CHAPTER 8

ORGANIZING THE
ENTERPRISE

ORGANIZING THE
ENTERPRISE
When one starts to organize a business
enterprise, it is presumed that he conducted
a feasibility or market study. That is, he
knows his resources, the needs of the
community, the strengths if his competitors,
and so forth.
However, what count most are the
personal characteristics of the entrepreneur.
Handwork, determination, creativity,
enthusiasm and human relations can make
the difference between success and failures.

Levis
Story
More than one hundred years ago, a young man
from Bavaria went to the United States as an
immigrant. His objective was to seek his fortune.
Little success at first encouraged him to return to
his country. But he decided to try prospecting for
gold in California. At the time all roads led to
California. Likewise, luck was not for him as a gold
prospector.
However, the young man recognized the needs
of his fellow gold prospectors for sturdy and
durable work pants. Exploiting his talent in tailoring
and using his last money, he put up his tailoring
shop. Over the years his business prospered.

Until it became transnational in

operations. The name of the young
immigrant is Levi Strauss.
He did not discover gold in
California. But just the same he
acquired something worth more than
gold. The Levi Strauss and Company
has become the largest apparel
company in the world. Famous chain
stores throughout the world sell
Levis jeans. Annual sales have been
recorded at $3 billion

Why do you go to
Business?
Here
are the reasons why people go to business:
1. Personal satisfaction- They enjoy challenges and
risk-taking ventures. Their business gives them a sense
of fulfillment.
2. Family involvement- They feel it is their
responsibility to continue the business of their parents,
especially if it is profitable.
3. Independence and power- They want to be boss.
They love to make their own decisions and implement
them.
4. Social activities. There are people who are really
born socializer. They love social activities.
5. Profit expectation- Some individuals are greatly
motivated by profit or the chance to amass wealth.
Thus, they go to business.

Checklist for Going Business

1. About you
-Why do you want to put up your own business?
-Do you have experience in the business you like to start?
-Did you work before as a manager?
-Do you have business training?
-Do you have money for your business?
2.About capital
-Do you know how much money you need for your
business?
-Do you know how much credit you can get from your
suppliers?
-Do you know where to borrow in case your funds are not
enough?
-Do you have an estimate of your net income per year?

3. About a partner

-Do you need a partner who has the money and

skills?
-Do you know the positive and negative points in
choosing single proprietorship, partnership or
corporation?
-Have you consulted an expert?
4. About your costumers
-Who are your costumers?
-Do people need a store like yours
-Do people like to live in the place where you
intend to put up your business?

5. About you qualities

-Are you a self-starter?
-How do you feel about other people?
-Can you lead others?
-Can you make decisions?
-Can you take responsibility?
-Are you good in planning and organizing?
-Can people trust what you say?
-Are you hardworking?
-Is your health good?

What is an Organization?
An organization is a group of two or
more persons who work together to
attain a common set of goals.
Organizing is a process of
combining and coordinating resources
and activities in order to accomplish
efficiently and effectively certain
objectives. The best resources of the
organization are its employee not
money, machines, materials or
buildings.

Organizational Structure
Every organization has a structure which indicates positions
and relationship. There are shown by an organizational chart.

ManagerOwner

Office
Supervisor

Accountant

Clerk

Sales
Supervisor

Messenger

Salesman

Salesman

Salesman

Choosing the form of Business

Organization
In n1979 two young engineers worked together on
an idea for a small computer for personal use. Steven
Jobs, then 21 and Stephen Wozniah, then 26, spent 6
months designing a model and 40 hours building it.
Their idea became a reality. Soon they had an order for
50 of their personal computers.
With such order, the two engineers were practically
in business. But they had no resources. To solve the
problems, Jobs and Wozniah became the workers. They
used the garage of Jobs as their production site. To
finance their business, they sold s second-hand
Volkswagen van and a programmable calculator for
$1,350.

So, they were ready for starting their business. They

named their business enterprise Apple Computer. The
following year, 1977, the enterprise became a
corporation. In 1980 and 1981, shares of common
stock were sold to the public. In only six years, Apple
Computer grew from a two-man operation into an
international corporation with more than 4,000
employees and with more than $1 billion annual sales.

Forms of Business
Organization

There are three most common forms of business organization in

a capitalist economy. These are the sole or single proprietorship,
partnership and corporation. However, there are other forms of
business organizations, such as the cooperative, joint venture
and syndicate.

Single proprietorship. This is a form of business

organization that is owned and usually managed by one person.
It is the oldest and simplest form of business ownership. It is the
easiest to start. They dominate the retailing, agriculture and
service industries.
The advantages of a single proprietorship are:
1. Ease and low cost of formation and dissolution . It is
easy and cheap to start, and is also easy and cheap to dissolve.
It requires small capital and there are no legal papers needed.
On the other hand, if such form of business organization decides
to close its operations, there are no legal procedures to comply
with. The owner has of course the obligation to pay his creditors.

2. Retention of all profits. All profits belong to the

owner of the business. This is the greatest incentive or
reward to the entrepreneur. This is the reason why
many entrepreneurs prefer the sole proprietorship.
3. Independence and flexibility. The owner is the
boss. He makes his own decisions and implements
them in accordance with his will or wish. For instance,
the owner can change his business hours, his products
or prices.
4. Tax advantage and less government
regulation. The owner does not pay several kinds of
taxes. Usually, his earnings are taxed as personal
income tax. The owners deal with the government when
they pay their business licences, permits and taxes.

The disadvantages
are:
1. Unlimited liability. This is the other side of profit. In
case the business fails, the owner assumes all the financial
obligations. All his personal properties, including savings,
could be seized and sold to pay creditors.
2. Lack of stability. If the owner dies, it is the end of the
business. However, members of the family or close relatives
can continue the business. This happens only if such
relatives are interested and the business is profitable.
3. Limited access to credit. Banks and other financial
institutions are usually not willing to lend large amounts of
money to single proprietorships. Assets of owners are
generally small to be used as security or collateral.
4. Limited business skills and knowledge. In many
cases the owner is the manager, salesman, bookkeeper,
messenger and janitor. There is no specialization.

Partnership.
It is an association of two or more
persons who act as co-owners of a
business. Each partner contributes money,
property or service to their organization.
Most partnerships have two partners. They
are usually engaged in accounting, law,
advertising, real estate and retailing. There
are two types of partners: general partners
and limited partners. The liability of a
general partner extends up to his personal
properties while a limited partner is only
liable to the extent of his contribution to
business.

The Advantages of Partnership

are:
1. Easy to organize. Like single proprietorship,

a partnership is relatively easy to form, much

easier than a corporation. The legal requirements
include articles and by-laws of partnership to be
submitted to the Security and Exchange
Commission, verification of business name with
SEC, registration of business name with Bureau of
Commerce, registration with the Bureau of
Internal revenue for a TIN (tax information
number), business permit from city/municipal
hall, and registration of employees with SSS.

2. Availability of more capital and credit.

Partners can pool their resources-properties,
equipment, and others-and can also use these for
security in obtaining bank loans. Suppliers are willing
to extend more credit to a partnership than to a single
proprietorship.
3. Retention of profits. Just like in the sole
proprietorship, the partnerships get all the profits of
their business. This stimulates the partners to improve
their operations.
4. Better business skills and knowledge. Each
partner contributes his skills and knowledge to the
organization. Such combination provides better
management in terms of planning, decision-making
and implementation, compared with a single
proprietorship.

The
Disadvantages:
1. Unlimited liability. Each general partner is
personally responsible for all the debts of the business.
Even the personal property of a general partner can be
taken to pay creditors. However, in the case of a limited
partner, only his investment is subject to risk.
2. Lack of stability. A partnership is terminated in case
of the death, withdrawal or legally declared insanity of
any one of the general partners.
3. Management disagreement. It is true that two or
more heads are better than one. But if they do not work
in unity, conflicts arise.
4. Idle investment. It is quite easy to invest money in
partnership. But sometimes it is difficult to get it out. For
example, when a partner decides to leave the
organization, his remaining partners may not buy hi
share.

Corporation.
It is an artificial being created by operation of
law, having the right of succession, and the powers,
attributes and properties expressed authorized by
law or incident to its existence. United States
Chief Justice John Marshall defined corporation in
his famous 1819 decisions as an artificial being
invisible, tangible and existing only in
contemplation of the law.

Stocks
The shares or the certificates of ownership
of a corporation
Stockholders or Shareholders
The owners of stocks
Two types of corporations:
Private or close corporation- The first
one is owned by few individuals, usually
relatives and friends.
Open Corporation.- is owned by any
individual who buys shares of stock which are
openly traded in the stock markets.

The advantages of a corporation

are:
1. Limited liability. The liability of a stockholder is only up
to his shares of stock. In case the corporation becomes a
failure, creditors can only lay their claims on the assets of
the corporation, not on the personal assets of the
stockholders.
2. Easy to rise capital. Asia from bank loans, a
corporation can sell shares of stocks to the public for
additional funds. Individuals are more willing to invest in a
corporation due to limited liability, and they can sell their
shares of stock.
3. Perpetual life. The life of a corporation does not end
with the withdrawal or death of key owners. It can exist for
50 years and is subject to renewal.
4. Specialized management. A corporation can hire
professional managers and specialists. It has the funds to
develop its human resources

The disadvantages of a corporation are:

1. Difficult to a organize. It is difficult and quite expensive
to organize a corporation. Sometimes, it requires the services
of a lawyer and is accountant to prepare the legal forms and
financial documents.
2. Strictly regulated and supervised by the
government. Government regulation and supervision on
corporations are closest compared with the other forms of
business organizations. Corporations have to comply with
government laws, policies and regulations. They have to
submit their financial reports every year to concerned
government agencies.
3. Some corporations are socially irresponsible. They sell
worthless securities (stocks and bonds), they pollute the
environment, and sell substandard goods.
4. Formal and impersonal employer-employee
relationship. A corporation has several layers of
management. The president and board directors seldom or not

The Cooperative: an Enterprise for the

poor
The Cooperative Code defines a cooperative as duly
registered association of persons, with a common bond
of interest, who have voluntarily joined together to
achieve a lawful common social or economic end,
making equitable contributions to the capital required
and accepting a fair share of the risks and benefits of
the undertaking in accordance with the universally
accepted principles of cooperation, which include the
following:
1. Open and voluntary membership
2. Democratic control
3. Limited interest on capital
4. Division of net surplus
5. Cooperative education
6. Cooperation with other cooperatives

Objectives of
cooperatives

1. To encourage thrift and savings among the members;

2. To generate funds and extend credit to the members for
productive and provident purposes;
3. To encourage among members systematic production and
marketing;
4. To provide goods and services and other requirements to
the members;
5. To develop expertise and skills among its members;
6. To acquire lands and provide housing benefits for the
members
7. To promote and advance the economic, social and
educational status of the members; and
8. To establish, own, lease or operate banks, cooperative
wholesale and retail complexes, insurance and
agricultural/industrial processing enterprises, and public
markets.

Types of
cooperatives

1. Credit cooperative. Promotes thrift among its members

and create funds in order to grant loans for productive and
provident purposes.
2. Consumers cooperative. Procures and distributes
commodities to its members and non-members.
3. Producers cooperative. Undertake joint production in
agriculture and industry.
4. Marketing cooperative. Engages in the supply of
production inputs to members and markets their products.
5. Service cooperative. Undertakes medical and dental
care, hospitalization, transportation, insurance, housing,
labor, electric light and power, communication and other
services.
6. Multipurpose cooperative. Combines two or more of
the business activities of the different types of
cooperative.

Organizing a cooperative
For the membership, there should be a minimum of
15 person natural persons. They should be citizens of
the Philippines who are residing or working in the
intended area of operation of the cooperative. However,
before organizing a cooperative, the Core
Group(leader)should first study the following factors:
1. Felt need
2. Volume and business
3. Availability of qualified officers
4. Adequacy of facilities
5. Opportunity for growth

Requirements For registration

The board of directors with the assistance of the
members of the documents committee shall prepare all
the documents necessary for the registration of the
cooperative. Such documents shall be submitted to the
cooperative development authority;
-Four copies of economics survey with a general
statement describing the;
a. structure
b. purpose
c. economic feasibility
d. area of operation
e. size of membership
f. other pertinent data

-Four copies of articles or cooperation, together with

bond of accountable officers
-Four copies of bylaws
-registration fee payable to cooperative development
authority
The dimensions of organizational structure
1. Divide the work of the organization into separate
parts. Assign these parts to positions within the
organization. This is called job design.
2. Group the various positions into manageable units.
This is departmentalization of the organization.
3. Distribute the responsibility and authority within the
organization. The result is centralization of the
organization.

4. Determine the number of subordinates who will

report to each manager. This is called span of
management.
5. Distinguish between those positions with direct
authority and those that are support positions. This is
the chain of command.

Departmentalization
1. Function. All jobs that pertain to the same activity
are grouped.
2. Product. All activities related to a particular
product or product group are put together.
3. Location. Activities are grouped based on a
particular geographic are.
4. Customer. Grouping of activities in accordance to
the needs of various customers.

Decentralization of
Authority

Delegation
When a part of a managers work and power is
assigned to a subordinate.
The latter involves the granting of responsibility,
authority and accountable.
Responsibility -is a duty to do the job.
Authority -is the power to do the job.
Accountability -is an obligation to do the job.

Decentralization of
Authority

There is decentralization of authority when

authority is widely spread in the lower levels of the
organization. In the hand, if authority is
concentrated at the upper levels, there is
centralization of authority. There are several factors
which require decentralization of the enterprise. One
is the external environment of the enterprise. If it is
complex and unpredictable, lower management
should be allowed to make the decisions. Another is
if the decisions are not risky, then it can be
delegated to the lower levels of management. Also,
if the lower level-management is competent in
decision-making skills, top management is
encouraged to decentralize authority.

Line and Staff

Authority
Authority passes from the highest level to the
lowest level. This is called line of authority .The vice
president report directly to the vice president. The
supervisors report directly to the managers. There is a
direct responsibility in line authority.
In the case of staff authority, it is not part of the
chain of command. Its job is to provide support, advice
and expertise to line authority. They have no
accountability. For example, the presidential adviser or
assistant is a staff position.

Line and Staff

Positions

President
President

Consultan
Consultan
tt
Vice
Vice
President
President
Legal
Legal
adviser
adviser
Marketing
Marketing
Manager
Manager

-------

Line authority
Staff authority

Production
Production
Manager
Manager

Finance
Finance
Manager
Manager

Entrepreneurial
Consideration

1. Financial. The entrepreneur must be knowledge

about the financial aspect of business decisions.
2. Marketing. The entrepreneur must be well versed
on the 4Ps of marketing: product, price, place, and
promotion.
3. Managerial skills. The entrepreneur must be able
to identify the strengths and weaknesses of his
personnel.
4. Overall personal decision-making process. The
entrepreneur should have a thorough evaluation of
what is to be attained by going into business, and
what human and financial resources are available
and necessary.

Put Up a new enterprise or

Buy?

Here are some advantages of buying an established

business.
1. It saves time, cost and effort of looking for a
location.
2. It has existing customers.
3. Uncertainties regarding physical facilities,
inventory requirements and personnel needs are
reduced.
4. It may be available at a bargain price or cheap
price due to quick sale.

On the other hand, buying an existing business

enterprise has some disadvantages such as:
1. Location may no longer be convenient to customers
caused by parking problems, deterioration of
neighborhood, changed in pedestrian and traffic
flows, among other things.
2. Present owner/business may have a bad image in the
community.
3. Physical facilities may be outmoded which require
expensive repairs or renovations.
4. Inventory may be obsolete and of poor quality.
5. The price of the existing business may be too high.

Evaluating an existing
enterprise
1.
Reasons for selling
- Retirement Opportunities somewhere
- Illness
- Going abroad
- Employment - Financial problems
2. Earning power
- Profitability of firm
- Financial statement for the last five years
3. Other factor
- Demand for the firms product/services
- Number of competitors
- Future trend of the industry
- Present location of the business

Step in Starting a new

Business
1. Plan the business
2. Select the appropriate form of business
organization
3. Scout for reasonable credit/financing
4. Choose a good location
5. Secure licenses/permits for the business operation
6. Set up records for financial, physical and
personnel resources
7. Insure the business if necessary
8. Promote the business
9. Manage the business
10.Do your social responsibility

THE END