1

INTRODUCTION

Background of the Study

Micro Business is generally a business that operates on a very small scale. Most of the
types of business that fall under this are Retailers, Home Service Professionals,
Restaurants, Wholesalers, Minority-owned Businesses, and other small businesses
such as Auto Repairs, Laundry Houses and Beauty Salons.

In the Philippines, about 90% of the total business owners are categorized under the
micro enterprises or micro businesses. These consist of enterprises engaged in
industry, agribusiness and or services, whether single proprietorship, cooperative,
partnership or corporation. Their total assets, inclusive of those arising from loans but
exclusive of the land on which the business entity’s office, plant and equipment are
situated, have value of not more than ₱3 million. This is also a business that employs
only a few people and generates low volume of sales.

Sited in a page of the Philippine Government (http://www.senate.gov.ph/publications) is as

follows: “As of 2010, there were a total of 777,687 business enterprises in the
Philippines. Of this figure, MSMEs represented 99.6 percent with 774,664
establishments while large enterprises represented 0.4 percent with 3,023
establishments. Micro enterprises comprised 91.6 percent (709,899) of the total
number of MSMEs while small and medium enterprises accounted for 8 percent
(61,979) and 0.4 percent (2,786), respectively. Overall, 49.7 percent of MSMEs are
engaged in the wholesale/retail trade and repair services with 384,746 business
establishments while 14.4 percent (111,366) and 12.5 percent (96,989) are in the
manufacturing and hotels/restaurants industries, respectively (Figure 1). MSMEs in real
estate, renting and business activities represent 6.1 percent (47,569), and those
involved in other community, social and personal service activities account for 5.7
percent (44,209). Other MSMEs (11.6%) are engaged in health and social work
(31,547); financial intermediation (26,350); education (13,930); transport storage and
communications (9,010); agriculture, hunting and forestry (3,829); construction (2,292);
electricity, gas and water (1,307); fishing (1,126); and mining and quarrying (394).”

Table 1: The table shows the assets needed in starting a business according to their
type of enterprise and its capacity to hire employees.
 2

Graph 1: The graph shows the distribution of MSMEs in the Philippines according to
their line of industry.
Seeing that the year is still at 2010, numbers are expected to be higher in present date.

Micro businesses in the Philippines are registered in the government. Some of the
important documents that should be secured are the following:

 SEC Articles of Incorporation. This documentation proves that your

business is registered under the laws of the Republic of the Philippines.
 BIR Clearance. You cannot obtain the other permits without acquiring a
clearance from the Bureau of Internal Revenue.
 Barangay Clearance. It is a proof that your business has complied with
the requirements of the barangay where it operates.
 Mayor’s Permit. This is required for you to start a business within its area
of operation.

After securing all the needed documents, business can now proceed.

Starting a micro business might seem easy and simple as it is not a large-scale
business but starting a business is not as easy as changing jobs. A person who is
attempting to create the business should be prepared physically, mentally and most of
all, financially.

Why physically, mentally and financially?

 3

When starting a micro business, man power is very limited while the things that need to
be taken care of is a lot. From providing supplies and equipment, to securing
government-issued business permits, it will be physically exhausting. Creating these
kinds of businesses will also face stages of idea gathering, creating business identity
and name, and laying out the business plan. There will also be troubles like time
pressure, mistakes and rejections thus mental preparation is also a must. And most
importantly, small-scaled enterprises will never work without proper financing.

Micro businesses should be planned carefully and accordingly. But there are still times
where no matter how ready and precise is a person in creating such, problems will still
arise.

Hence, this research study is conducted to point out what are the most common
problems in creating a micro enterprise.

Statement of the Problem

Questions to the Problem

The following states the questions to be answered in accordance to the problem:

1. What are the problems an entrepreneur must face in starting a micro business?
2. When do these problems occur?
3. How are these problems affect an entrepreneur in terms of:
a.) Physical State
b.) Mental State
c.) Financial State

Significance to the Problem

Nowadays, people take risks in starting a business. Few succeed but most fail. Because
of these failures, the economy in the country is affected. Instead of all these businesses
bring opportunities for a better economy, they bring downfall to either both sides, the
businessman himself and the economy he serves. This will continue in the future if the
people taking risks in the industry are not filled with the appropriate information on how
to start a business. This conflict has come to us researchers and took our attention. This
problem must not be overlooked, and in order to put an end to this, we researchers
must take action and find the answer to this question: What must be prepared in order
for an entrepreneur to overcome the incoming problems in starting a business?
 4

Definition of Terms

Business Plan is document setting out a business's future objectives and strategies for
achieving them.

Business Capital is the money or wealth needed to produce goods and services. In the
most basic terms, it is money. All businesses must have capital in order to purchase
assets and maintain their operations.

Market Analysis helps the business owners understand the business climate in which
s/he must compete. It is through market analysis that a business owner determines if a
certain business or industry provides an attractive opportunity.

Market Research tells you who your customers are, where they are, and how large the
potential market is.

Marketing is the action or business of promoting and selling products or services,

including market research and advertising.

Micro Business is a business that operates on a very small scale. It is the smallest
among the three types of business (Medium Business, Small Business and Micro
Business itself).

Permits and Licenses are issued by government agencies that allow individuals or
companies to conduct business within the government's geographical jurisdiction. It is
the authorization to start a business issued by the local government.

Entrepreneur is a person that organizes all other factors of production to be used in the
creation of goods and services.

Out Source is a goods or services obtained from an outside or foreign supplier,

especially in place of an internal source.

Shortcoming is a fault or failure to meet a certain standard, typically in a person’s

character, a plan or a system.

Overexpansion is the rapid or uncontrolled expansion that produces undesirable

effects.
 5

Discussion of the Study

Business is the evolutionary growth of various activities developing from a simple to a

complex system. Space/computer technology is continuously improving so that life
today is very different from the past and the developments we see today are unknown
to the previous generations. Those were the years when there was no DVD and CD
players, space shuttles, computers, antibiotics, electric cars, remote-controlled
televisions, ultra-sound machines, mini-radios, satellites, nor any of our “instant” food or
beverage production. Today, a simple push of the button brings conveniences of
technology right at our doorstep in the same manner that a mere power breakdown is
sufficient to disrupt routinary and business activities.

There is much complexity in business because this area involves the whole range of
human wants and needs. Today, there are many different managerial functions,
organizational units, procedures, systems, structures and practices.

Based on the data of Small Business Administration 2004 to 2014 Statistics, 78.5% of
the newly started establishments survive within 1 year. Another statistics from the same
source, that 79.9% of the establishment that started since 2014 survived until 2015.
Moreover, 51.4% of all establishments that started in 2011 survive five years or longer
and about one-third of the establishments survive 10 years or longer. Nowadays, large
portion of businesses in USA forcefully close within a year, which is a big loss of
opportunities in successful. On the other hand, of all 914,900 businesses in the
Philippines, 89.9% of them consist of micro business, according to the Department of
Trade and Industry MSME Statistics. If what happened to USA’s micro business were to
happen to ours in the country, it might be a major breakdown to the economy, resulting
to poverty. The question is “Why don’t most businesses survive longer?” That is the
question we researchers must uncover.

Table 2: The table shows the number of business start-ups and closures from 2007 to
2013.
 6

Graph 2: The graph shows the percentage of business firms that start and close from
2007 to 2013.

According to “Business Know-How” written by Patricia Schaefer, there are seven major
reasons why micro businesses fail. These are the following reasons:

1. You start your business for the wrong reasons.

Is your primary reason for starting your own business the desire to make a lot of
money? Do you think that if you have your own business that you'd have more time with
your family? Or maybe that you wouldn't have to answer to anyone else? While those
are benefits some successful entrepreneurs achieve after years of hard work, they are
not reasons to start a business.

The right reasons for starting a business - reasons that lead to building a successful
company include these:

 You have a passion and love for what you'll be doing, and strongly believe --
based on educated study and investigation -- that your product or service would
fulfill a real need in the marketplace.
 You have drive, determination, patience and a positive attitude. When others
throw in the towel, you are more determined than ever.
 Failures don't defeat you. You learn from your mistakes, and use these lessons
to succeed the next time around. Studies of successful business owners have
shown they attributed much of their success to "building on earlier failures;" on
using failures as a "learning process."
 You thrive on independence, and are skilled at taking charge when a creative or
intelligent solution is needed. This is especially important when under strict time
constraints.
 7

 You like -- if not love -- your fellow man, and show this in your honesty, integrity,
and interactions with others. You get along with and can deal with all different
types of individuals.

2. Poor Management

Many a report on business failures cites poor management as the number one reason
for failure. New business owners frequently lack relevant business and management
expertise in areas such as finance, purchasing, selling, production, and hiring and
managing employees. Unless they recognize what they don't do well, and seek help,
business owners may face disaster. To remedy the problem, small business owners can
educate themselves on skills they lack, hire skilled employees, or outsource work to
competent professionals. Neglect of a business can also be its downfall. Care must be
taken to regularly study, organize, plan and control all activities of its operations. This
includes the continuing study of market research and customer data, an area which may
be more prone to disregard once a business has been established.

A successful manager is also a good leader who creates a work climate that
encourages productivity. He or she has a skill at hiring competent people, training them
and is able to delegate. A good leader is also skilled at strategic thinking, able to make
a vision a reality, and able to confront change, make transitions, and envision new
possibilities for the future.

3. Insufficient Capital

A common fatal mistake for many failed businesses is having insufficient operating
funds. New business owners often don't understand cash flow or underestimate how
much money they will need for startup and they are forced to close before they have
had a fair chance to succeed. They also may have an unrealistic expectation of
incoming revenues from sales.

It is imperative to ascertain how much money your business will require; not only the
costs of starting, but the costs of staying in business. It is important to take into
consideration that many businesses take a year or two to get going. This means you will
need enough funds to cover all costs until sales can eventually pay for these costs.
This business startup calculator will help you predict how much money you'll need to
launch your business.

4. Location, Location, Location

Your college professor was right -- location is critical to the success of most local
businesses. Whereas a good business location may enable a struggling business to
ultimately survive and thrive, a bad location could spell disaster to even the best-
managed enterprise. Some factors to consider:

 Where your customers are.

 8

 Traffic, accessibility, parking and lighting.

 Location of competitors.
 Condition and safety of building.
 Local incentive programs for business start-ups in specific targeted areas.
 The history, community flavor and receptiveness to a new business at a
prospective site.

5. Lack of Planning

Anyone who has ever been in charge of a successful major event knows that were it not
for their careful, methodical, strategic planning -- and hard work -- success would not
have followed. The same could be said of most business successes.

It is critical for all businesses to have a business plan. Many small businesses fail
because of fundamental shortcomings in their business planning. It must be realistic
and based on accurate, current information and educated projections for the future.

Components should include:

 Description of the business, vision, goals, and keys to success.

 Market analysis.
 Work force needs.
 Potential problems and solutions.
 Financial: capital equipment and supply list, balance sheet, income statement
and cash flow analysis, sales and expense forecast.
 Analysis of competition.
 Marketing, advertising and promotional activities.
 Budgeting and managing company growth.

In addition, most bankers request a business plan if you are seeking to secure addition
capital for your company.

6. Overexpansion

A leading cause of business failure, overexpansion often happens when business

owners confuse success with how fast they can expand their business. A focus on slow
and steady growth is optimum. Many a bankruptcy has been caused by rapidly
expanding companies

At the same time, you do not want to repress growth. Once you have an established
solid customer base and a good cash flow, let your success help you set the right
measured pace. Some indications that an expansion may be warranted include the
inability to fill customer needs in a timely basis, and employees having difficulty keeping
up with production demands.
 9

If expansion is warranted after careful review, research and analysis, identify what and
who you need to add in order for your business to grow. Then with the right systems
and people in place, you can focus on the growth of your business, not on doing
everything in it yourself.

7. No Website and No Social Media Presence

Simply put, if you have a business today, you need a website and a social media
presence.

In the U.S. alone, the number of internet users (approximately 88.5 percent of the
population) and e-commerce sales ($394.9 billion in 2016 according to the US Census
Bureau) continue to rise and are expected to increase with each passing year.

At the very least, every business should have a professional looking and well-designed
website that enables users to easily find out about their business and how to avail
themselves of their products and services. If you serve local customers, your website
should include your address, phone number and hours of operation, and should be
listed in “Google My Business” so it will show up when shoppers search for what you
sell by location. (Ex: "Italian restaurants near me") Even if you don't have customers
come to your place of business and/or you get most of your business through
networking and referrals, you need a website so potential customers can research your
business before they call you. If you don't have a website and your competitors do,
you'll lose out.

You need to have social media profiles on the services your clientele are most likely to
use for the same reason. If you don't, you won't look professional and will lose business
to competitors who do at least have profiles on popular social media sites.

If you have products that can be sold online, or you can take orders online, that's an
added benefit. But at bare minimum, you need a website that lets customers know what
you offer and how they benefit by doing business with you.
 10

Summary of Findings

This research paper is for people who want to start a micro business. Because of this
research study, entrepreneurs who are only beginning will have an awareness of the
problems they might encounter. Also, the target of this research is to guide those new
entrepreneurs throughout their possible problems in the future. The problems discussed
in this paper are the most common problems that new entrepreneurs face.

This research study has having no doubt answered the following questions, what are
the problems an entrepreneur face in starting a business? When does this problem
usually occur? How does this problem affect the entrepreneur’s physical state, mental
state and financial state?

According to “Business Know-How” by Patricia Schaefer, there are seven major

reasons why micro business fails. First is starting your business for the wrong reason,
you need to know the right reasons for starting a business. The second reason is
because of poor management. A successful manager is a good leader who creates a
work climate that encourages productivity. Third is insufficient capital, one must know
how much money is needed to launch a certain business. The fourth is location, there
are many factors needed to be considered to find the best place where you can have
your business. Fifth is lack of planning, it is critical for all business to have a business
plan. The sixth reason is overexpansion. The final and seventh reason is having no
website and no social media presence, you need to have a social media profiles on
services your client most likely to use.
 11

Recommendations

Due to the conflicts stated above, the researchers provide the following
recommendations for the people who are planning to start a business:

1. Determine your Purpose and Goals

Find the right reason/s you need in starting a business. Create your purpose and
determine your goals. Be sure that you know the difference between purpose and goal.
A true entrepreneur must know already that purpose is a long term goal. Your purpose
is your very reason that drives you to emerge victorious in competing amongst other
businessman. On the other hand, goal is just for a short time. Your goal may be
achieved within a week, a month or even years. As soon as you achieve it, set another
goal.

2. Determine if you are fit to be a Businessman

As you determine your purpose and goals, assess yourself if you have what it takes to
achieve it. Answer yourself these questions honestly (Note: If your answer to one or
more of these questions is NO, set aside your plan of starting a business and focus on
preparing yourself until you are ready to say YES to these questions):

a.) Does your physical strength align with your idea of business?
b.) Do you have the necessary skills to achieve your goals?
c.) Can you take risks?
d.) Can you handle stress?
e.) Are you responsible?
f.) Are you flexible?
g.) Are you financially stable?
h.) Are you equipped with the right knowledge to start a business?
i.) Are you self-disciplined?
j.) Can you lead?

3. Study your Idea of Business

If you have you idea of business, you must study about it. Know how your business
works, what specific products or services can your business give. Find its uniqueness
among other businesses. Know who will buy your unique products or services, and why.
Know how many customers will buy your product and service, and how will they know
that it is available. More importantly, know your competitors and how to compete with
them. You may able to identify these through Market Research and Market Analysis.

4. Find the Strength and Weakness of your Business

Three things must be kept in mind in strengthening your business. These are Business
Location, Help of Professionals, and Backup Plans. In order to easily gain customers,
 12

the location of your business must be appropriate. That location must be easy for the
customers to reach and to be noticed. Also, you will need the assistance of other
professionals in starting your business. Seek advice to Marketing Professionals,
Bankers, Lawyers, Accountants, Insurance Agents and even other experienced
businessmen. More importantly, a businessman must have insurances in case of any
dilemmas occur within the business.

5. Know the Legalities of your Business

For your Business to operate, you must secure necessary licences, permits and/or
contracts if you belong in a partnership. This will take a lot of time before your business
works so you must be physically and mentally prepared. Also, know the taxes you are
required to pay.

6. Develop your Business Plan

According to the Business Start-up & Resource Guide published by the North Carolina
Small Business and Technology Center (SBTDC): “The business plan brings together
the goals, plans, strategies, and resources of a business. By developing a
comprehensive plan prior to commencement of operations, it can minimize risk and may
save you from significant financial and professional losses resulting from an unprofitable
business”.
Your business plan serves as your guidelines in starting your business. This will be your
very own instruction manual that will help you remind the things you prepared for. This
business plan is a must for people who are starting a business.

7. Prepare your Assets

You cannot start business without capital so you should know how much money you will
need. More importantly, you should know if you have sufficient money to conduct a
business. If not, you should know where you can get some. You can get some loans to
your friends, family or even banks. This will help you get the appropriate capital that you
need.
 13

BIBLIOGRAPHY

Inigo Jr. C. E., Ph.D. Management for Filipinos: Principles and Applications. Quezon
City: Design Plus. 2007.

Pagoso, C.M.; Dinio, R.P.; Villasis, G. A.; Pagoso-Meneses, P.; Pagoso-Veloso, P.

Introductory Microeconomics, 4th Ed. Manila: Rex Book Store, Inc. 2016.

Pagoso, C; Dinio, R.; Villasis, G. A. Introductory Macroeconomics. Manila: Rex Book

Store, Inc. 2016.

Patricia Schaefer, Startup Business

https://www.businessknowhow.com/startup/business-failure.html

Philippine Government. http://www.senate.gov.ph/publications

U. S. Small Business Administration Office of Advocacy, Frequently Asked Questions in

Small Business, https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-
WEB.pdf

North Carolina Small Business and Technology Center, Business Start-up & Resource
Guide: Starting a Business in North Carolina, http://www.sbtdc.org/wp-
content/uploads/SBTDC-Start-UpGuide.pdf