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Starting a business can be daunting. Not all of us can afford to go to a prestigious business school to learn everything we need to know, but we’re all willing to share practical and useful tips to help you jump-start your business.
Nevertheless, Filipinos continue to be attracted to the concept of entrepreneurship. In fact, our research indicates that 27% of adult Filipinos choose “Starting a Business” as their top investment preference.
In this guide, we will provide you with a detailed step-by-step process for setting up your own business in the Philippines.
How to Start a Business in the Philippines
Here’s our comprehensive guide on the steps you need to undertake to start building the business of your dreams.
Step 1: Come up with a profitable business idea
Coming up with a business idea can be hard for both new and experienced entrepreneurs, so we’re giving you a few tips on how to generate profitable business ideas.
- Solve problems. The best business ideas are the ones that aim to solve problems. You don’t have to save the world or end world hunger – just think of things that bug you about life or your community. If you think the food around your area sucks, that can lead to a business idea. Go start a food business that provides better-tasting food for the community.
- Make or sell cheaper versions of an existing product. Often, a lot of products that are being sold to consumers are infinitely more expensive than they should be mainly because of branding. Smartphone cases are an example. Expensive brands would sell them for Php 1,000-Php 2,000 but we all know we can get cheaper ones for Php 200-Php 300 with non-famous brands.
- Ask consumers. You can simply ask what consumers want. If you’re interested in bikes perhaps, just ask bikers what they mostly need that they can’t get access to. If you’re going to start an online business, maybe you could conduct an online survey.
- Let go of originality. If for example you’ve found a way to create the next best thing like fidget spinners, that’s awesome. Points for you. But, as an entrepreneur, you don’t have to sell the most original thing. The person who created fidget spinners might be rich right now, but you can see off-brand fidget spinners everywhere, especially here in the Philippines. There are countless businesses that are just like others. So, let go of the desire to be original and you’ll be less frustrated about generating your business idea. Instead, think of a way to make the customer experience better.
You can also read our comprehensive list of profitable small business ideas in the Philippines.
Step 2: Conduct a project study (market fit & feasibility study)
Once you have a business idea, you would then need to conduct a project study. Relying on intuition alone can’t get your business flying.
A project study has three parts:
- Market study – Determines if there is a demand for the product/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 money to spare, hire a professional who can do market research for you. Once that is completed, you can hire an accountant to prepare a feasibility study.
Step 3: Create & prepare a business plan
All businesses need a map that would chart its course and will serve as a guide during times of uncertainty. This map is called your business plan.
A business plan is made up of these sections:
- Executive Summary – This may appear first but it is actually written at the very last. It is the condensed version of what your business plan is and what it aims to achieve.
- Business Overview – This one 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’ strengths, weaknesses, opportunities, and threats
- Business Goals and Objectives – What the business wants to achieve. What are its aims and targets?
- Course of Action – This identifies the strategies that the business proposes to implement in order to achieve its goals and objectives.
- Business Model/Framework – Lays out the system or set of processes that define the operation
- Summary of Products/Services – Includes the various products/services being offered by the business
- Marketing Models – Presents how the business plans to market and promote its products/services
- Financial Projections – Discusses how you plan to finance the business
Step 4: Choosing a Business Model
A business model refers to a company’s plan on how to make a profit. Understanding business models is extremely integral to the success of any venture. It’s a critical step that requires a deep understanding of the market, the industry, and the target customers.
For this model, companies produce tangible goods which are sold to distributors or retailers. Their revenue primarily comes from the direct sales of products to consumers through various distribution channels.
Businesses that follow this model get products from manufacturers or wholesalers. They are responsible for selling them directly to consumers at a markup.
The subscription model involves selling products or services regularly for a set fee. Companies earn consistent revenue as customers pay to access the offerings during their subscription period.
These businesses charge customers based on specific services. Customers pay for individual services tailored to their specific needs.
In the freemium model, companies offer a basic version of their product or service for free. This will entice customers to use it. Then, additional premium features or functionalities are made available at a cost to generate revenue.
The affiliate model involves promoting or selling products or services from other businesses. Businesses with this model earn commissions for each successful sale made through their affiliate links or channels.
These are just some of the most popular business models you can follow. For more information on business models, take a look at this guide.
Business Entity Types in the Philippines
Aside from the model, choosing a type of business entity is also an important consideration. It can affect the way your business is taxed, the level of personal liability you have, and the amount of paperwork required. The most popular business entities include:
A sole proprietorship is the most common form of business entity. It is where a single person owns and operates the business. This person is also liable for all the debts and obligations of the business.
Partnerships – General and Limited
Partnerships are business entities formed by two or more individuals who agree to share both profits and losses. It can either be general or limited.
- General Partnership
For this partnership, all partners share equal responsibility for the business’s debts and obligations, as well as have equal authority in decision-making.
- Limited Partnership
A limited partnership has general partners who have full liability for the business and limited partners who have limited liability. The latter are not personally responsible for the business’s debts beyond the investment they put in the company.
A corporation is a legal entity that is separate from its owners. It is formed by filing articles of incorporation with the government.
For corporations, shareholders have limited liability so their personal assets are protected from the debts acquired by the business.
Corporations may issue stocks to raise capital. They are also subject to specific regulations and governance structures.
Step 5: Identify key business processes
You have to look at your business like a machine. A machine has different gears and parts that perform different specific tasks. Just like a machine, a business has business processes. They are your gears and parts that enable your business to operate smoothly.
A business process is basically an activity or series of steps and activities that will accomplish a specific organizational goal.
Business processes have different categories and these include:
- Operational or primary processes – These deal with the core business and value chain. Operational processes represent essential business activities that accomplish business objectives such as generating revenue. An example would be taking customer orders and managing bank accounts.
- Supporting processes or secondary processes – These processes back the core processes and functions within an organization. Examples of these are HR management and workplace safety. One key difference of supporting processes from operational ones is that supporting processes don’t provide value to your customers directly.
- Management processes – These measure, monitor, and control activities related to business procedures and systems. Examples of these are communications, governance, strategic planning, budgeting, and infrastructure or capacity management. Like supporting processes they don’t provide direct value to customers.
As a business owner you have to identify the business processes you need for your business to operate. You need to figure out which tasks are important to your larger business goals.
Having well-defined business processes also helps in streamlining your operations for more efficiency. It also helps in streamlining communication between people/functions/departments. Basically, business processes prevent chaos from creeping into your workflow.
Check out: How to Create a Business Process
Step 6: Develop your value chain
Now that we’ve discussed business processes, let’s get into the value chain and what it means for your business. What is a value chain? A value chain is a set of activities that an organization does to create value for its customers.
The value that’s created and captured by the company is called the profit margin. The lesser the cost of creating that value, the higher your profit margin will be. Basically the value created is the output or your products/services.
Michael Porter created the model for the value chain. In his model, certain sets of activities are divided into two groups: primary value activities (inbound logistics, operations, outbound logistics, marketing and sales, service) and secondary or support value activities (firm infrastructure, HR management, technology development, procurement).
Instead of looking at departments or accounting cost types, Porter’s value chain focuses on systems and how inputs are changed into outputs purchased by customers.
Figure 1 from http://tracks.roojoom.com/r/10722
Primary activities refer to the physical creation, sale, maintenance, and support of products/services. They consist of the following:
- Inbound Logistics – Processes related to receiving, storing, and distributing inputs internally. Your supplier relationships are a key factor in creating value here.
- Operations – These are the transformation activities that change inputs into outputs that are sold to customers.
- Outbound Logistics – These activities deliver your product or service to your customer, things like collection, storage, and distribution systems.
- Marketing and Sales – Processes you use to convince customers to purchase from you instead of your competitors.
- Service – These are the activities related to maintaining the value of your products/services to your customers once these have been purchased.
These activities support the primary functions above.
- Procurement (Purchasing) – This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating best prices.
- Human Resource Management – This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers.
- Technological Development – These activities relate to managing and processing information, as well as protecting a company’s base knowledge.
- Infrastructure – This comprises a company’s support systems and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use.
To develop your business’ value chain, here are the things you need to consider:
Step 1 – Identify subactivities for each primary activity.
There are 3 different types of subactivities:
- Direct activities create value by themselves. For example, in a book publisher’s marketing and sales activity, direct subactivities include making sales calls to bookstores, advertising, and selling online.
- Indirect activities allow direct activities to run smoothly. For the book publisher’s sales and marketing activity, indirect subactivities include managing the sales force and keeping customer records.
- Quality assurance activities ensure that direct and indirect activities meet the necessary standards. For the book publisher’s sales and marketing activity, this might include proofreading and editing advertisements.
Step 2 – Identify subactivities for each support activity.
For each of the Human Resource Management, Technology Development, and Procurement support activities, determine the subactivities that create value within each primary activity.
For example, consider how human resource management adds value to inbound logistics, operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and quality assurance subactivities.
Next, identify the various value-creating subactivities in your company’s infrastructure. These will generally be cross-functional in nature, rather than specific to each primary activity. Again, look for direct, indirect, and quality assurance activities.
Step 3 – Determine links.
Find the connections between all of the value activities you’ve identified. This will take time, but the links are key to increasing competitive advantage from the value chain framework.
For example, there’s a link between developing the sales force (an HR investment) and sales volumes. There’s another link between order turnaround times, and service phone calls from frustrated customers waiting for deliveries.
Step 7: Fund allocation
So you already have funding for your business. Question is how do you properly allocate it? Here are things to consider when allocating your funds.
- Manage product development costs carefully. As much as you would want quality for your products/services, keep in mind that your profit margin will be higher if your cost of production is lower. Consider finding alternatives to the materials you need for your products or the equipment you need for your services.
- Don’t spend too much on advertising. Although marketing and promotion are important, they can be a cash sink. As much as possible, find ways to advertise your business at a low cost or ideally for free. Social media sites are perfect for free marketing. Networking is another way to spend less on advertising. Meet with people and promote your business to peers. Hopefully they too will start promoting your products.
- Always focus on growing sales. As a growing company it will be best for you to allocate your capital to people and assets that help increase your revenue. One of the first people you should consider hiring is someone who can help you with sales. Also, investing in an e-commerce portion of your website (or through a partnership) helps you increase both sales and profits as you begin to capture the full-retail margin.
- Have a budget. Without a budget plan, it’s easy to spend on things that might seem important at the moment but in reality, you’re spending on something that might become more of a liability than an asset. Having a budget plan will keep you on track on which aspects of your business are truly essential.
Step 8: Business name & identity
Now you have the foundations of how to start a business. You’ve got an idea of what your business would be and now you’re ready to name it. Your business name will represent who you are and what you will offer to your customers. Your brand name will be your identity.
Before anything else, do check if the name you’ve come up with is already in use by another company. A good way to do this is to search online for business name databases.
You can also just prepare a bunch of names, and once you register your business to DTI just pick one that they’ll say hasn’t been taken.
Here are things to consider when naming your business. You must ask yourself:
- How does the name make you feel when you see or hear it? What you feel should reflect what you want your audience to feel or imagine. Do you want to be comforting, approachable, or serious and respectable? The name should also give a hint about the products/services you offer.
- Can you market this name online? Choosing a catchy name can be helpful especially if your audience can relate to it. For example, with the meme culture dominating social media right now, using pop culture references for your name can be a cool idea. But do keep in mind that it must reflect the identity of your business.
- How will this name work from a visual standpoint? Imagine your brand name on a website, tarp, and brochure – does it look appealing? Logo design will also affect your brand name and identity. Keep this in mind when naming your business and designing your logo.
We also recommend checking out StartHere PH’s guide on registering your business name online with DTI BNRS
Step 9: Register your business & legal requirements
Once you have a business name and know your organizational structure, you can now register your business. Here are the documents you need to secure:
- SEC Articles of Incorporation (for corporations & partnerships) – This document proves that your business is registered under the laws of the Philippines. Documents you’ll need to register:
- name verification slip (can be secured at SEC Name Verification unit or online)
- articles of incorporation or bylaws,
- joint affidavit of 2 incorporators to change corporate name,
- for non-stock only: List of members certified by the corporate secretary and list of the names of contributors or donors and the amounts contributed or donated certified by the treasurer
- BIR Clearance – You can’t get other permits without getting a clearance from the Bureau of Internal Revenue. Here are the BIR forms mainly used for business registration:
- Form 1901 (mixed-income/self-employed)
- Form 1902 (employees, non-residents, resident aliens)
- Form 1903 (corporations and partnerships)Form 1904 (one-time taxpayer who just rendered business in the Philippines for a year)
- DTI Registration Certificate (for sole proprietorship) – This authorizes you to use your own trading name for any business-related operation. This also secures that your business name won’t be used by someone else. Requirements:
- list of business names
- must be a Filipino citizen of legal age
- fees apply depending on the scope of your business (Barangay: Php 200, City: Php 500, Regional: Php 1,000, and National: Php 2,000)
- Barangay Clearance – This certifies that your business complies with the requirements of the local barangay where your business is located. Requirements include:
- Cedula (Community Tax Certificate)
- Application form
- Valid ID
- Mayor’s Permit – Also referred to as a business permit, this permit ensures that your business is safe to operate under your city’s ordinances. Take note that you can only get a Mayor’s Permit after registering your business with DTI and SEC. Requirements:
- DTI Business Name Certificate
- SEC Registration Certificate
- Lease contract/tax declaration
- Barangay clearance
- How to register your online business in BIR & DTI
- How to register and start a corporation in the Philippines
If it’s a big business such as a mall or restaurant then public liability insurance is also needed.
Step 10: Open a Bank Account for Your Business
After deciding on a business model and type of entity, the next important step is to open a bank account for your business.
This will enable you to manage your finances better and keep personal and business finances separate. Here are some tips to consider when opening a bank account for your business:
Research different banks and compare their offerings
Look for banks that specialize in small business banking or offer features that cater to your needs. Consider their fees, interest rates, and accessibility.
Gather the necessary documents
Banks need certain documentation before they can open an account for your business. You may be asked to submit the following:
- Credit score information
- Brand and company certifications
- Business registration documents
- Ownership and partnership agreements
- Licensing information (if applicable)
- Employer information
Choose the right type of account
There are different types of accounts offered by banks, such as checking, payroll, savings, or merchant services. Depending on your business needs, choose one or a combination of these accounts.
Fill out the application
Complete your bank’s application form with accurate information and make sure to review it before submission. Some banks may require an initial deposit to complete the account opening process.
Build a relationship with your bank
Your bank can be a valuable partner for your business, providing financial advice, loans, and other services. Make sure you choose a bank that you feel comfortable working with and that has a good reputation in the industry.
For more information on opening a business bank account in the Philippines, check out this in-depth guide.
Step 11: Recruiting & Hiring People
- Look for people with a commitment to their career. Find a person who’s passionate about their career, not just someone who switches careers for a higher salary. Always check a candidate’s job history. Their loyalty to their job or company will reflect on their resume.
- Check compatibility. Your staff’s values should be aligned with your business’s values. If you’re a fun and creative tech company, find people who share the same interests and passion for tech. If you’re a serious accounting firm, find people who are logical and serious in dealing with numbers.
- Keep improving your hiring process. Always find better ways to hire employees. Instead of asking magic bullet questions or irrelevant questions, focus on getting to know the capabilities, knowledge, skills, confidence, attitude, and potential of the candidate. When posting an ad for the job, always include the details regarding the tasks and responsibilities the position calls for and the qualifications for applicants. This way you’ll attract the more competent candidates and also have a checklist of things to consider when hiring someone.
- Get other people to evaluate. It’s ideal to have an expert who can evaluate candidates. Consider getting an HR manager first.
Step 12: Create a website
Creating a website is difficult especially if you’re not someone who can code. If you can, great, this won’t be too much of a problem. If you can’t, you’ll have to get someone who can create a website for you.
But if this is something you don’t think is urgent, just creating a social media account can suffice for the meantime. That way you can still have an online presence and a platform where you can either sell, market, or promote your products/services.
But if you really want to create a website and you don’t want to get someone else to do it for you, consider checking out this step-by-step guide for beginners on how to create websites. Seriously, you can create your own websites even if you don’t know how to code.
With just a few clicks and some drag and drop, you can have your site published in just minutes. You would have to pay a monthly fee of $14 to keep the site running.
Step 13: Market & promote your business
Marketing and promoting have become interchangeable in the field of business. Technically they’re still different things.
Marketing basically is an objective discipline that involves the research, creation, pricing, testing, and distribution of a product/service. Promotion, on the other hand, is actually a part of marketing.
But put simply, both are the things you do in order for people to gravitate toward your product.
Now, in doing business, you must remember the 4Ps of marketing.
- Product – A product can either be a tangible good or an intangible service that fulfills a need or want of consumers. You have to understand what you’re selling from the inside out if you want to be able to market it.
- Price – How much you are going to sell your product will determine if you will make a profit. This is why market research is necessary – so you can find out how much your competitors are selling their products and decide how much you’re going to price yours.
- Promotion – This involves the many strategies on how you will communicate your product to the public.
- Place – Entrepreneurs will always say that business is about location, location, location. Finding a strategic place for your business is important if you want people to find you.
Step 14: Taxation & Financial Management
Managing your taxation and finances is crucial for the success of any business. In the Philippines, taxes are the major source of revenue for the government and businesses are required to comply with tax laws.
Here are the various taxes you’re required to pay:
Value Added Tax
Value Added Tax or VAT is a tax imposed on the gross sales or receipts of goods and services in the Philippines. Businesses that have exceeded the threshold amount of P3 million in total sales for the past 12 months are mandated to register for VAT.
Income tax is a tax imposed on a person’s or business’s income. In the Philippines, businesses are required to file and pay income tax annually.
The amount of tax to be paid is based on the net income of the business. Partnerships and sole proprietorships can be charged up to 35%, while corporations can be taxed up to 25%.
Those who are not subjected to VAT must pay 1% to 3% percentage tax on their gross sales.
Withholding tax is a tax deducted by the company from the income of employees or suppliers and remitted to the government. This tax is required to be withheld and remitted on behalf of employees or suppliers by the company.
Financial Management Tips You Should Know
As a business owner, you must also be aware of the importance of financial management. Here are some tips you should know to effectively manage your finances:
Create a budget
Having a budget can help you allocate your resources effectively and make informed financial decisions. It can also help you make adjustments when unexpected expenses arise.
Keep track of your expenses
Keeping accurate records of your expenses can help you monitor your cash flow and identify areas where you can cut costs.
Separate personal and business finances
It is crucial to separate your personal and business finances to avoid confusion and ensure that you are properly recording your business transactions.
Monitor your cash flow
Cash flow is the lifeblood of any business. It is important to monitor your cash flow regularly to ensure that you have enough cash on hand to cover your expenses and invest in your business.
When investing in your business, make sure to weigh the potential benefits against the costs. Consider the return on investment (ROI) and make sure that the investment aligns with your business goals.
Seek financial advice
If you are unsure about your financial management skills, seek the guidance of a financial advisor or accountant. They can help you develop a financial plan and provide valuable advice on how to manage your finances more effectively.
15 Useful Tips on Starting a Business in the Philippines
- Offer what people want to buy, not just what you want to sell. Interest in your product might be important, but providing what your customers want and need is even more important.
- Get cash flowing ASAP. Cash flow is the lifeblood of business and is absolutely essential to feed bottom-line profits. Find ways to jump-start cash flow immediately.
- Always find new ways to keep costs low. Keep your expenses at the minimum so your profit margin will be higher. To conveniently track your business spending and ensure that you keep your expenses low, make sure you have access to financial tools like Spenmo‘s expense tracker.
- When planning, always overestimate expenses and underestimate revenues. Doing so will give you a financial safety net. u don’t want to run out of funds, so it’s good to always have extra cash.
- Have a contingency plan and budget. Come up with a Plan B to keep your business running or recover quickly in times of disaster or crisis. You should also have money set aside that can cover unforeseen increases in operational costs or other unbudgeted financial needs.
- Focus on sales and marketing. In business, nothing happens until a sale is made. From the get-go, you’ll need to find a good way to get leads, convert leads into sales, and make sure you keep getting repeat sales from your customers.
- Find ways to exponentially increase profits. There are five factors that impact business profits: leads, conversion rate, average amount per sale, average number of transactions, and profit margin. If you can increase these while keeping your costs in check, you will run a successful business.
- Test and measure everything. Figure out the best strategy to do your business. Test out different ways to sell, market, and promote your products/services.
- Learn and improve. If you’ve never run a business, well you can learn by doing and through self-study. The key to becoming a successful entrepreneur is to never stop learning.
- Don’t discount; add value. Whenever you discount, you are taking money directly out of your pocket and directly from your profit. So don’t do it. Instead, create added value propositions all the way up and down your product or service line.
- Get a mentor. Find someone who can teach you the ropes and tricks in business.
- Go and network. Business networking is important both in promoting your business and learning from peers. If you want to get ahead, you have to network.
- Surround yourself with the right people. Doing business can be draining. You have to be with people that pull you up, not down.
- Don’t be discouraged by setbacks. They will happen at one point or another. But when these happen look at them as challenges and not failures.
- Don’t forget work-life balance. You can’t run your business properly if you’re burned out. Learn to find time to relax and be with your friends and family. Life isn’t all about money.
Your Business Checklist
Here’s a reminder of the things you need to have before you can launch your business:
- Business Idea
- Market Research/Study
- Detailed Business Plan
- Business Name/Identity
- Legal Documents/Certifications
- Marketing and Promotion Strategy
- Taxation & Financial Management
Now with all of these in mind, you can now go and start your business!
Check out these other useful business resources from Grit PH:
- 38 Important Business Documents & Letters [with samples and templates]
- How to Sell a Business in the Philippines
- The Ultimate Guide to Business Valuation in the Philippines