STRATEGIC

PLANNING
FOR SMALL
BUSINESS
  refers to the process of determining the primary objectives of the
entrepreneurship and then adopting courses of action and
allocating resources to achieve those objectives. The definition
involves three distinct steps:
 (1) determination of objectives,
 (2) adoption of course of action,
STRATEGIC  (3) allocation of resources.
PLANNING  Strategic planning provides the entrepreneur with a systematic
approach to the achievement of the firm’s achievement of the
firm’s objectives. Figure 13 shows that the determination of
objectives is a prerequisite step before a strategy is adopted. In
turn, strategy is a requirement before resources are allocated.
STRATEGIC
PLANNING
PROCESS
  The Determination of Objectives
 The objectives of the firm are important components of the firm’s
strategic planning activities but before these are determined, the firm’s
What is 
mission statement must first be developed.
The Mission Statement. The term refers to the basic description of the
Strategic fundamental nature, rationale, and direction of the firm. It consists of three
concerns:
Planning  1. how the entrepreneur intends to use his resources;

Role of  2. how the entrepreneur expects to relate to the ever-changing

environment; and
Entrepreneurs  3. the kinds of values the entrepreneur intends to offer to his customers.

in the  An example of a mission statement is indicated below.


Economy “The mission of Birdie Poultry Products is to provide the various poultry
requirements of consumers. The services of retailers located in the various
malls and public markets in Nueva Ecija are trapped as means of distributing
our products. In addition to the assortment of products, we stress quality and
efficient service. We intend to cover all towns of Nueva Ecija within five years
through effective pricing and promotion.”
What is  Strategic Objectives. This term refers to specific performance
targets that the entrepreneurship hopes to accomplish. The
Strategic objectives define, in specific terms, how the firm’s mission will be
realized.
Planning  Examples of strategic objectives are the following:
Role of  1. expand the production capacity by 50% within two years;
Entrepreneurs  2. increase sales by 50% by the year of 2012;
in the  3. increase market share by 10% every two years; and

Economy  4. increase the number of outlets by three within three years.

  Adoption of Courses of Action
 After the primary (or strategic) objectives are established, the entrepreneur
must develop a strategy which is alternately called course of action. A strategy is a

What is carefully designed plan for achieving the firm’s objectives. A strategy indicates
how the entrepreneur will attempt to accomplish the goals with the resources
available.
Strategic  Examples of strategies are the following:

Planning  1. establish branches in strategic locations;


Role of
2. design a system that will attract persons high potentials to work with the
company;

Entrepreneurs 

3. engage in the recruitment of retailers from nearby provinces; and
4. engage in building up the company’s image as a reliable supplier of quality
in the 
poultry products.

Economy  In developing realistic strategies, the entrepreneur can make use of the most
popular tools. These are the following:
 1. SWOT analysis; and
 2. forecasts of future sales performance.
SWOT
ANALYSIS
 SWOT Analysis.
 The firm which is fully aware of its internal environment
(specifically its strengths and weaknesses) as well as its external
environment (specifically threats and opportunities) is most likely
to develop a strategy that considers the firm’s needs.
 SWOT
 analysis is an organized method of assessing a firm’s strengths SWOT
and weaknesses and the opportunities and threats in the external
environment that confront or will confront the firm. ANALYSIS
 The purpose of SWOT analysis
 is to match the firm’s strengths and weaknesses with external
opportunities and threats to determine what strategy to adopt
(Figure 2).
SWOT
ANALYSIS
 The firm’s STRENGTH refers to a skill, a competence, a valuable organizational
resource or competitive capability, or an achievement that gives the firm a market
advantage.
 Examples of strengths are as following:
 1. a recording firm’s unique line-up of contract singers;
 2. a company’s ownership of the land that is the source of high grade material
required for producing its products;
 3. the strategic location of the firm’s sales office; and STRATEGY
 4. the firm’s exclusive supply contract with a reliable manufacturer.
 The firm’s WEAKNESS refers to something a company lacks or does poorly
AND SWOT
(compared with others) or a condition that puts it at a disadvantage. It must be
noted, however, that depending on the competitive situation, a weakness may or ANALYSIS
may not make a company vulnerable to competition.
 Examples of weaknesses are as following:
 1. lack of qualified managers;
 2. poor design of the firm’s products;
 3. low employee morale; and
 4. poor location of the firm’s sales offices.
 OPPORTUNITY refers to the chance offered by the external environment to improves the
firm’s situation significantly.
 Examples of opportunities are the following:
 1. For a motorcycle trading firm- the escalating cost of fuel;
 2. For a small restaurant- the withdrawal from business of a major competitor;
 3. For a tailor residing in a provincial city- the absence of a reliable tailoring shop; and
 4. For a newspaper dealer- an exclusive supply contract for the entire province offered by a


mojor national publisher.
STRATEGY
 THREATHS refers to a challenge posed by an unfavourable trend or development in the
external environment that would lead to, in the absence of purposeful entrepreneur action, the
AND SWOT

erosion of the entrepreneurship’s position.
Examples of threats are the following:
ANALYSIS
 1. To the grocery store- the proposed opening of a small in the activity.
 2. To the restaurant located along the highway- the proposed construction of a diversion road
bypassing the highway and the restaurant.
 3. To the local dealer of skin-whitening soap and cream- the proposed dissolution of the
company supplying the product; and
 4. To the local operator of 20 units of public utility tricycles- the proposed city ordinance
banning tricycles from plying the major streets of the city.
  Forecasts are supplementary tools for SWOT analysis. It is an
estimate or prediction of the future sales or income of the firm.
Forecasts of Forecasts may be short-term (one year or less), medium-term (one
Future Sales to five years), long-term (over five years).
 Sales forecasts are often determined through a combination
Performance. of statistical and intuitive forecasts tempered by the experience of
the entrepreneur.
  Strategies are useless unless they are implemented. To put
Implementing strategies into action, the following activities are required:
Strategic  1. identifying the specific methods to be used; and

Plans  2. deploying the resources needed to implement the intended

plans.
  Strategies determine the best way to use resources. There is a
need, however, to develop tactics which will be used to implement
the strategies. Tactics are more detailed and they are used to
determine how the specific task can best be accomplished on time
Identifying with available resources.
 If “establish branches in strategic locations” is a stated strategy,
Strategic the tactical plan to implement it may appear as follows:
Plans  1. identify strategic locations;
 2. determine the potentials of the identified strategic locations;
and
 3. set a timetable for installing the branches.
  The specific aim of planning is to be able to deploy the right
Deploying the quality and quantity of resources in the various activities the
Resources objectives. The resources would be indicated in terms of humans
and nonhuman elements.
Fundamental  There are certain basic strategies that are necessary for the
survival of small business. These are the following:
Strategies for  1. flexibility strategy;
Small  2. strategy of effectiveness as a higher priority; and
Business  3. strategy of starting simple.
Forms of  One of the most important decisions a prospective entrepreneur
or SBO has to make it the form of ownership that has to be
Small adapted. The decision must be clear at the inception of the
Business business. Each form has its own unique character and the inherent
advantages and disadvantages of each must be taken into
Ownership consideration before the decisions is made (Table 13).
 Aspects Sole Partnership Corporation
Proprietorship
1. liability of unlimited limited/ limited
owner/s unlimited TABLE 1.
2. ease of
expansion
not easy not easy easy
FORMS OF
3. life of firm dependent on
the owner
dependent on
the partners
not dependent on
the owners
BUSINESS
4.decision-making swift moderately fast takes time OWNERSHIP:
5. taxation of once once twice
income
6. ease of
formation
easiest easy takes time Implications
7. ease of easiest not so easy takes time on various
dissolution
Aspects
 TABLE 1.
 The choice would depend largely on the FORMS OF
resources and personal objectives of the BUSINESS
prospective owner. OWNERSHIP:
 The forms of ownership applicable to
small business are sole proprietorship, Implications
partnership, and corporation. on various
Aspects
FORMS OF
BUSINESS
OWNERSHIP
  A sole proprietorship is a business owned and
operated by a single person. Majority of
business are owned by sole proprietors and this
is an indication of the popularity of this
particular form. Most business owners choose
Sole this form because of certain advantages unique
to sole proprietorships.
Proprietorship
 Sole proprietorships are afforded with
advantages pertaining to the following:
 1. ease and cost of formation;
 2. secrecy; Advantages of
 3. distribution and use of profits; Sole
Proprietorship
 4. government regulation;
 5. taxation; and
 6. closing the business.
 Among the three forms of ownership, the sole
proprietorship is the easiest and least costly to establish. The
only requisites for its legal existence to commence are the
following:
 1. the owner’s resolution to start operating; and
 2. getting the required permit and license.
 There are many activities that a sole proprietor can do Ease and Cost
which cannot be done in a partnership and corporate set-up.
An example is the setting of the date for the actual start of of Formation
operations. The sole proprietor may change this date
arbitrarily without getting the approval of anybody. This
kind of advantage is very important especially when
businesses are in tight competition with one another.
 Another advantage is that the cost of forming a sole
proprietorship is less than either the partnership or
corporation.
 One way of effectively competing with others is for the business
person to determine the plans as well as the strengths and
weaknesses of his competitors. The sole proprietor is ahead in this
regard because he does not have, and he is not required by law, to
share information with anyone. Thus, he can proceed with his
Secrecy.
activities in secrecy. His competition can only guess what his
intended moves are.
 because of his efforts, his business made large profits, the sole
proprietor is the sole beneficiary. He does not have to share the
profits with anyone.
Distribution
 If he decides to invest his profits for expanding his business, he
and Use of
is not required to consult anybody. He may decide to use it any
way he pleases and he is free to do so.
Profits.
 The power to control the business is vested solely to the single
proprietor. This authority is very important especially under critical
moments of competition.
 For instance, a consumer is confronted with a situation where
he must choose to buy a product from either a sole proprietorship,
a partnership, or a corporation. If all the prices quoted by the three Control of the
firms are identical and the consumer is asking for a 10% discount,
the sole proprietor has the advantage of making an instant
Business
decision. On the other hand, the partners will have to consult one
another, and the corporation will be ready with a reply after
undergoing a process. If the customers is in a hurry, he will decide
in favor of the sole proprietor.
 The sole proprietorship is spared from various government rules
which over partnerships and corporations. Also, sole
proprietorships are required to submit fewer reports to the
government.
 Sole proprietorships are also spared from charter restrictions Government
on operations. A corporation producing movies, for example,
cannot engage in the production of vegetable crops. In contrast, a
Regulation
sole proprietorship manufacturing “pastillas de leche” can switch
to the manufacturing of kitchen utensils without violating any
legal restriction.
 The net income of the sole proprietorship is regarded as the
personal income of the sole owner and is taxed accordingly. This is
not so in the case of partnerships and corporations wherein net
incomes are taxed and will be subject to taxation again when the
Taxation
owners individually receive their share of the profits.
 Sole proprietorships can be dissolved at will. Although this is done
only when necessary, it remains an option of the owner. Once the
owner makes a decision to cease operations, he does not need to
Closing the
seek the approval of co-owners of partners because he is the sole Business
owner.
 The following disadvantages are inherent to sole proprietorships;
 1. possibility that the owner lacks ability and experience;
 2. difficulty in attracting and keeping quality employees;
Disadvantages
 3. difficulty in raising additional capital;
of Sole
 4. limited life of the firm; and Proprietorships
 5. unlimited liability of the proprietor.
 The success of the sole proprietorship will depend largely on the
management and entrepreneurial skill of the owner. The firm will
Possibility that
need a generalists with sufficient exposure to the various
specialized functions required, like marketing, production,
the Owner
finance, accounting, personnel, and research and development. Lacks Ability
 Unfortunately, it is hard to find qualified generalists to manage
the sole proprietorships. If the sole proprietor lacks the skills of a
and
generalist, then it will be hard for the firm to succeed. Experience.
 Difficult in
 The assurance that the firm will survive for a long period is not a Attracting and
feature of sole proprietorships. As a consequences, good
employees will tend to join a more stable enterprise which is most Keeping Good
often a corporation.
Quality
Employees.
 In a sole proprietorship, the amount of capital that could be raised Difficult in
will depend on financial resources of the sole owner. Even if he can
obtain credit, the amount will depend on his sole capacity to pay. Raising
This problem is especially felt when business expansion is required
and more difficult when credit is getting tight and interest rates Additional
going up. Capital
 The existence of the sole proprietorship depends on the physical
well-being of the owner. III health on the part owner could cause


bankruptcy. His death will mean liquidation of the business.
Limited Life of
In any case, employees, customers and creditors feel some
degree of anxiety about the limited life of the sole proprietorship. the Term
This limits the number and magnitude of transactions undertaken
by the firm.
 Any liability incurred by the sole proprietorship extends to the
owner’s personal assets. In theory, the sole proprietor could lose
even his shirt if all his other assets have been exhausted in
Unlimited
liquidating claims against his business. Liability of the
 Unlimited liability is the greatest disadvantage of sole
proprietorships.
Proprietor
  is a legal association of two or more persons as
co-owners of an un-incorporated business. A
partnership is formed with the purpose of
eliminating some of the disadvantages of sole
proprietorships while retaining some of their
advantages.
Partnership
 Partnerships have advantages pertaining to the following:
 1. ease of information
 2. pooling of knowledge and skills; Advantages of
 3. more sources of capital;
Partnerships
 4. ability to attract and retain employees; and
 5. tax advantage.
 Ease of Partnerships. Like sole proprietorship, partnerships are
easy to form. The only requirement before the partnership starts
to operate is for the partners to agree on basic aspects of the
business like the nature of the business, location, capitalization,
and the like.
 A written agreement called partnership agreement is drawn to
formalize what has been agreed upon.
 Partnership
 Pooling of Knowledge and Skills. The combined knowledge
and skills of the partners provide the partnership with a distinct
advantage. One partner, for instance, may be very good at
marketing, while another may have a proven track record in
research and development. These skills may be used to the
advantage of partnership. This condition leads to specialization
which is very important competitive tool in business.

 More Sources of Capital. The combine resources of the partners
provide a bigger source of funding. Also, a partnership can enjoy the
benefits of a higher credit rating. A combination of the resource
potentials of the partners and a high credit rating is regarded as a
formidable financing capability of the firm.

 Ability to Attract and Retain Employees. Attracting and
retaining good employees is a difficulty inherent to sole Partnership
proprietorships. Partnerships are able to overcome this difficulty by
offering partner status to valuable employees. This advantage is also
minimize the potential harm that may be done when a key employee
moves over to another firm.

 Tax Advantage. The income of the partnership is not taxed
separately from the partner’s income. Any profits derived by the
partners are taxed as their individual incomes.
 Operating partnerships are hindered by the following
disadvantages:
 1. unlimited liability; Disadvantages


2. limited life;
of Partnerships
3. potential conflict between partners; and
 4. difficulty in dissolving the business.
 Unlimited Liability. Partnerships, like sole proprietorships, are
saddled with the disadvantage of unlimited liability. Although one
or more partners may opt to have limited liability, the remaining
partner carries the burden of unlimited liability.

 Limited Life. When a partner dies or withdraws from the
business, the partnership is terminated. In essence, the life of the
partnership is more limited than that of the sole proprietorship.
Partnership
This is so because the life of sole proprietorship depends on the
state of health and the willingness of the sole owner to continue
while the life of a partnership depends on the state of health and
the willingness of the partners to continue. If there are five
partners, the risk of the termination of the life of the partner-ship
is five times greater than that of a sole proprietorship.
 There are occasions when partners disagree on certain ways of
operating the business, and there are many potential areas for
disagreement. Among these are the following:
 1. adding new products or services carried by the business;
 2. hiring new employees;
Potential
 3. decisions on credit extensions; and Conflict
 4. the grant of additional benefits to employees. Between
 When conflict between partners persists, operation are effected. Partners.
The condition may even lead to bankruptcy. For instance, an
employee may be at the receiving end of conflicting orders from
the partners. The ensuing confusion may affect the employee’s
performance.
 Partnerships are not easy to dissolve as sole proprietorships.
Whatever assets or liabilities are left after dissolving a sole
proprietorship is the concern of the sole owner. In a partnership
dissolution, it may not be easy to divide whatever assets are left
Difficulty in
for distribution to the partners as some of the assets may be fixed Dissolving the
or immovable.
 The more difficult the dissolution becomes when certain debts
Business.
are to be shared by the partners.
 Partnerships may be classified according to the liability of the
partners. They are as follows:
 1. general partnership; and
 2. limited partnership.

 A general partnership is an association of two or more persons,
Types of
each with unlimited liability, and who are actively involved in the Partnerships
business.

 A limited partnership is an arrangement in which the liability of
one or more partners is limited to the amount of assets they
invested in the business.
 The possibility of disagreement between partners is always
present in the partnership. There are certain operational concerns
that could be the subject of disagreement. For instance, the
partners may disagree on the choice of location of the business.
Partnership
Disagreement oftentimes negatively affects employee morale and Agreement
work attitude. It is important for the firm to be spared of such
difficulties.
 The partnership agreement is a document designed to prevent or at least minimize
disagreements between partners. It usually covers the following:

 purpose of the business;
 terms of the partnership;
 goals of the partners and the partnership;
 financial contribution made by each partner at the beginning and during the lifetime of
the business

Partnership
 distribution of profits and losses;
 withdrawal of contributed assets or capital by a partner;
 management powers and work responsibility of each partner; Agreement
 provisions for admitting new partners;
 provisions for expelling a partner;
 provision for continuing the business in the events of partner’s death, illness, disability, or
 withdrawal;
 provision for determining the value of a departing partner’s interest and method of
payment of that interest;
 methods of setting disputes through mediation or arbitration; and
 durations of the agreement and the terms of dissolution of the business.
  A corporation is a legally chartered enterprise with
most of the legal rights of a person, including the
right to conduct a business, to own and sell property,
to borrow money, and to sue and be used.

 The corporate form of business is the third
ownership option available to the entrepreneur or
the small business owner. Corporations are owned
by stockholders.
Corporation 
 They are issued certificates of ownerships called
stocks. When large amounts of capital is needed by
the firm, the corporate form is the most appreciate.
 The advantages inherent to corporations are the following:
 1. limited liability;
 2. ease of expansion; Advantages of
 3. ease of transferring ownership; Corporations
 4. relatively long life; and
 5. greater ability to hire specialized management.
 Limited Liability. The liability of a stockholder is limited to his shareholdings. He may
lose the entire value of his stocks in the event of a bankruptcy. Beyond the said value,
he has no more liability.

 The advantage of limited liability attracts all kinds of investors, big or small. A person
who has only a few thousand pesos to spare may become a part owner of the
corporation by purchasing a limited number of shares. Those who have more money
may buy bigger number of shares.

 Ease of Expansion. The authority granted to a corporation to sell its own share of
stock provides a means to pool large amounts of funds. The price per share of the
stocks can be made low enough to attract even the smallest inventor. As the
Corporation
ownership of the shares of stock can be easily transferred, this features motivates
further the prospective investor to buy shares.

 The above-cited features make it easier for the corporation to consider expanding
operations.

 Ease of Transferring Ownership. If a stockholder loses interest in maintaining part
ownership of the corporation, he may disassociate himself from it by selling or
donating his shares to another person. This feature allows as often as required without
actually dissolving it.
 Relatively Long Life. Corporations are established to have a life of up 50
years and is extendible for longer periods. Because ownership is readily
transferable, the death or withdrawal of any or all stockholders do not
terminate the corporation. This advantage makes the corporation the most
stable among the three forms of ownership.

 Greater Ability to Hire Specialized Management. The expanded
operations of corporations make it possible to subdivide the overall task
into smaller specialized positions. As the created positions will be quite
Corporation
dissimilar from each other, the demand for management expertise will be a
little more exacting than those for sole proprietorships and partnerships.

 The said requirement paves the way for hiring fully trained management
experts. With specialized management, the corporation is provided with an
opportunity grow and develop more vigorously.
 Among the three forms of ownership, the
More
corporation requires more time and
Expensive and
money to organize. Complicated to
Organize
 A corporation may start operations only after receiving from the Securities and
Exchange Commission (SEC) a certificate of incorporations. The SEC will only issue the
certificate of incorporation after reviewing the articles of incorporation previously
submitted by the initial set of corporate officers.

 The articles of incorporation contains the following:


1. name of the corporation;
2. specific purpose or purposes;
Securities and
 3. principal office of corporation; Exchange


4. term of existence of the corporation;
Commission
5. names, nationalities and residence of incorporations;
 6. number of directors; (SEC) a
 7. amount of authorized capital stock; and certificate of


8. other matters.
incorporations.
 The treasure’s affidavit indicating payment of minimum subscribed capital stock is also
a requirement.

 The articles of incorporation and the treasurer’s affidavit must, point by point,
conform with the requirements of the Corporation Code. Complying with these
requirements takes time, however.
 Double Taxation
 The profits derives the stockholders are taxed twice by the government: first,
when the corporation realizes profits; and second, when individual stockholders
declare as part of their personal income the dividends they receive from the
corporation. This is not the case with sole proprietorships and partnerships.

 More Extensive Government Restrictions and Reporting Requirements
 Corporations are subject to stringent government restrictions and are required
to submit various reports on a periodic basis. An example of a restriction is the
prohibition of certain actions without the approval of the SEC. For instance,
corporations cannot distribute stock dividends without prior approval of the
Corporation
SEC.
 The submission financial statements is an example of annual reports required
by the SEC. The reports submitted give competitors chance to take a look at
the company’s status. Competitors do not enjoy this privilege when they are
competing with sole proprietorships or partnerships.
 As the government is concerned with laying out an environment conducive to
serving the interest of various sectors in society, restrictions and reporting
requirements are modified every time there is a need to do so. The prospective
entrepreneur must be aware of developments. One way of doing so is logging
on to the website of SEC (www.sec.gov.ph).
 Employees Lack Personal Identification and Commitment

 Many stockholders are detached from the daily operations of the
corporation. Those who are employed by the corporation mostly do not
own even a share of the company’s stocks. The relationship between the
corporation and the employees are too impersonal. Employees do not feel
Corporation
identified with the corporation and therefore, lack commitment to their
work. The extra concern provided by employees of sole proprietorships and
partnerships sometimes spell the difference between success and failure.
Such is concern rarely present in a corporate work atmosphere.
THE
ENTREPRENEURIAL
ACTIVITIES
  MANUFACTURING
MANUFACTURING  A manufacturing business is one involved in the
conversion of raw materials into products
needed by society.
MANUFACTURING
  Service business are those that provide service in one way or another.
They may be further classified into the following:

 Business Service
 Those that provide service to another business
 Personal Service
 Those that provide service to the person

SERVICE  Repair Business

 Those that provide repair services to owners to various machinery
and appliance
 Entertainment and recreation
 Includes movie house, resorts, billiard pool center and the like.
 Hotels and Motels
 Education services
 Include schools for children, high school, correspondence schools etc.
SERVICE
  Wholesaling refers to the activities of person or
establishment which sell to retailers and other
WHOLESALE merchants, and/or to industrial, institutional
and commercial users.
WHOLESALE
  Retailing covers all activities involved in the
sale of goods and/or services to the final
RETAIL consumers. The bulk retailing activities are
performed by small businesses.
RETAILING
GENERAL  Gen. Construction firms are those engaged in
CONSTRUCTION the construction of buildings whether private
FIRMS individuals or firms, or for the government.
GENERAL
CONSTRUCTION
FIRMS
LEARNING
ACTIVITY
  Answer the following questions:
1. Prepare a compilation of mission statements
of two companies. Provide comments on
their clarity and comprehensiveness.
Learning 2. What is the possible effects of a wrong
Activity decision on the choice of business ownership
form?
3. What could be the underlying reason why
the sole proprietorship form of ownership is
the most popular?
Thank you
someone@example.com