Principles of Management Chapter 1 Business in General

1. Business in General
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2. Learning Objectives

3. What is Business?
 Is any activity involved in the
production and distribution of goods
and services, aimed to meet the
economic needs of consumers with an
objective of eventually earning profit.

4. Relationship Between Business
and the Economy
Economy Business
Pays For The Goods &
Services
Provides The Factors of
Productions
Produces Goods & Services
Pays For The Factors of
Productions
• The role of business is to produce goods and services which
consumers need.
• The business firm produces goods and services from the factors of
production provided by the society. Consequently, to produce goods and
services, the business firm has to purchase materials, components, or
semi-finished goods from other producers.
GNP/GD
P
Industri
es

5. Elements of A Business
System
Business
Enterprise
CAPITAL
(Money)
LABOR
(Manpow
er)
LAND
(Materials)
Entrepreneur
(Management
Skills)
Economics is the study of how a society produces and distributes its desired
goods and services. It deals with how society uses its resources to produce goods
and services. These economic resources to produce are called Factors of
Production.
Land – All Natural Resources and the Land itself.
Labor – Physical and mental inputs of the people who produce the goods and
services.
Capital – Money needed to start the business operation
Entrepreneur – Buys and organize these factors to provide goods and services.

6. What is Profit?
It is the difference between the income an entrepreneur
receives from the sales of his goods and services and the
expenses he incurs to produce them . Formula: “Income -
Expenses”
Profit is important in business. It is the prime motivator.
Entrepreneurs produce goods and services that consumers
are willing to buy.

7. Why People Engage in Business?
People engage in business because of the following reasons:
 Power
 Profit
 Service to the Community
 Prestige
 Livelihood
 Social Approval
Abraham W. Maslow Hierarchy of Needs
1. Physiological – Essential for survival (Food , Shelter, Clothing, Sex,
Air, Water)
2. Safety Need – Desire for security, stability, or protection against
danger
3. Social Need – Need for group belongingness, affection, love and
friendship
4. Self-Esteem Need – Self-recognition or group satisfaction

8. Kinds of Business – 3 Kinds
Classifications are based on the nature of principal activity performed by
the business enterprise:
1. Industries – involve the conversion of raw materials into finished
products or goods and the application of labor upon raw materials so
that greater usefulness becomes possible. E.g. Farming, Fishing and
Mining. Manufacturing industries use materials and supplies turned
out by extractive industries and change these raw material into various
articles of materials for further production of goods and new products.
E.g. Nokia, Honda, Sony, Shell etc.
2. Commerce – involve the process of buying and selling where the
goods are moved from the point of production to the point of
consumption. It involves purchasing and the actual investment of
capital in the merchandise handled with the intention of reselling at a
profit. – SM, Rustan’s, Robinsons etc.
3. Service Enterprise – primarily concerned with the satisfaction of the
needs and wants of the consumers. Divided into:
a. Public and Community Service (Meralco, Transport Services;)
and

9. Kinds of Economic System
The most common and prevalent are:
1. Capitalism – a system in which the means of production are owned
and operated by private individuals. It is a system of economic
organization wherein privately-owned capital, and property rights are
privately invested with the ultimate aim of personal gain.
2. Socialism – the ownership of production and capital by the
government and the regulation by society, as a whole, of the process of
production and distribution, and of the giving of essential services.
3. Communism – stands for the collective ownership by the government
of consumption goods and production goods. The state owns and
controls all means of production.
These terms have been defined in different ways. Very few countries have
a pure capitalist
or a pure communist economic system.

10. Phases of Economic Development
Criteria in Classifying Phases of Economic Development
A. Means of Livelihood
1. Hunting and Fishing Phase – Ancestors obtained food by hunting and
fishing.
2. Pastoral Phase – Presence of large number of livestock.
3. Handicraft Phase – Items or objects were made by skilled and trained
manual laborers (sculptures, jewelry, furniture)
4. Agricultural Phase – Concept of land ownership. Began to work as a
farmer or a fisherman.
5. Industrial Phase – Presence of manufacturing companies. Machineries
were used.
B. Extent of Economic Activity
1. Household Economy – The needs of the family were satisfied first
through the contribution of the family members.
2. Village Economy – Economic and social relations spread among
various families.
3. National Economy – Grouping of villages into bigger and broader social

11. Phases of Economic Development
(con’t)
Criteria in Classifying Phases of Economic Development
C. Medium of Exchange
1. Barter Economy – Done during primitive era, exchange was done
which was the direct exchange of goods for goods, services for
services, goods for services or services for goods.
2. Money Economy – There came to circulate in the market certain
objects, such as bars of metal, buttons, tools, and utensils which were
stable in value, durable and generally accepted by the public. Money
was used as the “medium of exchange”.
3. Money and Credit Economy – Due to increase in volume and
frequency, it became imperative to allow others to purchase one’s
goods or engage one’s service with payments to be paid at some
future date.
Credit – is the power to obtain economic goods and services in
exchange for the promise to pay the agreed equivalent at some future
date.

12. Legal Forms of Business Ownership
Sole Proprietorship – a form of business ownership organized and managed by
only one person. Capital comes from the collective contribution of member of the
family or among friends. It should be registered in the name of only one person.
Partnership – a business organization where two or more persons contribute
money, property, or talent to carry on a business. Agreement is required to be in
writing, if capital partnership is P3,000 or more. Maybe limited or general
partnership.
Corporation – is an artificial being created by the operation of law, having the
rights of succession and the powers, attributes and properties expressly
authorized by law.

13. Advantaged and Disadvantages of the 3
Main Forms of Businesses
The major determinants of business forms are the type of business, the size of
investments, the type of risk-taking involved, and your own general objectives and
personal biases.

14. Other Specialized Business Forms
Cooperative – Owned by members to provide goods and services that they all
need, and managed in their interest.
Franchise – is a written contract granting permission to operate a business to sell
products and services in a set way. The company that owns the product or service
and grants the rights to another business is known as the Franchiser, while the
company that purchasing the rights is the Franchisee.

15. Start A New Business or
Buy An Existing One?
“IT DEPENDS”
1. It depends on the nature and kind of business you have.
• Businesses takes long to develop products and markets
(trading)
• Better off buying a company that already has established
products in the market but needs fresh quality or fresh
approaches.
2. It depends on the availability of opportunities for
acquisition.
• Sufficiently interested in a business but you don’t have the
best preparation for it, better of getting into an existing
operation with the option to learn the ropes and gain
control.
• Look at the classified ads – banks or financial institutions
selling companies and businesses.
3. It depends on your personal biases
• So you want to have the satisfaction of building a new
organization or would you derive greater satisfaction in

16. The Project Feasibility Study
•Sometimes called a Project Study or a Feasibility Study evaluated the
viability of a business undertaking.
•The undertaking may be a new or proposed venture, or an existing
business.
•May or may not have an expansion program.
•Merely considered as a procedural requirement for securing financing or
government assistance.
•OBJECTIVE – to guide the project promoters, business executives, and
financial managers in determining the actions they must take on a project
in order to bring about its successful operation.
The Project Study covers:
1. Collection of Data (through research work)
2. Analysis of the collected Data, and
3. Formulation of Recommendations, based on the analysis.

17. Various Aspects of
Project Feasibility Study
Marketing Aspect
•Considered the life blood of virtually all project
feasibility studies.
•Serves as the basis of the financial section through
projected demand.
•Includes: demand, supply, demand and supply gap
analysis, marketing program and the projected sales.
•OBJECTIVE: To determine the quantity of the product
that can be sold at a certain prove given the competitive
situation.
Organization and Management Aspect
•Includes the study of the officers and key personnel,
basic considerations in forming the organizations, form
of ownership, organizational chart, and project
schedule.
•OBJECTIVE: To determine the option effectiveness of
the organizational set-up and the qualifications of the
individuals who will make up the organization.

18. Various Aspects of
Project Feasibility Study (con’t)
Technical Aspect
•Pertinent technical aspects of the project, planned constructions.
•OBJECTIVE: To determine to what extent the project meets the technical
soundness criteria.
Technical Requirements of the Project
Prior to projecting technical feasibility, the technical requirements of the project
must be analyzed:
A. Stating:
1. Quantity and quality of products to be produced.
2. Specifications of raw materials
3. Supplies to be used
4. Labor needed, both skilled and unskilled
5. Utilities Needed
6. Waste Disposal Methods
7. Manufacturing Process
B. Providing estimates of total projects cost and enumerating the major items of
capital cost.
C. Listing down in detail estimated production cost and overhead cost that will go

19. Various Aspects of
Project Feasibility Study (con’t)
Financial Aspect
• Quantifies the results of the marketing, technical, management, taxation and
legal phases of the project study.
• Expresses in peso terms the possible outcome of operating the project
Major Parts of the Financial Study
1. Statement of Assumptions
2. Possible sources of outside financing if cannot be met by proponents
3. Projected financial statements
4. Details of various amounts contained in the projected financial statements
5. Analysis of the financial projections
OBJECTIVES:
1. To make a realistic, complete and conservative estimate of total cost to put up
the project.
2. To determine amount of capital financing
3. To make complete, safe and realistic projections of operating cost and
revenues.
4. To determine whether the project will be able to pay the total debt.
5. To determine the necessary financial arrangement to insure the project have

20. Various Aspects of
Project Feasibility Study (con’t)
Socio-Economic Aspect
•Should be pre-convinced not only for profit but also
for social and economic benefits.
•Even more worthy of establishing a business unit if it
will be for the welfare of others rather than simply for
the wealth or power of the proprietor.
OBJECTIVES: To determine how the project will
affect:
1. Income, considering the benefits it will give to
families and individuals.
2. Taxes, indicating the amount of revenue it could
raise for the government.
3. Prices, considering the influence of the proposed
project on supply of goods, and foreign exchange
4. Local produces, considering the use of locally
manufactured machines, raw materials, and labor
5. The community, in terms of benefits the proposed
business will directly or indirectly share on the
developments of the place, community and the

21. Parties Requiring
Project Feasibility Study
1. Management of On-Going Concerns
a. To determine the feasibility of expansion programs.
b. To set reasonable price of an existing business which they are
considering to take over.
2. Proponents or Promoters of New Projects.
a. To ascertain the viability of new projects.
b. To select or improve the project specifications in terms of form
business organization, location, market, distribution channel, plan
capacity, sources of financing and other designs.
3. Stockholders.
a. To decide on the sales of existing companies and if so, to set the
selling prices.
b. To find out if an investment in a project or an existing enterprise is still
attractive.
4. Lending Institutions
a. To ascertain the advisability of lending to a new project or existing
undertaking.
b. To define the conditions to be imposed in order to safeguard the
position of the institution

22. Limitations of Project Feasibility
Study
A project feasibility study is primarily based on the forecast
of demand, prices, new products coming in, technological
developments, amendments of laws, changes in tariff
rates, sales revenues, cost and expenses, and available
financing.
1. Certain required information is usually not available.
2. The one preparing the study may not be professionally
competent, and hence the opinion he forms may be
deficient. Professional competence is an opinion on the
project based on analyses.
3. Though required data is available, and the one
preparing is competent, the study is still a FORECAST.
Results do not usually tally with the actual events.
**The project study still offers the advantage of consulting
the most realistic basis of calculated action to
implement or stop a project. Hence, project studies

23. The Entrepreneur and the Manager
Entrepreneurs
•Most almost business firms are managed and owned by them.
•They start the business, risking time and capital, they make all management
decisions.
•Way of life is a combination of creativity, challenge, hard work, and satisfaction
•Must conceives an idea out of his own visualization then turn the idea to reality.
•Puts in long and unremitting hours of work and takes financial risks. Requiring a
lot of energy and self-discipline.
When the business becomes more complex….
Managers
•Professional experts in finance, marketing, personnel production, or data
processing.
•Usually employees in the business enterprise.
•Main role is to maximize the use of resources, to make decisions, to generate
profits, and to sustain the growth of the business.
**Successful entrepreneur attains a position of prestige in the community
because of his many contributions to society especially in terms of general jobs to

24. Social and Economic Contributions of
Entrepreneurship
1. Entrepreneurship Creates Employment
• Need to hire or employ at least one or two other people in order to get
things done.
2. Entrepreneurship Improves the Quality of Life
• Entrepreneurial ventures contribute significantly to the continuous
improvement of living standards, making life easier and comfortable.
3. Entrepreneurship Contributes to More Equitable Distribution of
Income Taxes.
• When income is more evenly distributed, entrepreneurship also grows.
People will have more money with which to buy the products and
services they need.
4. Entrepreneurship Utilizes and Mobilizes Resources for Greater
National Productivity.
• The PH will develop faster economically if none of its resources were
left idle or unused.
5. Entrepreneurship Brings Social Benefits Through the
Government.

25. Business RegistrationPurposes:
To establish the legal personality of the business
To obtain a Permit to Operate (PTO)
To comply with the requirements of special regulatory or promotional programs
of government
Two Government Agencies
1. Securities and Exchange Commission (SEC) – Registering partnerships and
corporations
2. Bureau of Trade Regulation and Consumer Protection (BTRCP) – Single
Proprietorship
Two Key Agencies
1. Bureau of Internal Revenue – Revenue Collection
2. Social Security System – Promotion of Social Justice
Normal Sequence
1. SEC and BTRCP
2. BIR
3. Local Government Unit
4. SSS

26. Positive Values of A Filipino
Entrepreneur
1. Pakikipagkapwa Tao (Human Relations) – does not cheat to
customer by overpricing etc.
2. Bahala Na (Let Fate Decide the Outcome) – pursue plans and
project even seems unsure
3. Pakikipagsapalaran (Adventure) – do not surrender before
uncertainty or challenge
4. Gaya-gaya (Imitations) – more creative and innovative
5. Utang na Loob, Hiya, Awa, Bayanihan (Debt of Gratitude,
Loss of face, Compassion, Cooperative Spirit) – willing to
assist us simple from goodwill.
6. Kasipagan (Industriousness) – dealing with Juan Tamad
7. Pagtitipid (Thrift) – Frugality, being wise spenders and savers.
8. Pagtitiis or Mapagtiis (Enduring) – not easily to give up
9. Pagtitimpi (Self-control) – capacity to bear emotional or
physical stress.
10.Katapatan (Sincerity) or Kalinisan ng Loob (Purity of Heart)

27. International Business Environment
Range from exporting goods
to other nations to establishing
manufacturing operations in other
nations.
Training of goods and
services across national boundaries
result from the principle of
competitive advantage. Factors
determining a country’s competitive
advantage include the presence of
natural resources, adequate quality
and quantity of labor and capital,

28. What is Exporting & Importing?
Exporting - refers to the selling of
an organization’s goods in other
country.
Importing - the purchasing of
goods and services from a foreign
country.
The organization may establish its
own internal structure. This may

29. Reasons for Exporting & Importing
Exporting:
1. If the production process requires high volume to reduce cost per
unit, the home market may be too small to absorb the output.
Output may be sold overseas.
2. The demand for the firm’s product may be seasonal and
irregular. By expanding the firm’s market to other countries,
production costs may be lowered by more effective production
scheduling.
3. Product Life Cycle – Creating new markets, where it re-enters
the growth stage
4. Selling its established goods in new overseas markets,
organization is also able to increase profits.
Importing:
1. The goods may be needed but not available in the importing
country (crude oil)
2. Many foreign-made products have prestige value and are

30. Multinational Corporation (MNC)
Measure used to determine if a
business is multinational include
percentage of total sales by
majority-owned foreign affiliates,
percentage of earnings due to
foreign operations, and
percentage of new capital
investment destined for overseas
facilities.
MNC is defined as any business