MODULE 6

MANAGEMENT PLAN
Content Standard:

The learner demonstrates understanding of key concepts, underlying principles,

and processes of developing a business plan.

Performance Standard:

The learner independently or with his/her classmates presents an acceptable

business plan.

Essential Learning:

The Management plan section of a business plan describes how the business
will be structured. Before you start, select the type of business structure that is best
for your business. The choice of the form of business is important and can make a
difference with regards to the cost of a start-up and the amount of legal fees for
registering the business, simplicity or complexity of starting and administering the
business, financial risks for the owner of the business, possibility of having business
partners, way decisions are made in the company and taxation of business profits. It
also identifies the human resources and skills that the business will need to meet the
demands of customers.

Learning Objectives:

At the end of this module, I can:

1. Discuss the different forms of business organization;

2. Project the cost of human resources and skills needed for the business;
3. Prepare a management plan of the proposed product/service.
Topics
• Forms of Business Organization
• Major Characteristics of the Legal Forms of Business Organizations
• Staff Requirement and Cost
• Organizational Chart

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Forms of Business Organization

There are many ways by which a business may be set up and run in the Philippines. This
module is designed to present the most common forms business organizations. These are: 1)
Sole Proprietorship; 2) Partnership; 3) Corporation; and 4) Cooperative.

Sole Proprietorship

A sole proprietorship is a one-person business that is perhaps the easiest and simplest
business enterprise to organize in the Philippines. Legally, a sole proprietorship is inseparable
from its owner as one and the same. The law recognizes the business entity and the owner.
The owner must report all business income and losses as the entrepreneur files and pays
taxes.
The owner is personally liable for any business-related obligations, such as debts to
pay and court settlements. A creditor with a claim against a sole proprietor has a right
against all of his or her assets, whether these assets are business or personal. This is known as
unlimited liability on the part of the owner.
This type of business comes under provincial jurisdiction and must be duly registered
with the provincial trade office. Renewal of registration for these entities is done more
frequently than the other types of business organizations. Leniency is given in setting up these
business enterprises due to the general economic thrust of encouraging small and micro-
entrepreneurs to venture into business. Sole proprietorships generally register with the DTI.
Although the easiest and simplest to organize, it is also the form of business
organizations that has the highest mortality rate in terms of survival.

The table below presents a summary of a Sole Proprietorship’s advantages and

disadvantages.
SOLE PROPRIETORSHIP

Advantages Disadvantages

Relatively low start-up costs Unlimited liability

Lack of continuity in business

Greatest freedom from government regulation organization in the absence of the
owner

Owner is in direct control of decisions in the

Highest mortality rate
enterprise making

Minimal working capital

Difficulty raising capital
required

Relative difficulty to compete with

Tax advantages to owner
bigger business

All profits go to the owner All losses borne by the owner

Partnership

A partnership is simply a business owned by two or more people who haven’t filed
papers to become a corporation. No paperwork needs to be filed to consummate a
partnership - the arrangement begins as soon as one starts a business with another person. As
in a sole proprietorship, the partnership’s owners pay taxes on their shares of the business
income on their personal tax returns and they are each personally liable for the entire
amount of any business debts and claims.

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 In order to establish the terms of the business and to protect partners/shareholders in
the event of disagreement or dissolution of the business, a partnership/shareholder’s
agreement should be drawn up with the assistance of a lawyer. Partners share in the profits
according to the terms of their agreement. These agreements are contained in what is
called “The Articles of Partnership” that is submitted to the SEC, prior to formal registration
and recognition of the business.
The beauty of putting up a partnership is that it can accumulate greater investments
than those of a sole proprietorship. These investments may vary from cash to real estate,
equipment and even industry. Partners may also contribute not only investments, but areas
of expertise. There are two general types of partnerships, limited and general.

Limited Partnerships

Limited partnerships are costly and complicated to set up and run and are
not recommended for the average small business owner. One person usually creates
limited partnerships — the general partner and solicit investments from others — the
limited partners.
The general partner, in the absence of a formal agreement, acts as the
general manager of the business and controls the limited partnerships day-to-day
operations. He is also personally liable for business debts. Limited partners are termed
as such because their liability to the creditors in cases of debts is limited to their
investment in the business. Industrial partners, on the other hand, contribute nothing
but industry to the formed partnership, and are treated like employees of the business
(which means they are not liable to creditors) but also generally do not share in the
profit sharing of the company.
Limited partners have minimal control over daily business decisions or
operations and, in return, are not personally liable for business debts or claims. It is
usually a requirement that the business name of the firm having limited partners be
extended to include the characters “Ltd.” To properly inform people, including
creditors, that there are limited partners. It is suggested that those who are interested
in creating this type of business should consult an expert in partnership. Consulting a
practicing lawyer should be enough.

General Partnerships

On the other hand, general partnerships are those wherein all partners
contribute resources to the business arid are usually jointly and solidarity liable for the
obligations of the business enterprise. All partners are also usually considered as
agents of the partnership, which means that normally, anybody among them can
transact for and in behalf of the partnership. The action of one partner automatically
binds all other partners in a transaction.
In the absence of a formal agreement, profit arid losses are proportionally
shared among all partners based on their percentage of contribution to the
partnership. Normally, the partner with the greatest investment becomes the
managing partner, responsible for the day-to-day operations of the business,

A partnership, although already consummated upon agreement of all partners, may

also be dissolved automatically upon withdrawal or death of any of the partners.

The table below presents the summary of the partnership’s advantages and
disadvantages.

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 Advantages Disadvantages

Ease of formation compared to Corporations Unlimited liability

Lack of continuity in case a partner

Relatively low start-up costs
withdraws or dies

Additional sources of investment capital Divided authority among partners

Difficulty raising additional capital due to

Possible tax advantage
needed consent of all partners

Limited regulation Hard-to-find suitable partners

Possible development of conflict

Broader management base
between partners

Usually better managed than sole Action of one partner is understood to be

proprietorships the action of all

Corporations

A corporation, unlike a sole proprietorship and partnership, acquires a juridical

personality upon formal registration and recognition with the SEC. This means that a
corporation is treated as a person, separate and distinct from its owners. Owners are
generally called incorporators and stockholders. As a person created by law, a corporation
also acquires rights like that of a natural person. It acquires a name, has its own life (50 years,
renewable), can acquire assets, can sue and be sued in its own name, to specify a few.
A corporation files and pays its taxes separate from its owners. Stricter regulations
govern the operations of corporations due to the fact that it has a separate personality from
its owners. A key characteristic of corporations is that of limited liability. This means that in
case of settling obligations to creditors, the corporation is only liable up to its own assets
(assets it has acquired with its own name, and not the personal assets of the owners).
Decision making is based on the shares of stockholders. Voting power depends on
the percentage share of a stockholder. This means that the more shares one has, the more
votes he can cast. To be member of the Board of Directors of the corporation, a person
should at least have ownership over one share of stock.
Corporations may be classified as non-profit corporations, profit corporations, private
and government- owned-and controlled (GOCCs), among other classifications.

Advantages Disadvantages

Closely regulated and monitored by the

Limited liability
Securities and Exchange Commission

Specialized management due Most expensive form of business organization

to presence of corporate officers to organize

Ownership is transferable
Corporate Charter restrictions
due to shares of stocks

Continuous existence of the business even

Extensive record keeping necessary
after withdrawal or death of an owner

Separate legal entity from Double taxation of dividends (corporation

owners and stockholders)

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Possible tax advantages and other incentives Possible development of conflict
(e.g. economic zones) between shareholders and executives

Limited range of business, dependent On

Easier to raise capital
Corporate Charter

The table below is a summary of the corporation’s advantages and disadvantages:

Cooperatives

Some people dream of forming a business organization that advocates equality of

rights and privileges among all owners. This entity, according to them, should be owned and
operated democratically by its members. These grassroots business organizers often refer to
their businesses as a “group,’ “collective” or “co-op; thus, the term cooperative.
A cooperative is, in effect, a corporation organized and controlled by its members,
who pool resources together to provide themselves and their patrons with goods, services, or
other benefits. A cooperative business structure provides democratic control based on the
“one member - one vote” policy, open and voluntary membership and patronage
dividends.
Already a popular form of business organization in the Philippines, many cooperatives
are constantly providing cheaper goods and services to their members, and effectively
competing against mega-retailers in the economy. Although not primarily designed for profit
purposes, cooperatives are starting to be run in a professional manner.
Cooperatives, registered under the supervision of the CDA, may be classified
according to their primary purpose and service to its members. It may be a marketing coop,
credit coop, consumer coop, agricultural coop, multi-purpose coop, etc.
Following is a summary of the Cooperative’s advantages and disadvantages:

Advantages Disadvantages

Owned and controlled by members Possible development of conflict between

members

Democratic control (i.e., one member, one • Numerous members tend to diminish
vote) • One’s share in total dividends

Limited liability Longer decision-making process than corporations

due
to more votes to count

Profit distribution (surplus earnings) to Requires members to participate for success

members in the form of dividends

Dividends are in proportion to a member’s Extensive record keeping necessary

use of cooperative services

Highly encouraged by government due to Less incentives for members to invest additional
the benefits received by a greater number capital
of people

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Major Characteristics of the Legal Forms of Business Organizations

Let us look at the various characteristics of business organizations to help you

determine what will be best for your own business enterprise. Given below is a table that may
help you characterize each type of business organization.

MAIN
NO. OF PEOPLE VARIETY OF
TYPE OF BUSINESS GOVERNMENT
REQUIRED TO BE BUSINESSES THAT MAY
ORGANIZATION AGENCY
REGISTERED BE ENGAGED IN
INVOLVED
Broad, any legal
Sole Proprietorship One DTI
business
Broad, any legal
Partnership More than 1 SEC business as long as
partners allow
Limited to what
Corporations At least 5 SEC Articles of
Incorporation State
Primary limited to what
Cooperatives At least 15 CDA articles of
incorporation state

Legal Forms and Characteristics of Business Organizations

TYPE OF DISTINCTION
PROFIT AND
BUSINESS CONTROL OF OWNERS’ LIFESPAN
LOSS (P/L) IMPLICATIONSS
ORGANIZATION OWNERSHIP OF THE AND OF THE
DISTRIBUTION OR REMARKS
BUSINESS BUSINESS BUSINESS
ASSETS
Sole • Easiest to
Proprietorship organize
• Broad
business
transactions
Business • Most
Full All Profit and “dies” with
No numerous
One person control of losses go to the owner
distinction • Smallest in
the owner the owner or if not
renewed size
• High mortality
rate
• Tendency for
unprofessional
management
Partnership • Relatively easy
to organize
Business • Generates
P/L distribution
dependent more
is dependent
Limited on the
Two or more No on P/L investments
control of willingness
person distinction agreement in (cash,
partners and/or life
Articles of property, etc)
of the
Partnership
partners • Easily
dissolved
• Usually better

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 management
than sole
proprietorship
Corporation • Harder to
50 years
by law organize
Profits • Requires legal
Generally, subject to
At least five Control distributed in procedures
assets or renewal;
incorporators and voting proportion to
corp is ownership • Tends to have
; indefinite power ownership of
separated is bigger
number of dependent shares of
and distinct transferabl investment
owner/s on shares stocks, subject
stockholders of stocks
from those of
t0 several
e via • Relatively
the owner trading of more stable
considerations
shares of • Limited profit
stocks
sharing
Cooperative • Easier to
organize than
corporation
50 years • Greater
by law benefits to
Generally, Dividends are
Democrati subject to member-owner
assets or given
At least 15 c control; renewal;
coop is dependent on but limited
indefinite one life is
separate and various profit sharing
number of member distinct
distinct from considerations • Easily grows in
members one vote and
those of the (e.g. usage of assets and
policy separate
owner share capital) membership
from
members • Trends
towards
professional
management

CITY GARBAGE COLLECTORS

John and Mary realized that relatively high costs will

be incurred in obtaining different licenses from different
regulatory bodies. In order to keep individual costs low and
yet manage the business effectively, they decide to enter
into a partnership agreement. Consequently, they register it
with the office of Register of Deeds.

Their partnership agreement includes:

Line of business: Manufacturing organic manure

Division of profits: The profit will be divided equally between John and Mary.

Duties of partners: John will be responsible for the overall management of the
business and Mary will be responsible for managing the
factory.

When they have agreed to start their business as a partnership, they fill in the “Legal
Form of Business” section of their Business Plan.

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TOSAMA CLOTH BAGS

Jane has been thinking about the legal form of business

she should choose for her shop. Jane knows that the risk is
higher if she runs her business as a sole proprietor, but the
simplicity of starting as a sole proprietor appeals to her. It is also
cheaper than registering as a limited company. Jane decides
to run her business as the sole proprietor. She writes it down in
her Business Plan.

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 Activity 1. Description of Business Organization. When you have
made your decision, describe which type of business
organization best suites your business.

Short Description of your business

The business will operate as:

The reason for choosing this form of business is:

The owners will be:

Description of skills:

Relevant Experience:

SUMMARY

• There are several forms that you can select for your business. The form or type of corporate
structure is important and can make a difference in:

- The cost of starting and registering the business

- The simplicity or complexity of starting and administering the business - The financial
risk for the owner of the business

- The possibility of having partners

- The way decisions are made in the business

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 - The taxation of business profits

• A sole proprietorship is an easy and cheap form of business to start. But it is also the most
risky, because you as the owner are personally responsible for all the debts of the business.

• A partnership can be an advantage if the business needs skills or experience which you do
not possess. Partners can also help by contributing capital to start the business. All partners
share the responsibility for the debts of the business, so your own risk is reduced.

• A Corporation is a business entity that is owned by its shareholder(s), who elect a board of
directors to oversee the organization’s activities. The corporation is liable for the actions
and finances of the business – the shareholders are not. Corporations can be for-profit, as
businesses are, or not-for-profit, as charitable organizations typically are.

• A cooperative is formed by several people who decide to work together for a common
purpose. The common purpose can be either economic gain or to provide certain services
for the members of the cooperative.

• The biggest advantage of a limited company is that there is less risk for each shareholder.
As a shareholder you only risk losing the money you put into the business when purchasing
shares. But a limited company is quite complicated and expensive to form.

Assessment 1. After each statement given below, check ( √ ) the

appropriate box to indicate the type of business organization being referred
to.

Choices:

A. Sole Proprietorship B. Partnership

C. Corporation D. Cooperatives

STATEMENT A B C D
1. Closely regulated and monitored by Securities and Exchange
Commission
2. At least 15 indefinites number of members
3. Possible development of conflict between partners
4. Democratic control; one member one vote policy
5. Most expensive form of business organization to organize
6. Difficulty raising capital
7. Monitored by Department of Trade and Industry
8. Owned and controlled by owners
9. Tax advantages to owner
10. Profit distribution to members in the form of dividends
11. Greatest freedom from government regulation
12. Profit distributed in proportion to ownership of shares of stocks,
subject to several considerations
13. Ownership is transferrable due to shares of stocks
14. Business ‘dies’ with the owner or if not renewed

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 15. Relatively low start-up cost
Staff

When starting your new business, you may need to hire employees. If you employ
staff, you will need skills to manage them. You should also adhere to the laws and
regulations which apply to the labor market.

What staff do you need?

Your business idea will help you to decide what skills your staff need.

Follow these steps to determine what staff you will need in your business:

1. List the tasks that will have to be performed; group similar tasks together

2. Decide which tasks you will not have the time or the skill to perform yourself

3. Determine what skills, experience and other requirements you need in the staff you hire to
do these tasks

4. Decide how many employees are needed to perform each task - this will largely depend
on the volume of business you anticipate, and the time required for performing each task

5. Prepare job specifications for each position, where you describe the job title, tasks,
responsibilities qualifications and skills needed to perform the tasks

6. Develop staff policies, such as working hours, holidays, annual and sick leaves, etc.

When you are ready to start your business, you will then need to select the right people
by identifying possible candidates or by advertising the opening. Be careful to consider other
soft skills, such as attitude and commitment. Interview qualified applicants and choose the
best person.

All employees need to have a written contract that complies with the labor law and
with government regulations. In addition, your employees will need an induction programme
that makes them feel comfortable in their new working environment and describes how they
are to perform their jobs.

Staff Costs

Consider the costs associated with the staff that you have decided to hire. Your staff
costs will include their monthly salaries, as well as payments for statutory contributions such as
insurance, health services and allowances.

As the owner of the business, you should also determine the salary and other benefits
that you will receive. This amount should not be too low so that the capital of the business is
not eroded by personal or household needs of the owner. It should also not be very high
because the more profit is consumed by the owner, the less a new business can grow.

You may consider employing temporary staff to meet unexpected work demands.
You pay temporary staff an hourly wage, but they receive no other benefits like paid holiday
entitlement or sick leave payments. When you hire temporary staff, you must know in
advance when you need them and for how many hours.

This is how John and Mary decided on their staff requirements and the related costs:

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CITY GARBABE RECYCLERS

At City Garbage Recyclers, John will be responsible

for the overall management of the business and the
administrative work, while Mary will be the factory
supervisor, responsible for all the production and the
sourcing of raw materials. They plan to use part-time labour
and only employ a few full-time staff. Mary will need an
Assistant Factory Supervisor. John will need a Marketing
Officer, two Sales Assistants and a driver to manage
deliveries. They need an accountant to do the record
keeping but Mary will do it at least for the first six months.

For the full-time employees ten percentage of the monthly salary must be contributed
to the pension fund and health insurance scheme.

STAFF REQUIREMENTS AND COSTS

REQUIRED SKILLS AND MONTHYL PAY
TASK PERFORMED BY
EXPERIENCE (P 320 x no. of days)
Factory Manager Degree in commerce John 13,000
(P 500 x 26 days)
Factory Supervisor Degree in Mary 13,000
Commerce (P 500 x 26 days)
Assistant Factory Diploma in veterinary Michael 8.320
Supervisor science from a (P 320 x 26 days)
recognized institution
with three years’
experience

Marketing Officer Advanced diploma Joan 8.320

in sales and (P 320 x 26 days)
marketing
Driver /general Driver’s license Alex 4,800
handyman (P 320 x 15 days)
Part-time laborer’s Certificate in organic Part-Time 2,000
farming (P 100 x 5 hours x 4 days)

Sales Assistant At least one year of Mark and 8.320

experience selling Mario (P 320 x 12 days)
compost manure to
farmers

Total number of permanent staff 4

Total staff cost per month 57,760

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**Rate per day must be based on the required Daily Minimum Wage Rates (DMWR)

https://nwpc.dole.gov.ph/regionandwages/region-xiii-caraga/

TOSAMA CLOTH BAGS

Jane plans to start small. She will perform all the management
duties herself.

She plans to start with only one shop assistant. If this is not
enough, she will employ another assistant later when the
business can afford it. Jane fills in the “Staff” section in her Business Plan.

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 STAFF REQUIREMENTS AND COSTS
REQUIRED SKILLS AND MONTHYL PAY
TASK PERFORMED BY
EXPERIENCE (P 320 x no. of days)
Purchasing, stock Business Jane 13,000
control, management and (P 500 x 26 days)
administration and sales
sales
Sales and customer Sales experience with One full- time 10,400
service in the store some knowledge of employee (P 400 x 26 days)
green products
Total number of permanent staff 2
Total staff cost per month 23,400

Activity 2. Staff and Requirements Costs. Make a Staff

requirements and costs for your proposed products.

STAFF REQUIREMENTS AND COSTS

REQUIRED SKILLS AND MONTHYL PAY
TASK PERFORMED BY
EXPERIENCE (P 320 x no. of days)

Total number of permanent staff

Total staff cost per month

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Preparing your Organizational Chart

The organization chart is a diagram showing the structure of the business. It is drawn
using boxes for the job titles or functions and vertical lines to demonstrate the reporting
relationships of supervisors and their reporting staff.

Your organizational chart must match your staff requirements and costs.

CITY GARBABE RECYCLERS: Organizational Chart

Business Owner

Factory Manager

Factory Supervisor

Assistant Factory Supervisor Marketing Manager

For Operations

Sales Assistant
Driver Laborers

TOSOMA CLOTH BAGS

Business Owner

Purchasing, stock control, Sales and customer service

administration and sales in the store

Activity 3. Organizational Chart. You can now draw your own

organizational chart.

NAME OF BUSINESS: _________________________________________________________

ORGANIZATIONAL CHART

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 SUMMARY

Before you hire staff, you need to decide what skills are necessary. Based on that decision,
decide what type of people you are looking for.

• You should follow the laws and regulations which apply to the labor market in your region.

• You may employ temporary staff, but you should know in advance when you will need
them and for how many hours.

Organizational chart will help you to show the structure of your business.

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