Special Topics in Management

Small Business Management and Entrepreneurship

What is Small Business?

 A small business is a privately owned and operated business.

 A small business typically has a small number of employees.

What is Entrepreneurship?

Entrepreneurship – the process of starting and operating your own business.

Entrepreneur – the people who create, launch, organize and manage a new

business and take the risk of business ownership.

What are the risks?

 Business failure

 Financial loss

 Loss of employment

 Loss of time

 33% of all new businesses fail within 2 years. 50% fail within 4 years.

Advantages of Entrepreneurship
  Personal freedom and satisfaction

 Increased self-esteem and income

Important Personal Characteristics of Successful Entrepreneurs

* They are goal oriented

*They're commited to their business

*They're hands-on

*They thrive on uncertainty

*Theu continuously look for opportunities to improve

*They're risk takers

*They're willing to listen and learn

*They have great people skills

*They're inherently creative

*They're passionate and always full of positivity

Entrepreneurship Vs. Small Business

Many people use the terms <entrepreneur= and <small business owner=

synonymously. While they may have much in common, there are significant
differences between the entrepreneurial venture and the small business.

Entrepreneurial ventures differ from small businesses in these ways:

1. Amount of wealth creation – rather than simply generating an income

stream that replaces traditional employment, a successful

entrepreneurial venture creates substantial wealth.

2. Speed of wealth creation – while a successful small business can

generate several million pesos of profit over a lifetime, entrepreneurial

wealth creation often is rapid.

3. Risk – the risk of an entrepreneurial venture must be high, otherwise,

with the incentive of sure profits many entrepreneurs would be pursuing

the idea and the opportunity no longer would exist.

4. Innovation – entrepreneurship often involves substantial innovation

beyond what a small business might exhibit. This innovation gives the
venture the competitive advantage that results in wealth creation. The innovation may be in the product
or service itself, or in the business processes used to deliver it.

Family Business Enterprise

• Family business is a corporation that is entirely owned and managed by

members of a single family.

• Family firm is a corporation that is entirely owned by members of single

family. It is also known as company owned, controlled and operated by

members of one or several families. .

Family business is one in which one or more members of one or more families

have ownership, interest and significant commitment towards business.

Types of Family Business

• Family owned business : is a profit organization were number of voting

shares, but not necessarily majority of shares are owned by members of

single extended family but significantly influenced by other members of

family.

• Family owned and managed business : is a profit organization were

number of voting shares, but not necessarily majority of shares are owned by

members of single extended family but significantly influenced by other

members of family. In this business has active participation by one family

member in the top management of company so that one or more family

members have ultimate management control.

• Family owned and led company : is a profit organization were number of

voting shares, but not necessarily majority of shares are owned by members

of single extended family but significantly influenced by other members of

family. In this business has active participation by one family member in the

top management of company so that one or more family members have

ultimate management control. But in this method one member has major

influence on business activities who in charge of regulating activities of

business and members of family business.

Starting a Business: Legal Forms and Requirements

Business Operation:

Activities involved in the day to day functions of the business conducted for the

purpose of generating profits.

Business Plan:

Document that describes a business along with it9s objectives, strategies, the
market in which it operates and the businesses9 financial forecasts.

A business plan is a blue print of step by step process that would be followed to

convert business idea into successful business venture.

Business Plan Purposes:

• Plans for future

• Allocate resources

• Identify and prepare for problems and opportunities

• Useful for start up businesses applying for finance or growth

• Improves entrepreneur9s understanding of business and the market

Audience

• Banks, Financial lenders.

• Venture Capitalists: people who invest for a share of the business.

• Business Angels: people who invest in start up businesses which are high

risk, high growth market.

• Providers of grants

• Potential purchaser of the business

Business Plan Process:

Idea generation: is the first step in the business planning process. This step

differentiates entrepreneur from usual business. An entrepreneur may come up

with new business idea or may bring in value addition to existing product in the

market. Sources of new idea for entrepreneurs are:

 Consumers/ customers

 Existing companies

 Research and development

 Employees
 Dealers, retailers.

Environmental scanning: once the entrepreneur is through the idea generation

stage, next entrepreneur is required to conduct environmental scanning which

includes analyzing external and internal environment that affects business idea.

1. External environment comprises of :

 Socio cultural appraisal : it gives brief overview about the culture and

tradition existing in society. It is comprised of values and beliefs of people

which determines the acceptance of product by customer in the market.

 Technological appraisal : it assess various technological options available

to convert an idea to product. It also provides an brief overview about

technological updates.

 Economic appraisal : it assess the status of the society in terms of economic

development, per capita income, national income, consumption pattern in

the business.

 Demographic appraisal : it assess the population pattern of given

geographic area. Which includes sex, age profile, distribution etc.

 Economic appraisal : it assess the status of the society in terms of economic

development, per capita income, national income, consumption pattern in

the business.

 Demographic appraisal : it assess the population pattern of given

geographic area. Which includes sex, age profile, distribution etc.

 Government appraisal : it assess the various legislation, policies, incentives

formulated for particular industry. Flexibility of these rues determine ease

for entrepreneur in terms of opening venture in particular area.

2. Internal environment :

 Raw material: it refers to in terms of availability of raw material required

for the process of production. If the material availability is at distance place

and is very expensive then entrepreneur should give second thought to the

same.

 Production/ operation: it assesses the availability of various machineries,

equipment's, tools and techniques that would be required for production.

 Finance: it studies total requirement of finance in terms of start up expenses,

fixed expenses, running expenses etc.

 Market: refers to study on potential customer and target customers in

market.

 Human resource: refers to demand and supply of required human resource

in market and estimation of expenses to be incurred on human resource.

Feasibility analysis: refers to conducting detailed analysis in relation to every

aspect relevant to business and determining credibility of business.

 Market analysis: is conducted to estimate the demand and market share for

proposed product and service in future. Demand and market analysis is

based on factors like consumption pattern, availability of substitute goods

and services etc.

 Technical and operational analysis: is to assess operational ability of

proposed business enterprise. Technical or operational analysis collects data

on following parameters :

1. Material availability

2. Material requirement planning

3. Plant location
4. Plant capacity

5. Machinery and equipment.

 Marketing plan: lays down the strategies of marketing which can lead to

success of business plan. Strategies are in terms of marketing mix which

includes (product, price, place, promotion) which determines the potential

demand of customers for product in the market.

 Production plan / operational plan: production plan is drafted for

manufacturing sector where as operation plan is designed for business into

service sector. It comprises of strategies on parameters such as location

layout, cost, availability of material, human resource etc.

 Organizational plan: defines type of ownership pattern in company, sole

trading concern, family business, private or public limited company etc.

 Financial plan: financial plan indicates the requirement of proposed

business enterprise. Which includes fund flow, cash flow statement,

breakeven point, projected ratio, projected balance sheet.

Project report preparation: project report is a written document that

describes step by step strategies involved in starting and running business.

Evaluation, control and review: as company operates in dynamic environment

company has to monitor and review strategies and policies to stay in line with

competition existing in market.

List of Business Permits and Licenses in the Philippines

Basic permits:

The following are the business permits and licenses that are generally required

to all business industries.

1. Barangay Clearance – The barangay clearance is a certificate that your

business complies with the requirements of the barangay where your

business is located. To get a barangay clearance, you may visit the barangay

office where your business is located.

2. DTI Business Name (BN) Registration Certificate – This is the certificate

of registration of your business trade name. It gives you the power to use

your registered business trade name for business operation. It also protects

your business name against being used and registered by other business

establishments. However, take note that DTI registration only gives you the

authority to use your business trade name, but it doesn9t give you the license

to start operating your business without getting the required licenses from

other government offices, such as BIR and Local Government Office (Mayor9s

Office).
3. SEC Certificate of Registration – Corporations (stock or non-stock) and

partnerships have to secure a certificate of incorporation or certificate of

partnership with the Securities and Exchange Commission (SEC) to be considered as legal or juridical
entities. These certificates are also used as a

requirement for registering with the BIR, Mayor9s Office, and other

government offices. Take note that sole proprietorship businesses are not

registered with SEC, but they are registered with the DTI. To register with

SEC, you may reach the following SEC address and contact information.

4. Mayor9s Business Permit. Businesses have to secure a Mayor9s Business

Permit or the Local Government Office where their business are located and

operated. Requirements in obtaining a Mayor9s Business permit vary from

different cities or municipalities. This permit is also a requirement by the BIR

in issuing a BIR certificate of registration.

5. BIR Certificate of Registration. Any business must be registered with the

Bureau of Internal Revenue to comply with the Philippine tax requirements.

BIR registration will assign a TIN (Taxpayer Identification Number) to the

company or business owner, will give the business authority to print its

official receipts and invoices, and registered its books of accounts. To register

with the BIR, you have to go to the BIR office which has the jurisdiction of the

place where your business is located.

6. SSS Employer9s Registration. Republic Act No. 8282 or otherwise known as

the Social Security Act of 1997 requires businesses or business owners who

use the services of another person or employees in business, trade, industry,

or any undertaking to be registered with the SSS (Social Security System).

7. Phil-Health Employer9s Registration. All businesses and employers are

also required to register with Phil-Health to enable them to provide social

health insurance coverage to their employees.

8. Pag-IBIG Employer9s Registration. Employers also have to register with the

Home Development Mutual Fund (HDMF) to secure their Pag-IBIG Employer

ID Number and to provide the required benefits to their employees, who

should be Fund members.

9. DOLE Registration. Businesses with five or more employees are encouraged

to register with the Department of Labor of Employment (DOLE) for the

purpose of monitoring their compliance with labor regulations. For

companies with 50 or more workers, they are required to register with

DOLE, under the Bureau of Local Employment which administers the

registration of establishments.
Compare the Difference Between Similar Terms

Difference Between Small Business and Entrepreneurship

Dili

6 years ago

Key Difference – Small Business vs Entrepreneurship

Small business and entrepreneurship are two terms that are often confused and used interchangeably;
thus, it is important to understand the difference between small business and entrepreneurship clearly.
While most entrepreneurial ventures start out as a small business, not all small businesses are
entrepreneurships. The key difference between small business and entrepreneurship is that a small
business is a limited scale business owned and operated by an individual or a group of individuals
whereas an entrepreneurship is defined as the process of designing, launching and operating a new
business, which usually starts as a small business and pursues growth. Many companies that are
immensely successful have started out as entrepreneurships.

CONTENTS

1. Overview and Key Difference

2. What is a Small Business

3. What is an Entrepreneurship

4. Side by Side Comparison – Small Business vs Entrepreneurship

5. Summary

What is a Small Business?

Small business is a limited scale business owned and operated by an individual or a group of individuals.
A small business is convenient to manage. Thus, some individuals and groups prefer such simplicity. The
main aim of a small business is to make profits; however, the profit making ability is limited in a small
business since the owner/owners do not wish to explore new business opportunities. Sole
proprietorships and partnerships are the most common types of small businesses.

Sole Proprietorship

A sole proprietorship is the simplest and most convenient structure that can be used to start a small
business. This is a business owned and operated by an individual. Profits and losses are borne by the
owner since he or she is unlimitedly liable for the debts of the business.

Partnership

A partnership is an arrangement in which two or more individuals share the profits and liabilities of a
business venture. In some partnerships, all partners share profits, losses, and liability equally. In other
business arrangements, some partners may have limited liability.

Obtaining finance is a major barrier to a small business since financing options such as venture capital,
and business angels available for startup companies with a high growth objective may not be available
for a small business due to the lack of growth objective. Thus, many small businesses are financed
through personal capital and bank loans.

Difference Between Small Business and Entrepreneurship

Figure 01: Small business conduct operations on a limited scale, often restricted to a limited
geographical area.

What is Entrepreneurship?

Entrepreneurship is defined as the process of designing, launching and operating a new business, which
usually starts as a small business and pursues growth. Entrepreneurship is started by an ‘entrepreneur’.
It is difficult to separate the entrepreneur from the entrepreneurship since the success of the
entrepreneurship is a result of the vision of the entrepreneur.
E.g. Walt Disney was fired from Missouri newspaper for “not being creative enough” at the age of 22.
Disney then acquired Laugh-O-Gram, an animation studio which went bankrupt. He faced a lot of
challenges; however, succeeded due to his creative vision and effective imagination ability. Today, Walt
Disney Company is the world’s largest animation company

Key Difference - Small Business vs Entrepreneurship

Figure 02: Disneyland, a theme park by Walt Disney Company is a major revenue-generating line of
business for Disney

Further, companies such as such as Apple, Amazon, Google and Harley-Davidson also became successful
due to the creative vision of their entrepreneurs. As such, successful entrepreneurs have the below
traits.

Create a competitive advantage

Build an extremely capable business team

Be technologically advanced

Hardworking and be dedicated

Risk taking ability

Successful money management

Entrepreneurship also starts as a small business; however, it will grow rapidly since the entrepreneur/
entrepreneurs are constantly looking for opportunities to change, take more risks and grow the
business. They are keen on taking every opportunity that comes their way. Further, unlike in a small
business, their main objective is not making profits, but to do business creatively and sell a unique
product or service.

What is the difference between Small Business and Entrepreneurship?

Small Business vs Entrepreneurship

Small business is a limited scale business owned and operated by an individual or a group of individuals.
Entrepreneurship is defined as the process of designing, launching and operating a new
business, which usually starts as a small business and pursues growth.

Business Expansion

Business expansion is very limited in small business since the owners are not exploring new
opportunities. Entrepreneurships are subjected to fast business expansion.

Types

A small business owner’s primary motive is to make profits. Primary motive of an entrepreneur/
entrepreneurs is to introduce a unique product or service to the market.

Summary – Small business vs Entrepreneurship

The difference between small business and entrepreneurship mainly depends on the persuasion of
growth. If the owner/ owners of the business are content with the manner in which the business is
currently operating and do not wish to engage in more growth opportunities, then it can be categorized
as a small business. On the other hand, if the entrepreneur/ entrepreneurs operate their business with a
clear and creative vision and are interested in expansion opportunities, this type of business is an
entrepreneurship. Since small businesses do not pursue growth, they remain small or medium scale
throughout their lifespan. However, this does not mean that they are not successful; some small
businesses may be cash rich.

Small businesses contribute to local economies by bringing growth and innovation to the community in
which the business is established. Small businesses also help stimulate economic growth by providing
employment opportunities to people who may not be employable by larger corporations.