Outline: Chapter 1 Introduction

y y y y y y

Importance of knowing the numbers Measuring success What is entrepreneurial financial management? What Makes Entrepreneurial Finance Similar to Traditional Finance? What Makes Entrepreneurial Finance Different from Traditional Finance? Ethics and entrepreneurial finance

Copyright 2009 Cornwall, Vang & Hartman

Financial Management: The ´Languageµ of Business
Used to set clear financial goals y Used to make decisions y Used to forecast y Used to manage cash flow y Used to seek financing y Used to determine an exit process for the business
y
Copyright 2009 Cornwall, Vang & Hartman

Measuring ´Successµ
Income for entrepreneur y Wealth for entrepreneur y Goals derived from personal values of the entrepreneur
y

Copyright 2009 Cornwall, Vang & Hartman

Differences between Traditional and Entrepreneurial Finance
Lack of historical data to measure risk y Lack of historical data and liquidity complicate the practice of finance in early stage firms
y

Copyright 2009 Cornwall, Vang & Hartman

Vang & Hartman .Perspective of Investors y y y y Prefer less risk Diversified investors concerned with systematic risk Non-diversified investors concerned with total risk Prefer more return y y y y Prefer quick return Prefer liquidity Investors face many different opportunities No investors are immune from these expectations Copyright 2009 Cornwall.

Rf) Rf = Risk-Free Rate of Return Rm = Return on Market Index like SP500 Rm-Rf =Market Risk Premium Beta is a measure of Nondiversifiable Risk Beta < 1 means asset is less volatile than market (safe asset) Beta = 1 means asset is just as volatile as market (average asset) Beta > 1 means asset is more volatile than market (risky asset) Copyright 2009 Cornwall.Finance Relationships y y y y y y y y y Total Risk = Diversifiable Risk + Nondiversifiable Risk Required Rate of Return = Rf + Beta(Rm . Vang & Hartman .

Vang & Hartman .Figure 1.1 Building a Financial Forecast Setting Financial Goals Revenue Forecasting Expense Forecasting Monitoring Performance Copyright 2009 Cornwall.

Table 1. phantom stock. Deal with all investors openly and honestly. stock option plans. Investors Employees Share financial success with those that helped create it. while still meeting goals Copyright 2009 Cornwall. Profit sharing.1 Example of Stakeholder Analysis Stakeholder Family Ethical Principle Create balance between work demands and family time. of . etc. Vang & Hartman entrepreneur. ESOP. Develop a financial reporting system that provides full and accurate historical information as well as realistic forecasts. Application Establish a more moderate financial growth goal to allow for time with family.

Establish cash forecasts that are based on an assumption of prompt payment of all invoices submitted by suppliers/vendors. Reliable employment for Manage cash flow to allow for the community. Banker Community Honest disclosure of information Assure timely and accurate financial reporting and reasonable financial forecasting. stable employment even during times of temporary slowdowns Copyright 2009 Cornwall.1 Example of Stakeholder Analysis (continued) Stakeholder Ethical Principle Application Establish revenue forecasts that are Customers Fair pricing Suppliers Prompt payment for money owed. Vang & Hartman .Table 1. realistic given this pricing principle.

Vang & Hartman .Outline: Chapter 2 Setting Financial Goals Wealth vs. income y Integrating non-financial goals y Importance of self-assessment y The self-assessment process y The business plan y Copyright 2009 Cornwall.

1 Model for Entrepreneurial Financial Management Setting Financial Goals Revenue Forecasting Expense Forecasting Monitoring Performance Copyright 2009 Cornwall. Vang & Hartman .Figure 2.

Life Cycle of a Business Venture Figure 2. Vang & Hartman .2 Maturity Pre-Launch Start-up Growth Copyright 2009 Cornwall.

´Quick and Dirtyµ Valuation EBITDA + extra bonuses or compensation to owners = adjusted EBITDA X earnings multiple = Valuation .Outstanding Loans = Cash proceeds to owner Copyright 2009 Cornwall. Vang & Hartman .

Integrating Non-Financial Goals NonEthics and values y Personal definition of ´successµ in business y Family y Community y Personal interests y Copyright 2009 Cornwall. Vang & Hartman .

Business Plan Outline Executive Summary y The Business Concept y Industry Analysis y Marketing Plan y Operating Plan y Financing Plan y Copyright 2009 Cornwall. Vang & Hartman .

Vang & Hartman .Importance of Self-Assessment SelfKeeps your goals front and center y Financial goals change y Non-financial goals change y Part of on-going exit planning y Copyright 2009 Cornwall.

Outline: Chapter 3 Understanding Financial Statements y y y Accounting equation  Assets = Liabilities + Owners· Equity Basic financial statements Limitations of business financial statements Copyright 2009 Cornwall. Vang & Hartman .

Vang & Hartman .Basic Financial Statements Income Statement y Balance Sheet y Statement of Cash Flows y Copyright 2009 Cornwall.

3% 19.000 10.Income Statement Exhibit 3.1 The Company Month ended April 30.6% 5.7% $35.000 7.900 28.0% 28.3% 2. Vang & Hartman .0% .6% 71.000 25.4% Copyright 2009 Cornwall.000 1.000 2.8% 51.7% 14.000 100 $ 6.4% 20.000 100. 2002 Sales Cost of Goods Sold Gross Profit Operating Expenses Rent Expense Utilities Expense Wages Expense Depreciation Expense Total Operating Expenses Earnings before interest and taxes (EBIT) Interest Expense Earnings before taxes 10.000 18.000 5.

000 100.000 5.000 42.900 $ 15.000 22. & STOCKHOLDERS· EQUITY $ 58. Vang & Hartman . 2002 ASSETS Current Assets Cash Accounts Receivable Inventory Total Current Assets Fixed Assets Equipment Less: Accumulated Depreciation Net Fixed Assets TOTAL ASSETS LIABILITIES Current Liabilities Notes Payable Accounts Payable Wages Payable Total Current Liabilities STOCKHOLDERS· EQUITY Common Stock Retained Earnings Total Stockholders· Equity TOTAL LIAB.900 $148.900 Copyright 2009 Cornwall.2 The Company April 30.900 25.000 (1.000 113.900 106.000 $148.Balance Sheet Exhibit 3.000) 35.900 36.000 30.000 6.

the salability of inventory. LIFO or average cost) Copyright 2009 Cornwall. the collectibility of accounts receivable. employees or brand names) Intellectual property not reflected as an asset Assets are reflected at historical cost Estimates must be used for depreciation. and the amount of warranty liability outstanding Financial statements affected by the choice of accounting methods (e. FIFO. Vang & Hartman .g.Limitations of Financial Statements y y y y y Not all assets of a company are included (e.g.

Vang & Hartman .Outline: Chapter 4 Revenue Forecasting y y y y y y y Common Forecasting Mistakes The Link Between the Marketing Plan and Revenue Forecasts Creating Scenarios The Link Between the Revenue Forecast and the Cash Flow Forecast The Impact of Business Type on Revenues Quantitative Forecasting Techniques Importance of Revenue Forecasting Copyright 2009 Cornwall.

Vang & Hartman .Figure 4.1 Model for Entrepreneurial Financial Management Setting Financial Goals Revenue Forecasting Expense Forecasting Monitoring Performance Copyright 2009 Cornwall.

Vang & Hartman .Common Forecasting Mistakes y y y The linear forecast mistake The hockey stick forecast mistake The 20/80 vs. 80/20 mistake Copyright 2009 Cornwall.

Vang & Hartman .Marketing Plan and Forecasting Marketing Plan Backbone Revenue Forecasts Copyright 2009 Cornwall.

Vang & Hartman .Marketing Plan and Revenue Forecasting y y y Identifying industry and market trends Market research Competitive analysis Copyright 2009 Cornwall.

$15 Dr.3 Cleanliness of Facilities Joe¶s Inc.$30 Sally & Jim¶s Shop 9:00 ± 4:00 $3 . Vang & Hartman .Sample Competitive Grid Figure 4. but back rooms usually messy Consistently clean and orderly throughout all facilities Public areas somewhat messy and disorganized and back areas very messy Plan to be spotless throughout Hours of Operation 8:00 ± 6:00 Selection Most commonly purchased products available All commonly purchased available and some specialty items in stock Many common items not in stock ± usually have to special order All common items plus specialty items not found at competitors¶ stores Price $5 .$35 Copyright 2009 Cornwall. Generally clean in public areas. C¶s Place (New Business) 7:00 ± 9:00 $5 .$20 Jane¶s Inc. 8:00 ± 8:00 $12 .

Basic Guidelines for Revenue Forecasts Market research to assure the quality of the assumptions behind the revenue forecasts y Validate assumptions with more than one source of data y Plan based on more conservative assumptions y Copyright 2009 Cornwall. Vang & Hartman .

Vang & Hartman . Worst-case 3. Most likely case Track Key Assumptions Copyright 2009 Cornwall. Best-case 2.Creating scenarios Make Three Forecasts 1.

Revenue Forecast and the Cash Flow Forecast Determine if credit is to be extended to customers y Estimate the percentage of the sales that will be on credit y Determine how long it will take to collect credit sales y Copyright 2009 Cornwall. Vang & Hartman .

Vang & Hartman .Importance of Revenue Forecasting Bank financing y Inventory assumptions y Staffing decisions y Space decisions y Investors y Copyright 2009 Cornwall.

Vang & Hartman .Outline: Chapter 5 Expense Forecasting Defining costs y Cost behavior y Break-even analysis y The impact of business type on expenses y Reducing expenses through bootstrapping y Copyright 2009 Cornwall.

Figure 5. Vang & Hartman .1 Model for Entrepreneurial Financial Management Setting Financial Goals Revenue Forecasting Expense Forecasting Monitoring Performance Copyright 2009 Cornwall.

Cost behavior y y y Variable Costs Fixed Costs Mixed Costs Copyright 2009 Cornwall. Vang & Hartman .

Variable Costs Type of Expense Sales commissions Materials cost Health insurance Wages expense Payroll tax expense Activity Base Sales Units produced Number of employees Number of hours worked Dollars of wages paid Copyright 2009 Cornwall. Vang & Hartman .

1 Variable Cost Behavior $ Total Variable Cost Line Total Units Produced Copyright 2009 Cornwall. Vang & Hartman .Figure 5.

Fixed Costs y y Committed fixed costs Discretionary fixed costs Copyright 2009 Cornwall. Vang & Hartman .

Figure 5. Vang & Hartman .2 Fixed Cost Behavior $ Total Fixed Costs Total Units Produced Copyright 2009 Cornwall.

000 2.500 20.000 65.1 Assumptions used Sales COGS Gross profit Sales salaries Sales commissions Store rent Total selling expenses Office rent Office salaries Depreciation Total gen.Example ± Merchandising Company Exhibit 5.0% 65.5 monthly rent 20.5 cost of equip.000 500 15.000 1.0 .000 15.0 65% of sales 35.5 1.500 3. Vang & Hartman .0 base 1.5% of sales 3.0 2.000 35.000 500 100. & admin.0 35% of sales # of salespeople x monthly 15.500 12.5 Copyright 2009 Cornwall./mos.5 monthly rent 12. of life 15. EBIT $100.0 # people x monthly pay .

Breakeven Analysis Fixed Costs ____________________________________ Price per unit Variable cost per unit Breakeven = Quantity Copyright 2009 Cornwall. Vang & Hartman .

Outline: Chapter 6 Integrated Financial Model y y y y y y y The entrepreneur·s aspirations reconsidered Contribution format income statement Inventory of assumptions Determining the funds needed Time out of cash Assessment of risk/sensitivity Integrating into business plan/funding document Copyright 2009 Cornwall. Vang & Hartman .

1 Building a Financial Forecast Setting Financial Goals Revenue Forecasting Expense Forecasting Monitoring Performance Copyright 2009 Cornwall. Vang & Hartman .Figure 6.

Vang & Hartman .Time Out of Cash Time Out of Cash = Cash Operating Cash Outflow per Month Copyright 2009 Cornwall.

Sign up to vote on this title
UsefulNot useful