Lesson 7:  Unlimited liability of at least one partner
PRINCIPLES, TOOLS, AND TECHNIQUES
IN CREATING A BUSINESS
Forms of Business Organization
 Sole Proprietorship
 A business owned and managed by one
individual; the business and the owner are
one and the same in the eyes of the law
Sole Proprietorship Advantages
 Easy to start up
 Ease of management
 Owner keeps the profits
 Owner does not have to pay separate
business income tax
 Psychological satisfaction
 Easy to discontinue
 Sole Proprietorship
Sole Proprietorship Disadvantages
 Unlimited liability
 Limited access to raising financial capital
 Small size-may have limited inventory
 Limited managerial experience
 Difficulty of attracting qualified employees
 Limited life
 Partnership
 An association of two or more people who
co-own a business for the purpose of
making a profit
Partnership Advantages:
 Ease of start up
 Ease of management
 Lack of special taxes on partnership’s
income
 Larger pool of capital
 Ability to attract limited partners
 More efficient operations that come from
larger size
Partnership Disadvantages:
 Limited life
 Lack of continuity
 Potential for personality and authority
conflicts
Special Partnerships
1. Limited partnership-one or more partners
are not active in the running of the
business, and whose liability for the
partnership’s debt is restricted to the
amount invested in the business
2. General partnership- all partners are jointly
responsible for management and debts
(most common form)
Articles of Partnership: contract between partners
spelling out the rules of partnership.
 Dividing profit
 Dividing responsibility
 Admitting new partners
 Buying out partners
 Corporations
 A separate legal entity apart from its
owners which receives the right to exist
from the state in which in which it is
incorporated
Corporations Advantages:
 Ease of raising financial capital
 Limited liability for its owners
 Board of directors can hire professional
managers to run the firm
 Unlimited life
 Ease of transferring ownership of the
corporation
Corporations Disadvantages:
 Double taxation of corporate profits
 Difficulty and expense of getting a charter
 Shareholders (owners) have little voice in
how the business is run
  Subject to more government regulations
than others form of business
 Franchises
Franchising is a form of business organization in
which a firm that already has a successful product
or service (franchisor) licenses its trademark and
method of doing business to another business or
individual (franchisee) in exchange for a franchise
fee and an ongoing royalty payment.
 Nonprofit Organization: business to
promote its members’ collective interest,
not seek financial gain (Bill Gates
foundations)
 Cooperatives
 Voluntary association of people who carry
on an economic activity that benefits its
members
 Consumer Cooperatives: buy food and
other necessities in bulk
o Members donate time to the co-op
o Members pay lower prices for goods
 Service Co-ops: credit unions, offer
services to its members at lower rates
 Producer Co-ops: help members, farmers,
promote or sell their products
 Labor unions: represent workers’ interest
and negotiate with management through
collective bargaining
 Professional association: set standards for
those in the profession and influence
government policies on issues concern
members’ interest (NCSS)
 Business Associations: industries or trade
associations that represent specific
businesses (BBB)
TOOLS IN EVALUATING A BUSINESS
The following are the general factors that must be
put into consideration when evaluating a certain
industry as indicated in a guide developed by
North Carolina’s Small Business and Technology
Development Center:
 Geographic area
 Market size and market trend in the
industry”
 Product Description
 Identifying and understanding the target
market
 Laws governing the business industry
 Competitors’ analysis
 Business growth
The SWOT Analysis
It stands for Strength, Weaknesses, Opportunities
and Threats
 It is a framework that is used to seek
business opportunities and evaluate new
business ventures
 It helps to identify the company’s
challenges and risks of doing business
 A helpful tool to assess the internal and
external factors affecting the business
Internal factors that may affect the business:
1. Financial aspect- source of capital, uses and
sources of funds for short-term and long-
term, investment funds of the company.
2. Human resources- consist of employees
and their designated positions in the
company
3. Physical resources- machines, equipment,
facilities, location
4. Business processes- production process,
sales and marketing strategies, supply
chain, value chain, information and
technology systems, programs for laborers
and employees, job description of each
employees, logistics
External forces that may affect the business:
1. Economic aspect- international trading,
financial and economic trends in local,
national and international scenes, inflation,
interest rate, GDP, banking system,
national economic status, etc.
2. Market trends- behavioral and
psychographic descriptions of target
 market, change in taste and lifestyle of
customers, new products and technology in
the market, etc.
3. Regulatory environment- political
environment surrounding the business, laws
governing business operations, local and
national statutory regulations
4. Demographic characteristics of target
market- age, gender, financial status,
culture, etc.
5. Competition in the market
6. Relationship with suppliers and channel
partners
 TOWS ANALYSIS
 Many firms employ TOWS technique of
Threats, Opportunities, Weaknesses and
Strengths to establish strategies in
addressing their weaknesses and threats by
maximizing their strengths and
opportunities available to them.
Lesson 8:
The firm and its environment
 Environmental forces and scanning
 The local and international business
environment of the firm
 Phases of economic development
 Forms of business organization
Environmental forces and scanning
 Nature of the Business environment
 The business environment is a set of forces
and conditions outside the organization’s
boundaries that have the potential to affect
the way the organization operates. These
forces and conditions change from time to
time. The business environment presents
opportunities which organizations can take
advantage of and threats that the
organization should avoid.
 Environmental Change - is the rate at
which a company’s general environmental
changes.
 Stable environment – the rate of
environmental change is slow.
 Dynamic environment – the rate of
environment change is fast.
 Environmental scanning
 Refers to activities intended to obtain
information about events and trends that
take place outside and inside the
organization which can put pressure to
management in making decision for the
organization.
 Internal Analysis of the environment is the
first step of environment scanning.
Analysis of internal environment helps in
identifying strengths and weaknesses of the
different functional areas of an organization
which includes finance, human resources,
marketing, and operations.
 External Analysis describes the acquisition
and use of information gleaned from
sources external to the company. Scanning
can be considered as a form of early-
warning tool that allows managers look
into the future.
 General Environment
 Sometimes called the macro environment
includes the external factors that usually
affect all or most players in every industry.
With an acronym of (PESTE), it consists of
the political-legal, economic, socio-
cultural, technology and the ecological
environment.
o Political-legal Environment
o Economic Factors
o Socio-cultural Factors
o Technological Factors
o Ecological Factors
 Specific or task environment
 Are forces and conditions unique to a
specific firm’s industry and directly
influence the ability of the organization’s
ability to obtain inputs and dispose outputs.
Specific or task environment:
 Suppliers
 Distributors
 Customers
  Competitors
SWOT analysis
 Strength – the advantages or the internal
attributes that support a positive result, or
the edge that you have over your
competitors.
 Weaknesses – the disadvantages or internal
characteristics that work against a
successful outcome compared to the
competitors.
 Opportunities – current external factors or
trends that can be used to be taken
advantage.
 Threats – current external factors which
may cause a problem to cause a negative
impact and can jeopardize the business.
PEST analysis
Political – it is how the government intervenes in
the economy. The laws, global issues, legislation,
regulations, which may have a direct effect on the
business.
Economic – taxes, interest rates, inflation, the
stock markets and consumer confidence have to be
taken into account.
Social – changes in lifestyle and buying trends,
media, major events, ethics, advertising and
publicity factors.
Technological – innovations, access to technology,
licensing, manufacturing, research funding, global
communications.
PEST analysis
PORTER’S FIVE FORCES OF
COMPETITIVE POSITION ANALYSIS
1. COMPETITION AMONG EXISTING
FIRMS
 “The number and capability of
competitors have impact on the
attractiveness of the market.
 “The more competitors offering similar
products, the less attractive the market
is
 “If there is low capability of
competitors to meet the needs of the
market, then there’s opportunity for the
firm to penetrate the market”
 “With regards to different market
structures, the following competitive
behavior exists in the industry”
2. BARGAINING POWER OF BUYERS”
 “The power of the buyers to drive
prices down
 “The customers negotiate with
sellers or suppliers in order to
maximize utility”
 “Firms must evaluate how easy it is
for customers to drive down the
price ”
3. “BARGAINING POWER OF
SUPPLIERS
 The more unique the product or
service, the higher the supplier
power is
 “The supplier enjoys higher power
if there are a few sellers of an
essential input which lets them
control the supply and therefore, the
price, of that input ”
 “A supplier which has bigger size
and strength in the market can also
drive the prices up ”
 “If the cost of switching is high,
buyers of that supplier would prefer
to stay with only one supplier, thus,
giving the supplier the power to
raise the price”
4. THREAT OF NEW ENTRANTS
 “A profitable market is attractive for
investors that is why they always try
to get a market share ”
 “When new firms enter the market,
the market share and profit will be
divided to the participants in the
market, therefore, declining the
profits that participating firms will
get. That is the reason why firms
must assess the threat of new
entrants in the market ”
  “If there are barriers to entry, it will 1. Economic Impaction Society
prevent potential competitors to 2. Governance
enter the market. Profit will then be 3. Privacy
maintained among the existing 4. Environment
participants in the market”
 ▪ Benefits of Measuring Socio Economic
5. “THREAT OF SUBSTITUTE Impacts
PRODUCTS AND SERVICES” 1. Obtaining or maintaining a license to operate
 “Threats in the profitability due to 2. Improving the business enabling environment
the emergence and availability of 3. Strengthening talve chains.
substitute goods in the market” 4. Fowling products and service innovation
 “If it is easy to substitute goods in a
market, buyers will then easily
switch to the alternative goods in the
▪ Corporate Responsibility to Consumer
event of price increase
1. Product Quality
 “The suppliers will enjoy less power
2. Product Packaging
to drive prices up and the market
will be less attractive” 3. Product Labeling:
4. Consumer Safety / Product Responsibility
 “Substitute goods can be measured 5. Environmental Sensitivity
through its elasticity

▪ Social Factors Affecting Business

1. Population growth rate ▪ Mini-Maxi
2. Changes in social preferences, - strategy attempts to minimize the weaknesses
3. Health consciousness and to maximize the opportunities
4. Valves, beliefs, and practices.
5. Education ▪ Maxi-Mini
6. Hard work ethics - strategy is to maximize the strengths of a
7. Attitudes toward investment company while minimizing the threats
8. 8 Attitudes toward green and ecological
products ▪ Maxi-Maxi
- maximize both strengths and opportunities
▪ Economic Factors affecting business
industry ▪ Mini-Mini
1. Inflation rate - strategy is to minimize both weaknesses and
2. Interest rate threats
3. Unemployment level
4. Labor costs
5. Taxes

▪ Effects of Social Environment to Business

1. Teamwork
2. Job satisfaction
3. Customer interaction

▪ Economic Impact on Society