Lesson 5

• There are two significant factors that must be considered by the entrepreneur before opening a business. These are the:

  -competency of the entrepreneur and the

  -competency of the business after conducting the environmental scanning.
• Relationship of Entrepreneur and Business Competency to Opening a Business

  
• At this point, the entrepreneur must be able to answer the following questions:

  1. Do I have the entrepreneurial competency to exploit the business opportunity?

  2. Have I critically scanned and evaluated the environment to determine the

  a.availability or sufficiency of raw materials,

  b. suitability of the project to the location,

  c. cost involved,

  d. growth and barriers in the industry,

  e. possible position of the business, f. target customers, and

  8. required business competency?
• The classification of entrepreneurial venture according to form refers to the category of the business according to the number of owners.
• The classification of business ventures according to form are as follows:

  1, Sole proprietorship

  2. Partnership

  3. Corporation
• Sole Proprietorship

  -is a business venture owned by one person only. Most of the small businesses operating in the Philippines are sole proprietorship, which is highly encouraged among entrepreneurs.
• The characteristics of sole proprietorship are as follows:

  1. It is easy to form and manage.
  2. It is a simple business operation.
  3. It has a limited pool of resources.
  4. Its growth is limited.
  5. The owner has unlimited liability.
• The primary advantage of a sole proprietorship is the ease in its formation and management.
• Partnership

  -is a business venture that is owned by two or more persons.

  -The owners are usually called partners.

  -Whatever profit or loss that results from the entrepreneurial operation is divided between or among the partners.

  -All the partners may contribute money, property, or industry, and their contributions become a common fund of the partnership.
• The partners are held personally liable for the partnership's liabilities in the event that the partnership does not have the ability to settle its financial obligations.
• The life of the partnership is easily dissolved compared to a corporation, particularly for the following reasons:

  1. Death of one of the partners
  2. Admission of a new partner in an existing partnership
  3. Personal insolvency of one of the partners
  4. Permanent withdrawal of the investment of a partner
• Corporation

  -is an entrepreneurial venture formed by at least five but not more than fifteen persons.

  -A corporation can either be stock or non-stock, profit or non-profit, and domestic or foreign.

  -The persons originally forming the corporation are called incorporators.
• stock corporation:

  -when it is authorized to issue shares of stock to stockholders.

  -The owners of a stock corporation are called stockholders or shareholders.

  -The certificate of stock is an evidence of ownership of a corporation.
• A non-stock corporation

  -is not authorized to issue shares of stock to the members.

  -owners of a non-stock corporation are called members.
• A domestic corporation

  -is organized under the laws of the Philippines.
• a foreign corporation

  -is organized under the laws of the foreign country but has the authority to operate in the Philippines.
• -An entrepreneurial venture may also be classified according to its nature.

  -The term nature simply refers to whether the business is simply selling a product, manufacturing a product, or rendering a service to customers.
• The classifications of entrepreneurial venture according to its nature are as follows:

  1. Merchandising
  2. Service
  3. Manufacturing
  4. Agriculture
  5. Hybrid business
  6. Special corporation
• A merchandising business

  -is engaged in the buying and selling of products or goods.

  -It does not alter the appearance of the product purchased from the seller.

  -The entrepreneur engaged in a merchandising venture buys the product in a certain form and sells it in the same form.

  -There is no alteration made in terms of physical appearance, mechanical parts, or chemical content.

  -Grocery stores, hardware stores, and dry goods stores are examples of merchandising ventures.
• A service business

  -provides services to customers.

  -The primary sources of income are the different services rendered or provided to customers.

  -classified as non-professional service and professional service.

  • Non-professional service ventures include laundry shops, car repair shops, beauty parlors, educational institutions, and banking institutions. On the other hand,
  • professional service ventures include law offices, medical clinics, and auditing and consultancy services.
• A manufacturing venture

  -is a producer of goods or products.

  -It is engaged in buying raw materials and supplies to be processed into finished products.

  -The salient feature of manufacturing business is the conversion process that takes place from the time a raw material is purchased up to the time it is sold as a finished product.
• "four Ms" in production operations -are applicable to manufacturing ventures such as furniture shops, bakeshops, rattan factories, flour producers, and beverage companies.

  1. Manpower
  2. method
  3. machine
  4. materials
• An agricultural entrepreneurial venture

  -is engaged in the production of agricultural goods and animals.

  -It may sell its products as raw materials or as finished goods.

  -Mushroom production, potted ornamental plants, hog fattening and dispersal, poultry products, and fishpond ventures are examples of agricultural business.
• A hybrid entrepreneurial venture

  -possesses the characteristics and nature of combined types of business entities.

  -It is inherent in the business to produce and sell goods and at the same time provide services to customers.

  -Restaurants and fast-food chains are classified as hybrid businesses because their very nature is to process and sell food and at the same time to provide excellent services to customers.
• Special Corporation

  -Special types of business may include cooperatives, joint ventures, and non-profit organizations.
• The three important elements in the production system are

  1. the input
  2. the transformation or production process
  3. the output.
• The three important elements in the production system:

  
• Input

  -includes the following:

  1. Manpower
  2. Materials
  3. Machine
  4. Design
  5. Instructions
• Production Process

  -also referred to as the transformation or conversion process

  -is the stage of production where the materials are transformed into the final product with the aid of manpower and machine.
• Production Process usually involves the following activities:

  1. Procurement or acquisition of raw materials and manufacturing supplies
  2. Inspection of materials and supplies upon receipt at the receiving section
  3. Storage of acquired materials and supplies
  4. Issuance of materials and supplies to the production line
  5. Inspection of damaged or broken goods and assessment of losses
  6. Rework or repair of defective goods
  7. Transfer of finished goods to the storeroom
• Output

  • represents the final products from the production process and distributed to the customers.
• FOUR MS OF PRODUCTION

  -The most critical factors in the whole production system are the inputs and the transformation process.

  -Their quality determines the quality of the output.

  -It is also known as "garbage in, garbage out" or GIGO in the parlance of computer technology.
• The factors involved in the input and the production process are usually referred to as the four Ms of production:

  1. manpower,
  2. method,
  3. machine, and
  4. materials.
• Manpower

  -simply refers to the human workforce involved in the manufacture of products.

  -It is considered as the most critical and important factor of production.

  -The entrepreneur must determine, acquire, and match the most qualified employees with the jobs at the most appropriate time period.
• Some of the manpower criteria that must be highly considered by the entrepreneur are as follows:

  1. Educational qualifications and experience required for the job
  2. Status of employment, whether permanent or temporary
  3. Number of workers required for the job
  4. Skills and expertise required for the job
  5. Appropriate time the worker is needed
  6. Conduct of background checking and issuance of requirements
  7. Amount of salary or wages and other mandatory benefits
  8. Availability of potential workers in the community
• Method or production method

  -refers to the process or technique of converting raw materials to finished products.

  -The raw material undergoes several stages before it is completed and becomes ready for delivery to the target consumers.
• The selection of the method of production is dependent on some factors, namely,

  1. product to produce,
  2. mode of production,
  3. manufacturing equipment to use, and
  4. required skills to do the work.
• Machine

  -refers to the manufacturing equipment used in the production of goods or delivery of services.

  In the process of selecting the type of equipment to purchase, the entrepreneur may consider the following important elements:

  1. Types of products to be produced
  2. Production system to be adopted
  3. Cost of the equipment
  4. Capacity of the equipment
  5. Availability of spare parts in the local market
  6. Efficiency of the equipment
  7. The skills required in running the equipment
• material

  -simply refers to the raw materials needed in the production of a product.

  -Materials basically form part of the finished product.

  -For example, wood or lumber is a raw material used to produce a table or a chair. In case the raw materials are of poor quality, the finished product will be of poor quality as well.
• The entrepreneur may consider the following important factors in the selection of raw materials:

  1. Cost
  2. Quality
  3. Availability
  4. Credibility of suppliers
  5. Waste that the raw material may produce