DONT LOOK FOR JOBS, CREATE THEM !!! BE AN ENTREPRENEUR!

By: HEGINIO A. BALDANO, CPA, MBA DTI Masbate

ENTREPRENEURSHIP
(How to Start Your Business)

By: HEGINIO A. BALDANO, CPA, MBA DTI Masbate

ntrepreneurship refers to the economic activity of a person who starts, manages, and assumes risk of a business enterprise. The person who undertakes entrepreneurial activities is called an Entrepreneur.

ntrepreneur identifies the ECONOMIC NEED, considers offering a BUSINESS SOLUTION, proceeds to assemble the RESOURCES required, and assumes the RISK of either succeeding or failing.

an E

ntrepreneur is referred to that very enterprising individual that increased productivity from a low level to a high level. Adding value through innovative and ingenious means. Being an entrepreneur is not merely making money out of any business. It is about creating VALUE.

an E

ntrepreneurs explore opportunities and create organizations to make opportunities into realities. The best entrepreneurs invent new ways to live, work, and achieve. Successful entrepreneurship blends independence and collaboration, vision and action, the individual and the organization. Done right, it can be a great way to live.

Source: From e-Web@ St. Louis University Missouri, USA

1. PRE-INVESTMENT EVALUATION
1a. Rewards of being an Entrepreneur

MAKE MONEY

BE YOUR OWN BOSS

EXPRESS CREATIVITY

SELF SATISFACTION

1b. Risks & Trials

The Risk of Failure - Small business are prone to risks & possibility of failure; - Single bad decision can cause bankruptcy; -1 out of 5 new businesses is doomed to fail Unpredictable Business Conditions (per UP-ISSI study) - in fast growing economy, small business may not respond to opportunities due to financial readiness - in slow economy, cash flow problem = dissipation of resources

1b. Risks & Trials, contd.

Long Hours of Hard Work

-be ready to spend most of waking hours immersed in business - preoccupied in business at the expense of private & family time

Unwanted Responsibilities - management responsibilities - social responsibilities (workers, community, customers, pay decent wages, pay taxes, compete fairly

1b. Personal Entrepreneurial Characteristics (PEC)

ACHIEVEMENT CLUSTER PLANNING CLUSTER POWER CLUSTER

1. Opportunit y Seeking 2. Persistenc e 3. Commitme nt to Work 4. Risk taking 5. Demand for Efficiency

6. Goal Setting 7. Informatio n Seeking 8. Systematic Planning and Monitoring

9. Persuasion and Networkin g 10. Self Confidenc e

Some practical procedures for setting up new business

STEP 1

Rethink Your Entire Business Idea.

Remember: more than 2/3 of small businesses fail within 4 years.

STEP 2

Consider buying someone elses business VS. starting a new one. Before opening your business, try working for someone operating similar business.

STEP 3

Practical Considerations And Skills

Factors to consider and ask yourself:

Do you have enough time? How will the stress of starting a business affect your personal life? Can you deal with the financial uncertainty of not knowing your weekly take-home pay? Most importantly, can you get the necessary start-up capital to open your business, especially considering the large number of unexpected expenses you will face?
Basic Skills required:

know how to market, price, advertise, purchase, and distribute it. You also must negotiate for a lease, equipment, inventory, and services. Furthermore, you need to understand cash management, finance, law, tax, and insurance.

In short, you must become an expert in business.

2. STEPS IN STARTING A BUSINESS

Consider other Factors

Self Analysis

Product/Ser vice ID

Secure Financing

Determine Financial Requirements

Write Business Plan

Choose Location

Secure Registration & Permits

Hire & Train Personnel

START

2a. Come-Up with Business Idea Factors to consider.. INTERNAL FACTORS FACTORS Personal interest government support Knowledge/talent assistance Training/work experience incentives Other considerations like financing EXTERNAL & tax

2b. Choosing the Line of Business

Product Industries Manufactured products intended either for mass market or individual customers demand. Examples are garments, toys, shoes, canned goods, (for mass market); precision instruments for industrial use, made to order furniture (as specialized products) Sub Contracting Industries Manufacture of product components or parts for other bigger companies. Bigger companies find it faster & cheaper to sub contract. Drawback is if small company is totally dependent on one big principal or contracting company Process Industriesone or two operations in Performs

the in the total manufacturing process, not strictly speaking of a manufacturer but rather a process enterprise. The activities that can performed can be initial operations on raw materials (milling, corrugating,sawing, or cutting ), final operations (fishing, assembly, packing, or binding), or skilled or Service operations (embroidery, precision

testing, woodcarving). Industries Service enterprises include repair and maintenance shops, printing & machine shops, food catering, Beauty parlors, dress and tailoring shops, recreation estabs. (like bowling alleys and billiard halls), and entertainment enterprises (such as theaters, disco and pub house). Retail & trading is one of the most common type of service business

2b. How to prepare a Project Feasibility Study (PFS)

Why prepare a PFS?
Many companies prepare PFS in order to ascertain if the project, as initially designed, will have a good chance of making profit if implemented. It takes into consideration the environment in which the business will operate or is currently operating and the resources that will be put into the project.

Resources (5 Ms)
Manpower Machinery & Equipment Money Moment/Time Methods

Basic Phases
Management Marketing Production Finance

The following is the format of a project feasibility study in general

I.INTRODUCTION II.SUMMARYOFTHEPROJECTSTUDY III.PROPONENT,MGT.&PERSONNEL IV.MARKETFEASIBILITY V.PRODUCTION VI.FINANCIALFEASIBILITY

2b. How to Make a Business Plan

What is a Business Plan? an operational plan that defines actions what to do as well as how and when to do it. Many entrepreneurs use their business plan for the critical start-up and expansion so that they will stay both on target and within the budget. It consists of establishing goals for the business and completing the procedures to reach these goals. In developing the plan, you should first ask yourself this questions:
1. WHAT WOULD I LIKE THE BUSINESS TO BECOME A YEAR FROM NOW? 2. WHAT CHANGES ARE TAKING PLACE IN THE BUSINESS AND HOW SHOULD I PREPARE FOR THEM? 3. HOW CAN I ATTAIN MY GOALS? 4. WHAT TIMETABLE SHOULD I FOLLOW IN ACCOMPLISHING MY PLANS?

Business Plan Format: Basic Steps to Follow

1 State Your Objectives 5 Identify Your Competito rs Consider Your Pricing Policy Determine Your Marketing Methods Determine Your Key Personnel 9 ID Material Rqmt & Supply Source ID Equipmen t& Process to Use Prepare Sales Forecast 13 12 Prepare Budget Set Your Plan to Work

Describe Your Business Describe Your Product or Services Identify Your Potential Markets

10

11

3. ORGANIZING & FINANCING BUSINESS

3a. Choosing Form of Business
Form of Business Organization ADVANTAGES DISADVANTAGES

SINGLE -easy to set up PROPRIETORSHIP -Decision left entirely to owner PARTNERSHIP -relatively easy to set up -check & balance maintained with two parties around

-demands owners personal time -growth limited to owners financial means -any personal rift between parties may dissolve partnership -Equal profit sharing despite unequal attention and time given by partners to business -complicated setting up process -Individual stockholders may have limited influence on management, -Tendency to institutionalize a bureaucracy

CORPORATION

-maximum flexibility for growth -Limited liability of individual share holders -Greater room for professionalism in

3b. Choosing Business Location

Some guides in choosing location 1.KNOWTHEPOPULATIONOFTHETRADINGAREA. - Is the neighborhood starting to get run down? - Is the population moving away? Or, is it new & on the way up? - Determine the purchasing power of the population, do they own cars, big, affluent homes? 2.STUDYTHECOMPETITIONINTHEAREA - What is the competition in the area you have picked? How many stores look prosperous? - How many look as though they are barely getting by? - How many similar stores went out of the business in this area last year? How many new stores opened last year? - What price line does competition carry? - Which store or stores will be your biggest competitor?

3b. Choosing Business Location

c.Studythelocation'saccessibility - Plan the location where it is accessible to your customers and employees and, of course, to you. Ask yourself the following questions: - How close is the store to jeepney and bus routes and other transportation facilities? Are there adequate parking spaces near the store? Are the sidewalks in good repair? Is the street lighting good? In addition, you must be able to recognize and guard against those characteristics of particular sites which will adversely affect the volume of business. Among these are : smoke, dust, disagreeable odors and noises, proximity to garages, hospitals, drinking places and similar establishments; poor sidewalks; and old and worn-out buildings.

3c. HIRING/TRAINING PERSONNEL

As employee manager, you must see to it that you have the right employees, train them well for the job you assign them to do and motivate them so they are happy giving their best to the job.

1. PLAN YOUR PERSONNEL REQUIREMENTS 2. RECRUIT PROSPECTIVE EMPLOYEES 3. SELECT THE RIGHT ONE 4. INTRODUCE NEW EMPLOYEES TO THEIR JOB 5. TRAIN EMPLOYEES PROPERLY 6. PAY YOUR EMPLOYEES FAIRLY

3d RAISING THE NEEDED CAPITAL .

a) DETERMINE YOUR FINANCIAL REQUIREMENTS
1. Fixed Capital - Includes cost of land and building, or lease deposits of them; cost of improving land or remodeling building; machinery and equipment; and furniture, furnishing and fixtures. These are usually one-time expenses, meaning that they are generally good for the lifetime of the business. 2. Working Capital - This is the reserve money that you need to carry on the business on a day-to-day basis until it becomes selfsupporting - which may take about one to six months or even longer. You need working capital to purchase your beginning inventories (raw materials), pay your workers, spend for transportation and pay your telephone, electric, and water bills. 3. Pre-Operating Capital - Includes money that you spend in registering your business, acquiring licenses of franchises or paying a lawyer or a consultant In other words, these are all the money that you spend even before your business begins to

3dRAISING THE NEEDED CAPITAL .

b) LOOK FOR SOURCES OF CAPITAL

Equity Capital. Equity capital is the amount of personal resources which and - possibly your partner - have put into business plus the portion of the profits you plow back into the business. It also includes resources invested by other people into your company Retained Funds. In the case where a business in on-going and has undistributed profits, the accumulated cash may serve as a capital source. Provisions and reserves for specific and general purpose as for general reserve fund, may be used temporarily to fill in the need for capital. Creditors Equity. If your require financing from outside sources there are loan and credit packages available. These are:
Short-terms loans. These loans are financial obligations based on short term, usually less than a year and are normally self-liquidating. Merchant Credit (or Bills Purchase)

Terms Loans. Terms loans or immediate terms loans provide capital for periods from one to ten years and are available from banks and other institutions. A term loan is amortized, that is, paid back in installments over the life of the loan agreement

3dRAISING THE NEEDED CAPITAL .

Otherprivatesourcesofcapital
Insurance companies. If your have a life insurance policy, the company that issued the policy is usually willing to loan amounts up to the cash of the policy at a relatively low interest rate. Mortgage Bankers. Mortgage bankers may be able to help you finance real estate or improvement of properties, acquisition of machinery or fixed installments or construction capital needs. The mortgage banker brings together the money source and the person who needs mortgage funds. Finance Companies. Finance Companies provide a wide range of corporate financing and leasing, accounts receivable and inventory financing, commercial, industrial and agricultural loans, motor vehicle financing, sales and installments financing. Finance companies deal mostly in secured loans and will often furnish capital to those borrowers where banks will normally refuse. Individual money lenders. Friends or relatives extend loans in the spirit of "pakikisama" or camaraderie. There are also unlicensed money lenders but beware of those who charge usurious rates of interest, like the so-called "5-6 operators".

What Lenders And Investors Look For? (The Cs Of Credit)

Capital is the money that you put into the business. It shows that you have made a clear financial commitment and that you are willing to work hard over the long run. You should expect to invest at least P1 of your money for every P3 that you borrow. Cash Flow is the cash on hand from the business which you use to repay your debts as they come due. You must show investors how and when they will get back the money they lend you. Collateral is the personal and business property that you are willing to "put on the line" for your business. It protects investors in the event that you cannot repay your debts. Investors look for asserts that are easily resold and that do not significantly decrease in value over time. Capability is a measure of your success as a business operator. Profitable financial statements and a detailed business plan which shows why you need to borrow money are the most persuasive means of obtaining financing. Character is the impression you make on a lender. Since lenders often

1. How do you put a giraffe into a refrigerator?

THECORRECTANSWERIS: Open the refrigerator, put in the giraffe and close

the door. This questions tests whether you tend to do simple things in an overly complicated way.

2. How do you put an elephant into a refrigerator?

WRONGANSWER:Open the refrigerator, put in the elephant and close the

refrigerator. CORRECTANSWER:Open the refrigerator, take out the giraffe, put in the elephant and close the door. This tests your ability to think through the repercussions of your actions.

3.

The Lion King is hosting an animal conference. All the animals attend except one. Which animal did not attend?
THECORRECTANSWERIS:The

elephant. The elephant is in the refrigerator. This tests your memory. OK, even if you did not answer the first three questions correctly you still have one more chance to show your abilities.

4. There is a river you must cross. But it is inhabited by crocodiles. How do you manage to cross it?
THECORRECTANSWERIS: You

swim across. All the crocodiles are attending the Animal Meeting. This tests whether you learn quickly from your mistakes.
According to Andersen Consulting Worldwide, around 90% of the professionals they tested got all questions wrong. But many preschoolers got several correct answers. Anderson Consulting says this conclusively disproves the theory that most professionals have the brains of a four year old.