FINANCIAL ENTREPRENEURSHIP EDUCATION: THE CASE STUDY
APPROACH
BY
DR. (MRS.) S.L. ADEYEMI
DEPT. OF BUSINESS ADMINISTRATION
UNIVERSITY OF ILORIN
ABSTRACT
Financial entrepreneur is an essential skill that needs to be developed in order to ensure success
in business. It necessitates a broad understanding of the issues and numerous requirements of
financial management of assets, debt and equity, and the generation of profits. A distinction is
made between financial management and financial entrepreneurship. The objectives of financial
management are to ensure that the enterprise makes profits, while at the same time ensuring that
there is adequate liquidity available to meet current obligations as they fall due. It is argued that
financial entrepreneurship in the small firm has exactly the same objectives, with the important
difference that the entrepreneur is also the one important decision maker, and is also the person
carrying out the initial financial analysis. It is submitted that financial entrepreneurship can best
be taught using the case method, using “ball park figures” and emphasizing the possibilities of
arriving at various outcome rather than at one “correct” outcome.
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INTRODUCTION
Entrepreneurship is about exploiting business opportunities with a view to making profits. It
focuses on the utilization and strategic allocation of human, financial and physical resources with
the aim of profit optimization. An entrepreneur must be capable of taking risks in order to start
up an enterprise or to embark on a new venture. Having a novel idea or product is not a sufficient
condition for successful entrepreneurship. An entrepreneur must have commercial outlets for
ideas and products, which need to be exploited profitably. There must be seen to be a definite
need for an existing or potential good or service, sufficient to create a commercial demand
(Hooley, 1944). Thus, entrepreneurship requires a sustained market, an appropriate strategy, and
adequate long-term and short-term finance to support trading activities on a profitable basis.
FINANCIAL PLANNING CHALLENGES
With few exceptions, most new ventures start off with inadequate equity funding. It becomes
necessary to resort to a sufficient mix of debt and equity financing at the crucial start-up stage,
when the venture has no history of past earnings. It is imperative to negotiate debt financing and
establish a debt to equity gearing ratio that is acceptable to lenders and which can be serviced by
the venture without impeding growth.
From the outset, realistic financial planning is required in order to ensure long-term survival and
growth. An integral part of overall business planning is profit planning and maintaining liquidity.
The process includes economic forecasts and a realistic financial plan in the form of budgets.
The financial plan involves elements of strategy planning and of budgeting, and may be
classified under four main headings:
a.
the capital structure plan, setting out the desired debt/equity structure and the
method of funding this structure. A business needs to be adequately geared with a
mix of long-term and short-term debt/equity funding. The long-term funds are
required for investment in long-term, or fixed assets, while the short-term funds
are used for investing in current assets being turned over continually.
b.
the capital expenditure plan, which determines the fixed asset structure of a
business. The investment in fixed (or capital) assets locks up funds, and commits
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a business to a long-term strategy, which may be difficult to switch in the short
term because of its investment in fixed, capital assets.
c.
the operating profit plan, comprising the income budget and the matching
expenses budgets in generating the desired income. Any firm that cannot earn
adequate profits and returns on investment cannot remain in business in the longterm. The operating profit plan concentrates on the generation of gross income,
from the turnover of current assets, and the control of operating expenses so as to
result in net profit.
d.
the cash flow budget which forecasts the actual flow of cash inwards and
outwards in maintaining the vital liquidity function. Liquidity is the lifeblood of
any business. A business may have adequate capital and might be generating
adequate profits, yet it can flounder if it cannot maintain liquidity and pay its
debts and obligations as they fall due, daily, weekly, and monthly. Cash flow
planning involves projections of cash receipts and payments, to ascertain when
short-term funds need to be borrowed to meet temporary cash shortfalls and when
these borrowed funds will be repaid.
The financial plan is both prospective and administrative requiring continual evaluation of actual
outcomes against planned outcomes. Appropriate adjustment need to be made either to plans or
to operations whenever the variances between actual and planned are too great.
FINANCIAL MANAGEMENT AND FINANCIAL ENTREPRENEURSHIP
A business entrepreneur cannot be expected to develop financial management skills comparable
to a qualified accountant while at the same time operating a successful venture. Botton is of the
opinion that “the task of developing financial management skills to the degree of a qualified
professional is difficult for a business entrepreneur to attain, particularly whilst running a
successful venture” (see Ratnatunga et al. 1993, p.v). It is suggested therefore that a distinction
should be made between financial management and financial entrepreneurship to
entrepreneurship education.
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The objective of financial management is to ensure that a venture makes profit, while at the same
time ensuring that there is adequate liquidity available to meet obligations as they fall due.
Financial management is seen as a function performed by a qualified accountant. The tools and
techniques developed in financial management have been mostly for application in large
businesses.They cannot easily be adopted by smaller business, as the cost of the required data
collection and analysis would usually be very high.
In contrast, financial entrepreneurship is an attribute that every successful owner of a business
must develop as a skill. It requires an understanding, in broad terms, of the many requirements of
financial management, including the level at which it would be advisable to seek professional
help (Ratnatunga et al., 1993).
Financial entrepreneurship has exactly the same objectives as financial management, with the
important difference that the entrepreneur is the person carrying out the analysis and making the
decisions. Instead of using precise figures often obtained from long and costly data collection,
reliance is placed more on informed experience. Such approaches place more emphasis on “ball
park figures”, “safety add-ons” and “margins for error” than is acceptable in financial
management analysis (Ratnatunga et al, 1993, p.4).
Financial entrepreneurship is considered to be an art. It relies on the person rather than the
system to provide the necessary insights for the quality of the information being analyzed. The
“presumed precision” of financial management analysis is replaced by the “experience insight”
of the entrepreneur.
ENTREPRENEURSHIP AND EDUCATION
Entrepreneurial activities require the application of the appropriate knowledge in an appropriate
environment. The definition of entrepreneurs revolves around the concept of persons who startup and organize enterprises with the view of obtaining commercial profits, despite the elements
of financial risks involved.
Entrepreneurship is not confined exclusively either to small businesses or large organizations, or
even to a particular class of persons. However, the small business environment permits
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entrepreneurs to express their ideas or novel initiatives more freely, with less organizational
constraints and delays (Romano and Ratnatunga et al, 1992).
Entrepreneurs tend to be persons with a high need for achievement. Bobbitt et al (1978, pp. 151)
characterize persons with high achievement needs as follows:

they are exploratory, tending to seek out new achievement opportunities;

they prefer situations in which they can utilize their skills and have a feeling of
control over the outcomes of their actions;

they prefer to choose goals that they feel are capable of attainment, while still
presenting them with a challenge;

they like to compete against some standard of excellence and tend to become
frustrated if they do not receive feedback on their decisions and performance.
Given varying attitudes towards entrepreneurship education, one view is that “entrepreneurs are
born, not made”. An alternative view considers that entrepreneurship qualities can be developed
in individuals by systematic training (Deshpande et al, 1991).
According to Kieruff (1975), a person is more likely to act with confidence, and be more willing
to take risks, if the issues concerning a situation are understood. He considers that many of an
individual’s perceptions with regard to entrepreneurship can be altered by education methods
designed to replace uncertainty with knowledge. Consequently, the outcomes of decision-making
will be better appreciated in given circumstances.
Based on studies of the achievement motive in different societies, David McClelland (1961)
concluded that a society’s overall economic achievement would be enhanced if the average level
of the “need to achieve” were to rise.
McClelland (1965) further argued that the basic personality characteristics associated with
entrepreneurship could be influenced by education. Chong and Lee (1991) support this
hypothesis and consider that education and training play major important roles in the
development of an entrepreneur. They maintain that entrepreneurship cannot be taught
effectively using a traditional textbook based approach, and that education and training should be
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merged to enhance the process skills of individuals. Creativity, intuition and judgment are some
of the process skills that can be emphasized in properly devised educational systems.
In reviewing entrepreneurship education in Southeast Asian countries, Brockhaus (1991, p.80)
maintains:
Present management training, to the extent that it exists at all, tends to be highly
theoretical in both content and presentation, far removed from the day-to day realities of
managing an enterprise.
Under changing economic conditions, managers will be required to make managerial, technical
and attitudinal changes. New decision making approaches are indicated in such areas as pricing,
product mix, marketing and investments in assets.
Brockhaus (1991) argues that new interactive methods, carefully adapted to the environment of a
particular country will be necessary. The authors of this paper contend that this can best be
attained through the use of the case method in entrepreneurship education.
The traditional forms of business education, oriented to big business situations are leading to
increasing disenchantment on the part of both business school accreditors and business students
(Solomon and Fernald, 1991). They suggest that teaching entrepreneurship requires an approach
different from that of the conventional programmes. The trend now is towards small business
education, with the focus on interacting with other persons in order to develop creative
applications of business ideas and entrepreneurial competencies.
Entrepreneurs need to view their ventures as a total system, incorporating strategy, planning and
decision making. Rogers (1977) maintains that the ability to view activities in terms of their
impact on the whole enterprise is a skill that some managers possess innately, and others develop
through experience. Further, this ability can also be discovered and developed in a classroom
situation through case study exercises.
Vesper (1985) considers that the study of small business formation and growth remains a new
frontier for educationists, resulting in an increase in offering courses in small business
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entrepreneurship. It is suggested that the use of the case method best fills the need in providing
entrepreneurial education in small business, especially in regard to education in financial
entrepreneurship.
USING THE CASE STUDY APPROACH
The case study approach emphasizes learning and the application of knowledge in a simulated
situation, as an integrated educational process, in contrast to the conventional methods of
students acquiring knowledge passively through textbooks in anticipation that such knowledge
might be applied meaningfully in real practice. In place of the highly structured problems
normally encountered in conventional financial management courses, students are required to go
outside of rigid conceptual boundaries to consider also issues beyond the one posed by the case
study information.
The case study approach emphasizes three major aspects in learning about analyzing and solving
problems:

diagnosis and analysis

exploration of alternatives

decision making
A case simulates reality in that some of the information provided is important to one issue, while
being of minor importance to some other issue. Some of the information may be irrelevant or
useless to the decision maker. It is the student’s task to learn to sort out the salient, relevant
issues from the information available, and to use the information and data developed to best
advantage in feasible decisions.
Broom (1969, p.375) states that the goals of the case method as a teaching device for students
should be:

recognition of the existence of a problem and identifying the underlying policy
issues involved;

development of skills in situational analysis and decision making about situations
which try to simulate actual conditions;
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
exchange of ideas with class members, which induces an understanding that a
decision or solution also needs external validation;

development of transfer skills about what has been learnt in cases to be applied to
problem solving in new fields of endeavour.
A static set of facts, which are never complete, need to be expanded with relevant, reasonable
assumptions being made in considering alternatives, and deciding on some preferred solution. In
a simulation of real life situations, the case study approach makes students directly responsible
for decision making. Thus, it would not require a quantum leap of knowledge to apply such
experiences and perceptions learnt to entrepreneurial problems in real life.
A case is a partial report of a situation, which requires some solution. The case provides
information and data which are essential to an analysis within a specific framework. Some
quantification of factors is usually possible, depending on the information provided. The
approach used by the author of the paper in teaching financial entrepreneurship is to emphasize
the situational factors in the case study.
In a situational analysis the student is required to present feasible decisions based on logical
analysis, given incomplete information, a limitation on assumptions, and the ever-present
conflict of alternative solutions (Christensen, 1987). The reality is that an entrepreneur or
manager never has enough information available for ideal decision making because the
information is not attainable at a particular moment in time, or acquiring the information is too
costly (Glueck, 1986).
Similar to real life situations, case study issues are tied together into generalizations, with the
assumption that some issues are peripheral and less important to the immediate central problem
requiring resolution. The following case summary illustrates the approach.
For example, an entrepreneur wishing to gain market share might consider that a more generous
credit policy for debtors will lead to an expansion in sales. A lecture would have preceded the
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case emphasizing the fact that a firm could well increase sales and profits and yet face problems
because of failure to maintain adequate liquidity.
Students discussing the case are asked to consider the implications of such a policy on
profitability and long-term liquidity. They need to examine the effects of increasing sales on
profits, and whether sales prices would be maintained or reduced. There is also the need to
consider other peripheral issues to assess their importance and long-term implications on the
business. For instance, increases in credit sales also increase accounts receivable and, in turn, the
amount of bad debt write-offs. Increasing sales also require additional investment in inventories.
How will this be funded, and what effect will this have on gross and net working capital, and on
short-term and long-term liquidity?
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CONCLUSION
It is still an unresolved debate whether entrepreneurship and business can be taught in theory or
whether it is learnt through the frustrations of actual practice. Rogers (1977, p. ix) maintains that
“since strategy and planning rely more on skills and wisdom than on techniques and specific
knowledge, learning about business policy must be done through real or vicarious experiences,
not through lists of principles”.
In recognition of the fact that managerial skills are of crucial importance in running a thriving
enterprise, Deshpande et al (1991, p. 302) state that students can be helped to learn supporting
entrepreneurial skills like production management, marketing, and financial management
through appropriate training modules. They conclude that “students can be trained to perceive an
opportunity and to harness the available resources so that an idea can be turned into a successful
venture”
It is submitted that the use of case studies in teaching financial entrepreneurship provides the
methodological framework for decision making, based on incomplete presentation of
information. Incomplete information is the reality in business life, which requires the identifying
and presenting solutions to the problems of daily financing that challenge entrepreneurs and
managers.
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