10 Steps on How to Start a Small Business in the Philippines


“I want to start a small business.”

It’s probably the most popular declaration after “I want to lose weight.” I think most people see a new career as a metaphor for a new beginning just like weight loss.

However, starting a small business is not the same as changing jobs. It is a declaration of independence, the first step in the journey to take control of your finances and career. Have you ever noticed how people seem to bristle a bit when they mention “small business”? I read the message to say, “I want to be conservative in my approach, so I want to start out small.”

But how small is small? More appropriately, when is a business considered small? Depending on where you are in the world, the definition of a small business will be different.

In Australia, a business is categorized as small if it employs fewer than 20 people. However, the definition is relatively complicated in the United States.

According to the United States Small Business Administration (USSBA), the parameters that define a business as “small” vary depending on the industry. For example, a business in the manufacturing industry is considered small if it employs 500 to 1,500 people. In retail, a business is considered small if its annual receipts total no more than US$ 21 million.

In the Philippines, the definition of a small business is muddled because a great diversity in size and scale exists. Thus, businesses in the Philippines are categorized into scale.

In the Philippines, a small business is popularly referred to as a small-scale enterprise. By definition, a small-scale enterprise is a business that employs a few people and generates low volume of sales. For simplicity, let’s just stick with the term small business.

Despite the varied definitions, one thing holds true for small businesses regardless of where you are in the world:

Of all the businesses around the world, 98% are categorized as small businesses! You can check the statistics for Canada, Australia, and the United States, and the figure hovers around 98%.

This information means that the growth of an economy depends on the success of small businesses. In the United States alone, small businesses have accounted for 65% of new jobs created since 1996.

As a small business owner, you are not so small after all! You hold the key to getting the economy on the right track!

If you are serious about starting a small business, here is a 10-step guideline to get you on your way to an entrepreneurial career.

10 Steps on How to Start a Small Business in the Philippines

1. Draw up a short list of business ideas

An idea is popularly represented by a light bulb. The energy that powers the light bulb comes from the same source that fuels ideas: inspiration!

On a sheet of paper, write down a list of potential business ideas. Then, intuitively cross out the ones that you feel won’t work. Continue the process until only one idea is left on the list.

Entrepreneurs are intuitive people by nature. It is highly probable that the only idea left on the list has been in your mind for the longest time. It may have been a result of an incident that left an imprint in your subconscious that “there is opportunity here.”

Have you heard of Mira Modi, the 11-year-old girl who sells ultra secure, virtually unbreakable passwords? She got the idea while working for her Mom who was writing a book on cyber security.

You’ll never know when inspiration will strike. If it does, make sure to make a note of it before someone else does!

Related: 54 Best Small Business Ideas in the Philippines for 2016

2. Conduct a project study

Once you have identified your business idea, you have to validate it with a project study. Intuition by itself does not assure you of a good idea. A project study can give you the basis to push through with the idea or not.

A project study is composed of three parts:

  • Market study – Determines if there is a demand for the product or service and its target market.
  • Marketing study – Outlines the strategies to connect to the target market.
  • Feasibility study – Determines if the project will be viable.

Take your time in preparing the project study. If you have the budget, contract the services of a market research professional to conduct the market and marketing studies. Once these have been completed, you can contract an accountant to prepare the feasibility study.

3. Prepare a business plan

Every business needs a guide map that charts its course and navigates through periods of uncertainty. This guide map is called the business plan. A business plan consists of the following sections:

  • Executive Summary. Although an executive summary comes out first in the business plan, it is written last. As it implies, an executive summary is the condensed version of what a business plan is and what it seeks to achieve.
  • Business Overview. This part has three parts:
  • External Analysis – Overview of the industry and the economy
  • Internal Analysis – Overview of the company and its organizational structure
  • SWOT Analysis – Overview of the business’s strengths, weaknesses, opportunities, and threats
  • Business Goals and Objectives. What the business wants to achieve is identified in this section.
  • Courses of Action. This section identifies the strategies that the business proposes to implement in order to achieve its goals and objectives.
  • Business Model/Framework. It presents the system or set of processes that defines the operation.
  • Summary of Products or Services. This section includes the various offerings of the business.
  • Marketing Models. This section presents how the business plans to market and promote its product and services.
  • Financial Projections. In this section, how you plan to finance the business operations is discussed.

A project study is the reference for a business plan.

A business plan is also used by entrepreneurs in securing funding from banks, venture capitalists, and investors to capitalize the business.

4. Put together your sources of funding

If the project study has assured you the viability of the business and if the business plan shows that the enterprise can be managed over the next few years, the next step is to get the funds together.

Funding is allocated for the following purposes:

  • Capital expenses. They cover the costs of equipment and acquisition of other assets.
  • Pre-operating expenses. They cover deposits, licenses, permits, marketing, recruitment, and other items needed to get the business started.
  • Working capital. The amount should cover the cost of operation for at least six months or until the business generates enough revenue to support itself.

The biggest concern of most entrepreneurs is funding the business. You can fund your business from your own savings, borrow money from lending institutions, or get investors to put in money.

As a rule of thumb, if the total cost of running your business monthly will compromise your day-to-day activities, do not use your savings. If you have a job, keep it. Then, run the business part-time.

The decision to borrow depends on your projected financials. If the income statement and cash flow remain positive despite the interest charges, then getting a loan may be worthwhile. Thus, keeping your projections on the conservative side is advisable.

When you have the funds together, deposit them in a current account with a passbook and check book for easy disbursement and tracking.

5. Determine your business identity

The following are the three types of business structures:

  • Corporation
  • Partnership
  • Sole proprietorship

You have to decide which structure best suits your business. Each structure has advantages and disadvantages.

The costs of setting up a corporation are much higher than the costs of setting up the other two business structures. You must also submit annual reports to the Securities and Exchange Commission (SEC). Sole proprietorship and partnership business structures are much easier to set up than a corporation.

However, a corporation has the advantage in terms of bankruptcy or adverse business situations. In a corporation, the extent of the liability is only until the amount of its assets. On the contrary, even your personal assets can be garnished by creditors in sole proprietorship.

The best approach is to consult with your accountant or a lawyer. There will also be tax implications based on the type of organization you choose.

6. Come up with your business name

Most entrepreneurs forget a very important aspect of a business: branding. Your brand represents who you are and what your business is about.

Your business name or trade name should represent the brand. This name is important because it identifies your enterprise. Therefore, it must be:

  • Relevant to your business
  • Easy to remember
  • Catchy
  • Simple
  • Easy to spell

When I thought of “Benchmark” as the name of my company, I alluded to the tasks of the service providers in business process outsourcing industry to consistently attain a standard of excellence.

Registering a business name is difficult because most of the best ideas have already been taken. My first few choices included the words “Paramount,” “Pinnacle,” “Apex,” and “Bridge Land.” Every single one and its variations were taken.

You should be ready with at least five choices.

7. Register your business

Once you have decided on your organizational structure and as soon as the trade name has been reserved, move to have your business registered. Here is the list of important business documents that you have to secure:

  • 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 from where it operates.
  • Mayor’s Permit. This is required for you to start your business within its area of operation.

I am often asked by owners of home-based businesses if they should acquire these permits and licenses. My answer to them is to always play it safe. If you are earning income, it will be subject to tax. You have to be responsible in declaring and paying the correct amount of taxes.

If you have elected to register as a corporation, SEC will require you to indicate a business address. If your village expressly prohibits households to run enterprises within the premises, you will have to rent a space to receive business communication for your company.

The lessor will require you to submit copies of your papers from SEC or those from the Department of Trade and Industry, BIR Clearance, Barangay Clearance, and Mayor’s Permit.

The cost of a receiving space for business address purposes varies from as low as Php 500 to Php 5,000 a month depending on its features.

8. Build your website

Regardless of the type of your business, you should have a website because it is your portal to the Internet.

If you own a brick and mortar business, your market coverage extends to approximately a five-kilometer radius from your location. How many people would a five-kilometer radius cover?

However, if you have a portal to the Internet, your business doors are open to a market size of more than three billion people every day! Your website is your virtual business address. This is where people find you online.

Despite the numerous advantages of having a website, only 53% of all businesses have websites. This is due to lack of information and a thorough business plan.

If you plan to build a website, it should have the following features:

  • Mobile responsive
  • Fast download time
  • Accessible by multibrowsers
  • Great, relevant content
  • Highly functional

Even though you can build a website using free, downloadable templates, do not take chances. Always hire a professional website designer or webmaster to make your website. How about trying Tycoon.ph web design solutions?

First impressions matter. If your website fails to provide a good user experience, you may never see your site visitors again.

9. Develop your value chain

Before you launch your business, you must make sure that all systems are in place to ensure that the operations will run smoothly. This group of systems is called your value chain. The basic structure of a value chain includes the following:

  • Back office support
  • Suppliers/creditors
  • Frontline people
  • Customer support
  • Marketing group
  • Professional consultants/advisers

The purpose of setting up the value chain is to add value to your proposition. Its structure depends on the type of business you have. An e-commerce business can have a large back office support system with inventory management and merchant banking to ensure smooth facilitation of payments.

10. Market and promote your business

Finally, always work to market and promote your small business!

Before the Internet became a significant force in the world of business and commerce, most marketing and promotional strategies centered on traditional methods.

When we managed a chain of restaurants from 1998 to 2008, we met with several different marketing and promotional agencies. Not a single one suggested using online marketing strategies, such as search engine optimization (SEO), social media, and link building, and only few advised us to start a website.

They all suggested the same tactics: flyers, posters, banners, point of purchase materials, press releases, news advertorials, food tasting, celebrity endorsements, and discounting promos. Traditional marketing strategies are difficult to measure, and there were no significant returns on sales.

Keep in mind that Twitter, Facebook, and You Tube already exist in 2005. The Internet population has also been consistently growing since 2000 when there were an estimated 361 million users worldwide.

Traditional marketing strategies still have their place in the process, but these should be primarily focused on local markets. The bulk of your marketing and promotional budget should be allocated to digital marketing strategies. These should always include the Big Four:

  • SEO
  • Social media
  • Content marketing
  • E-mail marketing

I suggest you hire a digital marketing professional who can manage a team to run your campaign. The cost depends on what the campaign entails but the great thing about digital marketing is that its performance can be measured with analytics. You can easily determine if you are getting a return on investment.

Related: 8 Creative Marketing Tips to Make Your Business Stand Out

Your turn: Start a Small Business

The hardest part of having a business is starting it. However, once it gains traction, it becomes easier. You will also understand the value of going through these 10 steps to start a small business.

In time and with consistency, your focus will begin to shift toward expanding your business according to scale.

And that will be the subject of another article!

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