INTRODUCTION

Accounting and Finance for Entrepreneurs

EBD 301

Course Management

A.Basic Approach1. I Don’t assume any previous exposure

to;a. Accounting: keeping the booksb. Finance: analyzing the numbersc. Economics: understanding basic conceptsd. Marketing: getting your message oute. Business forms: sole, partners, corporation,

LLCf. Tax issues: effects of business form, typesg. Legal Issues: personal liability

Course Management

A.Basic Approach (Continued)2. What can I safely assume?

a. All of you have experience surfing the webb. All of you watch TV at some pointc. All of you have gone shoppingd. Many of you have credit cards.e. Some may have checking accounts.f. Most of you should have some experience

using Word, PowerPoint, and possibly Excelg. All of you have some curiosity about running

your own business at some point.

Course Management

B.Acquiring the necessary knowledge1. Reading the assigned materials before

class2. Participating in class discussions and/or

asking questions about the current topic

3. Completing homework assignments4. Getting an early start on the term

project5. Remembering that you are already

know half of the entrepreneurial equation

Examining our Motives

A. Where should we start?1. Why do I want to run my own business?

a. Financial Independenceb. The Challengec. Being the BOSSd. ???????????????

2. What makes you think you can run a business?a. Previous work experiencesb. Confidence in your abilitiesc. Willing to take risksd. Ready to take advantage of an opportunity

Examining our Motives

B.Personal Inventory1. What skills do I have that will be

useful?2. What skills do I need to acquire to

increase the chance of success?3. Can I muster the commitment

necessary to see this venture become successful?

4. Will I need help in accomplishing my goals?

5. What kinds of people will I need in the business?

Examining our Motives

C.Environmental Scanning1. When is a good time to start a

business?2. What types of opportunities are

available where I live or plan to live?3. What resources are available to launch

my business?4. Are there similar businesses already

operating?5. What kinds of permits/licenses will I

require?

Looking Forward

A. Why do we need to know some Accounting?1. If you are not keeping records, you won’t

know if you are making or losing money.2. If you’re losing money you’ll need to take

corrective actions and fast.3. If you’re making money, you want to know

how much.4. Keep in mind that you will always have

“partners” that are very interested in your business – the tax collectors.

Looking Forward

B.Why do w need to know some Finance?1. Just about every type of business has a

set of more or less universal performance standards;a. Gross Profit Margins (GPM)b. Operating Profit Margins (OPM)c. Net Profit Margins (NPM)d. Critical Ratios

1) Inventory Turnover2) Various Expense Ratios: Rent, Labor, Marketing3) Return on Investment

Looking Forward

C.Why do we need to know some basic Economics?1. The Laws of Supply and Demand

dominate the business landscape2. How do we deal with the competition?3. How important is pricing strategy?4. How does scale of plant affect

profitability?

Looking Forward

D.Why do we need to know something about marketing?1. Why is your “message” so important?2. What venues are best for reaching your

target clients?3. What about needs and wants?

Consumer preferences?4. What types of research should we do

before launching the venture?

Looking Forward

E. Why is the form of business organization selected an important decision?1. Sole Proprietorship: max liability2. Partnership: less personal liability

(maybe)3. Sub-Chapter S Corp: spreading the

liability4. Corporation: the best form in the long

run for a larger business5. Limited Liability Company: combining

aspects of partnership and corporate forms

Looking Forward

A.Why do we need to know about taxes?1. If you don’t pay them – you may find

your wages garnished or worse – time in prison.

2. Importance of paying them on time.3. Importance of adequate record

keeping.4. IRS audits will require documentation of

deductions.5. Knowing what can be deducted is

important to profitability

Looking Forward

A.What do we need to know about personal liability?1. In the beginning, you will have to personally

guarantee the credit/debts of your business.2. Failure of the business can drive you into

personal bankruptcy.3. It’s important to work out strategies to

protect your personal assets.4. What happens when the court waives the

corporate veil?

The Reading Materials for this Course

A BASICS APPROACHThe text is written in a style, based on an assumption, that the want-to-be or new entrepreneur knows little or nothing about accounting and accounting processes or finance and financial management or analysis. In addition it is also assumed that the budding entrepreneur has little or no exposure to economics (micro- or macro), or marketing. Other equally important areas of knowledge are business organizations, personal liability when you own your own business, tax laws, or bankruptcy. Where it is deemed advisable for completeness, the not so obvious connections will be made to these allied areas of knowledge. It is not the intention or objective of this text to make the reader an expert in all these areas. The intent is to increase awareness how the various fields of knowledge interact to increase the probability of a successful business venture. The primary objective of this text is to make you fluent enough in accounting and financial principles to increase the chances for success.

Reading Assignment

A.Read Chapter 1