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Part Four Financing Entrepreneurial Ventures

A Financing Strategy Should be Driven By: Corporate and personal goals Resulting financial statements Ultimately by the available alternatives

Chapter 11 Resource Requirements

The Entrepreneurial Approach to Resources Resources People, such as the management team, the board of directors, lawyers, accountants, and consultants Financial resources Assets, such as plant and equipment Business plan

Resource Minimization Strategy Staged capital commitments Less capital More flexibility Low sunk cost Lower costs Reduced risk

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Relationship with the Board of Directors Simple rules for a productive relationship with the board of directors Treat your directors as individual resources Always be honest with your directors Set up a compensation committee Set up an audit committee Never set up an executive committee

Attorneys Entrepreneurs seek assistance from attorneys with several areas of the law Incorporation Franchising and licensing Contracts and agreements Formal litigation Real estate, insurance, and other matters Copyrights, trademarks, patents, and intellectual property protection Employee plans

Attorneys Entrepreneurs seek assistance from attorneys with several areas of the law Tax planning and review Federal, state, and other regulations and reports Mergers and acquisitions Bankruptcy law Other matters Personal needs

Accounting Firms Which size to choose—smaller local firm, regional firm, major accounting firm? Service Needs Cost Chemistry

Consultants Why do startups hire consultants? To compensate for a lower level of professional experience To target a wide market segment (possibly to do market research for a consumer goods firm) To undertake projects that require a large startup investment in equipment

Hiring a Consultant Considerations Not geographically bound Word of mouth References People skills Professional affiliations

Financial Resources Cash is the lifeblood of the venture Computers and spreadsheet programs are tools that save time and increase productivity and creativity. Answer “what if” questions Capital Requirements Pro Forma Income Statements Balance Sheets Budgeting Break-Even Calculations Cash Flow Projections