Financial and Cash Management for Entrepreneurs

Lecture for entrepreneurship students at the Ateneo

Graduate School of Businesss

CASH IS KING

The gravest mistake that an entrepreneur can make is to

run out of cash

Cash

Problem of most start-ups

…Its not the capital, but lack of sufficient liquidity to support the business at the initial stages….

Sources of funds at the start-up stage:

Savings Relatives and friends Credit cards Informal often usurious lenders Suppliers (rarely)BANKS DO NOT LEND TO START-

UPS!

Must have for a start-up enterprise:

MVP Sufficient cash flow Sufficient profits/margins Large enough number of

customers

THE TEST OF FEASIBILITY

Break even analysis

Short cut:

Fixed cost (Plus profit and taxes)/ gross profit rate = break even number of units.

Break even sales: break even number of units x selling price. (Factor in the vat or grt)

Break even point

Du Pont Analysis

Return of Investment = Net Income divided by Total Stockholders Equity:

Efficiency= Net Income/Total Sales x

Turn-over= Total Sales/Total Assets x

Leverage = Total Assets/Total Stockholders Equity

Tagalog version of Du Pont

Patong

Paikot

Laway

Other financial ratios

Liquidity ratios Profitability ratios Leverage ratios

Financial statements

Statement of conditions

Cash flow statements

Balanced statement of conditions

Financial statements

Guides on financial statement evaluation/due diligence It is as of; as snapshot Examine the status of inventory as to

whether it is current or saleable; The manner of recognizing income,

expenses and inventory must be consistent and approved by management

Integrithy on the part of accountant/controller

For financial projections: The financials must support the strategic

plans, as capex, spend for advertising; The sources of funds must be specified: bank loans, new equity, retained earnings; The assumptions for sales projections

must come from market research, from thorough micromarket, external opportunity and competitive analysis

Advanced tools:

Discounted Cash Flow Analysis Net Present Value IRR

DCF FORMULA

Business valuation

Replacement cost approach

Market approach

Capitalized income approach

Thank you!

Profjorge.entrep@gmail.comAteneo Graduate School of

Business

Acknowledgement:

The pictures and graphs are from google images;

The ideas are common stock knowledge

from finance management. This is a review of basic finance

and cash management concepts