Finance And Entrepreneurship To Create Value In Business

Finance and entrepreneurship to create value in business

Finance and Entrepreneurs.

Among the financial principles that we must continue when we are going to undertake, it must be contemplated that any effort made by the entrepreneurial team has to be rewarded. We are talking about the entrepreneurial team must have a salary if you spend hours to the business. But we also assume that when a person has a certain amount of money and invests it in a new business idea, this initiative should have a reward, to encourage the money to be invested or the money is lending. We all assume that money has temporary value. The entrepreneur who dispenses with his money today, to finance a new idea, will have to have that reward or gain, regardless of whether or not a salary is charged if he also spends time.

In addition to the temporary value of money, the cost we must calculate must include the risk that the business does not result. The possibility that if something does not work the new business will not generate enough money to compensate for advanced capital, it will increase the cost. At higher risk, compensation should be greater to find financing fund.

Another of the principles that we must respect is the one that refers to the importance of cash. It is evident that when carrying out a business plan we will have to present some financial statements in which the balance of the pension situation and the account of pension gains and loss will be included. The evaluation of the company’s situation is carried out through the financial statements, but in a business plan the treasury forecast is very important.

We have to know that tickets and exits have cash, and it is important that this analysis is carried out monthly so that we can make forecasts of temporary financing needs that we have. For this reason, the cash becomes one of the main indicators for the entrepreneur.

The fourth principle that we must observe in the financing of new businesses is the search and negotiation to obtain these funds, which will be both in public and private markets. In public markets we can access to search and negotiate standardized contracts, titles and values of all kinds, which are exchanged at a given price that marks the value of the title or value that is negotiated. Therefore, in these markets there is efficiency, as prices reflect the existing information in the market, and a liquidity, because if investors agree or disagree with those prices, they can buy the titles in question. In private markets, prices do not reflect relevant information of the “New Venture”, and the titles cannot be easily sold, so the efficiency and liquidity mentioned in public financial markets is not given.

The reasons that lead us to start a new business can be several, from personal, economic, altruistic, competitive reasons, the challenge of creating a "New Venture". However, the reason that unites all these objectives that may exist behind a new business is the increase in value. Part of the partners will invest by social impulses, other environmental, innovation, or of any other type, but none of them will say will see with bad eyes an increase in the value of the business in 1 EUR, without interfering with the initial motivations that theyled to believe in the idea and invest in the business. As a principle we could say that the main financial objective for all of them could be to increase the value of the company.

Let us notice that we have said the increase in value and not of sales or benefit. An increase in sales is always interesting, but not at any price, so it will not be the ultimate goal I looked for an entrepreneur. The benefit could be more appropriate, but many times, the benefit generated in the company must be dedicated to reinvesting in new assets to keep the business in operation, and does not give enough to give back investors. So it would be better to transform that benefit into a free cash flow that could allow us to give back the entrepreneurial team. This cash is nothing more than the excess generated on the company’s operations, which we have to pay the creditors and what is invested in new assets. Free Cash Flow’s projections, updated according to the temporary value of money, will be those that give us that increase in value we are looking for, and that marks more accurate what the investor wants.

Finance usually is classified as a discipline without feelings, which does not take into account the nature of people and their circumstances, and that we always act in our own benefit when we make decisions. Following the financial principles for entrepreneurs, we can conclude that the entrepreneur may be acting against his own interest in some cases, and that can be dangerous. In the different stages of the creation of a new business, we can find the imperative need for external capitals. We look around and we have already touched friends and family, personal loans, and we have even resorted to the credit card, but now there is no more, we have to consider that third people/parts enter our business in our business. This entry can lead to control losses from stages still as "startup".

In this stage of growth, we must be aware of the importance in alignment, of the incentives for all those related to the business we are creating. Moreover, we have to be willing to renegotiate and improve the incentives that have been discarded, to find the continuity that the company needs. It is preferable to know when we are going to have problems dealing with rent or payrolls, to anticipate and renegotiate the conditions to minimize behaviors that can lead to a destruction of value for the company, not desired by any of the agents.

As a last principle we will talk about the character and reputation of the company. It is clear that the main financial objective will be to increase value, but that value creation has to be fulfilled the laws, following sustainable and ethical commercial practices, with a good reputation in our environment and generating support and trust for the entrepreneurial team and the business in the business initself. We are convinced that the increase in value for entrepreneurs, do not have to be at odds with the value non-description for the rest of the company’s stakeholders.