Chapter 6 Business Plan Workbook

PART III
BUSINESS PLAN WORKBOOK

CHAPTER 12: BUSINESS PLAN WORKBOOK
N ot all business ideas are feasible. This is the reason why you need to prepare a business
plan.
This workbook will guide you in the preparation of your business plan. It is divided into four
inter-related sections: marketing, technical, organization, and financial. Prepare each plan
carefully so that each one fits into place. Put them together and you have your own business
plan.
Everything starts with your marketing

plan. To begin with, you need to make
sure that your intended business satisfies a
need or a want. A good business is one
that provides the right product or service,
at the right price, at the right place, at the
right time, and supported by the right
promotion.
Your technical plan follows next. It

is in this section where you describe
all technical aspects of your business.
These include: product design,
production process, plant location and
layout, materials, machinery /
equipment / manpower requirements,
and production schedule.
It is in your organizational plan where

you decide on the legal form of your
business. It is also in this section where
you determine your personnel
requirements as well as the skills and
qualifications you need to look for when
screening prospective employees.
Finally, your financial plan will reveal

how much capital you will need for your
business and how much profit to expect
during the initial years of operation.
As you turn the pages, you will see many questions and tables. Do not be discouraged. You
need to gather a lot of information and do a lot of computations. But don’t worry because
everything has been laid out for you. All you need to do is answer the questions and fill in the
tables. The questions will guide you to think of the details. The tables were designed to
facilitate computations.
158 YOUR GUIDE TO STARTING A SMALL ENTERPRISE
Before proceeding, decide on what line of business you intend to get into. Do you wish to
engage in manufacturing? Perhaps trading (buying and selling of goods) is more to your
liking? Or do you intend to offer a service (e.g., an auto repair shop, a resort, restaurant
business, tailoring shop, beauty parlor, spa)?
There is no standard format of a business plan that will apply to the three types of businesses.
Some parts, particularly the financial statements - income statement - differ among the three
types. The “cost of goods sold” section of the income statement of a manufacturing firm
includes the costs of raw materials, labor, and overhead. On the other hand, in the income
statement of a trading firm, the “cost of goods sold” is solely the purchase cost of the items
for resale. In the case of a service entity, the income statement is more straightforward as it
does not have a “cost of goods sold” section.
As you go along, you will notice Tables and Schedules in the titles of the forms you are
filling up. A table is a summary of figures that provide information on a particular topic. A
schedule is an itemized list that supports each figure given in the table.
MARKETING PLAN
1. Briefly describe the product or service you intend to offer your target market.
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2. If your product is tangible, draw a sample of your product(s) in the box provided below.
Give product specifications (e.g., size, weight, dimensions, ingredients, brand name etc.)
and the use(s) of the product or service.
Product specifications:
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Uses of the product or service:
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CHAPTER 12: BUSINESS PLAN WORKBOOK 159
3. Describe the existing market situation. What similar products or services exist in the
market? How many others are making the same product or offering the same service?
Are they able to meet the needs of the market? If not, how big is the unmet demand of
the market? In terms of quality, how does your product or service compare to that of your
competitors?
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4. In general, what type of people or businesses would be interested in your product or

service?
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5. Describe your target market. Specifically, what segment are you targeting? Who are the
people or businesses likely to buy your product or use your service because they need or
want your product or service and are willing and able to pay for it? Where is your target
market located? How big is your target market?
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6. Do your market research. Simply follow the steps below.
1 2 3 4 5 6 7
How often and
Product or Your when do your Target
service you target customers Comp
target Customers’
intend to buy or avail of etitors’
Customers Comments Competitors price
offer Price
such product or
service
1. In column 1, write the product or service you intend to offer.

2. In column 2, describe the customers whom you expect to buy your product or use
your service. Who are the people who need or want that product or service and
are willing to pay for it? For example: Are they mostly men, women or
children? Are they young or old? What type of work do they do? Are their
incomes low or high? Where do they live and where do they buy or avail of the
same product or service? Are they in the rural areas, in the town, near your
business or far away?
3. In column 3, write down how often and when your target market buy the product
or avail of such service. Is it every day, every week, every month, every year,
during the rainy season, in summer, on payday, or after the harvest?
4. In column 4, write down what price you will charge for your product or service.
Do this after reading Chapter 9.
5. In column 5, write down what your target market think about your product or
service. For example: Do they like the design, the colors? Or do they prefer
other products or services instead?
6. In column 6, write down other businesses, your competitors, who are selling or
offering the same or similar products or services. What do you think is special
about their products or services? What do customers like about their products or
services?
7. In column 7, write down the price your competitors charge for a similar product
or service.
7. Quantify your market share. Consider the equation: Q = n x q

where n = number of customers likely to buy your product or avail of your
service
q = average quantity to be purchased by a customer in a
given
period Q = represents total demand for your product.
Demand for some products or services can be seasonal. For instance, demand for
umbrellas and raincoats is high during the rainy months. Demand for tutorial services or
review classes is high two or three months before scheduled college entrance or
professional board exams. Because of seasonality, it is best that you approximate your
sales on a monthly basis. By so doing, you get to consider fluctuations in the demand for
your product or service.
There are no complications if your business offers only a single product or service all year
round. The following schedule, Schedule 1-A, will suffice. But as you fill in the
schedule, you need to think of the conditions that prevail during a given month and how it
will affect your sales. Is it vacation time, start of school, graduation, Lent, rainy season,
Christmas, etc.? Approximate the number of units (n and q) you think you will be able
to sell for a given month. To get your 1st year total sales volume figure simply add up
your monthly demand (Q) figures.
Schedule 1-A
Projected Monthly Sales Volume
Month
Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov. Dec. Total
n
q
Q
If your business will manufacture, trade, or offer more than one product or service, you
will have to create a schedule similar to the one above for each product or service you
intend to sell or offer. This can be tedious especially for those who intend to go into
trading. Use a computer to facilitate your work. When you’ve come up with a schedule
for each of your products or services, consolidate all your monthly Q figures in a
Projected Sales Summary Schedule similar to Schedule1-B on the next page. When
you’ve done that, add up all your monthly figures for each product or service and write
the sum under the total units column. Do not fill in the last two columns (i.e., the selling
price and pesos sales total columns) for the time being. We’ll get back to that shortly.
Schedule 1-B
Projected Sales Summary Schedule
(In units)
PRODUCT Peso
Total Selling
LINE/ Jan. Feb. April May June July Aug. Sept. Oct. Nov. Dec. Sales
Units Price
Mar. Total
SERVICE
8. Think ahead. Do you think the size of your market will increase in the next 3 years? If
so, how will this affect the demand for your product or service? By how much do you
project demand for your product or service to increase in your 2nd and 3rd year of
operations? What factors will bring about an increase in demand for your product or
service?
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9. How much will you charge for your product or service? How did you arrive at your
price? If you are a manufacturer or a trader, will you adopt a wholesale price and a retail
price? If wholesale, what is the minimum quantity for wholesale? Will you change your
price in the long run? By how much? How does your price compare to that of your
competitors’? How much lower or how much higher? Review Chapters 6 and 9.
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10. Will all your sales be in cash? If not, what percentage of your sales will be on cash basis?
What will your credit terms be?
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Things can get a little tricky from here on. Be sure you fill in the right
table.
Choose the table that suits your business:
Table 1-A is for single product line manufacturers/traders/service providers.

Table1-B is for multiple product line manufacturers/traders/service
providers.
After reading Chapter 3, you should have already figured out the category where your
business will fall in. Go to the table that suits your planned business and fill in the spaces.
You will need to refer back to your answers to question numbers 7, 8, and 9.
If you are a single product line manufacturer or trader: To get your total projected
peso sales for the year, multiply your planned sales volume by the selling price per unit that
you intend to set. Your planned sales volume for the 1st year is the sum of your total monthly
sales volume or Q (go back to Schedule 1-A).
Using your projections for Year 1 as basis, how many units do you expect to sell during your
2nd and 3rd years of operations? Are you going to increase your selling price on the 2nd and 3rd
year? Fill in the blank boxes under Table 1-A.
TABLE 1-A
Planned Sales Volume/Sales for a Single Product Line Business
Year 1 Year 2 Year 3

Planned sales volume (in
units)
x Planned selling price/unit
Total sales
If you’ve completed Table 1-A, turn to the next page and proceed with the section on
receivables.
If you are a multiple product line manufacturer/trader or service provider :

Computing for your projected sales is more complicated since you have several product lines.
Go back to Schedule 1-B. Fill in the selling price column for each of your product lines or
services. To get the figures for your last column, multiply each total units figure for each row
with the corresponding selling price. The sum of all the figures in the last column is your
Total sales figure for Year 1. Now you can proceed and write your total sales for Year 1 in
Table 1-B on the next page.
TABLE 1-B
Planned Sales Volume/Sales for a Multiple Product Line Business

Total sales
To get your total sales figures for Years 2 and 3, you will have to repeat the same process
over again. You will need additional sheets of paper to do a repeat of Schedule 1-B for your
2nd and 3rd years of operation. For future reference, keep all your working papers together.
Better staple them with Schedule 1-B on page 6.
RECEIVABLES. Let’s proceed and work on your receivables. Are you going to extend
credit? Refer back to your answer in question 10. If you are not going to extend credit to
your customers, then this means that all your sales will be in cash and therefore you have no
accounts receivable (A/R). Your accounts receivable at the end of the year or period will be
zero.
However, if you project 20% of your monthly sales to be on credit, then 80% of your monthly
sales will be in cash. It is important that you come up with a schedule of your receivables on
a monthly basis, as this is critical in determining how much receivables you have at the end of
the year. Review Chapter 10.
Let us take the following example. Granted that 20% of your monthly sales is on credit, your
A/R will vary depending on the level of your sales for the month. Assuming that you are able
to collect your receivables after 30 days, your accounts receivable schedule would look like
the one below.
Schedule 2-A
Simple Accounts Receivable Schedule
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
Total
25000 24500 26500 27000 27800 35000 45500 56800 32000 24600 23500 22500
Sales
Less:
Cash 20000 19600 21200 21600 22240 28000 36400 45440 25600 19680 18800 18000
Sales
Sales on
5000 4900 5300 5400 5560 7000 9100 11360 6400 4920 4700 4500
Credit
Collection
0 5000 4900 5300 5400 5570 7000 9100 11350 6400 4910 4700
of A/R
A/R
0 4900 5300 5400 5570 7000 9100 11350 6400 4910 4700 4500
Balance
From the foregoing schedule you will see that computing for your A/R is not simply a matter
of getting 20% of your total sales figure for the year. Doing so would give you an A/R
balance at the end of December of P 74,130 when in fact your receivables only total to
P 4,500. So be careful. Always break your sales down on a monthly basis.
What happens if you extend different credit terms to your customers? That is, you allow
some of your customers to pay within 30 days, some within 60 days, and others within 90
days. There is nothing wrong with this practice, except that computations, monitoring, and
collection of receivables will get more complicated.
In the next schedule we are assuming that credit sales remain at 20% of the monthly sales.
However, we are assuming also for the purpose of illustration that 40% of the sales on credit
will be collected in 30 days; 45% will be collected in 60 days; and the balance of 15% will be
collected in 90 days. Here is how the A/R schedule will look like. By end of December the
total amount of receivables still to be collected is P 16,814.
Schedule 2-B
Accounts Receivable Schedule
For Businesses with More than One Credit Term
Total
25000 24500 26500 27000 27800 35000 45500 56800 32000 24600 23500 22500
Sales
Less:
Cash 20000 19600 21200 21600 22240 28000 36400 45440 25600 19680 18800 18000
Sales
Sales on
5000 4900 5300 5400 5560 7000 9100 11360 6400 4920 4700 4500
Credit
On 30-
0 2000 1960 2120 2160 2224 2800 3640 4544 2560 1968 1880
day credit
On 60- 0 0 2250 2205 2385 2430 2502 3150 4095 5112 2880 2214
day credit
On 90-
0 0 0 750 735 795 810 834 1050 1365 1704 960
day credit
A/R 5000 7900 8990 9315 9595 11146 14134 17870 14581 10464 8612 8058
Balance
Using the January sales as example, of the P25,000 worth of sales transactions during the
month, P20,000 was paid in cash and the remaining P 5,000 was on credit. So by the end of
January the entire P5,000 makes up the A/R balance.
The P5,000 will be collected over the next 90 days as follows: 40% of P 5,000 will be
collected in February, 45% of it in March, and 15% of the same amount in April.
For February, the A/R balance equals P 7,900 which is made up of:
P 4,900.00 February total sales on credit

3,000.00 Balance still to be collected on January credit
sales (P 5,000 - P 2,000)
P 7,900.00 February A/R Balance
For March, the A/R balance equals P 8,990 which is made up of:
P 5,300.00 March Sales on Credit

750.00 Balance still to be collected on January credit
sales (15% of P 5,000)
2,940.00 Balance still to be collected on February credit
sales (60% of P 4,900)
P 8,990.00 March A/R Balance
Now, try to figure out the rest of the monthly sales as shown in Schedule 2-B.
Now let’s see how you determine your A/R balances for the next three years. Complete the
next three tables. It is important that you get your December year-end A/R balances right.
TABLE 2-A
BREAKDOWN OF CASH and CREDIT SALES for Year 1
Total
Sales
Less:
Cash
Sales
Sales on
Credit
Collection of A/R:
On 30-
day credit
On 60-
day credit
On 90-
day credit
A/R
Balance
TABLE 2-B
Total
Sales
Less:
Cash
Sales
Sales on
Credit
Collection of A/R:
On 30-
day credit
On 60-
day credit
On 90-
day credit
A/R
Balance
TABLE 2-C
Total
Sales
Less:
Cash
Sales
Sales on
Credit
Collection of A/R:
On 30-
day credit
On 60-
day credit
On 90-
day credit
A/R
Balance
11. Place of business. Where are you going to locate your business? Why did you choose
this place in particular?
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12. Draw a location map of where you intend to put up your business. It will be good to show
landmarks and access routes.
13. Will you sell directly to end-users? If so, how are you going to bring your product or
service to them?
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Are you going to use middlemen or distributors? If yes, are you giving commissions or
discounts? How much?
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15. How will you get customers to buy? How will you promote your product or service?
Will you advertise in newspapers, radio or TV? Will you use posters, flyers, signboards,
etc.? Are there any promotional gimmicks that you intend to use?
Plan your marketing activities and figure out how much you will have to spend to sell
your product or service. Complete your marketing plan by filling in Table 3 on the next
page. Review your answers to question numbers 13, 14, and 15.
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TABLE 3
Selling Expenses

Sales commissions
Advertising
Signboards
Posters, flyers etc.
Packaging
Transportation expenses
Sales promotions
Total selling expenses
Before proceeding to your technical plan go back to your first table. Are your sales volume
projections realistic? Can you really sell this much? If you wish to make adjustments, you
can do so. But don’t forget that any adjustments in projected sales volume should be reflected
in Tables 1-A or 1-B as well as in Tables 2-A, 2-B, 2-C, and 3. Make sure you do your
corrections properly as you shall be referring back to these tables when you get to your
financial plan.
TECHNICAL PLAN
16. Think of the different activities in your business.

• If you are into manufacturing, list down and describe the step-by-step
manufacturing process, from procurement of raw materials up to the point of
delivery.
• If you are into trading, list down and describe the different activities, from
procurement of merchandise up to the point of sale, of your business.
• If you are a service provider, list down and describe the different activities
involved in servicing a client.
Step DESCRIPTION
1
17. Based on your description in the preceding question, draw your process flow diagram on
the space provided. Use the symbols at the bottom of the page. Refer to Chapter 7.
Operation Transport Inspection Storage Delay

18. Property, plant, and equipment. What assets do you need for your business? How much
does each one cost?How many units do you need for each type of
machine/equipment/furniture/ fixture/vehicle? Compute for your annual depreciation
charges. (Note: Be careful. The total annual depreciation charges in the 1st year may not
be the same as that in the 3rd year - if some of the fixed assets are fully depreciated by the
2nd year.)
TABLE 4
Fixed Investment and Depreciation Schedule
Life Annual Depreciation Charges

Acquisition Total Span
Cost Qty. Cost (in years) Year Year Year
1 2 3
Land --- --- --- ---
Building
Building improvements
Machines/eqpt./tools
Total Machines/eqpt/tools
TABLE 4
Fixed Investment and Depreciation Schedule

Acquisition Total Span
Cost Qty. Cost (in years) Year Year Year
1 2 3
Furniture and fixtures --- --- --- ---
Total furniture & fixtures

Office equipment
Total office equipment

Vehicle
Total
vehicles
GRAND TOTAL
19. Design your layout on the space provided below.

• For wannabe manufacturers: How will you arrange your machines and work
areas in relation to one another? How much space (include storage areas) will
you need? Draw your plant layout.
• For wannabe traders: Draw the layout of your selling area. Where will you
locate your different merchandise? How much space, inclusive of your storage
area, will you need?
• For wannabe service providers: Draw the layout of your work area. How much
space, inclusive of your reception and storage areas, will you need?
20. How will you dispose of your business’ waste? Can you sell them? Can you recycle
them? Will you need to spend for their disposal? How much?
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Manufacturers, traders and service providers please take note of the questions
that you need to answer.
• For wannabe manufacturers, answer questions 21 to 35. When you’re
done proceed to your organizational plan on page 38.
• For wannabe traders, answer questions 30, 31, 36 & 37. When you’re
done proceed to page 38.
• For wannabe service providers, answer questions 30, 31, 38 to 40. When
done proceed to page 38.
21. It’s time to come up with your production schedule. Aside from your projected sales
volume, you may want to keep a few units in your finished goods (F.G.) inventory to
meet unexpected demand. How many units would you like to keep in your ending F.G.
inventory at the end of the period? Keep in mind that your beginning inventory account
for subsequent periods is your previous year’s ending inventory figure.
If you manufacture only one product line, fill in Table 5-A. If you have several product
lines move on to the next page.
TABLE 5-A
Production Schedule for a Single Product Line Business
Planned sales volume, in units (from Table 1)
Add: Desired Ending F.G. inventory, in units
Less: Beginning F.G. inventory, in units 0
Units to be produced
For you multi-product line manufacturers, here is how you fill in Table 5-B:
1. You get the information for columns A and B from Schedule 1-B.
2. Decide on how many units of finished goods for each product line (column C) you
want to keep in F.G. inventory.
3. Compute for Column E. (Column E = Column B + Column C - Column D)
4. Leave Columns F and G for the moment. We’ll return to them shortly.
Do the same thing for Years 2 and 3. Copy Table 5-B in a separate sheet of paper. Be sure
you have the right figures in column D. Remember your beginning inventory is the previous
period’s ending inventory. Be sure to staple your schedules for the succeeding years to the
next page so that you don’t lose them.
TABLE 5-B
Production Schedule for a Multiple Product Line Business
Plus: Total Cost
Total Units Desired FG Less: FG No. of Units of FG
Product to be sold in Ending Beginning to be Production Ending
Year 1 Inventory Inventory Produced Cost/Unit Inventory
(A) (B) (C) (D) (E) (F) (G)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total for Year 1
22. Direct raw material requirements. What direct raw materials do you need in the
manufacture of your product(s)? Are you assured of a continuous supply of all your
direct material requirements? Fill in the next schedule. For each type of direct material,
how much do you need per unit of product you intend to produce?
Schedule 3-A
Direct Raw Material Requirements
PRODUCT: __________________________________
Quantity
Purchase cost/ needed/unit Cost/unit
Direct material unit of material to be produced to be produced
(A) (B) (C) (D)
e.g. milk P 55.00/liter 50 ml P 2.75
Direct material cost/unit
For you to determine the direct material cost that goes into each unit of your product, you
will have to come up with a separate Schedule 3-A for each of your product lines. Staple
them together and be sure that each schedule is properly labeled as to what type of
product line you are referring to.
23. Do you expect prices of direct materials to increase in the next 3 years? By how much?
If you’re in a single product line business, complete Table 6-A to come up with direct
material costs for the next 3 years. Be sure to impute price increases in your direct
material cost per unit for the succeeding years if you expect the cost of materials to go up.
TABLE 6-A
Direct Material Cost for a Single Product Line Business
Units to be produced (from Table 5)
x Direct material cost/unit (Schedule 3-A)
Total direct material cost
If you have multiple product lines fill in Table 6-B. Get the data from the different
schedules you made under question 22. (Schedule 3-A).
TABLE 6-B
Direct Raw Material Cost for a Multiple Product Line Business
Direct raw Direct raw
material cost/unit No. of units to be material cost per
Product Line to be produced produced product line
(A) (B) (C) (D)
Total direct material cost (for Year 1)
You will have to do the same thing over again for Years 2 and 3.
24. Go over your direct raw material schedule in question 22. Pick out the materials that you
think you should keep in stock and fill in the next schedule.
Schedule 3-B
Direct Material Ending Inventory Schedule
Purchase cost/
Quantity Cost of material
Direct material unit of direct
to be kept in stock in stock
material
e.g. short bond paper P 130.00/ream 10 reams P 1,300.00
Desired Ending Inventory of Direct Materials (for Year 1)
25. Do you expect prices of your direct materials to rise? By how much? Come up with a
similar schedule as the one above for your 2nd and 3rd year of operations. When you’re
done complete Table 7 to come up with your direct material purchases for the next 3
years. Be sure to impute price increases in your direct material inventory costs for the
succeeding years if you expect cost of materials to go up. Again, your beginning
inventory account for subsequent periods is your previous year’s ending inventory figure.
TABLE 7
Direct Material Purchases
Total direct material cost
(from Table 6-A or 6-B)
Add: Desired direct materials ending
inventory (from Schedule 3-B)
Less: Direct materials beginning inventory 0
Total direct material purchases
26. Indirect raw material requirements. Now you need to figure out your indirect material
requirements. Where will you obtain them? Are you assured of a continuous supply of all
your indirect material requirements? For each type of indirect material, how much do you
need for the year? Fill in the following schedule.
Schedule 4-A
Indirect Material Requirement
Purchase cost/ Quantity
Indirect material Cost/year
unit needed/year
Indirect material cost (For Year 1)
27. Do you expect prices of indirect materials to increase in the succeeding years? By
how much? Come up with a similar schedule as the one above for your 2nd and 3rd
year of operations. When you’re done, complete Table 8 to come up with your
indirect material cost for the next 3 years.
TABLE 8
Indirect Material Cost
Indirect materials cost
28. Go over your indirect raw material schedule in question 26. Pick out the materials that
you think you should keep in stock and fill in the next schedule. Do a separate schedule
for Year 2 and Year 3. Be sure to impute price increases in your indirect material
inventory costs for the succeeding years if you expect cost of materials to go up.
Schedule 4-B
Indirect Material Ending Inventory Schedule
Purchase cost/
Quantity Cost of material
Indirect material unit of indirect to be kept in stock in stock
material
Desired Ending Inventory of Indirect Materials (for Year 1)
29. Do you expect prices of your indirect materials to increase in the next 3 years? By how
much? Come up with a similar schedule as the one above for your 2nd and 3rd years of
operation. When you’re done complete Table 9 to come up with your indirect material
purchases for the next 3 years. Be sure to impute price increases in your indirect material
inventory costs for the succeeding years if you expect cost of materials to go up.
TABLE 9
Indirect Material Purchases
Total indirect materials cost (from Table 8)
Add: Desired indirect materials ending
inventory (from Schedule 4-B)
Less: Indirect materials beginning inventory 0
Total indirect material purchases
30. Direct labor requirements. Go back to your answers to question 16. How long does it
take to complete each step/activity? How many people will you need to employ to
complete each stage?
Time to No. of
Activity complete workers
(in minutes) needed
31. Manpower requirements. Refer back to your answers to questions 16 and 30 so that you
do not miss out on your direct labor requirements. Are you going to give any salary
increases in the next three years? How much? Fill in Table 10.
TABLE 10
Manpower Requirements
Number of Salary/month Annual salary*
employees
Direct labor
Subtotal
Indirect labor
Subtotal
Sales staff
Administrative staff
Subtotal
TOTAL
* Compute on the basis of 13 months/annum
32. Compute your production cost. You need to determine your overhead expenses for the
year to complete Table 11. Be sure that your figures are realistic. If you feel that some of
your expenses will escalate in the 2nd and 3rd year, don’t forget to factor in corresponding
increases.
TABLE 11
Cost of Production
Direct materials (from Table 6-A or 6-B)
Direct labor (from Table 10)
Production overhead:
Indirect labor (from Table 10)
Indirect materials (from Table 8)
Repair and maintenance
Depreciation of production eqpt. (Table 4)
Transportation expense
Light and power
Water
TOTAL COST OF PRODUCTION
33. Complete Table 12 to arrive at your production cost per unit.
TABLE 12-A
Product Cost Per Unit for a Single Product Line Business
Total cost of production (from Table
11)
÷ Units to be produced (from Table 5)

Product cost per unit
If you have several product lines, you will need to compute the product cost per unit for
each product line. Fill in Table 12-B to determine the product cost for each of your
product lines. Here’s where you get your figures:
1. Get the information for columns A and B from Table 6-B.

2. Get your total direct labor cost per month from Table 10. Divide it by your total
number of production hours in a month to get your direct labor cost per hour. But
column C asks for the direct labor cost per unit. So what do you do? You need to
figure out how long it takes to produce one piece of a particular product. Refer to
your answer to question 30. Multiply the number of minutes or hours by the your
direct labor cost per hour to get direct labor cost per unit.(NOTE: Be careful. If it
takes only minutes to produce one unit, be sure to convert the number of minutes as a
fraction of an hour before multiplying it with your direct labor cost per hour figure.)
3. Go to Table 11 and add up all your production overhead expenses. Divide your total
production overhead expense figure by your monthly total number of production
hours to get your overhead cost per hour. Multiply your overhead cost per hour by
the number of minutes or hours it takes to produce a particular product line. This is
your overhead allocation (column D).
4. To get your product cost per unit (column E), add up the column items for each
product line. That is column B + column C + column D.
TABLE 12-B
Product Cost Per Unit for a Multiple Product Line Business
Direct raw material Plus: Direct Labor Plus: Overhead
Product Line cost/unit cost/unit Allocation Product cost/unit
(A) (B) (C) (D) (E)
34. If you manufacture a single product line, complete Table 13-A to arrive at the value of
your F.G. ending inventory. If you manufacture several product lines, complete Table 13-
B.
TABLE 13-A
Finished Goods Ending Inventory for a Single Product Line Business
Production cost per unit (from Table 12-A)
x Desired FG ending inventory, in units (from Table 5-A)
Value of finished goods ending inventory
TABLE 13-B
Finished Goods Ending Inventory for a Multiple Product Line Business
Desired Finished Goods

Product Line Product cost/unit Inventory Finished Goods
(from Table 12-B) (from Table 12-B) (from Table5-B) Ending Inventory
(A) (B) (C) (D)
Finished Goods Ending Inventory (Year 1)
Come up with a similar table as the ones above for your 2nd and 3rd years of operation.
35. Complete Table 14 to arrive at your total cost of goods sold. Just a reminder: Your
beginning inventory account for subsequent periods is your previous year’s ending
inventory figure.
TABLE 14
Cost of Goods Sold for a Manufacturing Business
Total cost of production (from Table 11)
Add: F.G. beginning inventory 0
Total cost of goods available for sale
Less: F.G. ending inventory (from Table 13-A or 13-B)
Total cost of goods sold
To wannabe manufacturers: You’ve just completed your technical or

production plan. Before you turn to page 38, please go over your technical
plan once again to make sure that you did not miss out on anything. Be sure
you answered all the questions.
36. A trader buys merchandise from manufacturers/suppliers and sells them to end-users.
To complete Schedule 5 on the next page, go back first to Schedule 1-A (if you are a
single product line trader) or Schedule1-B (if you intend to carry multiple product lines).
Start completing Schedule 5 by first listing down all the products you intend to sell under
column A. If the space provided is not enough, get additional sheets of paper and replicate
Schedule 5. Don’t lose those pages. Staple them onto the next page.
When you’re done listing down your merchandise, fill in column B for each product.
Apart from your projected sales volume you may want to keep a few more units in
inventory. Ask yourself how many units of each product you should keep in inventory
and write these down under column C. For Year 1, you will have nothing in stock at the
start of your operations hence your beginning inventory is zero for each product item.
To get the number of units to be purchased (column E) for each product you intend to
sell, simply add each row item in column B to the corresponding item in column C and
subtract row item in column D. Write in the unit cost per item in column F. When
you’ve done that multiply row item in column E with corresponding row item in column
F and write the product under column G.
Repeat the whole process and come up with your Merchandise Summary for Year 2 and
Year 3.
Schedule 5
Merchandise Summary
Plus: Total Cost
Total Units Desired Less: No. of Units of
Product to be sold in Ending Beginning to be Purchase Merchandise
Year 1 Inventory Inventory Purchased Cost/Unit Purchases
(A) (B) (C) (D) (E) (F) (G)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total for Year 1
37. You have to determine your cost of goods sold before you can prepare your balance sheet
or income statement. Normally, the level of inventory and cost of goods sold is
determined through a physical count at the end of the accounting cycle. At the moment
this is not feasible since you are just in the planning stage.
Go over your pricing policy in question 9. What is your average markup? Once you’ve
determined your markup, you can now complete Tables 15 and 16.
TABLE 15
Cost of Goods Sold for a Trading Business
Total sales (from Table 1-A or 1-B) 0
Less: Mark-up
Total cost of goods sold
TABLE 16
Merchandise Inventory

Merchandise Inventory, Beginning balance 0
Add: Merchandise purchases (from Schedule 5)
Less: Cost of Goods Sold (Table 15)
Merchandise Inventory, Ending balance
To wannabe traders: You’ve just completed your technical or production

plan. Your next task is to come up with your Organizational Plan. But
before you turn to page 38, review your answers to questions 36 and 37.
38. A service provider needs supplies and spare parts to service the needs of customers.
What supplies and spare parts do you need for your intended business? Go back to
Schedule 1-B and estimate your supplies and spare parts requirements for the year. Fill in
the Schedule 6-A on the next page. If you need more space get additional sheets of paper.
To complete the next schedule, go back to Schedule 1-A (if you are a single product line
trader) or Schedule1-B (if you intend to carry multiple product lines). Start completing
Schedule 6-A by first listing down all the supplies/spare parts you need under column A.
If the space provided is not enough, get additional sheets of paper and replicate Schedule
6-A. Don’t lose those pages. Staple them onto the next page.
When you’re done listing down the supplies and spare parts you need for your business,
fill in column B. How much of each supply and spare part will you use or consume
during your first year of operation?
Apart from what you will be using for the month, you may want to keep a few more units
in inventory. Ask yourself how many units of each supply and spare part you should
keep in inventory and write these down under column C. For Year 1, you will have
nothing in stock at the start of your operations hence your beginning inventory is zero for
each supply and spare part.
To get the number of units to be purchased (column E) for each supply and spare part,
simply add each row item in column B to the corresponding item in column C and
subtract row item in column D. Write in the unit cost per item in column F. Once
completed, multiply row item in column E with corresponding row item in column F and
write the product under column G.
Repeat the whole process and come up with your Supply and Spare Parts Summary for
Year 2 and Year 3. Will your requirements remain the same during your 2nd and 3rd year
of operation? Be sure to consider fluctuations in prices if you think that prices of supplies
and spare parts are going to increase.
Schedule 6-A
Supplies/Spare Parts Summary
Number of Plus: Total Cost
Supply/ Units to be Desired Less: No. of Units of Supplies/
Spare Part used in Ending Beginning to be Purchase Spare Parts
Year 1 Inventory Inventory Purchased Cost/Unit Purchases
(A) (B) (C) (D) (E) (F) (G)
0
0
0
0
0
0
0
0
0
0
0
0
0
Total for Year 1
39. Now estimate the cost of supplies and spare parts to be used for the period. Go back and
copy columns A, B and C from Schedule 6-A to Schedule 6-B. When you have done that
multiply each row item in column B with the corresponding row item in column C and
write the product in column D. To get the total cost of supplies and spare parts used,
simply add all the items under column D.
Schedule 6-B
Cost of Supplies/Spare Parts Used
Number of Units Total Cost of
Supplies/ to be used Purchase Supplies/
Spare Part in Year 1 Cost/Unit Spare Parts Used
(A) (B) (C) (D)
Total Supplies/Spare Parts Used (For Year 1)
Do the same thing over again for Year 2 and Year 3.

40. You have to determine your supplies and spare parts inventory to be able to prepare your
balance sheet. Complete the next table.
TABLE 17
Supplies/Spare Parts Inventory
Supplies/spare parts beginning inventory 0
Add: Total supplies/spare parts purchases
(from Schedule 6-A)
Less: Total supplies/spare parts used (Schedule 6-B)
Supplies/spare parts ending inventory
To wannabe service providers: You’ve just completed your technical or

production plans. Your next task is to come up with your Organizational Plan.
But before you proceed, review your answers to questions 38 and 40.
ORGANIZATION PLAN
41. What legal form of business will your business take? ____________________________
42. List down all the necessary licenses, fees and permits you need to secure and pay for in
the course of registering your business in the next schedule. Add to this any
transportation or incidental expenses.
Schedule 7
Licenses, Permits and Registration Expenses
Type of business Transportation Incidental
license/permit/registration Fees expenses expenses Total
Total licenses, permits, and registration expenses

43. Aside from the licenses, permits and registration fees, you are likely to incur other pre-
operating expenses. Individually, these expenses may seem small and negligible. But if
they are put together they can add up to a considerable amount. So you need to set aside
money for such expenses. Pre-operating expenses are amortized during the course of the
business so don’t worry. Fill in Table 18.
TABLE 18
Pre-operating Expenses
Total licenses, permits and registration expenses (from Schedule 7)

Training undertaken during the pre-operating phase
Transportation expenses
Initial marketing efforts
Trial production runs
Preparation of feasibility study/business plan
Installation of utilities
Total pre-operating expenses
44. Let’s now go to the hiring of employees. This may take some time so be patient. I want
you to think of the marketing, production, finance and administration activities of your
business. You cannot do everything so you will need to hire people to do the different
tasks associated with these functions.
Fill in the next schedule. Go by functional area. On the first column you will find
questions to guide you. But in case some questions do not apply to your business, by all
means, skip them.
You’ve actually listed the tasks relating to your operations. Refer back to your answers to
questions 16, 30 and 31. Should you need more space, feel free to insert new pages.
Don’t forget to staple them to your Workbook.
Number of Monthly
Functional area/Job title
people needed salary rate
MARKETING
Who will sell your products?
Who will take care of promotion

and advertising?
Who will deliver products to

customers or distributors?
PRODUCTION
Job description Qualifications

Number of Monthly
Functional area/Job title
people needed salary rate
PRODUCTION
FINANCE
Who will keep records? Who will
do the accounts?
Who will prepare the payroll?

Who will collect receivables/settle
payables?
ADMINISTRATION
Who will take care of purchasing,
preparing contracts, renewing
permits?
Who will take care of personnel
matters?
Who will handle business

communications, filing etc?
Job description Qualifications

45. Compute for your administrative expenses
TABLE 19
Administrative Expenses
Salaries and wages (from Table 10)
Office supplies
Rent
Utilities
Depreciation of non-production equipment (from Table 4)
Amortization of pre-operating expenses (from Table 18)20
Repair and maintenance
Professional fees
Total administrative expenses
20To amortize your pre-operating expenses, divide your total pre-operating costs by n, = the number of years you
wish to “spread out” the expenses you incurred during the pre-operating phase. An n ranging from 2 to 5 is
acceptable.
FINANCIAL PLAN
46. Find out how much money you will need to get your planned activities going by
completing Table 20. Breakdown each line item into two. That is, how much of each
item listed on the 1st column will be funded by equity and how much will be funded by
debt? Are you within the debt:equity limit set by the bank or institution you intend to
borrow from?
TABLE 20
Total Project Cost
DEBT EQUITY TOTAL
Total pre-operating expenses (from Table 18)
Fixed investment (from Table 4)

Working capital (minimum cash balance you
need for one cycle to pay your raw materials,
direct labor, manufacturing overhead,
operating expenses)
TOTAL PROJECT COST (Total pre-operating
expenses + fixed investment + working
capital requirement)
Proportion of debt:equity
47. Where are you going to get the funds to finance your total project cost?
________________________________________________________________________
________________________________________________________________________
48. For borrowed money, you will need to pay interest. Compute your annual financial
charges.
TABLE 21
Financing Charges
Principal: ______________________ Mode of payment: _______________

Interest rate per annum: ______________ Term of loan: __________________
Year Interest Principal Total Payment Outstanding

Balance
1
2
3
4
5
There are slight variations in the income statements of a manufacturer, a trader,

and a service provider.
• Wannabe manufacturers and traders complete the income statement as

presented in Table 22. When you’re done, do your cash flow statement by
filling Table 24.
• Wannabe service providers complete the income statement as presented in

Table 23. When you’re through, do your cash flow statement by filling in
Table 24.
49. Wannabe manufacturers and traders prepare your Projected Income Statement for the next
3 years by completing Table 22.
TABLE 22
Projected Income Statement
for Manufacturers and Traders

Total sales (from Table 1-A or 1-B)
Less: Cost of goods sold21
Gross profit from sales
Less: Selling expenses (from Table 3)
Less: Administrative expenses (from Table 19)
Net operating profit
Less: Interest charges (from Table 21)
Net income before taxes
21For manufacturers, refer to Table 14. For traders refer to Table 15. Service providers do not have a cost of
goods sold section.
50. Wannabe service providers prepare your Projected Income Statement for the next 3 years.
Complete Schedule 8 before proceeding to Table 23.
Schedule 8
Total Expenses for Service Providers
Selling expenses (from Table 3)
Administrative expenses (from Table 19)
Depreciation for machines/eqpt./tools
(from Table 4)
Total supplies/spare parts used (from Table 17)
Total expenses
TABLE 23
Projected Income Statement
for Service Providers

Total sales (from Table 1)
Less: Total expenses (from Schedule 8)
Net operating profit
Less: Interest charges (from Table 21)
Net income before taxes
51. How certain are you that you will have cash when you need it? Prepare your cash flow
statement so that you will know when you will need additional cash.
TABLE 24
Projected Cash Flow Statement
Pre-
Operating
Cash Inflows
Loan proceeds (from Table 21)
Owners Equity (from question no. 47)
Cash sales (from Tables 2-A or 2-B)
Add: Collection of receivables (from Table 2-A, 2-B and 2-
C)
Cash Outflows
TOTAL CASH INFLOWS
Pre-operating expenses (from Table 18)
Fixed investment (from Table 4)
Materials purchases (from Tables 7 + 9 + 16 + 17)
Direct labor (from Table 10)
Production overhead minus depreciation and indirect
materials (from Table 11)
Selling & administrative expenses minus depreciation and
amortization of pre-operating expenses
(from Tables 3 & 19)
TOTAL CASH
OUTFLOWS
Add: Beginning cash balance NET CASH FLOW 0
Less: Principal repayments/interest payments (from Table 21)
ENDING CASH BALANCE
52. Let’s see you try your hand at making your balance sheet.
TABLE 25
Projected Balance Sheet
Pre-
Operating
ASSETS
Cash (from Table 24)
Accounts Receivable (from Tables 2-A, 2-B, 2-C)
Raw materials inventory (from Tables 7 + 9)
Finished goods inventory (from Table 13-A or 13-B)
Merchandise inventory (from Table 16)
Supplies/spare parts inventory (from Table 17)
TOTAL CURRENT ASSETS
Property, plant, and equipment (from Table 4)
Less: Accumulated depreciation
NET PROPERTY, PLANT, AND
EQUIPMENT
Pre-operatingof
Less: Amortization expenses
pre-operating expenses
(from Table 18) (from Table 19)
NET PRE-OPERATING EXPENSES
TOTAL ASSETS
LIABILITIES AND OWNER’S EQUITY

Accounts payable
Current portion of loans payable (from Table 21)
TOTAL CURRENT LIABILITIES
Long-term loans (net of current portion)

TOTAL LIABILITIES
Owner’s equity (from Table 24)
Retained earnings (from Table 22 or 23)
TOTAL OWNER’S EQUITY
TOTAL LIABILITIES & OWNER’S EQUITY
53. By now you have all the figures at your fingertips. It’s time to decide. Do you think
business you intend to pursue is viable? Should you proceed with your plans? What is it
going to be?
SUMMARY
The Workbook is the culminating activity for the Guidebook. It puts together the things you
learned in the previous chapters. Through the Workbook, you learned how to prepare a
business plan, the most important document you will need when you finally decide to put up
your business. It is the means for determining whether it is worth your time, effort, and
money to start that business that has long been lingering in your mind.
If you finished the Workbook, congratulations! If not, find time to study

and complete it. It will come in handy anytime.
References
Small Enterprises Research and Development Foundation. Introduction to

Entrepreneurship.
Rev. Quezon City, 2006.
GLOSSARY
GLOSSARY22
A Average cost. The total cost of production

Account. A record of a business divided by the total volume of output.
transaction. A written or unwritten contract
to purchase and take delivery with payment
to be made later as arranged.
Average pricing. A pricing approach using
average cost as the basis for setting a price.
Account balance. The difference between
the debit and the credit sides of an account.
B
Accountant. One who is skilled at keeping Balance. The amount of money remaining in
business records. Usually, a highly trained an account.
professional rather than one who keeps
books. An accountant can set up the books
Balance sheet. An itemized statement that
needed for a business to operate and help the lists the total assets and total liabilities of a
owner understand them. given business to determine its net worth at a
given period in time. It is called a balance
sheet because the value of assets must equal
Accounting period. A time interval at the the total of liabilities and net worth.
end of which an analysis is made of the
information contained in the bookkeeping
records. Also, the period covered by the Bankruptcy. The condition of being unable to
profit and loss statement. pay debts, with liabilities greater than assets.
Accounts payable. Money owed to an Barter. A method of payment using non-

money items.
individual or business for goods or services
that have been received but not yet paid for.
Bill of materials. A control sheet that shows
the type and quantity of each item of material
Accounts receivable. Money owed to a
that goes into a completed unit of product.
business for goods or services that have been
delivered but not yet paid for.
Bookkeeping. The process of recording
Administrative expense. Expenses business transactions into the accounting
chargeable to the managerial, general records. The “books” are the documents in
administrative, and policy phases of a which the records of transactions are kept.
business in contrast to sales, manufacturing,
or cost of goods sold. Bottleneck. A machine or process that limits
total output because it is operating at capacity.
Agribusiness. The sum total of operations
involved in the production, processing, Brand. A design, mark, symbol, or other
manufacture, and storage of farm device that distinguishes one line or type of
commodities and items made from them. goods from those of a competitor.
Amortize. To liquidate on an installment Brand name. A term, symbol, design, or

combination thereof that identifies and
basis; the process of gradually paying off a
liability over a period of time. differentiates a seller’s products or services.
Assessment of risk. Process for identifying Break-even point. The level of activity at
potential hazards and alternative strategies to which a business neither earns a profit nor
meet business plan goals and objectives. incurs a loss. The break-even point can also be
defined as the point where total revenue equals
total costs, and as the point where total
Assets. Represent items that are owned or
available for use in the business. contribution margin equals fixed costs.
22DTI.BSMED. Glossary; key terms and concepts

for micro, small and medium enterprises, July 2005.
Budget. An estimate of the income and Cash. Money in hand or readily available.
expenditures for a future period of time,
usually one year. Cash budget. A detailed plan showing how
cash resources will be acquired and used over
Business plan. The description of the future some specific period.
direction of a business; a written document
describing all relevant internal and external Cash disbursements. Includes all outlays
elements and strategies for starting a new of cash in the period covered. The most
business venture. common cash disbursements are cash
purchases, payments of accounts payable, rent
Business-to-business (B2B). A transaction expense, wages and salaries, tax payments,
that occurs between a company and another fixed asset outlays, interest payments, and
company, as opposed to a transaction principal payments.
involving a consumer. The term may also
describe a company that provides goods or Cash flow. The actual movement of cash
services for another company. within a business; the analysis of how much
cash is needed and when that money is
required by a business within a period of time.
C
Capital. Resources that will yield benefits Cash flow statement. A financial statement
and create wealth gradually over time. It is that records the cash flow of a business, or
related and in contrast to consumption. It may financial entity. It is frequently referred to as
be divided into physical and financial, fixed the “sources-and-uses-of-funds” statement, and
and working, etc. Sometimes it is defined more is customarily divided into “sources of funds”
broadly to include human capital (e.g. training (cash flow from operating profits and
and education that yields benefits over time) or depreciation, borrowing, equity, etc.) and “uses
innovative technologies and managerial of funds” (capital investments, taxes, interest,
practices (that yield a competitive advantage). debt amortization, dividends, etc.).
Capital budget. A budget covering the Cash receipts. The money received by a
acquisition of land, buildings, and items of business from customers. Include all items
capital equipment. from which cash inflows result in any given
financial period. The most common
Capital equipment. Equipment that is used to components of cash receipts are cash sales,
manufacture a product, provide a service, or collections of accounts receivable, and other
use to sell, store, and deliver merchandise. cash receipts.
Such equipment will not be sold in the normal
course of business, but will be used and worn Check. A draft or order upon a financial
out or consumed in the course of business. institution or banking house purporting to be
drawn upon a deposit of funds, for the payment
Capital goods. Stocks of physical and of a certain sum of money to a certain person
financial assets that are capable of generating therein named, or to his order, or to bearer, and
income. payable instantly on demand.
Capital expenditures. Amount used C.O.D. Cash on delivery, meaning that

during a particular period to acquire or payment is made when the goods are delivered
improve long-term assets such as property, or services completed.
plant, or equipment.
Collateral. Property or goods used as
Capital expenditures for fixed assets . security against a loan and forfeited to the
Include cost of acquisition of new and lender if the borrower defaults.
used fixed assets, fixed assets produced by the
organization for its own use, major alterations, Commercial banks. Banks that are allowed
additions, and improvements to fixed assets to engage in more varied lending activities and
whether done by others or done on own to offer more financial services than the other
account. depository institutions. Commercial banks are
owned by stockholders and operated for profit.
GLOSSARY 209
Commission. An amount of money paid,

especially to a sales representative for making Coupon. A piece of paper that offers
sales of products and services. payment, service, or reduction in the price of
goods or services.
Competitive advantage. The unique blend of
activities, assets, relationships, history, and Credit. Another word for debt. Credit is given
market conditions that a business exploits in to customers when they are allowed to make a
order to differentiate itself from its purchase with the promise to pay later. A bank
competitors, and thus create value. gives credit when it lends money.
Consumer goods. Articles necessary for Current assets. Valuable resources or

daily living, such as food, clothes, and property owned by a company that will be
everyday things. turned into cash within one year or used up in
the operations of the company within one year.
Contract. A legally binding agreement Generally includes cash, accounts receivable,
between two or more parties. inventory, and prepaid expenses.
Contribution margin. The amount Current liabilities. Amount owned that

remaining from sales revenue after all variable would ordinarily be paid by a company within
expenses have been deducted. one year. Generally includes accounts payable,
salaries, and the current portion of long-term
Control. The process of instituting debt, interest.
procedures and then obtaining feedback as
needed to ensure that all parts of the Current price. Price that includes the
organization are functioning effectively and effects of inflation or deflation; price as they
moving toward overall company goals. are actually observed or prevailing (as opposed
to constant prices).
Cooperative. A duly registered association
of at least 15 persons with a common bond of Current ratio. Indicator of a company’s
interest who voluntarily join together to ability to pay its short-term debt.
achieve a lawful common social and economic
end. Customer service and satisfaction. Refers
to the tracking and monitoring of customer
Core competencies. The key functions that complaints and suggestions.
an organization does best and uses to create
sustainable value and wealth. Cycle time. The length of time required to
turn materials into products or to complete a
Cost. (a) as opposed to benefit: an expense service.
related to purchase of inputs, including capital
equipment, buildings, materials, technology
and licensing fees, labor, public utilities, etc. D
Costs such as despoiling the environment and Debit. A debt charged against a personal or
injuries to workers’ health, since they fall business account.
outside the financial accounts of the project are
generally regarded as externalities and dealt Debt. That which is owed. Refers to
with separately. (b) as opposed to value: the borrowed funds and is generally secured by
amount of resources used to produce a product collateral or co-signer.
or complete a service.
Debt ratio. Indicates how much of the total
Cost of goods sold (COGS). The direct cost funds are supplied by creditors.
to the business owner of those items which Decision making. The process of
will be sold to customers. It includes materials, generating and evaluating alternatives and
labor, and overhead costs that have gone into making choices among them.
the products that have been produced or
services completed during a period. Sales less Deficit. The excess of liabilities over assets; a
COGS equals gross profit. negative net worth.
Cost-plus pricing. A pricing method in

which a predetermined markup is applied to a
cost base to determine a target selling price.
Demand. The need or desire for a product Distributor. Middleman, wholesaler, agent, or
or a service. Such need will vary depending on company distributing goods to dealers or
the person, the price, the circumstance, or the companies.
desire. Usually expressed in terms of the
quantities that would be demanded at various Domestic resource cost. The cost of
prices. resources used in production or service that are
not imported.
Depreciation. A decrease in value through
age, wear, or deterioration. A normal expense Down payment. A part payment for a product
of doing business that must be taken into or service at the time of buying.
account.
Downsize. Term currently used to indicate
Direct channel. A distribution channel employee reassignment, layoffs, and
without any intermediaries or middlemen. restructuring in order to make a business more
competitive, efficient, and/or cost-effective.
Direct cost. Any variable cost directly
attributable to production. Includes materials
used, labor deployed, and marketing budget.
E
Direct labor. Labor costs that can be Earnings. A sum of money gained from
physically traced to the creation of products or employment, usually quoted before tax,
completion of services in a “hands-on” sense. excluding extra reward such as fringe benefits,
allowances, or incentives. In business, income
Direct materials. Those materials that or profit from a business, quoted gross or net
become an integral part of a finished product of tax.
and that can be conveniently traced into it.
E-business. The conduct of business on the
Direct selling the process whereby the Internet, including the electronic purchasing
producer sells to the user, ultimate consumer, and selling of goods and services, servicing
or retailer without intervening middlemen such customers, and communications with business
as wholesalers, retailers or brokers. Direct partners.
selling offers many advantages to the
customer, including lower prices and shopping Economic order quantity (EOQ). The order
from home. size for materials that will result in the
minimization or reduction of costs of ordering
Discount. A deduction from the stated list inventory and carrying inventory.
price of a product or service in relation to the
standard price. A selling technique to Economies of scale. Refers to the idea of
encourage customers to buy and is offered for increasing efficiencies of the production of
a variety of reasons: for buying in quantity or goods as the number of goods being produced
for repeat buying; as a special offer to move a increases. Typically, the average costs of
slow-moving line or for paying by cash, etc. producing a good or service will diminish as
each additional good is produced or service
Discount rate. The interest rate at which completed, since the fixed costs are shared
future values are discounted to the present. It is over an increasing number of goods or
usually considered roughly equal to the services.
opportunity cost of capital.
Economies of scope. Used to describe the
Discretionary fixed costs.Those fixed costs decreasing cost per unit of production or
that arise from annual decisions by service due to greater efficiency in doing the
management to spend in certain fixed costs same things repeatedly.
areas such as advertising and research. Effectiveness. The capability of bringing
Distribution channel. All of the about an effect or accomplishing a purpose,
individuals and organizations involved in the sometimes without regard to the quantity of
process of moving products from producer to resources consumed in the process.
consumer; the route a product follows as it
moves from the original grower, producer, or Efficiency. The capability of producing
importer to the ultimate consumer. desired results with a minimum of energy,
time, money, materials, or other costly inputs.
GLOSSARY 211
Electronic commerce (e-commerce). The Exchange rate. The number of units of

exchange of goods, information, products, or domestic currency per unit of international
services via an electronic medium such as the currency. It may also be expressed in an
Internet. inverse fashion.
Electronic mail (e-mail). Text messages Export. All goods leaving the country which
transmitted directly from one computer to are properly cleared through the Customs.
another.
Exporting. The process of selling goods
E-mail address. The address used to send and made in one country to another country.
receive e-mail. The e-mail address contains the
username, the @ symbol, and the domain
name (jdelacruz@yahoo,com). This is read as: F
jdelacruz at yahoo dot com. Facsimile (fax) machine. A device that
transmits and receives copies of documents via
Enterprise. A business management system telephone lines.
that integrates all facets of the business,
including planning, manufacturing, sales, and Factor of production. An input into
marketing. production. Often a distinction is drawn
between “primary” factors of production -
Entrepreneur. An individual who engages such as capital, labor; and land (including
in a business; an innovator of a business mineral resources) - and “secondary” factors
enterprise who recognizes opportunities to of production, such as materials and
introduce a new product, a new process, or an technologies.
improved organization, and who raises the
necessary money, assembles the factors for Feasibility study. A detailed examination
production, and organizes an operation to of the comparative costs and benefits (tangible
exploit the opportunity. or otherwise) of a program or project being
proposed or identified as attractive, suitable, or
Entrepreneurship. The process of creating feasible. It is normally carried out based on
something new and assuming the risks and mutually agreed terms of reference drawn up at
rewards. the identification or pre-feasibility stage. If the
conclusions are favorable, then the financing
Environmental analysis. Assessment of proposal will be drawn up, and financing
external uncontrollable variables that may negotiations proceed without the need for
affect the business plan. further studies.
Equipment. Physical property of a more or Feedback. The communication of responses

less permanent nature, ordinarily useful in and reactions to proposals and changes or to
carrying on operations, other than land, the findings of performance appraisals to
buildings, or improvements to either of them. enable improvements to be made.
Examples are machinery, tools, tracks, cars,
ships, furniture, and furnishings. FIFO. First In First Out, a method of
inventory control whereby first items into
Equity. (a) in financing and investment, the inventory are first items out.
money contributed directly by the owner(s) Finance. The money needed by an
and for which dividends may be paid, as individual or company to pay for something,
opposed to debt, which is money borrowed by for example, a project or stocks.
the project that must be repaid and on which
interest is usually charged; (b) social justice, as Financial analysis. A diagnosis of trends
opposed to (pure) economic efficiency that is indicative of the magnitude, timing, or
regardless of distribution costs. riskiness of a company’s future cash flows
through the use of data from balance sheet and
Establishment. An economic unit that income statement, which shows financial
engages in one or predominantly one kind of status at a point of time and financial operation
economic activity at a single fixed physical over a period of time, respectively.
location, and having permanency of assets,
such as goods for resale, materials, products,
equipment, etc., in its premises, during its
operation.
Financial plan. A section of the business G

plan providing an account of a new company’s General manager. An entrepreneur who
financial needs and sources of financing and a functions as an administrator of a business.
projection of its revenues, costs, and profits.
Globalization. The process of tailoring
Financial ratios. Control mechanisms to products or services to different local markets
test financial strength of a new business around the world.
venture. Examples are acid-test ratio, current
ratio, debt ratio, and debt-to-income ratio. Grace period. A time period after a
payment is due in which that payment may be
Financial statements. Reports of a made with or without penalty but no legal
company’s financial performance and action.
resources, including an income statement, a
balance sheet, and a cash flow statement. Grade. Differences in degree, worth, or
ranking between products or services that have
Finished goods. Goods that are completed as the same functional use.
to manufacturing but not yet sold to customers.
Gross domestic product (GDP). The value
Fixed asset. A long-term asset of a of all goods and services produced
business such as a machine or building that domestically; the sum of gross value added of
will not usually be traded. all resident institutional units engaged in
production (plus any taxes, and minus any
Fixed asset turnover. Indicates a subsidies, on products not included in the
company’s ability to generate sales in relation values of their outputs).
to its fixed asset base.
Gross income. Income before expenses.
Fixed costs/expenses. Those costs that do
not vary from one period to the next. Generally Gross national product (GNP). The GDP
these expenses are not affected by the volume adjusted with the net factor income from the
of business. rest of the world. It refers to the aggregate
earnings of the factors of production (national),
Franchise. An agreement enabling a third plus indirect taxes (net), and capital
party to sell or provide products or services consumption allowance.
owned by a manufacturer or supplier. The
franchise is regulated by a franchise contract or Growth capital. Funding that allows a
franchise agreement that specifies the terms company to accelerate its growth. For start-up
and conditions of the franchise. companies, growth capital is the second stage
of funding after seed money.
Franchisee. A person or business obtaining a
franchise. Guarantee. A pledge by a third party to repay
a loan in the event that the borrower is unable
Franchising. Allowing another party to to pay.
use a product or service under the owner’s
name. Guarantor. A person or an organization that
guarantees repayment of a loan if the borrower
Franchisor. An individual or a company is unable to pay.
offering a franchise.
Fringe benefits. Non-financial supplements

to employees’ compensation.
H
Home-based business. A business that
Fund flow. An accounting statement maintains its primary facility in the residence
showing the sources and uses of funds. It is of its owner.
similar to a cash-flow statement, except that a
fund-flow statement generally deals in longer-
term flows (e.g. yearly) and with non-cash
Home page. The “table of contents” to a
website, detailing what pages are on a
items such as the issue of new equity shares or
debt bonds. particular site; the first page that appears in a
website.
GLOSSARY 213
I Intellectual property rights. Ownership of

Import. All goods entering any of the seaports ideas, including literary and artistic works
or airports of the country properly cleared (protected by copyright), inventions (protected
through Customs or remaining under Customs by patents), signs for distinguishing goods or
control, whether the goods are for direct services of an enterprise (protected by
consumption, for merchanting, for trademarks), and other elements of intellectual
warehousing, or for further processing. property.
Income statement (profit and loss Interest. A charge paid by a borrower to a

statement). A financial document that shows lender for the use of the lender’s money. It is
how much money (revenue) came in and how expressed as a percentage rate over a period of
much money (expense) was paid out. time.
Income tax. A tax levied directly on the Interest rate. The amount of interest
income of a person or a company and paid to charged for borrowing a particular sum of
the local government. money over a specified period of time.
Indirect channel. The selling and Internet. A computer network which

distribution of products to customers through connects computers all over the world,
intermediaries such as wholesalers, enabling computer users to communicate via e-
distributors, agents, dealers, or retailers. mail, find information on the World Wide
Web, and access remote computer systems
Indirect cost. A fixed overhead cost that such as library catalogs.
cannot be attributed directly to the production
of a particular item or completion of a Internet service provider. A person or a
particular service and is incurred even when company providing access to the Internet.
there is no output.
Inventoriable cost. All costs that are
Indirect labor. The factory labor cost of involved in the purchase or manufacture of
janitors, supervisors, engineers, and others that goods. In the case of manufactured goods,
cannot be traced directly to the creation of these costs consist of direct materials, direct
products in a “hands-on” sense. labor, and manufacturing overhead costs used
in the production process.
Indirect materials. Small items of material
such as glue and nails that may become an Inventory turnover. The ratio of annual sales
integral part of a finished product but are to inventory. Low turnover is an unhealthy
traceable into the product only at great cost or sign, indicating excess stocks and/or poor
inconvenience. sales.
Industry analysis. Review of industry Inventory. Raw materials, items available
trends and competitive strategies. for sale or in the process of being made ready
for sale. They can be individually valued by
Inflation. A sustained increase in a several different means, including cost or
country’s general level of prices that current market value, and collectively by
devaluates its currency, often caused by excess FIFO, last in first out (LIFO), or other
demand in the economy. techniques.
Infomercial. A television or cinema Investing activities. A section on the

commercial that includes helpful information statement of cash flows that includes any
about a product or service as well as transactions that are involved in the acquisition
advertising content. or disposition of non-current assets.
Insurance. An arrangement in which Investments. Amount of money or other

individuals or companies pay another company resources measured in terms of money placed
to guarantee them compensation if they suffer on activities or other forms of assets, whether
loss resulting from risks such as fire, theft, or done by others or done on own account.
accidental damage.
Invoice. A document that a supplier sends
to a customer detailing the cost of products or
services supplied and requesting payment.
J Licensing. Allowing someone else to use

Job description. A document that describes something of the company’s; contractual
the tasks and responsibilities of a job and its arrangement giving rights to others to use
relationships to other jobs. intellectual property in return for a royalty or
fee.
Job sharing. Two part-time people
splitting the duties of one job in some agreed- LIFO. Last In First Out, an inventory costing
on manner and being paid according to their method whereby last items into inventory are
contributions. first items out.
Job specification. A statement of the Limited partner. A party in a partnership

minimum acceptable qualifications a person agreement that usually supplies money and has
should possess to perform a particular job. few responsibilities.
Joint venture. Two or more companies Liquid assets. Financial assets that can be
forming a new company. quickly converted to cash without risk of
substantial loans.
Just-in-time (JIT) inventory method. The
practice of having inputs to the production Loan. Money lent with interest.
process delivered precisely when they are
needed, thereby assigning to suppliers the Loan agreement. A document that states
responsibility for keeping inventories to a what a business can and cannot do as long as it
minimum. owes money to the lender.
Loans granted. Loans approved by banks,

which had been credited to a borrower’s
account or made available to him during a
K given period of time. Loans granted are
Knowledge management. The way
organizations create, capture, and re-use classified by purpose, by debt instrument, and
knowledge to achieve organizational by industry.
objectives.
Loan shark. A person or business that lends

money at extremely high interest rates.
L
Lead time. The interval between the time Loans outstanding. The unpaid balance of
that an order is placed and the time that the loans as of a certain date.
order is finally received from the supplier.
Long-term assets. Value of property,
Letter of credit. A mechanism used by equipment, and other capital assets minus the
exporters and importers, usually provided by depreciation.
the importing company’s bank to the exporter
to safeguard the contractual expectations and Long-term liabilities. The liabilities that
particularly financial exposure of the exporter
will not mature within the year.
of the goods or services. A letter issued by a
bank that can be presented to another bank to
authorize the issue of credit or money.
Letter of guarantee. A letter concerned with

M
providing safeguards to buyers that suppliers Management. The use of professional skills
will meet their obligations or vice-versa, and for identifying and achieving organizational
are issued by the supplier’s or customer’s bank objectives through the deployment of
depending on which party seeks the guarantee. appropriate resources. The art of conducting
and supervising a business.
Liability. An amount owed (i.e., payable)
by an individual or entity for items or services Manpower. A portion of population, which
received, expenses incurred, assets acquired, has actual or potential capability to contribute
and amount received but not yet earned. to the production of goods and services.
GLOSSARY 215
Manufacturing. The conversion of raw Marketing research. The systematic design,

materials into finished products through the collection, analysis, and reporting of data
efforts of workers and the use of production regarding a specific marketing situation.
equipment.
Marketing strategy and action plan. A
Manufacturing overhead. All costs section of the business plan outlining the
associated with the manufacturing process specific activities to meet the goals and
except direct materials and direct labor. objectives of the business.
Market. A set of potential or real buyers, Market niche. A well-defined group of

or a place in which there is a demand for customers for which a business offering is
products or services; actual or potential buyers particularly suitable.
of a product or users of a service.
Market positioning. Finding a market niche
Marketable. Possessing the potential to that emphasizes the strengths of a product or
be commercially viable. service in relation to the weaknesses of the
competition.
Market analysis. The study of a market to
identify and quantify business opportunities. Market price. (a) the price of a product or
service in the domestic market; (b) the cost of
Market demand. Total volume purchased a product or service including indirect taxes
in a specific geographic area by a specific and subsidies.
customer group in a specified time period
under a specified marketing program. Market segmentation. The process of
dividing a market into definable and
Market development. Marketing activities measurable groups for purposes of targeting
designed to increase the overall size of a marketing strategy.
market through education and awareness.
Market share. A company’s percentage of
Market forecast. An anticipated demand that total sales within a given market.
results from a planned marketing expenditure.
Market value. The highest price that a
Marketing. One of the main management buyer would pay and the lowest price that a
disciplines, encompassing all the strategic seller would accept on a property.
planning, operations, activities, and processes
involved in achieving organizational objectives Markup. The difference between the cost
by delivering value to customers. Marketing of a product or service and its selling price.
management focuses on satisfying customer
requirements by identifying needs and wants. Materials requisition form. A detailed
source document that specifies the type and
Marketing costs. All costs necessary to quantity of materials that are to be drawn from
secure customer orders and get the finished the storeroom and identifies the job to which
product or service into the hands of the the materials are to be charged.
customer. This term is synonymous with order-
getting and order-filling costs. Merchandise. Goods bought and sold in a
business. “Merchandise” or stock is part of
Marketing mix. The set of product, place, inventory.
promotion, price, and packaging variables,
which a marketing manager controls and Microfinance. The provision of a broad
orchestrates to being a product or service into range of financial services such as deposits,
the marketplace. loans, payment services, money transfers, and
insurance products to the poor and low-income
Marketing plan. The part of the business plan households and their micro enterprises.
outlining the marketing strategy for a product
or service. It includes information such as the Middleman. A person or company that
product or service offered, price, target market, performs functions or renders services
competitors, marketing budget, and involved in the purchase and/or sale of goods
promotional mix. in their flow from producer to consumer.
Minimum wage. Wage fixed by the law Non-traditional exports. Export goods whose
that an employer can pay a worker. Also value did not exceed US$5 million in 1968 and
known as statutory minimum wage. which have undergone a significant degree of
processing.
Mission statement. A broadly stated
definition of the basic purpose and scope of an
organization.
O
Monopoly. A market with only one supplier. Objective. An end toward which effort is
directed and on which resources are focused,
Mortgage. A long-term loan from a creditor usually to achieve an organization’s strategy.
that pledges an asset such, as real estate, as
collateral for the loan. Obsolescence. The decline of products in a
market due to the introduction of better
competitor products or rapid technology
developments.
N
Net assets. The amount by which the value Occupation. The specific kind of work a
of a company’s assets exceeds its liabilities. person does.
Net benefit. Benefits minus costs.
Net capital. The amount by which assets Open market. A market that is widely
exceed the value of assets not easily converted available.
into cash.
Operating activities. A section on the
Net cash balance. The amount of cash that statement of cash flow that includes
is on hand. transactions that enter into the determination of
net income.
Net fixed assets. The value of fixed assets
after depreciation. Operating assets. Cash, accounts
receivable, inventory, plant and equipment,
Net income. A company’s total earnings, and all other assets held for productive use in
reflecting revenues adjusted for costs of doing an organization.
business, depreciation, interest, taxes, and
other expenses. Operating cash flow. The amount used to
represent the money moving through a
Net margin. See net profit margin. company as a result of its operations, as
distinct from its purely financial transactions.
Net operating income. The income of an
organization before interest and income taxes Operating expenses. Administrative and
have been deducted. operational expenses such as salaries and
wages, supplies and materials, depreciation,
Net proceeds. The amount realized from a and the maintenance of offices.
transaction minus the cost of making it.
Operating plan. A section of the business
Net profit. Gross profit minus costs. plan describing a new company’s facilities,
labor, raw materials, and processing
Net profit before taxes. Profit earned after requirements.
all costs had been deducted.
Opportunity cost. The potential benefit
Net profit margin. The profitability of a that is lost or sacrificed when the selection of
company after taxes had been paid. one course of action makes it necessary to give
up a competing course of action.
Networking. The process of developing
and engaging in mutually beneficial
relationships.
Net worth. The total value of a business in

financial terms.
GLOSSARY 217
Order. A contract made between a customer Payable. Ready to be paid

and a supplier for the supply of a range of
goods and services in a determined quantity Payback period. The period of time required
and quality, at an agreed price, and for delivery to recover the investment costs of a project out
at a specified time. of its cash flow.
Ordering costs. Administrative, clerical, and Payment-in-kind. An alternative form of

other expenses incurred in obtaining inventory pay given to employees in place of monetary
items and placing them in storage. reward but considered to be of equivalent
value. It may take the form of a car, purchase
Organizational chart. A visual diagram of of goods at cost price, or other non-financial
a company’s organizational structure that exchange that benefits an employee.
depicts formal lines of reporting,
communication, and responsibility between Performance appraisal. The formal and
managers. systematic measurement and evaluation of job
performance.
Organizational plan. Describes the form
of ownership and the lines of authority and Personal selling. A sales presentation
responsibility of members of a new venture. delivered in a personal one-on-one manner.
Organizing. The process of putting together Piggyback franchising. The operation of a

an organization’s human and other resources in retail franchise within the physical facilities of
such a way as to most effectively carry out a host store.
established plans. Planning and control process. A general
term for setting the organizational goal,
Output. (a) That which is produced; opposite strategic business plans, capital and
of input. (b) Short-term or immediate products operational budgets; for comparing the planned
and services associated with or delivered by with actual results, and making results-based
program or project activities that are necessary performance evaluation; and for the ensuing
to achieve the intermediate or higher-order revisions of goals, plans, and budgets.
objectives.
Point of purchase. That place at which a
Outsourcing. The process of product is purchased by the customer. The
subcontracting work to outside vendors. point of sale can be a retail outlet, a display
case, or even a legal business relationship of
Overhead. An expense that cannot be two or more people who share responsibilities,
attributed to any one single part of the resources, profits, and liabilities.
company’s activities.
Policy. A predetermined guide established to
Owner equity. Represents the amount provide direction in decision making.
owners have invested and/or retained from the
business operations. Prepaid expenses. Expenditures that are
paid in advance for items not yet received.
Prepaid interest. Interest paid in advance

P of its due date.
Pareto analysis. A method of classifying
items, events, or activities according to their Prevention costs. Costs that are incurred
relative importance. It is frequently used in to prevent quality problems from arising in the
inventory management where it is used to first place.
classify stock items into groups based on the
total annual expenditure for, or total Preventive maintenance. The activities
stockholding cost of each item. intended to prevent machine breakdowns and
damage to people and facilities.
Partnership. Two or more individuals
having unlimited liability who have pooled Price. The exchange value of a product or
resources to own a business. service from the perspective of both the buyer
and the seller.
Patent. The registered, exclusive right of an
inventor to make, use, or sell an invention.
Price ceiling. The highest amount a Profit margin. The difference between the
customer will pay for a product or service selling price of a product or service and the
based upon perceived value. costs associated with its production or sale.
Price control. Government regulations that Promissory note. A written promise to

set maximum prices for commodities or pay a specified sum of money on a specified
control price levels by credit controls. time or on demand.
Price discrimination. The practice of Promotion. The communication of

selling the same product to different buyers at information by a seller to influence the
different prices. attitudes and behavior of potential buyers.
Primary income. Includes salaries and Promotional pricing. Temporarily pricing

wages, commissions, tips, bonuses, family and a product or service below list price or below
clothing allowances, transportation and cost in order to attract customers.
representation allowances, honoraria and other
forms of compensation and net receipts Proprietorship. Form of business with single
derived from the operation of family-owned owner who has unlimited liability, controls all
enterprises/activities and the practice of a decisions, and receives all profits.
profession or trade. Purchase order. A written form issued to a
Principal. The face or original amount of a supplier to buy a specified quantity of some
loan or other such investment. item/service or items/services.
Product. Anything capable of satisfying Purchase requisition. A formal internal

needs, including tangible items, services, and request that something be bought for a
ideas. business.
Product costs. See inventoriable costs. Purchasing. The process of obtaining

materials, equipment, and services from
Productivity. The efficiency with which outside suppliers.
inputs (labor, capital, natural resources,
energy, etc.) are transformed into outputs
(goods and services).
Q
Product/service line. A group of products or Quality. The conformance of a product or
services related to each other by marketing, service to customer specifications in terms of
technical, or end-user considerations. features and performance.
Product mix. All of the products or

services in a seller’s total product or service
line.
R
Product planning and development process. Raw material. Any material that goes into a
The stages in developing a new product or manufactured product or completed service.
service.
Receivable. See accounts receivable.
Production plan. A section of the
business plan that details how products or Recruitment. The process of attracting
services will be manufactured or completed. individuals - in sufficient numbers and with
appropriate qualifications - and encouraging
Profit. Financial gain, returns over them to apply for jobs with the organization.
expenditures.
Refund. The reimbursement of the
Profit and loss statement. A list of the purchase price of a product or service, for
total amount of sales (revenues) and total costs reasons such as faults in manufacturing or
(expenses); the difference between revenues dissatisfaction with the service provided.
and expenses.
Rent. The price paid for any factor of
production in fixed supply.
GLOSSARY 219
Reorder point. The point when an order Sales outlet. A company’s office that deals
must be placed to replenish depleted stocks. with customers in a particular region or
country.
Replacement value. The current cost of
replacing a capital asset. Sales promotion. Activities, usually short-
term, designed to attract attention to a
Retail trade. Any act, occupation, or particular product or service to increase its
calling of habitually selling direct to the sales using advertising and publicity.
general public merchandise, commodities, or
goods for consumption. Seed money. A usually modest amount of
money used to convert an idea into a viable
Retrenchment. The reduction of the size or business.
scope of a company’s activities.
Self-employment. Being in business on
Return on assets (ROA). Indicator of one’s own account, either on a freelance basis,
profitability on the use of a company’s total or by reason of owning a business and not
assets; shown as a percentage. being engaged as an employee under a contract
Return on equity (ROE). Measures the of employment.
ability of a company to generate profit in
relation to its equity base. Self-liquidating. Providing enough income to
pay off the amount borrowed for financing.
Return on investment (ROI). Indicator
of profitability on investments out into a Selling costs. See marketing costs.
company.
Service business. A retail business that
Risk-taking. Taking calculated chances in deals in activities for the benefit of others.
creating and running a business.
Service charge. A fee for any service
provided, or additional fee for any
enhancements to an existing service.
S
Safety stock. Inventory maintained to Settlement. The payment of a debt or charge.
protect against stockouts.
Setup costs. The costs associated with making
Salaries and wages. Payments in cash or in a workstation or equipment available for use.
kind prior to deductions for employees’
contribution to the SSS, withholding tax, etc. Short-term notes. Loans that come due in
Included are total basic pay, overtime pay, and one year or less.
other benefits.
Small and medium enterprise (SME). Any
Sales. The activity of selling a company’s business activity or enterprise engaged in
products or services, or the income generated industry, agribusiness, and/or services, whether
by this activity. single proprietorship, cooperative, partnership,
or corporation whose total assets, inclusive of
Sales channel. A means of distributing those arising from loans but exclusive of the
products to the marketplace, either directly to land on which the particular business entity’s
the end customer, or indirectly through office, plant, and equipment are situated; must
intermediaries, such as retailers or dealers. have value falling under the following
categories:
Sales forecast. A prediction of future sales, Micro :Up to Php 3,000.000;
based on past sales performance. Small : Php 3,000,001- Php 15,000,000;
Medium: Php 15,000,001- Php 100,000,000;
Sales mix. The relative combination in and Large: above Php 100,000,00.
which a company’s products or services are
sold. Sole proprietorship. Business legal structure
in which one individual owns the business;
Sales network. The distribution network by also referred to as single proprietorship.
which goods and services are sold.
Staff. A position in an organization that is Total asset turnover. The ratio of net
only indirectly related to the achievement of sales to total assets.
the organization’s basic objectives.
Total receipts (revenues/sales). Include the
Stakeholders. Various persons or groups of value/cash received and receivables for
persons who have a lead role and interest in the products shipped, goods sold and transferred,
objectives and results of a program or project. and industrial and non-industrial services
rendered to others.
Subcontracting. A business activity and
strategy where a producer contracts other Trade barriers. Hindrances to doing
producers to manufacture part or his entire international business.
product at an agreed quality, time, and price. Trade fair. A commercial exhibition
designed to bring together buyers and sellers
Suppliers. Individuals or businesses that from a particular market sector.
provide resources needed by a company in
order to produce goods and services. Trademark. A distinguishing word, name, or
symbol used to identify a product.
Supply. Willingness to provide a good or
service. Traditional exports. Export goods whose
value exceed US% million in 1968 and which
have undergone a significant degree of
processing.
T
Take-home pay. The amount of pay an
employee receives after all the deductions,
such as income tax, social security, or pension U
contributions. Unemployed. Persons in the labor force
who did not work or had no job/business
Target market. The specific individuals during the reference week but were reported
distinguished by socio-economic, available and actively looking for work.
demographic, and interest characteristics who
are the most likely potential customers for the Unlimited liability. Full responsibility for
goods and services of a business. the obligations of a general partnership.
Tax. A government charge that is not the Unsecured debt. Money borrowed
price for a good or a service. without supplying collateral.
Taxable. Subject to tax.
Tax incentive. A tax reduction afforded to V

people for particular purposes. Value. As opposed to cost. A demand-side
concept related to the marginal consumer
Tax refund. An amount that a government willingness to pay.
gives back to a taxpayer who has paid more
taxes than were due. Value added. Originally, the difference
between the cost of bought-in materials and the
Technology transfer. The process by eventual selling price of the finished product.
which existing knowledge, facilities, or
capabilities, developed under governmental Value added tax. A tax added at each
research and development funding are utilized stage in the manufacture of a product.
to fulfill public and private needs.
Value chain. The major business functions
Telemarketing. Marketing goods and that add value to a company’s products and
services directly to the consumer via the services.
telephone.
Terms of sale. The conditions concerning

payment for a purchase.
GLOSSARY 221
Value of output. Represents the total Work-in-process (goods-in-process). Goods

value of products sold, receipts from contract or services that are partially completed as at
work, and industrial services done for others, the beginning or end of a period and that will
receipts from goods bought and sold in the need further work before being ready for sale
same conditions, fixed assets produced on or delivery to a customer.
own-account, and change in inventories.
Variable cost. A cost of production that is Y

directly proportional to the number of units Yearend. Relating to the end of a financial or
produced. fiscal (tax) year.
Virtual organization. A temporary

network of companies, suppliers, customers, or
employees, linked by information and
communications technologies, with the
purpose of delivering a service or product.
Vision statement. A statement giving a

broad, aspirational image of the future that an
organization is aiming to achieve.
W
Wage rate. The basic pay, including cost of
living allowances and other guaranteed or
regularly paid allowances; excludes overtime
payments, bonuses, and gratuities, family
allowances, and other social security payments
made by employers.
Warranty. A promise that a product will do

certain things or meet certain standards.
Waste management. A sustainable process

for reducing the environmental impact fof the
diaposal of all types of materials used by
businesses.
Wholesale price. A price charged to

customers who buy large quantities of an item
for resale in smaller quantities to others.
Wholesaling. The business of selling

products to retailers, organizational users, or
other wholesalers; selling for resale.
Withholding tax. The money that an

employer pays directly to the government as a
payment of the income tax on the employee.
Working capital. The excess of current

assets over current liabilities; the cash needed
to keep the business running from day to day.
APPENDIX
BUSINESS PLAN FOR A SOAP MAKING BUSINESS*
Executive Summary
Business Name : XYZ Enterprises

Business Address : No.12 M. de los Reyes St., Poblacion, Los Baños, Laguna
Nature of Business : Soap Manufacturing
Form of Ownership : Single Proprietorship
Proponent : Ms. Juana dela Cruz
Objectives
The project seeks to achieve the following:

¾ put into practice the technical skills on soap making that the proponent acquired from
a training seminar recently conducted by the local government of Los Baños;
¾ augment the income of the proponent; and
¾ provide some source of income for the youth in the neighborhood.
Marketing Aspect
The project relates to a business of making soap, specifically, bath and beauty soap. The
product will be known by the brand, CreamySkin. The papaya extract in the soap will give
it whitening and moisturizing properties. Each soap bar will be wrapped with fine
transparent paper and put in individual boxes.
The business will target the female population of Laguna particularly a conservative
0.0002% of those who fall within the 15 - 64 age group. These are the women who are
most likely already using herbal bath and whitening soap. CreamySkin will be sold in
beauty salons, drugstores, boutiques, grocery and variety stores, and even schools. The
owner will take the lead in selling the soap. She will also use sales agents to distribute the
product. CreamySkin will be sold at an introductory price of P27.00 in the first year. To
create an awareness of the product and encourage the target market to buy the soap, the
business will use streamers, flyers, and posters, and will also advertise in the newspapers
of local circulation.
Technical Aspect
The project will be set up at the residence of the proponent in Los Bańos in the province
of Laguna, the first province south of Manila. An open area with concrete flooring and a
roof will serve as the plant. Some improvements, such as the construction of a wall and
installation of fixtures, will be done.
* This is only a sample business plan. It is intended to show to the reader how a business plan for a manufacturing
business looks like. It should not be used as a basis for the conduct of an actual business in soap making. Any
similarity of the circumstances to a real life situation is purely coincidental.
The main ingredients for the manufacture of CreamySkin will be coconut oil, lye, sodium
silicate, papaya extract, and essential oil. Spring water will be mixed with lye to come out
with the caustic soda solution. The business will require weighing scales, plastic pails,
wooden moulds, stainless or laminated-top working tables, hydrometers, oil storage tanks,
beakers, wooden ladles, and a stainless steel spoon with long handle. The business will
also require safety accessories such as safety glasses, gloves, and dust masks.
Production of CreamySkin will be done two times a month at one-week intervals in the
first year. From a yearly output of 2,797 bars in the first year, the output will increase by
50% in the 2nd and 3rd years. The business will need 2 workers working in staggered hours
to produce the soap.
Organizational Aspect
The business will be a single proprietorship. It will register as a BMBE with the Los
Bańos government to avail of tax exemption privileges. The proponent will make all the
decisions and handle all the aspects of the operation.
Financial Aspect
The project will cost PhP27,190. The proponent will use her own funds to start the
business.
Appendix : Sample Business Plan 2 25
MARKETING PLAN
The Product
The proposed business intends to manufacture herbal bath and beauty soap. The product
will come in 135 -gram bars measuring 1.25” x 3.20” x 2.0”. Aside from its basic
function as a body wash, the product will have skin whitening and moisturizing1
properties. It will carry the brand name, CreamySkin. It will be produced in Laguna
province and sold in the same province during the initial year.
Target Market
CreamySkin will target individuals from the high-lower up to the middle-income classes.
These are people who can easily afford to buy and are willing to try a new product,
especially if it promises other benefits to them. The market will be made up of the young
girls to the matrons who are most likely already using herbal bath and beauty soaps that
give beneficial effects other than for washing the body. These are the women who are
within the 15 - 64 years age group, the age range considered by the NSO as the
economically productive years. Specifically, CreamySkin will target a mere 0.0002% of
this female segment of the Laguna population. Although the product will primarily target
the women, the males within the same age group will also be considered.
The Market Situation
Soaps have evolved from the colored scented bars of old. Nowadays, the general public is
exposed to a very wide variety of these soaps. Of late we have witnessed the emergence
of herbal soaps. Herbal soap is a kind of soap mixed with natural ingredients, juice or
extract, and vitamins from medicinal plants. They come in various forms, shapes, and
sizes and offer benefits other than for washing the body. There are soaps for practically
all types of skin, for babies, for the face, for people who want to remove pimples, to
hydrate and moisturize the skin, to eliminate body odor, to maintain a fresh smell, to
whiten, to address skin problems, and for many other purposes.
¾ Demand
At first glance, the market for fragrance soap appears to be saturated. But there is
always room for newcomers for as long as babies will be born. The consumption of
soap is closely related to population growth, soap being one of the items that is basic
in every household. Filipinos by nature are known for our cleanliness. In fact, many,
if not most Filipinos take a bath at least twice daily. Changing customer preferences
have also contributed quite extensively to the growing demand for herbal bath and
beauty soaps. A 2004 press release from the Census office reported increases in
expenditure in personal care and effects, among others, in 2003. As people become
more conscious about their color and appearance, the market for herbal bath and
beauty soaps will always be there.
1 Act of moistening, eg. the skin

Laguna residents have access to the more established as well as newly emerging local
brands as much as those living in Metro Manila. And they also share the growing
consciousness and desire for a better skin complexion. This quest continues to
encourage them to search for a soap brand that will live up to its promise not only of
improving the skin but easy on the pocket as well.
They presently buy their bath soap from the neighborhood retail stores and grocery
stores in the town center.
The following table shows the total population of Laguna Province in Year 2000.
Following the association of the demand for soap with the population, this table also
reflects the total demand for soap in the said province.
Total Population by Age Group, Sex and Sex Ratio: Laguna, 2000
Age Group Total Population Male Female Sex Ratio
Laguna 1,965,872 975,470 990,402 98.49
Under 1 50,107 25,819 24,288 106.30
1 to 4 191,999 99,174 92,825 106.84
5 to 9 225,393 115,457 109,936 105.02
10 to 14 205,527 104,370 101,157 103.18
15 to 19 196,341 96,123 100,218 95.91
20 to 24 202,805 96,153 106,652 90.16
25 to 29 170,376 83,865 86,511 96.94
30 to 34 158,706 78,983 79,723 99.07
35 to 39 138,769 69,491 69,278 100.31
40 to 44 118,548 60,022 58,526 102.56
45 to 49 93,023 46,962 46,061 101.96
50 to 54 67,386 33,759 33,627 100.39
55 to 59 44,507 21,446 23,061 93.00
60 to 64 36,801 17,061 19,740 86.43
65 to 69 25,813 11,347 14,466 78.44
70 to 74 17,609 7,511 10,098 74.38
75 to 79 11,368 4,411 6,957 63.40
80 & Over 10,794 3,516 7,278 48.31
Source: NSO, 2000 Census of Population and Housing
Since herbal bath soaps cater to a specific segment of the population, it can be safely
assumed that the target market for herbal bath soap would fall within the figures that
are highlighted.
The next table shows the 2000 census figures for the population of Laguna with a
five-year projection.
Population Projections, Laguna

Census Data Projected Data
Gender 2000 2001 2002 2003 2004 2005
Male 975,470 959,294 987,296 1,015,298 1,043,376 1,071,378
Female 990,402 976,960 1,008,434 1,039,882 1,071,412 1,102,861
Source: NSCB Fact Sheet, January 2005
¾ Supply
Big companies dominate the soap industry in the country. These include Unilever,
Procter & Gamble, and Splash, among others. These are companies that have the
resources to conduct extensive R & D and product development and, naturally,
marketing activities. Dermatologists also come out with their own soap formulations
that they recommend to their clients. Aside from these, there are also imported soap
brands in the market carrying such brand names as Lush, Body Shop, Jergens, Dove,
Mark & Spencer, etc.
The competitors of CreamySkin will be the locally-made herbal soaps that are starting
to make their mark in the industry as well the small producers of herbal soap,
particularly those based in the provinces. Many of them are backyard and home-
based, and they can be found in many places in the country. In Laguna province, there
are a number of households making laundry soap as well as herbal soap. There are
two makers in the town of Siniloan, one in Cavinti, and three in Calamba City.
¾ Demand - Supply Analysis
The proposed business will work with the following assumptions:

• there will be a 2.3% increase in the total population of Laguna for the years 2006 to
2008;
• 50% of the projected female population of Laguna are female;
• 50% of the projected female population of Laguna represent the users of herbal
soap;
• the business will target a mere 0.0002% of the current users of herbal soap.
Marketing Strategies
¾ Objective
The proposed business intends to capture a very small percentage (0.0002%) of the
potential users. The proponent will target 111 women (based on 2006 projected
population growth), who will buy a bar of CreamySkin at least twice a month. The
estimated size of the market for CreamySkin in the first year is 2,712 bars.
Schedule 1: Projected Sales Summary Schedule

(volume and value)
Year M O N T H
Total Selling Total
1 1 2 3 4 5 6 7 8 9 10 11 12 Units Price Peso
(PhP) Sales
222 222 222 222 222 222 222 222 222 222 222 222 2,664 25 66,600
For the second year, the business projects a 50% increase in the demand for
CreamySkin, and another 50% increase in demand is projected in the 3rd year.
In the 2nd year, the business will introduce CreamySkin to the towns in nearby
Batangas province. The projected increase in demand for the 3rd year will come
largely from the mileage that the business will gain in the 2nd year as the users
become convinced of the benefits of the soap.
Schedule 1-A: Projected Sales Summary Schedule

(volume and value)
Year M O N T H
Total Selling Total
2 1 2 3 4 5 6 7 8 9 10 11 12 Units Price Peso
Sales
333 333 333 333 333 333 333 333 333 333 333 333 3996 27 107,892
Schedule 1-B: Projected Sales Summary Schedule

(volume and value)
Year M O N T H
Total Selling Total
3 1 2 3 4 5 6 7 8 9 10 11 12 Units Price Peso
Sales
499 499 499 499 499 499 500 500 500 500 500 500 5994 29 173,820
¾ Product Strategies
The more popular locally-produced whitening soaps in the market are known by such
brand names as Silka Papaya, RDL Papaya, Block & White, Biolink Papaya, TopOne
Papaya, Love Papaya, etc. These are packed in individual boxes. The herbal soaps
that are being made in Laguna do not bear any brand name. They are individually
wrapped in white paper.
CreamySkin will have approximately the same attributes as the other locally-
manufactured herbal soaps. A come-on for the product is the ingredient that will
lighten the skin color and moisturize the skin. The brand name, CreamySkin, conveys
the promise that the user will acquire a lighter skin color that is comparable to cream.
CreamySkin will be individually wrapped with fine transparent paper first before
being placed inside a box. The box will bear the brand name, CreamySkin, list the
ingredients, and give the name of the manufacturer.
¾ Place Strategies
The popular branded whitening soaps are being sold in supermarkets and groceries
nationwide. They are also available in drugstores. The soap products of Laguna
producers are usually sold in a store fronting the owner-producer’s house. A
signboard on which is written the word, SABON, appears in selected places along the
highway. The producers also get people to sell the soap along the road and in the
neighborhood.
The proposed business will be located in Los Baños, Laguna. This town falls within
the second district of the province, the second most densely populated among the four
districts. The place comes close to the heels of the 1st district, the most densely
populated district being near Metro Manila. Los Baños town is also strategically close
to the 3rd district.
CreamySkin will be sold directly to the end-users. The business will also “borrow
stores” and use agents to reach out to the target market.
The soap will be sold in the beauty salon owned by the proponent. A small corner at
the owner’s residence will serve as a showroom for the soap. CreamySkin will also be
distributed to similar shops, including barber shops, and other outlets such as
boutiques, variety, grocery and convenience stores, drugstores, offices, and even
schools. Aside from the proponent, the business will get agents to bring CreamySkin
to the end users. These will include schoolteachers, employees, and college students.
¾ Price Strategies
The next table will show the prices in Laguna of the existing herbal bath and beauty
soaps available in the market.
Brand Name Net Weight Retail Price

(Grams) PhP
Love Green Papaya 90 22.85
RDL Green Papaya/ 135 29.90
RDL Orange Papaya
TopOne Papaya 145 36.50
Silka Papaya 90 24.95
Biolink Papaya 135 39.50
Block & White Papaya 120 37.00
CY Gabriel Whitening 135 32.30
Skin White Whitening 90 26.00
Average price per gram 0.20
The proposed business will consider both internal and external factors in setting the
price of CreamySkin. It will firstly consider the production and selling costs, the
selling price of the competitors, and the market price.
The proponent will sell the product for an introductory price of P25.00 in the first
year.
Table 1: Projected Sales (Volume and Value)

Planned sales volume 2,664 3,996 5,994
x selling price per unit 25.00 27.00 29.00
Total sales 66,600.00 107,892.00 173,820.00
The proposed business does not intend to extend credit within the first three years.
¾ Promotions Strategies
The established soap manufacturers promote their products through tri-media. Their
advertisements appear in the newspapers and television, and are aired over the radio.
They also post their ads in billboards and giant posters that are placed along main
thoroughfares. It is no secret that these companies allot a sizeable chunk of their
budget for promotion; majority of them even tap celebrities to endorse their products.
The promotional activities being conducted by big soap manufacturers have

successfully introduced herbal soap to the entire soap-consuming population. This has
brought awareness of herbal soaps to a certain level that has helped significantly, the
smaller manufacturers, including newcomers, market their products. So much so that
the latter no longer start their promotional efforts from scratch but can already
concentrate on getting their target market buy the new products.
The Laguna soap producers promote their products by word of mouth. The sign,
Whitening Soap is placed in front of the soap bars that are piled on a table or a
counter. The signs are either computer printouts or printed by hand.
To bring CreamySkin into the consciousness of the target market, the proposed
business will use streamers, flyers, and posters. It will also advertise in the
community newspapers such as the semestral Los Baños Times published by students
of the UP Los Baños and the daily Manila Times Southern Tagalog Edition. The
proposed business will also use the product as giveaways in contests and as corporate
gifts.
The flyers will be inserted in all printed materials specifically magazines and
newspapers circulating in the province. They will also be given out to parishioners
coming out from the church, mall goers, as well as diners in restaurants and fastfood
chains. The posters will be displayed prominently in beauty parlors, boutiques,
variety and grocery stores, drugstores, resorts and tourism-related establishments.
Distribution of the promotional materials will be a joint effort by the proponent and
the agents.
Table 2: Selling Expenses

Sales commissions 5,000 8,200 12,500
Advertising 1,000 1,000 1,000
Signboards, streamers 500 300 400
Posters, flyers 350 350 400
Packaging 2,500 3,800 6,000
Transportation expense 300 350 350
Sales promotions
Giveaways 300 300 500
Sponsorships 500
9,950 14,300 21,650

Total selling expenses
TECHNICAL PLAN
Plant Location
The proposed business will be put up at the residence of the proponent in Los Baños,
Laguna. This is at No.12 M. de los Reyes St., Poblacion, Los Baños, Laguna.
Laguna province is one of the coconut-rich provinces in Southern Tagalog. Coconut oil is
the major raw material for making soap using the cold process. The province also boasts
of the availability of herbs and medicinal plants. The municipality of Los Baños, also
known as a university town, hosts the University of the Philippines Los Baños and
various research and development institutions of the government which the proponent can
approach for technical assistance.
Getting workers should not be a problem. The next table shows the employment status of
employable Laguna residents. The business will initially tap workers from the
neighborhood of the proponent.
Household Population 15 Yrs Old & Over and Employment Status, Laguna
(Population in thousands; Rates in percent)
Employment Status 1999 2000 2001 2002
Population 15 Yrs old & over 1,113 1,226 1,284 1,333
Labor Force Participation Rate 65.2 65.1 66.8 66.6
Employment Rate 88.9 87.7 86.8 84.4
Unemployment Rate 11.1 12.3 13.2 15.6
Visible Underemployment Rate 8.3 9.9 10.6 9.9
Note: Details may not add to totals due to
rounding.
Source: NSCB Fact Sheet, January 2005
Process Description
Following is the step-by-step process for the manufacture of CreamySkin whitening soap
using the cold process. This process involves the reaction of the oil with a quantity of
strong caustic alkali solution.
Step Description
1 Prepare the materials and utensils.
2 Mix water and caustic soda2 in a pail using a proportion of 1unit caustic soda:3 units water
3 Put coconut oil into another pail.
4 Add the lye (caustic soda solution) slowly to the oil while stirring continuously with a
wooden ladle. Follow one direction in stirring. Keep on stirring for 15 - 20 minutes or until
the caustic soda is dissolved.
5 Add the sodium silicate solution, papaya extract and continue stirring for 5
- 10 minutes. Add the essential oil 3 into the mixture and stir for about 3
minutes. Steps 4 and 5 should be completed in 30 - 35 minutes. Less than
this time would not be an ideal preparation for the saponification 4 process,
while more than this time would harden the mixture, thereby making the
moulding process difficult to carry out.
6 Pour the homogenous viscous soap mixture into the moulds.
7 Let it stand for 72 hours (3 days) to enable complete saponification.
8 Remove the hardened soap from the moulds. Inspect.
9 Cut the soap with a fine wire cutter assembly or guitar string.
10 Allow to age for 4 weeks. Inspect regularly.
11 Put the soap bars in individual boxes.
12 Store or distribute.
¾ Safety Precautions
Exercise much care when handling caustic soda (lye). It can burn the skin upon
contact. Wear rubber gloves and safety masks when pouring, mixing, or stirring. If
you are spilled accidentally, wash immediately with vinegar or anything sour and
then wash with soap and water. For additional safety precaution, wear long a sleeved
shirt, pants, and an apron.
Process Flow (See Attachment 1)
Property, Plant, and Equipment
Production activities will be done at the existing extension of area adjacent to the family
residence. It has a floor area of 20 square meters. This is an open area, the walling will be
a combination of concrete (up to the level of the waist) and wire. It will have a separate
installation for electricity. Water from the owner’s deep well will be used for cleaning the
utensils and the production area. Spring water will be used for the soap.
2 Sodium hydroxide
3 Oils distilled directly from plant materials. One’s choice will depend on the desired effect for aromatherapy and
skin
care properties.
4 Process of converting (as fat) into soap.
Caustic Soda Papaya
Sodium silicate extract Essential oil
Coco Oil solution
Add caustic soda

solution while stirring in
one direction.
Add sodium silicate;

continue stirring.
Add papaya extract and

continue stirring
Add essential oil; stir for

a few minutes more
Pour mixture into

moulds
Let it stand for

72 hrs.
Remove soap from

mould
Cut
Age for 4
weeks
Wrap in paper; put in

individual boxes
Attachment 1: Process Flow Chart
Store or deliver
The business will require accurate weighing scales, plastic pails, wooden moulds,
stainless or laminated-top working tables, hydrometers, an oil storage tank, beakers,
wooden ladles, stainless steel spoon with long handle. Safety accessories will also be
needed. These are safety glasses with splashguard, heavy duty, well-fitting gloves, and
dust masks.
Table 3: Fixed Investment and Depreciation Schedule

Acquisition Qty. Total Span
Cost Cost (in
years)
Building 2,000 5 400.00 400.00 400.00
Improvements
Machines / Eqpt. /
Tools
Weighing scale 2 1,000 10 100.00 100.00 100.00
Plastic pail, heavy 4 800 3 266.66 266.66 266.66
duty 4 400 3 133.33 133.33 133.33
Wooden mould
Wooden ladle with 2 100 2 50.00 50.00 50.00
long
handle 2 150 3 50.00 50.00 50.00
Long-handled 1 500 5 100.00 100.00 100.00
stainless
1 1,500 5 300.00 300.00 300.00
steel spoon
with
scoop 4 1,000 5 200.00 200.00 200.00
Hydrometer
1,500 5 300.00 300.00 300.00
Oil storage tank
Beakers & other
measuring
equipment
Safety accessories
Total Bldg.
Improvements, 8,950 1,899.99 1,899.99 1,899.99
Machines/ Eqpt./
Tools
Furniture and
fixtures
Working tables 4 1,000 5 200.00 200.00 200.00
Wooden stools existing
Total Furniture &
Fixtures 1,000 200.00 200.00 200.00
Office Furniture &
Equipment
Office desk 1 450 5 90.00 90.00 90.00
Office chairs 2 600 5 120.00 120.00 120.00
Display Rack 1 1,100 5 220.00 220.00 220.00
Personal computer existing
Printer existing
Total Office
Equipment 2,150 430.00 430.00 430.00
& Furniture
GRAND TOTAL 12,100 2,529.99 2,529.99 2,529.99
Layout (See Attachment 2)
Production Schedule
Production of CreamySkin will be done in 2 batches a month, preferably at one week

intervals, in the first year. The number of batches will increase in the succeeding years.
Table 4: Production Schedule

Planned sales volume, in units 2,664 3,996 5,994
Add: Desired ending FG inventory, in units 133 199 300
Less: Beginning FG inventory, in units 0 133 199
Units to be produced 2,797 4,062 6,095
¾ Raw Materials
The following materials will be needed for making soap using the cold process:
• Fat - coconut oil prepared by wet processing or by other conventional methods.
This is readily available from commercial oil processors. It can also be made at
home.
• Lye - caustic soda dissolved in spring water. The solution should be 35 degrees
Be.5 Use a hydrometer to check the density of the solution.
• Builder - sodium silicate.
• Perfume - essential oils such as citronella oil, ylang-ylang, etc.
• Fruit extract or juice - from papaya, kamias, or calamansi.
Schedule 3: Direct Raw Material Requirements

Direct Material Purchase cost/unit Quantity needed/unit Cost/unit to be
(A) of material to be produced produced
(B) © (D)
Coconut oil 34.00/kg 0.107 3.65
Lye or caustic soda solution 60.00/kg 0.020 1.20
Sodium silicate 42.00/kg 0.003 0.13
Papaya extract or juice 140.00/kg 0.0006 0.08
Essential oil 400.00/kg 0.0003 0.12
Direct material cost per unit 5.18
5 Baume - a calibration scale for liquids that is reducible to specific gravity by the following formulas: for
liquids heavier than water, specific gravity = 145 - 145 - η (at 60 degrees F); for liquids lighter than
water, specific gravity = 140 - 130 + η (at 60 degrees F); η is the reading on the Baume Scale in degrees.
Baume is abbreviated Be.
Wash area
Mixing and stirring table
Materials
prep
area
Oil
tank
Office
Cutting
Packaging table
table
Finished Goods
storage
Attachment 2: Plant Layout

(not drawn to scale)
Table 5: Direct Material Cost

Units to be produced (from Table 4) 2,797 4,062 6,095
x Direct material cost per unit (from 5.18 5.18 5.18
Schedule 3)
Total direct material cost 14,488.46 21,041.16 31,572.10
Since production of CreamySkin will be by batch at 2 batches per month, it is important

for the proposed business to have materials ready for use. Materials will be purchased
once every two months. The desirable level of inventory to keep is shown on the next
page.
Schedule 3-A: Inventory Schedule for Direct Materials, Year 1

Direct Material Purchase cost per Quantity to keep in Cost of
unit (PhP) stock (kg) material in
stock (PhP)
Coconut oil 34 / kg 47.5 1,615.00
Caustic soda 60 / kg 8.9 534.00
Sodium silicate 42 / kg 1.5 63.00
Essential oil 400 / kg 0.15 60.00
Papaya juice or extract 140 / kg 0.30 42.00
Desired ending inventory of direct materials for Year 1 2,314.00
Schedule 3-B: Inventory Schedule for Direct Materials, Year 2

stock (PhP)
Coconut oil 34 / kg 69.50 2,363.00
Caustic soda 60 / kg 13.0 780.00
Schedule 3-C: Inventory Schedule for Direct Materials, Year 3

stock (PhP)
Coconut oil 34 / kg 102.0 3,468.00
Caustic soda 60 / kg 19.0 1,140.00
Table 6: Direct Material Purchases

Total direct material cost (from Table 5) 14,488.46 21,041.16 31,572.10
Add: Desired direct materials ending
inventory 2,314.00 3,363.00 4,938.00
(from Schedule 3-A)
Less: Direct materials beginning inventory 0 2,314.00 3,363.00
Total direct materials purchases 16,802.46 22,090.16 33,147.10
There are no indirect materials required to make the herbal soap. Spring water is
easily available for free from several public sources. The cost of transporting the
water will be part of the overhead cost.
¾ Labor
The proposed business will need two workers. The workers will work for a total of 8
hours on a staggered basis to complete one batch. The step-by-step process and
estimated time to complete each is shown on the next page. All the activities will be
done by hand.
Activity Time to No. of

complete workers
(in minutes) needed
Prepare the materials and utensils. 60.0 2
Mix water and caustic soda in a pail. 20.0 2
Put coconut oil into another pail. 30.0 2
Add the lye (caustic soda solution) slowly to the oil while stirring continuously 30.0 2
with a wooden ladle. Follow one direction in stirring.
Keep on stirring for 15 - 20 minutes or until the caustic soda is dissolved. 20.0 2
Add the sodium silicate, papaya extract, herbal extract, and dye and continue 15.0 2
stirring for 5 - 10 minutes. Add the essential oil into the mixture and stir for about
5 minutes.
Pour the homogenous viscous soap mixture into the moulds. 20.0 2
Let it stand for 72 hours (3 days) to enable complete saponification.
Remove the hardened soap from the moulds. 20.0 2

Inspect. 10.0 2
Cut the soap with a fine wire cutter or guitar string. 30.0 2
Age the soap for 4 weeks
Wrap the soap in transparent paper. Put in individual boxes. 120.0 2
Pack in cartons, store or distribute. 90.0 2
Total no. of minutes to produce 1 batch 465.0 2
Table 7: Manpower Requirements

No. of workers Rate per month Annual Rate
Direct labor 2 848.006 11,024.00
Manager 1 (owner) 2,000.00 26,000.00
Total 2,848.00 37,024.00
6 Computed at P212 per day. Source: http://www.gti.gov.ph/contentment/9/60/64/491.jsp (Laguna: Cost of doing

business.); accessed June 7, 2006
Table 8: Cost of Production

Direct materials 14,488.46 21,041.16 31,572.10
Direct labor 11,024.00 16,536.007 22,048.008
Production overhead
Depreciation of production eqpt. 2,099.99 2,099.99 2,099.99
Transportation expense 1,200.00 1,200.00 1,200.00
Total Cost of Production 28,812.45 40,877.15 56,920.99
Table 9: Production Cost per Unit

Total cost of production 28,812.45 40,877.15 56,920.09
÷ Units to be produced 2,797 4,062 6,095
Production cost per unit 10.30 10.06 9.34
Table 10: Finished Goods Ending Inventory

Production cost per unit 10.30 10.06 9.34
× Desired FG ending inventory 133 199 300
Value of FG ending inventory 1,369.90 2,001.94 2,802.00
Table 11: Cost of Goods Sold

Total production cost 28,812.45 40,877.15 56,920.09
Add: FG beginning inventory 0 1,369.90 2,001.94
Total cost of goods available for 28,812.45 42,247.05 58,922.03
sale
Less: FG ending inventory 1,369.90 2,001.94 2,802.00
Total cost of goods sold 27,442.55 40,245.11 56,120.03
7 Production will increase to 3 batches per week.

8 Production will increase to 4 batches per week.
ORGANIZATION PLAN
Legal Form
The proposed business will start as a very informal undertaking. It will be a single
proprietorship with the owner-proponent making all the decisions and assuming all the
functions. The owner-proponent has a beauty salon that is registered with the local
government and with the Department of Trade and Industry. She will consider her soap
making business as her new “baby” and as another outlet for her creativity and energy.
She intends to register the proposed business with the local government as a BMBE.
Schedule 4: Licenses, Permits, and Registration Expenses

Type of business permit Fees Transportation Incidental Total
expenses expenses
Barangay certificate 200.00 200.00
Business permit from the 1,005.00 25.00 30.00 1,060.00
LGU
DTI certificate 500.00 25.00 30.00 555.00
BIR certificate 500.00 25.00 100.00 625.00
BMBE certificate 1,000.00 50.00 1,050.00
3,490.00
Table 12: Pre-operating Expenses
Total licenses, permits, and registration expenses 3,490.00

Consultancy fees 2,000.00
Trial production runs 3,500.00
Installation of utilities 100.00
Total pre-operating expenses 9,090.00
The pre-operating expenses will be amortized over a five-year period.
Manpower
Managing a business is not a new thing to the proponent. She was able to transform the
beauty parlor that she set up four years ago from a traditional hair-make up-nails service
station into a salon offering a wide range of personal care services. These services continue to
be availed even by clients who have moved out of Los Baños and out of the province. She
believes that the good image projected by her salon will be a plus factor that will make her
new product, CreamySkin, be a big hit in the market.
The owner-proponent will run and manage the proposed business by herself. After
successfully completing a local government-conducted training seminar on making soap,
dishwashing liquid, and laundry detergents, she is confident that she can operate the business.
Since this will be a new project, she wants to start very small.
The business of making bath soap does not require highly technical skills. The owner will get
workers from the neighborhood. The nature of the work and working hours will be light
therefore she is confident that she will be able to get workers. She, too, will carry out the
administrative and finance tasks.
Table 13: Administrative Expenses

Salaries and wages 26,000.00 26,000.00 26,000.00
Amortization of pre-operating expenses 1,818.00 1,818.00 1,818.00
Depreciation of office furniture 430.00 430.00 430.00
Total administrative expenses 28,248.00 28,248.00 28,248.00
The chart below gives an overview of the different activities that the proponent will undertake
before she will start actual operations. Some activities will be done simultaneously.
W E E K
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12
1 Prepare business plan.
2 Put up capital.
3 Do physical improvement
of plant area.
4 Acquire equipment & tools
5 Purchase safety accessories.
6 Purchase raw materials.
7 Hire and train workers.
8 Register with the government.
9 Consult packaging expert.
10 Trial run.
11 Test the market.
12 Start operation.
FINANCIAL PLAN
Table 14: Total Project Cost

Debt Equity
Total pre-operating expenses 9,090.00
Fixed investment 12,100.00
Working Capital 6,000.00
Total Project Cost 27,190.00 0 27,190.00
The proponent believes that she will be able to raise personal money to start the business.
Table 15: Projected Income Statement

Total sales 66,600.00 107,892.00 173,820.00
Less: Cost of goods sold 27,442.55 40,245.11 56,120.03
Gross profit from sales 39,157.45 67,646.89 117,699.97
Less: Selling expenses 9,950.00 14,300.00 21,650.00
Less: Administrative expenses 28,248.00 28,248.00 28,248.00
Net income before tax 959.45 25,098.89 67,801.97
Less: Tax (exempted as a BMBE) 0 0 0
Net profit 959.45 25,098.89 67,801.97
The proposed business looks promising on the basis of the projected income for the first 3
years.
Table 16: Projected Cash Flow

Pre-operating Year 1 Year 2 Year 3
Cash Inflows
Owner’s equity 27,190.00
Cash sales 66,600.00 107,892.00 173,820.00
Total Cash Inflows 27,190.00 66,600.00 107,892.00 173,820.00
Cash Outflows
Pre-operating expenses 9,090.00
Fixed investment 12,100.00
Materials purchases 16,802.46 22,090.16 33,147.10
Direct labor 11,024.00 16,536.00 22,048.00
Production overhead minus
depreciation 1,200.00 1,200.00 1,200.00
and indirect materials
Selling & administrative expenses
minus
depreciation and amortization of 35,950.00 40,300.00 47,650.00
pre-
operating expenses
Total Cash Outflows 21,190.00 64,976.46 80,126.16 104,045.10
NET CASH FLOW 6,000.00 1,623.54 27,765.84 69,774.90
Add: Beginning cash balance 0 6,000.00 7,623.54 35,389.38
Ending Cash Balance 6,000.00 7,623.54 35,389.38 105,164.28
Table 16: Projected Balance Sheet

Pre-operating Year 1 Year 2 Year 3
ASSETS
Cash 6,000.00 7,623.54 35,389.38 105,164.28
Raw materials inventory 0 2,314.00 3,363.00 4,938.00
Finished goods inventory 0 1,369.90 2,001.94 2,802.00
Total Current Assets 6,000.00 11,307.44 40,754.32 112,904.28
Property, plant, and equipment 12,100.00 12,100.00 9,570.01 7,040.02
Less: Accumulated depreciation 0 2,529.99 2,529.99 2,529.99
NET PROPERTY, 12,100.00 9,570.01 7,040.02 4,510.03
PLANT,& 9,090.00 9,090.00 7,272.00 5,454.00
EQUIPMENT
Pre-operating expenses 0 1,818.00 1,818.00 1,818.00
Less: Accumulated depreciation 9,090.00 7,272.00 5,454.00 3,636.00
NET PRE-OPERATING EXPENSES
27,190.00 28,149.45 53,248.34 121,050.31
TOTAL ASSETS
LIABILITIES AND OWNER’S EQUITY
Owner’s equity 27,190.00 27,190.00 27,190.00 27,190.00
Retained earnings (loss) 959.45 26,058.34 93,860.31
TOTAL LIABILITIES & OWNER’S 27,190.00 28,149.45 53,248.34 121,050.31
EQUITY
Financial analysis
Ratio Year 1 Year 2 Year 3

Equity to assets 0.965 0.510 0.224
Gross profit to sales 0.587 0.626 0.677
Net operating income to sales 0.144 0.232 0.390
Net operating income to equity 0.035 0.923 2.493
The statements show the following:
¾ Continuing growth of assets that are being used for the business.
¾ Revenues in the first 2 years to be just be enough to cover its cost of goods sold and
the cost of doing business. This is affected by policies regarding pricing and
production efficiency.
¾ The business to earn P0.14, 0.23, and 0.39 for the first 3 years, respectively for every
peso sale. This evaluates how operating and financial expenses affect the ability of
the business to generate net profit.
¾ Every peso of the P27,190 capital put up for the business to generate P0.035, 0.923,
and 2.493, respectively, during the first 3 years.
The analysis shows that the proposed business wants to take things slow. Being a new
player, it does not aim to knock out the existing competition at the onset. It will focus
instead on studying how the market will behave and making its presence felt through an
aggressive marketing strategy by combining low prices with an extensive promotional
campaign.
REFERENCES
Department of Trade and Industry. Bureau of Small and Medium Enterprises Development.
Your Guide to Starting a Small Enterprise. Makati City, 2006.
Technonet Asia and UP Institute for Small-Scale Industries. Soapmaking from Coconut Oil
by Cold Process. Singapore and Quezon City, Philippines: 1983. (Appro-Tech Bulletin
Series no. 17)
Websites Accessed:
http://www.census.gov.ph/data/pressrelease/2002/pr02117tx.html. Accessed June 06, 2006

http://www.census.gov.ph/data/pressrelease/2004/ie03ftx.html. Accessed June 01, 2006.
http://www.doh.gov.ph/pitahc/Herbal_Soap.html. Accessed June 07, 2006.
http://www.dti.gov.ph/contentment/9/60/64/491.jsp. Accessed June 08, 2006.
http/www.nscb.gov.ph/ru4/ . Accessed June 08, 2006.

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PART III

BUSINESS PLAN WORKBOOK

Everything starts with your marketing

Your technical plan follows next. It

It is in your organizational plan where

Finally, your financial plan will reveal

Uses of the product or service:

4. In general, what type of people or businesses would be interested in your product or

6. Do your market research. Simply follow the steps below.

1. In column 1, write the product or service you intend to offer.

7. Quantify your market share. Consider the equation: Q = n x q

Choose the table that suits your business:

Table 1-A is for single product line manufacturers/traders/service providers.

Year 1 Year 2 Year 3

If you are a multiple product line manufacturer/trader or service provider :

Year 1 Year 2 Year 3

P 4,900.00 February total sales on credit

P 5,300.00 March Sales on Credit

Year 1 Year 2 Year 3

Total selling expenses

16. Think of the different activities in your business.

Operation Transport Inspection Storage Delay

Life Annual Depreciation Charges

Life Annual Depreciation Charges

Total furniture & fixtures

Total office equipment

19. Design your layout on the space provided below.

Direct material cost/unit

Total direct material cost (for Year 1)

Desired Ending Inventory of Direct Materials (for Year 1)

Indirect material cost (For Year 1)

Desired Ending Inventory of Indirect Materials (for Year 1)

TOTAL COST OF PRODUCTION

33. Complete Table 12 to arrive at your production cost per unit.

÷ Units to be produced (from Table 5)

1. Get the information for columns A and B from Table 6-B.

Desired Finished Goods

Finished Goods Ending Inventory (Year 1)

To wannabe manufacturers: You’ve just completed your technical or

Year 1 Year 2 Year 3

To wannabe traders: You’ve just completed your technical or production

Total Supplies/Spare Parts Used (For Year 1)

Do the same thing over again for Year 2 and Year 3.

To wannabe service providers: You’ve just completed your technical or

Total licenses, permits, and registration expenses

Total licenses, permits and registration expenses (from Schedule 7)

Total pre-operating expenses

Who will take care of promotion

Who will deliver products to

Job description Qualifications

Who will prepare the payroll?

Who will handle business

Job description Qualifications

45. Compute for your administrative expenses

Total administrative expenses

Total pre-operating expenses (from Table 18)

Fixed investment (from Table 4)

Principal: ______________________ Mode of payment: _______________

Year Interest Principal Total Payment Outstanding

There are slight variations in the income statements of a manufacturer, a trader,

Principal: ________ Mode of payment: _