building apps, or using digital tools, they rely
on tech to grow and innovate.
CE306 - TECHNOPRENEURSHIP
CHAPTER 1 - INTRODUCTION TO
TECHNOPRENEURSHIP
•
What is Entrepreneurship?
- is the process of creating or seizing an
opportunity and pursuing it regardless of the
resources currently controlled.
•
- According to Joseph Schumpeter, a well-known
economist defined entrepreneurship as the
process of “creative destruction.”
- According to Schumpeter, entrepreneurs are the
driving force behind economic development and
innovation. They disrupt existing markets by
introducing new products, services, or ways of
doing business.
- According to Peter Drucker, another key figure
in the study of entrepreneurship, He defines
entrepreneurship as “the systematic process of
innovation.”
•
•
•
TECHNOLOGY + ENTREPRENEURSHIP =
TECHNOPRENEURSHIP
Technopreneurship is the use of technology as
integral and key element in the transformation of
goods and services.
•
CHARACTERISTICS OF AN ENTREPRENEUR
•
Innovative - A technopreneur constantly
thinks of new and creative ways to solve
problems using technology. They don’t settle
for what already exists—they aim to improve or
reinvent it.
•
Technology-Oriented - They have a strong
understanding of technology and use it as the
core of their business. Whether it is coding,
Visionary - Technopreneurs see future
opportunities and trends before others do.
They have a long-term vision for how
technology can change lives or industries.
Risk-Taker - They are willing to take
calculated risks, especially when developing a
new technology or startup. They know failure
is possible but take action anyway.
Problem-Solver - They focus on solving realworld problems using technology. The best
technopreneurs don’t just build products—they
solve meaningful issues.
Persistent and Resilient - They don’t give up
easily. Even if they fail, they learn from it and
keep going until they succeed.
Opportunity Seeker - They recognize and act
on business or social opportunities through
innovation.
Adaptable - They can quickly adjust to new
technologies and changing environments.
They stay relevant by learning fast and being
flexible in uncertain situations.
TWO TYPES OF TECHNOPRENEUR
1. Technology developers - those who develop a
unique technology capable of driving a new
business (inventors)
2. Technology users - those who see a new
technology development and understand how it
can be applied to meet a market need
(innovators).
TYPES OF ENTREPRENEUR
•
Innovative Entrepreneur - The entrepreneur
who is flooded with something new and wants
to use the same for business purposes.
•
Imitating Entrepreneur - Such type of
entrepreneurs always tries to mimic others
known as “copy cats”.
•
Fabian Entrepreneur - These entrepreneurs
adopt any type of technology and changes with
utmost care and caution. But they are shy and
show laziness while adopting the technologies.
•
Drone Entrepreneur - Such entrepreneurs
are opposed to change, so they are considered
as “old school”. Moreover, they always stick
to the orthodox methods of production and
systems.
FUNCTIONS OF ENTREPRENEUR
•
Strategic Thinker - They plan carefully and
make smart decisions for long-term success.
They analyze the market, competitors, and
risks before taking action.
•
Leadership-Oriented - They inspire others,
lead teams, and influence the tech ecosystem.
Their ability to guide and motivate people helps
turn ideas into real outcomes.
1. Entrepreneurial Functions - As an
entrepreneur of an organization, the person has to
perform some of the basic functions related to his
positions. First and the foremost function is to take
the initiative in every activity that has to be done in
business and he is always ready to incur any sort
of risk related to investment.
2. Managerial Functions - He/She is also an
integral part of organizing the business, staffing,
give direction to all employees, controlling all the
attached business work, leading the subordinates,
supervising every co-worker in their working and
maintains coordination among employees.
3. Promotional Functions - Focused on
promoting and publicizing the business to attract
customers. It includes advertising, marketing,
sales promotion, and building customers.
4. Commercial Functions - Concerned with
buying and selling products.
5. Financial Functions - To plan all the finances
of the business and raise funds according to the
requirement of the business as well as expenses
in various areas.
CHAPTER 2 - CREATIVITY AND INNOVATION
CREATIVITY - It is the ability to develop new ideas
and to discover new ways of looking at problems
and opportunities.
It is also any act, idea or product that changes an
existing domain or that transforms an existing
domain into new one.
IMPORTANCE OF CREATIVITY IN BUSINESS
DIFFERENTIATION - It helps entrepreneurs carve
out a niche and differentiate their business from
competitors by implementing unique selling
propositions (USPs).
INNOVATION - Creativity fuels innovation,
allowing entrepreneurs to generate new ideas and
solutions that can lead to value creation and
business growth.
PROBLEM-SOLVING - It enables entrepreneurs
to think outside the box and find innovative ways
to address challenges, which is essential for
adapting to changing market conditions.
LEARNING - The process of acquiring new
knowledge and skills, which is necessary for
continuous improvement and adaptation. in
creative endeavors.
PRODUCT DEVELOPMENT - Creativity is
integral in developing unique products, services,
and processes that meet customer needs and
drive market success.
EXPERTISE - The knowledge and skills acquired
in a specific field, which is essential for creative
thinking and problem-solving
CONTINUOUS IMPROVEMENT - It encourages
entrepreneurs to continuously improve their
business processes and adapt to new
technologies and market trends.
SPECIFIC BENEFITS OF CREATIVITY IN THE
WORKPLACE INCLUDE:
IMPROVED TEAMWORK - Creativity fosters
collaboration and communication among team
members.
IMAGINATION - The capacity to generate new
ideas and concepts, which is fundamental to
innovation and creativity.
COMPOSITE THINKING - The integration of
different types of thinking, such as analytical,
analogical, imaginary and intuitive thinking, to
enhances creativity.
QUALITIES OF CREATIVE PEOPLE
INCREASED ENGAGEMENT - Employees are
more likely to be engaged when they feel
empowered to contribute ideas.
ENERGETIC - Creative people tend to have a
great amount of physical as well as mental energy.
They utilize their energy to invent new ideas.
These people spend a great deal of time in
solitude to introspect and think.
EMPLOYEE
RETENTION
environment can lead to
retention rates.
A
creative
higher employee
VISIONARY THINKING - The ability to anticipate
future trends and identify emerging needs within
the tech landscape.
HIGHER PRODUCTIVITY - Creative solutions
often lead to more innovative and efficient work
processes.
IMAGINATION AND CREATIVITY - The capacity
to think outside the box and generate novel ideas.
ENHANCED MORALE - A culture of creativity can
boost staff morale and overall workplace
satisfaction.
COMPONENTS OF CREATIVITY
INTUITION - The ability to form ideas and make
decisions based on instinct rather than logic, which
can be crucial in creative processes.
LONG-TERM PERSPECTIVE - Focusing on longterm goals and outcomes rather than immediate
gains.
ADAPTABILITY - Being able to adjust and thrive
in the face of challenges.
PASSION AND DRIVE - The desire to turn ideas
into success stories and make a positive impact.
PROBLEM-SOLVING ABILITY - They see
challenges as opportunities and use creativity to
design practical solutions.
RISK-TAKING - willingness to engage in actions
that involve uncertainty, with the potential for both
negative and positive outcomes.
RESOURCEFULNESS - ability to find practical
solutions by using available resources to achieve
goals, especially when faced with challenges. It
involves leveraging what you have to overcome
obstacles and is often seen as a key skill in
innovation and problem-solving.
CREATIVE DOMAIN DISCRETE PROCESSING
MODES
DIVERGENT THINKING - cognitive process used
to produce creative ideas, by considering various
possible solutions. In technopreneurship, where
technology and entrepreneurship intersect,
divergent thinking is essential for innovation and
problem-solving.
CONVERGENT THINKING - crucial cognitive
process within technopreneurship, blending the
disciplines of technology and entrepreneurship, to
streamline ideas into practical solutions.
ANALOGICAL THINKING - ability to draw
connections and comparisons between seemingly
unrelated things. By applying analogical thinking,
you can think outside the box and come up with
creative solutions that you may not have thought
of otherwise.
LATERAL THINKING - lateral thinking is a crucial
skill that can transform challenges into
opportunities. It encourages entrepreneurs to think
creatively and innovatively, often leading to
breakthroughs and competitive advantages.
CRITICAL THINKING - Critical thinking in
entrepreneurship involves a balanced approach to
problem-solving, where emotional impulses are
moderated by rational analysis. This balance is
crucial in a landscape where decisions often have
significant and lasting impacts.
4 TYPES OF CREATIVITY
DELIBERATE AND COGNITIVE - traits are
characteristics of purposeful people. They utilize
their talents and abilities and extensive knowledge
of a certain area to plan a course of action for
achieving a goal. This kind of creativity develops
when people put a lot of effort into one particular
field.
DELIBERATE EMOTIONAL CREATIVITY People that fit the description of being intentional
and emotional allow their emotions to have an
impact on their work. These creative types tend to
have extremely sensitive and emotional
personalities. These people like relatively private,
quiet time for reflection, and they frequently keep
diaries. They make equally reasonable and
sensible decisions, nevertheless.
SPONTANEOUS AND COGNITIVE CREATIVITY
- It is a period when you run into difficulty and
spend a lot of time trying to identify the appropriate
solutions, but none are apparent. For instance, if
you need a set timetable for a month to complete
the work on time but have no idea how to go about
it when you have some downtime, you suddenly
have an idea and it comes to you with the ideal
answer, and everything is completed.
Spontaneous ideas and creativity happen when
conscious and Prefrontal brain is resting.
6 STAGES OF CREATIVE PROCESS
INFORMATION - When it comes to the amount of
information you "provide, less isn't more. Of
course, it's important not get the creatives
sidetracked with loads of necessary data, but
there's often a wealth of formation beyond just the
brief that can become a valuable resource
throughout the creative process
INSPIRATION - is best served early. There are
many mediums we can use to help trigger it
including film, TV, art, music, other ads and even
experiences that you provide the creatives with.
INCUBATION - is the part of the creative process
where the creatives aren't actually working on the
brief perse. It's the part where you let all of that
information and inspiration simmer for a while, put
it to the back of your head, and then see what
happens.
IDEATION - If the Information and Inspiration
stages are about bringing things in, the Ideation
stage is about keeping things out. Allowing the
space for the creative team to think and explore.
THE INTERROGATION STAGE - is the pointy
end of the process where the creatives need to put
their babies out into the big wide world -or a
meeting room at least. The passion that helped
produce the ideas will be responsible for the pain
that is felt if they don't make it past the review.
This stage is all about asking the right questions.
SPONTANEOUS
AND
EMOTIONAL
CREATIVITY - takes place in the "amygdala" part
of the human brain. Amygdala is responsible for all
emotional type of thinking in the human brain.
THE IMPLEMENTATION - this stage is still very
much a part of the creative process. During
production the idea can continue to evolve and
often takes a vastly different form to the one that
was originally conceived - for better or for worse.
RECOGNIZING CREATIVE TECHNIQUES
BRAINSTORMING - A classic technique for
sparking creativity by generating a large quantity
of ideas in a group setting without judgment. You
recognize its use when a group is actively
discussing and listing potential solutions or novel
approaches to a problem.
MIND MAPPING - A visual technique that
organizes information and helps to generate new
ideas by creating connections between different
concepts. You recognize it by the use of visual
diagrams with a central theme and branching
ideas.
SCAMPER - A mnemonic device that encourages
thinking about a product or service in new ways by
asking questions related to Substitute, Combine,
Adapt, Modify, Put to other uses, Eliminate, and
Reverse.
DESIGN THINKING - An experimental, usercentered
problem-solving
process
that
emphasizes empathy, ideation, prototyping, and
testing. You recognize it by the systematic process
of defining the problem from perspective, exploring
creative solutions, and a user's then testing and
refining them.
TRIZ (THEORY OF INVENTIVE PROBLEM
SOLVING) - A systematic method for solving
problems by identifying and applying universal
principles of invention. Its use is recognizable
when a structured approach is taken to resolving
technical contradictions and finding innovative
solutions, often by applying established patterns of
invention.
CHARACTERISTICS OF CREATIVITY
1. INNOVATION-ORIENTED - refers to a mindset
or approach that emphasizes the importance of
innovation in driving progress and improvement
across various fields.
2. PROBLEM-SOLVING NATURE - refers to the
cognitive process through which Individuals
identify, analyze, and resolve challenges to
achieve a desired goal. It involves several stages,
including problem representation, diagnosis of the
root cause, and implementation of solutions.
Problem-solving is a fundamental skill that
enhances intellectual development and adaptation
to various challenges in life and work.
3. RISK-TAKING - the act of doing something that
involves danger or risk in order to achieve a goal.
4. VISIONARY THINKING - is the ability to see the
big picture and the potential for what could be.
5. ADAPTABILITY AND FLEXIBILITY Adaptability refers to the ability to make
modifications or adjustments to suit a new
environment or situation, often involving a change
in behavior. In contrast, flexibility is the ability to
adjust to short-term changes and accommodate
others' needs without altering the overall approach
or behavior.
6. INTEGRATION OF KNOWLEDGE - is the
process of synthesizing multiple knowledge
models (or representations) into a common model
(representation).
7. PASSION-DRIVEN - means being motivated by
strong enthusiasm and deep personal interest in
what you are doing. In technoentrepreneurship, it
refers to creating innovations fueled by genuine
commitment to solve problems or make a positive
impact, not just for profit.
8. USER-CENTERED - is a framework that
prioritizes the needs and experiences of users
throughout the design and development process.
INNOVATION - It is the ability to apply creative
solutions to those problems and opportunities in
order to enhance people's lives or to enrich
society.
TYPES OF INNOVATION
INVENTION - Described as the creation of a new
product, service or process. It is something that
has not been tried before.
EXTENSION - The expansion of an existing
product, service or process. This would mean that
the entrepreneur takes an existing idea and
applies it differently.
DUPLICATION - Copying (replicating) an existing
product or service and then adding the
entrepreneurs own creative ouch in order to
improve it.
SYNTHESIS - A combination of more than one
existing product or services into a new product or
service. This means that several different ideas
are combined into one new product service.
BENEFITS OF INNOVATION IN BUSINESS
COMPETITIVE ADVANTAGE - Innovation allows
businesses to develop unique products and
services that differentiate them from competitors.
Companies that prioritize innovation often gain a
significant edge in their respective markets,
enabling them to become industry leaders.
INCREASED
EFFICIENCY
AND
PRODUCTIVITY - By implementing innovative
processes and technologies, businesses can
streamline operations, reduce costs, and enhance
productivity. This leads to better resource
management and improved profit margins.
ADAPTABILITY TO MARKET CHANGES Innovation equips businesses to respond
proactively to changing market conditions and
consumer preferences. Companies that embrace
innovation are better prepared to navigate
disruptions and capitalize on emerging trends.
ENHANCED CUSTOMER SATISFACTION AND
LOYALTY - Through continuous innovation,
businesses can better meet customer needs and
exceed expectations. This fosters customer loyalty
and strengthens brand reputation, as satisfied
customers are more likely to return and
recommend the brand to others.
ATTRACTION AND RETENTION OF TALENT Innovative companies often attract top talent who
are eager to work in dynamic environments that
encourage creativity and experimentation. A
culture of innovation can lead to higher employee
satisfaction and retention rates.
IMPORTANT ROLES OF INNOVATION
PROBLEM-SOLVING
Technopreneurship
inherently involves addressing complex issues.
Innovation provides the tools to find inventive
solutions, whether through new technologies or
creative approaches to existing problems.
CUSTOMER VALUE & EXPERIENCE Innovation allows for the creation of unique selling
points for products and services, adding value for
customers and improving their overall experience.
MARKET ADAPTATION - By fostering creativity
and innovation, technopreneurs can better adapt
to market shifts, identify new opportunities, and
tailor their offerings to evolving customer needs
and trends.
EFFICIENCY AND PRODUCTIVITY - The
application of innovative technology can
streamline
operations,
improve
existing
processes, and boost productivity, leading to more
efficient and effective business practices.
IMPORTANCE OF INNOVATION IN
ENTREPRENEURSHIP EDUCATION, IDEAS
EXECUTION, KNOWLEDGE AND MORE
RISK MITIGATION - By diversifying product
offerings and revenue streams through innovation,
businesses can reduce their reliance on a single
product or market. This helps mitigate risks
associated with market fluctuations and changing
consumer behavior.
1. SKILL DEVELOPMENT - Entrepreneurship
education helps students develop essential skills
like analytical thinking, problem-solving, and
identifying new opportunities, enabling them to
create their own businesses and lead in a dynamic
world
SUSTAINABLE GROWTH - Innovation is crucial
for long-term business growth. It enables
companies to explore new markets, develop new
revenue streams, and continuously improve their
offerings, ensuring sustained success in a
competitive landscape.
2. FOSTERING A CREATIVE MINDSET - it
encourages entrepreneurs to think beyond
conventional solutions, leading to new and
potentially versatile ideas.
3. COMPETITIVE ADVANTAGE - Innovation
enables the creation of unique products and
services, setting businesses apart from
competitors
4. MOTIVATION FOR ENTREPRENEURS Entrepreneurship education, combined with
practical experience, can boost students'
motivation, leading to a stronger intention to
innovate and start businesses
5. CONTINUOUS LEARNING - Entrepreneurs
need to continuously acquire and absorb new
information to understand market trends and
customer preferences, which fuels further
innovation.
6. STRATEGIC KNOWLEDGE APPLICATION Entrepreneurship education equips students with
the knowledge to effectively channel their
creativity and execute innovative ideas in realworld scenarios.
7.
TECHNOLOGICAL
INNOVATION
Technopreneurship focuses on the Intersection
technology
and
entrepreneurship,
where
technology is used to create new products,
processes, or business models.
8. ADDRESSING MARKET NEEDS - It involves
creating solutions that respond to customer
demands and leverage new technologies to gain a
competitive edge.
9. DRIVING ECONOMIC DEVELOPMENT - By
combining knowledge, technology, and innovative
approaches,
technopreneurship
contributes
significantly to economic growth and development.
IMPORTANCE OF CREATIVE AND
INNOVATION IN ENTREPRENEURSHIP
Creativity and innovation foster resilience,
allowing businesses to adapt to market changes
and overcome challenges. They accelerate growth
by identifying and capitalizing on new market
opportunities, making ventures more attractive to
investors.
PRINCIPLES OF INNOVATION
STRATEGIC APPLICATION OF TECHNOLOGY
- Technopreneurs leverage technology to address
business challenges and seize opportunities,
rather than just developing new products or
services.
CREATIVE PROBLEM-SOLVING - Innovation
involves creating inventive solutions that disrupt
traditional business models and enhance
operational efficiency.
RISK
MANAGEMENT
Successful
technopreneurs effectively evaluate and manage
risks to ensure substantial growth and Innovation.
MARKET ALIGNMENT - Technopreneurs align
technological innovations with market demands to
create value and meet customer needs.
CONTINUOUS ADAPTATION - The innovation
process is dynamic, requiring entrepreneurs to
adapt to evolving technology landscapes and
anticipate trends.
IMPORTANCE OF CREATIVITY AND
INNOVATION TO FACTORS SUPPORT
CREATIVITY AND INNOVATION
SOCIETAL GROWTH - Creativity fuels
innovation, which helps societies evolve, develop,
and adapt to new challenges and opportunities.
BUSINESS ADVANCEMENT - Businesses rely
on creativity to generate novel solutions and
innovation to implement them, leading to new
products, services, and processes that drive
efficiency and growth.
sells the same at retail price. They are known as
"buy and sell" businesses. They make profit by
selling the products at prices higher than their
purchase costs. A merchandising business sells a
product without changing its form.
SUSTAINABILITY - In a business context,
creativity and innovation vital for developing to
sustainable practices, adapting competitive
environments, and ensuring are long-term viability.
Examples are grocery stores, convenience
stores, distributors, and other resellers.
PERSONAL DEVELOPMENT - Creativity
enhances an individual's ability to learn and solve
problems, while innovation involves applying these
creative skills to achieve tangible outcomes.
CHAPTER 3 - PLANNING AND ORGANIZING A
BUSINESS ORGANIZATION
3. Manufacturing Business - Unlike a
merchandising business, a manufacturing
business buys products with the intention of using
them as materials in making a new product. Thus,
there is a transformation of the products
purchased. A manufacturing business combines
raw materials, labor, and factory overhead in its
production process. The manufactured goods will
then be sold to customers.
BUSINESS ORGANIZATION DEFINE
Hybrid Business
Business organization is an entity formed for the
purpose of carrying on commercial enterprise.
Such an organization is predicated on systems of
law governing contract and exchange, property
rights, and incorporation.
Hybrid businesses are companies that may be
classified in more than one type of business. A
restaurant, for example, combines ingredients in
making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising), and fills customer
orders (service).
3 TYPES OF BUSINESS
There are three major types of businesses:
FORMS OF BUSINESS ORGANIZATION
1. Service Business - A service type of business
provides intangible products (products with no
physical form). Service type firms offer
professional skills, expertise, advice, and other
similar products
Examples of service businesses are salons,
repair shops, schools, banks, accounting firms,
and law firms.
1. Sole Proprietorship is a business owned by
only one person. It is easy to set-up and is the least
costly among all forms of ownership. The owner
faces unlimited liability; meaning, the creditors of
the business may go after the personal assets of
the owner if the business cannot pay them. The
sole proprietorship form is usually adopted by
small business entities.
2. Merchandising Business - This type of
business buys products at wholesale price and
2. Partnership is a business owned by two or
more persons who contribute resources into the
entity. The partners divide the profits of the
business among themselves. In general
partnerships, all partners have unlimited liability. In
limited partnerships, creditors cannot go after the
personal assets of the limited partners.
3. Corporation is a business organization that has
a separate legal personality from its owners.
Ownership in a stock corporation is represented
by shares of stock. The owners (stockholders)
enjoy limited liability but have limited involvement
in the company's operations. The board of
directors, an elected group from the stockholders,
controls the activities of the corporation.
In addition to those basic forms of business
ownership, these are some other types of
organizations that are common today:
Limited Liability Company are hybrid forms of
business that have characteristics of both a
corporation and a partnership. An LLC is not
incorporated; hence, it is not considered a
corporation. Nonetheless, the owners enjoy limited
liability like in a corporation. An LLC may elect to
be taxed as a sole proprietorship, a partnership, or
a corporation.
Cooperative is a business organization owned by
a group of individuals and is operated for their
mutual benefit. The persons making up the group
are called members. Cooperatives may be
incorporated or unincorporated.
Some examples of cooperatives are water and
electricity (utility) cooperatives, cooperative
banking, credit unions, and housing cooperatives.
BUSINESS ORGANIZATION ADVANTAGES &
DISADVANTAGES
A. Sole Proprietorship
A sole proprietorship is the common business
structure. It makes sense if you're in a business
where personal liability is not a concern. From a
legal standpoint, the owner and the proprietorship
are the same.
Advantages
• It's the easiest to set up because it doesn't
require the filing of any papers.
• States do not require the registration of
proprietorships.
• Profits are only taxed once on the owner's
personal tax returns.
• The owner has complete control of the business
and makes all the decisions.
• Tax forms are not complicated.
• Assets are easy to liquidate upon the death of
owner.
A partnership is a sole proprietorship that allows
the business to have more than one owner.
Advantages
• They're easy to form.
• A partnership can bring together a group of
individuals with different talents to share in the
responsibilities of running a business.
• If the partnership agreement permits, a
partnership could continue to exist if one of the
partners dies.
Disadvantages
• Partners are exposed to unlimited liabilities.
• Owners will not always agree on decisions. This
could lead to management conflicts.
• Partners share in the profits of the business, but
will not always feel they are being
adequately compensated for their contributions
and services.
Disadvantages
• The owner is exposed to unlimited legal liabilities.
If you lose a lawsuit, you could lose your home, car
and other personal assets.
• Proprietorships cannot accept capital from
outside investors.
• Borrowing money is more difficult. Banks are
reluctant to make business loans to sole
proprietorships. You will have to rely on savings,
home equity loans or loans from family members.
• Business will be liquidated when owner passes
away.
Partnerships
Limited Liability Companies
Advantages
• The owners have limited liability. The owner's
personal assets are protected from
judgments and defaults on company debts.
• Owners can choose how the business pay taxes.
It could be a proprietorship, a
partnership or a corporation.
• Most states don't require LLCs to have annual
meetings.
• An LLC is not required to have a board of
directors.
proprietorships.
• The number of shareholders is unlimited.
• The corporation continues to exist separately
from the lives of its stockholders.
Disadvantages
Disadvantages
• Legal and accounting costs are higher than
proprietorships.
• A C Corp is the most complex business structure
and requires a lawyer to set up.
• LLCs must file articles of incorporation with the
state of domicile.
• Earnings could be subject to double taxation.
• Owners must create an operating agreement that
defines management authority and
limits to making decisions.
• In some cases, an LLC will cease to exist upon
the death of a member, unless otherwise
The choice of which business structure to use
demands thought about your type of business and
what you want it to look like. If the business is just
yourself, a sole proprietorship could be enough.
But, if you're worried about personal liability and
risking personal assets and taxes, consider an
LLC, a C Corp or an S Corp.
specified in the operating agreement.
5 IMPORTANT CHARACTERISTICS OF
ORGANIZATION
Corporations
A corporation is a legal entity that's completely
separate from the shareholders who own stock in
the company. It has the authority to enter into
contracts and buy and sell property. A corporation
can sue other parties but can also be sued.
Advantages
• Owners do not have personal liability for debts of
the corporation. A shareholder only
risks the amount of the investment in the company.
• Has more access to financial resources. A
corporation can sell stock to raise capital,
1. Division of Work - the breakdown of labor into
its components and their distribution among
different persons, groups, or machines to
increase.
2. Coordination - the process of organizing
people or groups so that they work together
properly and well.
3. Plurality of Persons - excess of votes received
by the leading candidate, in an election in which
there are three or more candidates, over those
received by the next candidate (distinguished from
majority)
obtain bank loans or issue bonds for long-term
financing.
4. Common Objectives - A specific result that a
person or system aims to achieve within a time
frame and with available resources.
• Corporations are better able to attract more
talented and skilled employees than
5. Organization is a Machine of Management This picture of an organization implies routine
operations, well-defined structure and job roles
and efficient working inside and between the
working parts of the machine i.e. the functional
areas.
IMPORTANCE IN ORGANIZING A BUSINESS
(1) Benefits of Specialization - For all the sub
works, competent people are appointed who
become experts by doing a particular job time and
again. In this way, maximum work is accomplished
in the minimum span of time and the organization
gets the benefit of specialization.
(2) Clarity in Working Relationship - Organizing
clarifies the working relations among employees.
It specifies who is to report to whom. Therefore,
communication becomes effective. It also helps in
fixing accountability.
(3) Optimum Utilization of Resources - there is
optimum utilization of all the available resources
(e.g., material, machine, financial, human
resource, etc.) in the organization.
(4) Adaptation to Change - Organizing process
makes the organization capable of adapting to any
change connected with the post of the employees.
This becomes possible only because of the fact
that there is a clear scalar chain of authority for the
manager’s right from the top to the lower level.
(5) Effective Administration - The process of
organizing makes a clear mention of each and
every activity of every manager and also of their
extent of authority. It is also made clear as to
whom a manager order for a particular job shall.
Everybody also knows to whom they are
accountable. In this way, the confusion on
authority is put to an end. Consequently, effective
administration becomes possible.
(6) Development of Personnel - Under the
process of organizing, delegation of authority is
practiced. This is done not because of the limited
capacity of any individual, but also to discover new
techniques of work. It provides opportunities of
taking decisions to the subordinates. By taking
advantage of this situation, they try to find out the
latest
techniques
and
implement
them.
Consequently, it helps them to grow and develop.
(7) Expansion and Growth – The process of
organizing allows the employees the freedom to
take decisions which helps them to grow. They are
always ready to face new challenges. This
situation can help in the development of the
enterprise. This helps in increasing the earning
capacity of the enterprise which in turn helps its
development.
MAIN PURPOSE OF THE BUSINESS
ORGANIZATION
The primary purpose of a business is to maximize
profits for its owners or stakeholders while
maintaining corporate social responsibility. It is the
motivating force moving, guiding, and delivering
the organization to a perceived goal. It is the
driving force, the fuel, the bond, the intangible link
that pulls the organization together to achieve
success.
CHAPTER 3 - MANAGING BUSINESS
FINANCE
FINANCIAL PLANNING DEFINE
Financial planning may be defined as an activity
that involves analyzing the financial flows of the
firm as a whole, forecasting the consequences of
various
investments,
financing,
dividend
decisions, and weighing the effect of various
alternatives.
enough insurance coverage to replace any lost
income should a family bread winner become
unable to work.
IMPORTANCE OF FINANCIAL PLANNING
7. Financial Understanding: Better financial
understanding can be achieved when measurable
financial goals are set, the effects of decisions
understood, and results reviewed. Giving you a
whole new approach to your budget and improving
control over your financial lifestyle.
Financial planning helps you determine your
short and long-term financial goals and create a
balanced plan to meet those goals.
1. Income: It's possible to manage income more
effectively through planning. Managing income
helps you understand how much money you'll
need for tax payments, other monthly
expenditures and savings.
2. Cash Flow: Increase cash flows by carefully
monitoring you’re spending patterns and
expenses. Tax planning, prudent spending and
careful budgeting will help you keep more of your
hard-earned cash.
3. Capital: An increase in cash flow, can lead to
an increase in capital. Allowing you to consider
investments to improve your overall financial wellbeing.
4. Family Security: Providing for your family's
financial security is an important part of the
financial planning process. Having the proper
insurance coverage and policies in place can
provide peace of mind for you and your loved
ones.
5. Investment: A proper financial plan considers
your personal circumstances, objectives, and risk
tolerance. It acts as a guide in helping choose the
right types of investments to fit your needs,
personality, and goals.
6. Standard of Living: The savings created from
good planning can prove beneficial in difficult
times. For example, you can make sure there is
8. Assets: A nice 'cushion' in the form of assets is
desirable. But many assets come with liabilities
attached. So, it becomes important to determine
the real value of an asset. The knowledge of
settling or cancelling the liabilities, comes with the
understanding of your finances. The overall
process helps build assets that don't become a
burden in the future.
9. Savings: It used to be called saving for a rainy
day. But sudden financial changes can still throw
you off track. It is good to have some investments
with high liquidity. These investments can be
utilized in times of emergency or for educational
purposes.
10. Ongoing Advice: Establishing a relationship
with a financial advisor you can trust is critical to
achieving your goals. Your financial advisor will
meet with you to assess your current financial
circumstances and develop a comprehensive plan
customized for you.
BENEFITS OF FINANCIAL PLANNING
1. Forecast of cash flows - This involves
forecasting of cash inflows and cash outflows from
the ordinary (regular transactions) and unexpected
(irregular transactions such as bulk orders,
discounts, etc.) business opportunities.
2. Raising finances - Financial planning is
important to plan for raising (mobilizing) finance
from different sources so that the requisite
amounts of finance are made available to
compensate the requirement of business
processes.
3. Managing internal funds - Financial planning
is essential to keep a track of the realized surplus
available in the treasury. This is required to make
certain that they are properly utilized to meet the
requirements of the business which will results in
maintaining the liquidity position with a minimum
amount of external borrowings.
4. Facilitate cost control - Financial planning is
beneficial to recognize the cost of production
(material, labor, factory overhead, etc.), cost of
administration (salary, legal expenses, office
overhead, etc.) and cost of sales (advertisement,
marketing and other promotional expenses). Cost
control is analyzed by comparing the actual cost
with standard (pre-determined) cost.
5. Facilitate pricing of product - Financial
planning is necessary for pricing of a product since
pricing is the mode of determining, “How much a
business will swap (in exchange) for its products?
“Price is the only revenue generating tool of the
business. Pricing has a direct relationship with
demand and supply of a product.
6. Forecasting profits - Financial planning is a
model
demonstrating
comprehensive
and
forecasted analysis of profitability for the particular
business in a specific market condition, with a predetermined projected financial plan. A forecasted
profitability plan is required to estimate the course
of action. A profit is the residual result of the
agreed business operations.
7. Measuring required returns - Financial
planning is required to evaluate the required
returns from the project. This may results in
acceptance or rejection of a business proposal. It
depends on whether the expected return from the
proposed business is equal to or more than the
required returns.
8. Managing assets - Financial planning is
required to manage the assets (owned and
leased) of the business. Such assets shall be
properly maintained to avoid any break-down
(failure). It shall assist to determine the total
investment in assets to carry out business
operations properly and promptly.
9. Managing funds - Financial planning is
required to manage the funds of the investors and
to conduct the activities of the business in the
interest of the organization. Funds are the liquid
assets of the company. Therefore, Funds should
be managed (evaluated) with dual virtual
(imaginary) vision, i.e. w.r.t. liquidity and
profitability.
10. Managing cost - Financial planning is also
required to manage the cost of operations of the
business. If the costs of operations are not
measured carefully, then it may result in paying
excessive money with a subsequent decline in
profits.
11. Miscellaneous importance - Financial
planning may have a strategy to convert idle
equipment into cash. It may also have a strategy
to reduce the cost (for e.g. by not giving
increments to employees, by not upgrading
technology, etc.
BUDGET DEFINE
A budget is an estimation of revenue and
expenses over a specified future period of time
and is usually compiled and re-evaluated on a
periodic basis. According to Ferrell and Hirt
defines budget as “an internal financial statement
that presents expenditures and revenues for a
week, month, quarter or years.”
10 REASONS WHY BUDGETING IS
IMPORTANT.
1. Budgeting Helps You Control You’re Spending.
2. Budgeting Keeps You on Track for Your
Financial Goals.
3. Budgeting Can Help Your Marriage.
4. Budgeting Helps You Find Financial
Contentment.
5. Budgeting Keeps You from Feeling Financially
Overwhelmed.
6. Budgeting Helps You Avoid or Get Out of Debt.
7. Budgeting Keeps You Organized.
8. Budgeting Helps You Prepare for
Emergencies.
9. Budgeting Helps You Save Money.
10. Budgeting Helps You Get (And Stay) Ahead.
SIX BUDGETING PROCESS
1. Assess your financial resources - The first
step is to calculate how much money you have
coming in each month. This might be investment
income, government assistance, student loans,
employment income, disability benefits, retirement
pensions or money from other sources.
2. Determine your expenses - Next you need to
determine how you spend your money by
reviewing your financial records. If your records
aren't clear, consider keeping a financial diary to
track your spending. Be sure to separate the fixed
expenses that you must meet (mortgage, rent, car
payments, and insurance) from variable expenses
(food, clothing, entertainment, charitable gifts).
Once you see your spending patterns, you may be
able to make adjustments to certain expenses.
3. Set goals - Establish a list of the goals you wish
to achieve. These can be long-term goals like
purchasing property or funding your retirement. Or
they can be short-term goals such as home
improvements or car maintenance.
4. Create a plan - Once you've figured out how
much money is coming in and where it's going, you
can put together a plan that matches your goals
with your financial situation.
5. Pay yourself first - When you pay yourself first
you simply set aside a certain amount of money
each month to go into an account that you will not
touch. You can set up a separate savings account
for infrequent but anticipated expenses, such as
property taxes, vacations, automobile insurance or
car maintenance.
6. Track your progress - At the end of each
month, you should re-evaluate your budget.
Compare your actual expenses and income to
your budget and make appropriate adjustments.
TYPES OF BUDGETING
1. Incremental budgeting - takes last year’s
actual figures and adds or subtracts a percentage
to obtain the current year’s budget. It is the most
common method of budgeting because it is simple
and easy to understand.
2. Activity-based budgeting - is a top-down
budgeting approach that determines the amount of
inputs required to support the targets or outputs
set by the company.
3. Value proposition budgeting - is really a
mindset about making sure that everything that is
included in the budget delivers value for the
business. Value proposition budgeting aims to
avoid unnecessary expenditures – although it is
not as precisely aimed at that goal as our final
budgeting option, zero-based budgeting.
4. Zero-based budgeting - is very tight, aiming to
avoid any and all expenditures that are not
considered absolutely essential to the company’s
successful (profitable) operation. This kind of
bottom-up budgeting can be a highly effective way
to “shake things up”.
like they have a more personal interest in the
success of the budget plan.
3. Participative budgeting - is a roll-up approach
where employees work from the bottom up to
recommend targets to the executives.
The
executives may provide some input, but they more
or less take the recommendations as given by
department managers and other employees
(within reason, of course). Operations are treated
as autonomous subsidiaries and are given a lot of
freedom to set up the budget.
FINANCIAL ANALYSIS
1. Financial Statements
2. Break-even points
3. Financial Ratios
LEVELS OF INVOLVEMENT IN BUDGETING
PROCESS
1. Imposed budgeting - is a top-down process
where executives adhere to a goal that they set for
the company. Managers follow the goals and
impose budget targets for activities and costs. It
can be effective if a company is in a turnaround
situation where they need to meet some difficult
goals, but there might be very little goal
congruence.
2. Negotiated budgeting - is a combination of
both top-down and bottom-up budgeting methods.
Executives may outline some of the targets they
would like to hit, but at the same time, there is
shared responsibility for budget preparation
between managers and employees. This
increased involvement in the budgeting process by
lower-level employees may make it easier to
adhere to budget targets, as the employees feel
Financial Statements refer to statements which
provide the major financial data about the
business.
DIFFERENT KINDS OF FINANCIAL
STATEMENTS
1. Balance sheet or Statement of Financial
Position – shows the financial position/ condition
of the business in a given period. It consists of
Asset, liabilities, and Capital.
2. Income Statement or Statement of
Comprehensive Income - The income statement
shows the result of operations for a given period.
It consists of the Revenue, Cost, and Expenses.
3. Statement of Changes in Owner’s Equity or
Statement of Owner’s Equity - shows the
changes in the Capital or Owner’s Equity as a
result of additional investments or withdrawals by
the owner, plus or minus the net income or net loss
for the year.
4. Statement of Cash Flows - summarizes the
cash receipts and cash disbursements for the
accounting period. It summarizes the cash
activities of the business by classifying cash
inflows (receipt) and cash outflows (payments) into
operating, investing, and financing activities. It
shows the net increase or decrease of cash in a
given period and the cash balance at the end of
the period. This allows management to assess the
business’ ability to generate cash and project
future cash flows.
The break-even point may be calculated using the
following formulas:
used liquidity ratios are (1) current ratio, and (2)
quick ratio.
1. Break-even point in units
Current ratio is calculated by dividing current
assets with current liabilities. Applying the formula
to Romans Vicente’s Metal craft, the result will be
as follows:
BEPU = F/P –V
2. Break-even point in pesos
BEPP = F/1 – V/P
Current ratio = current assets/current liabilities
Where P = price per unit
Quick ratio is arrived at by subtracting inventories
from current assets divided by current liabilities.
This formula will effectively disregard the influence
of “slow-moving inventories” in covering current
liabilities. Applying the formula to Romeo Vicente’s
Metal craft, the result will be as follows:
F = Fixed cost
C = variable cost per unit
Formula to compute variable cost = Variable
cost/ units sold
Break-Even Analysis
A break-even analysis is a useful tool for
determining at what point your company, or a new
product or service, will be profitable. It establishes
the break-even point, where the small business
operation makes enough money to cover his costs
but does not make any profit.
Break-even analysis may be used to produce the
following figures which are useful to the small
businesses man.
Quick ratio = current assets – inventory/current
liabilities
Ratio Analysis
Ratio analysis is a useful tool in determining the
financial health of the small business. It enables
the small business operator “to gauge what the
financial weaknesses and strengths are in the
operation of the business so appropriate action
can be taken.”
Financial ratios represent “numerical measures
of an organization’s financial health.”
Activity Ratios
Activity ratios, also referred to as turnover ratios
provide a glimpse of how effectively the firm is
using its assets. The following ratios will determine
activity (1) accounts receivable turnover, and (2)
inventory turnover.
1. Sales in pesos for a period, resulting in a zeronet income.
They may be classified as follows:
2. Sales in pesos for a period, resulting in a
reasonably calculated (and desired) net
2. Activity ratios
Accounts receivable turnover provide an
understanding of the appropriate level of accounts
receivable. This shows how many times the
accounts receivable is paid off during the latest
accounting period. To compute for the accounts
receivable turnover the formula used is as follows:
Income.
3. Profitability ratios
Accounts receivable = total yearly sales
3. Sales in pesos for a period, resulting in
maximum net income for capacity available.
4. Leverage ratios
Calculating the Break-Even Point
1. Liquidity ratio
Liquidity Ratios reveal the firm’s ability to pay
debts as they become due. The most commonly
Outstanding accounts receivable at the end
The average collection period must also be
calculated along with the accounts receivable:
Along with the accounts receivable turn over to
determine how long the accounts receivables are
collected. The formula for average collection
period is:
Average collection period=accounts receivable
Daily sales
The average collection period will be more
meaningful if it is compared with the following:
1. The previous years’ collection period of the firm
and
2. The average collection period for the industry
where the small firm belongs.
The inventory turnover ratio measure the
number of times that the average peso invested in
inventory turns over in a year. Normally, the higher
inventory turnover there is, the higher the
opportunity for profit exists. The method of
calculating the inventory turnover is as follows:
Inventory turnover = cost of goods sold
Inventory beginning + inventory end/2
Profitability ratios
Profitability ratios consist of a group of ratios
which indicate the profitability of the firm. The
ratios show “the combined effects of liquidity,
asset management, and debt management on
operating results.”
The most important profitability ratios, the formula
used and their meanings are the following.
1.
profit-on-production
margin/sales
ratio
=
gross
(The ratio indicates the total margin available to
cover other expenses beyond Cost of goods sold,
and still yield a profit).
2. return-on-sales ratio = net profit/sales
(This shows how much after-tax profits are
generated by each peso of sales).
3. return-on-assets ratio = net profit/total assets
(This measures the rate of return on the total
assets utilized in the company)
4. return-on equity ratio = net profit/net worth
(The measures the rate of return on the book
value of owner’s total Investment in the firm).
Leverage ratios
Leverage ratio refers to a group of ratios
designed to assess the balance of financing
obtained through debt and equity source. The
ratios show the extent to which borrowed money is
used to obtain the assets of a business.
The most common leverage ratios used are: (1)
debt ratio, and (2) debt-equity ratio. The debt
ratio compare the total liabilities of the firm to the
total assets. The debt-equity ratio compares debt
to equity.
The ratios, with formula and application to Romeo
Vicente’s Metal Craft are as follows:
1. Debt ratio = total liabilities/total assets
2. Debt-equity ratio = total liabilities/equity