FBM-Module 1 Business - Its Concept and Role to Economy PDF

MODULE 1 BUSINESS: ITS CONCEPT AND ROLE FOR MAN AND NATIONAL ECONOMY  INTRODUCTION Business is everywhere- Looking around the places where you in, there are lot of small-medium-or even large business enterprises that offers their goods and services in order to satisfy man’s needs a...

MODULE 1 BUSINESS: ITS CONCEPT AND ROLE FOR MAN AND NATIONAL ECONOMY  INTRODUCTION Business is everywhere- Looking around the places where you in, there are lot of small-medium-or even large business enterprises that offers their goods and services in order to satisfy man’s needs and even wants. But do you know how they came up with those business ideas? Those are all products of imaginative and creative mind together with some of innovative ideas of an entrepreneur who conducts series of marketing research and studies before its final presentation to the perspective consumer or customer. Likewise, this lesson will provide information that will help person to know the concept of business, the resources needed in starting a business, the process it should take to be a registered business enterprise in accordance to our law and give insights on the relation of business to an individual and national economy. CONCEPT OF BUSINESS What Is a Business? A business is defined as an enterprise or organization engaged in commercial, manufacturing, or professional activities. The term business also refers to organized activities of individual or team to create and distribute goods and services aimed to meet the economic needs of consumers with an objective of eventually earning profit. Entrepreneurs usually start with conducting a market research wherein they are studying the demands, needs and wants of the community. BUSINESS is an economic activity, which is related to continuous and regular production and distribution of goods and services for satisfying human wants. Businesses can be for-profit entities or non-profit organizations. Businesses can range from small operations operating in one industry to large operations operating in many industries around the world. https://www.investopedia.com/terms/b/business.asp CHARACTERISTICS OR FEATURES OF THE BUSINESS ARE DISCUSSED IN THE FOLLOWING POINTS:- 1. EXCHANGE OF GOODS AND SERVICES All business activities are directly or indirectly concerned with the exchange of goods or services for money or money's worth 2. DEALS IN NUMEROUS TRANSACTIONS In business, the exchange of goods and services is a regular feature. A businessman regularly deals in several transactions and not just one or two transactions 3. PROFIT IS THE MAIN OBJECTIVE The business is carried on with a motive to earn a profit. The profit is a reward for the services of a businessman. 4. BUSINESS SKILLS FOR ECONOMIC SUCCESS Anyone cannot run a business. To be a good businessman, one needs to have good business qualities and skills. A businessman needs experience and skill to run a business. 5. RISKS AND UNCERTAINTIES Business is subject to risks and uncertainties. Some risks, such as risks of loss due to fire and theft can be insured. There are also uncertainties, such as loss due to change in demand or fall in price cannot be insured and must be borne by the businessman. 6. BUYER AND SELLER Every business transaction has a minimum of two parties that is a buyer and a seller. Business is nothing but a contract or an agreement between buyer and seller. 7. CONNECTED WITH PRODUCTION The business activity may be connected with the production of goods or services. In this case, it is called as industrial activity. The industry may be primary or secondary. 8. MARKETING AND DISTRIBUTION OF GOODS The business activity may be concerned with marketing or distribution of goods in which case it is called a commercial activity. 9. DEALS IN GOODS AND SERVICES In business there has to be dealings in goods and service. Goods may be divided into following two categories:- Consumer goods : Goods which are used by final consumer for consumption are called consumer goods e.g. T.V., Soaps, etc. Producer goods : Goods used by producer for further production are called producers goods e.g. Machinery, equipment's, etc. Services are intangible but can be exchanged for value like providing transport, warehousing and insurance services, etc. 10. TO SATISFY HUMAN WANTS The businessman also desires to satisfy human wants through the conduct of business. By producing and supplying various commodities, businessmen try to promote consumer's satisfaction. 11. SOCIAL OBLIGATIONS Modern business is service-oriented. Modern businessmen are conscious of their social responsibility. Today's business is service-oriented rather than profit- https://kalyan-city.blogspot.com/2011/03/what-is-business-meaning-definitions.html  RELATIONSHIP OF BUSINESS AND ECONOMY Businesses provide goods and services that drive economic output. The production of goods came from the factors offered by the society like ( labor, capital, land, entrepreneur). While business deals with selling product or services to a consumer, economics deals with supply and demand of all products in the country. They are related since performance of business in general affect economy at large. Conrado, I (2017). Management for Filiponos: Principles and Applications ELEMENTS OF A BUSINESS The factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. The first factor of production is land, which refers to all the natural resources that serves as raw materials for the production of a certain goods. This includes not just land, but anything that comes from the land. Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. The income that resource owners earn in return for land resources is called rent. The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services. If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. The income earned by labor resources is called wages and is the largest source of income for most people. The third factor of production is capital. Think of capital as the machinery, tools and buildings humans use to produce goods and services. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans. The income earned by owners of capital resources is interest. The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. The most successful entrepreneurs are innovators who come up with new ways of producing goods and services or creating new goods and services for marketing. Without the entrepreneur mixing land, labor and capital in new ways, there would not be many of the developments we see around us. Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely. The payment to entrepreneurship is profit.  WHY DO PEOPLE ENGAGE IN BUSINESS ? Profit Motive Entrepreneurs in exchange of producing goods and services looks into two important aspect (a) primary is to earn profit (b) help in the enhancement and advancement of today’s living. Profit could be measured by deducting expenses from the company’s revenues. Gaining profit in a business entity has a great impact specially for small businesses: it allows a company to secure financing from a bank, attract new investors to fund its operations and grow its business. Aside from profit motive, people engage in business because of the following reasons: power, profit, service to the community, prestige, livelihood, social approval, etc. Businessmen want to earn profit, serve" the community, and achieve prestige because of certain stimuli, and these are the motivational factors. These factors can be clearly explained and directly linked with the theory postulated by Abraham W. Maslow, an industrial psychologist. According to his Hierarchy of Needs theory, there are five needs of men that are to be satisfied continually in the following order: 1. Physiological or biological need - the essentials for survival, such as the need for food, clothing, shelter, sex, air, water; 2. Safety need - the desire for security, stability, or protection against danger; 3. Social need - the need for group belongingness, affection, love, and friendship; 4. Ego or self-esteem need - the need for self-recognition or group satisfaction; 5. Self-fulfillment need - the need for the realization of personal goal or ambition. Johnson, R (2019). What are the benefits of making a profit? Retreived from: https://smallbusiness.chron.com/benefits- making-profit-38877.html KINDS OF BUSINESS AND FORMS OF OWNERSHIP KINDS OF BUSINESS 1. Industries involve the conversion of raw materials into finished products or goods and the application of labor upon raw materials so that greater usefulness becomes possible after the process in the industrial group can be divided into extractive industries: farming, fishing, and mining. The manufacturing industries use materials and supplies turned out by the extractive industries and change these raw materials into various articles of materials for further production of goods and new products 2. Commerce involves the process of buying and selling where the goods are moved from the point of production to the point of consumption. Consumption involves purchasing and the actual investment of capital in the merchandise handled with the intention of reselling at a profit. KINDS OF BUSINESS AND FORMS OF OWNERSHIP 3. Service enterprises are primarily concerned with the satisfaction of the needs and wants of the consumers. These are subdivided into: (a) public and community service; and (b) professional or trade service, Examples of the first group are transportation companies, MERALCO, motion picture producers, and newspaper publishers. Professional and trade services are businesses which capitalize on personal skill and talent for rendering service. Payment for such personalized service is usually in the form of fees which are sometimes called retainer's fee  FORMS OF BUSINESS OWNERSHIP 1. SOLE PROPRIETORSHIP These entities are owned by one person, usually the one who is accountable for the day-to-day running of business. Sole proprietors own all of the business' assets and the profits that it generates. ADVANTAGES: Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business to keep or reinvest. Profits from the business flow-through directly to the owner’s personal tax return. The business is easy to dissolve, if desired. DISADVANTAGES: Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. Funds are limited with their personal savings or loans May have a hard time attracting high-calibre employees 2. PARTNERSHIP By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Advantages of a Partnership Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. With more than one owner, the ability to raise funds may be increased. The profits from the business flow directly through to the partners’ personal tax returns. Prospective employees may be attracted to the business if given the incentive to become a partner. The business usually will benefit from partners who have complementary skills. Disadvantages of a Partnership Partners are jointly and individually liable for the actions of the other partners. Profits must be shared with others. Since decisions are shared, disagreements can occur. Some employee benefits are not deductible from business income on tax returns. The partnership may have a limited life; it may end upon the withdrawal or death of a partner. TYPES OF PARTNERSHIPS THAT SHOULD BE CONSIDERED: GENERAL PARTNERSHIP Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently. LIMITED PARTNERSHIP AND PARTNERSHIP WITH LIMITED LIABILITY ―Limited‖ means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.  CORPORATION Corporations are, for tax purposes, separate entities and are considered a legal person. This means, among other things, that the profits generated by a corporation are taxed as the ―personal income‖ of the company. Then, any income distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners. ADVANTAGES OF A CORPORATION: Limits liability of the owner to debts or losses Profits and losses belong to the corporation Can be transferred to new owners fairly easily Personal assets cannot be seized to pay for business debt Disadvantages: Corporate operations are costly Establishing a corporation is costly Start a corporate business requires complex paperwork With some exceptions, corporate income is taxed twice https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization-Forms.aspx  KINDS OF ECONOMIC SYSTEM & MEDIUM OF EXCHANGE 1. Capitalism – a system in which the means of production are owned and operated by private individuals. 2. Socialism – the ownership of production and capital by the government and the regulation by society, as a whole, of the process of production and distribution, and of the giving of essential services. 3.Communism – stands for the collective ownership by the government of consumption goods and production goods. MEDIUM OF EXCHANGE 1. Barter Economy A barter economy is a cashless economic system where goods and services are exchanged based on the agreement of the parties involved 2. Money Economy Through time and evolution, money was used as a medium of exchange. Money solved the problem of barter economy, when such objects became standardized in value and regular in appearance so that it became identified and accepted by the general public as a medium of exchange. Consequently, a monetary system evolved. Money is anything which is characterized by its general acceptability, it redeem ability in precious metals, or public acceptance in any institution using it. 3. Money and Credit Economy Credit is the power to obtain economic goods and services in exchange for the promise to pay the agreed equivalent at some future time. Credit supplements money as a medium of exchange. Modem business operations have expanded through the availment of credit facilities, because the use of credit makes possible the growth of production and of sales. FEASIBILITY STUDY AND ITS COMPONENT A feasibility study is a study that takes into account all of the related factors of a project — including economic, technological , legal, and scheduling considerations— to assess the probability of successfully completing the project. Program managers use feasibility reports to determine a project's pros and cons before spending a lot of time and resources in it. The Importance of Feasibility Studies Feasibility studies are important to business development. They can allow a business to address where and how it will operate. They can also identify potential obstacles that may impede its operations and recognize the amount of funding it will need to get the business up and running. Feasibility studies aim for marketing strategies that could help convince investors or banks that investing in a particular project or business is a wise choice. COMPONENTS OF A GOOD FEASIBILITY STUDY Marketing Aspect – to determine the quantity of the product hat can be sold at a certain price given the competitive situation. Organization and Management Aspect – it includes study of the officers and key personnel, basic considerations in forming the organizations, form of ownership, organizational chart, and project schedule. Technical Aspect – it determines to what extent the project meets the technical soundness criteria. Financial Aspect- It quantifies the result of the marketing, technical, management, taxation and legal phases of the project study, and express in peso terms the outcome of the operating project. Socio- Economic Aspect- It determines how the project will affect: 1. Income 2. Taxes 3. Price 4. Local producers 5. Community  HOW TO REGISTER YOUR BUSINESS? Whether the type of enterprise you want to run in the Philippines is a sole proprietorship, a partnership, or a corporation, the basic legal requirements Many of the basic requirements of starting a business in the Philippines are the following: include: 1. Register the business with the corresponding department or DTI or SEC registration form agency Barangay clearance Zoning clearance Sole proprietorships must be registered with the Department of Trade and Sketch of the location Industry (DTI). Partnerships and corporations, on the other hand, must be Land title or contract of lease registered with the Securities and Exchange Commission (SEC). The name Community tax certificate of the business is also included in the registration. Public liability insurance Occupancy permit 2. Obtain a business permit Sanitary permit Environmental permit Head to the local government unit of the place you intend to operate your Fire permit business in. Secure a business or mayor’s permit. Each municipality has its own specific requirements and procedures for the registration of businesses, so be sure to check the individual websites of these areas for more information. 3. Register with the Bureau of Internal Revenue (BIR) After obtaining the necessary documents and permits, register the business with the Bureau of Internal Revenue (BIR). Business owners need to get a Taxpayer Identification Number (TIN) from the Revenue District Office (RDO) within the registered location of the business. There are two kinds BIR forms you can fill out depending on the type of business you’re starting. These forms are: Form 1901 for people who are self-employed, single proprietors, or professionals Form 1903 for partnerships and corporations 4. Registering with the SSS, PhilHealth, and Pag-IBIG Fund If you hire employees, register them with the necessary government programs. The Social Security System (SSS) is a social insurance program that collects the monthly contribution of employees, along with the share of their employer. The SSS gives employees health and retirement benefits from their monthly contributions, along with a variety of small loans. An SSS membership is mandatory for all employees who are 60 years old and below. The Philippine Health Insurance Corporation (PhilHealth) is another government agency that requires monthly contributions from the employee and the employer. The Home Development Mutual Fund (Pag-IBIG Fund) provides a variety of housing loans to employees. Monthly contributions are deducted from the salary of the employee. 5. Additional requirements: Aside from the requirements mentioned above, there are also other special requirements that businesses need. These requirements depend on the nature of the business and their corresponding industry. If you intend to open a school or offer training or education programs, register with the Department of Education (DepEd). For businesses that sell food products, register with the Bureau of Food and Drugs (BFAD) SOCIO ECONOMIC CONTRIBUTION OF ENTREPRENEURSHIP Entrepreneurship creates employment Entrepreneurship improves the quality of life Entrepreneurship contributes to more equitable distribution of income taxes and therefore eases social unrest. Entrepreneurship utilizes and mobilizes resources for greater national productivity. Entrepreneurship brings social benefits through the government.  REFERENCE ONLINE READING MATERIALS: Read an article about the factors of production available at : https://www.stlouisfed.org/education/economic- lowdown-podcast-series/episode-2-factors-of-production Read Chapter 1 of the book ― Management for Filipinos‖ by Conrado, Inigo Jr. available both in LMS and other media platform ( email ) Hayes, A. (2020). Business. Retrieved from:https://www.investopedia. com/terms/ b/business.asp Conrado, INigo Jr.( 2017). Management for Filipinos: Principles and Applications