Week 6 – February 11 – 15
What do you need to know?*
7 Principles of Entrepreneurial Finance
1. Real human, and financial capital must be ‘rented’ from owners.
2. Risk and expected reward go hand in hand: don’t risk something that
won’t be rewarding
3. While accounting is the language of business, cash is the currency:
Liquidity of assets and cash on balance is important!!
4. New venture financing involves search, negotiation, and privacy.
5. A venture’s financial objective is to increase value.
6. It is dangerous to assume that people act against their own self-interests:
People only do what is good for them!
7. Venture character and reputation can be assets or liabilities.
Financing vehicles used at different stages
Development stage: Seed Financing
Start-up Stage: Startup financing
Survival stage: First-round financing
Rapid-growth stage: Second-round financing,
Mezzanine financing, Liquidity-stage financing
Early-maturity stage: Obtaining bank loans, issuing
bonds and issuing stock
Measures of financial performance – statements
Balance Sheet (Statement of Financial Position):
Provides a ‘snapshot’ of the venture’s financial position on a specific date
ASSETS = LIABILITIES + OWNERS’ EQUITY
Assets listed in order of liquidity (how fast they can be converted to cash)
Current Assets: converted to cash within 12 months (funds used to pay bills) Cash,
marketable securities, accounts receivable, notes receivable, inventory
Fixed Assets: long-term assets used in production (except for land, they usually wear
out through amortization/depreciation) buildings, land, equipment, furniture,
In-tangible Assets: long-term assets with no physical existence (patents, copyrights,
Owners’ Equity: Records financing obtained by owners
Retained earnings: amount left over from profitable operations (total profits –
Liabilities: Financing obtained by lenders Current Liabilities: must be paid within 12 months Accounts payable, notes
payable, accrued expenses (accumulated expenses such as wages & taxes which must be
paid, but no bill was received by the firm), income taxes payable, current portion of long-
term debt (repayment on debt due within the year)
Long-term Liabilities: ex. Mortgage, company’s bonds sold to others, bank loans, etc.
Shows firms revenues and expenses total profit/loss over a period of time
Revenue-Expenses= Net Profit/Loss
Revenue: dollar amount of firms sale (plus any other incomes interest,
o Determined with Gross Sales (total amount of sales)- returns and
allowances (merchandise returned because it was damaged/defected) =
Expenses: cost of generating revenue
o Cost of Goods Sold (COGS): total expense of buying/producing
Beginning Inventories + Inventory Purchases = Inventories
available for sale ……. – ending inventories = COGS
o Operating Expenses: expenses of running the business (administrative,
Statement of Cash Flows:
To ensure company does not go bankrupt: remember, just because it is profitable,
does not mean it won’t go bankrupt!!
Impact on Cash
Operating Activities (rel