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A bit about entrepreneurship
WHAT IS YOUR BUSINESS MODEL?
WHAT ARE YOUR STRATEGIC RISKS? 
• Demand 
• Competition - White spot vs. Sweat spot 
• Capabilities
ARE YOU WORKING IN OR ON THE BUSINESS?
Now, let’s talk about finance
BUSINESS LIFE CYCLE AND FINANCE 
Huge capital needed 
when risk is the highest 
and reputation the lowest 
As business gro...
ONLY FEW CONCEPTS 
• Capital 
• Long term – Production capacity, intellectual property 
• Short term – working capital, tr...
CAPITAL 
• Savings 
• Family and friends 
• Business partners 
• Crowd funding 
• Developmental agencies 
• Customers 
• F...
PROFITABILITY 
Sales 100,000 100% 
If number of products sold is 5,000 
Cost of sales 
Unit price 20 
Materials 20,000 Uni...
CASH FLOW 
Opening trade receivables 20,000 Opening trade creditors 15,000 
Sales 100,000 Purchases 20,000 
120,000 35,000...
RETURN TO ENTREPRENEURS 
If investment is 100,000 
Return on equity 3% 
Equity value (asume PE 8) 24,000 
This is just a s...
OBSERVATIONS 
• Many entrepreneurs have skills in production, marketing and 
operations but may not have financial managem...
Entrepreneurship and finance
Entrepreneurship and finance
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Financial management tools for entreprenuers

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Entrepreneurship and finance

  1. 1. A bit about entrepreneurship
  2. 2. WHAT IS YOUR BUSINESS MODEL?
  3. 3. WHAT ARE YOUR STRATEGIC RISKS? • Demand • Competition - White spot vs. Sweat spot • Capabilities
  4. 4. ARE YOU WORKING IN OR ON THE BUSINESS?
  5. 5. Now, let’s talk about finance
  6. 6. BUSINESS LIFE CYCLE AND FINANCE Huge capital needed when risk is the highest and reputation the lowest As business grows, more capital needed to finance operations Demand for innovation requires more investment
  7. 7. ONLY FEW CONCEPTS • Capital • Long term – Production capacity, intellectual property • Short term – working capital, trade financing • Profitability • Revenue – Pricing, discount • Cost – Fixed, variable, sunk • Cash flow • The bloodline of business • Cash flow does not equal to profitability • Return to entrepreneurs • Salary • Dividend • Equity value • Need to distinguish between business and personal
  8. 8. CAPITAL • Savings • Family and friends • Business partners • Crowd funding • Developmental agencies • Customers • Financial institutions • Alongs • Need to match funding arrangements with cash flow from business • Long term investment with long term funding • Working capital and trade needs with short term funding
  9. 9. PROFITABILITY Sales 100,000 100% If number of products sold is 5,000 Cost of sales Unit price 20 Materials 20,000 Unit cost 9 Labour 10,000 Unit gross profit 11 Depreciation 10,000 Break even point 4,727 Royalty 5,000 Unit contribution margin 13 45,000 45% Gross profit 55,000 55% Less: Overhead Salary 15,000 Rental 12,000 Depreciation 10,000 Establishment 15,000 52,000 52% Profit 3,000 3% To enhance profitability: • Increase volume of sales • Increase price • Reduce cost
  10. 10. CASH FLOW Opening trade receivables 20,000 Opening trade creditors 15,000 Sales 100,000 Purchases 20,000 120,000 35,000 Closing trade receivables (15,000) Closing trade creditors (5,000) Cash collection 105,000 Cash payment 30,000 Cashflow: Cash collection 105,000 Cash payment (30,000) Salary (25,000) Royalty (5,000) Rental (12,000) Establishment (15,000) Capital loan* (25,000) Net cash flow (7,000) * Loan of RM 200,000 paid over 8 years for property, plant and equipment having economic life of 10 years
  11. 11. RETURN TO ENTREPRENEURS If investment is 100,000 Return on equity 3% Equity value (asume PE 8) 24,000 This is just a simple computation of the value of equity based on price to earning approach. More sophisticated approaches are available but eventually will be determined by willing buyer willing seller basis
  12. 12. OBSERVATIONS • Many entrepreneurs have skills in production, marketing and operations but may not have financial management capabilities • Basics financial management tools such as understanding unit cost, profit margin, break even point and cash flow are important • Having an annual budget is useful but budget will become obsolete very fast, the ability to project performance are important to understand possible outcomes and responses • Instead of spending on audit (historical performance) it would be wiser to spend more on management accounting services to understand key financial management indicators, manage risks and make business more competitive
  • AhmadFariziFikri

    Nov. 18, 2016
  • TgOthman

    Jan. 9, 2016
  • macintorch

    Sep. 22, 2014

Financial management tools for entreprenuers

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