11 - 1 Copyright © 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin.

11 - 1Copyright © 2009 The McGraw-Hill Companies, Inc., All Rights

Reserved.McGraw-Hill/Irwin

11 - 2

Part Four

Financing Entrepreneurial

Ventures

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A Financing Strategy Should be Driven By:

• Corporate and personal goals• Resulting financial statements• Ultimately by the available alternatives

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Chapter

11

Resource Requirements

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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

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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

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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

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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

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Accounting Firms

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

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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

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Hiring a Consultant

• Considerations• Not geographically bound• Word of mouth• References• People skills• Professional affiliations

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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

• BudgetingBreak-Even Calculations

• Cash Flow Projections