The term small business is a misnomer. The definition of small business may vary from each country. However, the fact remains that 96% to 98% of all new businesses registered worldwide are small businesses. Thus, small businesses are the prime generators of economic activity in every country.
Small businesses help create employment, stimulate aggregate demand, and encourage consumer spending. US President Barack Obama declared small businesses as the number one growth engine of the US economy. President Obama’s administration enacted 18 tax cuts to support small businesses, including a key tax exemption on capital gains on key investments!
The definition of small business in the Philippines covers a scope wider than that covered by other countries. An enterprise with fewer than 10 employees or a company that generates low level of income per month is already considered a small business. It can be a corporation, partnership, or single proprietorship. It may also be an enterprise thriving in the informal sector.
However, regardless of the size or type of enterprise, collectively, small businesses are engines of growth for the Philippine economy. Here are a few of the statistics supporting the power of small business owners in the Philippines:
- Of the 850,225 businesses registered in 2014, 96% or 813,472 were small businesses.
- In 2011, small businesses accounted for 32% of the Philippines’ gross domestic product or GDP.
- Of the new jobs created, 61% were those from small businesses.
Small businesses may be small in size but gigantic in value!
After 15 years in the corporate world, I started my first small business venture in 2006. I set up an electronic cell phone loading machine in the ground floor of a commercial building in Makati. The machine looks and functions like an ATM, except that it dispenses load instead of cash.
In 2009, I cofounded a business process outsourcing (BPO) company. We started with only 15 employees. In 2012, we had 120 people in our payroll. We set up two private facilities for our clients, which totaled 200 seats.
In 2013, I started a new BPO company, Benchmark Global Management Solutions, which followed a completely different business model from the first outsourcing company. We’ve managed more than 30 campaigns, which are much more than those managed by my previous outsourcing company, but we did not build any facility!
Now in my 10th year as an entrepreneur and small business owner, I feel I have amassed enough experience to counsel current or future small business owners. Like many other small business owners, I’ve had my share of failures and victories. I would like to stress that the “nuggets of wisdom” listed below are a consequence of my experience as a proprietor in technology retail and BPO.
I only ask that you take them with an open heart and an open mind, and see if these will apply to your own business or ideas you have in the future.
Top 10 Small Business Tips in the Philippines for 2016
If you are planning to start a business, you have to define its type of organization. Businesses are typically registered as one of the following:
- Single proprietorship
Each type of business organization has advantages and disadvantages. I will not break these down, given that you can easily research them online.
However, I am a strong advocate of always registering a business as a corporation instead of as a partnership or a proprietorship.
On the business side, a corporation carries considerable weight and respectability. A corporation is generally recognized as THE organized enterprise. It connotes professionalism, the ability to scale operations, and the capacity to manage large volumes of business.
If you plan to start an e-commerce business and seek international suppliers, keep in mind that these supplies will require you to submit your corporate papers. Companies are more receptive to corporations than to partnerships and particularly proprietorships.
In BPO, clients prefer to deal with corporations over single-entity enterprises because they are looking past the initial client–service provider relationship. Clients are looking for a strategic partner in BPO.
In terms of risk, your obligations as a corporation only cover the extent of a company’s assets. If your business fails and you cannot pay your creditors, they will not be able to garnish any amount more than the value of the company’s total assets.
As a single proprietor, creditors can run after your personal assets. I’ve heard one too many horror stories of people losing their cars, houses, and other properties because of business losses as a proprietor.
No matter how great you believe your business idea is, you have to set risk management measures. A corporation is the best option.
2. Set REALISTIC business goals
Every idea is borne out of inspiration. It’s that “light bulb” moment we allude to whenever we find opportunity. Every entrepreneur thinks that they have the greatest idea or concept in the world, but only until reality sets in.
Setting goals is an important component of every business. Goals give us something to strive for. However, you have to place things in their proper perspective. Moreover, set goals that are realistic, doable, and achievable.
The purpose of having a goal in any endeavor is to keep moving forward. Every step we take forward is progress, and each progress should serve as our motivation. However, you may be setting yourself up for failure and disappointment if you set the bar too high.
Before you set any goal, always take the time to review your business objective and purpose. Your goals should never deviate from your objective and purpose.
Here are three simple rules for setting goals:
- The goal must be relevant.
- The goal must be actionable.
- The goal must be achievable.
For example, you have created a new online social sharing platform, and your goal is to sign up 100,000 subscribers by the end of the year.
- Is 100,000 subscribers a number that is relevant to your purpose and overall objective?
- Are the courses or actions you need to achieve the number of 100,000 subscribers applicable to your business or industry?
- Is 100,000 achievable considering that there are other established social sharing communities online?
Analyze your goals and make sure that there are quantifiable bases to setting them for your business.
3. Apply the “80–20 Rule.”
Strategy design. A mistake that small business owners make is that they believe that the road to achieve success follows a straight line.
In truth, the road to achieve success has many ups and downs, twists and turns, and steep climbs and sharp drops. There will be days when everything seems to be sunny and bright, and some days where it seems you are in the eye of a storm.
The events at the start of the millennium have transformed the foundations of businesses, which include the following:
- Iraq invasions of 2003
- The 2007 crash of the equities market
- Global warming
- The 2009 Euro Zone crisis
- The evolution of digital technology
- The growth of social media
- ASEAN Integration
Businesses have become globally competitive. As a result, the environment has become unpredictable. Spending considerable time and resources to create the “perfect strategy” which never exists under these ambiguous conditions, makes no sense.
Given the volatility of the global business environment, small businesses should only allot 20% of their resources on strategy design and 80% on implementation.
Get your business off and running. Make sure that all the frameworks and processes are in place to support your operational system. However, always be cognizant of the fact that these may all be subject to change.
Train your focus on the factors and variables that have the potential to change the industry. If you are in the export business, you should be updated on issues that can severely affect foreign currency. If you have an e-commerce business that distributes a particular brand, keep track of changes in consumer tastes and preferences.
Research is the key. Even if you did a commendable job on your business plan, the conditions and courses stated therein can be rendered obsolete a few months after your launch.
You have to keep yourself informed on developments that have implications on your business. Always update your buyer’s persona by evaluating website and social media analytics that give you insights on the changes in their online behavioral patterns.
Remember, the “perfect strategy” no longer exists. In today’s ever- changing business climate, flexibility and mobility are the most important components for your business model.
4. Keep track of your numbers
One major reason why small businesses lose money is the owner’s failure to keep track of their numbers.
When we launched a restaurant in 1998, we were packed to capacity in five out of the seven days of the week. There was a time when our sales put us at the top 5 of the mall’s retailers.
However, we struggled to pay creditors at the end of every month, let alone to generate savings. I made the pricing matrix, and my dad advised me to review my costing.
It turned out that 60% of our sales came from items that had low profit margins. These items included the combo meals, which had the bottomless soft drink. Unaccounted loss in inventory, excessive use of packaging, and food wastage accounted for 10% of the increase in food cost.
Take the time to review your business numbers. If you are not proficient with numbers, review them with an accountant; better yet, enroll in a short-term accounting course.
In my current business, I prepare a weekly cash flow schedule, which itemizes all disbursements that have to be made. At the start of every month, I create a projected income statement, which I use to reference the actual income statement prepared by my accountant at the end of the month. This helps me gauge my performance on the previous month and identify the issues that can affect me in the forthcoming month.
Always remember that strategy follows numbers not the other way around.
5. Invest in your infrastructure
Your business infrastructure includes all equipment, facilities, and components that help you run operation smoothly.
If you’re setting up a home-based catering business, invest in brand-new, industrial-capacity cooking equipment and cookware. If you’re a freelancer offering virtual assistance services, make sure you have a dependable PC that is upgraded with the latest software. Your Internet bandwidth should be more than adequate to handle outbound/inbound calls and data transfer. Of course, you should invest in a good headset.
Given that they have limited capital or access to funding, some small business owners manage costs by streamlining their capitalization expenses. Doing so may lower your start-up costs, but “going cheap” may come back to haunt you in the future.
Computers, for example, are subject to wear and tear. In the outsourcing business, you may manage accounts that run 24/7. Within a year, most of your computers will no longer function properly. An option that you can take is to avail a lease-to-own arrangement.
Your decision to lease or purchase assets depends on the type of asset and frequency of use. However, regardless of your decision, do not compromise the quality of work by choosing substandard equipment or by reducing capacity just to streamline costs.
You can only cut costs to a certain point that any additional cost saving is no longer worth the compromise on productivity.
My suggestion is to reorient your thinking and view these purchases not as expenses but as investments. They are guaranteed to pay out dividends as long as you consistently render top-level performance.
6. Consult with people you trust
Another reason why small businesses fail is poor management practices. Running a business is widely different from working as an employee.
The set of responsibilities of an employee is defined by a scope of work. You time in, work at your desk, time out, and then get paid every 15 days whether the period was profitable or not for your employer.
The stakes of a small business owner are higher. It’s difficult to remain objective when you are emotionally invested in a business. Sometimes, you only accept what you want to see and hear, which may not necessarily be the truth.
Your best option is to consult people with the experience and expertise of managing businesses. Most of all, they should be the people that you can trust.
I suggest that before you launch your business, have an accountant and a lawyer on-board via a retention agreement. A retention agreement means that you pay them a fixed fee per month for limited services. For example, a lawyer will draft your contracts and an accountant will prepare your financial statements.
The amount of the retention fee varies depending if you hire a firm or an individual.
In my case, my accountant is a CPA who has several years of project management under his belt. I can always count on him to give me a great business advice, and he takes time to patiently review the business numbers with me.
My best advice to you is to ask friend who may be a lawyer or an accountant. Their terms are more flexible. If you trust them, they will always look out for your best interest.
7. Invest in marketing programs
A third common reason why small businesses fail is the owner’s reluctance to invest in marketing programs. Consumers must know your business to make it grow. You cannot get the word out on your business unless you do marketing.
Traditional marketing practices, such as flyer distribution and poster placement, are still being done. However, these are highly ineffective and inefficient methods. Print materials are costly to produce, and you cannot be certain that the distribution reaches the right audience.
Inbound marketing is a better option.
Inbound marketing is an approach that promotes business products and services through online tools or Internet-based processes. Examples include social media marketing, content marketing, and e-mail marketing.
If you distribute a flyer in a mall, are you sure that it can encourage the recipient to patronize your store? Or will the flyer just end up in the trash can?
With inbound marketing, you do not pursue the market. The market comes to you. When prospects make a direct inquiry to you about your product and service means that they think that your proposition can provide resolution to their needs or concerns. Thus, with inbound marketing, you are already qualifying your prospects as potential paying customers!
Comparatively, inbound marketing is cheaper and more efficient than traditional marketing because you can reuse campaign materials. Blogging is the centerpiece of content marketing. Republishing blogs every few months is advisable so you can reach out to a large audience who did not come across to your content earlier.
You can also track the progress of your inbound marketing campaign through online analytics.
As a business owner, you do not have the time to manage your inbound marketing campaign. A viable option is to contract a virtual assistant who has the experience and expertise in running an inbound marketing campaign.
Virtual assistants are more affordable than full-time employees. You only pay them per productive hour, and they are not entitled to benefits. Given that they are self-employed, virtual assistants are accountable for their business expenses.
The bottom line, invest in a marketing program to reach a broad audience and potential markets in other regions.
Related: 6 Ways to Power your Inbound Marketing with Customer Service
8. Keep on networking
In addition to marketing, you must always network your services. Establishing connections is very important to keep your business going. You may connect with people who can recommend you to clients, vendors, and job candidates, or those who can advise you on ways to run your business effectively.
There are two ways to network:
- Traditional/Old-school approach:
- Trade shows
- Business forum
- Memberships in business organizations
- Networking events
- Digital networking:
- Social media
- Focus groups
- Online business communities
My advice is to do both. Traditional networking works because it is a high- touch approach and connects you directly to people in the industry. Digital marketing is effective because your efforts cover a wide reach.
Networking is an activity that should never end. Even if you have achieved your targets, you should always find ways to improve and expand your business. Networking gives you more options.
9. Expand according to scale
Have you heard of the acronym “KISS”? In business, people interpret it as “Keep It Simple Sweetheart.” For me, when you are starting out, you should always “Keep It Small Sweetheart.” Take it from me!
When we started out our restaurant, we leased an area that could seat 400 people at one time. This capacity is the equivalent of leasing two spaces! Our thinking was “Go Big or Go Home!” We were so confident of our main product that we were sure we would be packed to capacity every day.
However, such was not the case. When the business hit a plateau after 6 months, the number of customers and the capacity decreased. The large dining area was difficult to fill, and it made the restaurant look empty.
In hindsight, starting with a small-sized location before expanding capacity by renovating the dining area and incorporating food delivery services is a good idea. Another option would have been to open a second franchise located outside the five-kilometer radius from the first franchise.
Before you expand your small business, remember tip #4 and review your numbers. Expand only to a point that can be supported by the current numbers without severely affecting your profit position. Refer to tip #6 and consult with your accountant if you should take out a loan or take in a business partner to fund your expansion program.
10. Practice sound money management policies
When your business starts making money, it’s easy to get side-tracked from your business goals because you now have the capacity to acquire.
Rewarding yourself for a job well done is perfectly fine. However, be mindful of what you acquire. They should not affect your business.
When my outsourcing company started to make money, I bought my first car: a 2010 Mitsubishi Lancer EX.
It was a necessary expense because I did not feel it was appropriate having to use my dad’s car to work every day. Under the company’s executive plan, the car was registered under the company and entered in our books as an asset.
An associate was egging me on to buy a luxury car or an SUV but these were too costly. I view a car as a necessity not a luxury. The Mitsubishi Lancer is affordable, offers fuel efficiency, and is a good-sized car for my family.
As a general rule, the car’s monthly amortization should not exceed 20% of your monthly gross revenues.
Reinvesting your earnings to your business is always a good idea. With money in the bank, you can improve your infrastructure (tip #5), maintain your consultants (tip #6), and fund marketing programs (tip #7).
How should you know what amount to reinvest? Revisit tip #3, “Apply the 80–20 Rule.”
After you have cleared your monthly payables, save 80% of your net income, and use 20% to fund other projects or upgrade facilities.
The 80% you have decided to save should also follow the 80–20 rule. Keep only 20% in a savings account and diversify your placements on the 80%. Ask your bank for safe placements that offer higher yields than a savings account.
There are mutual funds that offer high returns but have a maturity period. This means you cannot withdraw from the placement until the period expires.
The bottom line is to make your money grow so you can find ready sources to fund your business’s expansion programs.
Small Business Tips and Moving Forward
Would you believe that Facebook founder Mark Zuckerberg still considers Facebook a start-up small business company?
Despite making US$2.1 billion every quarter, Zuckerberg prefers to view Facebook as small because he loves the communal feel of having a small start-up business. For the most part, being “small” is a mindset.
Although a dictionary or an agency may define a business as small based on the scale, amount of revenue, or number of employees, for people like Mark Zuckerberg, “small business” defines their work culture.
Therefore, embrace the fact that you are a small business owner! You are a major driver in the Philippine economy.
Challenges will always abound. However, if you refer to my tips, you will be able to overcome these challenges, as I did.