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Republic of the Philippines

Central Philippines State University
Kabankalan City, Negros Occidental

ENTREPRENEURSHIP
DEFINITION OF ENTREPRENEURSHIP ACCORDING TO CURRICULUM DEVELOPERS,
PHILOSOPHERS, CURRICULUM. EXPERTS, ECONOMISTS AND

ENTREPRENEURS.
Entrepreneurship in the book of Feliciano R. Fajardo entitled “Entrepreneurship” refers to
innovation. Meaning new or different ways of doing things: technology, marketing, human
relations, management etc.
Entrepreneurship according to Prof. Nathaniel Left is the capacity for innovation, investment in
which success is possible and the consequences of failure are tolerable.
To Prof. Hirsh: Entrepreneurship is a mission. It creates an environment in which success is
possible and the consequences of failure are tolerable.
To Randy Komizar in his book “The Monk and the Riddle”, Entrepreneurship refers to social
institution which is like a magnet. It pulls toward itself the best of resources and the best of
people around it.
To High Technology Entrepreneurs, Entrepreneurship is first and foremost a mindset. It is the art
of finding profitable solutions to problems. Every successful entrepreneur, every successful
businessman/person has been someone who was been able to identify a problem and come up
with a solution to it before somebody else did. (Source: Oxford University).
To Onuoha. (2007), Entrepreneurship means the practice of starting new organization or
revitalizing mature organization particularly new business generally in response to identified
opportunities.
HISTORY OF ENTREPRENEURSHIP
The Man behind the History
1. Joseph Schumpeter an economist who started to introduce entrepreneurship before 20 th
century. He believes that entrepreneurship brings “creative destruction”
2. Ludwig von Mises- is Austrian economists together with
3. Friedrich von Hayek also an Austrian economist pioneers the entrepreneurship ideas and
knowledge.
4. Frank H. Knight (1921)
5. Peter Drucker(1970)- believes that entrepreneurship means taking of risk.
Knight identified three (3) types of uncertainty
a. Risk- measurable
b. Ambiguity- hard to measure
c. True uncertainty or knighting uncertainty- impossible to predict
6. William Baumol (2006)- was awarded by American economic association.
7. Robert Sobel published a book entitled:explorations within the American business tradition
1974. He believes entrepreneurship as an engine for creation and economic growth.
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8. Zoltan Acs believes entrepreneurship as an academic field of research.

9. David B. Audrestch had edited volume of entrepreneurship survey as an academic field of
research.
10. The World of Internet (IBM, Apple Company, Soft ware and Hardware was introduced) Bill Gates.
11. LILO Entrepreneurs- (2009)- new type of entrepreneurship which stands “ A little In, A little Out.”
This type of entrepreneurship does not use business plans; opting for immediate try out of
minimal expense instead.
DEFINITION OF ENTREPRENEURS
ENTREPRENEUR DEFINITION ACCORDING TO EXPERTS, PHILANTROPIES, ECONOMIST AND
BUSINESSMAN
DAVID McCLELLAND- primarily motivated by an overwhelming need for achievement and strong
urges to build.
COLLINS and MOORE- tough, pragmatic people driven by needs of independence and
achievement. They seldom are willing to submit to authority.
BIRD- mercurial, that is prone to insights, brainstorms, deceptions, ingeniousness and
resourcefulness. They are cunning, opportunistic, creative and unsentimental.
COOPER, WOO AND DUNKELBERG- argue that the entrepreneurs exhibit extreme optimism in
their decision-making processes.
BUSENITZ and BARNEY- prone to overconfidence and overgeneralizations.
COLE- found there are four types of entrepreneur: the innovator, the calculating inventor, the
over-optimistic promoter, and the organization builder. These types are not related to the
personality but to the type of opportunity the entrepreneurs faces.
ZHAO and SEIBERT- meta-analysis ( a statistical synthesis of previous research) showed that
compared to managers, entrepreneurs score higher on Conscientiousness and

Openness to Experience and lower on Neuroticism and Agreeableness. No difference was found
for Extraversion.
JOHN HOWKINS- focused specifically on creative entrepreneur. He found that entrepreneurs in
the creative industries needed a specific set of traits including the ability to prioritize ideas over
data, to be nomadic and to learn endlessly.
CANTILLON- one products who bears uncertainty, buys labor and materials, and sells products at
uncertain prices.
JOSEPH SCHUMPETER- an innovator.
GEOFFREY MEREDETH- are people who have the ability to see and evaluate business
opportunities, to gather the necessary resources and to take advantage of them, and to initiate
appropriate action to ensure success.
PURE ENTREPRENEURS- those who launch their own ventures from scratch.
PETER DRUCKER- always searches for change, responds to it and exploits it as an opportunity.
FRENCH CONCEPT- is an adventurer, undertaker and projector.
GEOFREY MAREDETH- is people who have the ability to see and evaluate business opportunities
Characteristics of Entrepreneur
1. Reasonable
2. Self Confident
3. Hardworking
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4. Innovative
5. Leadership
6. Positive thinker
7. Decision maker
8. Happy
9. Humble
10. Creative
11. Industrious
12. Helpful
13. Self reliant
Determinants of Successful Entrepreneurship
1. Ability to conceptualize and plan.
2. Ability to manage others
3. Ability to manage time and learn.
4. Ability to adapt to change.
What is Business
Business- is an organized effort of individuals to produce and sell goods and services in order to
satisfy the needs of society. The primary objective of business is to acquire profit.
Four Types of Productive Resources in Organizing and Operating in Business
1. Human resources- these are the most important for it is the people who plan and implement
business activities.
2. Financial Resources- these are the funds for business various purposes.
3. Material Resources- these are tangible, physical resources which are use for production.
4. Information Resources- these are the correct and complete datas.
Categories of Organizing a Business
1. Micro less than- 50, 000
2. Cottage- 50, 001-500, 000
3. Small- 500, 001-5, 000,000
4. Medium- 5,000, 001- 20, 000, 000.
Factors or Resources to be Evaluated in Discovering Business Opportunities
1. Markets
2. Individual Interests
3. Capital
4. Skills
5. Suppliers of Inputs
6. Manpower
7. technology
Factors in Selecting Location of the Business
1. Population Trends
2. Income Trends
3. Consumer Characteristics
4. Retail sales trends
5. Competition
6. Transportation facilities
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7. Government policies
8. Environment
9. Electricity
10. Water supply
11. Communication facilities
12. Peace and order
13. Fire protection
14. Parking Space
Small and Big Business: What makes the difference?

SMALL BUSINESS LARGE BUSINESS

1. Change through a cycle of births and deaths 1. Change is through expansion or contraction
2. Risk or reward estimate is done by the 2. Risk or reward calculation is done by
individual owner who either gets profit or loss employee-managers
3. Little or no economic power 3. Tremendous influence on the economy
4. Serves markets 4. Does not serve
5. Introduce innovation 5. Buy innovation
6. Create employment 6. Choose employment
7. Provide competition 7. Serve competition
8. Fill the needs of society and big businesses 8. Perform what was supplied

Advantages and Disadvantages of Small Business

ADVANTAGES DISADVANTAGES
1. Personalized relationships with customers and1. Difficulty of raising capital
Employees 2. Risk of failure: lack of experience, lack of
2. Flexibility in management money, wrong location, mismanagement of
3. Government Incentives (CLEEP)- inventory, poor credit practices, poorly
Comprehensive Livelihood and Emergency planned expansion, unsound or too little
Employment Program- anchored on the micro analysis in choosing the business:
level of entrepreneurship- DTI Rebecca Rascon3. Limited management skills
(Provincial Director) 4. Lack of opportunities for imployees
4. Simple record keeping
5. Independence

Common Types of Business Risk

Non Criminal Types Preventive measures Criminal types of Preventive Measures

of Risks
1. fire- first fear of 1.
Business owner
2. natural calamities- 2.
this can ruin business.
Risks
Fire prevention 1. Burglary- an act of 1.
measures/ insurance entering a building to
Proper choice of commit felony 2.
location 2. Robbery- theft of
Dogs, alarm systems
and guards
Installation of proper
alarm devices,
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3. Personal liabilities- 3. Proper facilities or property usually by lightning facilities and

are business quality control force or threats. other preventive
connected risks which program 3. Shoplifting- steal from measures.
resorts to law suits. 4. Adequate financial store 3. Mirrors and store
4. Economic problems- resources and ability4. Employee theft- steal layouts deter
have direct effects on to adjust from the company shoplifting
the profitability of the
5. Good stockpiling and due to temptations. 4. Avoid open storage
enterprise it reduce strong financial rooms, desks, cash
sales of goods and position registers box and the
services: Causes- 6. Establish proper and like and there should
Recessions, inflation good hiring policy and be a strict hiring policy
and massive design a well for personnel
unemployment provided incentive
5. Business schemes and award
Interruptions- are winning points for
unexpected strikes of best workers of the
employees and year.
suppliers
6. Loss of key personnel-
resignation of
important employees
is a big blow to the
business interprise.
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General Provisions of Risks that cannot be avoided

1. Employee safety program
2. Proper safety equipments
3. Burglar alarms, security guards and guard dogs
4. Fire alarms, sprinkler system and similar safety measures
5. Accurate accounting and financial controls.

Factors in Discovering Business Opportunities

1. Markets- are the people who are willing to buy whose needs are to be satisfied.
2. Interests- matching ganacity of an individual
3. Capital- refers to the monetary consideration
4. Skills- proper technical ability
5. Supplier of Inputs- amount of available raw materials
6. Manpower- people who does the right things
Efficiency- doing the things right
Effectiveness- doing the right things
7. Technology- something new and different
Three kinds
a. Modern- current trends or the breakthrough innovations
b. Primitive- ordinary
c. Intermediate- in between the modern and the primitive
Business plan : Components / Characteristic/ Importance/Steps
What to do
Business Plan how to do it
When to do it
What to expect in the future

Principles of Planning
1. Realistic based on available resources: human, financial and physical.
2. Felt needs and this is known through: observations, personal interviews and questionares
3. Flexible: adjusted to the trends of consumer tastes and preferences.
4. Start from simple projects- a micro business which requires simple management and technology.
Stages of Business Planning
1. Under-planned- no time for planning. Time is devoted to the daily operations and the business
intense desire to survive.
2. Budgeting system- refers to orderly financial functions of estimated incomes from sales and
expected expenditures.
3. Annual Planning- is whole year round planning. It consists of two way plan approach.
a. Top-down approach- the Autocratic plan.
b. Bottom-up approach- the democratic plan.
4. Strategic planning- long range plan. As three or five years plan.
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Components of Business Planning

1. SWOT- is a toll for evaluation of the product or service to survive competition.
2. Objectives- the rationale behind why one has to go into business. It must be specific and
realistic.
3. Strategies- is a careful plan of action to achieve a goal. It is the art of developing or carrying out
plan of action.
4. Time frame- a period of time during which something takes place or is planned to take place.

Characteristic of a Sound Business Plan

1. Objective
2. Clear
3. Logical and simple
4. Flexible
5. Stable
6. Complete and integrated
Outline of a Business Plan
1. The Business:
A. Description of Business
B. Product/Service
C. Market
D. Location of Business
E. Competition
F. Management
G. Personnel
H. Application and expected effect of Loan (if needed)
I. Summary
2. Financial data
A. Sources and Application of Funding
B. Capital Equipment List
C. Balance Sheet
D. Break-even Analysis
E. Income projections (profit and loss statement)
1. Five years summary
2. Details by month for first year
3. Detail by quarter for second, third, fourth and fifth years.
4. Notes of explanation
F. Cash flow projection
1. Details by month for first year
2. Detail by quarter for second, third, fourth and fifth years.
3. Notes of explanation
G. Deviation Analyses
H. Historical Financial Reports for Existing Business
1. Balance sheets for past five years
2. Income statement for past five years
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3. Tax returns
3. Supporting Documents ( Personal resumes, personal balance sheets, cost of living budget, credit
reports, letters of references, job descriptions, letters of intent, copies of leases, contracts, legal
documents and anything else relevant to the plan.

Steps in Business Planning

1. Evaluate your personal resources and interests and the resources of the community.
2. Analyze the market
3. Choose a proper business location
4. Prepare financial plan
5. Prepare production plan
6. Prepare organizational plan
7. Prepare management plan
The Importance of Business Planning
1. Eliminate business risks
2. Minimize costs of production
3. Detect the weaknesses of the business operations
Business Phases of Business
1. Management- is aimed at designing the form of ownership although in most cases this is already
predetermined.
a. Marketing- is aimed at determining and analyzing the demand and supply for the
product/service in the past and making projections of demand and supply in the future;
ascertaining its competitive position in the industry, and designing the marketing program for
the product/service.
2. Production- is describe as the technology that will be used in making the product. It includes
specification (chemical, mechanical, and physical properties), description of equipment and raw
materials to be used and the process involved. It also includes a study on the plant location,
layout and other facilities vital to the operation.
3. Financing- means to determine the cost of the project and cash requirement and the source and
cost of financing the project. Financial projections are made over a period of at least five years.
Financial analysis is presented showing return on investment, returns on equity, breakeven sales
and price sensitivity test.
Forms of business Organizations
1. Single proprietorship- this is a form of organization that is owned and managed by one person.
The oldest, simplest and the easiest form of business organization. They dominate the retailing,
agriculture and service industries.

Advantages disadvantages
1. Ease an low cost of formation and 1. Unlimited liability
dissolution 2. Lack of stability
2. Retention of all profits 3. Limited access to credit
3. Independence and flexibility 4. Limited business skills and knowledge
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4. Tax advantage and less government

regulation

2. Partnership- is an association of two or more persons who act as co-workers of a business. Each
partner contributes money, property or service to their organization.
Types of Partnership
1. General partners- liability extend up to his personal properties.
2. Limited partners- liability only extend to the extent of his contribution to his business.
3. Capitalist partners- contributes in terms of money consideration.
4. Industrial partners- contributes in terms of services.

Advantages Disadvantages
1. Easy to organize 1. Lack of stability
2. Availability of more capital or credit 2. Unlimited liability
3. Retention of profits 3. Management disagreement
4. Better business skills and knowledge 4. Idle investment

3. Corporation- is an artificial being created by operation of law, having the right of succession and
the powers, attributes, and properties expressedly authorized by law or incidents to its
existence. John Marshall, United States’ Chief Justice defined corporation in his famous 1819
decisions as “ an artificial being invisible, tangible and existing only in contemplation of the law.
The shares or certificates of ownership of a corporation are called stocks. The owners of stocks
are called shareholders.
Types of Corporation
1. Private or close corporation- is owned by a few individuals, usually relatives and friends.
2. Open Corporation- is owned by any individual who buys shares of stock which are openly traded
in the stock markets.
Advantages Disadvantages
1. Limited liability 1. Difficult to organize
2. Easy to raise capital 2. Strictly regulated and supervised by the
3. Perpetual life government
4. Specialized management 3. Some corporations are socially irresponsible
4. Formal and impersonal employer-employee
relationship

4. Cooperatives- is an enterprise for the poor. The Cooperative Code defines a cooperative as a duly
registered association of persons, with a common bond of interest, who have voluntarily joined
together to achieve a lawful common social or economic end, making equitable contributions to
the capital required and accepting a fair share of the risks and benefits of the undertaking in
accordance with the universally accepted principles of cooperation.
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Principles of Cooperative
1. Open and voluntary membership
2. Democratic control
3. Limited interest on capital
4. Division of net surplus
5. Cooperative education
6. Cooperative with other cooperatives
Types of Cooperatives
1. Credit cooperative- promotes thrift among its members and create funds inorder to grant loans
for productive and provident purposes.
2. Consumers cooperative- procures and distributes commodities to its members and non
members.
3. Marketing cooperative- engages in the supply of production in agriculture and industry.
4. Producers cooperative- undertake joint production in agriculture and industry.
5. Service cooperatives- undertake medical and dental care, hospitalization, transportation,
insurance, housing, labor, electric light and power, communication and other services.
6. Multipurpose cooperative- combines two or more of the business activities of the different types
of cooperatives.
7. Student cooperative- laboratory training cooperative for the youth officially enrolled.
Organizing a cooperative
1. For members of at least minimum of 15 persons
2. Must citizens of the Philippines
3. Felt need, volume and business; availability of qualified officers, adequacy of facilities;
opportunities of growth.
4. Submission of an economic survey which includes the economic, technical, financial and
management aspects of the projected cooperative by Cooperative Development Authority.
Five major steps of dimensions of Organization structures
1. Job design- means dividing the work of the organization into separate parts. Assign these pars to
positions within the organization. The result is specialization.
2. Departmentalization- means grouping the various positions into manageable units
3. Centralization- means distribution o the responsibility and authority within the organization.
4. Span of management- means determining the number of subordinates who will report each
manager.
5. Chain of Command- means to distinguish between those positions with direct authority and
those that are support positions.
What is SWOT ANALYSIS?
SWOT ANALYSIS- is a toll of evaluating the strengths, weaknesses, opportunities and threats
associated with a particular product or service. It studies the financial resources, physical
facilities, management capabilities, market, production process, information system, sources of
supply and social environment.
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Strength of Product or Services Weaknesses of a product or Service

Cheap and abundant raw materials High price
Sufficient funds Poor quality/ service
Availability of Technology Weak management
Presence of Skilled Workers Lack of skilled workers
Management and Technical Expertise of the Irregular supply
Entrepreneur Unattractive design
Good quality/ service High costs of production
Ease of Production
Small Capital
Opportunities of a product or service Threats
Big demand for the product/service Shortage of raw materials at a given time
Favourable government policy/support Entry of many competitors
Scarcity of the product/service Increasing costs of production
Poor quality of existing product Expectation of unfavourable government
Absence of product/service laws (tax)
Possibilities of good profits Deteriorating peace and order
Emergence of unfair demands of workers
through labor union activities

Two proficiency and Profitability Linkages of Resources

1. Backward Integration- is the ownership or control of the inputs of production by the enterprise.
2. Forward Integration- is the ownership or control of the marketing system by the enterprise.
Four stages of Product Life Cycle
1. Introduction- means consumer awareness and acceptance of the product.
Product acceptance is low. Marketing costs and development are high.
2. Growth- means sale rapidly becomes popular due to competition and lower average Costs of
Production. Promotion plays a vital role.
3. Maturity- means sale still rising but the rate of the increase has declined.
4. Decline- means there is a sharp fall in sales volume while profit curve become almost flat or
horizontal. There is also decline in the number of competitors. The survivor are those who
specialize in the marketing of the product. Product is eliminated in the market once no longer
profitable.
Marketing for small Business
Marketing – according to Prof. Kotler it is a set of human activities directed at facilitating and
consummating exchange.
Three elements of Marketing
1. Two or more persons who are potentially interested in exchange
2. Each person having things of value to offer to the others
3. Each of them is capable of communication and delivery
 according to definition of the American Association, it is the performance of business
and its activities that directs the flow of goods and services from producer to consumer.
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It is a process of establishing natural satisfaction in exchange relationships between

buyer and seller.
 according to Prof. William Stanton, it is a transaction intended to satisfy human needs.
Aside from goods and services, ideas, people and places are also marketed. He viewed
marketing as people with needs to satisfy, money to spend and willingness to pay.

Major Functions of Marketing

1. Exchange- has to do with selling and buying
2. Distribution- transporting and storing
3. Facilitating- means financing, standardizing grading, risk taking, marketing Information

Marketing Plan- is an outline of actions designed to achieve a specific set of goals.

Marketing Strategy- according to Prof. Kotler, is a consistent appropriate and feasible set of
principles through which a particular enterprise hopes to maintain its long run-customer and
profit objectives in a particular competitive market.

Marketing Strategy
1. Price- means the value o the product or service expressed in money.
2. Product- means the creation of goods and services
3. Promotion- means advertising and personal selling
4. Distribution- means the movement of products from the producer to the consumers delivered
direct from the producers. Indirect distribution means the products pass on the middleman to
sell the goods to the final users.

Market research- is the process of systematically gathering, recording and evaluating data
regarding a specific marketing problem.

The Steps in Market Research

1. Defining the problem
2. Making a preliminary investigation
3. Planning the research
4. Gathering the data
5. Analyzing the data
6. Reaching a conclusion/decision
7. Implementing and evaluating decisions

Uses of Market Research

1. Profitable markets
2. Saleable products/services
3. Strength and weaknesses of competitors
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4. Available resources
5. Business risks
6. Trends in consumer tastes and preferences
7. Better marketing strategies
8. Proper business location
9. New market opportunities
10. Realistic business objective
Managing the Enterprise
Management- according to Joseph Massie author of Essentials of Management defines it as
a process by which a cooperative group directs actions towards common goals.
- To the view of the economist point of view, management is one o the factors of production,
together with land, labor and capital.
- To the sociologist, management is a class and a status system which requires an elite of
intelligence and education.
- According to Robert Hughes, author of business, defines it as the process of coordinating the
resources of the organization in order to achieve its primary goals.
- According to Mary Parker Follet it is the art of getting things done through people
Key Management Skills
1. Technical- means the ability to perform specialized jobs.
2. Conceptual- means the ability to innovate and think for the future
3. Interpersonal- means the ability to relate well to people.
4. Diagnostic- means ability to identify and evaluate the problems of the enterprise.
5. Analytic- means the ability to formulate goals and strategies. The skills is needed in Problem-
solving and decision-making process.
Theories of management
1. Scientific Management of Taylor- Frederick Taylor introduced the scientific theory in the year
1800. The theory speaks of improving the efficiency of workers based on his bitter personal
experiences as an employee of manufacturing plants. He suggested that each job should be
broken down into separate tasks. This theory is called “Piece rate system.” Taylor was called the
“Father of Scientific Management”*
2. The Hawthorne Studies of Elton Mayo.- introduced the three experiments to know the effect of
environment on productivity. The first experiment determines the effect of lightning in
productivity. The second experiment was to determine the effectiveness of the piece rate
system. And the third experiments were to determine the involvement of the human factors.
With the three experiments, Hawthorn studies proved that human factors are as important as
pay rates as far as motivation is concerned.

3. Theory X and Theory Y of McGregor author of the book “The Human Side of Enterprise ”. Theory
X assumes that workers dislike work. Theory Y assumes that the work is an important part of the
lives of people; that people are responsible and therefore committed to the goals of the
enterprise.
4. Hierarchy of Needs of Maslow- assumed that people seek to fulfil a variety of needs.
The following needs are as follows:
a. Physical/Physiological- food, shelter and clothing
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b. Safety- job, security, health insurance and pension plan

c. Social- love, affection and belongingness
d. Self- realization- fulfilment
5. Theory of Herzberg- finds out the factors that cause satisfaction and dissatisfaction. Herzberg
discovered that factors most frequently associated with satisfaction are achievement,
recognition, responsibility; advancement and growth, together with work itself are called
motivation factors. Factors associated with dissatisfaction are supervision, working conditions,
interpersonal relationship, pay, job security and company policies and administrations.
6. Theory Z- the contemporary theory. This is the best combination of the features of Japanese
enterprise and American firms. The author of theory Z is Prof. William Ouchi o the University of
California, Los Angeles. He studied the features of the two mentioned country in the year 1970
and it appears in his study that the essence of Theory Z is the high level participation employees
in decision making.
Features of Japanese Firms Features of American Firms Integration of the two
1. Lifetime employment 1. Short-term employment 1. Longtime employment
2. Collective decision-making 2. Individual decision-making 2. Collective decision-making
3. Collective responsibility 3. Individual responsibility 3. Individual responsibility
4. Slow promotion 4. Rapid promotion 4. Slow promotion
5. Holistic concern for 5. Explicit control mechanism 5. Informal Control
employees 6. Specialized career paths 6. Moderately specialized Career
6. Implied control mechanism 7. Segmented concern for paths
7. No specialized career paths employee 7. Holistic concerns for
employees

Business Financial Management

Financial Management- refers to activities that are concerned with securing money and using
it properly.
Financial Capital or Funds- are the lifeblood of the enterprise.
Finance - means the art and science of managing money.
Economics- means the proper allocation and efficient use of available resources in order to
satisfy human wants.

Theories of Economics
1. Law of Diminishing Returns- the principle that a continual increase in effort or investment does
not lead to continual increase in output or results.
2. Production Theory
3. Law of Supply and Demand
4. Price Theory
5. Profit Maximization
Source of Funds
1. Short-term financing (one year or less)
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a. Trade credit- goods are delivered to retailers on consignment basis. It means they have to pay
the goods within 30 to 90 days.
b. Promissory note- this is a written pledge by a borrower to pay a certain sum of money to a
lender at a specified future date. The loan entails an interest.
c. Commercial Paper- this is a short term promissory note issued by big corporations.
2. Long-term financing (more than one year)
a. Loans- are funds borrowed from banks and other financial institutions. It requires collaterals
such as land, equipment and machinery. Terms of payment are indicated in loan agreement.
b. Stock- this is a certificate of ownership. A stock is classified as common and preferred.
c. Bond- this is a certificate of indebtedness. It pledges to repay a specified amount of money with
interest. Such certificate indicates also a maturity date.
Classifications of Bonds
1. Debenture- are supported only by the reputation of the issuing corporations.
2. Mortgage- are secured by the assets of the issuing corporation.
3. Convertible- exchangeable shares of common stock.
Financial Plan- is a course of action for obtaining and using the money that is needed to
implement the goals of the business organizations.
Steps involved in Financial Planning
1. Establishing objectives
2. Budgeting- a budget is an estimated or projected program of expenses and incomes over a
specified future period.
3. Identifying sources of funds
Four Primary types of Financing a Business Enterprise
1. Income from sales
2. Owner’s money and sales of shares of stock
3. Borrowing from friends, relatives and financial institutions, issuing bonds
4. Sale of some property of the enterprise as a last resort.
Two most Important Financial statements of an Enterprise
1. Balance sheet- state the financial condition of the enterprise at a given point in time, usually on
yearly basis. Entries on it are based on the conventional accounting equation.
Assets= Liabilities+ Capital

Three Basic Parts of the Balance Sheet

a. Assets- show what the enterprise owns
b. Liability- shows what the enterprise owes. These are the debts of an enterprise such as taxes,
loans and other payables.
c. Capital- shows what the owner has invested and the accrued profits or losses. Capital or net
worth represents the contribution of the owners to the enterprise. Example is retained earnings
and invested capital.
Classification of an Asset
a. Current- is cash and those that are convertible into cash within one year.
b. Fixed- are properties like land, building, equipment, machine and vehicle.
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2. Income Statement- compares the sale revenues and operating expenses in a given period,
usually one year. If revenues are greater than expenses, it means profits.
Basic Books to Keep
1. Purchase Journal- for credit purchase
2. Sales Journal- for credit sales
3. Cash Disbursement Journal- payments on cash basis
4. Cash receipt journal- all cash sales and payments from credit customers
Production - is the creation of goods and services or it is creation of utility.
- As the process of converting resources into goods and services.
Factors of Production
1. Land- refers to natural resources such as forests, mountains and bodies of water.
2. Labor- refers to both physical and mental efforts.
3. Capital- pertains to machine, equipments and buildings or other physical resources which are
used in the production of goods and services.
- Refers to seed money which is utilized for starting a business.
4. Entrepreneurial ability- the spirit of the enterprise.
Technology- refers to the input and output of the enterprise
Rules of Production applied to Long Run Period
TR= Total Revenue
TC= Total Cost
When TR is greater than TC, produce more
When TR is less than TC, stop producing
When TR is equal to TC, maintain Production
Rules of Production applied to Short Run Period
When TR is greater than VC, operate
When TR is less than VC, shut down
Variable Cost- refers to the operating expenses.
Pure Profit- when TR is above TC. It is the difference between market price and cost of
production.
Break even- when TR=TC. No Profit.
Lead Time- important factor in purchase planning. It is the time that elapses between placement
of an order and receipt of such order.
EOQ- economic order quantity. It determines when order should be placed.
Scheduling- is the process of ensuring the delivery of materials at the right place and right time.
PERT- Program Evaluation and Review Technique is used to monitor and controls scheduling of
activities.
Event- means the completion of each activity under the PERT. Are also known sequenced and
are given numbers representing hours, days or months for their completion.
Critical Path- the path that requires the longest time from the first event to the last event. The
activities along this path should be scheduled and controlled.
Quality Control- is a process of ensuring goods and services are produced in accordance with
their designs and specifications.
Two ways to ensure the quality of products.
1. Quality circle- a group of employees officially meet to study and solve problems of quality.
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2. Inspection- visual and x-ray inspection are needed to control the quality of the product.
Productivity- is the efficient creation of goods and services.
R.A. 6810- An act establishing the Magna Carta for countryside and baranggay business
enterprises (CBBE), granting exemptions from any and all government rules and regulations and
other incentives and benefits therefore, and for other purposes.
Kalakalan ’20- guidelines implementing R. A. 6810
Development and Growth Theories
Laizzes Fair Theory - are French words introduced by the Physiocrats to
mean economic freedom. Government has no interference. It is an absolute free-enterprise
economy. Karl Marx and Robert Owen are great social reformers at the height of Industrial
Revolution in England.
Keynesian Theory- the government should pay the key role in
economic development particularly in less developed countries or those with depressed
economic conditions.
Ricardian Theory- this is the theory of David Ricardo, an English
classical economist. He believes that the key factor in economic growth is land.
Harrod- Domar Theory- this was conceptualized by sir Harrod of
England and Prof. Domar of the United States. The key factor in economic growth is physical
capital like machines.
Kaldor Theory- Nicholas Kaldor maintains that the key factor is
technology.
theory- developed by Joseph Schumpeter. It is the innovator who has
the courage and imagination to handle old systems and be able to transform theory into reality.
Non-economic theories - are political stability, efficient public
administration, open society and positive cultural values. Max Weber author of Protestant Ethics
and the Spirit of Capitalism, claims that Protestant countries are more prosperous than Catholic
countries and others.
Peter Drucker- America’s foremost management specialist and
international consultant.
Derek Bok- Prof. of Harvard University, believes that the school is
beginning to see that its role is not just training general managers, but also training and
providing preparation for people to start their own business.
. Claro M. Recto- the father of modern Filipino nationalism.
. Economic Nationalism - is the control of the economic resources of the country
by its own people and their use of such resources for their own benefit and employment.
. Julius Nyerere- Legendary former president of Tanzania Africa. He believes that
development is people’s development of themselves, their lives, their environment...Freedom is
essential to development.
. R. A. 6977- known as the Magna Carta for Small Enterprises. It was signed into
law on January 24, 1991.
. SBGFC- Small Business Guarantee and Finance Corporations. It is a corporate
body created to provide, promote, develop and widen in scope and service reach, various
alternative modes of financing for small enterprises.
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. E. F. Schumacher- author of the book Small is Beautiful. He argued that in poor

or developing countries small projects are much better than big projects.
. John Rocketfeller Jr. –became rich from his oil business in the year 1923. Profit
first before social responsibility.
. Robert Owen- the father of socialism and cooperatives. In 1820, propagated the
cooperative association of workers.
. Henry Ford- magnate in the car industry, stressed service before profit.
. John F. Kennedy- the President who introduced the four basic rights of
consumer. The right to safety, the right to be informed, right to choose and right to be heard.
. Code of Ethics for Philippine Business was drafted in the year 1977 during the
general assembly by the Bishop-Businessman Conference for Human Development.
. B. F. Skinner- in his Treatise beyond Freedom and Dignity says that jobs well
done should be rewarded.
. Warren Bennis- author o the book “The Unconscious Conspiracy” shows that in
a study of school teachers, those who held high expectations of their students have increased 25
points in the students’ IQ scores. This research studies pick about motivation f people.
. Do it, Fix it, Try it-is the standard operating procedure in solving problems.
. Joey Conception - the author of the book “Go Negosyo”. In his statement “ if you
can teach a nation to fish, you can feed a nation for many lifetimes”.

Inventory- is an organization’s major assets after physical building and equipment. Inventory
may be detailed list of the entire item in stock. An inventory is the entirety of those things
owned by a company and intended for resale or the raw materials and parts to be used in
producing saleable goods and products.
- Are stocks of good materials?
Three types of Inventories
1. Raw Materials inventory- is stockpiles of materials or inputs of production.
2. Work in Process Inventory is partially completed products that require further processing.
3. Finished goods Inventory- are completed goods for delivery to customers. It refers also to the
cost of running out of an inventory.

INVENTORY AND THE GROWING COMPANY

Most successful small companies find that as their economic fortunes rise, so too do the
complexities of their inventory system logistics. The resulting need for increased inventory
management procedures is due primarily to two factors:
1. Greater volume and variety of products and
2. Increased allocation of company resources (such as physical space and financial capital) to
accommodate the growth in inventory.
Beginning inventory
The product in stock at the start of an accounting period. It is used for accounting
purposes to track changes in inventory. It is also important for running a business as it provides a
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mechanism for following changes in inventory to determine what is selling and when it intends
to sell. This information is used to make ordering decisions.
Ending Inventory
Is the amount of goods that a business has on hand at the end of an accounting period.
This does not include items it needs to run the business. It only includes merchandise it sells to
other businesses or the public as a normal part of its business. A business expresses this
inventory in units of goods and in monetary units for various internal company records. For
financial statements, the ending inventory is recorded as a monetary figure on the balance sheet
and on the income statement in the calculation of cost of goods sold. On the balance sheet, it
appears as an asset. In essence, this figure is the cost of goods not sold.
Beginning Inventory plus Net purchase minus Cost of goods sold equals Ending
inventory.
Inventory evaluation
A statement which provides information about the value of goods held in inventory.
Goods in inventory can make-up a substantial portion of a company’s equity and there is
therefore a great deal of interest in the total value of a company’s inventory.
Inventory Controllers
Are professionals who specialized in the management of the various types of inventories
that are maintained by companies as part of the standard process of conducting business?