Preparing for a Business PDF

Preparing for a Business What is business? A business is an organization or any other entity engaged in commercial, professional, charitable, or industrial activities. It can be a for-profit or not-for- profit entity and may or may not have a separate existence from the people/person c...

Preparing for a Business What is business? A business is an organization or any other entity engaged in commercial, professional, charitable, or industrial activities. It can be a for-profit or not-for- profit entity and may or may not have a separate existence from the people/person controlling it. What is business? Business is all the work involved in providing people with goods and services for a profit. What is Profit? Profit is the money left over from all sums received from sales after expenses have been deducted. Profit is the money you have left after paying for business expenses. Forms of Business Organization Organization A collection of people working together to achieve a common purpose Business Organization Business organization is a collection of people working together to achieve a common purpose in relation to their organization’s mission, vision,goals, and objectives, sharing a common organizational culture. 1. Sole Proprietorship A form of business that is owned, managed, and controlled by an individual. It is the simplest and the most numerous form of business organization. Advantages of Sole Proprietorship Ease of Start –Up With a small amount of paperwork and legal expenses, just about anyone can start a sole proprietorship. Relatively Few Regulations A proprietorship is the least-regulated form of business organization. Advantages of Sole Proprietorship Full Control Owners of sole proprietorships can run their business as they wish. Sole Receiver of Profit After paying taxes, the owner of sole proprietorship keeps all the profits Advantages of Sole Proprietorship Easy to Discontinue Besides paying off legal obligations, no other legal obligations need to be met to stop doing the business. Does not pay separate business income tax Not recognized as a separate legal entity. Owner pays only personal income tax on profits  Disadvantages of Sole Proprietorship Difficult to raise financial capital Personal financial resources available are limited and don’t like to loan money to new or very small business Difficult to raise human capital Difficulty in attracting qualified employees because of limited financial capital, may not be to able completing wages.  Disadvantages of Sole Proprietorship Size and efficiency Because of limited capital, the proprietor may not be able to hire enough personnel or stock enough inventory to operate business efficiently Lack of permanence Whenever an owner closes shop due to illness, retirement, or any other reason, the business ceases to exist. 2. Partnership - is a legal association of two or more persons who act as co- owners of the business. It combines the skills of several people, each of whom has a direct interest in the success of the business. Advantages of Partnership Ease of Start up Partnerships are easy to establish. There is no required partnership agreement, but it is recommended that partners develop articles of partnership. Shared decision making specialization In a successful partnership, each partner brings different strengths and skills to the business. Advantages of Partnership Larger Pool of Capital Each partner’s assets, or money and other valuables, improve the firm’s ability to borrow funds for operations or expansion and attract top talent. Taxation Individual partners are subject to taxes, but the business itself does not have to pay taxes. Disadvantages of Partnership ❖ More people to share in the profits ❖ Disagreements can occur ❖ Difficult to change partner ❖ Sudden dissolution 3. Corporation is an artificial person with an unlimited lifespan, empowered by a state to carry on a specific line of business, owned by shareholders or stockholders who are liable for damages only to the extent of their holdings. Advantages of Corporation Limited liability The shareholders of a corporation are only liable up to the amount of their investment Ownership Transfers Shares are freely transferrable instruments Advantages of Corporation Easy availability of capital It is relatively easy to raise huge capital Perpetual life There is no limit to the life of a corporation Disadvantages of Corporation ❖ Complex process ❖ Double taxation ❖ Start-up costs are higher 4. Cooperatives - is an association of people or small companies with similar products, services, or interests, formed to obtain greater bargaining power or gain from larger economies of scale. Advantages of Coperatives ❖ Different types may be formed ❖ Large pool of talents, skills, and knowledge ❖ Operate in a variety of sectors Disadvantages of Cooperative ❖ Limited capital ❖ Lack of managerial expertise ❖ Dependence on government  Categories of Business Enterprises Size of Enterprise Number of Total Assets Employees MICRO 1 to 9 Less than ₱ 3.0 M SMALL 10 to 99 Greater than ₱ 3 M up to ₱ 15M MEDIUM 100 to 199 Greater than ₱15 M up to ₱ 100 M LARGE 200 and above Greater than ₱ 100 M  Organizational Business Arrangements 1. Joint Ventures - is an approach where two or more companies establish a new company to pursue a mutual goal.  Organizational Business Arrangements 2. Contract Arrangements - it may also be the processing plant or the marketing organization making some organizational arrangements with various participants in the system.  Organizational Business Arrangements 3. FRANCHISING OPERATIONS - is a marketing system involving a legal agreement, whereby the franchise conducts business according to terms specified by the franchisor. FRANCHISOR - is the FRANCHISEE - is an party in a franchise entrepreneur whose power is contract that specifies the limited by a contractual methods to be followed relationship with a franchisor and terms to be met by the other party.  Enterprise Growth & Expansion Strategies 1. Horizontal Integration - refers to the “acquisition of additional business activities at the same level of the value chain. 2. Vertical Integration - is focus on the extension by an association of business activities to another stage of operation  Enterprise Growth & Expansion Strategies 3. Diversification - involves the broadening of the range or services specifically by adding new lines of service. 4. Merger - companies choose to acquire other companies as a means of growth.  Different Form of Merger 1. HORIZONTAL MERGER - is the combination of competing companies performing the same functions. 2. VERTICAL MERGER - is an approach wherein a company involved in one phase of business operation absorbs or joins a company involved in another phase of that business.  Different Form of Merger 3. CONGLOMERATE MERGER - offer tempting benefits: massive expansions of market, consolidation of management, and better chance in foreign markets. 4. SUPPLY CHAIN INTEGRATION - encompasses every effort involved in producing and delivering a final product or service, from the supplier’s supplier to the customer’s customer Thank you!!!