and preparatory task of establishing documentary requirements to operate the business as a legal

entity. The entrepreneur has to Complying the legal requirements as not doing so means an illegitimate
business
Operation. lo be in the business, therefore, means necessarily doing t legally and the following tasks
have to be undertaken:

a)Registration of the business name with the Department of Trade and Industry, in the case of single or
sole proprietorship
b) Registration of the Articles of Incorporation and By-laws
Witn the Securities and Exchange Commission, in the case or partnerships or corporationss
c)Application of necessary permit at the level of specific location
(e.g., village, subdivision, or barangay)
d) Filing/application of Municipal or City permits where the base of operation of the business (e.g.,
Mayor's permit, Sanitary permit, building permit as necessary)

e)Compliance with certain specific permits or clearances may have to be applied for with some specific
agencies of the government before local government agencies can allow the full swing
operationalization of the business (e.g., environmental clearance certificate)

f)Registration with the Bureau of Internal Revenue (BIR) for the tax identification number (TIN) and
other requirements under internal revenue laws and rules.

g)Printing of receipts/invoices of the company (after having

applied for a permit to print receipts with the BIR)

h)Registration of the business organization with the Social

Security System (SSS), Philippine Health Care Corporation,
Home Mutual Development Fund, Inc. (Pag-IBIG Fund), and other government agencies.

The major government institutions which a business organization will be dealing with in the course of
business operations and doing the business itself are shown on Table 7.

should be noted that the above procedures or dealing Wiun te above-nmentioned government
institutions as shown on a small part of dealing with the government bureaucracy, which the
entrepreneur
has to live with. Several other government institutions may nave to be consulted in the process of
registration of the business and lawyers assistance may be necessary. Sometimes, dealing w government
offices or personnels could be a painstaking and frustraung experience, but which, again, the
entrepreneur has to abide with wants to do business legally and be a good corporate citizen.

CHOICE OF BUSINESS NAME

Business name refers to the registered business identity (or name the business organization. The
business name may or may not reflect the nature of the business itself. As a matter of practice, the
business narn is usually represented by an acronym representing a shortcut version of a long business
name, and this is done for retail advantage.

There are no specific regulatory or governmental policies that need to be observed or considered in the
choice of business name. However, government organizations like the Department of Trade and
Industry (DTI) and Securities and Exchange Commission (SEC) have tne prerogative in approving or
rejecting a business name registration. ne only clear policy insinuated by government organizations
concerned wit business name registration is that the proposed business name shoula not be similar with
an already existing or registered business name, or the proposed business name is not obviously
misleading or seeming to have legal complications with registered business names. Prospective
entrepreneur must be extra careful in choice of business names; they should not invite trouble or
collision with multinational organizations who are very much particular or concerned with their business
names to the point of legalizing protection on a certain name, like trademark and copyright protections.

For a single proprietorship type of business organization, this can be verified either with the DTI or SEC.
Prospective entrepreneurs have to file verification and reservation slips for the business name or the
Corporate name of the business organization that will be registered. In the case of a partnership or
corporation, choosing a name could be a beginning of debates or conflicts as incorporator or investor
has his or her own preference and this can be resolved among themselves before a final choice can be
made and verified or reserved with the records division of SEC. A corporate name that is considered on
reserved status with the SEC has 30 days to file the registration papers after which, the reservation
lapses and the corporate name can be issued or reserved by the SEC records office for someone else.

MONEY SAVING OPTIONS AT START-UP

Starting on a shoestring budget is common to every entrepreneur venturing into a new business, Hence,
it is a must that all options to save money must be explored to the fullest.

a)Organize or register a small business group at minimum capital requirement required by law. This
means that, for the purpose of organizing and registering with government entities, simply organize a
small organization (e.g., single proprietorship remits
Corporation) and this saves you of registration fees, permit
and assessments by national and local government agencies.
This is important because dues, fees, and assessments registration are usually tied to the level of
capitalization of t business. It is also much quicker to organize and operational a small business
organization than with an organization Mi too many parties involved.

b)Initially, use your home as an office or explore sharing office or shop space with another company.
This option it result to substantial savings on overhead expenses. There a existing companies which
rents mail boxes and pseudo addre complete with global kid amenities like telephone, fax, e-mail and
office cubicles or conference room, which are available on an as needed basis". These rental companies
also allows answering and some secretarial services function which you may not need really at all daily
at the start-up period.

c) Do some works like light carpentry, electrical, delivery jobs

or any forms of tasks within your capability to do or deliver.
d) Purchase used office equipment and machinery, but be wise and take extra precautions in doing so.
Preferably, buy it from friends, or auction houses or surplus shops, and parties who can provide help and
assistance on start-up operations.
d)
e) Use part-time specialists or skilled workers. Specialists and skilled workers may not be necessary on a
full-time or daily basis; hence, it should be worth dealing with them on a part time or on-call basis.
These guys can be paid on moonlight rates and without mandatory budget requirements as required by
law.
f)
Rather than hiring full-time and salaried personnel’s, begin sales efforts by hiring representatives or
agents. This can spare the entrepreneur of a fixed or regular salary and other overhead budget which
start-up stage cannot yet fully afford.
g) Explore the concept of subcontracting. This means having your product manufactured or produced
wholly or in part outside your company. This will save you the rental cost, machinery items, or other
related costs to having a workplace or plan of your own.
h) If possible, make sure of family labor and other resource within your households. Given proper
motivation, they are just as efficient and effective as employees you have paid for and they are in a
position to sacrifice and work hard for start-up organizations, unlike paid labor that are simply more
concerned with their salaries as workers.

i)Make use of free public relations instead of paid advertising ena out news releases to your trade
associations and government organizations, and arrange to be interviewed about your product,
company, and prospects.

j)Push yur customers hard for prompt payment. After selling your products or services on credit basis,
convince them thdu it is better and divine to pay you on time.

k)Make full use of technology where necessity for application demands. For instance, full knowledge on
personal computer hooked to an Internet system can save you cost on accounting and marketing.

THE INSTANT OFFICE

Early teachings in doing business looks at structured center approach, where entrepreneurs have to be
concerned first about where to establish an office and buying those necessary provisions including
support staff normally needed in doing business. Quite often, business or entrepreneurs commence with
having an office or workplace and other amenities (e.g., furniture, typewriter, phone lines, fax machine,
trash cans) which means spending for overhead items. This situation can be avoided by letting someone
else do it, or by simply renting office address and spaces like those offered by "FAX AND PARCEL",
"MAILBOX", and "REGUS BUSINESS CENTER." At REGUS BUSINESS CENTER, for instance, their instant
offices attracts not only local entrepreneurs, but also foreign investors as well. REGUS provides instant
office fully-equipped and staffed office tailor made to suit specifjc needs of clients. The range of services
provided by REGUS and their kind of service providers eliminates the hassles of paper work and other
organizational headaches with its sign up today, move in tomorrow feature.”
EXTERNAL SOURCES OF CAPITAL
1. Pawnshops. You can get quick cash by pawning your jewelry and other valuables.
2.Credit cooperatives. These are popular and easy source of credits especially in the rural areas. Usually,
it lends an amount up to three or five times bigger than the money a member has deposited in the
cooperative. Interest charges are often minimal.

3.Money lenders. These are people who lend quick money without collateral, but charge exorbitant
interest rates. They are otherwise known as "five-six" operators, because they usually charge about one
peso interest per month for every five pesos they lend.

4.Lending investors. These are business enterprises engaged in money-lending operations. Considered a
cross between money-lenders and banks, lending investors extend short-term loans quickly to
individuals and businesses with or without collateral. Interest rates are higher than bank rates, but lower
than those charged by money-lenders usually ranging from three to five percent a month.

5.Formal sources of credit. These include banks, financial institutions, as well as certain government
development agencies and development-oriented, non-government organizations. They are called
formal sources of credit because they have the legal authority or mandate to lend money to individuals
and businesses.

There are various types of credit available from formal lending

institutions:

Short-term loans
-payable in one year or less.
-these are normally self-liquidating, meaning, that these loans are used to buy raw materials and
supplies, labor and other requirements that will generate funds for the business and in turn, be used

-It may come in the form of a revolving credit line - an agreement

by the bank to extend a loan, not to exceed a specinc amount, whenever needed by the client. It is
automatically renewable as each loan transaction is paid by the borrower.

-commercial banks are those most commonly used sources or short-term loans.

Intermediate loans

Intermediate loans or term loans provide capital repayable in one to three years.

these are available from banks and other financing institutions.

a term loan is backed by collateral securities and is paid back in installments over the life of the loan
agreement.

Long-term loans
these are loans extended to enterprises assured to exist over the long-term period of the loans up to ten
years.

these are usually extended by private and government banks.

Some lending schemes for small entrepreneurs also provide long-term loans, including:

Development Bank of the Philippines' Omnibus Financing

Program for Entrepreneurs
Development Bank of the Philippines' Industrial Guarantee and Loan Fund
Land Bank of the Philippines' Easy Pondong Pang-asenso
Land Bank of the Philippines' Easy Term loan for Exporters
Philippine National Bank's Overseas Contract Workers
Livelihood Loan Programn
Philippine National Bank's Pangkabuhayan Loan Program
Small Business Guarantee and Finance Corporation's
Small Enterprise Financing Facility
Technology and Livelihood Resource Center's Agro
Industrial Technology Transfer Program
Technology and Livelihood Resource Center's Export
Industry Modernization Program
Technology and Livelihood Resource Center's Technoloqv
Utilization Financing Program

CHAPTER 10

Having organized or started in business, you are now ready to produce the goods or provide the service
for which you have gone into
Business. However, before you start the actual production, it Will bbest
Tor you to have a clear idea of who the buyers for your product or service
Will be. Ask yourself: "Who will buy my products and services? In other
Words, Who is the market for my products and services?"

This topic is about the most important function of business, which

is the production. We can say that production is the process of creating or bringing into being the
products and services, which the firm delivers and sells to its market. The efficient utilization of inputs
(raw materials, components, labor, capital, energy, or power) to produce output (goods and services) at
the least cost is the work of the production management.
Production management sees to it that resources are effectively utilized to create the product in the
right quantity, of the desired quality, and at the right price.

The creation of goods and services appears to favor big businesses.

and management specialists to produce goods and services at a lower average cost. Examples or these
are the multi-national corporations.
They have adequate funds, machines, materials, modern technology,
which dominate the global markets.
However, there are some market situations where a small or even micro business has the comparative
advantage in the production of goods and services. For instance, in the field of cottage industries, like
toy- making, basket-weaving, or in personalized services, the big businesses are at a disadvantage.

In transforming resources into products, the principal actor is the entrepreneur He decides the proper
combination of resources as the application of more labor and fewer machines, or the reverse also
decides what to produce, how to produce, when to produce, and where to produce, Obviously, the
ultimate consideration in such management decisions is profit, And this is only attainable if buyers are
satisfied with the goods and services for sale.

Producing a product or service which is new in the market comes rom an idea, Then, the idea is planned
and developed into a product or service. For true entrepreneurs, this is not difficult because they are
creative and innovative. In the case of giant business enterprises, they have R and D (Research and
Development) departments. Their job is to create new products or innovate existing products.

Doing actual production or manufacturing operations as or the business venture is by itself an inherent
bias of every business, it only to
Control the entire process and in the end rake all the profits he deserves,
In some cases, doing the actual production, creation, or manufacturing or a product may even be the
main bias of the entrepreneur's business, giving less attention to critical business functions like
marketing and research. This option is a bit expensive route for the entrepreneur simply because of the
needed budget or funds for the procurement of capital items and other infrastructure needed for a
production or manufacturing- based business concern.

If at all, the idea of having production or manufacturing Is a necessity that is inherent to achieving
substantial profits for the business, then, this is a matter for the entrepreneur to seriously look into.
Each production process demands detailed study, from technical, economic, and financial aspects as
well. Seeing the business plan, specific study, and analysis of every minor detail of the production
processes have to be carefully made, as this is where cost minimization aspects can be addressed. By
using the appropriate production technology, the entrepreneur should be able to hire appropriate
personnel that are well-qualified and motivated to operate the machines and deliver the right quality of
product.

What is Production?
Production may be defined as the processing and/or assembling of raw materials by workers using
machinery and equipment to produce a product or provide service.

Production is the creation of goods and services. Or, it is the creation of utility. Utility means satisfaction.
Goods and services are produced to satisfy human wants or needs.

It requires a set of inputs to yield a set of outputs.

These inputs may include materials, manpower, machinery, methods, management, money, and
moment (or time).
The raw material inputs are converted into finished products ready for market, through successive
stages of operation, assembly, finishing, and inspection. The operations may be machining, cutting,
plating, boiling, gluing, chemical reactions, weaving, and sewing.

Operation represents the main step in a process, method, or procedure where the raw material is
changed into something else. For example, when yarn is processed, either through
Weaving or knitting, it becomes a piece of fabric or cloth.
Sn fruit, when squeezed or pressed, is transformed into
fruit juice.

Assembly is putting parts together to forma final product.

A radio set is formed by putting together coils, resistors, transistors, and other parts. Not all production,
however, has an assembly stage. There is no assembly when the product is
Simple such as steel bars, flour, or cotton yarn.

Finishing may mean painting, varnishing, polishing, trimming, eaning, and glazing, among others. A piece
of furniture is inished by spray-painting it, for example. Marble products, on the other hand, are said to
be finished when they are sanded or polished.

Inspection makes sure that the operation has been carried

Out correctly as to quality and quantity. Inspection, at its simplest, may be done through any of the five
senses- seeing, touching, hearing, smelling, tasting. It may, however, be a more sophisticated activity,
when using testers, gauges, and other measuring instruments.

In between the above-described sequence of operations -- assembly, finishing and inspection the raw
material or product may be stored temporarily or permanently and transported or moved from one
workplace to another

Factors of Production

In economics, the major factors of production are land, labor, capital, and entrepreneurial ability. The
following are their definitions:

Land includes natural resources such as forests, mountains, and bodies of water like rivers, lakes, and
seas.

Labor- refers to both physical and mental efforts like the works of farmers, fishermen, workers, clerks,
lawyers, teachers, and doctors, among others.

Capital pertains to machines, equipment, buildings, and other physical resources, which are used in the
production of goods and services.
This is an economic definition. In other concepts, capital refers to seed money which is utilized for
starting a business.

Entrepreneurial as ability-coordinates the other factors of production to such as land, labor and capital.
It is tge spirit of entreprise. without such
ability, the other productive resources tend to be inefficient.
The input-output relationship indicates that productive resources, Such as materials, money, machines,
and others have to undergo a processing stage before they are transformed into products like shoes,
appliances, and others. Such process of production is referred to
technology have the economic advantage in terms of costs, quality, and quantity. Naturally, such
enterprises are the winners in the market.

Costs of Production

Costs of production represent the payments for the factors of production. These affect the ability and
willingness of entrepreneurs to produce. When production costs are high, prices go up. This decreases
the purchasing power of the consumers. This results to lower quantity demand for goods and services.
In other words, there is a decrease in sales, which is not favorable to producers or sellers.

Producers must choose productive resources, which are abundant in supply, because these are much
cheaper than scarce resources. Cheaper inputs mean lower costs of production. In terms of profits,
lower costs of production favor the producers. In the rural areas, there are many raw materials that can
be used for the creation of products. Their use should be maximized, not only to produce goods, but
also to create jobs for the rural poor.

The cost of a product is made up of three parts: direct materials, direct labor, and manufacturing
overhead.

Direct materials are material inputs that become part of the product. Examples include: the cloth used
in making ladies' blouses, wo00d used to make wooden furniture, the leather used in making shoes, and
the meat used in the making of ham.

Direct labor includes the workers whose outputs are closely related to or associated with the making of
the product. Using the same example given above, the sewers for the garments industry, the carpenter
and the worker who paint the varnish on the furniture, the shoemaker, and the worker who cuts up the
meat to make the ham, are all considered direct labor.

Manufacturing overhead are all other costs incurred in making of the products but do not become part
of the product. Examples of this type of costs are:
the use of the buildings, machine, and equipment, and their maintenance and replacement;
power, fuel, lubricants, water, heating, and supplies used to keep the manufacturing resources running;

Making Production Efficiency Your Goal

As production manager, you should be concerned with the economical at improving productivity, which
is simply defined as the all aritn resources ration between the amount produced and the amount mous
with usea in production. In other words, productivity is synonyrour efficiency in utilizing inputs to
produce outputs.

in order to better illustrate the concept of productivity, consiaer materials and labor as input, in the
following manner:

Productivity of materials. We say that there is an increase of 1070 in utilization of materials if a skillful
tailor is able to cut 11 suits from a bale of cloth, from which an unskilled tailor can only Cut 10.
Productivity of labor. If a worker who has usually been producing 40 unitS of product per day was able
to raise his production output to 60 units because of improved work methods, then, the productivity of
the worker has increased by 50%.

Productivity of machines. A machine was observed to produce an average of 1,000 pieces ofa particular
component per hour. Adjustment of the speed of the machine increased its production volume to 1,300
pieces per hour. This means that there is an increase of 300 pieces over the volume previously
produced. We can therefore say that the productivity of the equipment has increased by 30% as result
of adjusting its speed.

As production manager, you have a number of management tools and techniques at your disposal,
Which you can apply to reduce cost of production and increase productivity.

Plan Your Work

If you do not plan and schedule your production properly, you will waste a lot of expensive production
time. without an adequate plan, you
wHat he able to anticipate any or all of the following potential problems
from occurring
running out of raw material stocks just when you need them
during production;

How to Develop and Improve Product Quality

You can achieve quality control by focusing your attention on ui
following areas:
your attention on the
1.
Control manufacturing information. You should see to It that your production workers are given
complete, easy-to0 understand, clear, and simple instructions on the process or production. You should
provide them with clear drawings or diagrams. Any changes in policies or procedures should be
Clearly communicated to them. You can do this through simple management directives.
2
Control purchases and storage of raw materials. You should obtain the correct materials of defined
quality from suppliers, and see to it that these are appropriately stored to prevent spoiling or
deterioration. Check and inspect raw materials deliverea to you by your supplier to verify whether these
conform to your quality requirements. It is best to maintain good relationship and communication with
suppliers.

3.Control manufacturing process. Prevent the fabrication of defective products by instituting inspection
points or simple routine checks on important processes or steps, through adequate planning, good
machine maintenance, and proper motivation of production employees.

4. Control finished products. Verify by means of adequate testS and criteria to check whether the
finished product meets the quality standard or not. Use information feedback from the final inspection
to maintain production process. Use simple sampling plans.
5. Control measuring instruments and test equipment.
Schedule periodic calibrations and adjustments or maintenance of test and process equipment for
adequate control.

6. Control corrective action. Use information from control areas one to five to ensure that deficiencies
affecting quality are promptly and systematically detected and corrected.

When you are in business you need to keep sufficient stocks of raw materials and processed goods and
finish goods in order to meet your productions and sell targets this is called inventory .

Marketing is an activity that the entrepreneur will be involved in for as long as the business exists
marketing is more than just advertising the fact that the entrepreneur is the business of producing or
providing something it involves everything the entrepreneur does to obtain and keep a customer from
conducting market research development customer profile and positioning organizational identity in the
market to selecting market marketing strategies and to determine location and how phones are to be
answered and customer complaints are to be handled.

The marketing concept is made-up of three components the first component is the customer needs and
wants. the entrepreneur develops the organization oriented marketing strategy to accomplish its goals.
the principal task of marketing function after all is not much to be skillful in making the customers do
what suits the interest of the business but to be skillful in conceiving and then making the business do
what suits the interest of the customers

The second component of the marketing concept is the organizational integration. whether an
entrepreneur own startup company of 3 staff He or she hurdles to integrate a customer focus as a
philosophy for all the people in the company.

the third component of marketing concept is the goal achievement. marketing is oriented towards sales
volume as a success measure but it is essential to strive not just for the sales but also for the effective
marketing that contributes to profitable sales.

the market research will help the entrepreneurs discover who wants to buy the product or service in
other words entrepreneurs will be guided as to particular market segment hence the entrepreneurs can
focus their efforts on doing something to address the particular market segment.

Where to get Information

Getting vital information is what market research is really all about.

Some of this information needs to be purposely researched and some already exists, but needs to be
organized and analyzed.

Information in whatever form abound town. Some of the most

Common sources of information on potential markets for new products and services can be generated
by way of the following:
Library research. The academic and library settings are valuable data providers, particularly those
institutions whose library facilities are updated and computerized. In the library, one can find the
conventional methods and reference materials

used in library research (i.e. abstracting services, specialized bibliographies, reader's guide to
periodicals, technical digest services, computer data-retrieval services through the CD-
ROM, and the Internet facility).

Questionnaire survey, A survey questionnaire is a basic tool in market research, whether it is conducted
by mail, telephone, or personal interview. The questionnaire survey is also a step ahead to marketing, as
doing this means reaching out a prospective customer directly, learning about his needs problems,
quantity requirements, and options regarding the proposed products or services.

Existing research report. If the business proposition refers to an existing product or services and is
deemed to be growing, and hence you are going into such field of business, there must exist information
or a subject in the recent years that could be of help to the entrepreneur. Due diligence research can be
of help in finding out this kind of data information.

Published market statistics. There are published market statistics for some product lines by trade
associations or private market research organizations, which entrepreneurs
Can simply buy or subscribe to. Some government institutions, like the Bureau of Agricultural Statistics,
also provide market information, which can be either obtained for free or ror a fee.

Trade association meetings and trade shows. In the long- term, it pays to be a member of trade
associations. The meetings and trade exhibits or expositions sponsored by this group can expose you to
various parties and suppliers who can provide
Vital information. You will find out who your liveliest competitors and customers are, who is the most in
spending money on promotion, and what their newest product looks like.

Experts. It should be of help to touch base with real technical experts and parties who knows about the
markets of the product or services. Much valuable information can be gained from taking to experts and
such parties like trade magazine editors, technical consultants, university researchers and
Scholars, analysts in investment firms, and trade assOciation staff members.

Phantom products. This is done by smart entrepreneurs in developed countries. It is one of the methods
that are often used to obtain market data done by issuing press statement or announcement of a non-
existent or prototype product, then, sit back and see who responds. This is sometimes done rather
elaborately, which heavily air-brushed photographs of mockup product, or with artists cutaways. A press
release may be distributed to major journals, sometimes even using an assumed company name. When
the direct mail results are analyzed and certain respondents are contacted, you may find this a rather
effective method of gathering information. Poorly handled, it may also backfire, and of course the
ethical aspects may be considered somewhat questionable by some.

Professional market surveyS. These are large and prestigious research organizations and Consulting
service companies who publish documents like market indicators, regional and provincial profiles,
investment guides, and other special series publications that can be of help to entrepreneurs and
prospective business investors
Execution strategies. The execution strategies will speil
Out the difference between a well-written business plan and a poorly done one. The execution
strategies spell out the concrete
Operational plan to put forward the products or servIces towards the customers' place ending up in a
buying process.
An example of execution strategies are operational statements
Ike giving off neighborhood discount coupons, summer season discount cards, Christmas season price
cutback, patronage discount stubs, and special offers for new customers.

Objective. The marketing objective must be specific as to what is there that needs to be accomplished.
The marketing plan should articulate clearly the purpose in terms of specific goals, targets, quantifiable
or quality results, and timetables.
An example of a specific and clear objective is increase market share to 30 % in 2 years.

Marketing mix. It defines the position of the business or the product in a market place. The marketing
mix should put across the message about corporate or product identity or niche to a target audience.
The marketing mix should work in concert with the product or service, price, place, promotion, and
position.

Channel of Distribution

Channel of distribution refers to the marketing institutions and interrelationships responsible for the
physical flow of goods and services from the producer or manufacturer to consumers or industrial users.
Middlemen or agents are involved in the movement of goods and services from the
producer/manufacturer, and the more discounts and incentives are needed, this means diminishing
factor to an entrepreneur's profit.
While it is possible for the entrepreneur or producer to go directly to the onsumers and end-users, such
could be impractical as this involves costs hd expertise where the entrepreneur may not possess.
The entrepreneur can use any of the following modalities whichever is appropriate for his business:

Direct marketing this refers to a system of marketing by which an organization communicates directly
with customers to generate a response and transactions.

Wholesalers this is where the producers are manufacturers generally dispose or sell their products who
in turn sells the same to the retailers or end users.

Agents if a wholesaler is necessary the entrepreneur must determine how to reach them the individual
entrepreneur may find it impossible to contact and service the wholesalers without additional help in
many cases manufacturers representatives contact the wholesaling companies and are paid
commissions on their sales.

price is the value placed on goods and services offered to the public.

Fair pricing is one that is attractive to potential clientelesor market with reasonable returns for the
entrepreneur.
labor cost this includes salaries wages and benefits paid to the employees as well the contractors or
subcontractors who perform or supervise or manage the service business

Overhead expenses these items include indirect expenses required to operationalize the business these
expenses include insurance premiums equipment depreciation business forms rentals office supplies
dues and membership payments.

profit this refers to the amount of income earned after all the cost of producing and providing the
service have been met.

Chapter 11

Functions of a Financial Manager

Treasurership. It involves provision of funds, custody of funds, or the cashier's function, credit and
collection, and invesu nde the role or the treasurer to see to it that there are sufficient rund to provide
for all the needs of the various operating units.

Comptrollership. Another function is to see to it that the funds di effectively and efficiently utilized. It
involves financial planning accounting records and reports, tax administration, governmen reporting,
and internal control.

Financial Planning is important because the funds of the enterp are limited and must be allocated
properly to the best interest or tne business. A financial plan.is a course of action for obtaining and using
the money that is needed to implement the goals of the business organization.
Once the plan is in action, the performance of the organization is monitored and evaluated in terms of
the attainment of the goals. Just like any other plan, financial planning should be flexible and realistic.
Here are the three steps involved in financial planning:

Establishing objectives. These should be clear and specific to determine their cost or budget. Objectives
should be realistic.
That is, available resources in terms of human, material, and financial inputs can support them.
Otherwise, such objectives are not attainable.

Budgeting. A budget is an estimated or projected program of

expenses and incomes over a specified future period. Incomes
Come from estimated sales, while expenses are based on both fixed and variable costs of operations of
the business like salaries, rentals, materials, taxes, payments of water, electricity, and others.

Identifying the sources of funds. There are four ways of financ- ing a business enterprise: a) income from
sales, b) owner's money and sale of shares of stock, c) borrowings from friends, relatives, and financial
institutions, and issuing of bonds, and d) sale of some property of the enterprise as a last resort.

Uses and Sources of Funds

"Funds" refer to money, or its equivalent, which is used in obtaining and bringing together resources for
the attainment of your business objectives.
Funds are used to obtain resources, which are referred to as a
Assets can be classified as current or working capital, which are used in the day-to-day operations of the
business, or fixed assets which will be used by the business for a long time, usually for more than one
year.

To illustrate these two types of funds or assets, let us consider a T shirt printing services. The silk screen
frames, staplingin the businesS knives, paint brushes, and working table are to be used and are called on
fixed assets. While textile paint, thinner, lacquer, wod or repurchased rental are the current assets, they
need to be replaced or repurchased weekly, monthly, or as the need arises.

Sources of Funds

sources of funds coming from owners can be identified according to the type of business ownership.
When it is a sole proprietorship or the money comes from one person only, this amount is called capital
Owners capital, or owner's equity. If it is a partnersnip, there are
Several contributors of money, and these funds are called partner's capital. Corporations, on the other
hand, issue shares of stock to people wno contribute and become owners of the enterprise. The money
they put into the corporation is called stockholder's equity.

Funds that are borrowed are known as liabilities. Current or short- term liabilities/financing are to be
paid within a year or less, while long-term liabilities/financing are to be repaid for a period of more than
one year.

There are government and non-governmental organizations that extend both financial and technical
assistance to small entrepreneurs.
We have the Philippine National Bank (PNB), Development Bank of the
Philippines (DBP), and Land Bank of the Philippines (LBP). They have their own programs for small and
medium-scale enterprises. In the case of
NGOS, there are numerous organizations that extend financial assistance to small enterprises, such as
the Meralco Foundation, Philippine Business for Social Progress, and others. Foreign governments,
through their embassies, and international organizations likewise, have their assistance programs for
micro and small businesses. Here are some sources of
funds:

Short-term financing (one year or less)

Trade Credit. Goods are delivered to retailers on consignment

basis. This means they have to pay the goods within 30 to 90 days. Such credit lines applies to retailers
with good reputations or established business relations.

Promissory notes. This is a written pledge by a borrower to pay a certain sum of money to a lender at a
specified future date. Such loan entails an interest.

Unsecured bank loans. Commercial banks grant unsecured short-term loans to their customers at
interest rates that vary in accordance with their credit ratings. Borrowers with high credit ratings get
lower interest rate.
Commercial Paper. This is a short-term promissory note issued by big corporations. Commercial paper is
secured by the reputation of the issuing corporation. There is no collateral involved. Big firms with
excellent credit reputation can easilyY raise the large amount of money from financial institutions.

Long-term financing (more than one year)

Loans. Many firms finance their long-range activities from loans borrowed from banks and other
financial institutions. These require collateral such as land, equipment, and machinery.
Terms of payment are indicated in a loan agreement.

Stock. This is a certificate of ownership. A stock is classified as common and preferred. Holders of
common stock can elect directors and can decide. major corporate actions. In these cases of preferred
stockholders, they have no voting rights. But they have priority in claiming of profits and assets of the
corporation. In general, only established corporations sell additional shares of stocks to the public to
finance their business projects.

Bond. This is a certificate of indebtedness. It pledges to repay a specified amount of money with
interest. Such certificate indicates also a maturity date. Big corporations issue bonds to raise funds for
their business activities. Bondholders have the first claim on the assets of the issuing corporation in case
it gets bankrupt. Bonds are classified as debenture bonds (supported only by the reputation of the
issuing corporations), mortgage bonds (secured by the assets of the issuing corporation), and
convertible bonds (can be exchanged with shares of common stock)

Working capital is concerned with the day-to-day financial operations of a business and the problem of
ensuring that there is enough cash and a firm to be able to pay what is owed and what is still continue to
trade. Working capital is current assets less current liabilities.

The recording of the transaction within the business is referred to as bookkeeping. the records are
called books of accounts the effect of the transactions are drawn out from the and summarized in a
report called income statement or profit and loss statement the resulting effect of the financial status
of firm is also drawn but from the books and reflected in a report called balance sheet the whole system
of recording and interpreting the results of the business transaction is called accounting.

the journal is a chronological record of the business transactions of the enterprise it is also referred to
as book of original entry.

The general ledger is a collection of accounts usually bound showing the different transactions affecting
the items also referred to as accounts in the balance sheet.

the chart of account shows the list of accounts and their arrangement in the ledger.

The financial statements are the means of conveying to interested parties such as the owners
management and other interested outsiders government agencies banks creditors suppliers customers
the performance of the enterprise for a given period Income statement and its financial condition as of
specific date balance sheet.

The balance sheet is a formal statement that presents the financial condition of the company as of the
specific date .
Balance sheet classifications
ASSETS are items of value owned by the enterprise and include
such items as cash, claims from customers(also referred to as accounts receivable) goods for sale, land,
building, machinery, and
equipment, and other property owned by the firm.

Current Assets. These consist of cash and other assets that are expected to be converted into cash
during normal cycle of the business. The normal operating cycle is generally one year.
Examples of current assets are cash, marketable securities,
accounts receivable, stocks
or inventories of raw materialIs,
Supplies and finished goods, and prepaid expenses.

Fixed Assets. These are assets that are acquired for long-term 2.
use. Land, building, machinery, equipment, furniture, and
xLures acquired to be used in the business are some examples of fixed assets.

Other Assets. These include patents, goodwill, and others which do not fall under the above definitions.
Goodwill is the alTerence between the price paid to acquire a business (or part of a business) and the
value of the tangible assets acquired.

LIABILITIES are amounts owed by the business. These are classified into current and long-term.

Current Liabilities. These are obligations that are expected to become due within the normal operating
cycle. Accounts payable are amounts owed to trade creditors for merchandise.
raw materials, services, supplies, or other items (such as taxes, rental), which were acquired on credit,
and thus, have not been paid for.

Long-term Liabilities. These are normally borrowings from banks and/or other financial institutions.
They are to be paid for a longer period of time than the normal operating cycle, usually three years or
more. Liabilities of this kind are normally documented by promissory notes and backed by assets serving
as security or collateral.

OWNER'S EQUITY refers to the amounts invested by the owner/

owners in the firm and includes profits retained in the business. This represents the interest of the
owner or proprietors in the business.
This is affected by the additional investments or withdrawal of the owner/owners, and by the
addition/deduction of the net profit/loss for the year.

Valuing Assets
Suppose you bought a typewriter in 2000 for P3,000.00. How much would it be worth today? Your
answer might well depend on how useful it is to you now. If it is worn out, obsolete, and on the scrap
heap, its value would be nothing. if however, it is in perfect condition, or essential, then, its value may
be higher.
current assets are usually valued at cost in other words at the price at which was paid for them or
reflecting the cost that have been spent on them like prepaid assets and inventory.

The loss of value is called depreciation.

accounting treatment of depreciation the most common method of depreciating an asset is known as
straight line depreciation computed as followers is assumed that the lost value is a permanent loss.

Asset life or estimated useful life the number of years and asset is expected to be useful varies from
asset to asset from firm to firm.

Land valuation the answers that are the life of land is forever usually and therefore not depreciation is
changed chargeable.

Accounting for appreciation of assets unlike depreciation which is charged against profits the increase
in value of asset appreciation is shown in increase in the underlying value of the business it makes the
worth of the company greater.

cash is the most liquid bold assets and the efficient use of cash is one of the most important task of
management. The cash flow statement is a supporting document that shows the sources and purpose of
cash payments during accounting period.

the income statement shows their revenues realized by the business as well as the cost and expenses
incurred in the realization of said revenues this is also called the profit and loss statement transactions
that increase the owners equity are referred to as revenues.

On the other hand transactions that decrease the owner’s equity are called expenditures. The revenues
realized are compared to the expenditures to determine the result of the operation if the revenues
exceed expenditures the difference is called net profit and is added to the owners equity in balance
sheet if expenditures are more than revenues than the result is referred to as net loss and is deducted
from the owners equity.

revenues of a business consist of a sale of goods or services during the period of which statement was
prepared.

Expenditures consist of production selling another expenses incurred in generating the revenues.

Cost of sales for a trading firm that consist of cost of the merchandise and the cost of transporting or
bringing the products to the firm on the other hand a manufacturing firm cost of sales consists of raw
materials used in producing the product sold the cost of Labor to produce the products and the other
costs which are necessary to the production of the product sold.

Selling expenses there’s are the expenses incurred in making sales some example are salaries of
salesman Commission paid advertising or promotional expenses delivery expenses.

general and administrative expenses these include the salaries of the office personnel rental taxes
professional fees and other payable necessary in overall administration of business