One Two Four Entrepreneurial Financial Strategies

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Financial strategies for value creation

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One Two Four Entrepreneurial Financial Strategies

  1. 1. 1<br />www.venturebean.com<br />Entrepreneurial Financial Strategies<br />Anjana Vivek<br />www.venturebean.com<br />beanie@venturebean.com<br />
  2. 2. 2<br />www.venturebean.com<br />Entrepreneurial Financial Strategies<br />Overview<br />One..two….four!<br />
  3. 3. 3<br />www.venturebean.com<br />ONE<br />Money is only one dimension<br />
  4. 4. 4<br />www.venturebean.com<br />TWO<br />Valuation in an entrepreneurial venture is often driven by the following two factors:<br />Expected Cash Burn and<br />Stake promoters are willing to give away and acceptable to investors<br />
  5. 5. 5<br />www.venturebean.com<br />FOUR<br />Four things to watch <br />Revenue <br />Profits<br />Cash flow<br />Value<br />
  6. 6. 6<br />www.venturebean.com<br />Entrepreneurial Financial Strategies<br />Financial Forecasts<br />
  7. 7. 7<br />www.venturebean.com<br />FINANCIAL FORECAST: Overview<br />This is based on and driven by your business model<br />It helps to spend significant time thinking of your business strategy and business model<br />A business model develops and evolves over time – it is not static<br />
  8. 8. 8<br />www.venturebean.com<br />Business modelThe following are some key areas to be considered while developing a business model and plan- Business / idea- People behind idea/project- Market size expected- Marketing strategy- Competition- Financials- Other information which makes this complete <br />
  9. 9. 9<br />www.venturebean.com<br />Think <br />Long term<br />Medium term<br />Short term<br />FINANCIAL FORECAST: Overview<br />
  10. 10. 10<br />www.venturebean.com<br />Balance Sheet<br />Profit and Loss Account<br />Cash Flow<br />NOTE<br />If you do not understand the basics of financial statements you may spend time to learn<br />Financial statements are communicating tools for business i.e. business language<br />You do not need to be an accountant or MBA to understand the basics<br />FINANCIAL FORECAST: Overview<br />
  11. 11. 11<br />www.venturebean.com<br />May be <br />Monthly<br />Quarterly<br />Annual<br />In the initial years, these may be monthly or quarterly, in the long term, may be annual<br />FINANCIAL FORECAST: Overview<br />
  12. 12. 12<br />www.venturebean.com<br />Look at<br />Various revenue streams<br />Capital expenditure (land, computers, vehicles, furniture etc.)<br />Revenue expenditure (Salary, raw material cost, maintenance and repair costs etc.)<br />You may be able to convert a capital expenditure into a revenue and vise-versa .. HOW?<br />FINANCIAL FORECAST: Overview<br />
  13. 13. 13<br />www.venturebean.com<br />Think through <br />Requirements of cash infusions at different stages of the business<br />Resource constraints <br />Possible valuations at these stages<br />FINANCIAL FORECAST: Overview<br />
  14. 14. 14<br />www.venturebean.com<br />FINANCIAL FORECAST: Preparation<br />Use tools available – i.e. spreadsheets<br />Link and create templates, suitable to your requirement<br />
  15. 15. 15<br />www.venturebean.com<br />FINANCIAL FORECAST: Preparation<br /> Uncertainties and unknowns can be captured through:<br />Scenario and sensitivity analysis<br />Templates that allow for different scenarios – i.e. optimistic, pessimistic, expected, <br />i.e. by making the changes in the input, the output financials should show the impact<br />
  16. 16. 16<br />www.venturebean.com<br />Entrepreneurial Financial Strategies<br />Valuation;<br />Negotiations<br />
  17. 17. 17<br />www.venturebean.com<br />VALUATIONValuation is based on:- intangibles and - tangiblesValuation can be computed in multiple ways, the popular methods:- multiples of revenue; profit etc.- multiples of key drivers, eg.user base- cash flow based<br />
  18. 18. 18<br />www.venturebean.com<br />VALUATIONValuation may be driven by - the stake the entrepreneur is willing to give up at a particular stage of investment in the business and - the amount of money required by the business at that stage<br />
  19. 19. 19<br />www.venturebean.com<br />VALUATIONDifferent persons can value the same business differently because they may- use different methods of valuation- use variations in the methods - have different inputs in the methodsThus, valuation perceptions can vary, and we do have situations where there are divergent views on valuation<br />
  20. 20. 20<br />www.venturebean.com<br />VALUATIONDeals can sometimes be structured in such a way that the differences in valuation perception are factored, e.g. linking valuation to performance<br />
  21. 21. 21<br />www.venturebean.com<br />NEGOTIATIONS: Preparation<br />It is useful to think through:<br />What you want from a proposed transactions<br />Transaction/deal maker issues<br />Transaction/deal breaker issues<br />The point where you may be need to walk away <br />
  22. 22. 22<br />www.venturebean.com<br />NEGOTIATIONS: Preparation<br />Put yourself in the shoes of the other party<br />Prepare for a due diligence<br />Break up the transaction issues into small sub-issues which could be dealt with separately, rather than as a package<br />Think through the steps post the transaction<br />
  23. 23. 23<br />www.venturebean.com<br />NEGOTIATIONS: Preparation<br />Prepare with a list of possible questions that may be asked and how you will answer them<br />Who will negotiate, will it be based on the area, i.e. business issues, legal issues etc. …would these be handled by the subject matter specialists?<br />Understand the strengths and gaps of your team members<br />
  24. 24. 24<br />www.venturebean.com<br />Entrepreneurial Financial Strategies<br />Transition;<br />Roles of stakeholders<br />
  25. 25. 25<br />www.venturebean.com<br />TRANSITIONLook at the stage of your business and plan accordingly Growing to the next level may lead to issues such as- letting go of control- letting go of leadershipAre you ready for this?<br />
  26. 26. 26<br />www.venturebean.com<br />ROLES Plan on roles and responsibilities of team members; stakeholders Plus thinkthrough issues of contribution- in money- in kind- in intangibles<br />
  27. 27. 27<br />www.venturebean.com<br />Entrepreneurial Financial Strategies<br />to trigger thinking…<br />
  28. 28. 28<br />www.venturebean.com<br />Entrepreneurial finance<br />Entrepreneurship has many definitions, has elements of risk-taking, innovation and pursuit of opportunities relentlessly without regard to resources controlled<br />One needs to understanding finance in the context of entrepreneurial firms<br />
  29. 29. 29<br />www.venturebean.com<br />Entrepreneurial finance<br />Finance involves <br />resource allocation<br />cost of capital<br />deciding on funding source<br />managing working capital needs and ….most importantly<br />managing cash<br />
  30. 30. 30<br />www.venturebean.com<br />Entrepreneurial finance<br />Evaluation of business opportunities <br />from start-up stage to later stage companies<br />Understanding the value drivers of the business<br />Exploring options to create value, <br />for the business <br />for the stakeholders <br />
  31. 31. 31<br />www.venturebean.com<br />Entrepreneurial finance<br />Needs understanding of<br />People<br />Business<br />Environment<br />Deal issues<br />Synergies<br />
  32. 32. 32<br />www.venturebean.com<br />Sources of funding<br />Funding gap can be met from multiple ways, traditional, new ways of funding and looking at creative options<br />Can you think of these and list them<br />Each option has its own advantages and disadvantages; can you think of what these could be?<br />
  33. 33. 33<br />www.venturebean.com<br />Sources of funding - I<br />Funding gap can be met from<br />Equity investment<br />Angel investment<br />Venture capital investment<br />Debt financing<br />
  34. 34. 34<br />www.venturebean.com<br />Sources of funding - II<br />Funding gap can also be met from<br />Strategic investment<br />Increasing revenue by <br />changing product mix or <br />cash flow timing<br />Innovatively sourcing cash <br />
  35. 35. 35<br />www.venturebean.com<br />Some examples<br />IT product development company being let down by investor<br />Confectionery/chocolate producer needing extra funds to meet expected surge in demand during the Christmas Season <br />
  36. 36. 36<br />www.venturebean.com<br />Utilisation of funds<br />Funds raised are invested in<br />Available opportunity<br />Opportunity that is latent and not obvious<br />Creating opportunity<br />Based on strategy of entrepreneurs, which may change and evolve over time<br /> The question to be asked: Is value being created or is there an attempt to create value? <br />
  37. 37. 37<br />www.venturebean.com<br />Entrepreneurial finance and financial strategy in Summary<br />Strategic financial planning <br />for short term, medium term and long term <br />Preparing and implementing <br />business plans, financial forecasts<br />Review of funding options<br />Continuous monitoring and updation<br />setting up internal controls, management information systems<br />Preparing for alliance partnerships<br />including due diligence review, valuation and negotiation, deal terms and conditions<br />Value creation<br />
  38. 38. 38<br />www.venturebean.com<br />THANK YOU<br />Wishing you all success<br />

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