Building the foundation for business success
By FRANCIS Y. CAPISTRANO
Cecilyn Lourdes Santos, or Cello to friends, just graduated last year from a reputable management course in Ateneo de Manila University. The course she took -- Management Engineering -- was popularly regarded in campus as a key to a high-paying job in the corporate world.
It was, in fact, her dream to climb up the corporate ladder when she entered college. But after her practicum in junior year, she realized that she did not want to become an employee all her life.
"I come from a family of entrepreneurs," she said in an interview with BusinessWorld. "And for myself, [I want to] do something that I like [and have] my own time."
She, together with her fiance, family and other friends, thought of the idea in April 2005. A month later, she started to execute her venture before she changed her mind: Cello's Donuts and Dip.
Ms. Santos said she loved baking and she herself made the recipe, thought of the different donut flavors and built the rest of the menu. Juan Horacio M. Templo, her fiance who was at the interview, added that they loved to eat and to discover new places to dine in.
Of course, she said there were some people who were against the idea, saying that she has no experience being a new graduate, and that business per se is risky.
Fear of risks and failure is what make would-be businessmen to hesitate or even hold back their entrepreneurial spirit.
In an interview with BusinessWorld, Businessmaker Academy Chairman and Chief Executive Officer Mark So said there are two schools of thought in thinking that business is risky because times are hard. The first, he said, thinks that since times are hard, it is better not to start a new business. The other one, he said, also recognizes that times are hard but thinks business must start right now. "Times are hard today and times will be harder tomorrow," he said. "To start a business, that should not be your basis it has to be something that you feel deep inside that you have to do."
Said economist Jimeno M. Damaso, in his book, "How To Start Your Own Business", "ideation" should be the first investment an entrepreneur must make.
Ideation, according to the book, entails thinking things thoroughly, formulating plans and alternatives and conceptualizing strategies so these could be translated into effective action. He said in choosing a business, the fundamental and long-lasting basis for going into one is delight in it, or something the entrepreneur enjoys. Knowing one's talents, experience, and needs is also essential in making this decision.
Mr. So said it must be an entrepreneur's own spirit and desire to pursue what he wants to achieve to start his own business. He said it is the person behind the business that makes the successful business possible. For new entrepreneurs who do not have that much capital, he recommends low-capitalization service ventures, such as party planning and events management. This type of venture allows an entrepreneur to not have capital and instead use money advanced by clients.
Food -- a common venture -- is a high capitalization business and at the same time a saturated industry. Manufacturing for the local market and for export, though a good business, is tough nowadays because of the high cost of labor and the entry of China into the global market. Franchising is also gaining ground nowadays.
However, an entrepreneur who plans to get a franchise instead of starting up his own brand must be able to discern which franchise to get and why franchise in the first place.
He said one who plans to get a franchise needs to look at the track record of the franchisor. A "true-blue, honest-to-goodness" franchise guarantees 95% success.
Be wary of new and smaller franchises which have just emerged in the market: these may not have tested business processes and may be bound to failure. He said getting a franchise without a track record is tantamount to buying a start-up business. Though profit is most of the time guaranteed in franchising, it is not always the best strategy. He said franchising is an effective tool for wealth accumulation.
On the other hand, it is not advisable for persons with high entrepreneurial spirits because in getting a franchise, "you're actually asked to obey and not do any of your ideas." He noticed that more people lately are acting more encouraged to start their own business. Again, he noted two groups: the first know what they want and the second feels they can get "instant success" through business. He said the first group is "lucky," while the second will learn the hard way that there are no short-cuts to success. External factors -- even the lack of capital -- should not hinder an entrepreneur, he said. This, he said, is another hurdle, or at least seems to be one.
"If you want to be successful in business, you have to learn how to use the money of other people," he said.
Mr. So said there are several ways to start a business using other people's money. There is the typical interest-gaining loan from formal lending institutions or through other sources. Another is getting capital from an investor in exchange for a part or share of the business. He, however, said it is not advisable for a beginner in business to obtain loans from lending institutions or any interest-bearing loans for that matter, even from micro financers. He said starting a business is pressure-filled enough and interest expenses add to the pressure.
Another means of getting capital is looking for sponsors, or "angel investors," who provide capital without interest and at a payback period comfortable to the entrepreneur.
Some, he said, are "super angel investors" who do not require the entrepreneur to pay back at all. He said this is prevalent in the local culture.
Ms. Santos did not turn back after her parents -- after prodding her if she was really determined and prepared -- supported and loaned her the much-needed capital to start construction and to buy equipment. She never thought of borrowing from the bank or other lending institutions. She and her fiance scouted Katipunan Ave. in Quezon City for a place and settled at the second floor of a building facing Ateneo. Living within the area all her life and having studied in Ateneo and Miriam College nearby, she said she knows the market very well because she was "one of them."
Though there are existing commercial donut shops along the stretch, she said her donut shop caters to a different market niche and her products are "with a twist." Her menu carries donuts with different toppings such as parmesan cheese and Choc-nut, "C's" or plain donuts and dips, and coffee shakes.
Her only frustration was in registering with the city hall. After her bout with the bureaucracy, she opted to hire a professional to do it for her instead.
Business registration, though a dreaded procedure, is a must. Entrepreneur Marlo Sanchez wrote in his book, A smart and practical guide for new entrepreneurs, said it is "not worth the trouble" to evade correct taxes and business fees by not registering.
An unregistered business may face closure. Aside from this, he said an unregistered business may not be able to get business contracts from public institutions and private firms, and even to grow and expand.
The book lists the steps and agencies that an entrepreneur goes through in business registration:
1. barangay where located -- barangay clearance/permit requires a minimal fee;
2. Department of Trade and Industry -- business name registration, other requirements depend on the type of organization;
3. Securities and Exchange Commission -- filing partnership or incorporation papers for partnerships and corporations;
4. special permits -- depending on the type of business, permits from other government agencies such as Bureau of Food and Drugs, Bangko Sentral ng Pilipinas, Land Transportation Office, etc.;
5. Social Security System (SSS) -- to register employees for coverage with SSS and to get business SSS number;
6. Department of Labor and Employment -- to register employees for businesses with more than five employees;
7. Mayor's permit -- most expensive and said to be the most cumbersome process, also entails inspection by sanitary, health, electrical, etc. officers of the city government;
8. Bureau of Internal Revenue -- To get a VAT (value-added tax) or Non-VAT registration depending on the type of business, also registration of accounting books, records, sales invoice and official receipt forms.
On the type of organization (i.e. single proprietorship, partnership and corporation), Mr. So recommends the corporation, because of the legal protection it gives to owners. When a company has liabilities, creditors cannot go after the owners' personal assets.
He added that one may opt to hire an external accountant to register one's business, since they are used to doing this.
For those who opt to register on their own, he said registering is not necessarily hard but tedious, and it is part of the process of learning.
Mr. Sanchez wrote in his book that businesses may opt to register under Republic Act No. 9178 ,or the Barangay Micro Business Enterprises (BMBE) Act of 2002. A business with an initial authorized capitalization of not more than P3 million may register under this law.
Benefits include tax exemptions, priority to credit financing, exception from minimum wage, among others. However, employees should still be given the same health care and social security benefits.
"If you continue to qualify as a BMBE, you can operate your business without having to pay income taxes for a very long time. That should increase your chances of retaining money in the business to build a bigger enterprise in the near future," he said.
Six months after Ms. Santos's Cello's Donuts and Dip kicked off, her brand gained familiarity with the students and residents in the area, and her fiancee is contemplating on continuing his 8-5 job or helping with the venture full-time.
There have been offers for capital and for franchising, but she said she's not in a hurry to expand and is taking her business model step by step -- slowly but surely.