Module 1 Em3210

Republic of the Philippines
DAVAO DEL SUR STATECOLLEGE

Brgy. Matti, Digos City, Davao del Su r, Philippines 8002
Introduction to
Organization and
Management of Small
Business
A Course Pack for
BSAB Students
Course Pack writer:
MICHELLE A. ALCEBAR, MBA

Davao del Sur State College
Matti, Digos City, Davao del Sur
Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

MODULE 1: SMEs in the Philippines
Module Overview
Hello everyone! Welcome to this course, The Introduction to Organization and Management of Small
Business. This self-instructional module is especially written for you, students of business management,
to supplement your reading materials needed through online class. This module may serve as the way
and the light into an easier study of small business enterprises. This is composed of four (4) units. The
first unit deals with the SMEs in the Philippines which is divided into two (2) chapters. This unit will
help you understand and appreciate the nature of small business, types and characteristics, its forms of
ownership and the SMEs contribution to the Philippine economy.
Lesson 1: The Nature of Small Business
Learning Outcomes:
At the end of the lesson, the students are expected to:
1. Examine the nature, types and characteristics of small business; and

2. Explore the economic importance of small business as well as its
advantages and disadvantages.
Time Frame: 2nd – 3rd week
Introduction
This module is divided into two (2) chapters. The first chapter is focusing on
the nature of small business which is organized to help you, students,
understand the types and characteristics of small business. This chapter may
help you to appreciate the economic importance of small business as SMEs
contribute a lot in the Philippine economy. Activity is given in order to
activate background knowledge needed to easily understand the topic that will
be discussed as well as an application of the topic at the end of the discussion.

Activity: Brain writing
Kindly write down on the speech bubble icons below a word or words that will come up in your
mind when you hear MSME.
MSME
Analysis: Class Sharing
Please present your activity output in the class and also get to know the shared output from your
classmates and consider the questions below:
1. Do you have a word or words in common with your classmates?
2. Have your own definition of MSME formulated out from the shared words in the class.

Abstraction
“Great things start from Small beginnings”
Small business is defined as one which is independently owned and operated and which is not
dominant in its field of operation. This means that the ownership is by private individual, partnership, or
a corporation and does not control a sizable share of its market.
- The Magna Carta for Small Enterprises (R.A. 6977) defined small business as one having total
assets valued at above ₱3 million to ₱15 million.
The Magna Carta for MSMEs or Micro, Small and Medium Enterprises (R.A. 9501) by asset size
structure and number of employees are as follows:
Category Total Asset Total Number of Employees

Micro Below P 3 Million 1-9 employees
Small
P3,00,000,001– P15,000,000 10-99 employees
Medium
P15,000,001- P100,000,000 100-199 employees
Large
Above P100,000,000 More than 200 employees
Figure 1: MSMEs categories
Most new ventures nowadays are small businesses, thus small business management is really
very significant considering its contribution to the Philippine economy. Proper managing of small
business may lead to the development of large enterprises which bring a lot more benefits to the
economy. Therefore, small business management is an activity very worth pursuing.
Some of its contributions in the country’s development are as follows:

1. Providers of economic opportunities for entrepreneurs
2. Providers of products and services to consumers
3. Suppliers of products and services to other businesses
4. Distributors of products and services of other businesses
5. Supporters of government
6. Providers of employment

ECONOMIC IMPORTANCE OF SMALL BUSINESS
SMALL BUSINESS
Provider of:
ECONOMIC OPPORTUNITIES FOR ENTREPRENEURS
PRODUCTS AND SERVICES TO CONSUMERS
FUNDS TO THE GOVERNMENT IN THE FORM OF TAXES
EMPLOYMENT TO THE LABOR FORCE
Supplier of:
Supplier of:
Figure 2: SMALL BUSINESS ECONOMIC IMPORTANCE
ADVANTAGES OF OPERATING A SMALL BUSINESS
➢ Opportunity to gain control over his own destiny

➢ Opportunity to reach full potential
➢ Opportunity to reap unlimited profits
➢ Opportunity to make a contribution to society and receive recognition for his efforts
DISADVANTAGES OF OPERATING A SMALL BUSINESS
➢ Uncertainty of income
➢ Risk of losing your entire capital investment
➢ Lower quality of life until the business gets established
➢ Complete responsibility
➢ Having to serve undesirable customers
➢ Paperwork and other chores; and
➢ Long hours and demanding work condition.

Small businesses operate differently as it has the following characteristics:

1. Independent management
2. Small capital requirement
3. Mostly local operation
TYPES OF SMALL BUSINESS
There are five (5) types of small business as follows:
Manufacturing – this is a type of small business that is engaged in the conversion of raw materials
into products needed in the market such as bakeries, restaurants, and others. It is a small business
engaged in manufacturing if and only if there is a production process involved in producing a
product.
Service – this type of small business is one that engaged in rendering services to customers in one
way or another. The product under this type of small business is intangible.
Service businesses may be classified as follows:
1. Business services
2. Personal services
3. Repair services
4. Entertainment services
5. Hotels and motels; and
6. Education services
Wholesaling– this is a type of small business engaging in the activities of selling to retailers and
other merchants in bulk form. This type of small business does not sell in large amounts directly to
final users.
Retailing– this refers to a small business that is engaged in selling the products directly to final
consumers.
General Construction Firms– these are the small businesses engaged in the construction of
buildings whether for private individuals or firms, or for the government.

Application
The Nature of Small Business – Case Analysis Story (SMEs problems)
Case 1: Angel Ball Construction Supply
Miss Angelita Ballesteros is currently trying hard to make a decision on whether or not she should
continue operating her construction supply business.
Angelita was raised by her parents as a God-fearing and decent person. She does not fail to go to
mass every Sunday. She graduated valedictorian at the La Salette High School. The University of Santo
Tomas awarded her a diploma in Business Administration with highest honors.
It was while studying at UST when she met Hamilcar, a townsmate who was also enrolled in the
College of Engineering of the same university. He courted her and after some time, she agreed to mary him
one year after the graduation. On the day of the nuptial, Hamilcar did not appear. Angelita felt humiliated,
but after a few months of desperation, she bounced back and got a job in a commercial bank. Two years
later, she was promoted supervisor and after a year she became the manager of the branch. She began to
think that a job in a bank does not provide her with enough opportunities to prove her real worth. She
entertained thoughts about operating a small business. She resigned from the bank and started to make
moves to effectively operate a construction supply business.
Angelita’s parents own a vacant 1,000-square meter lot at the edge of the town’s business district.
Directly in front of the lot is the national highway and its back is the city road. The place is an ideal site for
a construction supply business. Her parents agreed to construct a building to house her business on the
condition that she would pay rent.
Just a month after she started operating, her assistant informed her of the need to convince a top
rated contractor to buy from them. Angelita agreed to meet him. A few days later, when Angelita was in her
office, her assistant came rushing to inform her the prospect has arrived to meet her.
Angelita was shocked when she saw that the potential customer was her former boyfriend.
Hamilcar shook her hand and asked how she was. She tried hard to hide displeasure and said she’s fine.
They talked for a few minutes and then he left.
Once more, Angelita felt a rising anger within her. She wants to avoid the guy, so she is
considering shifting to another type of business like that of drug wholesaling or hospital supplies.
Application Activity:
1 Identify the Issues and Concerns of the case.
2. Formulate the Statement of the Problem.
3. Provide at least three (3) Alternative Courses of Action (ACA).
4. Enumerate the advantages and disadvantages of each ACA.
Closure
Congratulations! You have just learned the background idea of small business needed for the next
lesson. Keep it up! Please bear with this module for the following lessons to take.

MODULE 1: SMEs in the Philippines
Lesson 2: Forms of Small Business Ownership
Learning Outcomes:
At the end of the lesson, the students will be able to:
1. Explore the advantages and disadvantages of each form of small business

ownership; and
2. Differentiate the three forms of small business ownership.
Time Frame: 4th week
Introduction
Welcome to Lesson 2 of Module 1. In this chapter, you will discover that small
business operates in different forms of ownership which is depending on the
environment and the inclinations of the small business operator. This part may
help you understand small business management in different forms of its
ownership.
Activity
Study the scrambled letters and rearrange the letters to form
a word.
1. HPATPNSRRI
Eyes here
___________________
2. SSBNSIEU
___________________
3. NHPOIESWR
___________________
4. OPRATNCROOI
___________________
5. GOAIAIRNZTON
___________________

Analysis
Forms of Small Business Ownership– Case Analysis Story (SMEs problems)
Case 2: ROSE RESTAURANT: WHAT NOW MY LOVE?
On any given day, Rose restaurant is full of customers. It is not surprising

because of two factors: first, its location in the center of the commercial district of
Santiago City, and second, the dynamism of its owner and manager, Ms.
Rosemarie Ginez. She is more than happy because she was able to realize her
dream of becoming successful in the food business. She now owns the building and
the lot she used to rent. Served in its large air-conditioned function hall are native
and Chinese delicacies. The place has ample parking space for 20 cars.
It was in the restaurant where she first met her future husband. He is a
government employee and is assigned to work in a nearby town. Rose’s husband is
a native of San Jose City and his widowed mother is operating a big palay trading
firm. Apart from owning 10 cargo trucks, his mother also owns one a half hectares
of commercial land in the city’s business district.
Just as Rose was considering opening a branch of her restaurant in Cauayan
City, her mother in law died. Two weeks later, her husband informed her that being
the heir, he needs to move quickly to San Jose City and manage his mother’s
business and other properties.
Even if her husband operates her mother’s business, Rose could still
continue managing her restaurant. Both of them, however, are aware of the
difficulty of maintaining the two businesses which are four hours away by car from
each other. They will miss each other for days every week if they decide to keep
both businesses. Her husband is indifferent, however, on whatever Rose’s decision
will be.
Rose is now mulling over her family’s chances of succeeding in business if
she decides on maintaining only the palay trading firm. Her decision-making is
made more complicated when her assistant reported a 49% increase in last year’s
profits of her restaurant.
Analysis Questions:
1. Should Rose stop operating her restaurant?
2. If you were Rose, what additional information would you need before making a
decision?

Abstraction
The small business operator (SBO) has to decide which form of ownership to enter depending on
the resources available and personal objectives to be achieved. It could be sole proprietorship,
partnership, and corporation.
The Sole Proprietorship
- This is the oldest, simplest and the most popular form of small business
ownership.
- It has only one owner, who takes all the risk, enjoys all the profit and makes
all the managerial decisions.
Proprietor – the owner of a small business or a holder of a property. A term used
to a person who owned and usually managed a sole proprietorship form of small
business.
Advantages of Sole Proprietorships:
➢ Complete control of plans, programs, capital, profits, policies and management
decision.
➢ Ease and cost of formation
➢ Secrecy, legal formalities and government regulation and taxation
➢ Termination or modification
➢ Good financial standing – lenders extend lending funds
Disadvantages of Sole Proprietorships :
➢ Limited amount of capital
➢ Difficulty in attracting and keeping good quality employees
➢ Risk is great and unlimited liability
➢ Lacks of stability and continuity
➢ Business incapacity
➢ Bad financial standing – lenders refuse to lend money
Partnership – is owned by an association of two to four people who share in both risk and profit.
Partnership Act of 1990 defines partnership as the relationship that subsists between two or more
people carrying out lawful business with a view to making profit.
Business partner – is a commercial entity with which another commercial entity has some form of
alliance.
Advantages of Partnerships:
➢ More resources (capital, labor, management, expertise, etc.)
➢ Benefits from talented individuals
➢ Ease of formation
➢ Credits availability
➢ Taxes based on shares
Disadvantages:
➢ Unlimitedly liability
➢ Lack of stability and continuity
➢ Potential conflict between partners
➢ Difficulty in dissolving the business

Partnership agreement – is a written drawn to formalize what has been agreed upon by the
partners of the small business. It is a document designed to prevent or at least minimize
disagreements between which usually covers the following:
1. Purpose of the business
2. Terms of the partnership
3. Goals of the partners and the partnerships
4. Financial contribution made by each partner at the beginning and during the lifetime of the
business
5. Distribution of profits and the losses
6. Withdrawal of contributed assets or capital by a partner
7. Management powers and work responsibilities of each partner
8. Provisions for admitting new partners
9. Provisions for expelling a partner
10. Provisions for continuing the business in the events of a partner’s death, illness, disability, or
withdrawal;
11. Provision for determining the value of a departing partner’s interest and method of payment of
that interest;
12. Methods of settling disputes through mediation or arbitration; and
13. Duration of the agreement and the terms of dissolution of the business.
Corporation
- A corporate form of business is owned by stockholders who are issued with
certificate of ownership called STOCKS.
- This form of ownership is the most appropriate when large amount of capital
is needed by the firm. Hence, corporation is a legally chartered enterprise with
most of the legal rights of a person including the right to conduct a business,
to own and sell property, to borrow money, and to sue and be sued.
Shareholder– is any person, company or other institution that owns at least one share of a
company’s stock.
Advantages:
➢ Limited liabilities
➢ Unlimited lifespan
➢ Ease of expansion
➢ Ease of transferring ownership
➢ Greater ability to hire specialized management
➢ Liquid investment – convertible to cash
Disadvantages:
➢ More extensive government restrictions, permit regulation and reporting
requirements
➢ More expensive and complicated to organize
➢ Double taxation
➢ Employees lack personal identification and commitment

Application
Forms of Small Business Ownership – Case Analysis Story (SMEs problems)
Case 3: MP Records
When he was 15 years old, Manuel Palisoc showed interest in music. Three of his classmates
played the electric guitar so well and he wanted so much to join them as drummer in their weekly
rehearsals. He could not be taken in because he did not know how to play the drums.
Many did not get discouraged, however, and he bought he could be useful in some other way. He
tried very hard to find a good drummer and when he found one, he convinced his classmates to take him in.
Since then, Manny acted as assistant and troubleshooter for the group. He saw to it that the group
performed in school activities whenever possible.
His college studies interrupted Manny’s passion for music. After graduation, however, he made
some serious moves to reform his old group and exposes them to the public. He negotiated for
performances in prestigious night clubs and hotels. Regular performance in television shows became a
routine for the group. Within a short period, Mannys’s band became famous throughout the Philippines,
and this became possible because of Manny’s skill in managing them.
Realizing his talent for the entertainment business, Manny decided to make it a full time job. He
invited other groups to join him. Some months later, he sent some of them for live performances abroad.
Many thought that his accomplishments will not operate a recording company and a radio station.
He also sees these businesses as compatible with developing his wards. However, Manny also thinks that
he does not have sufficient money and talent to handle both types of business.
Somebody informed Manny that he has a former classmate who has three years of experience in
the recording business and another classmate has four years of experience in broadcasting.
Many agreed to see his former classmates. However, he wonders what information he would like
to have before he proposes anything to them. He also wants to know the proposal he would offer just in
case he gets the right information.
Application Activity:
1 Identify the Issues and Concerns of the case.
2. Formulate the Statement of the Problem.
3. Provide at least three (3) Alternative Courses of Action (ACA).
4. Enumerate the advantages and disadvantages of each ACA.
Closure
Congratulations, you have just completed two (2) lessons in Module 1. You already learned what small
business is and its nature. With this, as your background, you are now ready to learn more deeply
into management of small business enterprises that will be discussed in the next module.

Module Assessment
Kindly answer the following:
1) Discuss some important contributions of small business in the Philippine economy.

_____________________________________________________________________________
______________________________________________________
2) Differentiate the forms of small business ownership.
_____________________________________________________________________________
_______________________________________________________
3) How small business operates?
_____________________________________________________________________________
_______________________________________________________
4) What is the possible effect of a wrong decision on the choice of business ownership form?
_____________________________________________________________________________
_______________________________________________________
MODULE SUMMARY
This module has presented you in the introductory chapter the small business and its nature which are
very useful in your understanding as to how small business operates. The module has given you the
needed inputs for better analysis on the types of small business and has prepared you into understanding
on how to manage properly small business enterprises.
REFERENCES
Inyang, E. B. (2015). Agricultural Business Management. School of Science and Technology. National
Open Univerity of Nigeria.
Kumari, R. V. and Reddy G. R. (2015). Agribusiness Management. Department of Agricultural

Economics. College of Agriculture, Bapatla.
Manigo, B. and Manigo, J. (2020). Introduction to Enterprise and Entrepreneurship. Poject WRITE XI:
An Easy Guide for Course Pack Making and Module Development.
Medina, R. (2015). Entrepreneurship and Small Business Management. (3rd ed.). Manila: Rex
Bookstore.

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Republic of the Philippines

DAVAO DEL SUR STATECOLLEGE

Course Pack writer:

MICHELLE A. ALCEBAR, MBA

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

MODULE 1: SMEs in the Philippines

Lesson 1: The Nature of Small Business

At the end of the lesson, the students are expected to:

1. Examine the nature, types and characteristics of small business; and

Time Frame: 2nd – 3rd week

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Activity: Brain writing

Analysis: Class Sharing

1. Do you have a word or words in common with your classmates?

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

“Great things start from Small beginnings”

Category Total Asset Total Number of Employees

Figure 1: MSMEs categories

Some of its contributions in the country’s development are as follows:

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

ECONOMIC IMPORTANCE OF SMALL BUSINESS

ECONOMIC OPPORTUNITIES FOR ENTREPRENEURS

PRODUCTS AND SERVICES TO CONSUMERS

FUNDS TO THE GOVERNMENT IN THE FORM OF TAXES

EMPLOYMENT TO THE LABOR FORCE

ECONOMIC OPPORTUNITIES FOR ENTREPRENEURS

ADVANTAGES OF OPERATING A SMALL BUSINESS

➢ Opportunity to gain control over his own destiny

DISADVANTAGES OF OPERATING A SMALL BUSINESS

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Small businesses operate differently as it has the following characteristics:

TYPES OF SMALL BUSINESS

There are five (5) types of small business as follows:

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

The Nature of Small Business – Case Analysis Story (SMEs problems)

Case 1: Angel Ball Construction Supply

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

MODULE 1: SMEs in the Philippines

Lesson 2: Forms of Small Business Ownership

At the end of the lesson, the students will be able to:

1. Explore the advantages and disadvantages of each form of small business

2. Differentiate the three forms of small business ownership.

Time Frame: 4th week

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Forms of Small Business Ownership– Case Analysis Story (SMEs problems)

Case 2: ROSE RESTAURANT: WHAT NOW MY LOVE?

On any given day, Rose restaurant is full of customers. It is not surprising

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Forms of Small Business Ownership – Case Analysis Story (SMEs problems)

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

Kindly answer the following:

1) Discuss some important contributions of small business in the Philippine economy.

Kumari, R. V. and Reddy G. R. (2015). Agribusiness Management. Department of Agricultural

Tel. Nos. (082) 553-8894 / (+639) 939924-0793 | http://www.facebook.com/dssc-official

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