How to set up your own business?

In his book, “Rich Dad Poor Dad,” Kiyosaki explores the difference between the two dads. Poor dad recommended, “Study hard so you can find a good company to work for.” Rich dad recommended, “Study hard so you can find a good company to buy.” Although both dads had tremendous respect for education and learning, they disagreed in what they thought was important to learn.

One wanted his son to study hard, earn a degree and get a good job to work for money. The other encouraged his son to study to be rich, to understand how money works and to learn how to have it work for his son. “I don’t work for money!” were words he would repeat over and over, “Money works for me!”

        Kiyosaki suggests, aside from keeping your daytime jobs, buying real assets, not liabilities or personal effects that have no real value once you get them home. A new car loses nearly 25% of the price you pay for it the moment you drive it off the lot. It is not a true asset. So what kind of assets am I suggesting for you to acquire? Aside from stocks, bonds, mutual funds or income-generating real estate, business is another. Set up your own company.

        Don’t be disheartened by statistics for the rate of failure of newly-opened business. “If failure refers to failing to see the projected return on investment, then the failure rate is 70 to 80 percent.” Henry Sy whose family store was burned during World War II is an inspiring success story. He viewed the war as an opportunity and sold post-war goods to American soldiers stationed in the Philippines.

        There are three basically legal forms of business:

1.   Sole proprietorship. A business unit owned and managed by only one person. Hence, you and the business are essentially one. 

2.   Partnership. There are two or more persons own the business. Each partner is an agent of the partnership; he can bind the partnership and the other partners by his act. There is the unlimited liability of the partners for the debts incurred by the partnership, that is, each member is individually and jointly liable for these debts. Philippine law provides that a partnership contract be made in writing and duly registered with the Securities and Exchange Commission (SEC).  

3.   Corporation. It is a “legal person” that can enter into contracts, may sue and be sued and buy shares in other corporations, among others. The ownership of a corporation is divided into units known as “shares of stocks.” A proposed corporation can only be registered with SEC if there is a statement in the “Articles of Incorporation” that shows that at least 25% of the entire number of authorized shares of capital stock has been subscribed and at least 25% of the subscription has been paid either in cash or in kind. The advantages of incorporating is limited personal liability of stockholders and the ability to capitalize the venture by sales of stock shares.

There is a crucial factor in the success of a business – that is location. Where a business will situate itself can spell the difference between success and failures, especially to a trading or service enterprise. Generally, the best location is where you can transact business with reasonable convenience. One of the first considerations regarding location is whether the site you are eyeing is a residential, commercial or industrial area. Find out if the area is a progressive community. Try also to find out as much as you can about the infrastructure and business development plans in the area. Is it going to be the site of a road-building project?  At best, your site becomes premium, with more human traffic flowing in and out.

        Recently, the SM Group sued the DOTC for breach of contract relative to the site of the common MRT-LRT station in EDSA. DOTC wanted to transfer the planned-terminal from SM North EDSA to Trinoma, despite initial payment by the SM Group of P200 million for site development. The two groups are fighting for human traffic in their respective businesses. This is how important the role of customers in setting-up businesses.

        Deciding where to locate is not the be-all and end-all of opening businesses. You also have to prepare a business plan, register your business, raise capital, acquire equipment, hire and train people. Most important, you have to prepare yourself for all the hard work, sacrifices and risks that being in business exacts.

        All new businesses have to go through the following steps:

• Register with the Department of Trade and Industry (DTI). If you are a single proprietor and your business is using a name other than your own name, that business name should be registered.

•   For partnership and corporation, register with the SEC, an agency that “gives birth” to the legal or juridical person that is the business enterprise.

• Register your business with the Local Government Unit through the Business Permit and Licensing Office. All business, whatever the legal form, are required to secure a Mayor’s Permit or License from the municipality or city where they will operate. Business permits are renewed during the first quarter of the year. Also, get a Barangay clearance.

• Register your business with the Bureau of Internal Revenue (BIR) for taxation purposes. Secure a Tax Identification Number. Register the business/trade name and the books of accounts, invoices, receipts, and other accounting records.

• Depending on your type of business, there might be other government regulatory requirements that you need to complete. For instance, if your business is food and it is important to get a sanitation clearance from the Department of Health.

• Register with Social Security System (SSS), for those employees of private firms who are covered by social security benefits.

• Register with the Department of Labor and Employment (DOLE), through the Bureau of Local Employment, the purpose of monitoring the firm’s compliance with labor regulations.