Entrepreneurship Seminar - Jun 2013

Entrepreneurship 101:
Presented by:

JOHN XAVIER S.
CHAVEZ

Entrepreneurs
Accounting Academy
Learn what it takes to become an Entrepreneur
The Need for Financial Literacy
The educational system does not prepare
students for the real world.
The thought of getting good grades to find a
good job is an old idea.
A new level of sophistication is needed in
teaching and advising children.
The rules have changed Industrial Age vs.
Information Age

Overcoming Challenges
People are becoming obsolete as their grow older. The older
you get, the less valuable you become.

The best grades dont count.

Shortage of workers

Boom and Busts Cycle

Overcoming Challenges

At what age are you too old?

Examples:
Graphic Designer use by date: 30 years
Gymnast use by date: 14 years
Lawyer use by date: 35 years
Model use by date: 25 years

The Traditional versus the Ideal Approach in
Educating Students about Financial Literacy
Traditional Ideal
1. Stay in school and study hard so you can find a good
company to work for.
1. Study hard so you can find a good company to buy.
2. Strive to be good employees. 2. Strive to put up your own business and be an
employer yourself.
3. Write an impressive resume to find a good job. 3. Write strong business and financial plans to create
jobs.
4. The love of money is the root of all evil. 4. The lack of money is the root of all evil.
5. Money is not taught in schools. Schools focus on
scholastic and professional skills, but not on financial
skills.
5. Money or financial skills is taught in schools.
6. The subject of money is forbidden to be discussed
over meals.
6. Talking about money and business is encouraged in
the dinner table.
7. I can not afford it way of thinking. 7. How can I afford it? way of thinking.
8. Ill never be rich attitude. 8. I am rich attitude.
9. I am not interested in money or Money doesnt
matter.
9. Money is power.
10. Play it safe, dont take risks. 10. Learn to manage risk.
The Traditional versus the Ideal Approach in Educating
Students about Financial Literacy
Traditional Ideal
11. Job protection/security and job benefits are
most important.
11. Total financial self-reliance, independence
and freedom are most appealing.
12. Work for money. 12. Let money work for you.
So You Want To Be In Business
What business would I
like to do?
8 out of 10 SME
owners admitted that they
dont bother with the
financial figures of their
business.
9 out of 10 start up
businesses fail within the
year they were set-up.
Entrepreneurs roles:
money maker
admin officer
HR
manager
money finder
accountant
finance officer
BUSINESS = RISK
What is Entrepreneurship?
Process of creating
incremental wealth
Involves the following:
Initiative taking
Organizing and
reorganizing of resources
to put them to practical
account
Acceptance of risk or
failure
Risk Taking and the Entrepreneur
Type Chance of
Success
Expected
Return on
Investment
Risk-Taker 20% 70%
Risk-Averse 80% 15%
Risk-Neutral 40% 20%
Defining an Entrepreneur
Websters someone who runs a business at his or
her own financial risk

An entrepreneur is a person who undertakes the
creation of an enterprise or business that has the
chance of profit (or success).
Some qualities of an entrepreneur (WSJ):
Clear strategy Partnerships
Technology Robust Network
Ethical Behavior Realistic View
Flexibility Passion!
Are you an Entrepreneur?
Answer each question by checking Yes or No. Yes No
I have a strong desire to be independent and be my own boss,
not taking orders from others and relying on my own talents. I
can move on my own without waiting for someone to push me.
Win, lose or draw, I want to be master of my own financial
destiny. I want the chance to work at something I enjoy,
because of a desire for security in the form of steady income.
I have significant specialized business ability based on both my
education and my experience. I also love the challenge of pitting
my resources and skills against the environment.
I am willing to take reasonable risks and handle the pressure
that results from a degree of insecurity.
Below are some behaviors you need to answer in order to know.
Carefully consider whether you possess the behavior or not.
I have an ability to conceptualize the whole of a business; not
just its individual parts, but how they relate to each other. I
am an individual who always comes up with new ideas.
I develop an inherent sense of what is "right" for a business
and have the courage to pursue it. I believe in giving priority
to getting the job done.
One or both of my parents were entrepreneurs; calculated
risk-taking runs in the family.
My life is characterized by a willingness and capacity to
persevere. I welcome the responsibility that goes to owning a
business.
I recognize that much of my success will depend on how well I
deal with people.
I possess a high level of energy, sustainable over long hours to
make the business successful.
Now lets count the number of Yes and No answers that
you have. That will tell you whether you have what it
takes to be an entrepreneur before you take the plunge
and quit your jobs.
Entrepreneurial Skills
Technical Skills
Writing Skills
Oral Communication
Interpersonal Skills
Organizational Skills
Network Building Skills
Technological Skills
Business Management
Planning Skills
Decision-making Skills
Marketing Skills
Financial/Accounting
Skills
Negotiation Skills
Entrepreneurial Skills
Personal Entrepreneurial
Skills
Disciplined
Risk Taker
Innovative
Change-oriented
Persistent
Visionary
Why Self-Employment?
Increase Income
Replace Earnings
Augment Family Income
Your
Economic
Goals
Comfortable nest egg
Money for retirement
Prolong career
Your
Retirement
Goals
Freedom to do things your way
Chance to do things the right
way
Do work that you truly enjoy

Your
Personal
Goals
An Entrepreneur or Freelancer?
Entrepreneur
Works to build a
business bigger
than him
Life of
extremities
impelled by
dreams or
passions
Willing to
accept
significant
financial risks
and challenges
An Entrepreneur or Freelancer?
Freelancer
Looks for
freedom or profit
that comes from
being on his own
Build smaller-
sized businesses
Values
independence in
running the
business
Would rather
grow the
business slowly
than invite
investors
The Entrepreneurial Mindset
Your business will only achieve its true potential
when you begin to "think business."
Check Your Ego At The
Door
This is my business; Ill
do whatever I want with
it.
Create Curiosity
The driving force
behind business
thinking.
Move Off The Solution
A solution is worthless
unless and until it
creates something new
for the business
Get Evidence
Collect soft evidence
then turn it into hard
evidence that the
business can measure.
Calculate Impact
You must never let
cash out the door that
does not ultimately
bring more cash back.
Explore the Ripple
Effect
Never lose sight of the
big picture.
Slow Down for Yellow
Lights
Watch out for possible
obstacles.
Find the Cause
Why is this happening?
Are these symptoms or
causes?
Successfully starting a business requires two things:
leap of faith and reasoned analysis.
What Every Start-up Entrepreneur
Must Know
Technical
Aspects of the
Business
(How the
business will
work)
Financial
Management &
Record Keeping
(How you will
keep track of
your finances)
Legal and
Regulatory
Requirements
of your business
(How do you
register the
business and
what laws bind
you)
Operational
Requirements
of Running the
Business
(How to ensure
the smooth and
efficient
workflow)
Marketing the
Business
(How to reach
the target
market)

Selecting The Opportunity
Identify the Opportunity
Determine the
Entrepreneurs
Capabilities and
Strengths
Evaluate the
opportunity
Decide to act on the
opportunity or look
elsewhere
Write a
summary of
the concept
Test the summary and the
concept with potential
customers and investors
Opportunity Categories
Increasing the value of
the product or service
New alternative
product
High quality wine
New applications of
existing means or
technologies
Use of magnetic
stripes for door
access
Biometric controls
instead of bundy
clock
Creating mass markets
Disposable cameras
Ukay-ukay
Customization for
individuals
Customized computers
Customized software
applications
Managing the
supply chain
Mini Stop
Convenience
stores
Convergence of
change
Online banking
Brokerage
Process Innovation
BPO
Call Center
Increasing the scale of
the firm
Video rental
Waste disposal

Elements of a Business Model
Customer Selection Who is the customer?
Is our offering relevant to this customer?
Value Proposition What are the unique benefits?
Differentiation and
Control
How do we protect our cash flow and relationships?
Do we have a sustainable competitive advantage?
Scope of Product and
Activities
What is the scope of our product activities?
What activities do we do and which are outsourced?
Organizational Design What is the organizational architecture of the firm?
Value Capture for Profit How does the firm capture some of the total value for
profit?
How does the firm protect this profitability?
Value for Talent Why will good people choose to work here?
How will we leverage our talent?
Doing Business in the Philippines
What Type of
Business?
Where to
Register?
How to
Register?
Single
Proprietorship
DTI, BIR, City
Hall
Business
Requirements
and Fees
Partnership
Corporation
SEC, BIR, City
Hall
SEC, BIR, City
Hall
What Type of Business?
Criteria
Sole
Proprietorship
Partnership Corporation
# of parties 1 at least 2 at least 5
advantages
ease of
formation
ease of
formation
limited liability
disadvantages personal liability
liability may
extend up to
personal assets
decisions take
time
Where to Register?
Sole
Proprietorship
Partnership
Corporation
A Sole Proprietorship must
apply for a Business Name
and be registered with the
Department of Trade and
Industry
Partnership with more than
three thousand pesos
(P3,000) capital must
register with Securities and
Exchange Commission(SEC).
A corporation must register
with the Securities and
Exchange Commission. The
minimum capitalization is five
thousand pesos (P5,000).
Where to Register?
Regardless of whether you are a Sole
Proprietorship, Partnership or Corporation,
you need to secure a registration with the
Bureau of Internal Revenue and the City or
Municipal Government for your business
permit.
Procedure 1
Obtain bank certificate of deposit of the paid-in capital
Time to complete: 1 day
Cost to complete: no charge
Comment:
Fees vary from bank to bank. Some banks in Manila do not
charge any fee, some banks charge up to P105 for each
certificate
How to Register?
Procedure 2
Verify the availability of the company name with the Securities
and Exchange Commission (SEC) or DTI.
Cost to complete: P40
Comment:
Corporate name verification can be done on-line.
Verification is free and reservation of the name, once
approved by the SEC costs P40.
How to Register?
Procedure 3
Register corporation with the Securities and
Exchange Commission
Time to complete: 3 days
Cost to complete:
1/5 of 1% of the authorized capital stock, no less than
P1,000
Legal Research fee of 1% of filing fee, no less than P10
Bylaws fee, P210
Stock and transfer book registration fee, P150 + P7
How to Register?
Procedure 3
Comment:
Required registration documents:
corporate name verification slip
articles of incorporation and bylaws
treasurer's affidavit
statement of assets and liabilities
bank certificate of deposit
authority to verify bank account
tax account number of incorporators
registration data sheet defining personal information regarding
directors, officers, stockholders etc, and
written undertaking to comply with the reporting requirements of
the SEC.
How to Register?
Procedure 4
Obtain Community Tax Certificate (CTC)
Comment:
The CTC of the juridical entity is a prerequisite to obtain the
Barangay Clearance. The applicant only needs to supply its
name and other personal circumstances in securing the
CTC.
How to Register?
Procedure 5
Apply for a Barangay (district) clearance
How to Register?
Comment:
No city or municipality may issue any license or permit
for any business or activity unless a clearance is first
obtained from the barangay where such business or
activity is located or conducted.
The fee is based on the area (size in sq. meters) of the
place of business and the location of the place of
business.
The fee charged by the barangay depends on the paid-up
capital of the corporation and the land area it occupies
P500 minimum plus P300 for the barangay clearance
plate.
How to Register?
Procedure 6
Obtain mayors permit/municipal license to operate
at the Licensing Section of the Mayor's Office
Cost to complete:
The fees vary depending on the local government unit
(city/municipality) issuing the mayors permit
sanitary permit fee, P900
0.2% of capital for license fee
permit fee for businesses engaged in retail, P2,000
garbage collection fee, P2,500
How to Register?
Procedure 6
Comment:
Required documents:
accomplished application for business permits and licenses in duplicate
copies with sketch of location of building at the back
certification issued by the corporate secretary to the effect that the
company has been duly authorized to engaged in the business
amount of paid-up capital
certificate of registration
receipts of payment of due fees
lease contract
Barangay Clearance/Permit
comprehensive general liability insurance (which is usually based on the
area size of the office space),
community tax certificate (which is usually based on the paid-up capital).
How to Register?
Procedure 7
Receive inspection from the Mayor's Office
How to Register?
Procedure 7
Comment:
The Mayors Office conducts an inspection to verify
that the business will conduct the activity it has
stated in the application. There is no need to set an
appointment for this inspection and the cost of it is
nominal; the inspection generally occurs in the first
5 days after the application for the permit has been
submitted.
How to Register?
Procedure 8
Buy special books of account at bookstore
How to Register?
Procedure 8
Comment:
Special books of account are required for the
purpose of registering with BIR. The books of
account are sold at bookstores nationwide. One
set of journals consisting of four books, namely,
the cash receipts account, disbursements
account, ledger and the general journal, may cost
about P400.
How to Register?
Procedure 9
Register with BIR
Cost to complete:
Registration fee, P500
Certification fee, P15 and
Documentary stamp tax, in loose form to be
attached to Form 2303, P15
How to Register?
Procedure 9
Comment:
After the taxpayer obtains the TIN, the company is
required to pay the annual registration fee of P500 at
any duly accredited bank by using the payment form
(BIR Form 0605). In Philippines, there is a community
tax, a local tax, VAT, and income tax. When a company
registers as a taxpayer, it must indicate in the
application for registration the types of taxes it
expects to be liable for, including VAT.
How to Register?
Taxes For Businesses:
Type of Tax
What It Stands
for
Form for
Reporting
Rates
Income Tax
Tax on taxable net
income of the
business

Revenue
Direct Expenses
Operating
Expenses
= Taxable Income
BIR Form 1702 for
the annual ITR

BIR Form 1702Q
for the quarterly
reporting which is
60 days after the
end of each
quarter
For corporations it
is 30%;

For individuals it
is based on the
bracket that has
graduated rates
from 5% to 32%
Type of Tax
What It Stands
for
Form for Reporting Rates
Value Added
Tax
This is the tax on
your gross sales
when the line of
activity that you
engage in is liable
for VAT

2550 M for the monthly
reporting which is due
every 20
th
day of the month
following the taxable
month

2550 Q for the quarterly
reporting which is due
every 25
th
day of the month
following the close of the
quarter
12% on
selling price
How do you know if you are liable for VAT?
1. You reasonably expect to earn income of no less than
P 1,500,000.00;
2. Your line of business does not do services for individuals
or corporations who are residing outside of the
Philippines;
3. You are not engaged in VAT-exempt services (RR 14-
2005; RA 9337)
Type of Tax
What It
Stands for
Form for
Reporting
Rates
Expanded
Withholding Tax
Tax on
expenditures
subject to
withholding
taxes
BIR Form 1601E
due every 10
th

day of the
month following
the taxable
month
The rates here
will vary
depending on
the type of
transaction
Type of Tax
What It
Stands for
Form for
Reporting
Rates
Withholding Tax
on Wages
Tax on
compensation
given to
employees
BIR Form 1601C
due every 10
th

day of the
month following
the taxable
month
The rates here
will vary
depending on
the taxable
income bracket
of the employee
Type of Tax
What It
Stands for
Form for
Reporting
Rates
Fringe Benefits
Tax
Tax on benefits
given to
employees
BIR Form 1601C
due every 10
th

day of the
month following
the taxable
month
32% on Grossed
Up Monetary
Value
Procedure 10
Payment of Documentary Stamp Taxes
How to Register?
Procedure 10
Comment:
Section 174 of the National Internal Revenue Code, as
amended, requires the payment of documentary
stamp taxes on the original issuance of shares of stock
at the rate of P2 on each P200 or a fractional part
thereof, of the par value of such shares of stock,
within 5 days after the close of the month when the
registration certificate is issued by the SEC or the
shares are issued by the corporation.
How to Register?
Procedure 11
Obtain the Authority to Print Receipt/Invoices with
the Bureau of Internal Revenue (BIR)
Cost to complete: included in Procedure 9
How to Register?
Procedure 11
Comment:
The Authority to Print Receipt/Invoices must be
secured by the printer before the sales
invoices/receipts may be printed. Philippine law does
not require a company to have its official invoice
forms printed at designated print shops. If a company
has secured an Authority to Print Receipts and
Invoices, it can ask any authorized printing company
to print its official invoice forms.
How to Register?
Procedure 12
Print receipts and invoices at the print shops
accredited by the BIR
Cost to complete: P4,000 (between P3,000 &
P5,000)
Comment:
The minimum number to print is 25 booklets.
How to Register?
Procedure 13
Submit receipts and invoices to the BIR for approval,
have receipts/invoices and books of accounts
stamped by BIR
How to Register?
Procedure 13
Comment:
In practice, the books of accounts are presented for
stamping right after the application is filed. Books can
be obtained from BIR. To register books of account
and invoices, present the following documents: all the
required books of accounts, VAT registration
certificate, SEC registration certificate and BIR Form
2303.
How to Register?
Procedure 14
Register with the Social Security System (SSS)
Time to complete: 1 week
How to Register?
Procedure 14
Comment:
To enroll for membership with the SSS the documentary requirements are the
following:
1. List of Employees, specifying their birth dates, positions, monthly salary
and date of employment; and
2. Articles of Incorporation, By-Laws and Certificate of Registration with the
Securities & Exchange Commission (SEC) or the Certificate of Registration
with the Department of Trade and Industry (DTI).
Upon submission of the requisite documents, the employees shall undergo a
seminar, which shall be scheduled within one (1) week. At the end of the
seminar, the Certificate of Membership shall then be released. It is not
mandatory to enroll for housing security with PAG-IBIG Fund although PAG-IBIG
Fund members may avail of a housing loan offered by said agency.
How to Register?
Procedure 15
Register with Philippines Health Insurance Company
(PHIC)
Comment:
Upon enrollment with the SSS, registration with PHIC may
be undertaken. List of Employees shall likewise be
submitted to the PHIC.
How to Register?
Procedure 16
Register with Home Development and Mutual Fund
(HDMF a.k.a. PAG-IBIG Fund)
Comment:
You will need to submit your SSS registration
certificate, Articles of Incorporation and List of
Employees.
How to Register?
Your Business Plan
Address the Risks Head On
Market
Risk

Talk honestly
about
competition.
Recognize that
Market
Adoption is
always a
factor.
Technology
Risk

Its OK to sell
vaporware and
betaware, but
dont try to
sell to your
investors that
youre further
along than you
really are.
Financial
Risk

Dont be too
greedy with
your equity
and dont run
out of cash.
Execution
Risk

Have a back
up plan and
expect
bumps in the
road.
Management
Risk

Talk about
your
experiences,
your
successes
and your
failures.
Key Questions
What problem do you solve?
What is your product?
Who is the customer?
Who will sell it?
How many people will buy it?
How much will it cost?
How much will you charge?
When will you break even?
Questions Your B-Plan Should Address
Key Questions:

What problem do you solve?
What is your product?
Who is your customer?
Who will sell it?
How many people will buy it?
How much will it cost?
How much will you charge?
When will you break even?
Key Product:

Why would anyone buy your
product?
What will it look like?
When will it ship
How different are you from
the competition?
What is the products name?

Your Business Plan
Market Research:

What do the experts say?
What do the numbers say?
What do the users say?
Whats on the web?
What does the media think?
Can you predict the future?
The Customer:

Do the customers think it is a
good idea?
Who is the real customer?
What are your customers
secrets?
Should you do focus groups?
How much will the customer
pay?
Your Business Plan
The Competition:

Who is your competition?
What are they doing?
What is their value
proposition?
What are their secrets?
The Marketing Strategy:

What is your strategic objective?
What is your marketing
objective?
How will you sell and support
the product?
Who will generate demand?
Will you need marketing or
sales?
What is the marketing plan?
How do you become front page
news?

Source: The Silicon Valley Way,
by Elton B. Sherwin, Jr.
Your Business Plan
Accounting For Your Business
"No matter how strong or
weak your understanding of
accounting is, you need to
keep very careful, well-
organized records."
Overdrawing TDO's bank account
TDO Enterprises fabricates the chassis boxes for computers. It always
seemed that there wasn't enough money in the bank to pay the bills. A
quick look at the aging of accounts receivable revealed that customers
paid on average two weeks after the time stated in the terms of sale.
Rather than dip into its line of credit again, TDO's solution was to mount
an aggressive collection campaign. The company used its accounts
receivable system to monitor progress toward getting and keeping
customers current.
Within the space of two months, TDO's bank account balance had risen
to a point where it could pay its bills regularly without having to draw
on its credit line.
Information Means Profits!!!
MAG's eroding profit margins
MAG Partners, Ltd. sells grass seed on a wholesale basis. Profits
recently turned down for no apparent reason. However, the partners
were savvy enough to investigate the sales department's ability to pass
on recent price increases to customers.
Comparison of the sales prices for MAG's grass seed with what MAG
had to pay for it showed a 20 percent decline in gross profit margin
(sales - cost of goods sold = gross margin). The solution was to dock
sales commissions for the amount under the company's list price.
Profits miraculously rebounded.
Information Means Profits!!!
The business cycle is nothing more than the flow of
transactions needed in your business to complete a
sale and collect the proceeds. It's important to
setting up your accounting system. We want to
know what types of transactions are involved and
the accounting entries to make along the way.
Accounting for the Business Cycle
Most companies business cycles progress something like this:
Purchase raw
materials.
Enter goods into
raw materials
inventory.
Begin the
manufacturing
or assembly
process.
Enter goods into
work in process
inventory.
Pay suppliers or
pay employees
(at service
companies).
Complete the
manufacturing
or assembly
process.
Enter goods into
finished goods
inventory.
Sell the
inventory.
Collect payment
for credit sales.
Purchase
Raw
Materials

What happens when you buy the raw materials used to
create your company's product? You receive the goods,
and you either pay cash for the goods or obligate the
company for future payment. Both transactions require
these accounting entries:
Increase raw materials inventory
Decrease cash (if you paid on the spot)
Increase accounts payable (if you didn't)
Begin the Manufacturing Process
When we use raw materials to make our product, the
accounting system transfers the inventory from raw
materials to an intermediate stage called work in process
(WIP for short). This transaction explains the third and
fourth steps of the business cycle.
Pay
Suppliers

Sometime during the production process we must pay our
suppliers if we bought the raw materials on credit. The
accounting entry for this transaction does two things:
Reduces accounts payable
Reduces cash
Complete the
Manufacturing
Process
At last, we have completed our manufacturing process.
Now we can move the product from the work in process
inventory to the finished goods inventory. This transaction
particularly interests the sales staff, since it means that the
product is now available for sale, and that's what
generates their commissions. The entries into the
accounting system that record this event go like this:
Reduce work in process inventory
Increase finished goods inventory
Sell the
Product
At last we're ready to make a sale. If it's a credit sale,
our accounting system must record these transactions:
Reduction in finished goods inventory
Increase in accounts receivable
Increase in sales revenue
Collect the Receivable
The final stage of the business cycle is conversion of the
receivable (which is an asset) into spendable cash. When
the customer pays, the accounting system records a
decrease in receivables and an increase in cash.
This ends the business cycle and the various accounting
transactions involved. The accounting system we're setting
up will cover every one of these transactions.
Financial Management
It seeks to plan for the future such that a business
entity has a POSITIVE CASH FLOW.
KEY OBJECTIVES:
1. Create wealth;
2. Generate cash, and;
3. Provide an
adequate return on
investment bearing
in mind the risks
that the business is
taking and the
resources invested
KEY ELEMENTS:
1. Financial Planning
2. Financial Control
3. Financial Decision -
Making
The Key to Sustaining the Business
Financial Planning
NEEDS
FUNDING
Management need to ensure that enough funding is available at the right
time to meet the needs of the business. In the short term, funding may be
needed to invest in equipment and stocks, pay employees and fund sales
made on credit.

In the medium and long term, funding may be required for significant
additions to the productive capacity of the business or to make acquisitions.
Financial Control
Financial control is a critically important activity to help
the business ensure that the business is meeting its
objectives. Financial control addresses questions such as:
Are assets being used efficiently?
Are the businesses assets secure?
Do management act in the best interest of
shareholders and in accordance with business rules?
Financial Decision - Making
The key aspects of financial decision-making relate to investment,
financing and dividends:

Investments must be financed in some way however there
are always financing alternatives that can be considered. For
example it is possible to raise finance from selling new
shares, borrowing from banks or taking credit from suppliers

A key financing decision is whether profits earned by the
business should be retained rather than distributed to
shareholders via dividends. If dividends are too high, the
business may be starved of funding to reinvest in growing
revenues and profits further.
How To Master The Financial Side of
Your Business
Do not manage from your bank balance. Manage your cash through
the book balance. The reason why you sometimes encounter bank
overdrafts is because when you checked your cash balance in the
passbook you still had money. So you issued a check. You did not
realize that some of the checks you issued before did not yet clear the
bank. These checks and the one you issued just now cleared the bank
at the same time which is why you have insufficient balance in your
bank.
1. Know your cash balance right now
Your Business
Cash is the most liquid resource in any business. Next to God, cash is
King in business.

No Cash = No Business

Know your cash position six months from now. Remember 6 months
of cash flow problems can make you bankrupt. By taking control of
your cash flow you are making the odds of succeeding in business in
your favour. You do what it takes to have that vital information about
your business.
2. Never run out of cash
Your Business
Whats a financial reporting system anyway? The businesss financial
reporting system enables the accounting department capture the
transactions all throughout the organization. It consists of the
following:
The forms used to document the transactions
The internal control structure within the organization
The chart of accounts used to give accounting recognition to
the transactions
The books of accounts used to record the transactions
The design of the management reports given, and
The performance benchmarks of the organization.
3. Evaluate your financial reporting system
Your Business
A budget will help you map out the plan for your businesss future. It
will help you decide whether you are still on track or you need to
make revisions.

It will also help you compute for your breakeven point. The formula
for breakeven point is:

*Contribution Margin per unit = Sales/unit Variable Cost/unit
4. Prepare a budget
FIXED COSTS
CONTRIBUTION MARGIN*
Your Business
Among the ratios that you need to know about your business are the
following:

a. Current Ratio

This will tell you how many pesos you have for each peso that you
owe.
5. Know your ratios
Current Assets
Current Liabilities
Your Business
b. Quick Acid Test Ratio

This tells you whether even without the inventories you will still have
money to pay off your short term debts.
5. Know your ratios
Current Assets Inventory
Current Liabilities
Your Business
c. Accounts Receivables Turnover

This tells you how many times you are able to collect during the year.

d. Days in Sales Outstanding (DSO)

This tells you how many days the receivables remain uncollected.
5. Know your ratios
Sales
Accounts Receivable
365 days
Accounts Receivable Turnover
Your Business
e. Inventory Turnover

This tells you how many times you were able to sell during the period.

f. Days Sales In Inventory (DSI)

This tells you how many days your inventory remains in your warehouse
before they are sold.
5. Know your ratios
Cost of Goods Sold
Inventory
365 days
Inventory Turnover
Your Business
g. Cash Operating Cycle

This tells you how many days you will be able to recover the cash you spent
to buy your goods for sale.
5. Know your ratios
DSO + DSI
Your Business
h. Accounts Payable Turnover

This tells you how many times you pay your creditors during the period.

i. Days in Payables Outstanding (DPO)

This tells you how many days your payables remain unpaid during the year.
Cost of Goods Sold
Accounts Payable
365 days
Accounts Payable Turnover
5. Know your ratios
Your Business
j. Cash Conversion Cycle

DSO + DSI DPO

This will tell you how many days you are financing your
business to keep it operating or if you are using other
peoples money to operate your business then how much
is free cash.
5. Know your ratios
DSO + DSI - DPO
Most business owners have
experienced difficult times--
periods when your finances
were lean or business
performance didnt quite meet
your expectations. But when a
business is teetering on the
brink of failure, you have two
choices: You can throw in the
towel or persevere despite the
odds. Take a look at these
entrepreneurs who could've
given up, but instead chose to
look failure in the eyes and fight
their way back.
The brink:
In 1990, Trump's net worth was
estimated at $1.7 billion, but the real
estate market suffered a significant
decline that year, and many of Trumps
investments dropped considerably in
value. In his book The Art of the
Comeback, Trump says he was $900
million in the red. In March of that year,
he announced that he might miss his
$43 million principal and interest
payment on Trump Castle.
The gutsy move that brought him back:
Trump leveraged the possibility of
bankruptcy as a bargaining tool, which
secured a $65 million line of credit,
allowing him to survive until the market
recovered. Today, Trump reports his net
worth as $2.7 billion.
Lesson Learned:
Bank on Your Negotiating Skills
Donald Trump
The brink:
Martha Stewart was convicted and sent to
prison in 2004 for lying about the reasons
she sold her shares of a biotechnology
stock two years earlier. Following the
verdict, shares of her companys stock,
Martha Stewart Living Omnimedia (MSLO),
fell 22 percent, and photos of Stewart in
prison attire blanketed the tabloids.
The gutsy move that brought her back: As
soon as she was released, Stewart dove
back into work, launching a new daytime
talk show and forming partnerships with
such companies as Lowes, Kodak, KB
Homes and Sirius satellite radio. MSLO
revenues have steadily increased since her
release: For Q3 2006, the company
reported $61.1 million in revenues, up 48
percent from the same quarter the prior
year.
Lesson learned:
Stay poised and focused through a PR
nightmare.
Martha Stewart
Harland Colonel
Sanders
The brink:
In 1955, when a newly built interstate
highway bypassed Harland Sanders'
original Sanders Court and Caf
restaurant, the property lost more than
half its value, and he had to sell. Despite
having a few Kentucky Fried Chicken
franchise locations, Sanders was left
virtually penniless after paying off his
debts.
Though Sanders had just celebrated his
65th birthday, he refused to give up on his
"original recipe" chicken. He continued
working, and by 1960, he had more than
400 franchise units in operation. Four
years later, he sold his interest in the
company to a group of investors for $2
million, though he remained a company
spokesperson until he died in 1980.
Lesson Learned:
A true entrepreneur never retires.

Lance Gokongwei
The brink:
In February 1998, Cebu Pacific Flight 387 slammed into a
mountainside, killing all 104 people aboard. At the time
Gokongwei had been running the fledgling airline for
just two years. But in that time he had brought to the
company a decidedly un-Asian flavor that had helped
make Cebu Pacific the highest-flying domestic carrier.
He endeavored to build a firm in which employees had a
personal stake. Gokongwei did the textbook things:
profit-sharing, Hallowe'en costume contests, team-
building workshops. Staff were encouraged to propose
ideas to senior management directly.The corporate
culture he had built stood him well. Close to half his 450
staff volunteered to be temporarily stationed in
southern Cagayan de Oro, where the plane went down,
to assist search-and-rescue and comfort victims'
families. Several dozen sent Gokongwei personal notes
of encouragement and support. During the carrier's
two-month suspension, hundreds took unpaid leave.
Lesson Learned:
"While I deeply regret the loss of lives," says
Gokongwei, "some good came from the experience. It
strengthened my belief that my job is not just to run a
company for myself but for everyone who contributes to
it."
"Early on, we organized the structure by hiring
professionals. We realized that in terms of
marketing, finance, human resources, we did
not have the skill. So as early as then, we
started delegating. We had a vision, we wanted
to be big, we were driven!"
Tips from Tony:
To survive - and even excel - in difficult times,
Tony Tan Caktiong recommends the following:
Focus on what you can control - your
business, not the environment
Find creative ways to grow your business
and to reach your customers
Be conservative in your cash management
Prepare for the bad times by making the
right decisions during the good times
Make sure that you hire tough employees to
help you weather the storm
Make it a habit to listen to everyone,
including your employees

Tony Tan Caktiong
World Entrepreneur Of the Year,
2004
Thank You!
I would be happy to answer your questions...
ENTREPRENEURS ACCOUNTING ACADEMY
10/F Suite 1006 Rufino Plaza Bldg.,
6784 Ayala Ave., Makati City 1223

Telephone #: 339.13.01 | 338.38.57
Website: http://www.eaa.edu.ph
Email us at: info@eaa.edu.ph

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