutions, and suppliers.

ASSEMBLING THE NEEDED RESOURCES

Retention of Control. There is a possibility that at the promotion stage, outsiders may deprive the promoter and the founders of control over the new business idea. It is, therefore, important that certain control measures be instituted to protect the interests of the promoter and the founders.

These can be attained by using any or a combination of the following: Leases Options and contracts; Franchises and concessions; and Patents and copyrights.

ASSEMBLING THE NEEDED RESOURCES

A lease involves an agreement over the use of real property for a period of time. Leases are used to obtain initial control of the land and buildings required. A common practice is one undertaken by some banks.

An option is an agreement whereby one person grants another the right to buy a certain property at an agreed price, at or within a stated future time. Certain sums of money are required for options, which may or may not be credited as part of the purchase price.

ASSEMBLING THE NEEDED RESOURCES

The retention of required skills and properties can be achieved with the use of contracts. The fulfillment of such contracts, however, may be jeopardized by some events like the death of the person possessing the required skill, the destruction of the property stipulated in the contract, and adverse effects of legal claims to the title of the property by other parties. These risks can be partly taken care of by life insurance, accident insurance, and property insurance.

ASSEMBLING THE NEEDED RESOURCES

A franchise is an 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.

Public utility franchises are those granted by the government, like those for electricity and water services.

The other type of franchise is the business format franchise which involves the exploitation of goods and services, identified by a trademark or a trade name.

ASSEMBLING THE NEEDED RESOURCES

A concession is the 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.

A patent gives the holder the sole right to make, use, or sell his invention during the period the patent remains in force. The patent holder may license others to make use of his invention in return for payment of royalties.

ASSEMBLING THE NEEDED RESOURCES

A copyright gives the holder the monopoly on the exploitation of a literary or artistic work for a certain period subject to renewal. For instance, copyright in relation to a musical composition gives the holder the exclusive right to: Print, reprint, publish, copy, distribute, and sell a

work; Make any translation or other version or extracts or

arrangements or adaptations of work; Dramatize a work if it be a non-dramatic work, to

convert a work into a non-dramatic work if it be a drama;

Publicly perform or represent a work in any manner or by any method whatever for profit or otherwise;

ASSEMBLING THE NEEDED RESOURCES

Produce or reproduce a work in any manner or by any method whatever for profit or otherwise. If not reproduced in copies for sale, to sell manuscripts or any records whatever of a work; and

Make any other use or disposition of the work consistent with the laws of the land.

THE PROMOTER

The promoter is the person responsible for the formation of a company.

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.

ASSEMBLING THE NEEDED RESOURCES

Valuation. The correct valuation of the property and services to be required by the new business project is a very important step in the assembly of needed resources.

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 the expenses of establishing a

business; Inability to raise sufficient capital; Managerial and personnel difficulties; and Unforeseen changes in the state of the entire

economy.

THE PROMOTER

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;

financial promoters – they consist of investment houses engaged in the promotion of certain business ventures through the sale of securities; and

subdivision promoters – they are those engaged in the development of new subdivisions.

THE PROMOTER

Liability of Promoters. The promoter undertakes to pursue his job with the capacity of a temporary trustee. He cannot legally bind the firm into contracts and deeds unless approved by the owners or the board of directors.

The nature of the job of the promoter provides him with an opportunity to make excessive gains at the expense of the owners.