Republic of the Philippines

APAYAO STATE COLLEGE

Conner, Apayao

Applied Subject

2nd Quarter Work texts

Weeks 10 - 17
 ☛ ATTENTION FUTURE ENTREPRENEURS!
 As you start studying the worktext, I want you to set aside other
task/s that may disturb you while enjoying the lessons.
 Please check your name on the groupings that I made for you to start
your Business Plan.
 You are grouped according to your barangay or ‘purok’.
 Meet with your groupmates, assign a leader and send the name of
your leader via messenger.
 Compose a very unique business name which will then be
considered as your group title.
 Seek and discover what potential business you’d like to put up in
your barangay or ‘purok’.
 Follow the contents of the Business Plan in your worktexts or you
can search a very compelling business plan on the internet as your
guide as well.
 Start your Business Plan now.
 Enjoy starting your small business.

You start discovering a new world – the world of business. Who knows, one day you
may grow into one of the successful entrepreneurs in our country can be proud of.

 If you encounter any difficulty in answering the tasks, do not hesitate to consult your
teacher or facilitator.
 Always bear in mind that you are not alone. We hope that through this material, you
will experience meaningful learning and gain deep understanding of the relevant
competencies. You can do it!
 This worktext was written for you to accomplish at home. It was carefully designed so
that you can work at your own pace and allow self-discovery of the concept through
activities that you will perform. Activities were also selected to allow independent
learning, which also aims to develop your reading comprehension skills through
understanding written texts. It covers many different learning situations where you
can relate your personal experiences on different practical scenarios about
Entrepreneurship.

(Department of Education - Bureau of Learning Resources (DepEd-BLR))

“Blessed is the man that walketh not in the counsel of the ungodly, nor standeth in the way of
sinners, nor sitteth in the seat of the scornful (Psalms 1:1)”

Weeks
10-17
LESSONS 8 - 13 2
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Lesson 8:

Business Plan

Lesson Objectives:
At the end of the lesson, students shall be able to:
1. discuss business model and the concept of business plan; and
2. develop a winning business plan.

Readings:

Business Model
 Describes the reasons of how an organization creates, delivers, and captures value in
economic, social, cultural or other contexts. The development of business model
construction and variation is also called business model innovation and forms a part of
business plan.
 A company's plan on how an entity will make revenues and profits.
 Describes what products or services the business plans to manufacture and market,
and how it plans to do so, as well as what expenses it will incur.

There are important phases in developing your business model, namely:

 identifying the specific audience;
 establishing business process;
 recording business resources;
 developing strong value proposition;
 determining key business partners; and
 creating a demand for today’s generation strategy and be open for innovations.

After discussing the business model, we will proceed in developing a business plan. To be
able to successfully complete this module, you need to prepare a business plan, execute your
plan and finally keep records of your business transactions.

Planning the Enterprise

Business Plan
 An important tool for you to have an idea about the future of your business. It will be
your guide the moment you’ll be implementing your business proposal.
 Can be used in securing investment capital from financial institutions or lenders. It can
also be used to influence people to work for your enterprise, secure credit from
suppliers, and fascinate potential customers.

Read the stories of Jessie, Mercy and Monna below to fully understand the importance
of having a business plan:

Jessie is the eldest of five children of Mr. & Mrs. Natividad. The family is
having difficulty to support for their everyday needs. Because of this, Jessie
tried to enter selling banana cue and with his dream to make his business grow,
he put up many stalls in the community without considering the advises of his

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Aschleigh Klarizze A. Gundan
 friends to make a business plan before implementing his decision. After a few
months his stalls shutdown.

Mercy is the youngest in the family. She found out that she loves to cut hair
and apply make up to her friends. Until such time that her friends introduced
her to their friends too for haircut and make up when there are occasions. Few
months after, Mercy was told by her friends to put up a beauty parlor in their
place. So, she asks her mother who is also a businesswoman to teach her how
to make a business plan and eventually ended with a successful business.

Monna is a diligent student. Because of her knowledge gained from school

about business plan she was able to enhance her skills in business and finally
found herself into his laundry shop business.

Each scenario taught us that business is not just about how much income or profit you
can get but it’s about the life of your business. And in having a business, you also have
to consider technological forces, social forces, political forces, cultural forces,
economic forces and legal forces.

What is a business plan for?

 Entrepreneurs who plan to enter any business endeavor must have a business plan on
hand to guide them throughout the process.
 Different business plans are prepared for different purposes.
1. Business plan written prior to setting up an enterprise, which are similar to a pre-
feasibility study and feasibility study.
a. Convey business investors about the soundness & potential of their
business.
b. They need to convey the capabilities and competencies of their owners &
managers.
2. Business plans that are written during the first few years of the enterprise- in order
to guide the entrepreneurs on which strategies would be most beneficial for the
enterprise to take.
3. Business plan focused on bringing the enterprise to a higher level of growth.
4. Identifies factors affecting the venture’s success
5. Serves as the entrepreneur’s tool for raising capital
Three Business Plan Formats are presented:
1. Business Plan for Micro Business \
 A simplified format that may not require too much research inputs but may
purely rely on the experiences or gut feel of the business proponent.

2. Pro-Forma Mini-Business Plan

 May be used by the small and medium enterprises including micro-business
entrepreneurs.
 May be based on the perspectives or from the practical knowledge, skills or
practice derived from direct observation of or participation in particular
business activities of the entrepreneur,
3. Comprehensive Business Plan for Small & Medium Enterprises
 May require adequate research inputs to be combined with information culled
from actual experiences. Make it an interesting read!

LESSONS 8 - 13 4
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
Making an Effective Written Presentation
• Use good grammar.
• Limit the presentation to a reasonable length.
• Go for an attractive, professional appearance.
• Provide solid evidence for any claims.
• Describe the product in lay terms.
• Emphasize the qualifications of the management team.
• Analyze the market thoroughly.
• Include financial statements that are neither overly detailed nor incomplete.
• Don’t hide weaknesses—identify potential fatal flaws.
• Maintain and insist on confidentiality.
• Provide table of contents and section tabs.
• Use a loose-leaf binder in case of revisions.
• Use visual aids—graphs, exhibits, and tabular summaries.
• Indicate that all information is confidential.
• Number copies of the plan and require written receipts.
• Be careful about divulging competitive information or proprietary
designs/technology.

Use the following questions to make decision about a business idea of your choice. Be sure to
write out your answers to remember your decisions and build on them.
1. How can you describe the business in only one paragraph?
2. What is your product or service?
3. Who will buy it?
4. Where should you locate the business?
5. How can you attract customers?
6. What is your competition?
7. How much should you charge for the products or service?
8. What advice do you need and who can provide it?
9. How will you organize the managers and/or workers of the business?
10. How will you split the profits? Who is responsible for the losses?
11. What should you consider to be able to produce the product and get it to the
customer?
12. How much money is needed to get the business started?
13. How many customers will you have per month and how much will they buy per
month?
14. How much does it cost to make the product or provide the service?
15. What are your operating costs?
16. How much money will your business earn each month by selling your product or
service?
17. How much investment will you need to keep the business going until you make a
profit?
18. What is your potential profit per year for Year I, Year II, and Year III?
19. How much money do you need to borrow to start this business?
20. How will you make the business grow in the future?
Ideas for Starters
You might want to think about some of the following types of business to get your business
plan "thinking processes" moving:
A. Trading
i. Auto supply

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Aschleigh Klarizze A. Gundan
 ii. Avon/Natasha Dealership
iii. Bag & shoe store
iv. Boutique
v. Cell phone/Cell Card Loading Station
vi. Convenience store
vii. Electrical/Electronics Store
viii. Fish dealership
ix. Fruit Dealership
x. Gasoline station
xi. Glass Aluminum supply
xii. Gravel and sand
xiii. Hardware store
xiv. Jewelry
xv. Junk shop
xvi. Meat dealership
xvii. Medical supply
xviii. Merchandiser
xix. Mini-grocery
xx. Motorcycle & car store
xxi. Pet shop
xxii. Pharmacy/Drug store
xxiii. Rice dealership
xxiv. Sari-sari store
xxv. Toy balloons/party needs
xxvi. Water distribution
B. Manufacturing/Processing
i. Banana/sweet potato catsup manufacturing
ii. Bag Manufacturing
iii. Cooking oilman.
iv. Vehicle parts fabrication
v. Fish processing
vi. Food manufacturing
vii. Footwear manufacturing
viii. Furniture factory
ix. Garment factory
x. Herbal/alternative medicine
xi. Purify water station
xii. Soap making
xiii. Special cakes/bakery
xiv. Virgin coconut process

C. Services
i. Accounting office
ii. Acupressure therapy
iii. Auto repair shop
iv. Beauty parlor/barber shop
v. Bus/taxi operations
vi. Car aircon
vii. Carwash
viii. Caregiver and training

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Aschleigh Klarizze A. Gundan
 ix. Construction
x. Dental medical clinic
xi. Driving school
xii. Funeral parlor
xiii. Internet/café shop
xiv. Laundry shop
xv. Machine shop
xvi. Printing press
xvii. Skin care center
xviii. Tutorial service
xix. Upholstery

D. Rentals
i. Apartment rental
ii. Computer rental
iii. Hotel/motel/boarding house
iv. Warehouse

E. Food and Beverage

i. Bakery and bakes shop
ii. Canteen
iii. Food cart business
iv. Restaurant
v. ‘Ihaw-ihaw’
vi. Videoke/beer house

F. Agri/Aqua business
i. Broiler production
ii. Dog breeding
iii. Duck raising
iv. Hog raising
v. Honey bee production
vi. Mango production
vii. Poultry raising
viii. Tilapia raising

G. Micro-Business
i. Automotive trouble shoot
ii. Balut/penopeddling
iii. Banana & camotecue, turon stand, barbeque
iv. Binding and I.D. lamination
v. Buko juice stand
vi. Burger stand
vii. Carwash
viii. Cellphone accessories
ix. Cellphone repair service
x. Curtain peddling
xi. Fish ball in cart
xii. Fruits and vegetable stand
xiii. Lugaw,boiled egg,lugao and tukwa-baboy

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Aschleigh Klarizze A. Gundan
 xiv. Mami noodles stand
xv. Meat processing (Tocino, Longganisa, Tapa)
xvi. Pizza stand
xvii. Plumbing service
xviii. Pulvoron and pastillas
xix. Processed fish (tinapa, tuyo, daing)
xx. Refrigeration and air conditioning service
xxi. Shoe shine and repairs
xxii. Siomai stand
xxiii. T-shirt printing
xxiv. Turo-turo eatery
xxv. Vulcanizing
xxvi. Watch repair.

SOURCE NOTE: The above materials are adapted from PACE, Unit 5, Business Plan,

Introduction of Business Plan

Suggested business plan format (writing a winning business plan)

There are at least a hundred business plan formats. You may wish to use one of them.
However, for our purpose, you are enjoined to follow the suggested (prescribed) business
format to test the understanding of various entrepreneurial and other business concepts taught
in the classroom.

The business plan is a story of how you intend to put up a business that will be
communicated to investors, business partners, lenders, regulators and employees. It is a
documentation of the plan, and a communication tool.

Contents of The Business Plan (From Trilogy of Enterprise)

I. The Business - business concept, the business model, the business goals, and
offering
1. Business Concept
 Contains the essence of the enterprise in a concise but powerful manner. It
stresses the value of the product offering to the target customers who would
mostly buy it.
 The idea or abstraction of the product offering to a targeted customer group. It
must be brilliant, unique, differentiated and compelling. It should be a product
of a creative process – not a dry old concept. It must be innovative – NEW! It
can’t be a boring business, just like the others, a “me too” business, where
everyone can be into. It must be specific while at the same time, not more than
50 words.

NO - We are going to be in the food business, restaurant business.

YES - A floating Japanese restaurant located in a middle of pond with Zen garden
- A bar in a tree house high above hills in Metro Manila or within a swimming
pool
- A restaurant or river boat cruise (as in Lontoc)

We are in the footwear business

Ex. Sandugo Business Concept

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Aschleigh Klarizze A. Gundan
“Sandugo crafts ruggedly handsome designed sandals and slippers for adventurers,
outdoorsman, construction worker who loves footwear that breathe well and do not
wear easily.”

Vente Business Concept

“Vente sells trinkets, toy, knuckle cracks and all sets of wearable accessories to
parents, teens, boys and girls in highly accessible mall location at one common price,
Twenty (Vente Pesos). Vente caters to impulsive buyers and gift given on a budget.”

The business concept includes:

1. PTM (Primary Target Market)
2. Product / Product feature
3. Placement / Channels
4. Logic behind a product – why the product satisfies customers’ needs and
vice versa. Why the customers need the product?

The winning business concept, (which is compelling) is delivered with a punch! The
business concept briefly describes the essence of business in simple but powerful
way!

2. The Business Model

 How the business intends to make money? It is a combination of various
business formula / elements on how the business will be run to make
money. Does it possess by factors for success in that business?
 The business model has to be dynamic because of competition, costs,
customer and revenue pressures. (Please see Alex Osterwalder’s Business
Model Canvass)

Basic Questions Answered under Business Model Portion

1) How will the business realize sale revenues and in what form?
2) What are the costs, how the costs will be met / managed to assure healthy
operating margins, net income? What will drive costs up and how can they be
reduced/ managed?
3) What are the resources and processes needed to make the enterprise
competitive and differentiated?
4) How will the enterprise obtain the financing to finance its growth and stay
competitive?

Recently, seven out of ten businesses tweak their business models to stay
competitive and/or to compete in middle market. Previously, in the last 3 decades,
strategy is the buzzword.
Model – car model
Strategy – how car is built modified
Tactic – how the car is driven
The statement of business concept and model excites the reader to read more,
because it’s attractive and compelling!

3. The Business Offering (addressed to prospective investors)

1. The Test of Feasibility
2. Projected returns/participation by stakeholder

LESSONS 8 - 13 9
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
  The business offering should summarize proposed benefits to the
stakeholders and the business. Thus, if we can obtain additional
investments loan of P2,000,000.00 to beef up the working capital, the
business sale will increase by P 10,000,000.00 and [ x sale/asset turnover,
resulting in additional GP of P2M (assuming 20% GP/Sales ratio)] and P
500,000.00 additional net income or ROE of 25% (for #2).
 Prior # 2, certain tests of feasibility / risks must be addressed:
1. Marketing Risks/Feasibility
2. Cash Flow Risks/Feasibility
3. Technical/Execution Risks feasibility (Manageable Execution)
# 1, 2 and 3 can be addressed by a compelling value proposition to assure
the correct / right amount of captive markets risk. Thus BEP must be
established and using conservative estimate as to whether break even can
be achieved, given correct estimate of sales obtained for projected demand
and competitive activities.

For investors, this portion is the TERM sheet.

1. How big is the offering?
2. Size of offering for investor
3. Nature of debt, convertible debt, bonds, corporate PN, private placement,
preferred stocks, common stocks?
4. Returns – ROE, ROI, PN rate, conversion, effect of debt to equity
conversion.
5. Terms, when to redeem
6. Pre-termination, if when allowed?
7. Security / Security Risks? How are they to be mitigated / addressed?

4. Business Goals

VMOKRAPI - Vision, Mission, Objectives, Key Result Areas and Performance

Indicators

A. VISION
 A futuristic image of a business expressed in concrete terms over a
time frame.
No:
To be the No. 1 ______________.
To be the No. 2 ______________.
To be the best _______________.

Better:
To sell P1B in Northern Luzon in 5 years’ time, (2x sales from its
present level).

You must be able to chart / graph / picture map that vision. The Vision, as the
business concept MUST BE COMPELLING!

B. MISSION
 The basic purpose for setting up the business.

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Aschleigh Klarizze A. Gundan
  Tells how the business conducts business, its values and
philosophies and how it distinguishes itself from other businesses.
 It details how it satisfies various stakeholders, profit, people and
placement and ever how it utilizes technology. It is the cornerstone
for running the business.

C. OBJECTIVES
 The desired outcome/results of business; inputs, process and
marketing setting up plants, purchasing equipment can’t be
objectives. Objectives must answer the SMART criteria:
SPECIFIC
MEASURABLE
ACHIEVABLE (Doable)
REALISTIC (manageable, capable of being executed)
TIMEBOUND

Four MINIMUM objectives of business (there can be more but for

simplicity, the four are more than enough):
1) CUSTOMER OUTCOME
 As a business is defined as an entity that creates
customers and-on value for the customers, customers’
delight and satisfaction is at top of the list of business
objectives. Customer satisfaction delight comes first!
Customer is satisfied by Q, D, P in that order:
a. QUALITY
b. DELIVERY
c. PRICE

2) MARKET OUTCOME
 Customer satisfaction results in trial, repeat sales and
more sales. Market outcome is expressed in terms of
sales, market share, % increase in sales, etc.

3) FINANCIAL OUTCOME
 More or less sales results in Cash Flow, Gross Profit,
Net Income, Turn Over, ROI, ROE.

4) JOB GENERATION AND EMPLOYMENT

 Continued operation results in more jobs and
employment that impacts society and reduces poverty. It
may be just a consequence of doing business or
deliberately pursued.

The level and size of goals are determined by the opportunity screen:
o “KAYA BA?” – does the proponent have enough resources and
competence to meet the objectives?
o “KATUGMA BA?” – is the objective a perfect fit for the
proponents’ motivation/ passion?

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Aschleigh Klarizze A. Gundan
 D. KEY RESULT AREAS
 The subdivision of performance metrics for various objectives.
 How the objectives vs. performance will be monitored and
measured?

E. PERFORMANCE INDICATORS
 The numbers that are spread out for the past and projected into the
future at year. They are actual metrics number!

II. Executive Summary

 Last to be written, 2 -3 pages and summarizes I, III, IV, V, VI and VII.
 Contains everything that is relevant and important to the business audience. It
is a synthesis of the entire plan and must contain the major argumentations of
the business proponent on why the business will work and succeed.
 Should then introduce and highlight the good qualities of:
o the business proponents and their partners;
o the enterprise organization and its capabilities;
o the technology providers and their expertise and experience; and
o the suppliers and all the major service providers.
 Should likewise describe the products/services of the enterprise, their features
and attributes, and why they are the right ones to be delivered to the
customers.
 Should then proceed to discuss and justify the Enterprise Strategy and
Enterprise Delivery System.
 Should render all the major institutional, market operations, and organizational
strategies previously cited into financial strategies and forecasts.

III.Business Proponents
 (Organization) Organizers/Type, with their capabilities, competencies and cash
contributions. It answers the question:
1. Who will execute the business concept?
1. Can they do it in a successful winning way?
 Describes cash and competency contribution of proponents. There are at least four
groups involved in the organization of the new enterprise of people in the
organizations:
1) Financial Backers/Mobilizer
 Because a new enterprise eats up a lot of cash at the start, the
investors would want to know who else has deep pockets to sustain
but out the enterprise. If the reader is technology provider, he
would like to know if investors have lines of credit/back up while
the enterprise gestates.

2) Technology and Intellectual Capital Provider

 Is the technology proven? Does it work? Can the new enterprise
absorb the new technology? (Does it have the manpower capacity
to absorb high technology)

3) The Board of Directors, The Partners and Entrepreneur

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  Do they have PIC?
a. Passion
 Gut and heart flame of entrepreneur.
b. Integrity
 Do they have high moral character? Are they
honest, do they keep their word?
c. Competence
 Do they have sufficient business education, training,
expertise to run the business?
 Are they determined and will follow through the
end?
 Do they have good judgement, creative and critical
thinking?
 Are they emotionally mature to handle adversities?

4) The Middle Manager

 Implementer and answers the manageable risk (execution) of the
business concept.
 Should be capable and has good choices in implementing the
business concept. For this purpose, the character references and CV
of the middle manager must be included.

For micro and small enterprises, the 4 groups are bundled into the entrepreneur. A
higher degree of self-mastery is needed for micro and small enterprise entrepreneur.
The entrepreneur is the financier, the boss, the repairman, operator, delivery boy,
collector, the bookkeeper – “LAHAT AKO”. The passion, the integrity and
competence of the proponents must be thoroughly discussed.
IV. Primary Target Market Customers and Main Value Proposition to The
Customers
 This section of BP addresses the marketing risk portion. The business should
have enough number of buying customer to absorb costs and give enough
returns for investors.
 This should contain:
1. CUSTOMERS
a. Customer Profile – needs, wants vs. company products and
service
b. Demographics – age, income, religion, occupation, residence, all
other manifestation.
c. Psychographics – motivation, preference, lifestyle, attitudes,
(internal aspects of PTM).
d. Technographic – degree of expertise of customer in use of
product especially if enterprise is involved in sale of high
technology product/service.

2. SIZE AND LOCATION OF PRIMARY TARGET MARKET (PTM)

a. Secondary data/Are there enough PTM?
b. Where are they located?
c. Next resort is to resort to first hand research
i. Customer survey
ii. Customer observation
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 iii. Focus Group Discussion (FGD) and Usage, Attitude, Image
(UAI)
e.g.
Traffic Food Cart
Thru GSM La Tondeña, SMB markets / promote in street
dancing
Realtors leaflets in mall
Casinos pick up players in mall through free shuttle service

3. MAIN VALUE PROPOSITION

 The “compelling reason” why a PTM buys the product or service.
It has 4 components:
a. Captive Market
 Community of buyers who desire/buy the
products. Thus, debts, credit card, loyalty card
(SM Advantage, Batang National) or Mercury’s
Suki card are ways of capturing a market to buy
again.

b. Affordability
 The right price for the right quality. Because it is
affordable the customer has no choice except to
buy the product.

c. Real Value for the Customer

 The product is a perfect fit to customer wants and
needs. It could not ask for more. It is superb. The
customer is satisfied and delighted with all
product benefits and customer service.

d. Uniqueness and Differentiation

 The product is a standout! Quality and delivery
are flawless! It is not a “me too” product service.
It could be bankers dozen (13 or 14 pieces); fresh
hot product; exquisite taste; and heavenly
ambiance. It pampers the customers.

V. Market Analysis, Potential Sales, Realistic Sales, Market Share, Estimate Based
on External Analysis:
Macro Market –environmental factors affecting the opportunities & threats in the
market.
Micro (industry) Market – customer, location and competition.

1. To arrive with a market estimate, macro environment change must be

quantified. Thus, simply stating RP population in 2011 will be 94 million
is meaningless; (there are more females than males in Metro Manila – also
meaningless!).

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Aschleigh Klarizze A. Gundan
 2. Select/prioritize the MACRO opportunity that has direct more impact on
the enterprise, (as verified with existing business result). Thus, for many
hospitals, there are with greatest input is not lifestyle disease, and
morbidity and mortality. But increasing payment for Philhealth and HMO
(many hospitals experience Philhealth payments do be at 60 – 70% of total
revenues. The one that has greatest impact are OB Gyne, and eye
operations admission is not high birth rate, or high incidence of cataract,
but generous reimbursement for Philhealth of CS and eye operation.

3. For the Industry

a. Identify the various industry segment.
E.g.
Milk – infant formula, diabetics’ liquid milk, powdered milk, ready
to drink powder.
For electricity: generation, transmission and distribution.
For oil industry: exploration, drilling, refinery, distribution, and
retail.
i. Sales / industry segment
ii. GP / industry and attractiveness
b. What is the historical supply and demand?
c. What is the forecast – will industry variable remain or change?
d. What is the impact of PESTEL on the industry?

4. For the market (specific industry segment)

a. What are the major facts or affects supply and demand?
b. What are the common variables?
i. Common – number of people needing the product.
ii. Variable – sex, age, preferences, etc.

5. MICROMARKET – the PTM

Concentrate on PTM where you are in. Compare factors for your enterprise.
YOU Major Major Major
Competitor 1 Competitor 2 Competitor 3
1. Competitive
Advantage
Product
Price
Promotion
Placement
Process
Location
2. Business Model
3. Strategies

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 4. Technologies
5. Weaknesses

The sales forecast can be derived from potential demand computing for actual
demand, subtract competition sales and project a conservative share of the micro market
within the location.

VI. The Product and Service Offering

(Concept, Design, Alpha Testing, Beta Testing, Evaluation)

The Product (Positioning)

1. What is the product/service?
a. Feature attributes – real value to customers.
 Uniqueness / differentiation (advantage vs. major competitor)
 Perfect fit to customer needs and wants
b. Price – affordability
c. Earth / People Friendly – safety/nontoxic/nonpolluting
 Recyclable
 Compliant with regulation

1. Testing
a. Alpha – in the plant / laboratory
b. Beta – in the marketplace

1. Motivation – compelling reason why customer should buy the product (summary
of MVP).

1. Manageable Execution
a. Available sales / distribution channel – ease of distribution and selling and
costs attribute to such.
b. Ease of promoting / selling the product.
i. Available media for ads
ii. Sales training / selling effort needed

1. What is the product positioning?

VII. Enterprise Delivery System; Business Strategy and Competitiveness in

relation to its Objectives (Desired Results / Outcome)

Enterprise Delivery System (SPATRES) - link with VMOKRAPI

a. Strategy
b. Program to achieve strategic objectives
c. Activities
d. Tasks
e. Resources needed to achieve the objective.
Strategy is the making the choice of possible options to meet strategic
objectives: satisfying customer wants and needs, achieving sale target (and
beating competitors) and reaching desired financial outcome covering.

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Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 VIII. Financial Forecast: ROI, ROE, Contingencies
1. Profit/Loss
2. Cash Flow
3. Balance Sheet

IX. Compliance with Regulators

X. Exit Strategy / Contingencies

The following
Pasted from are the components found in a Business Plan.
<http://profjorgeentrep-jorge.blogspot.com/p/teaching-aids-and-syllabus.html>
I. Introduction- this part discusses what is the business plan all about.
Another FormatSummary-
II. Executive of Business
is partPlan
of the business plan which is the first to be presented but
the last to be made.
III. Management Section- shows how you will manage your business and the people you
need to help you in your operations.
IV. Marketing Section- shows the design of your product/service; pricing, where you
will sell and how you will introduce your product/service to your market.
V. Financial Section- shows the money needed for the business, how much you will
take in and how much you will pay out.
VI. Production Section- shows the area, equipment and materials needed for the
business.
VII.

Competitive Analysis- is the strategy where you identify major competitors and
research their products, sales and marketing strategies.
VIII

Lesson 9:

Forecasting the Revenues of the Business

Lesson Objectives:
At the end of the lesson, students shall be able to:
1. discuss the concept of revenues and the factors in forecasting revenues; and
2. forecast the revenues of the business.

Readings:

➺ You have learned in the previous lesson the 4Ms of operations, you now have the idea
on what product/s to manufacture and sell. Now, you also have a business model. One
of the most challenging parts in developing a business plan is the financial plan. This
part allows the entrepreneur to make decisions based on financial assumptions
without even having started the business. Therefore, these financial projections should
be given the most attention by the entrepreneur.
➺ Let us now examine how the sale of products generates revenues. In this lesson, we
will identify the mark-up and selling price of the product. We will also project the
revenues that the business will make from the sale of products

* Why forecast?

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Aschleigh Klarizze A. Gundan
 We often watch news as Kuya Kim reports the direction of the typhoon in the next 2
days, what Kuya Kim is doing is giving us information taken by satellites and gives us
the direction of the typhoon. In weather forecasting, the reporter is giving us advance
information that could help us prepare and be ready for upcoming typhoon. This way,
risks such as accidents, devastation of properties and loss of life may be prevented.

Forecasting
 A tool used in planning that aims to support management or a business owner
in its desire to adjust and cope up with uncertainties of the future.
 Depends on data from the past and present, and make meaningful estimates on
revenues and costs.
 Forecasting revenues and costs is the same as weather forecasting,
though forecasting revenues and costs is in the context of business.
Entrepreneurs use forecasting techniques to determine events that
might affect the operation of the business such as sales expectations,
costs incurred in the business as well as the profit that the business is
earning. Making informed estimates reduces risks that might be
experienced by the entrepreneur in the future.

Have you tried estimating the time that it takes you to travel from home to school? Try to
fill in the necessary information in the table below. Write your estimate in Estimated
Time column, after arriving to school fill in the Actual Time in the blank provided.
Estimated Time Actual Time
1. ____________ __________
2. ____________ __________
3. ____________ __________

How close were your estimates compared to the actual time? Did your estimate fell short
compared to the actual time? What do you think were the factors that might have
contributed in getting you early to school? List the reasons in the blank.
___________________________________________________________________________
___
___________________________________________________________________________
___ __________________________________________________________________
___________
On the other hand, does your actual time exceed your estimates? What do you think were
the factors that might have contributed in arriving later than your estimated time? List the
reasons in the blank.
___________________________________________________________________________
___________________________________________________________________________
______
___________________________________________________________________________
___

Making informed estimates requires careful considerations on several factors that

might affect the outcome of your travel such as, distance from home to school, the means of
transportation you will be taking, the number of passengers, etc. Traveling from home to
school on regular basis had helped you arrive with an estimate that was very close to the
actual time of arrival.

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Aschleigh Klarizze A. Gundan
 Considering these factors are essential in making informed estimates by the
entrepreneur. Since the business he/she is venturing has not started yet, it is important that
these factors affecting forecasting will be determined to better help him/her in making the
best decisions for the business.

The entrepreneur after realizing the potential for profit of his/her business concept, the
next step is to estimate how much the revenue is on daily, monthly and annual basis. Before
going to forecasting and projecting the revenues of the business, let us determine first what
revenue is.

 Revenue
 Is recognized when earned, whether paid in cash or charged to the account of the
customer. Other terms related to revenue includes Sales and Service Income.

 Sales
 Used especially when the nature of business is merchandising or retail.

 Service Income
 Used to record revenues earned by rendering services.

You have just learned about what revenue is. This time let us study the various
factors to consider in forecasting revenues.
➺ The entrepreneur would want his/her forecasting for his/her small business as
credible and as accurate as possible to avoid complications in the future. In
estimating potential revenue for the business, factors such as external and internal
factors that can affect the business must be considered. These factors should serve as
basis in forecasting revenues of the business. These factors are:
1. The economic condition of the country
 When the economy grows, the consumers experience its growth.
Consumers are more likely to buy products and services. The
entrepreneur must be able to identify the overall health of the
economy to make informed estimates. A healthy economy makes
good business.

2. The competing businesses or competitors

 Observe how your competitors are doing business. Since you share
the same market with them, information about the number of products
sold daily or the number of items they are carrying will give you the
idea as to how much your competitors are selling. This will give you a
benchmark on how much products you need to stock in your business
to cope up with the customer demand. This will also give you a better
estimate as to how much market share is available for you to exploit.

3. Changes happening in the community

 Changes happening in the environment such as customer
demographic, lifestyle and buying behavior gives the entrepreneur a
better perspective about the market. The entrepreneur should always
be keen in adapting to these changes to sustain the business.

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Aschleigh Klarizze A. Gundan
 Ex. Teens usually follow popular celebrities especially in their fashion
trend. Being able to anticipate these changes allows the entrepreneur
to maximize sales potential.

4. The internal aspect of the business

 Another factor that affects forecasting revenues in the business itself.
Plant capacity often plays a very important role in forecasting.
Ex. A “Puto” maker can only make 250 pieces of puto every day;
therefore, he/she can only sell as much as 250 pieces of puto every
day. The number of products manufactured and made depends on the
capacity of the plant, availability of raw materials and labor and the
number of salespersons, determine the amount of revenues earned by
an entrepreneur.

Try to analyze this illustration……

Now that all factors affecting forecasting revenues are identified, you can now
calculate and project potential revenues of your chosen business. The table below shows an
example of revenues forecasted in a Ready to Wear Online Selling Business.

Ex.
Ms. Fashion Nista recently opened her dream business and named Fit Mo ’to Ready
to Wear Online Selling Business, an online selling business which specializes in
ready to wear clothes for teens and young adults. Based on her initial interview
among several online selling businesses, the average number of t-shirts sold every
day is 10 and the average pair of fashion jeans sold every day is 6. From the
information gathered, Ms. Nista projected the revenue of her Fit Mo ’to Ready to
Wear Online Selling Business. She gets her supplies at a local RTW dealer in the
city. The cost per piece of t-shirt is 90 pesos, while a pair of fashion jeans costs 230
pesos per piece. She then adds a 50 percent mark up to every piece of RTW sold.
 Markup refers to the amount added to the cost to come up with the selling
price. The formula for getting the mark up price is as follows:
Markup Price = (Cost x desired markup percentage)

Markup for T-shirt = (90.00 x .50)

Markup for T-shirt = 45.00

In calculating for the selling price, the formula is as follows:

Selling Price = Cost + Markup
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00

Table 1 shows the projected daily revenue of Ms. Nista’s online selling business.
Computations regarding the projected revenue is presented in letters in upper case A, B, C, D,
and E.

Table 1 Projected Daily Revenue

Fit Mo ‘to Ready to Wear Online Selling Business

Type of Cost per Mark-up Selling Projected Projected

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Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 RTW's Unit 50% Price Volume Revenue
(A) (B) (C) (D) (E)
Average
No. of
Items Sold (Daily)
(Daily)
(A) (B)= (A x (C)= (A+B) (D) (E) = (C x
.50) D)
T-Shirts 90.00 45.00 135.00 10 1,350.00
Jeans 230.00 115.00 345.00 6 2,070.00
Total 320.00 160.00 480.00 16 3,420.00

Table 2 shows the projected monthly and yearly revenue of Ms. Nista’s online selling
business. Computations about the monthly revenue is calculated by multiplying daily
revenues by 30 days (1 month).

Example, in table 1 the daily revenue is 3,420.00. To get the monthly projected revenue
it is multiplied by 30 days. Therefore:

Projected Monthly Revenue = Projected daily revenue x 30 days

Projected Monthly Revenue = 3,420.00 x 30
Projected Monthly Revenue = 102,600.00

On the other hand, the projected yearly revenue is computed by multiplying the
monthly revenue by 12 months. The calculation for projected yearly revenue is as
follows.

Projected Yearly Revenue = Projected daily revenue x 365 days

Projected Yearly Revenue = 3,420.00 x 365
Projected Yearly Revenue = 1,248,300.00

Table 2 Projected Monthly and Yearly Revenue

Fit Mo ‘to Ready to Wear Online Selling Business

Projected Projected
Volume Projected Volume Projected
Revenue Revenue
Selling
Price Average Average No. of
Type of
No. of Items Items Sold
RTW's
Sold (Monthly) (Yearly) (Yearly)
(Monthly)
F= (D x 30 G= (C x H= (D x 365 days)
C= (A+B) I= (C x H)
days) F)
T-Shirts 135.00 300 40,500.00 3,650 492,750.00
Jeans 345.00 180 62,100.00 2,190 755,550.00
Total 480.00 480 102,600.00 5,840 1,248,300.00

LESSONS 8 - 13 21
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Aschleigh Klarizze A. Gundan
Table 3 shows the projected monthly revenues covering one year of operation. The
table shows an average increase of revenue every month by 5% except June, July to
October and December. While the month of June has twice the increase from previous
month, 10%. Let us consider that months covering July to October are considered to be
Off-Peak months, therefore sales from July to October are expected to decrease. It is
assumed that there is no increase in revenue from July to August while from August to
October the decrease in revenues is 5% from previous month. Since revenues from sales
of RTW’s are considered to be seasonal, it assumed that there is 10% increase in
revenue from November to December.

Computation for assumed increase of revenue on specific months is as follows:

Projected Monthly Revenue (Increase) = Revenue (January) x 5% increase
Projected Monthly Revenue (Increase) = 102,600.00 x .05 Projected
Monthly Revenue (Increase) = 5,130.00

Projected Revenue for February = Revenue (January) + Amount of increase

Projected Revenue for February = 102,600.00 + 5,130.00
Projected Revenue for February = 107,730.00

On the other hand, decrease in revenue is computed as follows:

Projected Monthly Revenue (Decrease) = Revenue (August) x 5 % increase
Projected Monthly Revenue (Increase) = 144,041.14 x .05 Projected
Monthly Revenue (Increase) = 7,202.06

Projected Revenue for September = Revenue (August) - Amount of decrease

Projected Revenue for September = 144,041.14 – 7,202.06 Projected
Revenue for September = 136,839.08

Table 3 Projected Monthly Revenue

Fit Mo ‘to Ready to Wear Online Selling Business

Month January February March April May June

Revenue 102,600.00 107,730.00 113,116.50 118,772.33 124,710.95 137,182.05

Month July August September October November December

Revenue 144,041.15 144,041.15 136,839.09 129,997.14 136,497.00 150,146.70

Important Assumptions:
February to May Increase of 5% from previous revenue
June Increase of 10% from previous revenue
July Increase of 5% from previous revenue
August The same revenue
September to October Loss 5% from previous revenue
November Increase 5% from previous revenue
December Increase 10% from previous revenue
➺ The numbers in the last table are very attractive, having revenues that are
increasing in numbers is a good sign that a business is growing. However, an

LESSONS 8 - 13 22
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 entrepreneur should not be overwhelmed on these revenues as these are just
gross revenue, this is not the final amount of profit or income an entrepreneur
will get at the end of every period. Take note that the amount of net revenue is
still subjected to the expenses incurred in the operation of business.

Lesson 10:

Forecasting the Costs to be Incurred

Lesson Objectives:
At the end of the lesson, students shall be able to:
1. discuss the concept of cost and expenses; and
2. forecast costs to be incurred.

Readings:

➺ You have learned in Lesson 9 that the revenue generated by selling RTW’s has a
corresponding amount of costs incurred. This cost was the amount of RTW before
adding its mark-up price. Each piece of t-shirt has a corresponding cost of 90.00
pesos, while each pair of jeans has a corresponding cost of 230.00 pesos. These costs
are incurred each time revenues are generated. On the other hand, the business also
incurs costs in its operation; these costs are called Operating Expenses.
➺ Operating expenses such as payment on Internet connection, Utilities expense (i.e.
Electricity), Salaries and Wages and Miscellaneous are essential in the operation of
the business; these allow the business to continue operate in a given period of time.
➺ Now that you have learned what cost is, let us identify the costs and expenses incurred
by the business in generating revenues.
➺ You have just learned about what cost is. This time let us identify costs and expenses
incurred by the business.
 Cost of Goods Sold or Cost of Sales
 Refers to the amount of merchandise or goods sold by the business for a given
period.
 Computed by adding the Merchandise Inventory, beginning (Beginning
Inventory) to the Net Amount of Purchases to arrive with Cost of Goods
Available for Sale from which the Merchandise Inventory, end is subtracted.

 Merchandise Inventory, beginning (Beginning Inventory)

 Refers to goods and merchandise at the beginning of operation of business or
accounting period.

 Purchases
 Refer to the merchandise or goods purchased.
Ex. Cost to buy each pair of Jeans or t-shirt from a supplier.

 Merchandise Inventory, end (Ending Inventory)

 Refers to goods and merchandise left at the end of operation or accounting
period.

 Freight-in
LESSONS 8 - 13 23
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Aschleigh Klarizze A. Gundan
  Refers to amount paid to transport goods or merchandise purchased from the
supplier to the buyer. In this case, it is the buyer who shoulders this cost.
In a merchandising business such as Fit Mo ‘to Ready to Wear Online Selling
Business, the formula to compute for costs of goods sold is as follows:

Merchandise Inventory, beginning P XXXX

Add: Net Cost of Purchases XXXX
Freight-in XXXX
Cost of Goods Available for Sale P XXXX
Less: Merchandise Inventory, end (XXXX)
Cost of Goods Sold P XXXX

➺ Let us calculate the cost of goods sold of Ms. Fashion Nista’s online selling business
for the month of January.
Table 4 shows the costs incurred during the first month of operation of Fit Mo ’to Ready to
Wear
Online Selling Business. Since Ms. Nista get her stocks from an online supplier, there
is no need to order ahead and stock more items. Therefore, there is no Merchandise
Inventory, beginning as well as Merchandise Inventory, end. Ready to wear items
purchased online from the supplier are then sold as soon as they arrived.
➺ Cost of goods is calculated by simply multiplying the number of items sold every
month (300 t-shirts and 180 pairs of jeans) to its corresponding cost per unit (90.00
pesos for every t-shirt and 230.00 pesos for every pair of jeans). A cost in transporting
the goods from the supplier to the seller (Ms. Nista) or Freight-in is then added to Net
Cost of Purchases.

Table 4 Projected Cost of Goods Sold (Monthly)

Fit Mo ‘to Ready to Wear Online Selling Business
Projected Volume

Cost per Unit Average No. of

Type of
Items Sold Projected Costs of Purchases
RTW's
(Monthly) (Monthly)
(A) F = (D x 30 days) J = (A x F)
T-Shirts 90.00 300 27,000.00
Jeans 230.00 180 41,400.00
Total 320.00 480 68,400.00

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Aschleigh Klarizze A. Gundan
Table 5 shows how freight-in is calculated.
It is assumed that at an average, Ms. Nista pays at least 250.00 pesos for every 12
items delivered successfully by her supplier through a courier service. Since her
average order is 480 pieces every month, she pays: 480 pcs. / 12 pcs. = 40
40 x 250.00 = 10,000.00

Table 5 Freight-in paid by Ms. Nista every month

Fit Mo ‘to Ready to Wear Online Selling Business
Projected Volume
No. of Items Freight In (January
Type of Sold (Daily) Average No. of Items Only)
RTW's Purchased (Monthly)
(A) F = (D x 30 days) K = (F/12) x 250
T-Shirts 10 300 6,250.00
Jeans 6 180 3,750.00
Total 16 480 10,000.00

Let us now substitute the values from table 4 and table 5. Since there is no
Merchandise Inventory, beginning and end, let us add Cost of Purchases and Freight in to get
the Cost of Goods Sold.
Merchandise Inventory, beginning P 00.00

Add: Net Cost of Purchases 68,400.00

Freight-in 10,000.00

Cost of Goods Available for Sale P 78,400.00

Less: Merchandise Inventory, end 00.00

Cost of Goods Sold P 78,400.00

 Now that the cost of goods sold is now calculated, let us now identify expenses that
the business incurs in its operation. Operating expenses such as Internet connection,
Utilities like electricity and miscellaneous expense are important to keep the business
running. These expenses are part of the total costs incurred by the business in its day-
to-day operation and are paid every end of the month.

The operating expenses and assumed amount are presented below:

Operating Expenses
Internet expense P 1,299.00
Utilities (Electricity) 800.00
Miscellaneous expense P 300.00
Total Operating Expenses P 2,399.00

LESSONS 8 - 13 25
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Aschleigh Klarizze A. Gundan
 ➺ To calculate the total costs incurred by the business, cost of goods sold and total
operating expenses are then added. The calculation for the costs incurred for the
month of January is presented below:

Cost of Goods Sold P 78,400.00

Total Operating Expense P 2,399.00
Total Cost Incurred P 80,799.00
➺ The projected monthly costs covering the first of operation of Ms. Nista’s Fit Mo ‘to
RTW Online Selling Business is presented in Table 6.

Table 6 Projected Monthly Costs (Year 1)

Fit Mo ‘to Ready to Wear Online Selling Business
Month January February March April May June
Cost of Goods 78,400.0 82,320.0
86,436.00 90,757.80 95,295.69 104,825.26
Sold 0 0
Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.76 2,648.70
Total Cost & 80,799.0 84,766.9 88,931.92 93,303.64 97,892.45 107,473.96
Expenses 0 8

Month July August September October November December

Cost of Goods
110,066.5 110,066.5 104,563. 114,731.9
Sold 99,335.03 104,301.78
2 2 19 6
Expenses 2,701.67 2,755.70 2,810.81 2,867.03 2,924.37 2,982.86
Total Cost &
Expenses 112,768.1 112,822.2 107,374.0 102,202.0 107,226.15 117,714.8
9 2 0 6 2

Lesson 11:

Computation of Gross Profit

Lesson Objectives:
At the end of the lesson, students shall be able to:
1. compute the gross profit and gross profit rate, operating profit and operating profit
margin, net profit and net profit margin, liquidity rations and ROI; and
2. prepare projected Financial Statements (BS and IS).

Readings:

Profit
 A financial gain from a transaction or from a period of investment or business
activity.

LESSONS 8 - 13 26
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Aschleigh Klarizze A. Gundan
  Usually calculated as income in excess of costs or as the final value of an asset in
excess of its initial value.
 A total revenue minus total expenses.
 The amount of money a business "makes" during a given accounting period. The
more profit you make, the better, as profit can be re-invested into the business or
retained by the business owners. Being able to accurately determine your business's
profit is an essential part of being able to judge its financial health. It can also help
you decide how to price your goods and services, how to pay your employees, and
more.
* To make your business gain more profit, begin by adding up all the money your
business has made in a set period of time (either quarterly, yearly, monthly, etc).
Other sources, like products sold, services rendered, membership payments, or, in
the case of government agencies, taxes, fees, the sales of resource rights, and so
on.
* Note that you will need to subtract any amount of cash refunded to customers for
returns or disputes to find an accurate figure for your total income.
* It's easier to understand the process of calculating a business's profit by following
along with an example.

Let's say that we own a small publishing business. In the last month, we sold
P20,000 worth of books to retailers in the area. However, we also sold the
rights to one of our intellectual properties for P7,000 and received P3,000
from book retailers for official promotional materials. If these represent all our
revenue sources, we can say that our total income is P20,000 + P7,000 +
P3,000 = P30,000.

 Let’s review what is revenue of the business. Revenue is an important tool and
materials needed in the operation of the business.
 Forecast is advance information that could help us prepare and ready for any
incoming event. Forecasting is the tool used in planning that aims to support
management or a business owner in its desire to adjust and cope up with uncertainties
of the future. If anyone of us can predict that we can be rich so it means all of us will
be rich. This fantasy is played out every day in boardrooms across the globe with the
practice of business forecasting.
 It is important to have a good organization in the business to easily grow and expand
in the future.

Gross Profit
Net Sales xxxxxxx
Less: Cost of sales xxxxxxx
Gross profit xxxxxxx

By using the formula, the gross of XYZ Trading in the year 2017
Net Sales P 734, 000.00
Less: Cost of Sales 577, 000.00
Gross Profit 157, 000.00

Profit or Gross Profit is the gross income. The amount of gross profit provides information to
the entrepreneur about revenue earned from sales.

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Aschleigh Klarizze A. Gundan
The term cost refers to the purchase price of the product including of the product including
the total outlay required in producing it.
 The profitability ratios are a group of financial statement that primarily determine the
profitability of the business operation. The gross profit rate on a product is computed
as:

gross profit rate =gross profit /net sales

Gross Profit Rate

 Measures the percentage of gross profit to sales, indicating the profit that the business
realizes from the sale of the product.

The gross profit rate of XYZ Trading for the year computed as follows:

gross profit rate = 157,000.00

734,000.00
gross profit rate = 21.39%

The gross profit rate may signal to the entrepreneur that the amount of margin on
sales is 21.39%. This rate will be used to determine whether the amount of gross
profit can cover the operating of the business. Since the gross profit rate of XYZ
Trading is 21.39%, the cost ratio to sales will be 78.61% (577,000.00/734,000.00).
This information will help the entrepreneur in assessing whether the cost is too high
or too low. Any product with a very high cost will not become competitive in the
market. The gross profit rate will also help the entrepreneur set the selling price.
Operating Profit
 The excess of gross profit from operating expenses.
Gross profit xxxxx
Less: Operating Expenses xxxxx
Operating Profit xxxxx
 The second level of revenue in the income statement. At this stage, not only the cost
of buying or making the product that has been deducted is included but also the
operating expenses. These are expenses incurred during a particular period only and
are not expected to provide benefits to any future period. The operating expenses are
also period costs.
 In case there are no financing charges like interest, expenses, and income tax,
the amount of the operating profit is equal to the net income.

Gross profit P 157,000.00

Less: Operating expenses 90,000.00
Operating profit P 67,000.00

This information that the business realized an income of P 67,000.00 during the year after
deducting the cost and operating expenses from the sales made.

Operating Profit Margin

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Aschleigh Klarizze A. Gundan
  Measures the percentage of profit available after deducting the cost of sales &
operating expenses of the business over the net sales. A higher operating profit margin
is favorable to the business.

Operating profit margin = Operating Profit

Net Sales

By applying: Operating profit margin = 67,000.00

734,000.00
Operating profit margin = 19.13%

Net Profit
Operating profit xxxxxxx
Add: Interest Income xxxxxxx
Total
Less: Interest Expense xxxxxx
Income Tax xxxxxx xxxxxxx
Net Profit xxxxxxx

The Income Statement (IS) shows the net profit- the third level in the revenue.
Operating profit P67,000.00
Less: Income tax 20,000.00
Net profit P46,900.00

The income statement of XYZ Trading does not reflect any data on interest expense. Only
income tax has been deducted from the operating (just an example).

Net Profit Margin

Net profit margin = Net Profit

Net Sales

By applying the formula, the net profit margin of XYZ is:

Net profit margin = 46,900.00

734,000.00
Net profit margin = 6.39%

XYZ Trading appears to have earned 6.39% of its total sales of P734,000 during the year.
This profit rate must be compared with those of other similar businesses within the industry.

Analyze the Liquidity Status of the Business:

Liquidity Ratios:
Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets – Inventories) / Current liabilities
or
= (Cash and cash equivalents + Marketable securities + Accounts receivable) /
Current

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Aschleigh Klarizze A. Gundan
 liabilities
o The quick ratio measures its short-term obligations with its most liquid
assets and therefore excludes inventories from its current assets.

Financial statements are important in a company management as a means of communicating

past successes as well as future expectations. The financial statement records all the operating
results such as sales, expenses and profits or losses.

Return of Investment (ROI)

 Measures the amount of net income per peso invested to the business. The formula to
compute ROI is as follows:

Return of investment = Net Income

Average Total Assets

 The average total assets is computed by dividing the

sum of the total assets at the beginning and end of the
period by 2.

Table 7 Projected Five-Year Balance Sheet

Fit Mo ‘to Ready to Wear Online Selling Business

Year 1 Year 2 Year 3 Year 4 Year 5

ASSET
Cash
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total Assets
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Liability - - - - -
Owners’
equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total
Liabilities
and Owner's
Equity
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

LESSONS 8 - 13 30
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Table 8 Projected Five Year Income Statement
Fit Mo'to Ready to Wear Online Selling Business

Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 1,545,673.9 1,622,957.6 1,704,105.53 1,789,310.80

5 4 1,878,776.34

Cost 1,213,275.3 1,273,939.1 1,337,636.11 1,404,517.91

8 5 1,474,743.81
Gross
Profit 332,398.56 349,018.49 366,469.42 384,792.89 404,032.53
Before tax

Yearly increase in revenue is assumed at 5%.

Yearly increase in cost is assumed at 5%

As a future entrepreneur, one should always remember that nothing is permanent in

the field of entrepreneurship. What is applicable to one entrepreneur may not be applicable
to another. Certain things may happen to one entrepreneur but may not happen to another.
Entrepreneurship should be practiced not as a science but as an art. Creativity
should always be applied to entrepreneur by regularly evaluating the market and the
environment and responding to the changes in them.
The owner of an ordinary small business has the freedom to manage and operate.
Ideally, he/she prefers business activities which are done easily. However, the entrepreneur
has to perform the entrepreneurial activities correctly regardless of whether they are
undertaken easily or not. The important in entrepreneurship is that the business activities are
performed correctly.
The profitability and ratios are group financial statement ratios that primarily
determines the profitability of the business operation. They provide information on the
efficiency of resource utilization.

How to increase your sales?

Improve profit by looking at the money you earn from sales, and increase:
o The number of customers
o The volume of goods or services existing customers to buy
o The sales price

Lesson 12:

Business Implementation

Lesson Objectives:
At the end of the lesson, students shall be able to:
1. differentiate variable cost and fixed cost; and

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Aschleigh Klarizze A. Gundan
 2. explain various guidelines for successful business plan implementation, the basic
requirements, and other steps in starting a business in the Philippines.

Readings:

Before you proceed, let us first recall our previous lesson.

Profit is the amount you gain after selling your product. In computing your profit, you just
simply follow this formula:
Sales - Cost of Goods Sold = Gross Profit
The gross profit represents the difference between net sales and cost of sales/COGS.
Variable Costs
 Those that change based on the amount of product being made/produced and are
incurred as a direct result of producing the product. These include:
1. Materials used
2. Direct labor
3. Packaging
4. Freight
5. Plant supervisor salaries
6. Utilities for a plant or a warehouse
7. Depreciation expense on production equipment
8. Machinery

Fixed Costs
 Those that are generally more static in nature. These include:
1. Office expenses such as supplies, utilities, a telephone for the office, etc.
2. Salaries and wages of office staff, salespeople, officers and owners
3. Payroll taxes and employee benefits
4. Advertising, promotional and other sales expenses
5. Insurance
6. Auto expenses for salespeople
7. Professional fees
8. Rent

Guidelines for successful business plan implementation:

1. The entrepreneur should have a clear idea on what is his purpose in putting up his
enterprise. (Objectives)
2. The entrepreneur must know what the tasks are he must perform so that his
objective/s will be realized. (Tasks)
3. The entrepreneur should have a timetable or a schedule to follow for every task, so
that it will be accomplished on time and realize his objective/s. (Time Allocation)
4. The entrepreneur should monitor the development of the tasks and the
accomplishment of the objective/s. (Progress)

In operating a business, the entrepreneur should first consult professionals for advices,
like accountants or consultants from small enterprises. In your case, you can consult your
teacher in entrepreneurship or anyone you think that could help you.

Basic requirements to start a business in the Philippines:

1. Securities and Exchange Commission (SEC) Registration - for Partnership or
Corporation
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Aschleigh Klarizze A. Gundan
 2. Department of Trade and Industry (DTI) Registration - for your business tradename.
3. Mayor’s Business Permit - for getting the license to operate in the city or municipality
and payment of your local business taxes
4. Bureau of Internal Revenue (BIR) Registration - for getting TIN, official receipts and
invoices, registering your books of accounts and paying your national Internal
revenue taxes
5. SSS, PhilHealth, and Pag-ibig Fund Registration - for registering yourself or
company as an employer and for remitting your employees’ contribution together
with your employer’s share. (Insurance)

Other steps to follow before operating a business are as follows:

1. Set up an accounting system or hire an accountant. Knowing how the business is
doing financially is important for planning and survival.
2. Advertise the business. No one will buy the products or services if customers do not
know that the company exists. You can make use of the social media.
3. Secure insurance for the business. Liability insurance protects the business in the
event of litigation. Consider life and disability insurance, health insurance and fire
insurance when you are leasing an office or storefront.

Keeping Business Records

Good record keeping can help protect the business, measure the performance and
maximize profit.
Records are the source documents, both physical and electronic, that specify
transaction dates and amounts, legal agreements and private customer and business details.
Developing system to log, store and dispose of records can benefit the business. A
systematic recording allows you to:
a. plan and work more efficiently;
b. meet legal and tax requirements;
c. measure profit and performance;
d. protect your rights; and
e. manage potential risks.
Try to look around in your community and identify the three (3) oldest existing
businesses and find time to ask the owner on how they started their business and sustain it
until today.
Implementing the business plan is not that easy. It needs to be registered to make it
legal and record keeping gives a lot of benefits to the enterprise.
(You are going to implement your business. Follow the Business Plan that you have
presented.)

Lesson 13:

Perform Bookkeeping Tasks

Lesson Objectives:
At the end of the lesson, students shall be able to:
1. describe bookkeeping and its importance; and
2. discuss book of accounts, debit/credit rules, trial balance, adjusting entry, income
statement and balance sheet, and FS interpretation.
LESSONS 8 - 13 33
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
Readings:

 In the previous lesson, you learned how to make and prepare a business plan, operate
the business, know how to sell the product, and the significance for keeping business
records.
 A business plan is an effective tool in making your dream business come true. It
reiterates different plans or strategies in Operation and Administration, Marketing,
Production and Logistics, Finance, etc.
 The operational plan put into details on what business model you are going to employ
and how are you going to start the business. Among others, it’s also reiterated the
layers of management, type of skills and employee attitude your business need and the
steps on how to get the government license.
 The marketing plan contains valuable strategies as to what product you are going to
produce or sell, what industry you want to enter, group of target customers, or your
target market and the business model or strategies you are going to employ.
 The production plan revealed the production processes and the quality control system
of the goods produced for sale. While the logistics provides a channel of distribution
of the goods from production lines down to the wholesalers/retailers or directly to
consumers.
 The financial plan talks about monetary requirements before you open the business.
While financial forecast informs the business owners of the expected outcome of the
business in monetary terms.

Bookkeeping
 The process of recording business transactions in a systematic and chronological
manner. It is systematic because it follows procedures and principles. On the other
hand, it is chronological because the transactions are recorded in order of the date of
occurrence.
 The starting point of the accounting process. A sound bookkeeping system is the
foundation for gathering the information necessary to answer questions related to
profitability, solvency and liquidity of the business.
 A function that dictates the bookkeeper to keep track of all financial transactions of
the business. Only transactions that has monetary value will be recorded.

What is a Bookkeeper?
Each business has a bookkeeper who is in charge to record, maintain and
update business records from all sorts of financial transactions using account title that
can be found in the charts of accounts already set up by the Accountant.
The bookkeeper uses the Book of Accounts to record the business transactions
which is to be consolidated later to help construct financial statement such as the Trial
Balance, Income Statement and Balance Sheet.

Book of Accounts
 Composed of the Journal and Ledger.
 It depends on the type of business, some businesses used special journals
when they are engaged merchandising type of business to records business
transactions. This module will cover and provide example for service-oriented
business. Thus, only general journal and ledger will be used in the succeeding
examples.
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Aschleigh Klarizze A. Gundan
 Journal
 Referred to as the book of original entry.
Ledger
 Referred to as the book of final entry.

General Journal
 The most basic journal which provides columns for date, account titles and
explanations, folio or references and Aa ounts
separate
ece v column for debit and credit entries.

11
Depicted in figure 1 below is a sample format of a general journal:

General Ledger
 A grouping of all accounts directly traceable to chart of accounts. These accounts will
be reflected in the financial statements as a summary of all financial activities that
have taken place as recorded in the general journal and subsidiary ledgers.

Depicted in figure 2 below is a sample format of a general ledger:

Subsidiary Ledger
 A group of accounts directly associated from the general ledger.
 A record created to maintain individual accounts for customers and vendors whose
cash is not being used as a medium of exchange when purchasing or selling
merchandise.

Figure 1 – General Journal

Depicted in figure 3 below is a sample format of a subsidiary ledger of
Accounts Payable.

Figure 2 – General Ledger

Figure 3 – Subsidiary Ledger

LESSONS 8 - 13 35
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
The Rules of Debit and Credit
 In the process of journalizing, following the rules of debit and credit is essential to
ensure accurate recording and sound decision making. Debit is abbreviated as DR
while CR for Credit.
 It is a requirement that the bookkeeper is able to master the normal balance of each
account title before performing the tasks of bookkeeper.

When to Debit?
 When cash or non-cash items are received, the said cash or non-cash items
must be recorded in the debit column. This means that the debit balance
increased. It is called Value Received.
When to Credit?
 When cash or non-cash items are given, the said cash or non-cash items must
be recorded in the credit column. This means that the credit balance is
increased. It is called Value Parted with.

The following steps will be undertaken in determining account balances for every
account title such as cash, account receivable, etc.:
1. Add all the debit side to generate total debit.
2. Add all the credit side to generate total credit.
3. Subtract total debit to the total credit.
4. Determine the balance of each account.

Depicted in figure 4 below is a matrix of normal debit and credit balances of

Five
Major Accounts:
Account Type Debit Credit
Assets
Liabilities
Owner’s Equity
Revenue
Expenses
Figure 4 - Matrix of Normal Debit and Credit Balances
of Five Major Accounts

In order to fully understand the concept of debit and credit balances, depicted in
figure 5 below is a matrix of normal debit and credit balances under each of the five
major accounts:

Account Type Debit Credit

Assets
Cash on Hand
Cash in Bank
Accounts Receivable
Allowance for Doubtful

LESSONS 8 - 13 36
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Accounts
Notes Receivable
Prepayments
Inventories
Land
Building
Equipment
Accumulated
Depreciations
Other Assets
Liabilities
Accounts Payable
Notes Payable
Salaries Payable
Mortgage Payable
Unearned Fees
Owner’s Equity
Capital
Drawing
Revenue
Service Income
Other Income
Expenses
Rent Expense
Utilities Expense
Depreciation Expense
Salaries and Wages
Expense
Other Expenses
Figure 5 - Matrix of Normal Debit and Credit Balances
of Sub-accounts

LESSONS 8 - 13 37
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Trial Balance
 A list of all ledger accounts with closed or final balances on a certain period
arranged according to the rules of debit and credit. The debit and credit columns
must be equal in total amount.
 The first report prior to financial statement preparation.
Depicted in figure 6 below is a sample format of a trial balance report with peso
amount.

Figure 6 – Trial Balance

As you can observe, the accounts reflected in figure 6 above are arranged
according to the proper placement of the five major accounts. The Assets,
Liabilities, Owner’s Equity, Revenue and Expense accounts. You may refer to
figure 5.

 On the other hand, the trial balance report has two phases.
o The first phase is the “Unadjusted trial balance” which is a report of all
balances after the posting of the general ledger accounts. The general ledger
account balances are extracted to construct the unadjusted trial balance.
o The second phase is the “Adjusted trial balance”. This phase is a final report of
trial balance after all necessary adjustments in journal entries are posted in the
general ledger.

Adjusting Entry
 Making an adjusting entry helps the bookkeeper capture all financial events that happened
over a period within the accounting cycle. It is essential in keeping the financial record
updated. The bookkeeper is going to look or examine accounts that needs to be updated.
 Outlined below are the five basic sources of adjusting entries:
1. Depreciation expense
2. Deferred expenses of prepaid expenses
3. Deferred income or unearned income
4. Accrued expenses or accrued liabilities
5. Accrued income or accrued assets

Depreciation
 A method of allocating the cost of an asset to an expense over the
accounting periods that make up the asset’s useful life.

LESSONS 8 - 13 38
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
  Can also be referred to as the decrease in the usefulness of these types of
assets. Take note that Land is not subject to depreciation because the value
of land mostly increases as time passes.

Examples of assets subject to depreciation are:

Store, Office, Building, and Transportation equipment.
These types of assets lose their ability to provide useful service as time
passes.

There are several methods or formulas to compute the amount of

depreciation. The simplest is the straight-line method.

The formula:
(Acquisition Cost– Salvage or Residual Value)
Annual Depreciation
=
Useful Life
Where:
• Acquisition cost – the actual cost of the asset acquired.
• Salvage value – the selling price of the asset upon reaching the useful
life.
• Useful life – is the economic or productive life of the asset.

Illustrative problem:
The cost of the equipment is PHP25,000. It was estimated to have a useful life of five
years. It is estimated that after five years, the office equipment can be sold at a scrap
value of PHP1,000. To compute for the monthly depreciation, just divide the annual
depreciation by 12. One year is composed of 12 months.

(P 25,000 – P 1000)
P 400 = 60 months

(5 yrs x 12 mos. = 60 months)

Income Statement
 One of the major financial report.
 Also known as profit and loss statement or statement of comprehensive income.
 Summarizes the results of company’s operations for a specific period of time. If the
result of operation is positive, then the business earns net income otherwise, net loss.
 Ledger accounts that can be found in the income statement are called
Temporary accounts of Nominal accounts. They are called such because at the
end of the accounting period, balances under these accounts are transferred to
the capital account, thus having only temporary amounts and resulting to zero
beginning balances at the beginning of the following year.(Haddock, Price, &
Farina, 2012)
Ex. Revenues, sales, utilities expense, supplies expense, salaries expense,
depreciation expense, interest expense, etc.

Depicted in figure 7 below is sample format of an income statement.

LESSONS 8 - 13 39
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Figure 7 – Income Statement

The different parts of income statement are:

• The heading or title of report
• Name of the company
• Date or period covered Major parts are:
• Income or revenues - consist of all income received within the period upon
provision of services for service-concern business and sales for
merchandising
• Expenses – money spent during the conduct of business operations
• Net income / net loss – the outcome of business operations.

Balance Sheet
 Also known as the statement of financial position.
 Summarizes the total balances of assets, liabilities and owner’s equity. In general, it
provides the financial condition of the business on a specific date.
 Composed of Permanent accounts. Permanent in nature because their balances remain
intact and will be forwarded from one period to another.
 Contra asset are those asset account presented under the asset portion of the
balance sheet such as Allowance for Bad debts and Accumulated depreciation.

Depicted in figure 8 below is a sample format of a balance sheet of a service type

business presented in as an account format with contra asset account.

LESSONS 8 - 13 40
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Figure 8 – Balance Sheet

The different parts of balance sheet are:

 The heading or title of report
 Name of the company
 Date or period covered
 Major parts are:
o Assets (Current and Non-current)
 Current Assets – Assets that can be realized (collected, sold,
used up) one year after year-end date.
Ex. Cash, Accounts Receivable, Merchandise Inventory,
Prepaid Expense, etc.
Current Assets are arranged based on which asset can be
realized first (liquidity). Current assets and current
liabilities are also called short term assets and shot term
liabilities, respectively.

 Noncurrent Assets – Assets that cannot be realized

(collected, sold, used up) one year after yearend date.
Ex. Property, Plant and Equipment (equipment, furniture,
building, land), Long Term investments, Intangible Assets
etc.
o Liabilities (Current and Non-current)
 Current Liabilities – Liabilities that fall due (paid, recognized
as revenue) within one year after year end date.
Ex. Notes Payable, Accounts Payable, Accrued Expenses
(example: Utilities Payable), Unearned Income, etc.
 Noncurrent Liabilities – Liabilities that do not fall due (paid,
recognized as revenue) within one year after year-end date.
Ex. Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called
long term assets and long-term liabilities, respectively.
o Owner’s Equity or Capital
 Capital is an item of balance sheet wherein the capital or
interest of the owner of the business is listed.
 Initial withdrawal of capital will be recorded in a
drawing account of the owner and will be reflected as a
deduction to the capital balance.

Interpretation of Financial Statements (FS)

 Financial statements will reveal the outcome of the business operations.

LESSONS 8 - 13 41
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 A financial analyst is like a medical doctor who will conduct diagnosis by reading the
financial report and render interpretations on it which will be used as the basis of a
sound economic decision making.
 As previously defined, balance sheet reflects the financial position and condition of
the business. The financial position refers to the assets of the business which will be
financed by the liability and owner’s equity. On the other hand, financial condition
refers to the situation wherein assets, liability and owner’s equity are used to
maximize income. Also, assets, liability and owner’s equity may encounter growth or
decline in value.
 There are many available financing tools to be used in analyzing and interpreting
financial statements. It depends on the purpose. Most of these tools can evaluate and
interpret asset growth of the business, profitability, liquidity and solvency. In general,
it will provide a bird’s eye view of the overall health of the business.

Depicted in figure 9 below is a matrix of financial interpretation with formula and

explanation.
Accounts Formula Interpretation
Measure the ability of the company to generate income
Profitability ratios from the use of its assets and invested capital as well as
control its cost
Measures the percentage of
Operating
Operating Income profit earned from each peso
income
Net Sales of
ratio
(Horngren et.al. 2013).
Measures the peso value of
Return on asset Net Income income generated by
(ROA) Ave. Assets employing the company’s
assets.
Measures the return (net
Return on
Net Income income) generated by the
equity
Ave. Equity owner’s capital invested in
(ROE)
the business
Financial Health
Ratios Refers to the company’s capacity to pay their short- and
long-term obligations as they become due.

Indicates the percentage of

the company’s assets that are
Total Debt
Debt ratio financed by debt. A high
Total Assets
debt to asset ratio implies a
high level of debt.
Indicates the percentage of
the company’s assets that are
Total Equity
Equity ratio financed by capital. A high
Total Assets
equity to asset ratio implies a
high level of capital.
Indicates the company’s
Debt to equity reliance to debt or liability as
ratio Total Debt a source of financing relative

LESSONS 8 - 13 42
Prepared by: Esther S. Galvez
Aschleigh Klarizze A. Gundan
 Total Equity to equity. A high ratio
suggests a high level of debt
that may result in high
interest expense.
Refers to the company’s ability to pay debts that are
Liquidity coming due (short term debt).
Solvency Refers to the company’s capacity to pay their long-term
liabilities.
It seeks to measure whether
Current Assets there are sufficient current
Current ratio Current Liabilities assets to pay for current
liabilities. Creditors normally
prefer a current ratio of 2.
It does not consider all the
current assets, only those that
Quick Assets are easier to liquidate such as
Quick ratio
Current Liabilities cash and accounts receivable
that are referred to as quick
assets.

References:

Angeles A. De Guzman. Entrepreneurship (For Senior High School, Applied subject, ABM Strand.
Lorimar Publishing, Inc 2018, 25 – 26.

Ronaldo S. Batisan, DIWA Senior High School Series: Entrepreneurship Module. Diwa
Learning Systems Inc.

Dr. Eduardo A. Morato Jr., Entrepreneurship, 2016

Santos, ELi. "Marketing Mix the 7 Ps of Marketing." LinkedIn SlideShare. February 06, 2012.
Accessed January 04, 2019. https://www.slideshare.net/elisantos11/marketingmix-the-7-ps-of-
marketing.

Tracy, Brian. "The 7 Ps of Marketing." Entrepreneur. May 17, 2004. Accessed January 04, 2019.
https://www.entrepreneur.com/article/70824.

"Marketing Mix Definition - 4Ps & 7Ps of the Marketing Mix." The Marketing Mix. Accessed
January 04, 2019. https://marketingmix.co.uk/.

Raymund B. Habaradas and Tereso S. Tullao,Jr., Pathways to Entrepreneurship,2016,Phoenics

publishing house,p.17-28

"Marketing: Distribution Channels (GCSE) | Tutor2u Business." Tutor2u. Accessed January 04, 2019.
https://www.tutor2u.net/business/reference/marketing-distributionchannels.

“How to Make Revenue Forecasts” Smarta, Accessed December 10, 2018,

http://www.smarta.com/advice/business-planning/business-plans/how-to-makerevenue-forecasts/

LESSONS 8 - 13 43
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Aschleigh Klarizze A. Gundan