Master Entrepreneurial Finance
Every entrepreneur and investor needs to understand finance from fundamental point of view.
This platform is purposed towards making finance accessible and understandable to future innovators, entrepreneurs, and investors.
FIRST PRINCIPLES VIEW OF ANY BUSINESS VENTURE
Every entrepreneurial venture is usually based on a fundamental premise that it is going to create products and services that will be used by someone (an individual user or an privat e / government enterprise) to meet certain specific goals at personal or business front.
Entrepreneurial ventures have a fundamental flow of activities that enable a working ecosystem within which these products and services are produced continually.
When an entrepreneur starts a venture, they usually have to build an infrastructure and people system that is going to require some form of initial capital. This capital may come from the savings that the entrepreneur may have (internal capital) or from family, friends, or someone from outside your immediate circle.
Once the entrepreneur has an access to an infrastructure, one starts to produce products and services. Even the purchase of initial raw materials or labour requires money to be spent upfront. Where does one get this money from has a long term impact on the way of working of the business.
Once products and services are sold to customers, company starts to earn revenues that in turn starts to support expenses (costs) in the venture.
After removing costs and taxes, the firm is left with excess profits that can be reinvested in building more infrastructures (assets) in the venture for growth.
The capital in an entrepreneurial venture can come in two forms.
In an entrepreneurial venture, there are two primary ways in which capital becomes available.
An entrepreneur can either put their own money and have 100% ownership of the venture's profits and losses. They don't have to return the money to anyone else.
An entrepreneur can borrow money from someone else and offer value in two ways.
If the money that comes in by selling the percentage ownership (to someone outside of the venture setup - an uncle, or a friend, or an investor who comes in with a halo and two wings ) in the future profits and losses of the venture and there is no obligation to return the money after a finite time period is called as EQUITY CAPITAL.
If the money comes in by borrowing from someone outside (an uncle, or a bank, or someone else) and there is an obligation of paying back this amount after some specific period of time along with some interest (we will discuss interests in great details later), then this capital is called as DEBT CAPITAL.
The crux of both of these types of capital is captured below.
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DEBT
Debt is simply a loan on which an interest is paid. Debt comes in many forms such as loans, bonds, credit cards, credit limits etc. Debt as a financial investment is usually the most basic form from where finance originates.
EQUITY
Equity is simply a share of value of ownership in a company. It applies to many things in life but for now we will stick to equity in the context of a company. There is no direct interest rate involved. It refers to participation in the profit or loss of the company. You get your Returns On Investments (ROI) by selling the shares of a company or by receiving profit share the form of dividend of the company.
CRITICALLY IMPORTANT CONSIDERATION FOR AN ENTREPRENEUR
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In any entrepreneurial venture (an in principle in an Economy), there are two primary inputs - LABOUR and CAPITAL. Both always work together to create a net positive value from any activity in life.
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For entrepreneurs it is critically important to understand that everything is connected and entrepreneurs must design their entrepreneurial venture systems in such a way that labour and capital work together as complementary efficient entities.
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Labour must involve contextually right skills, creativity, efficiency and rigour to able to create value efficiently from capital input.
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Capital must be used up in a way that puts contextually right skills, materials (natural or synthesized), technology, and intelligence (human or artificial) at right places and at right times to be able to make best out of labour availability.
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Both are inherently connected to the concept of time and the net positive sustained output per unit of time is what (from the entrepreneurial venture) creates long term sustained value.
FINANCIAL NUMBERS
Enrich your understanding of tracking and reading of financial figures in entrepreneurial finance for long term strategic advantage.
Profit & Loss statement connects directly to the business activities of an entrepreneurial venture. It is a direct representation of the business model of the venture.
FINANCIAL STATEMENTS
Balance Sheet.
Balance Sheet gives one an understanding of the state of health of a venture. It is a way to understand the strength and sustenance of the venture and its ability to support research, innovation, & growth.
FINANCIAL STATEMENTS
Cash Flow Statement.
It is literally about understanding how actual cash movement occurs into the business system of the venture and out of this system. It tells how cash flows through operations, investments, and ffinancing/undraising (loan or equity) related activities.
FINANCIAL STATEMEENTS
A Note For Entrepreneurs.
It is important to understand financial numbers or statements from business model operations and strategic approach point of view of your venture. There is another aspect of financial figures related to reporting as per regulatory norms of the jurisdictions of the entrepreneurial venture. The reporting formats of the financial statements is usually standardised by regulatory authorities for all the business ventures. Such statements are preparing by certified chartered accountants and they are very much proficient in preparing and reading those figures.
From business model point of view, our discussions on various categorisations of financial figures may differ from what accounting professionals use. Our discussions are primarily based on first principles understanding of any business model in context and how every aspect of the business model connects with the concept of money.
ALWAYS STAY CONNECTED TO GAIN NEW PERSPECTIVES IN ENTREPRENEURIAL FINANCE
VISIT
Keep visiting our website from time to time to gain new insights and perspectives on finance.
READ
Once you read something here, try to recall it and relate it to the readings you do in other websites, newspapers, or books.
STAY CURIOUS
Always stay curious about new learnings because the more you gain insights into finance, the more you will understand that you don't know enough. This applies to us as well.