A public Ation of

Philippines-Australia Community Assistance Program

contents
list of tables, text boxes, and Diagrams foreword introduction

v

vi viii

pA r t 1
Copyright © 2009 by PACAP. All rights reserved. PACAP Consultant Raul Gonzales Cover Design East Axis Creative Publication Layout East Axis Creative Photo Credits PACAP

A p p ly i n g E f f E c t i v E S o c i A l E n t E r p r i S E procESSES What is an Enterprise?
“Official” Definitions of Enterprise PACAP Definition of Enterprise The Concept of “Social Enterprise” Defining an Enterprise The Basic Question Scope of Enterprise Planning and Analysis Risk Assessment The Key Questions Product Appraisal Market and Customer Appraisal The Marketing Plan The Key Question Assessment of Technology and Production Process Form of Business Enterprise Management Structure and Personnel Internal Controls The Key Questions Revenues Costs Projected Cash Flow Statement Projected Income Statement Break-Even Analysis Profitability Ratios

Section 1

3 3 5 13 13 13 14 17 17 18 22 29 32 43 48 52 55 55 57 57 62 63 64

Section 2

Enterprise Planning and Analysis: Overview

All Rights Reserved © 2009 Philippines-Australia Community Assistance Program If any part of this Social Enterprise Development Technokit is used, copied or reproduced, in any form or by any means, one should make the proper attribution to the Philippines-Australia Community Assistance Program (PACAP).

Section 3

Product and Market Considerations

Disclaimer Every effort has been made to present all information accurately, however, the Philippines-Australia Community Assistance Program or the Australian Agency for International Development assumes no liability for any damages or losses incurred in the use of this publication. Published by the Philippines-Australia Community Assistance Program 2309 Prestige Tower. Ortigas Avenue, Pasig City, Philippines http://www.pacap.org.ph/

Section 4

Production and Technology Considerations

Section 5

Organization and Management Considerations

Section 6
ISBN

Financial Considerations

Printed in the Philippines

Enterprise Appraisal at a glance: the Key Questions 67

pA r t 2 Section 7

rEfErEncES AnD rESourcES in SociAl EntErpriSE DEvElopmEnt Enterprise-Related Philippine Rules and Regulations
Registration Procedures for Starting a Business in the Philippines Government Agencies and Needed Clearances Labor Laws Local Ordinances

list of tables
1-1 1-2 2-1 2-2 4-1 6-1 6-2 6-3 7-1 9-1 9-2 9-3 9-4 9-5 9-6 9-7 9-8 9-9 9-10 9-11 9-12 9-13 9-14 9-15 Characteristics of Different Size Businesses 6 Differentiating Social Enterprise from Traditional Business 12 Scope, Objectives and Outputs of Enterprise Planning and Analysis 16 Risk Assessment Matrix 17 Projected Schedule of Enterprise Operations 32 Summary Presentation of Variable Costs/Unit of Product to be Produced 58 Sample Projected Cash Flow Statement 60 Sample Projected Income Statement 65 Procedures for Staring a Business in the Philippines 71 Local Price Chain of Palay and Rice (in pesos) 106 Projected Market of Palay and Rice 106 Estimated Production of the Target Sites 107 Major Palay Buyers Operating within ARFIA Areas of Operations 107 Production and Marketing Equipment of the Federation 110 Variable Costs (in pesos) 112 Palay Procurement Schedule 112 Projected Sales Schedule for Year 1 113 Projected Average Selling Prices 113 Projected Cash Flow Statement for Wet Palay, Month 1/Quarter 1 114 Projected Cash Flow Statement for Wet Palay, Month 10/Quarter 4 115 Projected Cash Flow Statement for Dry Palay, Month 4/Quarter 2 116 Projected Cash Flow Statement for Dry Palay, Month 10/Quarter 4 117 Consolidated Projected Cash Flow Statement (Enterprise Level), Year 1 118 Projected Income Statement for Year 1 120

71 77 86 87

Section 8

Directory of Selected Resources

Department of Labor and Employment 89 Department of Science and Technology 90 Fiber Industry Development Authority 91 Intellectual Property Office 91 Philippine Coconut Authority 92 Technical Education and Skills Development Authority 93 Technology Resource Center 93 Foundation for Sustainable Society, Inc. 95 Peace and Equity Foundation 98

Section 9

Preparation of a Business Plan Participatory Value Chain Analysis

Background Sample Business Plan Definition of Value Chain What is Value Chain Analysis? Empowerment through VCA Value Chains Analysis for Enterprise Development The PVCA Approach Limitations of PVCA

101 105 127 127 128 129 129 130

list of text boxes
1-1 3-1 3-2 3-3 4-1 4-2 4-3 4-4 5-1 5-2 5-3 6-1 6-2 9-1 Business Center for the Products and Services of Persons with Disabilities Enhancing Table Banana Production and Marketing in Angas Making Handicrafts for the Tourist Market Further Development of Markets and Services for the Traditional Textile Producers of Aklan Mud Crab Production Sustaining Differently-Abled People’s Initiative for Self-Reliance and Development Rural Enterprise Development for Buri Handicraft Producers Loom Weaving Industry Upscaling for Economic Development Project Village Level Integrated Coconut Processing Project Comprehensive Marketing Program for the Horticulture Industry of Capiz Enhancing and Protecting an Agro-Forestry Area through Abaca Fiber Production Dao Garments and Bags Industry Enterprise Appraisal at a Glance Detailed Format of the PACAP Business Plan

Section 10

6 19 24 26 32 35 38 40 43 46 49 60 67 101

pA r t 3

trAining moDulE on SociAl EntErpriSE p l A n n i n g A n D A n A ly S i S

training module on Enterprise planning and Analysis 133

list of Diagrams and figures
4-1 4-2 9-1 10-1 Schematic Presentation of Production Process Sample Production Process Flow Chart Marketing Activity Flow The Forest, Timber and Furniture Value Chain

29 31 109 128

foreword
Australia has been providing official bilateral assistance to the Philippines for nearly 60 years now, its overarching objective being to make a contribution to improving the prospects for economic growth, poverty reduction and national stability within a neighbouring country with which it shares many common perspectives on regional, economic and security issues.
An integral part of Australia’s assistance for more than 23 of these years has been the Philippines-Australia Community Assistance Program (PACAP), provided through the Australian Agency for International Development (AusAID), and its counterpart agency within the Philippines, the National Economic Development Authority (NEDA). PACAP’s history has included a number of funding phases, the most significant of these being the current six year phase ending in September 2010. During this time PACAP has been delivering over A$20m (around Php 740m) to poor communities throughout the Philippines. PACAP partners with a variety of organizations – people’s organizations, non-government organizations and Local Government Units – providing these partners with grants to implement development projects that aim, in one way or another, to improve the quality of life of poor communities. All PACAP projects are community-initiated, economically sustainable, ecologically sound, and gender responsive. During its current phase, PACAP has in fact undertaken 448 such projects, over 80 percent of which have contributed to economic growth in communities through a blend of agricultural and/or small enterprise often with a social credit component. Less than one-fifth of these projects are completed but already PACAP has benefitted in excess of 43,400 people. All small enterprise projects supported by PACAP have been successful, although
vi

in the way of things, some have been more successful than others. Most projects for instance have generated additional employment opportunities (an average of 1.6 new full time jobs for each project completed so far), while almost two-thirds of projects have led to the development and marketing of new products. All projects have also reported increases in their monthly returns. In fact for pre-existing enterprises (77 percent of small enterprise projects), an almost threefold average increase in monthly income has been reported (from Php17,575 to Php68,813). On the other hand, start-up enterprises have only achieved modest average monthly incomes (Php13,037). This is hardly surprising – most start-up enterprises (especially those implemented by organisations that are in themselves new) struggle to ensure their sustainability, and it is this concern that has resulted in the development by PACAP staff of this Social Enterprise Development Technical Kit. This Kit then is specifically aimed at helping fledgling enterprises survive the challenging start-up phase. It addresses the difficulties all small enterprises struggle with during start-up – whether in production, finance, staffing, management or marketing – outlining in a simple and effective manner, lessons, tools, examples and references that should help all start-up enterprises to not just survive the learning curve they are confronted with, but to flourish in the process. The Kit has the additional advantage that is a written record of the hard-won lessons of PACAP’s many and varied experiences – lessons that are all too often lost at program closure or when staff depart. In short, the Social Enterprise Development Technical Kit is meant as a key resource useful for both the preparation of business plans and the design of operational procedures. In terms of audience, it is a resource aimed at both PACAP staff for use in training and evaluation, and its partners, being perhaps especially pertinent to those partners who plan to expand their businesses after PACAP exit. It would be gratifying if it also found application within the broader development community, including within academic institutions. In any event, it will certainly prove useful as a basis for workshops, as part of the training of PACAP stakeholders and proponents, and as the main tool by which to evaluate Enterprise Development proposals. To further enhance the usefulness and durability of this Social Enterprise Development Kit, PACAP plans to sign Memorandum of Agreements with interested organizations allowing them to use, expand, enhance and republish the Kit in ways that fit with their own ongoing activities. The staff at PACAP sincerely hope that all the effort and experience that has gone into the creation of the Social Enterprise Development Technical Kit will bear fruit, especially in the lives of the poor whom we seek to serve. n

DAVID SWETE KELLy PACAP Program Director Tuesday May 26, 2009

vii

introduction
The Philippines-Australia Community Assistance Program (PACAP) is a bilateral development program supporting community-initiated, economically sustainable, ecologically sound and gender responsive development efforts. It aims to achieve this through financial assistance and multi-level capability building in partnership with local government units (LGUs), non-governmental organizations (NGOs), and people’s organizations (POs) with the end-view of improving the quality of life of poor communities.
PACAP is a joint effort between the Australian Government and the Government of the Philippines. The National Economic and Development Authority (NEDA) acts as counterpart agency of the Philippines. Since its inception in 1986, the Program has been managed by a Secretariat comprised of locally engaged staff contracted by and accommodated within the Australian Agency for International Development (AusAID) Manila Office at the Australian Embassy. In January 2005, the management of PACAP was turned over by AusAID to GHD-Hassall, an Australian Managing Contractor. Over its history, PACAP has made some efforts to capture lessons arising from its projects both from a process and technical perspective. This has been particularly efviii

fective with PACAP processes, such as: (a) the evolution of the original Area Focused Approach and its current transformation into the major Focal Community Assistance Scheme; (b) refinement of the operational and administrative procedures in the PACAP Operations Manual and Project Management Manual; (c) institution of an Annual Quality Audit of PACAP operational procedures to ensure progressive improvement; and (d) implementation of an effective program M&E Framework and the supporting M&E Information System. On the technical side, however, PACAP has been less successful in learning from its many and varied experiences. While technical skills develop rapidly during the time that staff members are employed with PACAP, the program has little capacity to retain this corporate memory when staff leave or effectively share this experience when training up new and existing staff. In addition, there is the challenge to disseminate PACAP’s learnings and best practices more widely. To address this learning need, a series of Technical Kits have been scheduled for development. The PACAP Technical Kits are envisioned as a series of separate packages developed for the main proposal types received by PACAP. Issues are prioritised based on demand but could include topics as wide-ranging as microfinance, potable water, sanitary land fill, peace & conflict, gender, enterprise development, advocacy, and many others. First to be developed was a Microfinance Technical Kit. This Social Enterprise Development Technical Kit is the second of the series. The Social Enterprise Development Technical Kit is meant to be a key resource that is expected to be useful for both the preparation of business plans and enterprise operations. The Technical Kit will form the basis of workshops, sharing and training with PACAP stakeholders and proponents and the main tool for appraising and evaluating enterprise development project proposals. In terms of audience, the Enterprise Kit will be useful to both staff and partners (including partners who plan to expand their businesses after PACAP exit) and have application to the broader development community (including academic institutions). The following 14 PACAP-supported projects/enterprises were reviewed for inclusion in the Enterprise Kit:

project/Enterprise title
Rural Enterprise Development for Buri Handicraft Producers Palay and Rice Trading Enterprise Comprehensive Marketing Program for the Horticulture Industry of Capiz Village Level Integrated Coconut Processing Project

pAcAp partner
Antique Development Foundation,(ADF), Inc. and Buri Handicraft Association (BUHAI) Aganan River Federation of Irrigators’ Association (ARFIA) Capiz Multi-Purpose Cooperative (CMPC) Capiz Small Coconut Farmers Marketing Cooperative (CASCOFAMCO)

uu
ix

project/Enterprise title
Dao Garments and Bags Industry Cooperative Rice Trading Further Development of Markets and Services for the Traditional Textile Producers of Aklan Mudcrab Production Enhancing Table Banana Production and Marketing in Angas Sustaining Differently-Abled People’s Initiative for Self-Reliance and Development Enhancing and Protecting an Agro-forestry Area Through Abaca Fiber Production Business Center for the Products & Services of Persons with Disabilities Making Handicrafts for the Tourist Market Loom Weaving Industry Upscaling for Economic Development (LOUD) Project

pAcAp partner
Dao Federation of Small Farmers Multi Purpose Cooperative Federation of Agrarian Reform Communities Cooperatives (FEDARCCO) Handicraft of Aklan Multi-Purpose Cooperative (HAMPCO) Aspiring for Community Empowerment through Livelihood Loans and Trainings (ACELT) Pinaghiusang Pondok Alang sa Malahutayong Agraryo (PAPASMA) San Francisco Association of Differently Abled Persons Multi-Purpose Cooperative San Isidro Upland Farmers Multi-Purpose Cooperative (SIUFMULCO) Tahanang Walang Hagdanan Uswag Arts and Crafts / Uswag Development Foundation Visayas Cooperative Development Center (VICTO-Bohol) and the Tubigon Loomweavers Multi-Purpose Cooperative

One clear lesson that emerged from the above review is that, almost without exception, an enterprise goes through a start-up phase where it meets significant problems – whether in marketing, production, finance, or management – that can threaten the very survival of the enterprise. Most of the 14 enterprises have already been able to surmount these start-up problems, while a few continue to struggle through the “learning curve.” Across the 14 enterprises surveyed, PACAP intervention occurred at different stages of their development. In some, PACAP assistance was used to either start up the enterprise; in others, it was shortly after the start-up phase. In many instances, PACAP became involved after the partners and their enterprises had already conquered its start-up problems, while for a few, PACAP entry coincided with their emergence from the learning curve. Without exception, the enterprises that are now doing very well are those who had overcome their start-up issues successfully before the entry of PACAP. It is hoped that this social enterprise development technical kit will be able to help start-up enterprises to shorten their learning curve. n

x Social Enterprise Development: Community Businesses at Work

An enterprise is eligible for PACAP support to the extent that it is committed to a triple bottom line, that is, it seeks to accomplish objectives that are social and environmental as well as financial. n

Section1
“Official” Definitions of Enterprise PACAP Definition of “Enterprise”

What is an Enterprise?
Republic Act 9178 defines a Barangay Micro-Business Enterprise as “any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of land on which the particular entity’s office, plant, and equipment are situated, shall not be more than PhP3-million.” Similarly, the Department of Trade and Industry (DTI) classifies businesses in terms of asset size and number of workers employed. Microenterprises are defined as businesses with assets of up to PhP3-million and employing less than 10 workers. Small enterprises have assets from PhP3,000,001 to PhP15-million and employ between 10-99 workers. And medium enterprises own assets from PhP15,000,001 to PhP100-million and employ 100 or more workers. Apart from asset size and workers, other criteria – place of business, production process, financial system, credit sources, markets and legality – have also been used to differentiate between different-size businesses (see Table 1-1).

Section 1

PACAP adheres to the income-generating aspects of the above definitions but is not strict about the classification criteria of assets and workers employed. It does, however, make a distinction between survival livelihood activities (usually operated by households) and larger-scale activities (= enterprises) that deal with the complex range of enterprise issues related to marketing, production, finance, management. PACAP makes a further distinction between microfinance projects (quasi-banking activities of credit and savings involving a number of borrower-microentrepreneurs, each with his/her small business) and enterprises (which are focused on a single business activity). A third distinction is between enterprises and community water supply and other social service activities that incorporate user-fee schemes for cost-recovery and long-term sustainability. As a grant-making entity, PACAP supports projects that are, by definition, different from enterprises. Projects have definite start- and end-dates, while enterprises are expected to exist indefinitely, at least in theory. In funding an income-generating activity, PACAP is actually supporting the start-up phase of the whole enterprise or, more commonly, the start-up of one of its components. The assessment of the PACAP-supported businesses cited in this
3

Table 1-1. Characteristics of Different Size Businesses
micro-business
no. of employees place of business 1-4 At home 5-9 Shop next to home or nearby

Small

Small-medium
10-29 Separate from home

medium
30-49 Separate location; more sophisticated building Complex production process; may be more capital intensive Accounting systems and financial records maintained, planning and management reports also in evidence Some access to formal credit, but these sources operate slowly and are inflexible in meeting pressing needs

Enterprise Kit has ignored this artificial distinction, however and chosen to focus instead on the entire enterprise and not merely on the component funded by PACAP. Consistent with its pro-poor orientation, PACAP’s motivation in supporting enterprises is not only found in the latter’s projected profitability but, equally important, in the potential benefits it can generate for its target beneficiaries. Apart from employment and income, other expected benefits are enhanced gender equity, community participation, environmental protection and regeneration and peace-building. ƒ Enhanced gender equity means women have equal opportunities as men to realise their individual potential and to benefit equally from their participation in society. ƒ Community participation means working with all members of the community and attending to the different needs, interests, priorities and roles of women, men, boys and girls, and the relations between them. ƒ Environmental protection and regeneration means understanding that the prevention of environmental degradation will make poverty reduction and development more sustainable in the longer term. ƒ Peace-building means growth and poverty reduction in conflict-affected areas. Put another way, an enterprise is eligible for PACAP support to the extent that it is committed to a triple bottom line, that is, it seeks to accomplish objectives that are social and environmental as well as financial. In this sense, PACAP’s view of an enterprise is consistent with the notion of “social enterprise.”

production process

Simple

Simple but slightly more advanced, more steps Basic accounting system

More sophisticated, several different steps with specialization of labor Accounting system and records in place and payroll or personnel system

financial system

Cash flow accounting, no formal documentation

credit sources

Informal sources at higher interest rates. No access to formal credit due to lack of business records and collateral. Local market

Informal sources; need for working capital for supplies and equipment financing

Informal sources; formal credit could be accessible but remains difficult to obtain

The Concept of “Social Enterprise”
According to Social Enterprise London, social enterprises share a number of common characteristics, including: ƒ Enterprise orientation. They are directly involved in producing goods or providing services to a market. They seek to be viable trading organisations with an operating surplus. ƒ Social aims. They have explicit social aims, such as job creation, training or the provision of local services. They have ethical values, including a commitment to local capacity building, and they are accountable to their members and the wider community for their social environmental and economic impact. ƒ Social ownership. They are autonomous organisations with governance and ownership structures based on participation by stakeholder groups (such as users or clients, or local community groups) or by trustees. Profits are distributed as profit sharing to stakeholders or used for the benefit of the community. The above concept of social enterprise is exemplified in the Business Center of the Tahanang Walang Hagdanan (TWH), one of the enterprises reviewed for this Social Enterprise Development Kit (see Box 1-1).

markets

Local market with some expansion

Local and national Regional or market, competi- national markets. tion apparent, Export is possible. larger quantities of raw materials and supplies needed. Forward and backward linkages to national and community economy. Registered Registered; abides by government policy and regulation (i.e., tax and labor regulations, import/export licensing.

legality

Unregistered. Operate in informal economy.

Unregistered

Adapted from Cotter, James, A Project Manager’s Guide to Small Enterprise Development. As quoted in Monitoring and Evaluating Small Business Projects, A Step by Step Guide for Private Development Organizations. Private Agencies Collaborating Together (PACT). 1987.

4 Social Enterprise Development: Community Businesses at Work

Section 1 | What is an Enterprise? 5

Box 1-1. Business Center for the Products & Services of Persons with Disabilities n Tahanang Walang Hagdanan
Context Tahanang Walang Hagdanan (TWH) was founded in 1973 to respond to the needs of Persons with Disability (PWD). One of its major, long-running programs has been livelihood support for PWDs. Within the TWH compound in Cainta (Metro Manila) are four workshops (Metalcraft, Woodcraft, Needlecraft and Business Center) that conduct training to PWDs in employable skills, while providing them with actual employment and income. The Metalcraft Department, which manufactures wheel chairs and all kinds of mobility aids, is recognized throughout Asia as a center of excellence and is used as a training facility by the disabled in other countries of the region. The main products of the Woodcraft Department are didactic materials and educational toys for Montessori schools and government daycare centers. It also makes company give-aways, kitchen ware and other novelty items. Within the TWH compound are some 350 employees, workers, students and staff. Seventy percent of these are PWDs, while the remaining 30 percent are either relatives or immediate family members of the PWDs. Apart from funding a number of TWH projects in the late 1980s and early 1990s, PACAP support is acknowledged as having been instrumental in launching the TWH Woodcraft Department. Beyond Training Despite the large number of PWDs already employed in TWH center-based enterprises, these represent only a very small fraction of the PWDs needing work and income. To address the needs of community-based PWDs, TWH has been conducting production skills and entrepreneurship development training to PWD groups and individuals for over 30 years. As a result, many TWH graduates have actually gone on to establish microenterprises and manufacture products to sell. Some of them, gifted with talents and skills, have produced items whose quality is at par even in the international market. Unfortunately, many of these micro-businesses have not been sustainable, mainly because of poor access to markets. With this realization, TWH decided to expand its marketing activities to include products made by community-based PWD entrepreneurs. The expansion of marketing operations would be accomplished through the establishment of the TWH Business Center. The TWH Business Center The Business Center project, a winner of the 2006 Panibagong Paraan competition, seeks to maximize the economic potential of PWDs, which has been largely constrained by limited market exposure. As a physical structure, the Business Center-cum-Gift Shop showcases PWD products, facilitates access to local and international markets, and provides the venue where marketing agreements can be negotiated. As a service unit, the Business Center supports the economic activities of the PWDs as follows: ƒ ƒ Promotions, through a website on the services of the center, production of brochures, product catalogues, newsletter, and participation in bazaars, expos, and exhibits; Matching and linking PWD product/services with interested clients/buyers through a database on PWD groups and individuals, the goods and services they produce, and possible customers/clients; Formal training on product development, packaging and labeling and the conduct of sales clinics and market consultations

ƒ ƒ

Capacity to enhance the marketing skills of PWD entrepreneurs; and Expansion of the TWH market and support system of companies and government agencies to promote the products of PWD groups and individuals.

Business Center Management The Center is headed by the Chief Executive Officer of Tahanang Walang Hagdanan and staffed by TWH managers with many years of experience in dealing with local and export markets, both private and government. These managers are responsible for the day-to-day operations of the Business Center, including: (a) advertising and promotion of products through brochures, flyers, the internet, and so on.; (b) contract work, sales calls and negotiations with national and local government entities and private corporations; (c) coordination with PWD producer groups and individuals; (d) mobilization of graphic artists for design work and technology transfer to PWD entrepreneurs; and (e) research and development (R&D) to determine market trends, conduct value analysis and identify cost-reduction measures. PACAP Assistance A PACAP grant of PhP1-million was provided to the Business Center in 2006. The grant was utilized for: (a) Renovation of Existing Building for the Business Center (PhP227,000), (b) Center Management and Systems Development (PhP413,000) and (c) Capacity Building (PhP360,000). In general, the activities of the Business Center have proceeded according to plan approved by PACAP. Since November 2006, the Business Center has actively joined bazaars and exhibits and facilitated work contracts for PWDs with identified buyers. Promotions strategies – printing of brochures, publication of a newsletter and a website – have also been undertaken. Workshops have also been conducted on (a) packaging and labelling, (b) team building and personality development, (c) new technology on wood finishing, and (d) learning and experience sharing in production. Twenty-seven new product designs have been developed: 15 designs for wood and metal crafts; six designs for needlecrafts and six designs for recycled paper products. Finally, two market outlets have been established, a freestanding stall on the ground floor of the “Market! Market!” complex in Taguig and the Gift Shop inside the TWH compound. In addition, TWH is a regular supplier of the National Book Store chain, Cash and Carry Supermarket and Abenson’s Home Plus (for kitchen items and educational toys). TWH recently concluded an agreement with the SM Malls to establish kiosks in all SM branches nationwide. TWH Relations with Community-Based PWD Producers TWH currently works with some 21 PWD entrepreneurs (groups and individuals). These entrepreneurs, many of whom are graduates of TWH training, must be actual producers (not merely traders). To avoid competition among PWD producers, TWH makes sure that PWD products have a distinctive quality that differentiates them from similar items. To be a member of the Business Center, a PWD entrepreneur must pay a membership fee of PhP200 and PhP500 for individuals and group, respectively. To test the marketability of members’ new products, these are displayed on the shelves of the two TWH outlets and included in the products promoted through trade fairs. Members’ products with demonstrated marketability are included in the TWH brochure, which uu

ƒ

6 Social Enterprise Development: Community Businesses at Work

Section 1 | What is an Enterprise? 7

is issued yearly and updated periodically through the insertion of flyers describing new products. Because of funding constraints, TWH is unable to provide financial support for the production activities of PWD entrepreneurs. However, it does provide limited advances (PhP2,000–5,000) to producers whose products are displayed in the TWH outlets. TWH adds a 10-percent margin to the selling price of the PWD items as its commission. Marketing Strategy The Business Center’s target customers are government agencies (including LGUs) and private corporations. To identify possible contracts, TWH does research on government budgets. One output of this research is the production of educational toys for government day care centers, currently one of the largest revenue sources of TWH. The approach to private corporations is slightly different but equally systematic. First, TWH calls the potential client to identify the individuals responsible for the company’s CSR (corporate social responsibility) strategy. TWH has found company receptionists to be quite sympathetic and helpful in providing contact details of the employees responsible and in giving information on potential opportunities. TWH attributes this positive response to its good reputation and the universal concern for the disabled. TWH then sends a letter to these individuals, telling them what TWH does, what it can offer and requests for appointment. The first meeting – where the TWH marketing manager is accompanied by the PWD producers themselves – is often a free-wheeling discussion where company representatives sometimes propose possible PWD products that would be in line with the corporation’s CSR objectives and programs. Eventually, decisions are made, marketing agreements are finalized and orders are placed. Support Strategies Sometimes, the original PWD producer is unable to meet the volume requirements of the corporation. When this happens, TWH augments the production capacity of the community-based PWD producer through sub-contract agreements with other PWD groups and/or its own workshops. The reverse is also true. During peak production periods, the Business Center sub-contracts some job orders of its workshops (e.g., manufacture of recyclable bags and educational toys) to community-based PWD producers. While TWH serves as the “face” of PWDs in negotiating with clients, “back-room” production is in the hands of producers who operate independently of TWH, a situation that is similar to a subcontracting arrangement. Maintaining its reputation with clients requires that TWH must manage its “sub-contractors” carefully. One important measure is constant monitoring to determine the capacity of the PWD producers to deliver on orders. TWH makes sure that job orders never exceed producer capacity; PWD producers are issued bigger orders only if they performed well on previous jobs. The TWH workshops also perform useful roles as back-up facilities to meet production shortfalls. The R&D group within TWH serves a critical function in this regard: it is tasked with developing the production methods needed by the TWH workshops to manufacture the required items. Financial Performance For the year ended September 30, 2007, TWH as a whole (including the four workshops, Main Office and General Services) had total revenues in excess of PhP24-million and a net income of PhP807,000. During the nine month period ended June 30, 2008, total revenues amounted to PhP16.3-million, while net income was PhP653,000. On a yearon-year basis, revenues in fiscal year 2008 are likely to be lower than 2007 but it is likely

that net income in 2008 will either be the same or marginally higher than 2007. The financial performance of the Business Center, which is segregated in the TWH income statement, improved in 2008 compared to 2007. For the first nine months of fiscal year 2008, Business Center sales amounted to PhP2.2-million, up by PhP700,000 from the PhP1.5-million sales in 2007. Business Center gross profit has increased as well, from PhP608,000 in 2007 to PhP1.1-million in 2008. Problems Despite its good operational and financial performance, TWH is not without its problems. For one, even if all of its profit centers are operating in the black, TWH is still dependent on donations and grants for a sizeable portion of its social welfare activities for PWDs. Its woodworking machines and equipment are old and need constant repair. The biggest problem of the Business Center is the lack of working capital: TWH customers pay on a credit basis but the Business Center must pay PWD producers in cash upon delivery. Another formidable challenge is competition from China. Finally, the ongoing economic slowdown has closed down the operations of many corporate customers, thus forcing TWH to shift strategy and accept even small orders. In deciding whether to accept an order, profit is less important to the objective of keeping TWH workers employed. Small orders are accepted as long as direct costs are recovered and the gross profit contributes to overhead costs. Cost-Reduction Measures Reducing cost of sales (materials and labor) is a constant concern of management in a manufacturing concern. Towards this end, TWH is effecting a shift towards piece-rate (as opposed to daily rate) modes of compensation because its experience shows that piece-rate compensation results in more satisfied employees doing better quality work in less time. In addition, TWH management has instituted the practice of “productivity incentive bonuses”, which enable workers to receive a percentage of any savings on the materials and labor budget allocation for individual job orders. Plans In the long-term, TWH will target foreign markets for its PWD products. An initial strategy is to work with foreign businessmen who import products from the Philippines. At some point, however, TWH hopes to sell directly in other countries, using Philippine embassies abroad as their display centers. This long-term objective will require systematic market research to determine the products preferred in target countries and their quality standards. n

Because of the almost universal sympathy for persons with disability (PWDs), some may say that government and private corporations will sometimes bend over backwards to place an initial job order with PWD producers. Repeat orders, however, are based on the ability of the PWD producers to meet on-time delivery schedules and adhere to quality standards. In other words, TWH and its PWD producers are issued repeat orders because “they mean business” – that is, they are prepared to operate effectively in the mainstream business environment.
Section 1 | What is an Enterprise? 9

8 Social Enterprise Development: Community Businesses at Work

Small entrepreneurs generally pay lip service to the importance of marketing. Very few, however, are prepared to make the necessary investments in marketing infrastructure. In TWH, there are dedicated staff members whose main function is to identify potential government contracts, make sales calls to potential corporate clients, and so on. These investments in marketing have been largely responsible for the evolution of an entrepreneurial culture in TWH where every staff member is constantly on the look-out for business opportunities. While entrepreneurial, TWH is also prudent. This prudence was recently demonstrated in its newest venture, a call center business. Recognizing that it had little knowledge of the call center industry, TWH chose to joint venture with an accredited call center agent. Under the arrangement, TWH provides the venue and employees, while its partner provides the customer listings, telephones, computers and operations management. The call center, which started in late October 2008, already employs about 20 PWDs. The following table highlights the major differences between social enterprises and traditional businesses. It is drawn from the recent study of Dacanay (2004) on social enterprises in Asia. n

Table 1-2. Differentiating Social Enterprise from Traditional Business
Enterprise Element
Primary stakeholders/ beneficiaries Primary objectives

Social Enterprise
A community or group, involving marginalized sector(s) of society Double or triple bottom line: ƒ financial sustainability and growth ƒ improvement of quality of life of a marginalized sector, group or community ƒ environmental sustainability ƒ cultural integrity Distributive: ƒ benefits accrue to a broader segment of society/public at large; ƒ profits are generated with due regard to social and environmental costs

traditional business
Stockholders, consisting of rich individuals and/or families who own capital Bottom line: ƒ profit

Enterprise philosophy

Accumulative: ƒ minimization of costs and maximization of profits towards enrichment of the individuals or families ƒ social and environmental costs externalized

Source: Dacanay, Marie Lisa M. (editor). Creating Space in the Market, Social Enterprises in Asia (pp. 6-8). Asian Institute of Management and Conference of Asian Foundations and Organizations. 2004

10 Social Enterprise Development: Community Businesses at Work

Section 2
12

Enterprise planning and Analysis: overview
Defining an Enterprise
The first step in enterprise planning is to define the enterprise. Typically, enterprises are often defined either as manufacturing (single product and multiple products), trading (wholesale and/or retail), service, banking, or farming (=agribusiness) concerns. While the above typology is important, it is better way to define an enterprise in terms of its target customers. In other words, an enterprise can be defined in terms of: ƒ Customer needs, or what is being satisfied ƒ Customer groups, or who is being satisfied ƒ The technologies used and functions performed, or how customers’ needs are being satisfied.

Section 2

The Basic Question
Once an enterprise has been defined, further planning and analysis should focus on the following basic question: “Can the planned Enterprise produce a product(s) at a price that its target customers are willing to buy and can it sell a sufficient number of these products to stay in business?”

Scope of Enterprise Planning and Analysis
There are four major areas – market, production and technology, organization and management and finance – in enterprise assessment. The following (see Table 2-1) lists the objective and desired outputs of the analysis in these four areas.

13

Table 2-1. Scope, Objectives and Outputs of Enterprise Planning and Analysis Element objective output
Market To determine: ƒ Whether the enterprise can sell ƒ How many it can sell ƒ How it must sell To determine whether the enterprise can produce its products at the desired: ƒ Quality ƒ Cost ƒ Time required by its customers To determine: ƒ Appropriate organizational structure ƒ Management staffing requirements ƒ Earliest/latest start of normal business operations To determine: ƒ How much initial capital is required ƒ Where to source funds ƒ Projected financial performance ƒ Whether projected financial performance is satisfactory 1. Product specifications 2. Demand and supply situation 3. Sales projections 4. Marketing plan 1. Choice of technology/ manufacturing process 2. Land and infrastructure 3. Machinery & equipment 4. Labor requirements 5. Raw materials 1. Form of business 2. Organizational structure 3. Staffing plantilla

The potential adverse impact of a sudden loss of needed raw materials would be a stoppage in production activities and consequently, a reduction of products for sale. Clearly, the likelihood of occurrence of a particular risk – such as, the loss of raw material supply – will vary from one enterprise to another. Each enterprise must make a judgment whether the likelihood of occurrence is high, medium or low. In the same way, an enterprise must make the judgment on the level of impact – once again, whether high, medium or low – that a risk will generate if it does occur. If the probability of occurrence and level of impact of an identified risk are both rated high, a risk management strategy must be devised to address the risk and an individual or group assigned to administer the strategy. In the SAFRA-ADAP Furniture-Making Enterprise cited in Section 4 (see Box 4-2), a key risk is the uncertain supply of Gmelina wood, the major raw material for the school chair product of the cooperative. To ensure a continuous supply of Gmelina, SAFRA-ADAP has established and maintained good relations with “lumad” Community-Based Forest Management (CBFM) associations and individual tree planters in many parts of the Agusan del Sur largely through its members who are themselves “lumad.” (Note: “Lumad” is the term for the native peoples of Mindanao.) Equally important, SAFRA-ADAP deals fairly with the tree planters and this is recognized by the latter and serves as the basis for their continuing relationship. The following table is recommended as a way of organizing and presenting the results of a risk assessment exercise. n

Production and Technology

Organization and Management

Finance

1. Total project cost 2. Sources and uses of funds 3. Financial projections (cash flow and profit/loss) 4. Profitability (Return on Investment and Payback Period)

Risk Assessment
Understanding potential risks is particularly important in the planning of an enterprise. The S-T-E-E-P framework – with its comprehensive typology of risks – is a useful starting point in the identification of possible enterprise risks. The STEEP framework postulates that there are five categories of types of risks, as follows: ƒ Social: socio-cultural norms that may inhibit participation in, or adoption of program or enterprise initiatives ƒ Technical: factors affecting the quality of resources required for success ƒ Economic: factors affecting the quantity of resources required for success ƒ Ecological: environmental externalities that may affect program or enterprise success ƒ Political: relational factors between various stakeholders that may affect program or enterprise performance. To take one example, an economic risk common to many PACAP-supported enterprises is the uncertain supply of needed raw materials.
14 Social Enterprise Development: Community Businesses at Work

Table 2-2. Risk Assessment Matrix types of risks potential likelihood of risk Adverse occurrence impact on the Enterprise
Social Technical Economic Ecological Political
Notes: 1. Likelihood of Occurrence: H=High; M=Medium; L= Low 2. Level of Impact: H=High; M=Medium; L= Low

level of impact

risk person(s) management responsible Strategy

Section 2 | Enterprise Planning and Analysis: Overview 15

Section 3
The Key Questions Product Appraisal
16

product and market considerations
While NGOs have made significant contributions to society in terms of advocacy for human rights, people’s participation and provision of social services to disadvantaged communities (particularly in health care), their efforts at economic development – that is, in raising the incomes of their client poor – have been less successful. With the exception of microfinance programs, the performance of NGOs in community-based economic development, and particularly in enterprise development, has not lived up to expectations. More often than not, NGO-initiated enterprises fail because of a deficient analysis of the markets in which they operate. NGOs rarely have a good understanding of their target market, of the dynamics and rationality of monopolistic actors in established marketing chains that are not easy to break because they are carefully built up and fiercely defended. Many PACAP partners are engaged in enterprise development. Their products are varied, agricultural crops (such as, rice, vegetables, marine products, fruits, livestock and poultry products, and so on), handicrafts (such as, rattan products, stuffed toys, garments, baskets, furniture, and so on) and processed food products. Many of these enterprises are faced with problems and issues related to the marketing of their products, which is crucial in the profitability and sustainability of these business enterprises. Clearly, there is the need for a strong market orientation, which is, simply stated, determining what your customers want and then giving it to them. Stated another way, it means finding answers to the following four questions: ƒ What is the product? ƒ To whom will the enterprise sell its product(s)? (= target customers) ƒ How many can it sell? (=target market share) ƒ How shall it sell? (=market strategy)

Section 3

Every product embodies a value(s) desired by its target customer. A customer will buy a product if the latter contains the value s/he wants and if that value is greater than the cost to be incurred by the customer in purchasing the product.

17

In quasi-mathematical terms, the Total Customer Derived/Delivered Value (TCDDV) of a product is the difference between its Total Customer Values (TCV) minus its Total Customer Costs (TCC). TCV is not only limited to the utility value of the product but also includes service, image and personal values. Analogously, TCC is not only monetary but also involves convenience, time/energy and psychic costs. The inability to appreciate non-monetary costs is one reason often cited for the failure of government rural credit programs (such as, the Masagana 99 of the Marcos era and other more recent farm credit programs) to wean farmers away from private moneylenders. The low interest rates on loans (=customer value) offered by government credit programs is not enough to offset the convenience, time/energy and psychic costs required of farmers (=customer cost) to obtain a government loan. As a result, farmers prefer the local “loan shark” because of the latter’s lower costs overall. Put another way, microfinance programs have been successful – despite their higher-than-bank interest rates – because of their adoption of private moneylender practices, which have reduced the convenience, time and psychic costs of their target borrowers. It is important to describe a product by listing its physical properties, e.g., type, use, shape, weight, packaging, and so on. Beyond this listing, however, it is important to identify those qualities (or values) of the product (both current and emerging) that its customers look for. All products – even those that are apparently “undifferentiated” – have qualities desired by their customers. For example, until a few years ago, most of the rice sold in public markets was still being labeled as “C-4” – because of the well-known good eating qualities of C-4 – even if that particular rice variety had already been wiped out by rice pests in the 70s. Identifying the desired qualities or values of a product also facilitates understanding of the competition that the product may face, not only from similar products, but also from other commodities that customers may opt to purchase to substitute for the original product. For example, chicken has become the viand of choice for all but the poorest Filipino consumers, substituting for beef and pork (and even fresh fish) because of latter’s increasing prices and perceived health hazards.

2.

T-argeting is identifying the customer segment(s) that the enterprise wishes to serve. Will these target customers be intermediary users (processors, assemblers, wholesalers, retailers, and so on)? Or will they be end-users (that is, the ultimate consumers)? What is the estimated demand of this customer segment(s), whether in daily, weekly or monthly sales volume? P-ositioning one’s product revolves around the “promise of more” – the message and commitment of the enterprise to its customer that its product will deliver something different and better than other similar products. The “promise of more” usually involves a trade-off between product quality and price (see below).

3.

Quality
High quality / Low price Low quality / Low price High quality / High price Low quality / High price

price
Positioning the product of a planned enterprise in one of the above four quadrants answers the important question of whether the selling price of its product will be higher or lower than those currently prevailing in the market. The product positioning strategy also determines the nature of the enterprise and its operations. A “high-quality/high price” product position implies high-value/low volume operations, where the bulk of enterprise revenues will be derived from the big difference (the gross margin) between the product selling price and its production cost. On the other hand, a “low-quality/low price” position implies high-volume/low value operations, which means that enterprise revenues will be largely derived by increasing sales of the product. One PACAP partner that did its homework in product and customer appraisal is PAPASMA, a community group of banana producers in Agusan del Sur (see Box 3-1).

Market and Customer Appraisal
There are three steps to identifying and understanding the needs of one’s potential customers: segmentation, targeting and positioning. 1. S-egmentation involves breaking down one’s market and target customers into manageable units. Specific questions include: • Who are the different groups of potential customers of our product? Where can they be found? ƒ What is the size of the demand of these different groups for our product? ƒ Who are our competitors and what are their respective shares of our potential customers? ƒ What are the different levels of the distribution chain and what are the selling prices of the product at these different levels? ƒ Is there a seasonal pattern to product sales?

Box 3-1. Enhancing Table Banana Production and Marketing in Angas n Pinaghiusang Pondok Alang sa Malahutayong Agraryo (PAPASMA)
Background To address the problem of low prices for their produce, 30 farmers of Barangay Angas organized themselves into an association – the Panaghiusang Pundok Alang sa Malahutayong Agraryo (PAPASMA) – in May 2000. Their initial plan was to transport their produce to the Nasipit Port and sell directly to traders there. After assessing market conditions at Nasipit, however, they found out that the costs of renting a truck would make their planned venture unprofitable. uu

18 Social Enterprise Development: Community Businesses at Work

Section 3 | Product and Market Considerations 19

Initial Efforts This realization led the farmers to plan and undertake a more modest marketing scheme, that of assembling their produce (e.g., minimum of 1,000 kilos) in one place, negotiating as one with local traders and making a collective sale. For this purpose, they raised money among themselves to buy a 1,200 square meter of land adjacent to the highway and built a small buying station made of light materials. The PhP10,000 needed to buy the lot came from members’ contributions (PhP174.00 each) and the commissions earned by the association as the marketing agent (known locally as “dicer”) of its members’ produce. Achieving Market Leadership PAPASMA implemented this scheme for a number of years, over time, becoming the biggest agent (=dicer) of bananas in Josefa town (the association estimates that it currently controls 40% of the banana harvest in the area). Dicers organize the harvesting process by arranging the schedule for the cutting of bananas and designating the assembly points where the farmers will bring their produce. They also provide cash advances to producers, which are repaid at the conclusion of the marketing transaction. Without dicers, traders would have to negotiate and collect the produce of banana planters on an individual basis, an extremely expensive proposition given the bad road conditions and poor access to most farms. Formal Supply Contracts with Traders While, for the most part, the association’s dealings with the local traders were mutually beneficial, there were some bad experiences. In one instance, the trader simply did not pay for the bananas he had bought on consignment. More commonly, trader buying prices were often volatile, fluctuating downwards to the detriment of the banana producers. To address the situation, PAPASMA invited the local traders to a bidding conference in 2006. Four traders came to the bidding conference, a testimony to the bargaining power of PAPASMA as a marketing agent. The bidding conference resulted in the selection of one buyer with whom PAPASMA negotiated a formal supply agreement that remains in force up to the present time. The main features of the supply agreement are as follows: (a) the trader must pay PAPASMA a premium of PhP0.50 per kilo for the latter’s role as collection agent; (b) the trader must not buy directly from the farmers (note: farmers are likewise not allowed to sell their bananas directly to traders. A farmer who violates this provision three times will be expelled from PAPASMA and will no longer be able to sell his/her products to the association.); (c) the trader must pay for the bananas either in cash or check before leaving the buying station; (d) the trader must not be overly strict about product quality, e.g., in terms of size and the number of bananas per bunch; (d) the trader must pay for the entire volume of bananas that has been negotiated with PAPASMA (e.g., 4,000 kilos) even if s/he decides not to load a portion of the shipment onto the truck. PACAP Assistance To expand its banana trading operations, PAPASMA received a PACAP grant of PhP835,039 that was applied to: (a) construction of a more permanent building for the buying station; (b) additional working capital for the banana trading operations; (c) loans to members to engage in banana production on an additional 24 hectares; (d) training; and (e) administration costs. PAPASMA and its members provided counterpart contributions in the following items: (a) building construction, (b) banana production, and (c) project management and administration.

Current Operations PAPASMA’s banana trading operation is proceeding smoothly. The association’s building has been expanded to include a kitchen, a communal toilet is being constructed and the conference area is earning some income by being rented out for meetings and workshops. In March 2008, the association started a new trading venture, the buy-and-sell of its members’ de-husked coconuts. It has also constructed a copra dryer in anticipation of a copra production and trading venture in the future. The operations of the coconut trading business are similar to its banana operations. PAPASMA assembles the de-husked nuts of its members in the buying station and re-sells this at a premium of PhP0.20-0.50 per kilo to a trader who had been selected prior to the start of operations. Financial Performance The latest balance sheet of PAPASMA (June 30, 2008) shows a total asset base of PhP782,000. Current assets are valued at PhP344,000, while fixed assets have a value of PhP468,000. The association has no outstanding liabilities. From January 1 to June 30, 2008, banana trading had total sales of PhP523,256 and a net income of PhP26,675. On the other hand, the four-month old (March to June 2008) coconut trading business had sales of PhP159,248 and a net income of PhP7,529. Utilization of Net Income Net incomes from the two trading operations are utilized in four ways as follows: Association General Fund (60%), Dividends (15%), Patronage Refund (10%) and Development Fund (10%). The General Fund is used for the general and administrative expenses of the association. Dividends are issued to members in proportion to their capital build-up (CBU) contributions, while patronage -refunds are based on the volume of bananas (and now coconuts) sold by the individual member to the association during the course of the year. The Association declares dividends and patronage refunds every year since it was established in 2000. Finally, the Development Fund is used for the maintenance and expansion of the Buying Station Building, e.g., construction of kitchen, copra dryer, among others. n

The success of PAPASMA’s banana trading enterprise underscores the importance of market research, in particular, an understanding of the “value chain” – the prices and margins that are captured by different players along the chain. Understanding the position of its trading business in relation to other players in the value chain enabled PAPASMA to “buy high” (from its members) and “sell higher” (to traders). A strong market orientation enabled PAPASMA to: (a) identify its customers (the traders), (b) identify the key needs of its customers (a sufficient volume of bananas within certain quality specifications assembled in one place at specific times agreed beforehand), and (c) align its competitive advantage (its access to members’ produce) and operations (the strategic location of its buying station near the main highway) to satisfy these needs. Over time, as PAPASMA became the biggest assembler (“dicer”) of bananas in the locality, its bargaining position with traders was greatly enhanced, thus enabling it to exact better trade conditions from its members. These same market-oriented principles are now being used by PAPASMA in its new coconut trading venture.
Section 3 | Product and Market Considerations 21

20 Social Enterprise Development: Community Businesses at Work

Conversely, this same market orientation resulted in PAPASMA’s rejection of an opportunity to serve as buying agent for Cotabato-based rice traders-cum-retailers (known locally as “strikers”). The PAPASMA chair, the moving spirit of the association, justified PAPASMA’s rejection of the rice trading as follows: (a) PAPASMA does not have its own truck, (b) only few of the association’s members are into palay production, and (c) PAPASMA does not have a good understanding of the palay trading business.

for: (a) marketing and promotions (participation in both local, Manila and international trade fairs); (b) working capital for raw materials and finished products; (c) capabilitybuilding; and (d) project management. Marketing Strategy UAC targets the high-end market – whether in Aklan, Manila or the international market – for handcrafted, contemporary designed bags and cushions made using locally produced materials. UAC bags, which are contemporary in design and of the highest quality, are distinctly different from most native handcrafted bags available locally or in the international market. Their selling prices can go as high as PhP900.00 per bag. The enterprise also markets high-quality table top items (runners, placemats) made of natural materials (raffia, abaca, nito, piña). In the past, its participation in exhibits and trade fairs enabled UAC to sell extensively to the export market, especially European Union countries (e.g., Italy). In 2006, however, negative publicity about the Philippines discouraged foreign buyers from attending CITEM fairs, the chief source of overseas contacts for UAC. UAC’s marketing efforts are now concentrated on a crafts shop at D’Mall, the premier mall on Boracay Island. Net Income The UAC income statements show healthy net incomes in 2007 (PhP857,000) and in the first ten months of 2008 (PhP522,000). Based on monthly averages, it is likely that sales in 2008 will be equal to those in 2007 (PhP1.27-million). This is no mean feat, considering the global economic slowdown and the likelihood of a drop in tourist arrivals in 2008. Increasing Production Costs and Mitigating Measures As a percentage of sales, UAC’s cost of goods sold in 2008 (42%) doubled compared to 2007 (21%), resulting in corresponding reductions in 2008 gross profit (down 58% from 78% in 2007) and net income (down 49% from 67% in 2007). At the same time, there is a slight reduction in total operating expenses – again as a percentage of sales – down to 8.7% in 2008 from 11.4% in 2007. The above changes reflect the measures adopted by UAC to reduce both product selling prices and operating costs in an effort to increase sales in the local market. One such measure is the application of different mark-ups on raw materials depending on their accessibility (in the past, UAC had adopted a uniform 60 percent mark-up on all materials and labor costs). At the same time, UAC is conducting value analysis to replace more expensive materials (e.g., plastic for wood in bag handles). While these measures may compromise with the Foundation’s long-held position that its products must be 95 percent made of materials available in Aklan, they are considered necessary to achieve an overall reduction in selling prices, thus making UAC products more accessible to local tourists. Keeping in Step with Fashion Trends UAC’s most important problem, given the constantly changing tastes and fashions within the industry, is how to identify and keep in step with emerging trends and designs. For example, there is now an emerging trend toward bigger ladies’ bags. Also, different tourists prefer different designs. Korean tourists prefer bold colors, while Europeans prefer more subtle tones. Given the nature of its market (ultimately, international because of the tourist trade), keeping abreast of fashion trends is crucial for long-term business success, a task made difficult because of the relative isolation of Aklan. uu

The Marketing Plan
The results of product and customer/market analysis are inputs towards the preparation of the marketing plan. The marketing plan – which answers the question, “how will our customers buy our product?” – addresses such concerns as: (a) product transport to point of sale; (b) terms of sale, that is, whether cash, credit or consignment; and (c) advertising and promotions, such as linking with government and private support agencies, participation in trade fairs and preparation of promotional materials. To be effective, marketing plans need to be dynamic, changing constantly to meet new situations. The continued survival of its Arts and Crafts Enterprise is testimony to Uswag Development Foundation’s unceasing efforts to understand market conditions and adjust its plans accordingly (see Box 3-2).

Box 3-2. Making Handicrafts for the Tourist Market n Uswag Arts and Crafts / Uswag Development Foundation
Background The Uswag Arts and Crafts enterprise involves the production of high-end novelty items – bags, cushions, and table top items made of locally made fabrics and materials (raffia, abaca, nito) – to be sold to tourists in Kalibo and Boracay and Manila’s vast export market. Production of the materials is done by members of Buylog Akeanon, an association of craft producers, while USWAG Arts and Crafts (UAC) is responsible for the finishing touches to the products and in marketing them. What differentiates the UAC from other, more conventional buyers in Aklan is its adherence to fair trade principles and its commitment to give community producers a more equitable share in the sales revenues of their products. From a conventional business perspective, this commitment to fair trade increases the labor costs of the enterprise and ultimately, its product selling prices. Uswag Arts and Crafts Uswag Development Foundation manages UAC, the marketing entity, as a project with separate staff and resources. Its financial systems have been installed and are overseen by the Foundation’s Finance Department. Profits generated by UAC are used to fund its marketing activities. PACAP Assistance PACAP assistance to the enterprise was provided over three years, from 2001 until October 2007. The total PACAP grant, which was in excess of PhP5-million, was utilized

22 Social Enterprise Development: Community Businesses at Work

Section 3 | Product and Market Considerations 23

Connecting with Foreign Buyers A second problem is connecting with the right foreign buyer(s). UAC no longer considers participation in trade fairs to be worthwhile because foreign buyers have stopped attending Philippine trade fairs. In many instances, UAC has not even been able to recoup its expenses in participating at trade fairs. Instead, UAC is currently looking for a locally based representative in the United States to sell its products. n

centuries and, despite efforts at mechanization, still remain the equipment best-suited for weaving these natural fibers. The looms are made of wood with metal reeds to ensure that the cloth is woven with standard fiber density. The metal reeds are treated with candle wax to prevent the fibers from snagging and breaking. The processing of fibers before weaving – extraction, washing, knotting and warping – is done by hand by other coop members. Both piña and abaca are grown by Aklan farmers and supply is readily available. Coop Birth Pains After its registration with the CDA, the growth of the cooperative was very fast – in the opinion of its current leadership, too fast. The cooperative was quick to seize opportunities as they came, even without sufficient planning and preparation. For example, an attempt at raffia production was eventually discontinued because the output failed to meet buyer specifications. The cooperative had to pay a PhP500,000 “tuition fee” for the raffia lesson, which came in the form of a PhP500.000 working capital loan from Land Bank that was never recovered from the members and customers who had received advances from the loan proceeds (this loan has already been repaid by HAMPCO to the Land Bank). A serious organizational crisis occurred in 2002, when the cooperative suffered a net loss of PhP400,000, due mainly to its decision to concentrate on the production of piña cloth for the domestic market. Unfortunately, market demand and the price of piña cloth declined due to stiff competition from other producers in Aklan. Because of the crisis, many member-weavers were disappointed and became inactive in the cooperative; a few even resigned and took back their capital. Record-keeping – particularly of remittances of sales receipts – was poor and a number of customers refused to admit that they still had outstanding accounts to settle with the cooperative. The leadership of the cooperative was also to blame for its lack of transparency. Lack of transparency was also due to lack of (or non-compliance with) operating and financial procedures. PACAP Assistance To this day, the officials of the cooperative are thankful that, despite their many organizational deficiencies and financial difficulties, their funding application to PACAP was approved in December 2002. PACAP assistance to HAMPCO, originally a three-year grant, actually covered the five-and-a-half year period from December 2002 to May 2008. The “three” years of PACAP assistance actually represented different stages of organizational growth and enterprise development. The Year 1 PACAP grant supported: (a) basic skills training in weaving plain abaca and piña; (b) purchase of manual sewing machines and loom reeds; (c) participation in trade fairs; and (d) revolving fund for raw materials and labor. The Year 2 PACAP grant was used mainly for: (a) advanced training (pili weaving with design); (b) purchases of high-speed sewing machines and additional loom reeds; and (c) revolving fund. Finally, the Year 3 PACAP grant funded: (a) leadership and membership education (b) purchase of computers; (c) advanced training on hand embroidery; (d) renovation of weaving house-cum-coop office; (e) product development and marketing and promotions); and (f ) management and administration. Current Operations Because of the infusion of PACAP funds, business operations were able to continue with minimal disruption despite the net losses suffered by the cooperative. HAMPCO reduced piña cloth production, experimented with different products and materials, and uu

As the success of the Boracay retail outlet has demonstrated, location is the key to effective marketing and sales. Branding also adds value to your product. The UAC logo (a “sarimanok”) has created product recognition and loyalty among its customers. The UAC experience suggests, contrary to conventional wisdom, trade fairs are no longer effective means to connect with buyers. Alternative mechanisms must be tried to connect buyers with community producers and suppliers. For example, UAC is considering the use of Philippine embassies abroad as its display centers-cum-outlets, a measure that is also being considered by the Tahanang Walang Hagdanan. UAC has also suggested that PACAP and other NGO donors invest in setting up a sales outlet in a Manila mall to sell products of community producers. Handicrafts enterprises operate in extremely difficult environments characterized by abrupt changes in taste and demand strong competition from many players because of the industry’s low entry barriers). Foresight (which requires an understanding of emerging market trends), flexibility (i.e., the ability to shift production to a new product) and reliability (in meeting customer specifications) are essential for long-term survival. The HAMPCO Cooperative, a PACAP partner also based in Aklan, is showing some success in meeting the challenge of flexibility in its Hand Loom Weaving Enterprise (see Box 3-3).

Box 3-3. Further Development of Markets and Services for the Traditional Textile Producers of Aklan n Handicraft of Aklan Multi-Purpose Cooperative (HAMPCO)
Background The Handicraft of Aklan Multi-Purpose Cooperative (HAMPCO) was organized in December 1989 by the USWAG Development Foundation and registered with the Cooperative Development Authority (CDA) in January 15, 1993. Among its 385 members are 60 active weavers who participate regularly in HAMPCO’s handloom weaving enterprise. Aside from the handloom weaving enterprise, HAMPCO also operates a consumers’ store, a health service scheme for members and a re-lending program. The weaving enterprise involves the production of barongs, shawls, bags, placemats/runners, gowns and different kinds of cloth using indigenous natural fibers such as raffia, abaca and piña as the major raw materials. HAMPCO products are sold in both domestic and export markets. Technology The hand looms used for weaving are traditional to Aklan. They have been used for many

24 Social Enterprise Development: Community Businesses at Work

Section 3 | Product and Market Considerations 25

finally settled on the production of abaca silk cloth as its main product. At present, HAMPCO is the supplier of abaca silk cloth to an exporter who sends the product to Japan where it is further processed into wallpaper. The exporter, who came to know of HAMPCO through a DTI directory, has been dealing with the cooperative since mid-2005. Relations with the exporter have been generally good, sometimes even going beyond the parameters of business. Payments have been delayed at times, especially in the first half of 2008, but these have not exceeded a month. As in its export market, abaca silk cloth is also HAMPCO’s major product in the local market. Apart from abaca cloth, HAMPCO also produces bags, shawls, placemats and table runners. The cooperative maintains a small showroom at its office in Kalibo and shares a stall at D’Mall in Boracay with HUGOD, an association of handicrafts producers in Aklan. It also consigns its products to stallholders at the Trinoma Mall in Quezon City and the Ayala Center in Cebu. Balance Sheet Performance As of December 31, 2007, HAMPCO had total assets of PhP4.98-million; current assets – consisting mainly of receivables (PhP1.39-million) and inventories (PhP1.77-million) accounted for 64% of total assets. On the other hand, total liabilities amounted to PhP2.05-million, with long-term liabilities (loans payable of PhP475,000 and provision for Cooperative Guarantee Fund of PhP601,000) accounting for 53% of total liabilities. HAMPCO’S comparative income statements for 2006, 2007 and 2008 (January to October) indicate that financial performance in 2006 was better than 2007. Deducting the PACAP subsidy, the enterprise earned almost PhP200,000 in 2006, compared to a net loss in 2007 of PhP228,000. HAMPCO’s financial performance in 2008 could have been better than 2007 had typhoon Frank not hit the province, destroyed some PhP250,000 worth of inventory and disrupted production operations for about two months (because the weavers had to rehabilitate their houses). Minus these extraordinary losses, the enterprise would have registered a modest but positive net income of about PhP8,000 over the 10month period from January to October 2008. Because of the disruption, HAMPCO will be hard-pressed to hit PhP4-million sales in 2008, its sales level in the two previous years. n

The HAMPCO experience also demonstrates that problems – if faced squarely – represent opportunities for the positive growth of an organization and its enterprise. It also shows that an organization in crisis is still worthy of external support if it is clearly operating on a good-faith basis to resolve its problems. n

26 Social Enterprise Development: Community Businesses at Work

Section 4
The Key Question
inputS Raw materials Labor Energy 28

production and technology considerations
Understanding the production process of the planned enterprise is important because this serves as the basis for the financial analysis. Assessment of the production process is meant to answer the following key question: “Can the enterprise consistently produce its product(s) at the desired quality, quantity, cost and time required by its target customers?” An adequate response to this question requires data-gathering to address a number of prior issues, including: ƒ The key characteristics and physical qualities of the product (which were identified during product appraisal) ƒ The steps involved in manufacturing the product ƒ The number of units of the product that will be made ƒ The raw materials required and their quantities ƒ The amount of time needed to manufacture the product ƒ The number of workers involved in the production process ƒ The machinery and equipment needed in the production process.

Section 4

Understanding the Production Process
The production process consists of the steps involved in the manufacture of a product. As shown below, it is the transformation of inputs (raw materials, labor, energy, and so on) into a finished output or product for sale.

Diagram 4-1. Schematic Presentation of Production Process
proDuction procESS floW output Finished Product(s) SAlE

In some cases, a manufacturing process may result in more than one marketable product. In these instances, it is important to recognize the existence of different products and their
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status, e.g., as the “main product” or “byproducts.” The sub-processes involved in the manufacture of these different products should be described separately. Once the different manufacturing steps have been identified, these can be presented in graphic form using a Production Process Flow chart. The sample Production Process Flow chart shown on the next page (see Diagram 4-2), describes the different steps in the production process, the raw materials (and intermediate products) required at each step and the resulting output(s). Once the production process flow chart is completed, it can be used to determine the following: 1. The production cycle (= time required to manufacture the product) ƒ The number of production cycles per day. Per week. Per month. Per year. Land, Infrastructure, Machinery and Equipment Required ƒ Listing and specifications ƒ Mode of acquisition (whether purchase, rent, lease?) ƒ Sources (local, national or international?) Workers ƒ Number, job descriptions and skills/experience required ƒ Mode of recruitment ƒ Additional training required ƒ Compensation Raw Materials ƒ Quantity required – per cycle/month/year ƒ Sources ƒ Terms of procurement (selling prices, terms of trade) ƒ Competitors ƒ Proposed measures to ensure a stable supply of raw materials

Diagram 4-2. Sample Production Process Flow Chart Manufacture of Fermented Copra Meal-Based (FCM) Non-Conventional Feeds
Chicken Manure 8 kgs. Raw materials Process Cook for 15 mins. Copra Meal 11.5 kgs. Finished product

Stir until cooked

Cooked Chicken Manure

Mix

2.

Dissolve molasses in enough water 0.5 kg.

Let the mixture cool off Poultry Manure and Copra Meal Mixture Sprinkle twice a day for 5 days

3.

Fermentation

4.

Expose the mixture to flies and molds

Turn the mixture daily

Harvest after 5 days The above information can be compiled through the following table, which summarizes the projected Year 1 operations of the enterprise, on a monthly basis, in terms of its raw materials purchases, production outputs and sales. Corn 15 kgs. Fermented Copra Meal and Chicken Manure 20 kgs. Soybeans 5 kgs.

Table 4-1. Projected Schedule of Enterprise Operations
volume/month
1 Preparatory Activities Raw Material Purchases Production Outputs Products Sold 2 3 4 5 6 7 8 9 10 11 12

Rice Bran 5 kgs.

Cassava 5 kgs.

Mix

Air-Dry

Fermented Copra Meal-Based Non-Conventional Feeds 50 kgs.

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Assessment of Technology and Production Process
Assessment of the technology/production process to be utilized for an enterprise involves the examination of a number of critical factors, among them: history of technology use, maximization of labor resources, quality assurance and repair and maintenance of machinery and equipment. In most enterprises submitted for PACAP funding, the proposed production process or technology will be quite familiar to the key stakeholders of the enterprise because of its long history of use. In some instances, however, it is possible that innovations will be introduced in one or two components of an otherwise traditional production process. And on rare occasions, the enterprise may plan to use an altogether new (at least from the point of view of enterprise staff) production process. Determining the history of use of a technology or production process is important since a new production component or technology package requires a “learning curve” for the staff and workers of the enterprise. To manage this learning curve effectively, enterprise management must be prepared to provide training, create a learning atmosphere that tolerates mistakes and learns from them and recognize that longer start-up times may be needed before the enterprise is able to achieve normal operations and full production capacity. A case in point is the Mud Crab Production and Fattening Enterprise in Northern Samar, which is slowly emerging from its learning curve (see Box 5). All enterprises go through a start-up phase, and this is particularly true of pioneering enterprises like mud crab production and fattening. Problems must be expected during this start-up phase and confronted vigorously to draw lessons for future action. In some instances, mitigating measures to address operational problems may require the infusion of additional financing into the enterprise. Marketing Scheme There is a big market for mud-crab in the province, as well as in other places in the country and abroad. However, mud crab production in the province is limited and existing supply is not even enough to meet local demand. The enterprise planned to sell the crabs to market outlets in Allen and Catarman (Northern Samar) and to exporters in Manila. The business plan estimated a production volume of 4.68 tons in the first two production cycles, to increase by 100% in the second year. At PhP170-200 per kilo, local crab prices are significantly lower than exporter prices, which range from PhP450-500 (for female crabs) to PhP600 (for males). Revenues, resulting from the sale of 90% of crabs produced to local and export buyers, were estimated at PhP1.36-million. Management Scheme One adult male and one adult female from each beneficiary-household is involved in mud crab production – clearing the area, construction of pen structures, stocking, feeding, maintenance of structures, harvesting and marketing. Generally, men take care of clearing the area, construction and maintenance of the pen structures and harvesting, while women are responsible for feeding management. Both men and women participate in stocking the pen and in sorting and grading the harvested crabs. The entire enterprise will eventually be owned and managed by the San Miguel Mud Crab Association (SMMA), the beneficiary-organization organized by ACELT, the PACAP NGO partner. At the moment, however, critical management functions (including financial management and key production decisions) are still made by ACELT, in consultation with SMMA. A consultant from a nearby State University was recruited by ACELT to provide technical assistance to the beneficiary-households in their mud crab production efforts. PACAP Assistance PACAP has provided a grant of PhP1-million (Year 1) for the mud crab project through the ACELT NGO. Apart from administration and project management, the PACAP grant finances the establishment of pen structures and the cost of seed stocks (crablets and feeds). Construction labor is provided by the beneficiary-households who repay the advances received for crablets and feeds upon the harvest and sale of the grown crabs. Initial Production Cycle The initial production cycle – which involved the first batch of 15 beneficiary-households – encountered many problems and has provided many lessons for the future. First, rats gnawed through the pen netting, creating holes through which the growing crabs were able to escape. This resulted in major production and income losses for most of the beneficiary-households, particularly for grow-out production because the crabs are smaller. (Note: This problem has now been solved through the reinforcement of the pen netting with bamboo fencing.) A second problem was the unavailability of feeds for the growing crabs. Since the tilapia fishpond was not established, a number of growerfamilies resorted to buying trash fish to feed the crabs. This was not a viable solution because trash fish were either too expensive or unavailable. A few of the grower-families decided to use golden snails (“kuhol”), a farm pest, apparently with good results. This has partly alleviated the feeds problem. uu

Box 4-1. Mud Crab Production n Aspiring for Community Empowerment through Livelihood Loans and Trainings (ACELT)
Production Scheme The Mud Crab Production and Fattening Enterprise is being implemented in Lavezares, Northern Samar. While the area is known as a spawning ground of mud crabs, the enterprise is the first systematic attempt at the commercial culture of mud crabs in the municipality. The one-year old enterprise involves the growing of mud crabs in 350 square meter pens, with each pen operated and maintained by an individual beneficiaryhousehold. In the first year, 15 pens were constructed and operated for a first batch of 15 beneficiary-households. An additional 15 pens for the second batch of 15 beneficiaryhouseholds have been constructed and are currently being stocked with crablets. Two communal support structures were envisioned for the enterprise. The first was a sanctuary area that would serve as nursery to ensure a stable supply of crabs and crablets for the growing pens. The second was a pond for tilapia production that would provide feeds for the growing crabs. Neither structure had been established at the time of the field visit, although there was a short-lived attempt by the PACAP partner and the community association to establish a nursery in collaboration with other entities.

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Plans As a result of their experience in the first cycle, the beneficiaries are considering the following modifications in enterprise operations: ƒ Hire one of the members to serve as fulltime caretaker of all the pens, in effect, shifting production from a decentralized to a centralized mode of operations. Even if a fulltime caretaker is hired, however, individual members will still be encouraged to conduct periodic monitoring visits. ƒ Increase the budget for feeds from PhP30 to PhP60 per kilo so that growerhouseholds will be able to buy trash fish to feed the crabs. ƒ Establish a nursery to ensure a stable supply of crablets and grown crabs for the grow-out and fattening operations. ƒ Consider the establishment of a growing area for golden snails to ensure a stable supply of feeds for the crabs. This is in addition to the gathering of golden snails from the farms. The plan to establish a nursery and the proposed use of golden snail as feeds for the growing crabs are steps in the right direction. Increasing the budget for feeds, however, has clear implications on net income and should be subjected to cost analysis. The net benefits of a shift from decentralized to centralized production need to be examined carefully. More reflection is required to assess the effects of such a shift on the participation of beneficiary-households and their access to the benefits of the enterprise. n

Box 4-2. Sustaining Differently-Abled People’s Initiative for Self-Reliance and Development n San Francisco Association of Differently-Abled Persons MultiPurpose Cooperative (SAFRA-ADAPMPC)
Beginnings The San Francisco Association of Differently-Abled Persons Multi-Purpose Cooperative (SAFRA-ADAPMPC) in Agusan del Sur is a 43-member primary cooperative that is affiliated with the National Federation of Cooperatives for Persons with Disability (NFCPWD) based in Manila. The organization recently celebrated its ninth founding anniversary on October 22, 2008. SAFRA-ADAP started as an association of differently-abled persons who had banded together in the common goal of becoming productive members in mainstream Philippine society. Initial plans for economic activities (e.g., tocino-making, trisikad, and the like) were still being finalized when, by chance, leaders of SAFRA-ADAP and the Manila-based NFCPWD met in Davao in 1997. This chance meeting eventually resulted in the re-organization of the SAFRA-ADAP into a cooperative, its membership in the NFCPWD and its participation in the NFCPWD contract with the Department of Education (DepEd) for the manufacture of school tablet and chair (STAC). STAC chairs, which are used by elementary and secondary students, are made of wood (and sometimes steel) and built with tablet board for writing and a book rack at the bottom where students can place their books and notebooks. STACS are usually colored brown with a final touch of varnish. Birth Pains SAFRA-ADAP received its first purchase order (P.O.) from NFCPWD was in 2001 for the manufacture of the 1,800 chairs with a sub-contractor’s price of PhP550 per chair. SAFRAADAP began manufacturing operations in an interim sheltered workshop funded by a soft loan from the town mayor with 10 differently-abled workers and a manager (who remains as the moving spirit of the association to this day). All of them had no direct experience in STAC production, although the manager was a civil engineer. Completing this first P.O. took five months, way longer than the original two-month contract period. All kinds of production problems arose, not the least being the workers’ inability to take the necessary precautions in dealing with paint, which led to widespread coughing and temporary lung diseases. Internal Crisis After the first purchase order had been completed, SAFRA-ADAP received no new orders from NFCPWD. As a result, the workshop operated intermittently and the members had to seek employment on their own. Worse, an internal crisis hit the cooperative in 2003 when the Vice-Chair, who acted as marketing-cum-liaison officer, used the income generated from the first NFCPWD sub-contract (PhP80,000) for his personal gain. After thorough investigations had established his guilt, the Vice-Chair was expelled from SAFRA-ADAP but the funds were never recovered. This traumatic experience motivated SAFRA-ADAP to correct its organizational deficiencies. With training and technical assistance from NFCPWD, the cooperative was able to gradually install appropriate organizational and financial management systems. Enterprise Take-Off In 2004, NFCPWD secured its second DepEd contract and again sub-contracted uu

In conventional businesses, labor is considered as simply another factor of production. This is not the case in social enterprises supported by PACAP where the provision of employment to a particular group of disadvantaged individuals is central to the nature of the enterprise. It is therefore important to plan the production process in consideration of the skills and limitations of the individuals targeted as the workers of the enterprise. The provision of workers’ training is important but insufficient. Equally important is the design of the workplace to maximize workers’ effectiveness. The production layout of the furniture factory of SAFRA-ADAP, a PACAP partner in Agusan del Sur, is a good case in point (see Box 6). There are no steps/stairs in the production workshop so that all areas are accessible to PWDs. PWD-workers who are immobile are assigned to operate the woodworking machines, and are assisted by PWDs who are mobile. Finally, machines and equipment are modified so that these can be operated by workers in a seated position (wheelchairs) and retrofitted with additional safety features and measurement controls. Since it was founded almost a decade ago, SAFRA-ADAP has steadily built up its reputation as a reliable school chair and furniture manufacturer and supplier. This recognition is due, in large part, to the organization of its manufacturing process and production area to maximize the unique capabilities of PWD-workers. This achievement must be credited to its manager who is a civil engineer with PERT-CPM and time-and-motion analysis skills.

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SAFRA-ADAP to produce STACs. SAFRA-ADAP sought and received assistance from the provincial government in the delivery of the chairs using provincial government trucks fueled by gasoline that had been provided by the governor. This initial assistance from the provincial government led to further (and more fruitful) collaboration the following year. In May 2005, the provincial governor contracted the cooperative to make 2,000 school chairs using confiscated logs (under the “Silya ni Gloria Para sa Eskwela” Program with DENR). The cooperative had barely a month to complete the 2,000 chairs but they were able to finish in time for the Naliagan festival (which celebrates the founding of Agusan del Sur) and the visit of President Arroyo. Its success with the Naliagan school chairs established the reputation of SAFRA-ADAP as a reliable manufacturer of school chairs and mass-produced wood furniture in Agusan del Sur. Other local orders followed, among them: (a) the Secondary Education Development Improvement Project (SEDIP) for PhP5-million worth of school furniture, and (b) the Agusan del Sur Electric Cooperative (ASELCO) to supply 380 units of steel electric meter boxes monthly. Expansion Increasing demand from DepEd and other walk-in clients indicated the need to expand operation. Expansion was constrained, however because of the absence of permanent location for the sheltered production workshop and other facilities, insufficient working capital and additional machineries, particularly a kiln dryer. SAFRA-ADAP requested the municipal government for the permanent use of a five-hectare area within a 10-hectare estate owned by the municipal LGU. The Sangguniang Bayan initially allocated a onehectare area to the cooperative on condition that the latter is able to utilize it within a year. As a result of SAFRA-ADAP representations with the Department of Labor and Employment (DOLE), the cooperative received PhP1-million (for working capital and machines to be used in livelihood projects) from the department’s Poverty-Free Zone Program. PACAP Assistance SAFRA-ADAP also submitted a funding request to the PACAP FOCAS Program and subsequently received a PhP2-million grant for the following: (a) construction of a permanent production center; (b) additional production machinery and equipment, including a kiln dryer and delivery truck; and (c) capacity building of the cooperative in management and in the production of other wood-based products. Current Operations SAFRA-ADAP’s main line of business (75 percent of operations) continues to be its subcontracting arrangement with NFCPWD in the production of STACs for DepEd. NFCPWD’s current contract with DepEd amounts to PhP90-million, of which 50 percent has already been sub-contracted to its member-cooperatives. SAFRA-ADAP has been awarded some PhP10-million of this sub-contracted amount (about 25 percent), a testimony to its good track record as a reliable supplier. In addition to the NFCPWD sub-contract, SAFRA-ADAP continues to receive and fill orders (mainly for school chairs) from local customers, such as: (a) the Mindanao Sustainable Settlement Area Development (MINSAD) program of DAR (PhP2.3millon); and (b) the Secondary Education Development Improvement Project (SEDIP), a special project of DepEd for the poorest provinces of Philippine (PhP1.9-million). Manufacturing operations are being carried out on the new permanent sheltered workshop that has been constructed on the lot provided by the municipal LGU.

SAFRA-ADAP members have constructed their houses on the areas immediately adjacent to the permanent workshop. The kiln dryer financed by the PACAP grant has also been completed and is now functional. Kiln Dryer The kiln dryer was proposed because Gmelina, the wood species used by SAFRA-ADAP in STAC manufacture, has high moisture content. Because of inadequate drying of the Gmelina, SAFRA-ADAP often experienced cracking and warping of the STAC tablet, resulting in high rejection rates and production costs. Installation of the kiln dryer encountered some minor problems with the electrical motor and wirings, but these were easily remedied. The initial test runs, however, involved overly-long drying time because, in large part, wood of different species and sizes were being dried at the same time. An abbreviated orientation on proper kiln drying operations, provided by a DOST Resource Person who was at SAFRA-ADAP to give a seminar on wood-bending, clarified many issues and the kiln is now operating smoothly. At present, the kiln dryer is being used only for the in-house needs of SAFRA-ADAP. However, the cooperative has received inquiries from a number of wood businesses in the province regarding the cost of its kiln drying services and/or to purchase kiln-dried wood. One businessman has even approached the cooperative for a possible joint venture to process and transport kilndried wood for low-cost housing projects in Manila. Financial Performance The latest balance sheet of SAFRA-ADAP (September 22, 2008) shows total assets of PhP10.06-million, liabilities of PhP5.26-million and members’ equity of PhP4.8-million. The cooperative has no past-due accounts; all loans have been repaid on schedule. Grants and donations account for over 90 percent of equity, a testimony to the resource mobilization efforts of the cooperative. From January 1 to September 22, 2008, SAFRAADAP had total sales of PhP7.2-million and a net income of PhP660,000. n

Assurance of consistent-quality products is another major concern in production. The UAC enterprise of the Uswag Development Foundation mentioned earlier (see Box 3-2) has addressed this problem through repeated orientation sessions to producers on quality assurance and by taking responsibility for the critical end-tasks of dyeing, cutting and final assembly of the bags and its other high-quality items. Quality assurance of its products is also a major concern of the BUHAI Buri Handicraft Enterprise (see Box 4-3) in Antique. Since production is decentralized (i.e., the weavers work in their own houses), the BUHAI Project Manager visits each weaver periodically to monitor the progress of her work. Production monitoring focused on quality control and the Project Manager tells the individual weaver to repair any work deficiencies. If a weaver is incapable of meeting her production output, part of her work load is shifted to another weaver who is advanced in her output. This system also rewards the more efficient weavers. In the worst case scenario where the goods have already been delivered to the Association’s office and need to be shipped out to waiting buyers, the Project Manager does minor repair work herself. If time allows, the products are returned to the weaver concerned for repair work. Rejects are not included in the delivery to the buyer. The weaver has the option to
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take back the rejects and re-sell them on her own, or sell them to the association at discounted prices. If sold to the Association, the rejects are displayed at the Association’s office and (eventually) bought by walk-in customers or sold at trade fairs at discounted prices.

Box 4-3. Rural Enterprise Development for Buri Handicraft Producers n Antique Development Foundation (ADF), Inc. and Buri Handicraft Association (BUHAI)
Background The Buri Handicraft Association (BUHAI) – an association of 60 weavers from the four adjacent barangays of Paciencia, Igdalaquit, Diclum and Fatima of the municipality of Tobias Fornier – is involved in the production and marketing of hand-woven products made of buri strips in combination with other materials. Its main product lines – hats, bags, placemats, coasters, boxes and gift bags – are customized based on designs specified by customers. Bulk production and marketing is managed by the association but individual weavers are encouraged to produce and market on their own. Technology Manual technologies and simple tools are used in buri weaving, a centuries-old industry in Antique. Raw materials are prepared by cutting the unopened buri leaves from the stalk and letting these stand in cool shaded place for several days. Leaves are then opened and segments (buri leaf ) are separated from the midrib with a sharp knife. The segments are boiled until they are soft enough to be folded without creasing. Cooked leaves are dried in the sun, washed in running water and dried again. For convenient storage, the buri are rolled into coils. Buri is dyed to enhance its aesthetic function. Simple dyeing involves the weighing of the materials and preparation of the dyes using the chosen recipe. Water is put in the dyeing vat, the dyeing agent is added, the solution is stirred and the buri materials are immersed. After boiling for the required number of minutes, the dyed materials are removed, rinsed with running water and allowed to dry. Target Customers and Marketing Strategy Prior to and during the period of PACAP assistance, the Antique Development Foundation (ADF) served as the marketing arm of BUHAI, selling almost 90 percent of the buri products to buyers in Manila and other regions. Bags were the saleable items in the local market, while gift bags, placemats and coasters were the main items demanded by exporters and buyers in Manila. Products were displayed at the BUHAI “livelihood center” at Diclum (Tobias Fornier) and the ADF Marketing Center at San Jose de Buenavista, the capital town of Antique. All products delivered to ADF are paid immediately, with the foundation adding a 20-percent mark-up to cover marketing costs. PACAP Assistance In October 2005, PACAP provided a grant of PhP1.55-million to the BUHAI enterprise with the ADF acting as formal intermediary. The major cost items subsidized by the grant were: Enterprise Development (PhP432,300), Marketing (PhP210,000), Research and Development (PhP50,000), Direct Support to BUHAI (PhP165,600) and Program Management and Administration (PhP692,000).

Results of PACAP Assistance As a result of PACAP assistance, BUHAI and ADF were able to conduct promotions activities and streamline marketing operations. Specific activities included: (a) review of costs for competitive pricing; participation in local, national and international trade fairs to meet and negotiate with buyers; preparation of marketing materials (such as brochures, product profiles and website), linkages with potential local customers (e.g., LGUs, public and private agencies) and institutions (e.g., PhilExport, European Chamber of Commerce, business councils, and others). As a result of these various exposures, BUHAI gained direct customers and gradually took over the marketing function handled previously by ADF. When PACAP assistance ended in early 2007, BUHAI was negotiating with buyers directly and responsible for meeting customers’ orders, with ADF becoming one of its buyers (a relationship that continues to this day). Current Customers The association has one regular Manila buyer (a handicrafts seller), with whom it has had a regular business relationship since 2006. Orders and negotiations are conducted through text messages, a testimony to the trust that has developed between the two parties through their long association. The products are shipped to Manila through RORO (roll-on, roll-off ) shipping, and delivered by association’s agent in Manila (the relative of an association member) to the buyer. The buyer pays in cash, and the agent remits the payment to the association through ATM transfer. To date, the largest order from this buyer has been PhP10,000. Orders are usually for gift bags, hats and placemats. Within the province, local buyers include ADF, various offices within the provincial government, LGUs and DTI. Local buyers sometimes provide a down payment on orders but, more usually, sales are handled on the basis of either cash on delivery (COD) or consignment. The peak season for orders is from October to May (dry season), while the offseason is during the rainy months. Payments to Individual Weavers Individual weavers delivering their contracted items to the Association’s office are paid in cash. Fifteen percent is deducted from the selling price for the member’s capital build up (CBU) (5 percent) and the sales commission of the Association (10 percent). The accumulated CBU is used by the Association to pay weavers in cash, while the sales commission is spent mainly on product delivery costs and participation in training seminars. n

A final important issue production is the sourcing, repair and maintenance of the machinery and equipment to be utilized in the enterprise. Obviously, the ideal situation is for the equipment to be manufactured and maintained locally, a competitive advantage currently enjoyed by the Loom Weaving Enterprise of the Tubigon Loom Weavers MultiPurpose Cooperative (see Box 4-4). Maintenance of machinery and equipment is crucial if production downtimes are to be minimized and deliveries made on time. While owned by the cooperative, the looms are permanently assigned to individual weavers. A loom weaver is then responsible for the maintenance of her assigned loom. The looms were fabricated by local carpenters, some of them husbands of the women weavers, thus allowing the women weavers to input their particular design needs and requirements during the fabrication process. The local fabrication of the looms has also facilitated their repair and maintenance. n
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Box 4-4. Loom Weaving Industry Upscaling for Economic Development (LOUD) Project n Visayas Cooperative Development Center (VICTO-Bohol) and the Tubigon Loomweavers Multi-Purpose Cooperative
The Buri Loom Weaving Industry in Tubigon The loom weaving industry in Tubigon town started in 1989 and has been a significant source of income for many residents of the town. The products of the industry – placemats, raffia rolls, table runners, tea mats – are made from buri strips and warped fiber, which are extracted from the leaves of buri palm plants. Production of raffia products is done individually: a weaver can finish eight placemats in a day and one-and-a-half rolls of raffia (36” x 10 meters) in a week. The Market for Buri Products Almost all of the loom woven products of the region are sold to the export market. Buri products are bought from weavers by middlemen who sell these, in turn, to exporters, marketing agents and buyers; the bulk of orders coming from Manila-based exporters. In recent years, more than 80 percent of total provincial production was exported to the USA, Japan and Europe. The Tubigon Loom Weavers Multi-Purpose Cooperative (TLMPC) In 1993, some 60 weaver-households formed the Tubigon Loom Weavers Multi-Purpose Cooperative (TLMPC) to coordinate their individual weaving efforts. After a few years in operations, however, the cooperative encountered a serious cash flow problem: many weavers and suppliers of raw materials failed to repay the cash advances they had received from the cooperative. Despite the crisis, the cooperative managed to continue operations, although at a greatly reduced level, using a 25-loom production facility made of non-permanent materials located in an interior barangay of Tubigon. PACAP Assistance In 2007, the TLMPC received PACAP funding with VICTO serving as the intermediary proponent. The objectives of the grant included: (a) diversification of the product lines of the weavers; and (b) more aggressive marketing and product promotions through participation in trade fairs. Specific items funded by the grant included: (a) Construction of a Common Production and Display Center-cum-Raw Materials Shed (PhP843,000); b) Warp Mill (PhP7,500); (c) Working Capital (PhP150,000); (d) Purchase of a Multi-Cab Transport Facility (PhP125,000); (e) Procurement of Seedlings and Planting Materials (PhP10,000); and (f ) Promotions Materials and Marketing Support (PhP139,000). Also in 2007, TLMPC received a grant amounting to P200,000.00 from Fundacion Santiago for the purchase of handlooms. At the time of the PACAP grant, the TLMPC had an existing production facility in the interior part of Tubigon that was inaccessible to buyers. The PACAP grant enabled the cooperative to construct a concrete production facility and display center on a lot along the highway that was much more accessible to potential buyers. The grant also enabled the cooperative to diversify its products. Traditionally, the weavers had been limited to a few products, mainly, plain placemats and raffia rolls. The grant enabled them to diversify into, among others, colored placemats with various designs, bags and slippers.

PACAP assistance also enabled the cooperative to conduct a more aggressive marketing strategy to reach out to Manila, Cebu and Bohol buyers through participation in regional and national trade fairs to establish contacts with traders. Finally, the PACAP grant enabled the cooperative to streamline its production operations and institute quality assurance measures, including: a product quality controller (to determine the quality and acceptability of finished products), a purchaser (for the procurement of raw materials) and a raw material dyer/bleacher (for the processing of raw materials from buri palm leaf sheath to buri fibers). Current Operations In general, activities have proceeded as planned with little deviation from the activities listed in the proposal approved by PACAP. The weavers have diversified their product lines. Participation in local and national trade fairs has resulted in a network of regular customers consisting of 10 Manila-based buyers and five local buyers (mostly beach resorts). The strategic location of the new display center has increased the number of walk-in buyers. And financial recording has been systematized, thus providing the cooperative with up-to-date information on its receivables. Quality Assurance To ensure on-time deliveries, production must be managed effectively. The cooperative has opted for centralized production (the looms are located in one facility and the weavers work in sight of each other) as this makes quality control of the work much easier than if the weavers worked in their individual houses. Working in plain sight of each other also creates peer pressure among the weavers. The production manager sets work quotas and completion dates for individual weavers and monitors output on a daily basis. When the manager determines that a weaver will not be able to complete her work quota, part of her work is re-assigned to another weaver. Financial Performance As of October 2008, current year sales of raffia and sinamay totaled PhP2.14-million, while gross profit exceeded PhP476,000. Compared to 2007, the net income of the cooperative has increased by almost 200 percent (PhP68,000 in 2007 vs. PhP203,000 in 2008)), total assets have increased by 64% (PhP1.48-million in 2007 vs. PhP2.43-million in 2008) and members’ fixed deposits have increased by 48 percent (PhP49,000 in 2007 vs. PhP73,000 in 2008). n

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Section 5
42

organization and management considerations
Assessment of the organization and management structure of an enterprise should focus on three critical aspects – the form of the business enterprise, management structure and internal control systems.

Section 5

Form of Business Enterprise
The proposed organizational form of an enterprise – whether single proprietor/ family enterprise, corporation or cooperative – must address the critical concerns of planning and forecasting, control, quick-response to the business environment, equity, ownership and sustainability. There is no finality in the life of an enterprise: each day brings new challenges. Because of its inherent fragility, enterprise survival (and success) of an enterprise is highly dependent on the capability and performance of its board of directors and management. A case in point is the Village Level Integrated Coconut Processing Enterprise of the Capiz Small Farmers Marketing Cooperative (CASCOFAMCO) (see Box 5-1). The CASCOFAMCO experience demonstrates the important role of the Board of Trustees in taking decisive action to address major problems that, if unchecked, could lead to the demise of the enterprise (and perhaps, even the organization). The precedent of Board action in dealing with the 2002 management crisis established a tradition of Board participation in the coconut enterprise that persists to this day. Even without monetary compensation, Board members are at the processing plant regularly, a demonstration of their continuing passion and commitment to the goals and operations of the enterprise.

Box 5-1. Village Level Integrated Coconut Processing Project n Capiz Small Coconut Farmers Marketing Cooperative (CASCOFAMCO)
Coconut Production in Capiz Capiz is one of the coconut producing provinces in Western Visayas with a total coconut area of 20,017 hectares and 24,448 coconut farmers (average landholding of half a hectare) in 16 municipalities and one city. It has a total of 2,001,772 coconut uu

43

trees of which 1,428,188 are fruit-bearing, 464,181 are non-bearing and 109,403 are senile. Coconut is the major crop in 269 of the 473 barangays in the province. Beginnings of CASCOFAMCO Organized in the late 90s, the Capiz Small Coconut Farmers Marketing Cooperative (CASCOFAMCO) is a 1,844-member cooperative whose principal activity is the operation of a village-level coconut oil mill, the first of its kind in the province. The oil mill is situated in Ondoy, Ivisan, Capiz – 12 kilometers away from Roxas City and 98 kilometers from Iloilo City – on a 3,000-square meter lot that is along the national road. The purchase of the lot and the initial building, amounting to PhP1.06-million, came from the paid-up capital of the members and symbolize their strong spirit of cooperation. The oil mill opened in January 1998 with operations focused on the production of refined cooking oil, crude coconut oil and copra cake. Birth Pains and Crisis Management The first set of employees did not operate the mill successfully. As a result, the mill suffered continuing losses and operations had to be stopped in 2002 and 2003. The Board was forced to terminate the incumbent manager and installed a staff member of the PCA (Philippine Coconut Authority) as head of an interim crisis management team. The new management entered into a toll crushing contract with an Iloilo Feed mill that earned the cooperative a fee of PhP5.00 per kilo of oil pressed and allowed it to survive during the crisis period of 2004-2005. In the second half of 2005, the cooperative submitted a proposal to PACAP, outlining its new business model. The proposal was approved in March 2006 and funds were released the following June. The new strategic direction was implemented shortly thereafter with a new fulltime manager. Re-defined Business Model The new business model proposed the transition of the mill from a single-product enterprise to an integrated operation that would utilize most parts of the coconut fruit in the production of the following products – refined cooking oil (for sale to households), crude oil and copra cake (as ingredients for hog feeds), virgin coconut oil (for the healthconscious market in Roxas City and other urban centers in Panay) and coconut coir fiber and dust (as as soil conditioner and erosion control material). PACAP Assistance The PACAP grant of PhP1.079-million was utilized over an 18-month period (June 2006 to December 2007) and applied to the following items: (a) raw materials and packaging, (PhP258,000), (b) production facilities for virgin coconut oil (VCO) production (PhP300,000), and additional plant equipment and tools (PhP419,000). Other Assistance Apart from PACAP, the cooperative has also received assistance from the provincial and local government (for buildings and equipment), the European Union (PhP70,000 for copra dryer) and the President’s Social Fund (PhP500,000 for delivery truck). These various forms of assistance were provided to the cooperative through the intermediation of the provincial office of the PCA.

Major Product Lines As planned, the oil mill is currently involved in the production and sale of six products: refined cooking oil, crude oil, copra cake, virgin coconut oil, and coconut coir fiber and coir dust. Refined cooking oil represents 50 percent of the sales, followed by crude oil at 30 percent. Sales are usually on a 15-day credit term. Apart from the manufacture of these six products, the cooperative is also heavily engaged in copra processing and trading. Crude Coconut Oil, Copra Cake and Refined Cooking Oil Customers for crude coconut oil and copra cake are three commercial hog farms who mix their own feeds. Refined cooking oil is a mass consumer product that is bought by walkin customers (including members of the cooperative) for re-sale in the barangays. The cooperative also sells refined cooking oil in bulk (40 gallons per month) to a vegetarian community in Quezon City. Other Products The market strategy for virgin coconut oil, coir dust and coco fiber is still evolving. Virgin Coconut Oil is sold mainly to walk-in customers. The main customer for coir dust is the Capiz Multi-Purpose Cooperative (another PACAP partner) whose members use it as plant medium. Finally, there are ongoing negotiations to sell coco fiber to Cocotech (a Filipino company manufacturing coco-fiber-based soil erosion nets and ropes for the export market) and a Korean landscaping firm in Manila. Copra Trading Initially, the copra trading activities of the cooperative were limited to selling its excess copra to an oil mill in Iloilo. In time, however, the cooperative became the buying agent of the Visayan Coconut Corporation (maker of the Kings’ cooking oil brand), when the latter provided CASCOFAMCO with an initial buying fund of PhP300,000. CASCOFAMCO uses the fund to purchase copra from farmers (and local traders), dries the copra down to three-percent moisture content (thereby adding value) and delivers the re-dried copra to the Visayan Coconut Corporation. Copra trading has become a major source of revenue for the cooperative, generating total sales of PhP8.9-million and a gross profit of PhP589,000 from January to October 2008. Alternative Market for Copra By providing an alternative market for the coconut products of the farmers of Ivisan, the oil mill has had a stabilizing effect on prices. Prior to the operations of the oil mill, the prices of coconut and copra in Ivisan (a major coconut producer in Capiz) had been lower compared to other areas. Today, the prices of coconut in Ivisan are on par (if not higher) than those of other areas in Capiz. Financial Performance The latest balance sheet of CASCOFAMCO (August 2008) shows total assets of PhP6.7million, with fixed assets accounting for 70 percent. Current liabilities amount to PhP1.6million, of which two-thirds are loans payable (PhP600,000) and advances from customers (PhP500,000). The cooperative earned the monthly income of PhP54,000 (five percent of sales) in August 2008 with copra trading constituting the bulk of sales and net income. uu

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The Importance of Business “Opportunism” Enterprises operate within dynamic, constantly-changing environments. To prosper (or, in difficult times, even to survive), enterprises must be opportunistic, seizing opportunities that present themselves. CASCOFAMCO has demonstrated this capacity in a number of situations, e.g., the toll crushing contract of 2004-2005 and more recently, the copra trading project. Identifying Priorities Enterprises need to distinguish which of its products are “yesterday’s breadwinners, today’s breadwinners and tomorrow’s breadwinners” and concentrate their efforts accordingly. The current product lines of CASCOFAMCO reflect an appreciation of this important business principle. Coconut oil (refined and crude) are yesterday’s (and perhaps, still today’s) breadwinners. Copra trading is clearly today’s breadwinner. Tomorrow’s breadwinner remains a toss-up between virgin coconut oil, coir dust and fiber, bath soap, coconut water vinegar or (even) a product still unknown at this time. n

one-half to four hectares in size while the rest are small growers whose gardens are usually limited to their backyards. The cooperative was started in 1989 by a core group of enterprising women to spearhead the development and growth of the ornamental plants industry in the province. The current reputation of Capiz as the “Garden Center of Western Visayas” is a testimony to the success of their efforts. The Local Market The growers first targeted the local market. It set up a display center – strategically located in the center of Roxas City near the provincial capitol building – to sell ornamental plants (orchids, cut flowers, potted plants) to various walk-in customers, including landscapers, flower designers, students for school projects, interior decorators for indoor plants, housewives. Participation in trade fairs, both within and outside the province, led to the opening of external markets in Iloilo City and Manila, while giving participating members the opportunity to acquire new planting materials, learn new technologies and disseminate these to the other members. The Japanese Market In 2005, the cooperative finally succeeded, after many unsuccessful attempts, to penetrate the Japanese market. In October of that year, the cooperative sent its first shipment (1,000 kilograms) of cut foliage to Japan. Since then, the cooperative has been selling regularly to the Japanese market. PACAP Assistance In July 2006, PACAP provided an 18-month grant of PhP1.5-million to the cooperative. The grant, which ended in December 2007, had three objectives: (a) maintain and expand the domestic and foreign markets of the cooperative; (b) operationalize the common service facilities (refrigerated van and packing center) of the cooperative in order to make its products globally competitive; and (c) computerize the operations of the cooperative in order to better serve its members and clients. Current Operations In general, enterprise operations have proceeded according to the plan of action described in the proposal submitted to PACAP. The cooperative continues to service its existing domestic and Japanese markets and participate regularly in trade fairs and garden shows to sell its members’ products and find new customers. Marketing Strategy Individual members are responsible for separate sales transactions in the domestic market. For example, one of the members of the cooperative is responsible for all sales to the Dangwa Bagsakan Center in Manila. The member determines the volume of cut foliage material to be shipped, determines who among the members will supply the volume shipment, arranges for shipment and communicates with her agent in Manila. The agent in Manila picks up the cut foliage from the airport, delivers the shipment to the Dangwa Bagsakan Center, collects payment and remits the funds to the member in Capiz. The member then gives each member-supplier her share of the sales proceeds. The same sales arrangement is practiced for the Iloilo and Cebu markets. Different selling arrangements are employed in dealing with Japanese market where the cooperative itself acts as the marketing agent. The “collective” marketing strategy of the cooperative uu

CASCOFAMCO also highlights the important role of the external support agency, in this instance, the provincial office of the Philippine Coconut Authority. Throughout the life of the cooperative and in response to its various problems, the PCA has served in various capacities – as a source of technical expertise, as resource mobilizer and (even) as interim management of the enterprise. Enterprise management is an extremely difficult task. Since NGOs and their partnercommunities lack of business management expertise, assistance is required from external agents, such as, government agencies and/or sympathetic individuals from the business world. Identifying these external agents/social entrepreneurs and formulating the appropriate terms of their partnership with the community are formidable challenges. One promising partnership model is the “big-brother/small brother” scheme that has been employed in the Cut Foliage Enterprise of the Capiz Multi-Purpose Cooperative (see Box 5-2). The scheme enables the better-off members of the cooperative to support their lessendowed colleagues with on-farm visits, technical information and advice and marketing opportunities. The scheme provides a venue for continuous training on new technologies in horticulture and the sharing of knowledge and information among the members of the cooperative. In addition, it is also a good marketing strategy. The “big-brother/small brother” scheme removes the burden of selling on the small growers who would otherwise find difficulty gaining access to markets. All participants benefit since they each receive the same price for their cut foliage.

Box 5-2. Comprehensive Marketing Program for the Horticulture Industry of Capiz n Capiz Multi-Purpose Cooperative (CMPC)
The Capiz Multi-Purpose Cooperative The Capiz Multi-Purpose Cooperative is a primary cooperative of 28 women plant-growers, of which five are large commercial cut foliage growers with “greenhouses” ranging from

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47

removes the burden of selling on the small growers who would otherwise find difficulty gaining access to markets. It is also beneficial for all participants as they all receive the same price for their produce. Social Equity Impacts The most significant impact is the income and employment derived by the members from the enterprise. Income and employment benefits also spill-over to two other groups: (a) nearby households who become sub-contractors/planters of cut foliage during periods of peak demand when the members’ produce is insufficient to meet demand; and (b) processors who are employed as casuals in the processing of cut foliage for the Japanese export market. A secondary benefit is the feeling of pride shared by the members of the cooperative because of their status as pioneers of the ornamental plant industry in Capiz. The cooperative has been the recipient of many awards in recognition of this pioneering role, the most recent being the “Masigasig Globe Award for 2008.” n

Box 5-3. Enhancing and Protecting an Agro-Forestry Area through Abaca Fiber Production n San Isidro Upland Farmers Multi-Purpose Cooperative (SIUFMULCO)
Background The San Isidro Upland Farmers Multi-Purpose Cooperative (SIUFMULCO) was organized and registered with the Cooperative Development Authority in January 1998. It has a current membership of 89 cooperators, all residents and farmers of Barangay San Isidro, Santiago, Agusan Del Norte. San Isidro, which has a population of 300 households, is an upland and forest area whose main agricultural crops are coconut, banana, camote and corn. Farmers have also planted abaca under falcata trees in agro-forestry areas for supplementary income. Abaca and Abaca Fiber Abaca, which is also known internationally as Manila hemp, is native to the Philippines and achieved importance as a source of cordage fiber in the 19th century. Abaca fiber is valued for its exceptional strength, flexibility, buoyancy, and resistance to damage in saltwater. These qualities make the fiber very suitable for marine cordage, such as, ship’s rope, hawser, and cables for fishing lines, hoisting and power transmission ropes, welldrilling cables, and fishing nets. Abaca fiber is used as raw material for a wide variety of products, including: carpets, tablemats, fiber crafts, cordage, textiles/fibers, non-woven and disposable, pulp and specialty papers (such as, currency notes, cigarette paper, meat and sausage casings, teabags, stencil paper, high-tech capacitor paper, and so on) requiring high porosity, excellent tear, bursting and tensile strength. Abaca, which resembles the banana plant, is not a seasonal plant and its production is year-round. Two years after planting, mature abaca stems can be harvested quarterly, processed into fiber, dried and sold. The Market for Abaca Fiber The Philippines supplies almost 85 percent of the world’s abaca requirement with Ecuador as its only competitor. During the past ten years, raw abaca fiber exports averaged over 17,000 metric tons annually with over 90 percent going to the US and Japan. According to the Philippine Fiber Industry Development Authority (FIDA), there is almost unlimited demand for abaca fibers, both for local consumption and for export. While unlimited demand may appear to give producers greater bargaining power (a “sellers’ market”), traders wield great influence through the abaca fiber grading system. There are two basic grades of abaca – high and low – with a number of sub-grades within each basic grade. Abaca fiber is classified in a particular sub-grade on the basis of color (the whiter the fiber, the higher the grade) and fineness of the strands (the finer the strand, the higher the grade). Price differences are significant: the highest sub-grade of abaca fiber is double the price of the lowest sub-grade. The market for abaca fiber is dominated by traders who are licensed by the Fiber Industry Development Authority (FIDA). FIDA issues four types of licenses – A to D – depending on the volume of business transacted by the trader. The elite traders (license A) are also called Grading and Baling Establishments (GBE) who usually dispatch provincial buyers to make sure they are able to capture most of the abaca fiber supply. There are two GBEs in Cagayan de Oro City and large traders in Davao City, Cebu and other major urban centers. In addition, there are many smaller traders operating in the different towns of Agusan Del Norte and Agusan Del Sur. uu

Management Structure and Personnel
There is no such thing as collective management of an enterprise. Ultimately, management falls on the shoulders of one or a few key individuals. The current infatuation with the “science” of management has de-emphasized the role of the leader, the (oftentimes charismatic) individual who mobilizes his/her peers to support the enterprise. Yet these leaderscum-managers perform important, if not crucial, roles in the birthing of an enterprise. Strong leadership is a sine qua non feature of all successful enterprises. In the case of PAPASMA (see Box 2), exceptional leadership has been provided by its long-standing chair whose leadership has translated into: (a) a culture of strict organizational discipline, where members have internalized the rules and procedures of the organization; and (b) a successful enterprise whose activities – including financial management – are carried out effectively by knowledgeable and highly-motivated employees. The same is true of the SIUFMULCO, a PACAP partner in Agusan del Norte who is now operating an extremely profitable Abaca Fiber Trading and Production Enterprise (see Box 11). Every new enterprise, especially one that involves many equity holders, requires a champion who will mobilize people and resources for the enterprise during its start-up period over the objections of skeptics. In SIUFMULCO, this role was performed by the chair of the cooperative whose passion and commitment overcame the initial doubts of many and kept the cooperative focused on the enterprise until its viability had been demonstrated. Oftentimes, PACAP project officers are guided by the “heart and passion” of the leaders of the proponent organization in conduct of their appraisal and monitoring functions.

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SIUFMULCO Abaca Fiber Production and Marketing Enterprise Prior to its entry in the abaca fiber industry, SIUFMULCO was already engaged in three other enterprises – a consumer store, a credit program for members and copra trading. It continues to be engaged in its consumers’ store and lending program but has temporarily suspended copra trading operations to concentrate on its abaca fiber operations. The abaca fiber enterprise began in 2006 and was championed by the cooperative’s current chair who had a brother having previous experience in abaca fiber trading and was convinced of its profitability. With funding of PhP176,000 from the Department of Labor and Employment (DOLE), the cooperative began buying abaca fiber from farmers in Santiago and nearby areas. The cooperative took the risk of buying at higher-thanprevailing prices (PhP40/kilo) because it had heard that buyers in Prosperidad (Agusan Del Sur) were buying abaca at even higher prices (PhP45/kilo). When the cooperative had already assembled three tons of abaca fiber, it approached FIDA who put them in touch with Prosperidad buyers who did buy the abaca fiber at PhP45 per kilo, thus giving the cooperative a net profit of PhP5.00 per kilo. Encouraged by this initial success, the cooperative continued its buying operations, acquired an abaca fiber traders’ license from FIDA and began negotiations with PACAP for additional capital. PACAP Assistance PACAP assistance to SIUFMULCO started in March 2007 and will extend for 27 months. Of the PhP3.2-million grant, PhP2,017,000 has already been released to date in two tranches. The amounts released have been applied to: (a) establishment of 60 hectares of abaca farms (land clearing, provision of seedlings and inputs, and purchase of sprayers); and (b) purchase of a six-wheeler truck for hauling abaca fiber. Current Operations At the moment, the two main activities of SIUFMULCO’s Abaca Fiber enterprise are buying and selling of abaca fiber. The 60 hectares of abaca farms proposed to PACAP have been established and the first harvests are expected in February 2009. The cooperative is already doing some fiber extraction (using the stripping machine purchased with DOLE funds) but on a limited scale. It expects to do more when the PACAP funds for stripping machines (four units) have been released. Buying Operations The abaca fiber currently being traded by SIUFMULCO are sourced from existing farms in Santiago (around 64 hectares of which about one-fourth are owned by members of the cooperative) and other towns of Agusan Del Norte. The cooperative has established nine buying stations (=agents) for abaca fiber. Each buying station receives an advance (known as “standing capital”) from the cooperative to buy abaca fiber. At the outset, SIUFMULCO sets the price that it will buy from its agent. Using this price parameter, the buying station negotiates with abaca producers and arrives at an acceptable price (usually a PhP1-2.00 per kilo mark-up from the SIUFMULCO). Once the buying station has used up its advance in buying abaca fiber, it will inform the cooperative. The cooperative will then decide whether to give the agent more funds or pick up the abaca fiber. If it decides on a pickup, the cooperative’s truck will go to the area, weigh the abaca using the scale of the buying station, and then load the abaca into the truck and bring it to the warehouse of the cooperative. The buying station and cooperative will then liquidate the advance and start anew. The buying system works reasonably well and no major problems have

been encountered. The success of the buying operation is anchored on the fact that the cooperative’s buying prices are generally higher than those of other traders. SIUFMULCO buying prices are higher, however, because the cooperative puts a premium on quality. This premium on quality is also helped by the popular perception that the abaca fiber in Santiago (and other areas on the route to Surigao City) is of better quality than those found in the opposite direction (towards Butuan City). Selling Operations The cooperative’s relationship with its first buyers was short-lived but its experience with a second buyer, an Iloilo trader with a branch office in Butuan City, proved more fruitful and continues to this day. Its third buyer, with whom SIUFMULCO has only had one transaction (in July 2008), came from Cebu. Its fourth buyer is Ching Bee Trading from Davao City. While the relationship with Ching Bee is fairly new (started in October 2008), the latter is the biggest buyer to date of the cooperative. Thus far, no major problems have been encountered with the cooperative’s current buyers. Payments are sometimes delayed but eventually completed. There have been no serious disagreements over price, quantity and quality. For much of 2008, total sales volume of the cooperative has been four to five tons per week. Financial Performance In 2007, the cooperative’s total sales and net income amounted to PhP2.14-million and PhP165,000, respectively. This revenue performance has already been surpassed significantly in the current year. In the nine-month period from January to September 2008, the abaca trading enterprise alone had achieved sales of PhP4.48-million (up by 53%) and net income of PhP681,000 (a 300% increase). Officials of the cooperative expect even higher increases by year-end as abaca fiber sales in the last three months of 2008 are expected to maintain the same levels as previous periods. (Note: As of December 30, 2008 the abaca enterprise had achieved sales of PhP6.370-million and net income of PhP1.084-million.) n

The experience of SIUFMULCO also demonstrates that, to a significant extent, business skills are transferable. The application of the business skills developed by the cooperative in managing its consumers’ store and copra trading operations were instrumental in the current success of the abaca fiber enterprise. Leadership and competence are both important for the effective management of an enterprise. While debate continues whether leadership is inborn or developed, there is little doubt that management competence can be taught and learned. The teaching of management is important because, in the majority of cases, the individuals who will are responsible for the operations of PACAP-supported enterprises have not had much formal schooling. Assessment of the management structure of an enterprise should not be limited to a review of the management and personnel requirements for the marketing, production, finance and administration functions of the enterprise. Equally important is the review of the qualifications of the individuals who will manage their enterprise and the capacity-building program that will build the staff competence required for effective enterprise management.

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51

Internal Controls
The internal control system is the third and final item to consider in the organization of an enterprise organization. There are two important aspects of internal control: (a) accountability and reporting and (b) financial management.

Accountability and reporting
Reporting facilitates accountability: it is a means to hold individuals accountable for their actions. Reporting relationships – between and among the general membership, board of trustees, management, production workers and staff – need to be clearly defined and followed by all concerned. Because of its previous negative experiences, the Tubigon Cooperative cited earlier (see Box 4-4) recognizes the importance of transparent reporting in building trust and cooperation. The cooperative makes a regular report of financial transactions at the monthly meeting of the women weavers. Awareness and understanding of the financial condition of their enterprise motivates the women weavers to work harder. The monthly meeting is also the venue to air grievances and resolve issues, e.g., from a weaver who may feel resentful that part of her work quota has been is taken away from her.

Financial management
The financial management system of an enterprise consists of the following components: ƒ Accounting and bookkeeping, which include: (a) chart of accounts, (b) vouchers and other bookkeeping forms, (c) books of accounts and (d) periodic financial reports. ƒ Financial controls, which include: (a) basic checks and balances (i.e., segregation of functions) and (b) control procedures for key transactions related to cash (receipts, disbursements and advances), purchases, inventory (raw materials, goods in process and finished goods) and payroll. ƒ Staff involved in financial management, including: (a) their employment status (fulltime or part-time), (b) qualifications and (c) experience. The majority of PACAP-supported enterprises reviewed for this Enterprise Kit have adequate financial management systems, a reflection of the efforts of both PACAP and its partners in improving this particularly important aspect of enterprise operations. The motivation to install adequate financial management systems has likely come from previous negative experiences of the PACAP partners, many of whom have had problems in the handling of funds at some point of their history. n

52 Social Enterprise Development: Community Businesses at Work

Section 6
The Key Questions
a)

financial considerations
Assessment of the financial component of an enterprise revolves around the following two key questions: How much external funding is required to capitalize the enterprise until it can generate sufficient inflows to meet its outflows? Where will these external funds be sourced?

Section 6

b) What is the projected financial performance of the enterprise? Is this projected financial performance satisfactory? Answering these two questions requires the preparation of projected (=pro-forma) cash flow and income statements, break-even analysis and calculation of a number of profitability ratios. Before these financial statements and profitability measures can be prepared, however, the financial assumptions of the enterprise regarding revenues and costs must be spelled out.

Revenues Projected Selling Price(s)
What is the selling price of the product? What is the basis for this selling price? The selling price can either be based on the market or on production costs. Market-based pricing simply means that the enterprise will adopt the prices prevailing in the market for its product(s). Cost-based pricing means that the selling price of the product will be based on its production cost plus a reasonable margin to cover fixed costs and generate some profit for the enterprise. This can be determined using the following formula: Price = (Fixed Costs/50% of full capacity) + Unit Variable Cost.

54

55

Terms of Sale
Where and how will the product be sold? Will the terms of sale be in cash, credit, or consignment, for instance? Will the enterprise offer volume discounts?

Costs
The typical enterprise has three types of costs: Capital and Start-Up Costs, Fixed Costs and Variable Costs. a) Capital and Start-Up Costs. Capital costs include all costs to acquire, build and install all elements of the production unit (including land, machinery, equipment, and so on). Start-up costs are one-time costs associated with getting started in the business, e.g., legal, engineering studies, feasibility studies, licenses, and the like.

Sales Volume
At full capacity, how many units of the product will be sold per week? Per month? Per year?

Table 6-1. Summary Presentation of Variable Costs/Unit of One Unit of Product to be Produced
unit materials
1 2 3 4 5 6 Other (Petty) Materials Subtotal Labor 1 2 3 4 Etc. Subtotal Other Variable Costs 1 2 3 4 Subtotal variable costs per unit of product to be produced …….. x x x x xx x x x x xx x x x x xx xx xx xx xx xxx xxxx x x x x x x xx x x x x x xx x x x x x x xx x x x x x xx x x x x x x xx x x x x x xx xx xx xx xx xx xx xxx xx xx xx xx xx xxx

b) Fixed Costs (Per Month). Fixed costs are incurred to operate the production unit regardless of the level of production. Fixed costs include management and administrative salaries, rent, depreciation, repair and maintenance, and so on. Fixed costs are normally expressed on a monthly basis. c) Variable Costs. Variable costs are related directly to the level of production; these consist mainly of raw materials and production labor. Variable costs can be expressed on a per unit basis (Unit Variable Cost) and on a weekly, monthly, and yearly basis. Variable costs per unit may be summarized using Table 6-1.

Description

unit cost

total Amount

Projected Cash Flow Statement
Cash flow analysis is critical for any business. A cash flow statement matches cash inflows (=receipts) against cash outflows (=disbursements) on a periodic basis to determine whether an enterprise has sufficient cash inflows to cover its outflows. Cash flow analysis is particularly important during enterprise start-up. No business achieves 100 percent production capacity on the day it begins operations. It may take some months before all production problems are straightened out. Or, the enterprise may encounter difficulties in its initial marketing efforts. A Projected Cash Flow Statement can be used to determine when an enterprise can generate enough cash to cover all its costs and, therefore, will no longer have to depend on external funds. Once this is determined, the amount of external funds required for the enterprise and, more important, the timing for the infusion of these external funds would also have been determined. Preparation of a realistic Projected Cash Flow Statement requires answers to the following three questions: ƒ What are the different activities that must be completed before the enterprise can actually begin production? ƒ What is the length of time required to put together all the different elements so that an enterprise can actually begin production? Will this take a month? Two months? Three months? Half a year? ƒ Once an enterprise begins actual operations, how long will it take before it achieves its planned 100 percent production capacity? A number of preparatory activities need to be completed before an enterprise can actually begin production. These would include, among others: (a) finalizing agreements to acquire
Section 6 | Financial Considerations 57

56 Social Enterprise Development: Community Businesses at Work

a lot where the physical facilities will be constructed (including the resolution of any rightof-way issues); (b) actual construction of the production facility; (c) testing of machinery and equipment; (d) securing the necessary business permits and licenses; (e) training of workers and staff; (f) finalizing marketing agreements with identified customers; (g) production test runs; and (h) pilot marketing activities. The timing of these activities must be reflected in the financial planning of the enterprise and particularly, in the cash flow projections. Following is a sample Projected Cash Flow statement for a typical agricultural manufacturing enterprise supported by PACAP. It is done on a monthly basis for very specific reasons related to effective enterprise management. Good management requires very careful control of expenses and knowing where the enterprise stands with respect to plans. Monitoring this performance once every six months or once every three months is insufficient for good control.

a)

Cash Inflows. In completing this category, one should not equate goods produced with goods sold. The schedule of production is an internal decision made by the management of an enterprise. The actual selling of products is based on external market forces and therefore, is subject to seasonal fluctuations. Not all sales are done on a cash basis; oftentimes, goods are sold on credit. The cash received from the collections of sales on credit should be listed during the period when it is actually received, not during the period when the sales transaction was made.

Table 6-2. Sample Projected Cash Flow Statement Integrated Rice Marketing Project of the Rural Women’s Marketing Cooperative, Inc. (12 Months, Monthly Basis)
montH
Cash Inflows Cash Sales Collection of Credit Sales Other Inflows Sub-total Less: Cash Outflows Capital Costs Start-Up Costs Fixed Costs Variable Costs Sub-total Net Inflows (Outflows) Add: External Funds Net Cash Flow Add: Beginning Cash Balance Ending Cash Balance xxxx x 0 0 5x (5x) 5x 0 0 0 xx x 0 0 3x 0 0 x xx 3x 0 0 x xxx 4x (1x) 1x 0 0 0 0 0 x xxxx 5x (1x) 1x 0 0 0 0 0 x xxxx 5x (1x) 1x 0 0 0 0 0 x xxxx 5x 1x 0 1x 1x 1x 0 0 x xxxx 5x 1x 0 1x 1x 2x 0 0 x xxxx 5x 2x 0 2x 2x 4x 0 0 x xxxx 5x 1x 0 1x 4x 5x 0 0 x xxxx 5x 2x 0 2x 5x 7x 0 0 x xxxx 5x 1x 0 1x 7x 8x 6x 2x 10x 37x 55x (5x) 0 0 0 0 0 0 0 0 x 0 0 1x x xx 0 3x x xx x 4x xx xx 0 4x xx xxx x 6x xxx xxx 0 6x xxx xxx x 7x xxx xxx 0 6x xxx xxx x 7x xxx xxx 0 6x 22x 24x 4x 50x

b) Cash Outflows. In completing this category, it is important to remember that only transactions involving the disbursement of cash should be listed. Depreciation, which is a non-cash cost, is not listed in the cash flow. Loan amortization payments (both principal and interest), on the other hand, are listed in the Cash Flow as they involve the disbursement of cash. (Conversely, only the payment of interest income, not the payment of principal, is included in the Profit and Loss Statement.) Costs are listed in the periods when cash is actually disbursed to pay for them. Capital and Start-up costs are listed during the pre-operating periods when the different elements of the enterprise are still being assembled prior to the start of production. Fixed and variable costs (also known as operating costs) are incurred when the enterprise has actually begun production. c) Net Inflows (Outflows). This is the difference between Cash Inflows and Cash Outflows.

i

ii

iii

iv

v

vi

vii

viii

iX

X

Xi

Xii

totAlS

d) External Funds. During periods when cash outflows exceed the combined total of the cash inflows and the beginning cash balance, external funds must be infused into the enterprise to cover the cash shortfall. External Funds may be drawn either from the proponent NGO, the beneficiaries of the project, sympathetic individuals and groups, PACAP or any combination of the four parties. The amount of external funds to be infused into the project should be exactly equal to the cash deficit to avoid possible over-funding of the enterprise. e) Net Cash Flow. This is the sum of the net inflows (outflows) and external funds. During periods when external funds are infused into the enterprise, this sum should be equal to zero, again to avoid over-funding of the enterprise. Cash Balance, Beginning. This is the amount of cash available to the enterprise at the beginning of a particular period. At project start-up, this is usually equal to zero. Cash Balance, Ending. This is the amount of cash left available for the enterprise at the end of a particular period. It becomes the beginning cash balance for the next period.

(3x) (2x) 3x 0 0 0 2x 0 0 0

f)
13x 8x

g)

Projected Cash Flow Statements are relatively easy to construct but quite difficult to follow in practice. All enterprise managers recognize that cash flow management is actually govSection 6 | Financial Considerations 59

58 Social Enterprise Development: Community Businesses at Work

erned by Murphy’s Law, which states, “If anything can go wrong, it will. And it will go wrong at the worst possible time!” Prudent enterprise managers therefore develop fallback positions to ensure that there is adequate cash for enterprise operations. The HAMPCO Hand Loom Weaving Enterprise cited earlier (see Box 3-3) has learned to cope with limited working capital. The main source of the cooperative’s working capital is the PACAP grant. When this is not enough, it borrows materials from suppliers (usually payable in two weeks at no interest). HAMPCO also resorts to small cash loans (e.g., PhP10,000) from friends, issuing post-dated checks as repayment guarantees. The cooperative also actively seeks grant funding from donors. In 2008, it received a PhP200,000 grant from the Peace and Equity Foundation as additional working capital for abaca silk production. The Dao Garments and Bags Enterprise (see Box 6-1) employs an extremely prudent cash flow management strategy based on the following principles: (a) no production without an order from a customer; (b) minimal inventory of raw materials; and (c) cash liquidity (the enterprise maintains a buffer fund of about PhP700,000 to cover bulk transactions and for eventual expansion). In addition, the members of the management team took a voluntary cut in their salaries beginning March 2008 to reduce the financial burden of the enterprise.1

Production Technology The T-shirt and Bags enterprise requires the use of industrial sewing machines (piping machines, edging machines, high-speed sewing machines, gartering machines and ordinary sewing machines. Fifteen units of industrialized sewing machines were acquired by Dao Federation through the grant of Department of Labor and Employment (DOLE), Provincial Government of Capiz and Direct Aid Program (DAP) of Australian Embassy The production center of the enterprise is located in the Dao Agricultural Storage and Marketing Center, a facility that was established with funding from the Department of Agriculture: the T-shirts are made on the second floor of the building, while the bags are manufactured on the ground floor. PACAP Assistance PACAP assistance to the enterprise was provided over the 18-month period from September 2006 to February 2008. The PACAP grant of PhP1.3-million was applied to the following items: Working Capital and additional equipment (PhP500,000); Product development and improvement (PhP100,000), Networking and marketing (PhP100,000); Management support (PhP331,5000) and Administrative Expenses/M&E (PhP172,000). Current Operations In general, operations have been carried out according to the plan outlined in the proposal approved by PACAP. Production targets of the T-shirts and bags have been met. The enterprise continues to serve the needs of regular costumers, while establishing market linkages with potential institutional and individual clients. At the same time, the enterprise conducts market research regularly to identify fashion styles that are in demand and conceptualizes innovative designs of various garments and bags products. A major reason for the continued operation of the Dao enterprise is its “the customer is always right” policy. Even if it sometimes considers its customers’ demands to border on the unreasonable, the Dao enterprise will still do its best to deliver on the customers’ orders, even if it means having to work overtime for long periods. If its products are rejected by a customer (for whatever reason), the enterprise accepts the rejects (thankfully few) as inventory, transforms these into other products and re-sells the “new” products at discounted prices. Marketing Activities The PACAP grant enabled the Federation to conduct marketing activities, specifically, participation in trade fairs, production of flyers and a brochure and making sales call. A major marketing activity was held in December 2007 when the models of a fashion show of P.J. Aranador, an international designer, showcased the T-shirts made by the Dao Federation. The fashion show was a major factor in providing the Dao brand name with much-needed exposure. With the end of PACAP funding, marketing activities have been reduced significantly, and the Federation relies largely on informal word-of-mouth campaigns by its customers. The enterprise is also promoted by the SME Center and the provincial Department of Trade and Industry. Customers At present, the enterprise has about 19 institutional clients and 33 individual clients. While most of these are in Roxas City and Capiz, a few are also based in Iloilo City. In the past, a major institutional client was an Iloilo ads printer who bought accented uu

Box 6-1. Dao Garments and Bags Industry n Dao Federation of Small Farmers Multi-Purpose Cooperative
Background The enterprise is owned and managed by the Dao Federation of Small Farmers MultiPurpose Cooperative, a secondary cooperative with nine member-primaries, operating in the municipality of Dao, Capiz. The enterprise has two main products – Garments and Bags. Initially, the garment product line was limited to T-shirts, which are widely used as uniforms in public schools and also as inner cloth for school and office uniforms. T-shirts are also used during intramurals, fiestas and other community affair, company souvenirs and giveaways during political campaigns. Over time, however, the enterprise has diversified into other garment product lines. On the other hand, the bag products include backpacks, traveling bags, convention bags, which are very saleable to the market, schools, institutions and individual customers. These are made of poly canvass, taffeta, poly nylon, leatherette and other synthetic materials. Target Markets The Dao Federation began its T-shirt and bags enterprise in 2003, catering to both institutional and individual customers within Capiz. Historically, institutional markets have accounted for 70 percent of sales, with individual customers accounting for the remaining 30 percent. PACAP assistance, which was provided in September 2006, was intended to strengthen existing markets and enable the enterprise to expand beyond Capiz to other markets in Panay Island, including the provinces of Iloilo, Aklan and Antique.

60 Social Enterprise Development: Community Businesses at Work

Section 6 | Financial Considerations 61

T-shirts from the Dao enterprise, put prints on the T-shirts and sold these to its customers. At one point, the Iloilo ads printer accounted for almost 70 percent of the Federation’s total garment sales (this has now been reduced to 20 percent). The enterprise is hoping to find other similar customers (in effect, wholesalers) who would, in effect, act as its marketing agents. Compensation for Workers Workers are paid on a piece-rate basis, depending on the activity/operation performed. Operations vary according to the garment produced. For example, the making of a T-shirt involves the following separate operations, each with its own piece-rate compensation: cutting/body and sleeves (PhP2.60), cutting/ribbing (PhP0.30), join shoulder (front and back, left and right) – PhP.60, attach sleeves (PhP1.25), side close (PhP1.25), sleeve fold (PhP1.25), hemline fold (PhP1.25), prepare ribbing (PhP0.30) ,attach ribbing (PhP1.50), piping ribbing (PhP1.50), attach label PhP0.50, trimming (PhP0.75), ironing (PhP1.25), quality control (PhP0.50), and packing (PhP0.50). Financial Performance The latest income statement of the Dao enterprise (1 March to 30 September 2008) shows total sales of PhP1.17-million. The enterprise generated a modest net income for the period (3.4 percent of sales). However, its financial condition remains fragile, mainly because of high labor costs (25 percent of sales) and management salaries and wages (13 percent of sales). During the period of PACAP assistance, the salaries of the Project Officer and Bookkeeper were paid from the PACAP grant, while the Manager and Cashier were paid by the municipal LGU. When the PACAP grant ended, the salaries of the Project Officer, Bookkeeper and Manager had to be absorbed by the enterprise (the cashier continues to be paid by the LGU). To reduce the financial burden on the enterprise, the members of the management team have voluntarily reduced their salaries since March 2008. The Problem of Pricing Competitiveness The major problem faced by the enterprise continues to be pricing competitiveness. Its products are simply more expensive than the RTW garments imported from Manila because, after all, its raw materials come from Manila. Labor costs are also higher because of the Federation’s social objectives. For these reasons, the enterprise cannot compete head-on against the RTW market. Instead, it has carved a niche for itself in the personalized design, made-to-order local market of schools, private companies and (especially) local government units within Capiz and surrounding provinces. n

Table 6-3. Sample Projected Income Statement Ondoy’s Mini-Restaurant and Fast food Enterprise For the Six-Month Period ending December 31, 2009
m1
gross revenues ƒ Sales ƒ Other Income Subtotal less: variable costs gross margin less: fixed costs net income xx 0 xx x x x 0

m2
xxxx x xxxxx xx xxx x xx

m3
xxxx 0 xxxx xx xx x x

m4
xxxx x xxxxx xx xxx x xx

m5
xxxx 0 xxxx xx xx x x

m6
xxxx x xxxxx xx xxx x xx

totals
22x 3x 25x 11x 14x 6x 8x

When prepared periodically during the actual operations of an enterprise, Income Statements can be used evaluate financial performance in a variety of ways, such as: ƒ Have profits increased over time? ƒ Have sales increased over time? ƒ Have costs of production been reduced? ƒ How does this business compare with other business? ƒ How does this business compare with other industry averages? ƒ How does this product compare with one in a completely different line of production?

Break-Even Analysis
There are two components to break-even analysis. The first – break-even selling price – is the price that the enterprise needs to charge for its product in order to cover all fixed and variable costs. The second – break-even sales volume – is the number of units of the product that the enterprise must sell in order to cover all fixed and variable costs.

Break-even selling price
The break-even selling price is calculated using the following formula:

Projected Income Statement
An income (or profit-and-loss) statement shows the financial results of a business over a given period of time. Pro-forma (= Projected) Income Statements summarizes the expected financial performance of a business and is often a major factor in determining whether or not to undertake the business. Following is a sample Projected Income Statement.

Total Fixed Costs + Total Variable Costs No. of units to be produced

Gross Margin per Unit
Before break-even sales volume can be determined, the gross margin per unit must first be computed. The gross margin is the difference between the selling price and the variable

62 Social Enterprise Development: Community Businesses at Work

Section 6 | Financial Considerations 63

cost per unit (VCU). The variable cost per unit can be determined by dividing the Total Variable Costs by the number of units to be produced when the enterprise is operating at full capacity.

Return on Investment (ROI)
The concept of return on investment is analogous to depositing one’s money in a bank and earning interest income from the deposit. It is calculated using the following formula: ROI = Net Income/Total Investment. Net income is the bottom-line figure at the end of an income statement, while total investment is the sum of the external funds required until the enterprise is able to generate sufficient inflows to cover its outflows.

Break-even production level
The break-even production level is calculated using the following formula: Total Fixed Costs\Gross Margin. The break-even point is one good indication of the risk at which the enterprise is operating. If the target number of products to be sold is close to the break-even sales volume, the business is operating at a high level of risk. On the other hand, if the target number of products to be sold are substantially above the break-even point (and the enterprise is confident about its market assumptions), then the business is probably operating at a low risk. Break-even analysis is best applied before an enterprise is started, as it can provide good insight into its commercial feasibility. The information can be used to determine the level of production where the business will be able to cover all its expenses. It can also help to determine the minimum product selling price that is needed for the business to be viable at different levels of production. Financial assumptions about costs and prices can be manipulated to predict best, worst and probable scenarios for the business.

Payback Period (PPP)
Payback period is the length of time that the enterprise will operate until its net income will be equal to the amount invested. It is calculated using the following formula: PP = Total Investment/Net Income. The numbers resulting from the use of the above two formulas are meaningless unless these can be compared against certain standards. For example, should the projected Return on Investment of a proposed enterprise be compared against the interest that would be generated if the same amount of money will be deposited in a time deposit in a commercial bank? Or invested with a lending investor? Or placed in the commercial money market? Or should the hurdle rate of 15 percent Internal Rate of Return2 used by NEDA in its economic analysis of development projects be adopted?

Break-even analysis for a multiple-product enterprise
The above procedures are applicable to single-product enterprises. The following steps are used to calculate break-even production and sales levels for multi-product enterprises: a) Calculate the percentage of sales (based on value) of each product in relation to the estimated total sales of the enterprise at full capacity. b) Multiply the total fixed costs (TFC) by the percentages derived from Step 1. This will determine the proportional share that each product should contribute to cover the fixed costs. c) Compute the gross margin of each product. d) Compute the break-even units per product. e) Compute the break-even percentage per product.

Notes
1. Ultimately, enterprise success is all about the competence and, more important, the commitment and willingness to sacrifice of the people who run the enterprise. In these days of bloated CEO salaries, finding a management team that will voluntarily reduce its salaries for the sake of the business and its stakeholders – as the Dao management did –will be extremely difficult. The internal rate of return (IRR) – also known as the discounted cash flow rate of return (DCFROR) or rate of return (ROR) – is the yield on invested capital or, put another way, the interest rate (consisting of payments and income that occur at regular periods) received for an investment. A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments of equal risk (investing in other projects, buying bonds, even putting the money in a bank account). In the context of savings and loans the IRR is also called effective interest rate.

2.

Profitability Ratios
Profitability ratios are used to measure whether the projected financial performance of an enterprise is sufficiently satisfactory to justify the entry of potential investors. PACAP measures financial performance using two ratios – Return on Investment and Payback Period.

64 Social Enterprise Development: Community Businesses at Work

Section 6 | Financial Considerations 65

Enterprise Appraisal at a glance: the Key Questions
Box 6-2. Enterprise Appraisal at a Glance
Marketing
ƒ ƒ What is the product? What essential qualities or values should the product possess in order to be bought by its target customers? Who are the target customers? What is the sales volume of the enterprise? Is this realistic? Is this on par with expectations? Is the market strategy effective in reaching out to its target customers? How much external funding is required to capitalize the enterprise until it can generate sufficient inflows to meet its outflows? What is the source of these external funds? What is the financial performance of the enterprise? Is the financial performance of the enterprise satisfactory?

Production
Can the enterprise ƒ consistently produce its product(s) at the desired ƒ quality ƒ quantity ƒ cost and ƒ time required by its target customers?

ƒ ƒ

ƒ

Finance
ƒ

Management
ƒ How effective is the Board of Trustees and management in taking decisive action to address problems that could lead to the demise of the enterprise? How well has the enterprise mobilized technical and material assistance from external agents? Is there an effective capacity-building program that will build the staff competence needed for effective management? How effective is the internal control system in exacting accountability and managing the financial resources of the enterprise?

ƒ ƒ ƒ

ƒ

ƒ

ƒ

“Is the Enterprise producing its product(s) at a price that its target customers are willing to buy, and is it selling a sufficient number of these products to stay in business?”

The Basic Question

66

67

The Business Plan should indicate the counterpart contributions to be provided by the PACAP partner and beneficiaries in financing the enterprise, as a demonstration of their participation in the enterprise and their commitment to its long-term success. n

Section 7
Table 7-1. Procedures for Starting a Business in the Philippines
Step
1. Obtain bank certificate of deposit of paid-in capital. 2. Verify availability of the company name with the Securities and Exchange Commission (SEC). 3. Register incorporation with the Securities and Exchange Commission.

Enterprise-related philippine rules and regulations
Registration Procedures for Starting a Business in the Philippines
time to complete
1 day

Section 7

cost
No charge

remarks
Fees vary from bank to bank. Some banks in Manila do not charge any fee, but others charge up to PhP105 for each certificate. The uniqueness of the company name can be searched online at no charge. However, the Securities and Exchange Commission charges PhP40 for approving and reserving the company name. To register an incorporated company with the Securities and Exchange Commission (SEC), the promoters must file the following documents: (a) the corporate name verification slip; (b) the articles of incorporation and bylaws; (c) the treasurer’s affidavit; (d) the statement of assets and liabilities; (e) the bank certificate of deposit; (f ) the authority to verify the bank account; (g) the incorporator’s tax identification number; (h) the registration data sheet with particulars on directors, officers, stockholders, and so forth; and (i) a written undertaking to comply with SEC reporting requirements. Through SEC i-Register, the SEC provides a Web-based, online company registration system and the option to reserve a company name. While registration forms may be downloaded from the SEC Web site, promoters must pay onsite at the SEC. Same-day payment is not offered. 71

1 day

PhP40

3 days

ƒ Filing fee for articles of incorporation is onefifth of 1% of the authorized capital stock (but not less than PhP1,000) ƒ Legal research fee of 1% of the filing fee (but not less than PhP10. ƒ PhP210 bylaws fee ƒ PhP150 for the stock and transfer book ƒ PhP7 registration fee.

70

Step

time to complete

cost

remarks
Unlike the past where an applicant company needed to obtain a temporary identification number from the Bureau of Internal Revenue (BIR) Revenue District Office, SEC now issues a Tax Identificatin Number (TIN) to the applicant-company. To obtain the TIN, the company requires a Barangay (district) clearance, a mayor’s permit, and a copy of the SEC-issued registration certificate (issued as part of this procedure). Other documents may also be required, such as homeowner’s clearance, lease contract, and so on. As authorized by the BIR, the SEC will issue the pre-generated TIN only if a company’s application for registration or incorporation has been approved. Although the SEC issues the TIN, the company must still register with the BIR for the following purposes: (a) to identify applicable tax types, (b) to pay an annual registration fee, (c) to register and stamp the books of accounts, and (d) to obtain sales invoices and receipts.

Step
5. Apply for a Barangay (district) clearance.

time to complete
2 days

cost
PhP800

remarks
No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the Barangay (district) where the business or activity is located or conducted. Some Barangays collect a fee to issue a Barangay clearance. The fee is based on the location and the area (size in square meters) of the place of business. Usually, the fee charged by the Barangay depends on the company’s paid-up capital and the land area it occupies – a minimum of PhP500 plus PhP300 for the Barangay clearance plate.

6. Obtain mayor’s permit/municipal license to operate from the Licensing Section of the Mayor’s Office.

11 days

Fees vary depending on the local government unit (city/ municipality) issuing the mayor’s permit. Normal fees would include: ƒ PhP900 sanitary permit fee ƒ 0.2% of business capital for license fee; ƒ PhP2,000 permit fee for businesses engaged in retail ƒ PhP2,500 garbage collection fee.

4. Obtain community tax certificate (CTC).

1 day

PhP500

To obtain a Barangay clearance, a company must first obtain a community tax certificate, which includes a basic and an additional community tax. The basic community tax rate depends on the legal form of the company, that is, a corporation, partnership, or association (PhP500 or lower). The additional community tax (not to exceed PhP 10,000) depends on: (a) the assessed value of the real property owned by the company in the Philippines (PhP2 for every PhP5,000); and (b) its gross receipts, including dividends or earnings, derived from business activities in the Philippines during the preceding year (PhP9 for every PhP5,000). To secure the community tax certificate, applicants must supply their name and other personal circumstances.

To obtain a mayor’s permit or municipal license to operate, the promoters must file the following required documents at the Licensing Section of the Mayor’s Office: a completed application for business permits and licenses (duplicate copies), with a sketch of the location of the building at the back; a certification, issued by the corporate secretary, that the company has been duly authorized to engaged in the business; the amount of paid-up capital; the certificate of registration; receipts of fee payment; lease contract(s); the Barangay clearance; comprehensive general liability insurance (usually based on the area size of the office space); and the community tax certificate (usually based on the paid-up capital).

7. Receive inspection from the Mayor’s Office.

5 days

No charge

The Mayor’s Office conducts an inspection to verify that the company will conduct the activity stated in the application for business permit. There is no need to set an appointment for this inspection. The inspection generally occurs within the first 5 days of filing the application for the operating permit. To register for the Value-Added Tax (VAT), promoters must purchase special books of accounts, which are available at bookstores nationwide. One set of four books (cash receipts journal, disbursements journal, ledger, and general journal) costs about PhP 400.

8. Buy special books of accounts at bookstore.

1 day

PhP 400

72 Social Enterprise Development: Community Businesses at Work

Section 7 | Enterprise-Related Philippine Rules and Regulations 73

Step
9. Register for ValueAdded Tax (VAT).

time to complete
2 days

cost
ƒ PhP500 registration fee ƒ PhP15 certification fee

remarks
After obtaining the TIN, the company must pay the annual registration fee of PhP500 at any duly accredited bank, using payment form BIR Form 0605.

Step
11. Obtain the authority to print receipts and invoices from the Bureau of Internal Revenue (BIR).

time to complete
1 day

cost
Fees included in Step 9.

remarks
The authority to print receipts or invoices must be secured by the printer before the sales invoices or receipts may be printed. Philippine law does not require a company to print its official invoice forms at designated print shops. If a company has secured the authority to print receipts and invoices, it can ask any authorized printing company to print its official invoice forms. However, if a company wants to print its own invoice forms (as discussed in Step 9), the company must first obtain a special permit from the Bureau of Internal Revenue. According to requirements stipulated by the Large Taxpayer Service, new taxpayers must submit the following documents to the Revenue District Office or the office with jurisdiction over the taxpayer’s head office: ƒ Duly completed application for authority to print receipts and invoices (BIR Form 1906) ƒ Job order ƒ Final and clear sample of receipts and invoices (machine-printed) ƒ Application for registration (BIR Forms 1901 or 1903) ƒ TRU form or photocopy of TIN card ƒ Proof of payment of annual registration fee (BIR Form 0605).

ƒ PhP15 documentary stamp tax ( in loose form to be attached to BIR Form 2303)

In the Philippines, companies may be assessed various taxes: VAT, a community tax, a local tax, and income tax. When a company registers as a taxpayer, it must indicate in its application the types of taxes it expects to be liable for, including VAT. A printer must obtain the necessary authority before printing receipts or invoices. Philippine law does not require a company to have its official invoice forms printed at designated print shops. If a company has secured an “authority to print receipts and invoices,” it can ask any authorized printing company to print its official invoice forms. However, the company must obtain a special BIR permit for in-house printing of invoice forms or for the use of a computerized accounting system or loose-leaf books of accounts.

10. Payment of documentary stamp taxes.

1 day

PhP1 for every PhP200 of business capital.

Section 174 of the National Internal Revenue Code, as amended, requires the payment of documentary stamp taxes on the original issuance of shares of stock at the rate of PhP1 on each PhP200 (or a fractional part thereof ) of the par value of the shares of stock. This payment must be made within 5 days of the close of the month in which the SEC issues the registration certificate or the corporation issues the shares.

12. Print receipts and invoices at the print shops accredited by the BIR 13. Submit receipts and invoices to the BIR for approval, have receipts/invoices and books of accounts stamped by BIR

14 days

PhP4,000 (between PHP 3,000 and PHP 5,000) No charge

The minimum print number is 25 booklets.

1 day

In practice, the books of accounts are presented for stamping upon filing the application. These books can be obtained from Bureau of Internal Revenue (BIR). To register books of account and invoices, founders must present the following documents: (a) all required books of accounts, (b) VAT registration certificate, (c) SEC registration certificate and (d) BIR Form W-5.

74 Social Enterprise Development: Community Businesses at Work

Section 7 | Enterprise-Related Philippine Rules and Regulations 75

Step
14. Register with the Social Security System (SSS).

time to complete
1 week

cost
No charge

remarks
To enrol for membership with the Social Security System (SSS), the founders must submit the following: ƒ SSS Forms R-1(Employer Registration) and R-1A (Employment Report) signed by its President or any of the corporate officers ƒ original copy of the Articles of Incorporation for authentication purposes ƒ company bylaws ƒ certificate of registration with either the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI) ƒ list of employees, specifying their birth dates, positions, monthly salary, and date of employment. Upon submission of the requisite documents, the employees must attend a seminar, which must be scheduled within a week. At the end of the seminar, the certificate of membership of the company will be released. Although it is not mandatory to enrol for housing security with the Pag-Ibig Fund, Fund members may make use of a housing loan offered by this agency.

Government Agencies and Needed Clearances

Board of Investments (BOI)
Website: http://www.boi.gov.ph/
Businesses may register to avail of investment incentives (e.g., tax holiday, tax credits, tax exemptions, and the like.) under Executive Order 226 or the Book 1 of the Omnibus Investment Code of 1987. Guidelines in the filing of application for registration are described in the agency’s website. Forms are also available for downloading. Filing of application can be done online through the above mentioned website or manually by submitting all filled out application forms and required documents at: Project Evaluation and Registration Department Board of Investments 385 Sen. Gil Puyat Ave. Makati City Tel. (+632) 890-9326/890-1332. The documents required for the registration are the following: Copy of Applicant’s Articles of Incorporation/Partnership and By-Laws, SEC Certificate of Registration; ƒ For new projects, this may be submitted as part of pre-registration requirements. ƒ For existing projects already registered with the Board, this requirement is waived. 2) Copy of company Audited Financial Statements (AFS) and Income Tax Return (ITR) for the past three (3) years or for the period the applicant has been in operation if less than three (3) years. ƒ For domestic existing and expansion projects that are not registered with the Board, this must be submitted, unless waived by the Board. 3) Copy of the company’s Board Resolution authorizing an officer to sign in behalf of the applicant-enterprise. All applicants are required to submit this. 4) Project Reports ƒ For activities listed in the IPP (New) ƒ For activities listed in the IPP (Expansion, Different Product Line) ƒ For activities listed in the IPP (Expansion, same Product Line) ƒ Existing Projects Projection required may vary from one industry to another. Inquiries should be made with the concerned industry group. Proof of financial capacity (Sworn Statement of Assets and Liabilities and latest Income Tax Return) of the principal stockholder may be required only for new projects and on a case-to-case basis. 1)

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Section 7 | Enterprise-Related Philippine Rules and Regulations 77

Bureau of Animal Industry (BAI)
Website: http://www.bai.ph
A Livestock and Poultry Handlers License is required for traders engaged in inter-provincial and regional shipment or transportation of livestock, poultry, eggs, milk, hides and skin, and manure/dung. For more details, visit: http://www.bai.ph/services/licensing.html. Forms may be downloaded at http://www.bai.ph/download.html. A permit for the shipment of animals, animal products and animal effects within the Philippines must also be obtained from the BAI. For procedures in obtaining such permits, visit: http://www.bai.ph/services/permit_issuance.html.

The cost of Application of Commercial Fishing Vessel License (CFVL) and Registration of Fishing Gear (FGR) shall be P400.00 and P200.00, respectively, payable to the Bureau. These are non-transferable and non-refundable. Additional information is available from licensing officers at the BFAR regional offices.

Bureau of Food and Drugs (BFAD)
Website: http://www.bfad.gov.ph/
Applicants should visit the website and click on the Services Menu to access the following: ƒ Checklist of requirements; ƒ Flowcharts; ƒ Forms; ƒ Fees; and ƒ Laws and Regulations. Information is organized as follows: 1) Licensing of Establishment a. Manufacturer / Trader / Repacker / Packer ƒ Food ƒ Iron Rice Premix ƒ Drug / Medical Device / Cosmetic ƒ Household Hazardous Substances ƒ Renewal of Licencse to Operate (LTO) of Manufacturer / Trader / Repacker / Packer ƒ Changes In Circumstances b. Importer / Exporter / Distributor / Drug Outlets ƒ Food ƒ Iodized Salt ƒ Iron Rice Premix ƒ Drug / Diagnostic Reagent ƒ Medical Device & Cosmetic ƒ Household Hazardous Substances ƒ Drugstore / Hospital Pharmacy/Retail Outlet for Non Prescription Drugs ƒ Botika ng Barangay ƒ Changes in Circumstances ƒ Notice of Change/Additional Pharmacist ƒ Renewal of LTO of Drug Outlets and Distributors

Bureau of Fisheries and Aquatic Resources (BFAR)
Website: http://www.bfar.da.gov.ph/
The BFAR Regional Offices (http://www.bfar.da.gov.ph/links/bfarrfo.htm) are responsible for issuing licenses for commercial fishing vessels and gears as well as for forging fishpond lease agreements. The website of the Region 1 Office outlines the procedure for licensing (http://region1.bfar. da.gov.ph/services/licensing_serv.htm) and procedures for applying for a fishpond lease agreement (http://region1.bfar.da.gov.ph/services/leasing_serv.htm). Requirements for the issuance of a new commercial fishing vessel are as follows: 1. Duly accomplished BFAR application for fishing vessel license; 2. Two (2) copies of 8”x10” vessel picture showing the port, starboard and name of the vessel; 3. Grid map indicating the proposed fishing ground/s; 4. Original or authenticated photocopy of the following: ƒ Certificate of Vessel Registry (CVR) ƒ Certificate of ownership (CO) ƒ Current Certificate of Inspection (CI). 5. Approved Articles of Incorporation and By-Laws for corporation, the primary or secondary purpose of which is to engage in fishing, or business name registration, certificate for single proprietorship or partnership to accompany the first vessel of the applicant to be licensed; and 6. Fishing logbook for catcher vessel for registration and approval by BFAR upon payment of registration fee of fifty pesos (PhP50.00) Following are the requirements for the issuance of a gear license: 1. Duly accomplished BFAR registration forms for gear license (2 copies); 2. Drawing of gear design and its specifications, showing the mouth, body and bunt/ bag of the fishing gear; 3. Official Receipt of CFVL fee; and 4. Official Receipt of Fishing Gear Registration (FGR) fee.
78 Social Enterprise Development: Community Businesses at Work

2) Product Registration ƒ Locally Manufactured Food Products ƒ Imported Food Products ƒ Food Supplement ƒ Virgin Coconut Oil ƒ Pharmaceutical Products (For Human Use) ƒ Pharmaceutical Products (For Veterinary Use) ƒ Vaccines / Biological Products
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Traditionally-Used Herbal Products Herbal Medicines Medical Devices In Vitro Diagnostic Reagents Cosmetics Household Hazardous Substances

3) Laboratory Services Division ƒ Batch Certification And Batch Certification Exemption ƒ Batch Certification Exemption: Local ƒ Batch Certification : PITC ƒ Food Export / Commodity Clearance ƒ Laboratory Analysis of Government Procured / Collected Samples 4) Legal Information and Compliance Division ƒ Ad Monitoring (Company) ƒ Clearance of Ads Upon Request ƒ Investigations Procedure on Consumer Complaints ƒ Workflow on Cases Involving Counterfeit Drugs ƒ Motu Propio Cases Flowchart (Report of Violation) ƒ Motu Propio Cases Flowchart (Report of Analysis) ƒ Requirements for Sales Promo Permits Application ƒ Clearance to Advertise ƒ Application for Permit to Conduct Promo (Applicant) ƒ Application for Permit to Conduct Promo (Company/Ad-Agency) For more details, visit or call BFAD office at: Civic Drive, Filinvest Corporate City Alabang, Muntinlupa City 1781 Philippines Tel: +632-8070751/ +632-8425606 Trunk line: +632-8094390 Email: bfad@bfad.gov.ph

Application procedures are as follows: ƒ Accomplish BIR Form 1903 and submit the same together with the required attachments to the Revenue District Office (RDO) having jurisdiction over the registered address of the business establishment. ƒ Pay the Annual Registration Fee (PhP500) at the Authorized Agent Banks of the RDO. ƒ Pay PhP15 for the Certification Fee and PhP15 for the Documentary Stamp Tax (in loose form to be attached to Form 2303). ƒ The RDO shall issue the Certificate of Registration (Form 2303). ƒ Taxpayer must pay the Documentary Stamp Tax on the Articles of Incorporation as prescribed under Section 175 of the NIRC, on the 5th of the month following the date of issuance of said article (per RR 4-2000). Note: Corporations/partnerships/joint ventures shall accomplish and file the application before the commencement of the business operation. A prospective business entity must also register its books and accounts, apply for authority to print receipts and invoices, apply for permit to adopt Computerized Accounting System (CAS), apply for permit to use Cash Register Machine (CRM) and/or Point of Sales Machine (POS). All related information can be found at http://www.bir.gov.ph/reginfo/regtin.htm. BIR Forms can be downloaded from http://www.bir.gov.ph/birforms/birforms.htm. For more information, applicants can visit the BIR office at: BIR National Office Building Agham Road, Diliman, Quezon City Trunk line: 929-7676 | 927-2511

Bureau of Plant Industry (BPI)
Website: http://www.bpi.da.gov.ph/
Following are the procedures for acquiring a domestic quarantine permit: 1. Bring plant/s and/or plant product/s to the nearest Plant Quarantine Service for Inspection. 2. Fill up application form as required for the issuance of your Permit for Domestic Transport. 3. Take note that there are prohibited commodities even for domestic movement. The list of prohibited materials is available from the nearest Plant Quarantine Service. The flowchart for acquiring the permit may be downloaded from: http://www.bpi.da.gov. ph/Forms/procedures_sl/Issuance%20of%20Domestic%20Permit.pdf. Forms for the permit for domestic transport of plants are available at: http://www.bpi. da.gov.ph/Forms/Permit%204%20Domestic%20Transport.pdf. For more details on BPI services, applicants should go to: http://www.bpi.da.gov.ph/Services/Services.html.

Bureau of Internal Revenue (BIR)
Website: http://www.bir.gov.ph/
The Tax Identification Number (TIN) of a prospective enterprise entity is secured from the BIR. The TIN may be obtained online through the Bureau’s website. Requirements for corporations and partnerships (taxable /non-taxable) include: ƒ Tax Form ƒ BIR Form 1903 - Application for Registration for Corporations/Partnerships (Taxable/Non Taxable), including GAIs and LGUs ƒ SEC “Certificate of Registration” (Certificate of Incorporation/Certificate of CoPartnership) or “License To Do Business in the Philippines” in case of resident foreign corporation ƒ Mayor’s Permit or application for Mayor’s Permit – to be submitted prior to the issuance of the BIR Certificate of Registration.
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Department of Environment and Natural Resources (DENR)
Website: http://www.denr.gov.ph/
Required documents and the step-by-step process of applying for DENR permits, licenses and requirements may be found on the website’s “Process Flow” menu or through the following link: http://www.denr.gov.ph/section-process-flow. Available information covers the following: ƒ Community Based Forest Management Agreement (CBFMA) Process Flow Chart ƒ Ang Pagkuha ng CBFMA ƒ Certificate of Non-Coverage (CNC) Application – This is to certify that a project does not require an environment clearance certificate. ƒ Environmental Compliance Certificate (ECC) Application for Environmentally Critical Project ƒ ECC Application for Non-Environmentally Critical Project (located in Environmentally Critical Areas) ƒ Free Patent Application ƒ Free Patent Application Flowchart.

b.

Accommodation Facilities ƒ Hotels ƒ Resorts ƒ Apartels ƒ Tourist Inns ƒ Motels ƒ Pension Houses ƒ Restaurants ƒ Shops/Department Stores ƒ Sports & Recreational Centers ƒ Training Centers ƒ Training Programs ƒ Trainers ƒ Rest Areas in Gasoline Stations ƒ Spa ƒ Museums/Galleries ƒ Foreign Exchange Dealers ƒ Calesas ƒ Home stay Sites

Department of Health (DOH)
Website: http://www.doh.gov.ph/
Information on procurement, licensing, regulation and accreditation is available under the website’s “Doing Business” menu: http://www.doh.gov.ph/doing_business. Under “Licensing”, there is a list of health facilities and services that the DOH regulates as well as the requirements for licensing these facilities. Health facilities and services include blood service facility, clinical laboratory, drug testing laboratory, drug abuse treatment and rehabilitation center, and so on.

The website provides information on the procedures for accreditation, general requirements, fees and incentives. Forms can also be downloaded from the site.

Department of Trade and Industry (DTI)
Website: http://www.dti.gov.ph/
A company’s business name can be registered online through the DTI’s Business Name (BN) Registration website at http://www.bnrs.dti.gov.ph/web/guest/home. Following are the contact numbers for BN Registration: ƒ For concerns regarding Business Name policies, clarification on requirements: (632) 751-3330 ƒ For technical concerns such as page cannot be displayed, problem in viewing look-up table, etc.: (632) 729-8681 ƒ For inquiries on application status: (Metro Manila numbers) Trafalgar Building: (632) 811-83 67 or (632) 811-8231 Hi-way 54: (632) 706-1767 QC Satellite Office: (632) 928-6124 Park and Ride: (near Manila City Hall) (632) 536-7153 Caloocan City: (632) 332-0829 Inquiries may also be sent via email to bnrshelpdesk@dti.gov.ph.

Department of Tourism (DOT)
Website: http://www.wowphilippines.com.ph/dot/
Tourism projects have to be accredited by the DOT. Accreditation means that a certification has been issued by the Department that the holder has complied with its minimum standards in the operation of the establishment concerned. The following may apply for DOT accreditation: a. Travel and Tour Services ƒ Tour Operators ƒ Tourist Transport Operators (Land, Water and Air Transport) ƒ Tour Guides ƒ Mountain/Cave Guides ƒ Professional Congress Organizers
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Intellectual Property Office (IPO)
Website: http://www.ipophil.gov.ph/
The IPO is in charge of the registration of Intellectual Property Rights including: 1. Grant of Letters Patent for Invention. The Letter Patent is a grant given to an invention that embodies a technical solution to a problem. The solution offered must be new, involves an inventive step and possesses industrial applicability. The term of Letters Patent is twenty (20) years from the filing date of the application with no renewal. Registration of Utility Models. A certificate of registration for a utility model is granted when the technical feature of the technology is new and industrially applicable. The term of registration is seven (7) years from the date of filing of the application with no renewal. Registration of Industrial Designs. A certificate of registration for an industrial design is granted to a composition of lines or colors or any three-dimensional form of an article of manufacture that is new or original. The term of registration is five (5) years from the filing date of the application and renewable for two (2) consecutive five (5) year periods. Registration of Integrated Circuits. A certificate of registration is a grant afforded to the topography of an integrated circuit, in its final form, in which the elements, at least one of which is an active element, and some or all of interconnections are integrally formed in and/or on a piece of material, and which is intended to perform an electronic function. The term of registration is ten (10) years from the date of filing of the application with no renewal. Registration of Trademarks. “Marks” are visible signs capable of distinguishing the goods (trademarks) or services (service marks) of an enterprise. Marked or stamped containers are considered also “marks”. The registration is for a period of ten (10) years, renewable for subsequent ten (10) periods as long as the mark is being used in trade and commerce.

Philippine Health Insurance Corporation (PhilHealth)
Website: http://www.philhealth.gov.ph/
Access to the government health care benefits system can be secured through membership in PhilHealth. Information for employers is available at: http://www.philhealth.gov.ph/ employers/index.htm. Forms can also be downloaded from the website. Registration procedures and documentary requirements are as follows: 1. Submit the following at any PhilHealth Office: ƒ Employer Data Record or ER1 Form (in duplicate) ƒ Business permit/license to operate and/or any of the following as applicable:

2.

Nature of Entity
Single proprietorships Partnerships and corporations Foundations and non-profit organizations Cooperatives Backyard industries/ ventures and microbusiness enterprises

Additional Documents Required
Department of Trade and Industry (DTI) Registration Securities and Exchange Commission (SEC) Registration Securities and Exchange Commission (SEC) Registration Cooperative Development Authority (CDA) Registration Barangay Certification and/or Mayor’s Permit

3.

4.

5.

2.

After processing, the employer will be issued the following: ƒ PhilHealth Employer Number (PEN) and the Certificate of Registration ƒ PhilHealth Identification Number (PIN) and Member Data Record (MDR) for concerned employees Employers shall be asked to display the Certificate of Registration in their offices as proof of registration with PhilHealth.

3. The website provides data on the following: (a) procedures for manual filing of application for patent and trademark; (b) schedule of fees; and (c) request forms (for downloading). The website also has a database of patents and trademarks that allows applicants to conduct electronic searches on various fields of endeavor.

Protected Areas and Wildlife Bureau (PAWB)
Website: http://www.pawb.gov.ph/
Information on procedures in obtaining permits for the local transport of exotic and endangered plants and animals is available through the following link: http://www.pawb.gov.ph/permits/ltp_penro_cenro_red.pdf. Applicants can also contact the PAWB directly at the following address: Protected Areas and Wildlife Bureau

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Department of Environment and Natural Resources Ninoy Aquino Parks and Wildlife Nature Center Diliman, 1100 Quezon City Tel: + (63 2) 9246031-35 Fax: +(63 2) 9240109 Email: planning@pawb.gov.ph

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ƒ

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Securities and Exchange Commission (SEC)
Website: http://www.sec.gov.ph/
Corporations and partnerships can be registered online through the SEC website. Applicants can also go to the SEC Office at: Company Registration and Monitoring Department 2nd Floor SEC Bldg., EDSA, Greenhills, Mandaluyong City Telephone Number: (632) 584-0923 Fax Number: (632) 584-5293 E-mail address: mis@sec.gov.ph

Book Three on Conditions of Employment including Working Conditions and Rest Periods, Wages and Working Conditions for Special Groups of Employees such as Women, Minors, House helpers and Home workers; Book Four on Health, Safety and Social Welfare Benefits such as Medical, Dental and Occupational Safety, Employees’ Compensation and State Insurance Fund, Medicare and Adult Education; and, Book Six on Post Employment, which includes Termination of Employment and Retirement from the Service.

Labor advisories regarding the observance of certain days that have been declared as holidays are also posted on the DOLE website. The FAQs menu contains answers to questions related to the following topics: ƒ Research and Policy for Employment Generation ƒ Capacity Building for Specific Sectors ƒ Rural and Emergency Employment ƒ Local Employment ƒ Overseas Employment ƒ Dispute Prevention and Settlement ƒ Workers Organization, Tripartism and Empowerment ƒ Technical Education and Skills Training ƒ Labor Standards ƒ Productivity and Wage ƒ Social Protection and Welfare ƒ Miscellaneous DOLE has a call center that can be reached at telephone number (02) 527-8000 Monday thru Friday from 7:00 a.m. to 7:00 p.m. Correspondence can be sent by mail to its office at: Department of Labor and Employment, Muralla St. cor. Gen. Luna St., Intramuros, 1002 Manila.

Social Security System (SSS)
Website: http://www.sss.gov.ph/
Each employer must secure an SSS number. Forms can be downloaded from the agency’s website at http://www.sss.gov.ph/sss/forms.html. Applicants can opt to go directly to the nearest SSS office. The SSS branch directory is available at the website.

Labor Laws
The mandate of the Department of Labor and Employment (DOLE) is “to promote gainful employment opportunities, develop human resources, protect workers and promote their welfare, and maintain industrial peace.” Its website at http://www.dole.gov.ph/ is rich with relevant information and resources. The Labor Code of the Philippines can be viewed per section from the DOLE website at: http://www.dole.gov.ph/laborcode/default.asp. A full PDF version can also be downloaded from the same link. The most relevant chapters for a small private enterprise are the following: ƒ Book One, Chapter 11 on Regulation of Recruitment and Placement Activities; ƒ Book Two, Title II on Training and Employment of Special Workers such as Apprentices, Learners (Trainees) and Handicapped Workers;

Local Ordinances
Because of the Local Government Code, local government units – provincial, municipal and barangay – have been empowered to enact various local laws and ordinances that bear upon the conduct of businesses in specific localities. PACAP partners are enjoined to familiarize themselves with these local ordinances for proper compliance. n

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Section 8
Department of Labor and Employment (DOLE)
Website: http://www.dole.gov.ph/
The major programs under the strategy include: ƒ Technical Education and Skills Training Program ƒ Standard Setting and Enforcement Program ƒ Productivity and Wage Setting Program ƒ Social Protection and Welfare Program Key projects and activities include the following: ƒ Human Resource Development (TESDA) ƒ Maritime Training (NMP, MTC) ƒ Labor Standards Enforcement (BWC, ROs) ƒ Occupational Safety and Health (OSHC)
88

Directory of Selected resources
One of the strategies of DOLE is Employment Enhancement. Through this strategy, DOLE aims to provide greater access to human resource development programs and protective and welfare services to safeguard workers, both in-country and overseas, particularly the most vulnerable groups, from hazardous and unhealthy working conditions.

Section 8

The operating units of this strategy are the following: ƒ Technical Education and Skills Development Authority (TESDA) and their regional units ƒ National Maritime Polytechnic (NMP) ƒ Maritime Training Council (MTC) ƒ Bureau of Working Conditions (BWC) ƒ Bureau of Rural Workers (BRW) ƒ Bureau of Women and Young Workers (BWYW) ƒ Philippine Overseas Labor Officers (POLOs) ƒ Labor Standards Enforcement Divisions (LSED), and the Workers Amelioration and Welfare Divisions (WAWD) of the Regional Offices ƒ Occupational Safety and Health Center (OSHC) ƒ Employees Compensation Commission (ECC) ƒ National Wages and Productivity Commission (NWPC) and its Regional Wages and Productivity Boards and ƒ Overseas Workers Welfare Administration (OWWA).

89

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Wage Setting and Productivity Awareness (NWPC, RTWPBs) Employees Compensation (ECC) Social Amelioration Program (SAP) (BRW, ROs) Working Youth Centers (WYC) (BWYW, ROs) National Program Against Child Labor (BWYW, ROs) Labor Attaché Services, including Verification Fee Project (ILAS, POLOs) Welfare Program for Overseas Filipino Workers (OWWA) Reintegration Program for OFWs Women Workers Employment and Entrepreneurship Development (WEED) (BWYW, ROs) Gender and Development (GAD) (BWyW, All Offices)

Fiber Industry Development Authority (FIDA)
Website: http://fida.da.gov.ph/
FIDA services include: ƒ Technical assistance to farmers on the proper culture, management and protection of fiber crops; ƒ Assistance to farmers in the establishment and rehabilitation of fiber crop plantations; ƒ Assistance in the organization and strengthening of farmers’ cooperatives and packaging of proposals to avail of production loans from the Land Bank and other financing institutions; ƒ Training on fiber production, fiber extraction, fiber grading and classification, fiber processing and handicraft making, such as, handmade papermaking, sinamay and piña cloth weaving; ƒ Provision of disease-free planting materials to farmers; ƒ Technical, information and testing services on fiber identification, characterization and fiber extraction, pulping and quality of pulp; ƒ Marketing assistance, including the identification and development of markets and the establishment of direct marketing tie-ups between fiber producers and processors/manufacturers and other buyers; ƒ Hosting, sponsoring and active participation in trade fairs and exhibits, both local and foreign, to promote Philippine fiber-based products; ƒ Provision of fiber industry statistics and other market-related information, such as, trade opportunities and market updates; and ƒ Program or project development preparation for local and foreign-funding. The directory of FIDA Officials and Regional Directors and their contact details is also available on the FIDA website under the About Us/Directory menu.

Details can be obtained from the DOLE Call Center (Tel. No. 527 8000), which is open on Monday to Friday from 8:00 a.m. to 6:00 p.m. Applicants may also visit the DOLE Office at: Department of Labor and Employment Muralla St. cor. Gen. Luna St., Intramuros 1002 Manila Philippines

Department of Science and Technology (DOST)
Website: http://www.dost.gov.ph/
The website has a wealth of information concerning the following general fields of science and technology: ƒ Agriculture, Forestry and Natural Resources (Agronomy, Animal Husbandry, Horticulture, Tree Plantations, Mining, Fishing, and so on) ƒ Aquaculture (Alga culture, Fishing Farming, Fresh Water, Mari culture, and so on) ƒ Education (Scholarship, Teaching Aids, Internships, and so on) ƒ Food and Nutrition (Health Eating, Food Labeling, Food Safety, Nutrition, and so on) ƒ General Information (Basic Facts, Fundamentals, and so on) ƒ Health/Medical Sciences (First Aid, Exercise and Fitness, Alternative Medicine, Health Care, and so on) ƒ Industry and Business (Commercial Production, Sale of Goods, Manufacture and Trade, and so on) ƒ Information and Communication Technology (Network, Hardware, Software, Multimedia, Technical Communication, and so on) ƒ Natural Disaster and Mitigation (Climate Change, Typhoon, Earthquake, Disaster and Preparedness) ƒ Nuclear (Applied Physics, Radiation, Chemistry, Isotopes, and so on) When a field is selected, the website will display the name and web link of the institute that specializes in the field as well as the services, products and programs offered by the institute.

Intellectual Property Office (IPO)
Website: http://www.ipophil.gov.ph/
IPO offers the following services: 1. Enterprise Development: ƒ Patent Search for the Public. Processing and organizing patent documents for classification and development of search retrieval tools; developing training modules for patent searches on Philippine patents; providing specialized trainings on search retrieval tools. ƒ Technology Transfer Agreement Registration. Evaluating compliance of Technology Transfer Agreements to the provisions of the IP Code and developing training modules for technology transfer. ƒ Mediation. Settling disputes on issues involving technology transfer payments and author’s rights. ƒ External Training. Organizing training to increase public awareness, knowledge and utilization of intellectual property rights.

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Section 8 | Directory of Selected Resources 91

ƒ

Advisory Services. Providing advice in patenting, trademark registration, copyright, technical and search.

Technical Education and Skills Development Authority (TESDA)
Website: http://www.tesda.gov.ph/
TESDA offers the following services: 1. Skills Training Programs. These include Automotive Servicing, Hotel and Restaurant Management Technology, Aquaculture, and so on. TESDA’s 2008 list of training programs is available at the website (http://www.tesda.gov.ph/page. asp?rootID=9&sID=108&pID=9). The list is organized into regions. Foreign Scholarship Training Program for Non-Degree Courses. Details are available at http://121.1.0.5/foreign/. The Program is open to: ƒ Officials and employees of government agencies with permanent employment status. ƒ Officials and employees of private and accredited non-government organizations. ƒ Candidates re-nominated to the same course/donor country. These will be required to submit an updated document and re-nomination letter. The previous assessment sheet shall be used where the candidate was earlier assessed. ƒ Government officials and employees with non-permanent employment status can avail of the scholarship, provided a strong justification and guarantee from the nominating agency of his/her continuity of service are submitted. Procedures to avail of the grant and documentary requirements are available at http://121.1.0.5/foreign/procedure.aspx. 3. Training Program for Women. The list of available TESDA training programs for women – such as fiberglass craft, bar tendering, food processing, and silkscreen printing – may be viewed at http://twc.tesda.gov.ph/programs_services/. The TESDA Women Center (http://twc.tesda.gov.ph/) is located at: 37 East Service Road South Superhighway, Taguig City, MM Telefax: 818 8062 Trunk line: 817 4076 to 82 local 278 Email: tesdawomen@yahoo.com

2.

Copyright Industries Development: ƒ Accreditation System. Establishing and administering an accreditation mechanism for collection societies. ƒ Advisory Services. Assisting in the strengthening of collection societies. ƒ Information, Training and Educational Support. Providing information and education about IP rights for copyright industries.

Visit or call IPO at: IPO Building 351 Sen. Gil Puyat Ave., Makati City Telephone Nos. (632) 752-5450 to 65 Loc. 201 to 205, Telefax No. (632) 897-1724 Email at dittb@ipophil.gov.ph or mail@ipophil.gov.ph.

2.

Philippine Coconut Authority (PCA)
Website: http://pca.da.gov.ph/
The PCA is the sole government agency that is tasked to develop the coconut industry to its full potential in line with the new vision of a united, globally competitive and efficient coconut industry. It is mandated to oversee the development of the coconut and palm oil industry in all its aspects and ensure that the coconut farmers become direct participants in, and beneficiaries of, such development and growth. The functions of PCA are as follows: ƒ Formulate and promote a strategic and comprehensive development program for the coconut and palm oil industry in all its aspects; ƒ Implement and sustain nationwide coconut planting and replanting, fertilization and rehabilitation, and other farm productivity programs; ƒ Conduct research and extension on farm productivity and process development for product quality and diversification; ƒ Establish quality standards for coconut and palm products and by- products and develop and expand the domestic and foreign markets; and ƒ Enhance the capacities and ensure the socio-economic welfare of coconut and palm farmers and farm workers. Visit or contact PCA at: Philippine Coconut Authority Elliptical Road, Diliman, Quezon City Telephone: (0632) 928-4501 Email: pca_cpo@yahoo.com.ph

Technology Resource Center (TRC)
Website: http://www.tlrc.gov.ph/
TRC offers the following services: 1. Hands-On Livelihood Training. ƒ In-house Courses: Standard training sessions that are open to the public and held in cooperation with private business partners. ƒ Institutional Courses: Livelihood training sessions conducted for various private institutions customized according to their needs.
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92 Social Enterprise Development: Community Businesses at Work

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Socialized Training Programs: Livelihood empowerment programs conducted in various depressed and displaced urban communities at minimal or no cost to the participants.

Contact Details: Technology Resource Center 2nd Floor, TRC Building #103 J. Abad Santos cor. Lopez Jaena Sts. Little Baguio, San Juan City Tel. No.: (02) 727-6205 loc. 208, 209 The list of training courses and their schedule can be viewed at the following link: http://www.tlrc.gov.ph/training.html. 2. Livelihood Publications. These are business guides for small manufacturing enterprises, such as, decorative candles, home bakeshop, embroidered products, and the like. The booklets deal with various aspects of livelihood and business technologies that can be readily utilized in a rewarding enterprise. The list of technology and livelihood materials can be viewed at http://www.tlrc.gov.ph/listmaterials. html and purchased for the minimal price of PhP60 per piece. Payment must be in Postal Money Order, payable to Technology Resource Center. An additional 40 percent for every title is to cover packaging and mailing costs. Interested individuals may send their orders to this address: Technology Resource Center Marketing Division, Ground Floor, TRC Building #103 J. Abad Santos cor. Lopez Jaena St., Little Baguio, San Juan City Telephone: 727-6205 loc. 202, 203 3. Video Courses. To complement the TRC publications, business and livelihood technology information is also packaged into video courses (DVD, VCD and VHS formats) to teach step-by-step procedure of featured technologies. The list may be viewed at http://www.tlrc.gov.ph/listvideocourses.html. A video costs PhP 715 each. Payment must be in Postal Money Order, payable to Technology Resource Center. Buyers should add PhP 200 for every VCD/VHS title to cover packaging and mailing costs. Interested individuals may send their orders to this address: Technology Resource Center Print Video Production Ground Floor, TRC Building #103 J. Abad Santos cor. Lopez Jaena St., Little Baguio, San Juan City Telephone: 727-6205 loc. 202, 203 4. Funding Sources Database. TRC has compiled information on development programs and institutions that provide financial support to livelihood projects of private individuals and organized groups. The database can be accessed at: http:// www.tlrc.gov.ph/ClientFundingSourcesSimpleSearchPage.jsp. eTRC (e-Technobank). The eTRC is an Internet-based computerized system tool to promote entrepreneurship by providing access to a wide range of technology, business and livelihood information as well as other vital requirements in estab-

lishing a business. The features of eTRC include: ƒ Development Funding – funding programs and institutions that provide financial support to livelihood projects. ƒ Technology Library – interactive database of business and livelihood information materials in print or multimedia format. ƒ Provincial Socio-Economic Profile – a comprehensive investment information service. ƒ Business Registration Guide – A complete, step-by-step guide on business registration process as well as regulatory requirements of different government agencies. ƒ Market Linkages – an interactive directory of potential buyers and sellers. ƒ Priority Industry – baseline information on priority industries relevant to countryside development. ƒ Sectoral Consultants – a list of experts from different sectors. The list is made up of TRC resource persons and experts from research and development institutions. eTRC can be accessed as follows: a. Log on to www.tlrc.gov.ph. b. Click eTechnobank button, and then Technology Library. You will be directed to the log-in page. c. Click sign up now to create your eTRC account. Fill in all the boxes and then click the SUBMIT button. Take note of your eTechnobank ID and password as this will be your permanent access to eTRC. d. Upon successful registration, you are considered as a guest. As a guest, you can browse the available materials but you cannot download them. e. To download the full text, you have to secure a Kabuhayan PIN or Kabuhayan Prepaid Card. A Kabuhayan Card can be purchased in the following denominations: PhP100/200 /300/500. Click the “Where to Buy” banner to view the list of card distributors or dealers). Contact details: TRC Hotline: 727 6205 TRC Building (formerly ELT Center) 103 J. Abad Santos cor. Lopez Jaena Sts. Little Baguio, San Juan City

Foundation for Sustainable Society, Inc. (FSSI)
Website: http://www.fssi.com.ph/
FSSI has five core programs: 1. Coconut Business Integration and Development Program (COCOBIND). The COCOBIND Program intends to contribute to the further development of the coco-coir industry in the country and to the creation of business and employment opportunities for the coconut farmers through this program. Coco-coir is derived from the coconut husk, which is underutilized and allowed to rot on stockpiles in the coconut farms. Through efficient technologies, coco-coir is processed into various products, such as fiber pads, geo-textiles and coco peat blocks which
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5.

94 Social Enterprise Development: Community Businesses at Work

are in demand in the local and world market because synthetic materials are expensive and found to have destructive effects in the environment. 2. Microfinance Eco-Enterprise Program (MEEP). The program for the microfinance (MF) sector seeks to facilitate the entry and effective participation of the entrepreneurial poor and micro enterprises in ecoenterprise ventures. The Foundation develops and delivers services that support MF initiatives to give more accessible financing to eco-enterprises. Sustainable Waste Management Eco-Enterprise Program (SWEEP). The SWEEP program provides technical and business development support and financial services to stimulate and accelerate the development of viable and ecologically sound entrepreneurial activities in the waste management sector. Sustainable Partnership for Eco-Enterprise Development (SPEED). SPEED intends to harness the entrepreneurial capacities of the marginalized sector through direct and effective delivery of financial and enterprise development services that are appropriate to community-based enterprises, development organizations and individual private social entrepreneurs. It intends to provide assistance to those emerging enterprises that promote eco-enterprise principles and at present not covered by services within the Foundation’s sub-sector-specific programs. Fund for Sustainable Civil Society (FSCS) Grants Facility. The FSCS provides grants mainly to help meet the needs of civil society organizations that are actively concerned with poverty reduction and socio-economic justice promotion for the poor and marginalized sectors. Its mission is to generate and mobilize resources: ƒ towards enabling CSOs to engage in sustainable livelihood and eco-enterprise development projects or activities with the active participation/and for the benefit, of the poor and marginalized sectors in rural and urban communities; and ƒ to support building the capacity initiative of poor communities and consolidate the infrastructure of CSOs (sectoral or multi-sectoral) based on solidarity that would lead to planned actions that could influence policies or larger events focused on asset reform, development financing, environment protection and promotion of gender equity.

ating activities. Grant assistance shall consider projects that: (a) involve activities that support or strengthen operation of eco-enterprises; (b) involve start-up or emerging eco-enterprise/business implemented by organizations with low capacity or poor access to capital; and (c) have higher project risk in terms of organizational capacity, market or technology risk. 3. Guarantees FSSI collaborates with two or more partners to create a new business. All partners agree to share profits, risks and expertise. FSSI enters into a joint venture arrangement under the following conditions: (a) FSSI ownership of the business is not more than 50%; (b) FSSI has active participation and control over the management of the business; and (c) there is a business plan that specifies targets and conditions as to how and when FSSI can divest its ownership in favor of other social entrepreneurs. Equity Investments Equity Investments constitute the Foundation’s investments in identified ecoenterprises with explicit ownership interest for income or capital appreciation. FSSI actively participates in the management of the eco-enterprise undertaking together with one or more parties, and shares in the expected returns and probable risks of the business. The considerations for Equity Investments are: (a) strategic and long-term development interest; (b) long gestation period requirement of the enterprise; (c) financial requirements are beyond the allowable amount provided in other FSSI instruments; (d) involvement through active participation in management shall add-value to the enterprise; and (e) considerable potential risk is beyond the sole capacity of the participating organizations to bear and with expectation of higher rewards. 5. Loans A loan is a contractual arrangement whereby the Foundation provides money or property to a borrower and the borrower agrees to return the property or repay the money, along with an interest, at specific future point(s) in time. In FSSI, loans are designed for the purpose of harnessing socio-economic and ecological opportunities in enterprises which may be used for the following purposes: (a) to fund permanent working or revolving capital of the eco-enterprise; (b) to fund seasonal working capital of the eco-enterprise; (c) to purchase or acquisition of fixed asset to be used directly for operations; and (d) to expand business operations.

3.

4.

4.

5.

FSSI provides financial assistance in the following forms: 1. Developmental Deposits The Developmental Deposit is a proactive intervention of FSSI to leverage and strengthen the capacity of Community Financial Institutions (CFIs) to generate and mobilize savings within their local community. Developmental deposits are placements made by FSSI only with Community Financial Institutions -- Cooperative Banks and Rural Banks that have met international financial standards and have demonstrated consistent financial discipline in their operations. Grants Grants are either for non-revenue generating or for start-up revenue-gener-

Eligibility criteria for FSSI financing support is as follows: 1. Groups that qualify for support are those with the following characteristics: ƒ Legal, juridical personality based on Philippine laws ƒ Track record in development work ƒ Demonstrate strong governance and management capability ƒ Demonstrate strong financial health and condition; and have attained the required level of sufficiency and sustainability to implement projects effectively. Projects eligible for support must embody the three basic features:
Section 8 | Directory of Selected Resources 97

2.

2.

96 Social Enterprise Development: Community Businesses at Work

a.

Economically viable ƒ Presence of clear and viable financial plan involving commercial viability criteria ƒ Strong market demand and/or prospects for expansion of the business/ project ƒ Appropriateness and effectiveness of management structure ƒ Effectiveness of technology employed. Ecologically sound ƒ At the very least, it is environmentally benign ƒ Provides opportunity for (if not yet directly employing) cleaner and sustainable production systems ƒ Provides for a safe, healthy and favorable work environment ƒ Enhances, protects or rehabilitates the environment. Community or socially oriented ƒ Opportunities for strengthening governance, management capacity and competence of community members to engage in productive enterprises ƒ Participation of locals in the actual project operation through sustainable gainful employment or access to capital or productive assets such as savings or capital build-up ƒ Opportunities for gaining control and ownership of productive enterprises through equitable distribution and sharing of resources and earnings.

PEF supports the following specific activities: 1. Livelihood and Employment/Financial Services ƒ Micro-finance ƒ Micro-lending ƒ Micro-insurance ƒ Micro-savings Agricultural Development ƒ Productivity (Enhancement/Improvement of Production Inputs) ƒ Processing/Marketing (Post Harvest) ƒ Trading and Marketing ƒ Livestock and Poultry ƒ Aquaculture, Marine Fishing, and Marine culture Non-Agricultural Income Generation ƒ Transport Service ƒ Handicrafts ƒ Manufacturing ƒ Trading ƒ Vending Basic Social Services ƒ Provision of Potable Water ƒ Health (Primary Health Care and Alternative Health Delivery) ƒ Housing (Site Development, Land Acquisition, House Construction) ƒ Education (Functional literacy, Day Care Center) Social Capital ƒ Partnership Building ƒ Multi-sector Partnership Geo-Physical ƒ Infrastructure (Hanging foot bridges, Micro-hydro, Irrigation, Appropriate technology) ƒ Environment and Cultural Heritage Conservation (Rice Terraces Restoration, Historical Landmarks)

2. b.

3.

c.

4.

FSSI Policies and Guidelines on Financial Services may be viewed at the following website: http://www.fssi.com.ph/index.php?option=com_content&task=view&id=22&Itemid=10 4. A PDF version can also be downloaded. The FSSI project proposal outline can be downloaded from the following website: http:// www.fssi.com.ph/index.php?option=com_content&task=view&id=21&Itemid=109. Funding applicants may submit their proposals to FSSI office or by email to fssi@fssi.com. ph. The FSSI office is located at: 46-E Samar Ave. corner Eugenio Lopez St. South Triangle, Quezon City Telephone: + (63-2) 9288671/4114702 Fax: (+63-2) 4114703/9288422

5.

6.

PEF-supported projects should respond to the problems of poverty and marginalization, and bring tangible results to the poor families or community within three to six months of implementation. The PEF Project Guidelines are available at: http://www.pef.ph/projects.php. The project proposal format can be downloaded from: http://www.pef.ph/downloads2.php. PEF has five offices: two in Manila, one in Cebu, one in Davao and one in Zamboanga (http://www.pef.ph/contact.php). The main office is at: #69 Esteban Abada Street, Loyola Heights, Quezon City Phone Number: (632) 4268402 Telefax Number: (632) 4268402 local 102 or (632) 4269785 to 86 Email Address: pef@pef.ph

Peace and Equity Foundation (PEF)
Website: http://www.pef.ph/
PEF is mandated to undertake the following: ƒ Provide civil society organizations (such as, people’s organizations, non-government organizations, cooperatives, faith-based groups, and similar entities) with development financing and technical assistance; ƒ Promote appropriate technology; and ƒ Promote networking among its stakeholders.

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Section 9
Background
Box 9-1. Detailed Format of the PACAP Business Plan
100

preparation of a business plan

Section 9

To avail of PACAP assistance, an applicant-organization must accomplish an Expression of Interest (EOI) form (copy available on the PACAP website http://www.pacap.org.ph/), including an estimated budget for the proposed project. Upon PACAP’s approval of the EOI, the applicant is asked to prepare a full project proposal (format available on the PACAP website). One of the documents required for an enterprise proposal seeking PACAP support is a Business Plan. The Business Plan is expected to provide details on the market, production and management aspects of the enterprise and its expected financial performance. The Plan is also expected to address social equity considerations (e.g., gender enhancement, environmental concerns, peace and others) and consider risks that the proposed enterprise may encounter during operations. Finally, the Plan should indicate the counterpart contributions to be provided by the PACAP partner and beneficiaries in financing the enterprise, as a demonstration of their participation in the enterprise and their commitment to its long-term success. The detailed format of the Business Plan is presented below (see Box 9-1). A sample Business Plan – the Palay and Rice Trading Enterprise of the Aganan River Federation of Irrigators’ Association, Inc. (ARFIA) – is presented in the next section.

General Description of the Enterprise Please describe briefly the proposed enterprise in terms of: (a) product, (b) market, (c) technology to be utilized, (d) expected financial performance; (e) management and ownership, (f ) social equity considerations, and (g) risks. Market Considerations 1. Target Market: Size, Competition and Trading Practices ƒ What is the size of the target market? ƒ Where is it located? ƒ Who are the competitors (suppliers of the same product to the same uu

101

customers) and what is their share of the target market? What are the selling prices of the product at the different levels of the distribution chain? ƒ Is there a seasonal pattern to the sales of the product? 2. Estimated Market Share of the Proposed Enterprise: ƒ What share of the target market does the proposed enterprise intend to capture? ƒ What is the projected sales volume per business cycle? (Per month? Per year?) 3. Proposed Marketing Scheme of the Enterprise: ƒ What is the selling price of the product(s) of the enterprise? ƒ How does this compare with prevailing market prices of this same product sold by other producers? ƒ How will customers buy the product(s) of this enterprise? ƒ What is the point of sale? ƒ How will the products be brought to the point of sale? ƒ What are the terms of sale (e.g., cash credit, consignment, etc.)? ƒ Will there be a promotions/advertising campaign? ƒ Production Considerations 1. Technology Description: ƒ Describe briefly the technology to be utilized by this enterprise. ƒ What is its history of its use, e.g., is it commonly used in enterprises of this type? ƒ Will the technology ensure a consistent quality product? ƒ Does it have any potential adverse effects on the environment? ƒ Is its use biased towards women? Towards men? 2. Production Process Flow Diagram: ƒ In diagram form, describe the steps involved in the production process. ƒ List the inputs and outputs at each step. ƒ What is the length of the production cycle? (i.e., the time required to produce the product) ƒ How many production cycles will there be in a month? In a year? 3. Land, Infrastructure, Machinery and Equipment Requirements: ƒ What are the land, infrastructure, machinery and equipment requirements? ƒ Can these be acquired, fabricated and maintained locally? ƒ Will these be bought, rented or leased? 4. Labor Requirements: ƒ How many production workers will be required? ƒ How many of these will be men? ƒ Will be women? ƒ What measures will be implemented to ensure the safety of the workers of the enterprise? 5. Training Requirements: ƒ What kind of training must be provided to enable the production workers to utilize the technology efficiently? ƒ Who will provide this training? 6. Raw Material Requirements: ƒ What raw materials will be required?

In what quantities (per cycle, per month, per year)? Where are the sources of these raw materials? What are their selling prices and terms of trade? Who are the competitors of the enterprise for these raw materials? How can the enterprise assure itself of a stable and adequate supply of raw materials? 7. Projected Schedule of Enterprise Operations: ƒ What are the start-up activities that must be completed before the enterprise can go into operations? ƒ At full capacity, what is the volume of raw materials required per month and per year? ƒ At full capacity, how many units of the product will be produced and sold per month and per year? ƒ Using the table below, summarize the estimated volumes of raw materials purchases, units of products produced and units of products sold on a monthly basis. ƒ ƒ ƒ ƒ ƒ
Enterprise operations 1 Preparatory Activities Raw Material Purchases Production Outputs Products Sold 2 3 4 volume/month 5 6 7 8 9 10 11 12

Financial Assumptions 1. Capital and Start-Up Costs: List all capital and start-up costs. Capital costs include all costs to acquire, build and install all elements of the production unit (including land, machinery, equipment, and so on.). Start-up costs are one-time costs associated with getting started in the business, e.g., legal, engineering studies, feasibility studies, licenses, and so on. 2. Fixed Costs (Per Month): List all fixed costs on a monthly basis. Fixed costs are incurred to operate the production unit regardless of the level of production. Fixed costs include management and administrative salaries, rent, depreciation, repair and maintenance, and so on. 3. Variable Costs (Per Unit and/or Per Month): List all variable costs on a monthly basis. Please derive the variable cost per unit of product. Variable costs are related directly to the level of production; these consist mainly of raw materials and production labor. 4. Projected Selling Prices: Indicate the projected selling prices of the product(s) of the enterprise and the basis for this price. 5. Terms of Sale: Describe the terms of sale of the product(s) of the enterprise. Will the product be sold in cash, on terms, on consignment, or with discounts? uu

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Section 9 | Preparation of a Business Plan 103

6.

Enterprise Start-Up: ƒ What activities that must be completed before the enterprise can begin production? ƒ What is the length of time required to put together all the different elements so that an enterprise can actually begin production? ƒ Once an enterprise begins actual operations, how long will it take before it achieves its planned 100 percent production capacity?

4. 5.

Peace-Building Respect for Culture and Values.

Financial Assessment 1. Projected Income Statement: ƒ What is the average net income of the enterprise on a monthly basis? ƒ What is the net income at the end of the first year of operations? 2. Projected Cash Flow Statement: ƒ At what month does the does the enterprise begin to generate a positive ending cash balance? ƒ What is the cumulative ending cash balance at the end of Year 1? 3. Return on Investment (ROI) ƒ What is the expected annual Return on Investment (ROI) of the enterprise? ƒ Is this expected ROI satisfactory? Please explain. 4. Payback Period: ƒ What is the expected Payback Period of the enterprise in terms of years? ƒ Is this expected payback period satisfactory? Governance, Management and Ownership 1. Form of Business Enterprise: ƒ Describe the organizational form of the enterprise. ƒ Will this be a single proprietorship, partnership, corporation or cooperative? ƒ Justify the choice of this organizational form. 2. Governance: ƒ What is the role of the Board of Trustees in the enterprise? 3. Management and Personnel Functions: ƒ List all management and personnel requirements for the marketing, production, finance and administration activities of the enterprise. ƒ Please indicate the positions that will be staffed by women and men. 4. Utilization of Project Income: ƒ How will the net income of the enterprise be utilized? ƒ Describe how the profits of the enterprise will be shared by the target beneficiaries. 5. Ownership of Project Inputs: ƒ Who will own the project inputs, particularly those that will be funded by PACAP? ƒ Describe the plan to ensure that the beneficiaries will own and control the enterprise. Social Considerations In what way(s) does the enterprise promote the following values? 1. Enhanced Gender Equity 2. Community Participation 3. Environmental Protection and Regeneration

Risk Assessment 1. Potential Risks ƒ In your assessment, what risks have a high likelihood of occurrence and will have a high impact level on your enterprise if they occur? 2. Risk Management Strategies ƒ What risk management strategies have you devised to address the above risks? ƒ Who are responsible to carry out these risk management strategies?

Sample Business Plan
The Palay and Rice Trading Enterprise of the Aganan River Federation of Irrigators’ Association, Inc. (ARFIA)

General Description of the Enterprise
Palay and rice trading is an agriculture-based enterprise and involves, as a first step, the procurement of palay from farmers. ARFIA’s main sources of palay will be the farmer members-cum-borrowers of its micro-financing program whose production has been assigned o the Federation as loan payment or as loan guarantee; the Federation is also prepared to buy the remaining produce of these farmer-borrowers after they have settled their loan obligations. Further, the Federation will also buy from other IA members through their respective Irrigators’ Association (IAs). The Federation will put up marketing centers in its five member-Irrigators’ Associations (IAs) but the operations center shall be at the Federation’s Post Harvest Facilities (PHF) complex in Brgy. Mambog, Oton, Iloilo. There will be a Project Team in every IAs to handle the procurement and marketing of palay. The procured palay will either be sold as: (a) palay to traders or to government institutions like the National Food Authority (NFA); or (b) milled and converted to rice and sold directly to rice traders or consumers. The palay and rice trading operation will be managed by the Federation’s Project Management Staff composed of Project Officer, Marketing Officer and Administrative personnel. Each staff member shall have defined functions and responsibilities as well as corresponding accountability. The project will be owned and managed by the ARFIA.

Market Considerations
Target Market: Competition and Trading Practices Generally, the demand of palay is stable and continuous because it is the staple food among
Section 9 | Preparation of a Business Plan 105

104 Social Enterprise Development: Community Businesses at Work

85 percent of the Filipinos. The market of palay is not a problem. However, the Federation will ensure that it will have the “right market” of palay – which means a market that will buy the palay at a competitive price that is way up compared to other traders. The following table shows the local price chain of palay and rice in Iloilo.

practice two croppings a year (May/June to October and November to February). The average production per hectare is 100 sacks at 42 kilos/sack (4,200 kilos). The total estimated annual production (gross) of the target area is 15,103.2 metric tons or 359,600 sacks.

Table 9-3. Estimated Production of the Target Sites
name of irrigators’ Association coverage Area (ha.)
821 351 545 991 888 3,596

Table 9-1. Local Price Chain of Palay and Rice (in pesos)
levels
Farm Gate (fresh from harvest)

Estimated yield in metric tons 1st cropping
3,448.2 1,474.2 2,289 4,162.2 3,729.6 15,103.2

Description
Wet: 15% to 30% Moisture Content Dried: 14% and below MC

palay (per kg)
7.00-8.30 8.50-10.00 10.00 8.50 and above

rice (50 kgs. Sack)

rice bran (30 kgs. Sack)

2nd cropping
3,448.2 1,474.2 2,289 4,162.2 3,729.6 15,103.2

1. San Jose-Sto. Niño 2. Macabitu 3. Macatuan 4. Salambitu 5. Cappa totAl

NFA Traders Rice Retailers/ Offices

Below 14% Moisture Content Palay and Rice Rice

850.00 to 950.00 850.00 to 1,000.00

170.00 to 180.00

The palay procured by the Federation will be directly sold to the National Food Authority (NFA) or to the grain traders who will buy the produce in a competitive price. The NFA is a good market during the peak of harvest season. The Federation has existing marketing agreement with the NFA and it will be renewed annually. However, other grain will be milled and the rice will be sold to rice traders, local rice retailers and to the farmer-consumers during lean months. If possible, the Federation will apply the cash-on-delivery (COD) approach in buying and selling the stocks. It will also provide incentives to dealers and provide free freight-in for bulk purchases within Aganan River Irrigation System service area. The Federation had already established market linkages and had initial marketing discussions with the following traders, government and private agencies for the supply of rice and palay.

These farmers are selling palay directly to small buyers who usually have a buying station near their farm or to the grain traders in the Municipalities of Oton, San Miguel, and Pavia (Iloilo). However, the buying price is normally very low especially during the rainy season. Farmers have no facilities to preserve the quality of the grains. Because of this, the farmers are forced to sell their palay even at a very low price. Presently, there are 5 major grain traders operating within the target areas. These traders practice contacting the small palay buyers who intensively go to different farms to buy the palay from the farmers – they are commonly known as “middlemen.” This practice is common particularly during harvest season. The same strategy will be employed by the Federation to meet its procurement target, and thereby maximizing the IA leaders.

Table 9-4. Major Palay Buyers Operating within ARFIA Areas of Operation
name of buyers
Grabato Goriceta Rice Mill Zamora Rice Mill Geonigo Rice dealer Javellana Rice dealer

Address
Iloilo City San Miguel, Iloilo Oton, Iloilo Oton, Iloilo Oton, Iloilo

location of buying Station
San Miguel, Iloilo San Miguel, Iloilo Oton, Iloilo Oton, Iloilo Oton, Iloilo

Estimated volume of palay procured (sacks)
Unlimited 20,000 sacks up 20,000 sacks up 10,000 sacks up 10,000 sacks up

Table 9-2. Projected Market of Palay and Rice
name of buyer
Bonza Group of Millers Roscom Millers Direct consumers

location
Lapaz, Iloilo City Iloilo City Iloilo City

Absorptive capacity/ volume required (in sacks) palay
No limit No limit

rice
No limit No limit 10,000

Estimated Market Share: Demand and Supply Analysis The Federation will procure palay in all areas within the five member Irrigators’ Associations covered by Aganan River Irrigation System, as primary area, and its adjacent places as secondary target area. The total area is 3,596 hectares of irrigated rice farms, which usually
106 Social Enterprise Development: Community Businesses at Work

After the intensive consultation, the members have committed to sell 50 percent of their produce to the Federation. The remaining 50 percent of the produce is usually reserved for consumption and for payment of debt. The Federation cannot really exercise monopoly of the total production of the members as it still respects the practice of free trade. However, the Federation is confident of procuring at least 210,000 kilos or 5,000 sacks (at 42 kgs. per sack), which represents the payment-in-kind of the loans received by the farmers from the Federation. This is a very conservative estimate: it is only for one cycle production loan from 100 beneficiaries with only 1 hectare per farmer. In addition, the Federation will buy
Section 9 | Preparation of a Business Plan 107

additional palay outside payment of production loan. The estimated volume of this additional palay is 172,200 kilos or 4,100 sacks. Projected Sales of Palay and Rice Depending upon the demand, the palay will be milled and the rice will be sold to rice dealers and retailers or to the farmer’s associations/ direct consumers. Of the total volume of palay procured, the Federation plans to sell half as palay, while the other half will be milled and sold as rice. Of the palay to be sold as palay, 50 percent will be sold wet (with moisture content above 13 percent), while the other half will be sold dried (with moisture content of 13 percent and below). Palay – in both wet and dry forms – will be sold to the NFA and private traders, depending on prices offered. Rice and bran (a byproduct of milling palay into rice) will be sold to identified customers.

Diagram 9-1. Marketing Activity Flow

FARM

Marketing Centers (5IAs)

Main Buying Station (PHF)

Warehouse

DRYING

Production Considerations
MILLING Technology Description After procurement of palay, in the case of selling it dried and for rice conversion the federation will dry it using either solar or mechanical dryers. The solar driers will be used during normal weather condition and when there is substantial solar energy. The mechanical dryers are also available during rainy days when solar energy is not enough to dry palay. There are also glass houses for stocking of wet palay or three to five days while preserving the quality during rainy days. The palay will be stocked in the warehouse of the federation before it will be transported to the point of market. Marketing Activity Flow Marketing centers will be put up at the strategic location near the farm to buy palay of the farmers fresh from the harvest or some areas will use IA offices as their marketing centers, aside from the main buying station at the Post Harvest Facilities in Barangay Mambog, Oton, Iloilo. Two cargo trucks are available to haul palay bought by the federation to the warehouse for drying and warehousing. Other procured palay will be hauled directly to grain traders in wet form. The marketing program will converge in the main buying station where all inventories will be placed and stored. Proper recording system will be maintained (see Diagram 9-1). Land, Infrastructure, Machinery and Equipment The post-harvest processing of palay consists of drying, milling and storage. The federation with its available storage facilities can procure palay during any weather condition and has the capability in preserving the good quality of palay. ARFIA managed state-of-the-art Post Harvest Facilities located about four kilometers south of San Miguel along the provincial road and about three kilometers from the town of Oton. The site is almost in the center of the project area and is convenient for the operation of the post facilities. The PHF, which was a grant from Japan Cooperation Agency (JICA) in 1996, includes the following facilities: 1. Multi-Purpose Pavement (Drying pavement by solar energy) – It is used to dry palay during sunny days maximizing solar energy. 2. Glass House – The wet or fresh palay is place when solar energy is not available during heavy rainy days to preserve palay quality and control the subsequent quality deterioration.
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Section 9 | Preparation of a Business Plan 109

MARKETING

NFA

Rice Retailers/ Millers

Grain Traders

Farmer’s Association / Farmers / Direct Consumers

3.

4. 5.

Palay Warehouse – The dried palay is stock before it milled or before it will be sold to NFA or traders. The warehouse has the capacity to stock 3,780,000 kilograms of palay or 90,000 sacks at 42 kilograms per sack. Administration Office – It serves as the office of the federation and all documents and files (project records) are keep and administrative personnel works. Equipment Shed – This is the place where different equipment like trucks, tractors and other pre-and post harvest facilities are keep or park.

In addition to the above, the Federation also has the following production and marketing equipment (see Table 9-5):

Table 9-5. Production and Marketing Equipment of the Federation
Description
Portable Mechanical Dryer 4-wheel Farm Tractor Cargo Truck

# of units
2 2 2

uses
For drying during rainy days For transport of paddies around the facilities site For transport of paddies from the farmer’s house and marketing centers to PHF and from warehouse to NFA or traders or millers For lifting rice bags in the warehouse For transport of paddies around the facilities site For measurement of paddy weight For milling of paddies (palay to rice conversion)

383,000 kilos (383 metric tons), which is less than three percent of the estimated gross production of the area targeted by ARFIA. Assuming that there will be shortfall of the production due to uncontrollable circumstances, there are still potential areas for procurement outside the target areas, which are not covered by the irrigation system. Palay procurement will be done on a cash-and-carry basis.

Financial Assumptions
Enterprise Start-Up Date Year 1 of the enterprise is projected to start in November and end in October of the following year. This projected start-up date will enable the enterprise to capture a portion of the palay harvest from the first crop (May/June to October) and gain enough marketing experience to expand operations in time for the second cropping season (November to February). Capital and Start-up Costs It is assumed that the enterprise shall not incur any capital or start-up costs as the PostHarvest Facilities complex are already fully operational. Fixed Costs per Month The only fixed costs are personnel costs, which amount to PhP6,000.00 per month. Measures and Conversion Efficiencies 1) Palay Sack. A sack of palay weighs 42 kilos. 2) Rice Sack. A sack of rice weighs 50 kilos. 3) Palay Shrinkage. It is assumed that all palay to be procured will be wet, that is, with moisture content above 13 percent. Palay dried to 13 percent moisture content is expected to shrink by an average of 15 percent. If palay is to be milled into rice, it must first be dried. 4) Rice Milling Recovery. A 65-percent milling recovery is assumed. This means that one kilo of palay, when milled, will yield 0.65 kilo of rice. 5) Bran Milling Recovery. A 10-percent milling recovery is assumed. This means that one kilo of palay, when milled, will yield 0.10 kilo of bran. Variable Costs The enterprise has three main products: wet palay, dry palay and rice. Bran, which results from the milling process that converts palay into rice, is considered a byproduct of rice. The variable costs of the three main products are listed in Table 9-6.

Forklift Trailer (towed type) Platform weighing scale One-pass Rice Mill

2 2 2 1

Labor Requirements The federation needs to maintain five to 20 laborers during the peak of harvest or marketing season. The laborers are paid on per activity basis (“pakyaw”). Their rate is incorporated in drying and warehousing cost or in trucking fees. These personnel are usually male because of the very nature of their work that it needs physical effort. Women sometimes work for drying activities. Procurement Strategy To achieve the procurement target, the following strategy will be employed by the federation: 1. Setting up of marketing centers in every member-IAs; 2. Each IA will have a procurement officer that will serve as contact person and will be provided with incentives; 3. Payment for production loan including interest must be in the form of palay and the farmer-beneficiaries will be encouraged to sell even 50 percent of their produced to the federation; 4. Device strategy that would allow payment of irrigation service fee in the form of palay equivalent to the monetary value of service rendered in coordination with the National Irrigation Administration (NIA); 5. Service fees for farm implements must be in the form of palay corresponding to the cost of the services rendered and other services of the federation whichever is applicable; and 6. Provision of patronage refund to the member associations depending on the volume of palay procured. Procurement Target Comparing the procurement target to the estimated annual yield of the target sites, there is enough supply to fill in the demand. The estimated annual yield for palay for first production year is 15,103.2 metric tons or 15,103,200 kilos. The procurement target is only
110 Social Enterprise Development: Community Businesses at Work

Section 9 | Preparation of a Business Plan 111

Table 9-6. Variable Costs (in pesos)
Wet palay (sold in 42-kilo sack) Procurement Cost (PhP8.30 per kilo x 42 kilos) Trucking of Palay (per sack) Handling of Palay (per sack) Variable Costs Per 42-kilo Sack Variable Costs Per kilo Dried palay (sold in 42-kilo sack) Wet Palay, PhP8.30/kilo x 51.75 kilos (to compensate for shrinkage) Trucking of Palay (per sack) Handling of Palay (per sack) Drying, PhP0.20/kilo x 51.75 kilos Variable Costs Per 42-kilo Sack Variable Costs Per kilo rice (sold in 50-kilo sack) Dried Palay, 77 kilos x PhP10.62/kilo (assumed 65% milling recovery) Milling, PhP1.20/kilo of rice converted from palay x 50 kilos Trucking of Rice (per sack) Handling of Rice (per sack) Rice Sack Variable Costs Per 50-kilo Sack Variable Costs Per kilo Rice Bran (sold in 30-kilo sack)* Sack 9.00 817.74 60.00 5.00 1.00 9.00 892.74 17.86 429.53 5.00 1.00 10.35 445.88 10.62 348.60 5.00 1.00 354.60 8.44

Projected Schedule of Sales The projected sales schedule of the enterprise is shown below (see Table 9-8). Wet palay will be sold during quarters 1 and 4, peak harvest periods when palay prices are at their lowest. This decision was taken because the Federation does not have sufficient working capital to hold on to palay stocks over a long period of time. During quarters 2 and 3 (largely non-harvest periods), the enterprise will sell dried palay. Rice (and bran) will be sold in quarters 2 and 4, periods immediately preceding the harvest, when the prices of rice are traditionally high.

Table 9-8. Projected Sales Schedule for Year 1 - Palay (Wet and Dry), Rice and Bran (all in sacks)
Quarter 1 (november – January) m1
Wet Palay Dry Palay Rice Bran 500

Quarter 2 (february – April) m4
200 360 87

Quarter 3 (may – July ) m7
200

Quarter 4 (August – october) m9
200

m2
500

m3
500

m5
200 360 87

m6
200 360 89

m8
200

m10
533.33 226.67 240 58

m11
533.33 226.67 240 58

m12
533.33 226.67 240 60

Projected Selling Prices The projected average selling prices of the four products are shown below.

Table 9-9. Projected Average Selling Prices
commodities
Wet Palay (42-kilo sack) Dry Palay (42-kilo sack) Rice (50-kilo sack) Rice bran (30-kilo sack)

Average price/ kg.
8.80 11.00 18.50 6.00

Average price/Sack
369.60 462.00 925.00 180.00

*Note: All other costs of rice bran are charged to rice milling and marketing.
Palay Procurement Target In Year 1, the enterprise shall procure some 383,000 kilos of palay, representing less than 3% of the estimated gross production in the target area, at an average price of PhP8.30 per kilo (farmgate price, wet). The projected palay procurement schedule is presented below (see Table 9-7).

Terms of Sales Palay (wet and dry) are sold on cash basis. NFA payments for palay procured from Farmer’s Association are either on a cash-and-carry basis within three to five days after delivery. ARFIA assumes that it will be able to conduct five complete cycles (including procurement, re-selling and collection of sales proceeds) for palay each month. Rice and bran sales shall be sold on 30-day credit terms. This is the prevailing practice in the area. The credit sales will be secured by postdated check.

Table 9-7. Palay Procurement Schedule
Quarter 1 (november – January) m1
Kilos Sacks Amt. 21,267 506.4

Quarter 2 (february – April) m4
42,000 1,000

Quarter 3 (may – July ) m7
8,400 200

Quarter 4 (August – october) m9
8,400 200

m2
21,267 506.4

m3
21,267 506.4

m5
42,000 1,000

m6
42,000 1,000

m8
8,400 200 69,720

m10
56,000

m11
56,000

m12
56,000

Projected Cash Flow Statements
Five projected cash flow statements are presented. Four of these (9-10 to 9-13) involve the procurement and re-sale of palay, both wet and dry, both of which are done on a cash basis.
Section 9 | Preparation of a Business Plan 113

1,333.3 1,333.3 1,333.3

176,516 176,516 176,516 348,600 348,600 348,600 69,720

697,20 464,800 464,800 464,800

112 Social Enterprise Development: Community Businesses at Work

(Note: For the purposes of this analysis, a complete marketing cycle for wet and dry palay is assumed to require six days. It is further assumed that five complete marketing cycles can be accomplished in one month.) These four cash flows were deemed necessary in order to determine the external funds required for these operations The first cash flow (9-10) – the buy-and-sell of wet palay that begins on Month 1 of enterprise operations – indicates that external funds will be required only for the first marketing cycle for wet palay. Subsequent marketing cycles can be funded from sales proceeds of previous cycles. The same is true for the buy-and-sell of wet palay on Months 10-12 and dry palay from Months 4-12. Projected Cash Flow Statement for Wet Palay, Month 1/Quarter 1 (5 cycles per month)

Projected Cash Flow Statement for Wet Palay, Month 10/Quarter 4 (5 cycles per month)

Table 9.11. Projected Cash Flow Statement for Wet Palay, Month 10/Quarter 4 (5 cycles per month)
cycle 1 D1
cash inflows Cash Sales - Wet Palay less: cash outflows 65,706 65,706 65,706 65,706 65,706 328,531 61,973 b. Trucking 2,667 c. Handling 533 Subtotal -65,173 65,173 65,173 65,173 65,173 325,865 2,667 533 533 533 533 2,667 2,667 2,667 2,667 2,667 13,333 61,973 61,973 61,973 61,973 309,865

cycle 2 D7 D12

cycle 3 D13 D18

cycle 4 D19 D24

cycle 5 D25 D30
totAlS

D6

Table 9-10. Projected Cash Flow Statement for Wet Palay, Month 1/Quarter 1 (5 cycles per month)
cycle 1 Day 1
cash inflows Cash Sales - Wet Palay less: cash outflows Fixed Costs Variable Costs (Wet Palay) a. Purchases b. Trucking c. Handling Subtotal -net inflows (outflows) add: External funds net cash flows add: cash balance, beg. cash balance, Ending 34,860 500 100 35,460 34,860 500 100 35,460 34,860 500 100 35,460 34,860 500 100 35,460 34,860 500 100 35,460 36,960 36,960 36,960 36,960 36,960 184,800 -

cycle 2 Day 7 Day 12

cycle 3 Day 13 Day 18

cycle 4 Day 19 Day 24

cycle 5 Day 25 Day 30
totAlS

Day 6

Fixed Costs Variable Costs a. Purchases

174,300 net inflows (outflows) 2,500 add: External funds 500 net cash flows 177,300 7,500 cash balance, Ending (65,173) 533 (64,640) 1,067 (64,106) 1,600 (63,573) 2,133 (63,040) 2,667 35,460 add: cash balance, beg. (65,173) 65,706 (65,173) 65,706 (65,173) 65,706 (65,173) 65,706 (65,173) 65,706 (65,173) 533 (64,640) 1,067 (64,106) 1,600 (63,573) 2,133 (63,040) 2,667 (65,173) 65,706 (65,173) 65,706 (65,173) 65,706 (65,173) 65,706 (65,173) 65,706

(35,460) 36,960 (35,460) 36,960 (35,460) 36,960 (35,460) 36,960 (35,460) 36,960 35,460 36,960 (35,460) 36,960 (35,460) 36,960 (35,460) 36,960 36,960 36,960 1,500 1,500 38,460 38,460 3,000 3,000 39,960 39,960 4,500 4,500 41,460 (35,460) 36,960 41,460 6,000 6,000 42,960

42,960

114 Social Enterprise Development: Community Businesses at Work

Section 9 | Preparation of a Business Plan 115

Projected Cash Flow Statement for Dry Palay, Month 4/Quarter 2 (5 cycles per month)

Projected Cash Flow Statement for Dry Palay, Month 10/Quarter 4 (5 cycles per month)

Table 9-12. Projected Cash Flow Statement for Dry Palay, Month 4/Quarter 2 (5 cycles per month)
cycle 1 D1
cash inflows Cash Sales - Dry Palay less: cash outflows Fixed Costs Variable Costs a. Cost of Wet Palay b. Trucking c. Handling d. Drying Subtotal -net inflows (outflows) add: External funds net cash flows add: cash balance, beg. cash balance, Ending (17,835) (17,835) 18,480 (17,835) 18,480 (17,835) 18,480 (17,835) 18,480 (17,835) 18,480 (17,835) 645 645 (17,190) 1,290 (16,546) 1,934 (15,901) 2,579 (15,256) 3,224 17,181 200 40 414 17,835 17,181 200 40 414 17,835 17,181 200 40 414 17,835 17,181 200 40 414 17,835 17,181 200 40 414 17,835 18,480 18,480 18,480 18,480 18,480 92,400 85,906 1,000 200 2,070 89,176 3,224

cycle 2 D7 D12

cycle 3 D13 D18

cycle 4 D19 D24

cycle 5 D25 D30 totAlS

Table 9-13. Projected Cash Flow Statement for Dry Palay, Month 10/Quarter 4 (5 cycles per month)
cycle 1 D1
cash inflows Cash Sales - Dry Palay less: cash outflows Fixed Costs Variable Costs a. Cost of Wet Palay b. Trucking c. Handling d. Drying Subtotal -net inflows (outflows) add: External funds net cash flows add: cash balance, beg. cash balance, Ending (35,253) (35,253) 34,907 (35,253) 34,907 (35,253) 34,907 (35,253) 34,907 (35,253) 34,907 (1,730) (35,253) (346) (346) (35,599) (35,599) (692) (692) (35,945) (1,038) (36,291) (1,384) (36,637) 32,454 378 76 2,346 35,253 32,454 378 76 2,346 35,253 32,454 378 76 2,346 35,253 32,454 378 76 2,346 35,253 32,454 378 76 2,346 35,253 34,907 34,907 34,907 34,907 34,907 174,536 162,269 1,889 378 11,730 - 176,266

D6

cycle 2
D7 D12

cycle 3 D13 D18

cycle 4 D19 D24

cycle 5 D25 D30 totAlS

D6

(17,835) 18,480 (17,835) 18,480 (17,835) 18,480 (17,835) 18,480 (17,835) 18,480

(35,253) 34,907 (35,253) 34,907 (35,253) 34,907 (35,253) 34,907 (35,253) 34,907 (1,730)

(17,190) 1,290 (16,546)

1,934 (15,901) 2,579 (15,256) 3,224

(35,945) (1,038) (36,291) (1,384) (36,637) (1,730)

Consolidated Projected Cash Flow Statement (Enterprise Level), Year 1 The following Enterprise-Level Cash Flow (E.5) consolidates the two palay marketing operations with the rice and bran trading program. The Enterprise-Level Cash Flow incorporates a “Month 0” in order to isolate the external funds required during the first marketing cycle for wet palay (PhP63,960). Additional external funds (PhP284,985) will be required on Month 4 to fund the initial cycles of rice and bran marketing. The enterprise will require total external funds of PhP348,945 in Year 1. No additional infusion of external funds will be required in Year 2 if marketing activities are maintained at Year 1 levels.

116 Social Enterprise Development: Community Businesses at Work

Section 9 | Preparation of a Business Plan 117

montH cash inflows Cash Sales-Wet Palay 184,800 92,400 333,000 15,660 0 184,800 184,800 184,800 92,400 441,060 441,060 441,420 92,400 92,400 503,067 15,660 16,020 333,000 333,000 222,000 10,440 735,507 92,400 92,400 92,400 92,400 92,400 174,536 174,536 184,800 84,800 328,531 328,531 328,531 174,536 222,000 10,440 735,507 Cash Sales-Dry Palay Credit Sales- Rice Credit Sales- Bran Sub-total -cash outflows Palay Sacks (3,000) Fixed Costs Variable Costs - Wet Palay a. Purchases b. Trucking c. Handling - Dried Palay a. Cost of Wet Palay 17,181 68,725 85,906 85,906 85,906 85,906 118,360 129,815 162,269 162,269 100 400 500 500 500 2,000 2,500 2,500 34,860 139,440 174,300 174,300 61,973 2,667 533 247,892 10,666 2,134 309,865 13,333 2,667 309,865 13,333 2,667 1,500 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 27,000 6,000 6,000 6,000

0

1

2

3

4

5

6

7

8

9

10

11

12

totals

1,539,993 1,078,008 1,443,000 68,220 4,129,221

27,000 73,500

118 Social Enterprise Development: Community Businesses at Work
1,452,495 47,499 9,501

Table 9-14. Consolidated Projected Cash Flow Statement (Enterprise Level), Year 1
1,002,243

montH b. Trucking c. Handling d. Drying - Rice a. Dried Palay Cost b. Milling c. Trucking d. Handling e. Rice Sacks - Rice Bran (Sacks) Subtotal -net in (out) flows External funds net cash flows cash balance, beg. cash balance, End.

0

1

2

3
200 40 414

4
800 160 1656

5
1,000 200 2,070

6
1,000 200 2,070

7
1,000 200 2,070

8
1,000 200 2,070

9
1,378 276 4416

10
1,511 302 9,384

11
1,889 378 11,730

12
1,889 378 11,730

totals
11,667 2,334 39,330

294,386 21,600 1,800 360 3,240 783 63,960 (63,960) 63,960 0 0 0 36,960 0 36,960 1,500 36,960 38,460 147,840 36,960 183,300 1,500 201,135 399,510 (16,335) (307,110) 284,985 (16,335) (22,125) 38,460 22,125 22,125 0

294,386 21,600 1,800 360 3,240 783 415,275 25,785

294,386 21,600 1,800 360 3,240 801 415,293 25,767 93,106 348,314 93,106 195,603

196,258 14,400 1,200 240 2,160 522 622,484 (706) (103,203) (119,417)

196,258 14,400 1,200 240 2,160 522 722,911 12,596

196,258 14,400 1,200 240 2,160 540 722,929 12,578

1,471,932 108,000 9,000 1,800 16,200 3,951 4,276,452 (147,231) 348,945 25,785 0 25,784 25,767 25,784 51,551 348,314 51,551 399,865 (706) (103,203) (119,417) 399,865 399,159 399,159 295,956 295,956 12,596 12,578 176,539 189,136 176,539 189,136 201,714 201,714

Table 9-14. Consolidated Projected Cash Flow Statement (Enterprise Level), Year 1 cont’d

Section 9 | Preparation of a Business Plan 119

montH
Sales - Wet Palay - Dry Palay - Rice - Bran Sub-total -less: cost of Sales/ variable costs - Wet Palay a. Purchases b. Trucking c. Handling - Dried Palay a. Cost of Wet Palay 85,906 1,000 200 200 200 1,000 1,000 1,000 200 85,906 85,906 85,906 b. Trucking c. Handling 85,906 1,000 200 85,906 1,000 200 162,269 1,889 378 162,269 1,889 378 162,269 1,889 378 1,002,243 11,667 2,334 500 500 500 2,500 2,500 2,500 174,300 174,300 174,300 309,865 13,333 2,667 309,865 13,333 2,667 309,865 13,333 2,667 1,452,495 47,499 9,501 184,800 184,800 184,800 441,060 441,060 441,420 92,400 92,400 92,400 735,507 735,507 15,660 15,660 16,020 10,440 10,440 10,440 735,507 333,000 333,000 333,000 222,000 222,000 222,000 92,400 92,400 92,400 92,400 92,400 92,400 174,536 174,536 174,536 184,800 184,800 184,800 328,531 328,531 328,531 1,539,993 1,078,008 1,665,000 78,660 4,361,661

Projected Income Statement for Year 1

Table 9-15. Projected Income Statement for Year 1

120 Social Enterprise Development: Community Businesses at Work 1 2 3 4 5 6 7 8 9 10 11 12 totals montH
d. Drying - Rice a. Cost of Dried Palay b. Milling c. Trucking d. Handling e. Rice Sack - Rice Bran a. Sack Subtotal -gross margin less: fixed costs net income 177,300 7,500 6,000 1,500 177,300 7,500 6,000 1,500 177,300 7,500 6,000 1,500 783 409,275 31,785 6,000 25,785 783 409,275 31,785 6,000 25,785 801 409,293 32,127 6,000 26,127 87,106 5,294 6,000 (706) 87,106 5,294 6,000 (706) 87,106 5,294 6,000 (706) 522 716,911 18,596 6,000 12,596 522 716,911 18,596 6,000 12,596 540 716,929 18,578 6,000 12,578 3,951 4,171,812 189,849 72,000 117,849 294,386 21,600 1,800 360 3,240 294,386 21,600 1,800 360 3,240 294,386 21,600 1,800 360 3,240 196,258 14,400 1,200 240 2,160 196,258 14,400 1,200 240 2,160 196,258 14,400 1,200 240 2,160 1,471,932 108,000 9,000 1,800 16,200

1

2

3

4
2,070

5
2,070

6
2,070

7
2,070

8
2,070

9
2,070

10
11,730

11
11,730

12
11,730

totals
35,190

Table 9-15. Projected Income Statement for Year 1 cont’d

Section 9 | Preparation of a Business Plan 121

Profitability Ratios
Return on Investment (ROI) ROI = = = Net Income / Investment 117,489 / 348,945 34%

Roles and Functions 1. General Assembly The highest governing body of the federation where all powers to plan, decide, implements and control operation emanates. Elects officers and decides on the important matters pertaining to the operation of the federation. The members must patronize the services and the marketing activities, support the projects, contribute capital and actively participate in all activities of the federation. Board of Trustees (BOT) As collegial body, formulates plans and policies regarding the operations of the project as recommended by the Project Manager. Monitors and evaluates progress of the project operation and requires pertinent reports from the project manager and other project personnel periodically or as needed. The BOD reports to the members during General Assembly or by any means the status of the project operations. The Chairperson of the Board is authorized to enter into contract; sign project documents and other related legal instruments in behalf of the federation. The chairperson together with the treasurer is authorized bank signatory for the project funds. 3. General Assembly Project Manager (PM) The major function of the manger evolved on the five basic managerial functions, which are planning, organizing, staffing, leading and controlling. The PM prepares periodic operational plan based on the approved project plans per project components and device specific strategies. He/she organizes project management team that will carry-out specific jobs, recommends personnel to be hired that will carry out specific tasked and ensure that all members of the project management staff are contributing/ working specific tasks that are contributory to the attainment of the general objectives. The PM imposes control measures and evaluates periodic project development. The Project Manager reports to the Board of Directors the status of project operations. Marketing Officer (MO) The Marketing Officer attends to the day-to-day operations of the project such as procurements of palay and identification of the market and selling of the stocks. He/she monitors the status of the satellite buying stations and the mobile buying stations, transact and arrange agreements with buyers and sellers and monitor the regular “up and down” of the prices of the commodity in the market. The Marketing Officer prepares procurement plan and marketing schedule and prepares and submits periodic accomplishment/ performance reports to the Project Manager. Marketing Assistant (MA) The Marketing Assistant is in-charge of the operation of the buying stations specifically in the procurement of palay. The MA conducts farm survey and monitoring, contact prospective farmers for grain supply and manage buying station. Prepares and submits procurement plan and report to the Marketing Officer.

Payback Period (PP) 2. PP = = = Investment / Net Income 348,945 / 117,489 2.97 years

Management and Social Considerations
Management and Personnel Functions Project Management Structure

Board of Trustees Treasurer Project Manager

Marketing Officer

Warehouse Supervisor

Bookkeeper

4.

Marketing Assistant

Driver

Cashier

Laborers

Laborer 5.

122 Social Enterprise Development: Community Businesses at Work

Section 9 | Preparation of a Business Plan 123

6.

Warehouse Supervisor The Warehouse Supervisor is in charge of the management and operation of the warehouse, which include stocking/ warehousing and drying of the grains. Control the “in and out” of stocks and prepares periodic inventory reports. Laborers Assist in the procurement, hauling, drying and warehousing of the grains such as weighing, re-sacking, storing and hauling of palay and other related job as deemed necessary. Driver Drives the truck and other vehicle of the federation to the destination as stated in the travel order, regularly conducts maintenance check of the vehicles and perform other task as requested. Bookkeeper Maintains and keeps the records of the financial transactions of the project and prepares appropriate financial reports.

7.

8.

9.

10. Cashier Disburses/ releases cash for purchases of palay, receives and checks purchase reports from Procurement Personnel and pays approved disbursements. Receive cash pertaining to project operation like payments of palay or rice sold, etc. Prepares daily/ or weekly purchase reports and daily/ weekly cash position reports. Turnover cash collections to treasurer as stated in the internal control system and procedures. Form of Business Enterprise The federation will implement a cooperative form of enterprise for this encourages cooperation, internal capital generation and develop a sense of ownership and cooperation among members. Utilization of Project Income Part of the project income (50%) will be return back to the members IAs as incentives or patronage refund and interest or share capital (Investment) and the remaining fifty percent will be added to the revolving or working capital for project sustainability. Ownership of Project Inputs The revolving capital will be owned by the federation; however, it will be exclusively used to sustain the project that would benefit the member IA. n

124 Social Enterprise Development: Community Businesses at Work

125

Section 10
Definition of Value Chain What is Value Chain Analysis (VCA)?
126

participatory value chains Analysis1
“The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final customers, and final disposal after use” (Kaplinsky and Morris, 2000). Pro-poor growth requires implementing a range of enterprise development strategies. These strategies can include establishing microfinance systems and providing other support for micro-enterprises. The private sector in general can be stimulated and policies that protect the interests of employees and poor entrepreneurs through, for example, enterprise regulation, codes of conduct and the promotion of ethical investment and consumerism. Social policies in education, health and welfare to increase the skills of employees and micro entrepreneurs and decrease their vulnerability also contribute to pro-poor enterprise development. Diverse approaches as infrastructure development and changes in property legislation may also be undertaken. Such a multi-faceted approach poses challenges for impact assessment since impacts may be direct, indirect or unintended and goals may involve trade-offs. Value chains analysis, used as part of a participatory assessment process, can contribute to strategic learning for enterprise development.

Section 10

Value chains analysis conceptualizes enterprises as parts of chains of different but linked production and exchange activities operating in different geographical areas. It focuses on analyzing chain governance, i.e., how value is distributed at different levels of the chain and the different interests and power relations which influence this distribution. In this way it leads to a more sophisticated modeling of the positive and negative impacts, whether direct, indirect or unintended, of different interventions. This enables a more complex exploration of alternative strategies for poverty reduction. Value chains analysis was initially used to better understand why many of the potential benefits of globalization fail to reach the poor and why particular countries and types of enterprises find it difficult to enter certain sectors. It has been widely used as a tool for action research by fair trade organizations and those involved in the international Women in
127

the Informal Economy: Globalizing and Organizing (WIEGO) including the Self Employed Women’s Association and HomeNet. It has also been used in some recent fair trade impact assessments.

cate the perspective of those lower down the chain to those nearer the top. It can help make chains freer and fairer and redistribute benefits to those currently disadvantaged. Diagrams and maps can be continually updated and refined as part of an ongoing learning process.

Empowerment through VCA
Value chains analysis can be a participatory and empowering process. Using maps and diagrams enables even poor and disadvantaged stakeholders to be involved in the collection and analysis of information. This promotes dialogue and accountability between stakeholders as they analyze and negotiate their common interests in improving the functioning of chains and identifying those interventions likely to be most useful. Participatory value chains analysis (PVCA) can highlight the constraints on those controlling the chain and clarify the possibilities for change lower down. It can help overcome barriers and communi-

Value Chains Analysis for Enterprise Development
There are many areas of enterprise development where PVCA might be adopted. Home workers and other grassroots organizations could use it to increase knowledge of opportunities and constraints throughout the chain and to identify points of leverage where it might be possible to increase the relative value reaching the bottom of the chain. Microfinance programs could use PVCA to identify activities where financial services would, or would not, be particularly appropriate and also to see where constraints at different levels might be addressed through non financial services. PCVA could be used to identify both the levels where business development services might be usefully integrated and the types of services needed at different levels. Policymakers could use PVCA to find out which activities and stakeholders were likely to be affected, and how, by particular regulatory proposals.

Figure 10-1. The Forest, Timber and Furniture Value Chain

Seeds

Machinery

Water

The PVCA Approach
In its simplest form, PVCA involves bringing together stakeholders with knowledge of different levels of the chain to construct a standard flow mapping. This map identifies the main activities in the chains, their geographical spread, the main stakeholders and a rough idea of the relative size and importance of each element. Different types of governance relationships are identified on the map such as: arms-length exchange transactions; situations where one firm exercises undue control over others; cases where a lead firm directs others as in a buyer-driven chain and hierarchical relationships where parent companies control subsidiaries. Over time the map can be developed to show features of enterprises, workers or entrepreneurs at each level such as the number of enterprises or workers, workers’ skill levels, the percentage of female workers, total sales revenue, and so on. For impact assessment the different types of proposed or actual interventions affecting each level should be included. Hypotheses can be generated about how strategies at one level impact on others and existing or potential relationships between enterprises on the same level can be shown. Gender is an important aspect of value chain analysis since gender relations both affect and are affected by the ways value chains function. For example transnational corporations have taken advantage of existing gender inequalities in bargaining power to cut production costs by employing large numbers of women at low levels of value chains. At the same time such increased employment opportunities have had a profound impact on women’s position within the household and the community. Enterprise interventions can affect gender relations both positively and negatively and therefore assessment of the impact of such interventions must include gender analysis.

Chemicals

Forestry

Extension services

Machinery Sawmills

Design Furniture manufacturers Machinery Buyers

Logistics, quality advice

Paint, adhesives, upholstery, etc.

Domestic wholesale

Foreign wholesale

Domestic retail Consumers

Foreign retail

Recycling
Source: Kaplinsky and Morris,2000.

128 Social Enterprise Development: Community Businesses at Work

Section 10 | Participatory Value Chains Analysis 129

Limitations of PVCA
PVCA cannot be seen as a substitute for negotiating the problems of difference and conflict of interest and the inevitably contentious issue of how far change can take place in the relative position of different stakeholders in the chain without breaking the chain itself. Understanding the chain and its operation is a long term process. Different people will always have different perspectives and complete information will never be possible. Nevertheless PVCA can be a useful tool in identifying different types of interventions which might be desirable at different levels of the chain. It provides a practical focus for stakeholders to discuss their common or conflicting perspectives and a benchmark framework against which impacts and contextual changes can be identified. n

Notes
1. Written by Linda Mayoux, Independent consultant, WISE Development. The following is reprinted from “Enterprise Impact News” of the EDIAIS Products and Services. The Enterprise Development Impact Assessment Information Service (EDIAIS) is jointly managed on behalf of DFID by the Institute for Development Policy and Management at the University of Manchester and Women in Sustainable Enterprise (WISE) Development Ltd. The EDIAIS web site is at www.enterpriseimpact.org.uk.

130 Social Enterprise Development: Community Businesses at Work

Over its history, PACAP has made some efforts to capture lessons arising from its projects both from a process and technical perspective. One of these efforts is the Enterprise Development Technical Kit. n

training module on Enterprise planning 1 and Analysis
Training Objectives
The Philippines-Australia Community Assistance Program (PACAP) is a bilateral development program supporting community-initiated, economically sustainable, ecologicallysound and gender-responsive development efforts in partnership with local government units (LGUs), non-governmental organizations (NGOs), and people’s organizations (POs). PACAP commenced operations in 1986. Over its history, PACAP has made some efforts to capture lessons arising from its projects both from a process and technical perspective. One of these efforts is the Enterprise Development Technical Kit, which is meant to be a key resource of PACAP stakeholders in the preparation of business plans and enterprise operations. In terms of audience, the Enterprise Kit is expected to be useful to PACAP staff and partners (including partners who plan to expand their businesses after PACAP exit) and have wider application to the broader development community (including academic institutions). This short training course, which is based on the Enterprise Development Technical Kit, is meant as an introductory course in enterprise planning and analysis. At the end of the course, the participants: (a) shall have increased awareness and understanding of the dynamics of business enterprises supported by PACAP and the key factors that determine their success and failure; and (b) shall be able to prepare and interpret projected financial statements of enterprise proposals, critical inputs in PACAP decision-making process on applications.

Training Participants
Training participants may include PACAP Program Officers, members of the PACAP Advisory Committee, selected staff of PACAP partner NGOs and POs. Basic English literacy is a requirement for participation. For maximum effectiveness, an offering of the training course should have no more than 20 participants.

133

Timing and Duration of Training
Day 1 Day 2 Workshop Session: 8 AM – 5 PM Workshop Session: 8 AM – 5 PM

Attachment 1 Case Study on Enterprise Appraisal
Introductory Note: The case describes two separate businesses on palay and rice trading being implemented by two different organizations, one in the Visayas and the other in Mindanao (the names of the organizations have been changed). Participants are expected to comment on performance of these two businesses individually and in relation to each other.

Training Schedule
Day 1 Morning 9:00 9:30 9:45 10:00 10:30 12:00 Afternoon 1:00 1:30 3:30 4:00 -

Arrival and Registration Introduction of Participants Opening Remarks (PACAP Director) Leveling of Expectations/Overview of Training Course Session 1: Enterprise Appraisal (Focused Group Discussion – 3 groups) Lunch

VIRFIA Integrated Agricultural Credit and Palay Trading Enterprise
The Organization The Visayas River Federation of Irrigator’s Association (VIRFIA) is a federation of six Irrigator’s Associations (IAs) in the Visayas River Irrigation System. VIRFIA was organized by the National Irrigation Administration (NIA) who continues to provide active support to the federation in organizational strengthening and resource generation. NIA has also entrusted VIRFIA with the management of a P117-million Post Harvest Facility (PHF). The PHF consists of a multi-purpose drying pavement, glass drying house, paddy warehouse, administration office and equipment shed, tractors, cargo trucks, forklift and four-wheel drive vehicle. In addition to the PHF, VIRFIA has also been able to mobilize the following support from other organizations: (a) two units of mechanical dryers from the Provincial Government of Iloilo; (b) flash dryer from the Bureau of Post Harvest Research and Extension; (c) soft loan of P75,000.00 from the Visayas Provincial Government and (d) technical and financial support from the Japan International Cooperation Agency (JICA). Income generated from the use of these facilities and equipment goes to the federation for use in its various activities. NIA audits funds utilization regularly to ensure that these are used for their intended purposes and are documented in accordance with generally accepted accounting and audit standards. The Integrated Agricultural Enterprise Using the PHF, equipment and funds obtained from PACAP and other resource institutions, VIRFIA initiated an integrated agricultural development enterprise to serve its members through such diverse activities as land preparation services, trucking, warehousing, selling of farm inputs, palay drying and palay and rice trading. The enterprise has two major operations: microcredit and marketing. Microcredit involves the provision of production loans to target beneficiaries in form of farm inputs and services, payable in four months (or 120 days after harvest) at an interest rate of 3% per month. Good borrowers receive new loans for the next production cycle; capital build-up (CBU) is integrated in the loan scheme to increase capital for production loans. The Irrigators Associations are responsible for collecting the loans of their farmer-members. Marketing, on the other hand, involves the procurement of palay, post-harvest processing activities and marketing of palay and rice.
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5:00

-

Continuation – Focused Group Discussions Plenary Discussion – Enterprise Appraisal Afternoon Coffee Session 2: Preparation of Enterprise Financial Statements ƒ Overview, Case Presentation and Tasking ƒ Start of Discussions within Work Groups End of Day 1

Day 2 Morning 9:00 11:00 12:00 Afternoon 1:30 3:30 4:00 4:45 5:00 -

Continuation of Work Groups (3) for Session 2 Plenary Reporting of Work Group Outputs Lunch

Continuation – Plenary Reporting of Work Group Outputs Afternoon Break Reflection and Introduction of Enterprise Development Technical Kit Closing Remarks End of Training

Annexes
Annex 1 2 3 Case Study 1 (Enterprise Appraisal) Case Study 2 (Financial Analysis) Facilitator’s Guide

134 Social Enterprise Development: Community Businesses at Work

PACAP Assistance The first PACAP assistance to VIRFIA (a three-year grant) was actually in support of the palay production activities for SAMICASA, one of the federation’s six Irrigators’ Association members. The assistance to SAMICASA served as a pilot for the second PACAP grant (now on its second year of assistance), which expands the assistance of the Federation to the member-farmers of its five other Irrigators’ Associations. The current year 2 PACAP grant (PhP1.817-million) is utilized for both micro-credit (PhP850,000) and marketing (PhP510,000) operations. The balance of the grant is used to subsidize capability building, staff salaries and administrative costs and monitoring and evaluation. Operations VIRFIA has two main activities – microcredit and marketing (palay and rice). Microcredit. The Federation provides production loans to farmer-members using the PACAP funds and accumulated CBU (to augment its limited credit funds, the Federation borrows fertilizers and chemicals from inputs suppliers for re-lending to farmers). Farmermembers receive production loans for both palay cropping seasons (May/June-October and November-February). To be eligible, a farmer must be up-to-date in the payment of his/her obligations, including: (a) the production loan for the previous cropping cycle; (b) payment of CBU (PhP500 per cropping); (c) payment of irrigation service fee (PhP1,700/ hectare during the wet season and PhP2,250/hectare during the dry season); and (d) crop insurance with the Philippine Crop Insurance Corporation (PCIC). In addition, an Irrigators’ Association must achieve a minimum repayment rate of 90% of its production loans for its farmer-members to be eligible for new loans in the succeeding crop cycle. In effect, the IA serves as guarantor for the loans of its individual farmer-borrowers, a practice similar to the group liability mechanism first introduced by the Grameen bank. Members pay their loans in palay upon harvest as follows: (a) the farmer tells VIRFIA of the date of harvest; (b) the Federation gives the farmer a number of empty sacks needed for the palay that the farmer plans to send to VIRFIA, whether to repay his/her loan and/or to sell to the Federation; (c) the Federation agrees to haul the harvest if it is at least 30 bags of palay; (d) the price of the palay is the same, whether for sale to the Federation or loan repayment; and (e) the farmer must pay at least a portion of the loan. Marketing (Palay). The Federation is engaged in palay trading for two reasons: (a) it must dispose of the palay it receives as loan repayment; and (b) it acts as an alternative market for the farmers’ palay, thereby stabilizing (and even increasing) the overall price of palay. As an alternative market, the Federation buys palay from farmers at PhP0.10-0.50 per kilo more than the traders’ price. At the same time, the Federation does not short-change the farmer in terms of weight, a common practice among traders. Upon being informed by the Irrigator’s Association that one of its farmer-members wants to sell his/her palay, VIRFIA negotiates with the farmer-member and agrees on the quality of the palay and its price .The Federation truck then picks up the palay and farmer-member and brings both to the federation warehouse where the palay is weighed and payment made. In the past, VIRFIA purchased farmers’ palay through barangay-based satellite buying stations. This practice has been discontinued because: (a) the Federation’s buying agents did not classify the palay properly (resulting in many disagreements over quality and price between the farmer and the Federation when the palay arrived at the VIRFIA warehouse); and
136 Social Enterprise Development: Community Businesses at Work

(b) difficulties in the liquidation of the cash advances given by the Federation to its buying agents for palay purchases. In turn, the Federation sells the palay it acquired from its members either to the NFA or private traders, depending on whose terms are more favorable. The Federation considers NFA as a buyer of last resort because the agency will buy any and all palay varieties, even those that have low market acceptability because they are perceived as being of poor eating quality. Marketing (Rice). About 50% of the palay purchases of the Federation are milled into rice. The Federation does not have its own milling facilities. Instead, the palay is either milled by a large ricemill nearby or by a mobile ricemill that goes regularly to the federation warehouse. The Federation’s regular customers are employees at government offices (NIA, PCIC, and SSS) and rice retail outlets. Some of the rice is also sold to farmer-members on credit, while the latter wait for the palay harvest. These rice credit sales eventually form part of the farmers’ production loans. Rice deliveries are usually in small lots – 5, 10, 20 bags per customer - which is appropriate for the Federation, considering its limited stocks and working capital. The Federation’s largest customer is the local SSS office, who orders 85 sacks of rice every two months. Because of limited funds, the Federation does not have the capability to go after larger institutional markets in the Visayas, such as PLDT (600 cavans of rice a month) or BJMP (50 cavans a week). While sales terms are supposedly on a 15-day basis, what happens in actual practice is the Federation collects the payment for the previous delivery at the next delivery. Financial Performance The Income Statement of VIRFIA for the eight-month period ended 31 October 2008 is attached (see Attachment 1). Over this period, the Federation generated total revenues of PhP11.4-million from service fees, sales of palay, fertilizers, chemicals, seeds, rice, byproducts and others. The Federation achieved a gross profit of PhP1.49-million over the eight-month period and a net income of PhP894,000 over the period, or about PhP112,000 per month. Social Equity Impacts The clearly-identified benefits of the VIRFIA enterprise are those that impact directly on their farmer-members. These include: ƒ Reduced interest rates on loans (three percent per month) as opposed to loans from conventional traders that bear interest rates as high as 10 percent per month, or even 50% over a four-month period. ƒ Farmers can avail of loans with minimal bureaucracy, thus saving them time, effort and money. ƒ Farmer-members receive higher prices for their palay produce. Moreover, the Federation does not shortchange farmers in terms of weight and purity, common practices of conventional traders. ƒ The strong bond among farmer-members has facilitated the work of the Federation in motivating farmers to adopt new technologies.

Training Module on Enterprise Planning and Analysis 137

Plans VIRFIA plans to rehabilitate the ricemill within the PHF complex so that it can perform its own milling operations. Test runs show a milling recovery of 67 percent, which is comparable to the recovery of the commercial ricemill now being used by the Federation. A second plan is to source additional working capital. VIRFIA is currently negotiating with Land Bank for a loan to augment its microfinance fund. If approved, the Land Bank loan will be used for the cash portion of palay production (labor, land preparation, and so on), while the PACAP funds will be used only for inputs (fertilizers, chemicals, and the like.).

its rice trading operations. The grant had three objectives: (a) provide favorable prices, processing and transport of the products (i.e., palay) of MIFARRCO farmer-members; (b) optimize the several post-harvest facilities have been provided by the Department of Agrarian Reform through its foreign-funded and CARP-funded projects; and (c) establish a self-sustaining & self-liquidating agricultural-based rural enterprise project. Operations MIFARRCO’s originally projected an annual sales volume of 19,859 bags of rice per annum (1,655 bags per month). Most of this volume, which is equivalent to 3% of the consumption requirements of the province, was targeted for institutional and wholesale buyers. The AIMC display center would also re-pack rice – in one, two and five-kilo bags – for sale to low- to middle-income customers. To meet its projected rice sales, MIFARRCO would purchase 17,000 bags of wet paddy per cropping, or 4,000 bags of palay annually. The MIFARRCO Purchaser/Classifier negotiates buying prices with individual farmers based on such features rice variety and moisture content. The purchased palay is transported, dried and stored in designated post-harvest facilities (PHFs) owned and operated by MIFARRCO member-cooperatives who also provide the labor for hauling wet paddy, drying and storage. Milling the palay into rice is done at the facilities of the Sto. Niño MultiPurpose Cooperative, another member-cooperative of the federation. This enables the underutilized PHFs, vehicles and labor force of the member-cooperatives to earn additional income from the enterprise. MIFARRCO buys palay from farmers at the prevailing market price plus PhP0.20 per kilo. The twenty centavos premium is allocated as follows: PhP0.10 for the farmer-seller, PhP0.05 as additional capital contribution of the farmer-seller to his/her primary cooperative and PhP0.05 as additional capital contribution of the primary cooperative to the Federation. The premium is in addition to the service fees earned by the member-cooperatives in the transport, drying, storage and processing of the palay purchased by the cooperative. Rice Trading. MIFARRCO has had limited penetration of the targeted institutional market (e.g., Land Bank, DBP, and so on.) because, among others, it is unable to meet the quality and volume requirements of institutional markets. Instead, the Federation’s customers have been mostly public market retailers (40 percent), member-cooperatives (40 percent) and small restaurants and government employees. Monthly sales have been about 200 sacks of rice. The recent rice crisis has had a major adverse effect on MIFARRCO’s rice trading operations. In the summer, tight supply forced the Federation to buy at high prices. Since then, however, palay prices have dropped as cheap NFA rice has flooded the market, thereby causing rice prices to move downwards. The Federation would suffer losses if it now mills the palay purchased during the summer and sells it as rice. To avoid this, MIFARRCO has stopped selling rice in recent months. Instead, the Federation has shifted strategy and is now selling its palay to the FOBB (Farmers’ Option to Buy Back) program of the National Food Authority (NFA). Under the FOBB, farmers can sell their palay to the NFA and buy it back at the same price within six months (plus additional minimal charges for handling and storage.) Participation in the FOBB allows MIFARRCO to free up its working capital and buy additional palay in the offseason.
Training Module on Enterprise Planning and Analysis 139

MIFARCCO Palay Trading Enterprise
The Organization Mindanao Federation of Agrarian Reform Communities Cooperatives (MIFARRCO) started out as the Mindanao Agrarian Reform Communities Network for Development (MARCNET) with 15 coops and associations as original members. Organized through the multi-sectoral efforts of government line agencies, LGUs, NGOs and the concerned ARC cooperatives and associations, MARCNET was mainly involved in organizing the yearly CARP anniversary and advocacy of farmers’ issues, such as, the control by big traders of the markets and prices of farmers’ products, low agricultural productivity and disunity among farmers. One component of ARISP-II, an ODA-funded project of the DAR, is the establishment of an ARC Information & Marketing Center (AIM-C), which will provide member-cooperatives with: (a) processing and marketing services for farm products; (b) better quality of farm inputs; (c) agricultural extension services; and (d) financial intermediation services. In 2003, the ARISP-II Project began negotiations with MARCNET to manage the AIM-C. Since MARCNET was mainly in advocacy work, it was reorganized as MIFARRCO, a secondary cooperative of ARC coops and associations. It was registered with the CDA in December 2003 and started operating the AIM-C in June 2006. AIM-C Operations The AIM-C was built with ARISP-II funds and constructed on a 1,000 square meter lot owned by the provincial government. The center is owned by the 33 ARC member-cooperatives of MIFARRCO and is located in a prime commercial area beside the Mindanao City Gaisano Mall. The AIM-C operates: (a) Shop/Display of Agricultural and Non-Agricultural Farmers’ Products; (b) Business-to-Business Website; (c) Micro-Finance program (in partnership with the Baba foundation; (d) Training Facility (including rental and catering); and (e) Copra Trading. Milled rice was intended as the main product of the AIM-C with a number of local institutions – Land Bank of the Philippines, Mindanao City Water District, consumer stores, and other private companies – as their target customers. The potential of the rice market is huge because of the rising population of Agusan Norte (projected to grow from 315,194 in 2007 to 328,323 by 2010) and the production output of MIFARRCO’s affiliates, which is estimated at 29,152 tons of palay per annum. PACAP Assistance Motivated by the above opportunity, MIFARRCO applied for PACAP assistance and received, in November 2007, a grant of PhP1.4-million, mainly for working capital to expand
138 Social Enterprise Development: Community Businesses at Work

Difficulties in Palay Procurement and Processing. To finance their production inputs, farmers are forced to borrow from creditors-cum-traders. Land preparation (plowing), harvesting and threshing are also contracted out as a package to a service operator. As a result of these transactions, almost two-thirds of a farmer’s harvest are committed to third parties and therefore not available for sale to the federation. Since the farmer will also set aside a portion of his share of the harvest to meet consumption needs in the coming months, an even smaller portion of the harvest is actually available for immediate sale to the Federation and other buyers. For this reason, the Federation is forced to buy in small lots from many different farmers, resulting in an inventory of palay stocks that are made up of different varieties. This is one reason for the Federation’s inability to penetrate the institutional market, which has very strict quality and volume requirements. To acquire more uniform palay stocks, the Federation has adopted the following measures: (a) focus buying operations on farmers that have no loans from traders; (b) pay an extra premium of PhP0.20 per kilo during the early part of the harvest season; and (c) buy the share of the harvest that goes to the harvesting and threshing operators. Financial Performance The latest income statement of MIFARRCO (January to June 2008) is attached (see Attachment 2). Over this period, the Federation had total sales of PhP2.2-million, or about 1,800 bags of rice sold (300 bags per month). This sales volume is about 20% of the original target of 1,655 bags of rice per month. The Federation achieved a gross profit of PhP187,630.25 and a modest net income of PhP161,657.92 over the six-month period, or about PhP23,600 per month. Social Equity Impacts Even though the enterprise is barely two years old (the activities funded by the PACAP grant are only 12 months old), MIFARRCO has identified the following impacts of its rice trading efforts: ƒ Employment and income generation, both for the members of the member-cooperatives and the staff of MIFARRCO. ƒ Utilization of the drying and storage facilities of the member-cooperatives. ƒ Strengthened relationships between and among the MIFARRCO member-cooperatives. ƒ Farmers have begun to wean themselves away from the traders, assert their independence and are learning to become business people. Plans MIFARRCO plans to continue its participation in the FOBB program of the NFA, seeing this as an important mechanism to address volatile price fluctuations (in both palay and rice) and to increase its working capital for palay buying. At the same time, the Federation is considering an application for a credit line of about PhP10-million. Finally, the Federation is thinking of establishing its own warehouse and ricemill facilities. MIFARRCO has experienced some scheduling problems of its milling requirements because the membercooperative chosen as the miller for this enterprise is utilizing its facilities for its own rice trading operations.

Attachment 1

Visayas River Federation of Irrigators’ Associations, Inc. Income Statement – Postharvest Facilities (for the 8-months ended Oct. 31, 2008)
Service fees
Revenues Service Fees Sales - Fertil. & Chem. Sales – Palay Sales - Seeds Sales - Tricho Sales – Rice/ByProducts Total Revenues --Less: Cost Of Sales Gross Profit Less: Selling Exp. Net Income Add: Other Income Calls Supplies (Passbook) Training Center Rental Equipment Rental Proceeds Sale of Scrap Interest On Loans Service Charges Seedlings Commission Income Total Other Income Net Income for Period % of Total Net Income 260,527 26.6% 195,361 668,606 68.2% 68,160 68,160 44,571 4.5% 14,108 6,403 0.7% 195,361 9,600 1,540 117 412 1,100 339 1,000 117 412 1,100 339 1,000 195,361 9,600 1,540 68,160 277,630 980,108 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.7% 0.1% 0.0% 0.6% 2.4% 8.6% 451,677 191,150 260,527 451,677 4,824,455 4,281,916 542,538 69,293 473,244 2,982,624 6,095,265 5,609,207 486,057 509,646 (23,588) 4,745 12,450 (7,705) 4,745 451,677 4,824,455 3,100,840 11,800 4,745 451,677 4,824,455 3,100,840 11,800 4,745 2,982,624 11,376,142 9,891,123 1,485,018 591,390 893,628 4.0% 42.4% 27.3% 0.1% 0.0% 26.2% 100.0% 86.9% 13.1% 5.2% 7.9%

microfinance

marketing

Admin.

total

% of total revenues

140 Social Enterprise Development: Community Businesses at Work

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Attachment 2

Annex 2 Case Study on Financial Analysis Palay and Rice Trading Enterprise Aganan River Federation of Irrigators’ Association, Inc.
Introductory Note: The following business plan was submitted by ARFIA, a federation of irrigators’ associations in Iloilo province, as one of the supporting documents for its funding application to PACAP. The objective of the training session is to revise the original financial statements contained in the business plan to present a clearer picture of the projected financial performance of the enterprise. The ARFIA Business Plan was used in the pilot-test of this training module but business plans of other PACAP partners can and should be used since the “corrected” financial statements of ARFIA have already been presented in Section 9 of the Enterprise Development Technical Kit.

MIFARRCO Income Statement – Rice Trading (for the 6 months ended 30 June 2008)
items
Sales - Milled rice - Rice bran Total Sales Less : Cost of Sales Inventory, Beginning Add: Purchases - Palay - Milled rice - Freight and handling Subtotal - Purchases Total Goods Available for Sale Less : Inventory, Ending ƒ Milled Rice ƒ Dried Palay ƒ Sacks for Palay ƒ Sacks for Milled Rice Subtotal - Inventory, End. Cost of Sales Gross Profit on Sales Less : Operating Expenses ƒ Travel & Transportation ƒ Milling Expense ƒ Sacks ƒ Labor ƒ Trucking ƒ Miscellaneous Expense ƒ Storage fee Subtotal - Operating Expenses Net Operating Income Add: Other Income Net Income Before Depreciation Less : Depreciation expense Net Income 142 Social Enterprise Development: Community Businesses at Work 2,000.00 31,555.50 962.50 3,154.00 6,905.50 100.80 918.00 45,596.30 142,033.95 503.99 142,537.94 880.02 141,657.92 0.1% 1.4% 0.0% 0.1% 0.3% 0.0% 0.0% 2.0% 6.3% 0.0% 6.3% 0.0% 6.2% 0 56,604.42 3,806.00 10,788.00 71,198.42 2,078,955.83 187,630.25 0.0% 2.5% 0.2% 0.5% 3.1% 91.7% 8.3% 343,733.00 644,069.25 1,160,950.00 1,402.00 1,806,421.25 2,150,154.25 15.2% 28.4% 51.2% 0.1% 79.7% 94.9%

Amounts
2,247,079.08 19,507.00 2,266,586.08

% of Sales
99.1% 0.9% 100.0%

General Description of the Enterprise
Palay trading is an agriculture-based enterprise. It is buying of palay from farmers and the selling of which to traders or to government institutions like the National Food Authority (NFA). It may also mill palay to convert it to rice and sell directly to rice traders or consumers. In relation to the micro-financing program of the Federation, it will primarily buy palay of the farmer-beneficiaries that has been assigned to the Federation as loan payment or as loan guarantee and also buy their produce outside loan payment. Further, the Federation will also buy from other IA members through their respective Irrigators’ Association (IAs). It will also put-up of marketing centers in five (5) IAs but the main center is at the Post Harvest Facilities in Brgy. Mambog, Oton, Iloilo. However, there will be a Project Team in every IAs to handle the procurement and marketing of palay and rice. The palay trading operation will be managed by the Project Management Staff composed of Project Officer, Marketing Officer and Administrative personnel. Each personnel have defined functions and responsibilities as well as corresponding accountability. The amount of PhP 650,000.00 is projected to be raised as working capital. It is projected that the Federation will generate a net surplus of at least PhP284,199.50 during the first year of operation aside from the incentives coming from the National Food Authority (NFA). The project will be owned and managed by the ARFIA.

Market Considerations
Target Market: Competition and Trading Practices Generally, the demand of palay is stable and continuous because it is the staple food among 85 percent of the Filipinos. The market of palay is not a problem. However, the Federation will ensure that it will have the “right market” of palay – which means a market that will buy the palay at a competitive price that is way up compared to other traders. The palay procured by the Federation will be directly sold to the National Food Authority (NFA) or to the grain traders who will buy the produce in a competitive price. The NFA is a good market during the peak of harvest season. The Federation has existing marketing
Training Module on Enterprise Planning and Analysis 143

agreement with the NFA and it will be renewed annually. However, other grain will be milled and the rice will be sold to rice traders, local rice retailers and to the farmer-consumers during lean months. The Federation had already established market linkages and had initial marketing discussions with the following traders, government and private agencies for the supply of rice and palay:

Table 3. Estimated Production of the Target Sites
name of irrigators’ Association coverage Area (ha.)
821 351 545 991 888 3,596

Estimated yield in metric tons 1st cropping (100%)
3,448.2 1,474.2 2,289 4,162.2 3,729.6 15,103.2

2nd cropping (100%)
3,448.2 1,474.2 2,289 4,162.2 3,729.6 15,103.2

1. San Jose-Sto. Niño 2. Macabitu 3. Macatuan 4. Salambitu 5. Cappa

Table 1. Projected Market of Palay and Rice
name of buyer
Bonza Group of Millers Roscom Millers Direct consumers

location
Lapaz, Iloilo City Iloilo City Iloilo City

Absorptive capacity/ volume required (in sacks) palay
No limit No limit

TOTAL

rice
No limit No limit 10,000

These farmers are selling palay directly to small buyers who usually have buying station near the farm or to the grain traders in the Municipalities of Oton, San Miguel, and Pavia (Iloilo). However, the buying price is normally very low especially during rainy period. Farmers have no facilities to preserve the quality of the grains. Because of this, the farmers are force to dispose their palay even at very low price. After the intensive consultation, the members committed to sell 50% of their produce to the Federation. The remaining 50% of the produce is usually reserved for consumption and for payment of debt. The Federation cannot really exercise monopoly of the total production of the members as it still respects the practice of free trade. However, the production of the members financed by the Federation through loan will be procured. The estimated volume is 210,000 kilos or 5,000 sacks (42 kgs per sack). This estimate is only for one cycle production loan from 100 beneficiaries with only 1 hectare per farmer. Also, the Federation will buy additional palay outside payment of production loan. The estimated volume will be 172,200 kilos or 4,100 sacks. Presently, there are 5 major grain traders operating within the target areas. These traders practice of contacting small palay buyers who intensively went to farm to buy the palay of the farmers or they are commonly known as “middlemen”. The practice has been common during harvest season. The same strategy will be employed by the Federation to meet its procurement target maximizing the IA leaders.

If possible, the Federation will apply the cash-on-delivery (COD) approach in buying and selling the stocks. It will also provide incentives to dealers and provide free freight-in for bulk purchases within Aganan River Irrigation System service area.

Table 2. Price Chain (PhP)
levels
Farm Gate (fresh from harvest)

Description
15% to 30% Moisture Content Dried – 14% and below moisture content

palay (per kg)
7.00-8.30 8.50-10.00

rice (50 kgs. Sack)

rice bran (30 kgs. Sack)

NFA Traders Rice Retailers/ Offices

Below 14% Moisture Content Palay and Rice Rice

10.00 8.50 and above 850.00 to 950.00 850.00 to 1,000.00 170.00 to 180.00

Table 4. Major Palay Buyers Operating within ARFIA Areas of Operation
name of buyers
Grabato Goriceta Rice Mill Zamora Rice Mill Geonigo Rice dealer Javellana Rice dealer

Address
Iloilo City San Miguel, Iloilo Oton, Iloilo Oton, Iloilo Oton, Iloilo

location of buying Station
San Miguel, Iloilo San Miguel, Iloilo Oton, Iloilo Oton, Iloilo Oton, Iloilo

Estimated volume of palay procured (sacks)
Unlimited 20,000 sacks up 20,000 sacks up 10,000 sacks up 10,000 sacks up

Estimated Market Share (Demand, Supply and Market Analysis) The Federation will procure palay in all areas within the five member Irrigators’ Associations covered by Aganan River Irrigation System, as primary area, and its adjacent places as secondary target area. The total area is 3,596 hectares of irrigated rice farms, which usually practice two croppings a year (May/June to October and November to February) . The average production per hectare is 100 sacks at 42 kgs/sack (4,200 kgs.). The total estimated annual production (gross) of the target area is 15,103.2 metric tons or 359,600 sacks.

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Projected Sales of Palay and Rice The palay procured by the Federation, as mentioned earlier, will be sold as dried palay (with moisture of 13% and below), wet form and will be milled and sold as rice. Half of the palay procured will be sold to NFA: 50% of this will be sold as dried palay and the other 50% in wet form. The other half of the palay procured will be milled and sold as rice. By milling, the Federation will also have rice bran.

Marketing Activity Flow

FARM

Table 5. Projected Schedule of Sales
commodity
Palay(42kg/sack) Wet Dry Rice -50kgs./sack Bran – 30 s/sack)

total
3,100 1,880 2,053 314

Quarter 1
1,500

Quarter 2

Quarter 3

Quarter 4
1,600 680 743 74

Marketing Centers (5IAs)

Main Buying Station (PHF)

Warehouse

600 1,310 240

600

DRYING

Note: Conversion of Palay to Rice Bran is 1:10-at 30 kilos per sack

MILLING

Production Considerations
MARKETING Technology Description After procurement of palay, in the case of selling it dried and for rice conversion the federation will dry it using either solar or mechanical dryers. The solar driers will be used during normal weather condition and when there is substantial solar energy. The mechanical dryers are also available during rainy days when solar energy is not enough to dry palay. There are also glass houses for stocking of wet palay for three to five days while preserving the quality during rainy days. The palay will be stock in the warehouse of the federation before it will be transported to the point of market.

NFA

Rice Retailers/ Millers

Grain Traders

Farmer’s Association / Farmers / Direct Consumers

Marketing centers will be put up at the strategic location near the farm to buy palay of the farmers fresh from the harvest or some areas will use IA offices as their marketing centers, aside from the main buying station at the Post Harvest Facilities in Barangay Mambog, Oton, Iloilo. Two cargo trucks are available to haul palay bought by the federation to the warehouse for drying and warehousing. Other procured palay will be hauled directly to grain traders in wet form. The marketing program will converge in the main buying station where all inventories will be placed and stored. Proper recording system will be maintained. Depending upon the demand, the palay will be milled and the rice will be sold to rice dealers and retailers or to the farmer’s associations/ direct consumers. Furthermore, 50 percent of the stocks will be sold as palay either to the NFA or traders and 50 percent will be sold as rice. Land, Infrastructure, Machinery and Equipment The post-harvest processing of palay consists of drying, milling and storage. The federation with its available storage facilities can procure palay during any weather condition and has the capability in preserving the good quality of palay. ARFIA managed state-of-the-art Post Harvest Facilities located about 4 kilometers south of San Miguel along the provincial road and about 3 kilometers from the town of Oton. The site is almost in the center of the project area and is convenient for the operation of the post facilities.

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The PHF, which was a grant from Japan Cooperation Agency (JICA) in 1996, includes the following facilities: 1. 2. Multi-Purpose Pavement (Drying pavement by solar energy) – It is used to dry palay during sunny days maximizing solar energy. Glass House – The wet or fresh palay is place when solar energy is not available during heavy rainy days to preserve palay quality and control the subsequent quality deterioration. Palay Warehouse – The dried palay is stock before it milled or before it will be sold to NFA or traders. The warehouse has the capacity to stock 3,780,000 kgs. of palay or 90,000 sacks at 42 kgs./sack. Administration Office – It serves as the office of the federation and all documents and files (project records) are keep and administrative personnel works. Equipment Shed – This is the place where different equipment like trucks, tractors and other pre-and post harvest facilities are keep or park.

3.

4. 5.

The marketing equipment of the Federation is listed in Table 6:

Procurement Strategy To achieve the procurement target, the following strategy will be employed by the federation: 1. Setting up of marketing centers in every member-IAs; 2. Each IA will have a procurement officer that will serve as contact person and will be provided with incentives; 3. Payment for production loan including interest must be in the form of palay and the farmer-beneficiaries will be encouraged to sell even 50 % of their produced to the federation; 4. Device strategy that would allow payment of irrigation service fee in the form of palay equivalent to the monetary value of service rendered in coordination with the National Irrigation Administration (NIA); 5. Service fees for farm implements must be in the form of palay corresponding to the cost of the services rendered and other services of the federation whichever is applicable; and 6. Provision of patronage refund to the member associations depending on the volume of palay procured. Procurement Target Comparing the procurement target to the estimated annual yield of the target sites, there is enough supply to fill in the demand. The estimated annual yield for palay for first production year is 15,103.2 metric tons or 15,103,200 kilos. The procurement target is only 382,200 kilos or 382 MT which is 2.53 percent of the estimated production. Assuming that there will be shortfall of the production due to uncontrollable circumstances, there are still potential areas for procurement outside the target areas, which are not covered by the irrigation system. Palay procurement will be done on a cash-and-carry basis.

Table 6. Marketing Equipment of the Federation
Description
Portable Mechanical Dryer 4-whell Farm Tractor Cargo Truck

# of units
2 2 2

uses
For drying during rainy days For transport of paddies around the facilities site For transport of paddies from the farmer’s house and marketing centers to PHF and from warehouse to NFA or traders or millers For lifting rice bags in the warehouse For transport of paddies around the facilities site For measurement of paddy weight For milling of paddies (palay to rice conversion)

Table 7. Palay Procurement Target
total
Kilogram Amount 382,200 3,350,232

Forklift Trailer (towed type) Platform weighing scale One-pass Rice Mill

2 2 2 1

Quarter 1
63,800 522,900

Quarter 2
126,000 1,206,132

Quarter 3
25,200 226,800

Quarter 4
168,000 1,394,400

The average procurement price for palay is PhP8.30 /kilo (farm gate price/fresh).

Financial Assumptions
Capital and Start-up Costs The total estimated amount that will be raised as revolving capital of palay trading is PhP650,000.00. Fixed Costs per Quarter The fixed costs per quarter includes only personnel cost which are presented in the following table. Other costs are considered variable costs.

Labor Requirements The federation needs to maintain 5 to 20 laborers during the peak of harvest or marketing season. The laborers are paid on per activity basis (“pakyaw”). Their rate is incorporated in drying and warehousing cost or in trucking fees. These personnel are usually male because of the very nature of their work that it needs physical effort. Women sometimes work for drying activities.

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Variable Costs

Financial Statements
Projected Income Statement (Year 1), Quarterly Basis

Table 8. Fixed Costs Per Quarter
Quarter 1
36,000

Quarter 2
18,000

Quarter 3
18,000

Quarter 4
42,000 Sales Beginning Inventory Purchases 8.30 5.00 1.00 1.20 Fixed Expenses Drying Sacks Milling Trucking Handling Delivery Representation cost of goods 569,400.00 1,298,910.00 326,607.00 7,500.00 1,500.00 4,978.00 31,440.00 16,200.00 8,460.00 5,240.00 7,467.00 47,160.00 3,600.00 7,860.00 7,860.00 522,900.00 36,000.00 1,206,132.00 18,000.00

Q1
554,400.00

Q2
732,960.00

Q3
707,400.00 616,452.00 226,800.00 18,000.00

Q4
1,917,000.00

totals 3,911,760.00

Terms of Sales

226,800.00
1,394,400.00 42,000.00 16,800.00 10,763.50 67,980.00 15,200.00 11,630.00 11,330.00 1,500.00 1,583,233.50

Table 9. Variable Costs (in pesos)
Palay Procurement Price Per Kilo (average) – farm gate price/fresh Trucking of Palay (per sack) Handling (per sack Milling (per kilo of rice converted from palay

Palay will be sold on cash basis. Usually, the NFA procured palay from Farmer’s Association on cash basis or they usually pay the federation within three to five days after delivery. Sales of palay to traders shall also be on a cash basis. Cash on delivery shall also be observed for rice sales. If this is not possible, the federation will give credit terms of up to seven days. The credit will be secured by postdated check. Projected Selling Prices

Projected Cash Flow

Table 10. Projected Average Selling Prices
commodities
Palay (42 kgs.) - Wet - Dried Rice (50 kgs.) Rice bran (30 kgs.)

Average price/ Average price/ kg. Sack
8.80 10.00 18.00 6.00 369.60 420.00 900.00 180.00

Q1
beginning balance inflows Capital Build-Up PACAP Grant Sales outflows Purchases Fixed Expenses Drying Sacks Milling Trucking Handling Delivery Representation Ending balance 536,500.00 7,500.00 1,500.00 1,104,400.00 50,000.00 500,000.00 554,400.00 567,900.00 522,900.00 36,000.00

Q2
536,500.00 782,960.00 50,000.00 732,960.00 1,290,450.00 1,206,132.00 18,000.00 4,978.00 31,440.00 16,200.00 8,460.00 5,240.00 29,010.00

Q3
29,010.00 782,400.00 75,000.00 707,400.00 318,747.00 226,800.00 18,000.00 7,467.00 47,160.00 3,600.00 7,860.00 7,860.00 492,663.00

Q4
492,663.00 2,042,000.00 125,000.00 1,917,000.00 1,560,273.50 1,394,400.00 42,000.00 16,800.00 11,630.00 15,200.00 67,980.00 10,763.50 1,500.00 974,389.50

Other Assumptions ƒ 15 % allowance for shrinkage of procured palay. ƒ 50% of the procured palay will be sold as palay, while the other 50% will be dried, milled and sold as rice. Of the procured palay that will be sold as palay, half will be sold in wet form and the other half will be sold as dried palay. ƒ The conversion efficiency of palay to rice is 65%. ƒ The conversion efficiency of palay to rice bran is 10%. ƒ The cost of milling is PhP1.20 per kilo of rice converted from palay. ƒ Laborers are paid on per piece/activity basis. ƒ The salary of the driver is included in the hauling cost. ƒ The project year starts on November and ends on October.

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Return on Investment ROI = Net Income/Capital Investment = P 269,919.50/ P 700,000.00 = 42% Payback Period PP = Total Investment/Net Income (for the year) = P 700,000.00/P446,299.50 = 5 Years Attachment: Income Statement Assumptions on a Quarterly Basis

Quarter 2
feb-Apr
Sales 600 sks @ 42 @ P10 40% x 1310 groSS SAlES less: cost of Sales Purchases 3000 sks @ 42 @ P9 Trucking Handling Milling @ 1.20/kg Sacks Delivery Available for Sales Less: End Invty cost of Sales 231,000.00 21,000.00 income from Sales 231,000.00 226,800.00 3,600.00 600.00 979,332.00 12,600.00 7,860.00 31,440.00 4,978.00 5,240.00 1,041,450.00 616,452.00 424,998.00 55,962.00 1,206,132.00 16,200.00 8,460.00 31,440.00 4,978.00 5,240.00 1,272,450.00 616,452.00 655,998.00 76,962.00 252,000.00 252,000.00 480,960.00 480,960.00 732,960.00 732,960.00

Dry-Dry

Dry-rice

totAl

ARFIA PACAP Year 2 Marketing Component Assumptions Made on a Quarterly Basis Quarter 1
nov-Jan
Sales 1500 sks @ 42 @ P8.80 less: cost of Sales Purchases 1500 sks @ 42 @ P8.30 Trucking 1500 sks @ P5 Handling 1500 sks @ P1 income from Sales 552,900.00 7,500.00 1,500.00 531,900.00 22,500.00 554,400.00

Wet to Wet

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Quarter 3
may-July
Sales less: cost of Sales Beg. Invty. purchases Milling Sacks Trucking Handling Delivery Goods Available Less: End Invty. cost of Sales income from Sales 616,452.00 226,800.00 47,160.00 7,467.00 3,600.00 7,860.00 7,860.00 917,199.00 226,800.00 690,399.00 17,001.00 707,400.00

Attachment 3 Facilitator’s Guide

Introductions
1. Two possible modes ƒ 4-quadrants exercise (Greatest Achievement, Greatest Failure, Current Situation, Future Situation); done in small groups (better if small groups already established prior to session through color-coding or other means) through counting off; will need blank letter-size bond paper and pens for participants. Useful if group is quite large (over 20 pax) and time constraint is a factor. ƒ Individual Introductions (“Name, Rank Serial Number” + Greatest Achievement that Participant is very proud of but few people know). Useful if group is small (less than 20 pax), participants already know each other and time constraint not really a factor. Points to Remember ƒ Introductions are very important. Getting a person to talk in the group, even if only to introduce him(her)self is important in breaking the tension and gives the person confidence to speak out later. One can make the case that the speaking out is probably the most important part of this exercise. The facilitator should make sure that people speak out slowly and do not feel they have to rush through their introduction. ƒ At the same time, the facilitator must guard against taking too long to complete the introductions exercise. As a general rule, the verbal introduction of a person should not last longer than one minute. In terms of time requirement, the 4-quadrants exercise is a “better” exercise since introductions are done simultaneously. The advantage of the Greatest Achievement” mode is that the introductions are done to the whole group.

2.

Quarter 4
Aug-oct
Sales less: cost of Sales beginning inventory Purchases 4000 sks @ 8.30/kg. Drying Handling Trucking Milling Sacks Delivery Representation cost of Sales income/(loss) from Sales Add: cDif @ p0.25 net income/(loss) 22,400.00 568,960.00 22,400.00 1,500.00 293,580.00 (7,980.00) 7,140.00 (840.00) 146,176.50 893,863.50 146,176.50 1,600.00 9,600.00 557,760.00 278,880.00 5,600.00 2,000.00 5,600.00 67,980.00 10,763.50 11,330.00 226,800.00 557,760.00 11,200.00 8,030.00 226,800.00 1,394,400.00 16,800.00 11,630.00 15,200.00 67,980.00 10,763.50 11,330.00 1,500.00 1,756,403.50 160,596.50 7,140.00 167,736.50

Wet-Wet
591,360.00

Wet-Dry
285,600.00

Wet-rice
1,040,040.00

totAl
1,917,000.00

Leveling of Expectations
1. The title of the session is “Leveling of Expectations” not “Surfacing…” What are leveled are the expectations of the participants with each other and with the designer-cum-facilitator of the workshop. Once the meta-plan cards have been posted and classified on the white board, the facilitator must state which of the expectations will be discussed in the workshop and which will not be discussed. The expectations session is also supposed to introduce the meta-card technique. You can use the exercise to point out the mistakes in the use of meta-cards so that participants will be able to avoid these in later meta-planning sessions. Please emphasize the three major rules in the use of meta-cards – WRITE BIG, ONE IDEA PER CARD, MAXIMUM OF THREE LINES PER CARD. The expectations session is also meant to introduce the importance of keeping within timelines. That is why you must set a time period for the completion of the writing (e.g., 5 minutes) and continually remind people of how much time is left. Of course, you must be flexible and give more time to people to complete their work if they really need it.
Training Module on Enterprise Planning and Analysis 155

2.

3.

154 Social Enterprise Development: Community Businesses at Work

1.

In posting the meta-plan cards, you must start from the top left of the board going to the write. If you reach the right end of the board, you can start at the middle left of the board. Points to Remember: ƒ Do not let anyone else post the cards. When you post the cards yourself, you are doing so with a certain framework in mind. If someone else posts the cards, s/he will do so using his(her) own framework, which you may not know or fail to appreciate. Try to avoid having a pre-conceived framework of how to post the cards before you actually begin posting; the framework will emerge as you post the cards. ƒ In posting cards of similar ideas, always start from the top left going to the right. Feel free to change the order of the columns; ideally, the columns with the largest number should be on the left. ƒ Do not make the mistake of putting separate but related cards (e.g., apparent “cause-and-effect” cards) in one column. If you want to show a relationship between two columns of cards, put the two columns beside each other. ƒ Some cards are easy to classify; others will be less so. If you are not sure where to post a card, put it on a “free area” (posted but not classified) and go back to it later on when most of the cards have already been classified. ƒ Some cards are difficult to classify because you do not understand them; in this case, you must ask the writer of the card to explain. Sometimes, a card is difficult to classify because it contains two or more ideas. When this happens, cut the card into two or more pieces (each piece containing one idea) and post the pieces in the appropriate columns.

key elements that should be present in the enterprise to justify support? Conversely, what are the “red flags” that should make PACAP wary of funding the proposal? 4. As shown above, there are many possible questions. What is important is that the questions focus the attention of the discussants towards understanding the dynamics of the enterprises and the major factors for success and failure. The facilitator should move among the small groups in order to provide guidance, particularly if the participants are unfamiliar with the case method. Given inevitable time constraints, it would be better to facilitate the plenary session by surfacing the responses of the participants to the guide questions. If no guide questions were provided beforehand, the facilitator can still run the session by presenting the questions s/he considers important and use these questions to structure the discussion.

2.

5.

6.

Session 2: Case Study on Financial Analysis
1. By necessity, this is a much more structured session. Hence, the instructions must be very clear and specific. Participants are expected to accomplish the following: a) Prepare the following financial statements: ƒ Projected Cash Flow Statement on a monthly basis for Year 1. The projected cash flow statement should take into account: (a) the internal dynamics of the enterprise and (b) existing PACAP procedures in the release of grant funds. ƒ Projected Income Statement on a monthly basis for Year 2 ƒ Break-Even Analysis (Sales Volume only) – include palay, rice and rice bran. ƒ Return on Investment and Payback Period b) List the assumptions used in the preparation of the above financial statements. Emphasize that financial statements are only as good as the assumptions on which they are based. In this regard, participants should formulate their own assumptions if they find that some important assumptions are either missing or unrealistic. By way of example, you may provide the following (partial) list of assumptions missing from the business plan: ƒ Projected monthly sales schedule for the three products of the enterprise for Year 1 (the fiscal year of the enterprise is from November to October). Please note that the area has two cropping cycles (May/June to October and November to February) and that the prices of palay and rice drop during the harvest period. ƒ Projected schedule for the procurement/purchase of palay over the twelve months of Year 1. Please note the cropping cycles in the area. Purchase of palay is done on a cash basis (see Business Plan). ƒ The length of the start-up period or the amount of time between the receipt of PACAP funds and the start of normal (=full capacity) operations of the enterprise. An example of an unrealistic assumption is that the sales of rice (and bran) will be in terms of cash. Rice is only sold on a cash basis only in a retailing operation. After completing the financial statements listed above, please answer the following question: “In your opinion, is the projected financial performance of the enterTraining Module on Enterprise Planning and Analysis 157

Session 1: Case Study on Enterprise Appraisal
1. There is no need to present the case before the focused group discussions. There will be time to get the “facts of the case” during the plenary session following the small groups. There is need to emphasize the basic rule in case analysis, namely: that the discussion should be limited to the case as presented in the case study. Otherwise, individuals with special (or “inside”) knowledge of the case will have undue advantage and the learning values may be lost. Some practitioners of the case method do not provide guide questions beyond re-stating the purpose of the session (in this case, enterprise appraisal). They reason that analysis begins with the formulation of questions and that this, in fact, allows the discussants to better situate themselves within the case. If you are uncomfortable with this approach and would like to provide a few guide questions, the following may be useful: ƒ What are the facts? For the first business? For the second business? ƒ Which enterprise is doing better? Why? ƒ What went wrong? For the first business? For the second business? Why? ƒ If the enterprises could start all over, what should they do differently? ƒ Are the proponents on the right track in terms of what they need to do to ensure the long-term success of their enterprises? If not, what should they be doing? ƒ In case PACAP receives a similar proposal in the future, what are the three to four

2.

3.

c)

156 Social Enterprise Development: Community Businesses at Work

prise sufficiently satisfactory to justify PACAP support? What is the basis for your answer?” 1. The exercise can be done individually or in small groups. Either method has intrinsic advantages and disadvantages. As a facilitator, your primary concern is handling the reporting that will be done afterwards in plenary session. If the participants opt for group work, each of the workshop groups will be asked to present its output. If work will be done individually, three to four individuals can be selected to report the work they have done. If the individual mode is chosen, selection of the individuals who shall make presentations should be done just before the plenary reporting session. Otherwise, individuals not selected may no longer be motivated to carry out the exercise. Apart from correcting methodological errors in the assumptions used and/or the financial statements themselves, the plenary discussion can also focus on more general lessons. For example, one important lesson is that the magnitude of external funds required is directly related to the strategic decisions regarding the procurement of raw materials and the marketing of finished products.

2.

Materials and Logistics Requirements
1. Manila Paper – enough sheets for the small groups and plenary sessions plus a few extras. 2. Meta Cards (limit to 4 colors = white, yellow, light blue, pink) – enough for all small group and plenary sessions plus a few extras. 3. Pentel Pens (limit to 2 colors = black and blue) – enough for all participants plus a few extras. 4. Masking tape – at least one roll (minimum of one-inch thick) 5. Scissors and cutter – make sure these can cut masking tape. 6. LCD projector 7. Projection Screen – if no screen is available, use a white sheet. Avoid using the whiteboard as the screen because of the glare. 8. Computers – there should be at least one computer for each group in Session 2. 9. Waste cans (minimum of 2, placed in strategic locations around the room) – the presence of waste receptacles will facilitate clean-up and enable the participants to concentrate on the tasks that need to be accomplished. 10. Conference hall and break-out rooms – if no break-out rooms are available, the conference hall should be sufficiently large so that small group discussions can be carried out simultaneously with minimal disturbance for each group.

158 Social Enterprise Development: Community Businesses at Work

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