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Entrepreneurial Finance
Lecture 1: Introduction
Anton Miglo
Fall 2015
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Organizational comments
 Blackboard: course outline, grades, announcements,
PPT slides
 Quizzes
 Assignments
 Business cases
 On-line game
 Excel practice
 Class participation
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Course plan
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Introduction
Start-up financing
Short-term financial planning and cash management
Entrepreneur’s financial portfolio and wealth management
Financial analysis
Financial projections and bank financing
Venture capital and angel financing
Capital structure management
Financial distress
Succession strategy and exit strategy
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Lecture 1: Topics
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Entrepreneurship
Entrepreneurial finance
Entrepreneurial finance ideas and principles
Financially sound business plan
Screening entrepreneurial ideas vs. traditional firm’s analysis
Choice of organizational type and form for entrepreneurial firms
and entrepreneurial ventures.
On-line game: overview and quarter 1
Exercises: evaluating the financial attractiveness of entrepreneurial
ideas, choice of org. form, Long. Ch.10 situation 1,2
Excel: ROA etc. ideas, start-up cost calculations?
Cases: 1) Longenecker p. 492 Case 3, 2) Long. Ondraga
Readings: Leach 1,2,3 Long. 1, 10, Adelman 1,2
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ENTREPRENEURIAL OPPORTUNITY
 In 2010, 2.7 million Canadians were selfemployed and according to a report published
by the BDC, indicators show that the level of
entrepreneurial activity in Canada has
increased. Approximately 10 % of the
Canadian population currently owns a business
and, looking to the future, 11.2 % of
Canadians intend to start a business at some
point in their lives
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Entrepreneurship Fundamentals
 Entrepreneurship:
 process of changing ideas into commercial opportunities and creating
value
 Entrepreneur:
 individual who thinks, reasons, and acts to convert ideas into
commercial opportunities and to create value
 Entrepreneurs:
 active owner-managers
 second-generation operators of family-owned firms
 franchisees
 owner managers who have bought out the founders of existing firms
 Small business managers:
 receive specified compensation
 do not assume ownership risks
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WHAT IS A SMALL BUSINESS?
 Criteria
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Financing supplied by one person or small group
Localized business operations (except marketing)
Business’ size small relative to larger competitors
Fewer than 100 employees
 According to Statistics Canada, in 2009:
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1,114,915 small businesses in Canada
98 % have fewer than 100 employees
contribute about 42 % to Canada’s GDP
employ 48 % of total labour force in private sector
46 % have female ownership
87 % of Canadian exporters and make up 21 % of Canada’s total
value of exports
75 % operate in service industries
25 % in goods-producing industries
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Entrepreneurial Finance
 Entrepreneurial Finance


application and adaptation of financial tools and techniques
to the planning, funding, operation, and valuation of an
entrepreneurial firms and venture firms
focuses on the financial management of a firm as it moves
through its life cycle, beginning with its development stage
& continuing through to when the entrepreneur exists or
harvests the venture
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Checkpoint
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Entrepreneurs provide the financing to individuals who
think, reason, and act to convert ideas into commercial
opportunities and create opportunities.
True
False
Entrepreneurial finance is the application and adaptation of
financial tools and techniques to the planning, funding,
operations, and valuation of an entrepreneurial firm or
venture firm.
True
False
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E-Finance Principles
1. Real, Human, and Financial Capital Must be Rented from
Owners
 Money has owners and therefore costs: Time value and Risk
 Expect to provide a return or the venture will not survive in a
market economy
2. While Accounting is the Language of Business, Cash is the
Currency
 Cash flow is a new venture’s lifeblood
3. New Firm’s Financing Involves Search, Negotiation, and
Privacy
 Private Financial Markets: customized contracts bought and
infrequently sold in inefficient private negotiations
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E-Finance Principles (cont.)
4. A Firm’s Financial Objective can be different from public companies
 Initial stages of development vs. later stages
 Venture firms vs. traditional small business
 Firm’s objectives vs. personal ones
 Often, the unifying financial objective is to increase value
5. It is Dangerous to Assume that People Act Against Their Own Self-Interest
 Aligning incentives (investors, founders, employees, spouses, etc.) is critical
 As situations change, incentives diverge and renegotiation is important
 Owner-manager conflicts: differences between a manager’s self-interest and that
of the owners who hired him/her
 Owner-debtholder agency conflict: divergence of the owners’ and lenders’ selfinterests as the firm gets close to bankruptcy
6. Firm’s Character and Reputation Can be Assets or Liabilities
 Firms have character that can be different from the individuals who founded or
manage it
 Many entrepreneurs state that reputation is one of a firm’s most important assets
and is critical to long-term success and value
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Checkpoint
New Firm’s Financing Involves Search, Negotiation, and
Privacy.
 True
 False
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Components of a Sound Business Model
 Generate Revenues (You must have customers and
sell them something)
 Make Profits (You must eventually have revenues
that exceed the expenses of generating those
revenues)
 Produce Free Cash Flows (You must generate cash
inflows that exceed net working capital and capital
expenditures)
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Best Financial Practices
 Prepare detailed monthly financial plans for the next year
and annual financial plans for the next five years
 Anticipate and obtain multiple rounds of financing as the
venture grows
 Efficiently and effectively manage the firm’s assets,
financial resources, and operating performance
 Plan an exit strategy consistent with the entrepreneur’s
objectives and business plan
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Checkpoint
Best practices of entrepreneurial or venture
firms applied in the financial practices area
include preparing detailed monthly financial
plans for the next year and annual financial
plans for the next three-five years.
 True
 False
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Screening Entrepreneurial Opportunities
 Opportunity screening:
assessment of an idea’s commercial potential to produce revenue
growth, financial performance, and value
 Our approach:
Qualitative screening: Interview with the Founder
Quantitative screening: Indicators
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Qualitative Screening: Interview
Four Factor Categories Initially Evaluating a Potential
Firm’s Attractiveness:
1.
2.
3.
4.
The Big Picture
Know Thy Customer
Production and Development Challenges
Financial Fortune-Telling
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Quantitative Screening: Indicators
 Attempt to quantify the following areas
Industry/Market
 Pricing/Profitability
 Financial/Harvest
 Management Team

 Supplement to, rather than replacement of,
basic qualitative Q&A approach
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Example 1
ATTRACTIVENESS
Criterion
Favorable
Unfavorable
Need for the product
Well identified
Unfocused
Customers
Reachable; receptive
Unreachable; strong loyalty to competitor’s product or service
Value created for customers
Significant
Not significant
Market structure
Emerging industry; not highly
competitive
Mature or declining industry; highly concentrated competition
Market growth rate
Growing by at least 15% a year
Growing by less than 10% a year
Moderate to strong
Weak to nonexistent
Proprietary information or regulatory
protection
Have or can develop
Not possible
Response/lead time advantage
Competition slow, nonresponsive
Unable to gain an edge
Legal/contractual advantage
Proprietary or exclusive
Nonexistent
Well developed; accessible
Poorly developed; limited
Return on investment
25% or more; sustainable
Less than 15%; unpredictable
Investment requirements
Small to moderate; easily financed
Large; difficult to finance
Time required to break even or to reach
positive cash flows
Under 2 years
More than 4 years
Management Capability
Management team with diverse
skills and relevant experience
Solo entrepreneur with no related experience
Fatal flaws
None
One or more
Market Factors
Competitive Advantage
Control over prices, costs, and distribution
Barriers to entry:
Contacts and networks
Economics and Finance
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“High” gives score 3, average -2 and low -1
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ROA Model Considerations
 Case 1: High Profit Margins & Low Asset Turnovers (often high price/high
performance)
Examples: products and services based on technological innovations
 Case 2: Low Profit Margins & High Asset Turnovers
Examples: commodity-type products and services
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Checkpoint
All else held constant, a higher asset turnover
usually:
a. increases ROA
b. decreases ROA
c. has no effect on ROA
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Smitty’s Li’l Haulers
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K. Ondraya
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Forms of Business Organization
Sole
proprietorship
Ease of formation/
termination
Owners liability
Easy
Unlimited
Separate legal
entity
Degree of control
Taxes
Transfer of
ownership
Partnership
Relatively Easy
Usually unlimited
No
Complete
Opportunities to
raise capital
Strong
Entrepreneurial Finance 1, Anton Miglo
Requires agreement
of the partners
Limited
Complex
Limited
Yes
Based on personal Income taxes
Limited
Corporation
Separation of control
and ownership
Corporate Income Tax
& tax on dividends
Unlimited
Large
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Checkpoint
1. Which one of the following is correct
regarding a limited partnership?
a. A single partner(s) is given control over the
operations of the partnership.
b. Each partner has unlimited liability for the
partnership debts.
c. Each partner's liability for the firm's debts
is limited to each partner's investment in the
firm.
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Entrepreneur’s Personal Finance vs. Firm’s Finance
Personal Budget
 List all Income Items
 Net income, spouse’s net income
 Rental income, pension income, alimony, EI, public assistance, allowance
 List all Expense Items
 Home, utilities, food, family obligations (daycare, baby-sitting, child support, alimony)
 Health and medical (insurance, fitness clubs, massages)
 Transportation (car payments, gas, maintenance, insurance, license, tolls)
 Debt payments (student loans, credit cards, lines of credit, other loans)
 Entertainment / Recreation (cable, internet, movies, alcohol, hobbies, vacations)
 Investments & Savings (RSP contributions, non-registered savings, emergency fund)
 Miscellaneous (gifts, grooming, toiletries, pets, others)
 Monthly Income minus Monthly Expenses = Surplus or Deficit
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Financial Statement (Personal Form)
 Used for single bank loan application form (personal or individual
business purposes) which incorporates two individual financial
forms:
 Statement of financial position
• Cash
• Cash Equivalents
• Invested Assets
• Use Assets
• Liabilities
• Net Worth
 Personal cash flow statement
• Income
• Fixed Expenses
• Variable Expenses
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Table 3 -1, Financial Statement, Personal Form
FINANCIAL STATEMENT Personal Form
FIRST ANY KIND OF BANK:
NAME:
ADDRESS:
CITY, STATE, ZIP
SPOUSE NAME:
ASSETS
CASH IN THIS BANK: CHECKING
SAVINGS:
CASH IN OTHER FINANCIAL INSTITUTIONS:
MARKETABLE STOCKS AND BONDS; (SCHEDULE 1)
ACCOUNTS RECEIVABLE: (SCHEDULE 2)
TOTAL CURRENT ASSETS
NOTES OR MORTGAGES RECEIVABLE:
(SCHEDULE 3)
CASH SURRENDER VALUE LIFE INSURANCE:
(SCHEDULE 4)
VEHICLES (YEAR & MAKE):
REAL ESTATE: (SCHEDULE 5)
OTHER PERSONAL PROPERTY:
TOTAL ASSETS:
ANNUAL INCOME:
GROSS SALARY:
SPOUSE'S GROSS SALARY:
BONUSES & COMMISSIONS:
INCOME FROM SECURITIES: (SCHEDULE 1)
RENTAL OR LEASE INCOME (SCHEDULE 3)
MORTGAGES OR CONTRACT INCOME (SCHEDULE 3)
OTHER INCOME (DESCRIBE):
TOTAL GROSS INCOME:
LESS - TOTAL EXPENSES:
NET CASH INCOME:
Entrepreneurial Finance 1, Anton Miglo
IN DOLLARS
OFFICE:
SOCIAL SECURITY NO:
BUSINESS PHONE:
HOME PHONE:
SOCIAL SECURITY NO:
LIABILITIES:
LOANS PAYABLE THIS BANK:
LOANS PAYABLE OTHER FINANCIAL
INSTITUTIONS: (SCHEDULE 6)
ACCOUNTS PAYABLE OTHER FIRMS &
INDIVIDUALS: (SCHEDULE 6)
CREDIT CARDS:
INCOME & OTHER TAXES PAYABLE:
REAL ESTATE TAXES:
TOTAL CURRENT LIABILITIES:
OTHER REAL ESTATE INDEBTEDNESS
(SCHEDULE 5):
LIFE INSURANCE LOANS:
(SCHEDULE 4)
OTHER LONG TERM DEBTS: (DESCRIBE)
TOTAL LIABILITIES:
TOTAL ASSETS - TOTAL LIABILITIES
=
NET WORTH
ANNUAL FIXED EXPENSES:
REAL ESTATE PAYMENTS: (SCHEDULE 3)
RENT
INCOME TAXES:
PROPERTY TAXES:
ALIMONY, CHILD SUPPORT:
INSURANCE PREMIUMS:
OTHER (DESCRIBE):
TOTAL ANNUAL EXPENSES:
IN DOLLARS
Personal Income Statement
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(Cash Flow Statement)
 Income: include all sources
Wages, tips, overtime
 Interest on savings, stock dividends, etc.

 Fixed Expenses
Contractual, which must be paid
 Rent, Insurance, Utilities, Car Payments, etc.

 Variable Expenses

You control level of expenses (food, clothing)
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Table 3-2 Jones Family, Personal Income Statement
The Tom Jones Family
Personal Income Statement
(Cash Flow Statement)
January 1, 2013 to December 31, 2013.
INCOME
Salaries
Interest Income
TOTAL INCOME
FIXED EXPENSES
Mortgage Payment
Automobile Payment
Property Taxes
Insurance
Income Taxes
Savings & Investment
Personal Loan Payment
TOTAL FIXED EXPENSES
$
$60,740
$ 9,600
5,040
1,235
4,500
5,032
1,200
900
VARIABLE EXPENSES
Food
$ 5,485
Transportation
2,500
Utilities
1,800
Clothes & Personal
2,700
Recreation & Vacation
2,780
TOTAL VARIABLE EXPENSES
TOTAL EXPENSES
(Cash Balance at the end of the year)
Entrepreneurial Finance 1, Anton Miglo
60,000
740
$
27,507
$
15,265
$ 42,772
$ 17,968
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Business Income Statement
 Basic Format
Sales, Revenues, Income from doing business.
 Less Cost of Goods Sold
 Gross Profit
 Less Operating Expenses
 Operating Income
 Less Interest
 Net Income (Explain)

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Table 3-3
The Tom Jones Company
Income Statement
January 1, 2013, through December 31, 2013
Gross Sales
$ 350,642
Less: Returns and Allowances
2,366
Net Sales
$ 348,276
Cost of Goods Sold
124,276
Gross Profit
Operating Expenses:
Salaries Expense
Rent Expense
Property Taxes Expense
Depreciation Expense
Utilities Expense
Advertising Expense
Insurance Expense
Total Operating Expenses
$ 224,000
$
95,000
24,000
2,500
6,000
10,250
9,250
3,000
150,000
Operating Income
Other Expenses:
Interest Expense
Net Income*
$
74,000
$
64,000
10,000
*This line on an Income Statement for a Corporation appears as Net Income before Income
Taxes see Table 3-3a
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Table 3-3a Income Statement, Corporation
The Tom Jones Company
Income Statement
January 1, 2013, through December 31, 2013
Net Income before Income Taxes*
$
Less: Provision for Income Taxes
Net Income
Net earnings per share of common stock:
(100,000 shares outstanding)
Entrepreneurial Finance 1, Anton Miglo
64,000
11,000
$
53,000
$
0.53
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Balance Sheet
(Statement of Financial Position)
 Basic Accounting Equation
Individual
Total Assets  Total Liabilitie s  Net Worth
Sole Proprietorship
Total Assets  Total Liabilitie s  Owner ' s Equity
Partnership
Total Assets  Total Liabilities  Partner' s Equity
Corporation
Total Assets  Total Liabilities  Stockholder ' s Equity
Entrepreneurial Finance 1, Anton Miglo
Table 3-4 Statement of Financial Position (Balance Sheet)
The Tom Jones Family
Statement of Financial Position
As of December 31, 2013
Assets
Cash and Cash Equivalents
Cash and Checking Account
$ 1,900
Savings Account
4,000
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Total Cash and Cash Equivalents
Need to follow closely.
It can become negative (!)
for sole proprietorships
and
partnership that can lead
to bankruptcy
Invested Assets
Stocks and Bonds
Life Insurance Cash Value
$
38,000
5,500
Total Invested Assets
Use Assets
Residence
Automobiles
Furniture, clothing, jewelry, etc.
$ 43,500
310,000
45,000
52,000
Total Use Assets
$ 407,000
Total Assets
Liabilities and Net Worth
Liabilities
Homeowners Insurance Payable
Credit Card Payable
Automobile Note Payable
Home Mortgage Payable
Total Liabilities
Net Worth
Total Liabilities and Net Worth
Entrepreneurial Finance 1, Anton Miglo
5,900
$ 456,400
975
4,500
22,400
138,000
$ 165,875
290,525
$ 456,400
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Table 3-5 Balance Sheet (Statement of Financial Position), Sole Proprietorship
The Tom Jones Company
Balance Sheet
As of December 31, 2013
Assets
Current Assets
Checking Account
Certificates of Deposit
Accounts Receivable
Inventory
Total Current Assets
Connected to previous slide
Fixed Assets
Land
Buildings
Less: Accumulated Depreciation
Equipment
Less: Accumulated Depreciation
Total Fixed Assets
$
2,000
50,000
40,000
35,000
$ 127,000
$ 50,000
$ 250,000
50,000
$ 50,000
6,000
200,000
44,000
$ 294,000
Total Assets
Liabilities and Owner's Equity
Current Liabilities
Accounts Payable--Trade
Notes Payable--Bank
Taxes Payable
$ 421,000
$ 16,500
5,000
3,000
Total Current Liabilities
Long-Term Liabilities
Building Mortgage Payable
Equipment Loan Payable
Total Long-Term Liabilities
Total Liabilities
Owner's Equity
Total Liabilities and Owner's Equity
Entrepreneurial Finance 1, Anton Miglo
$ 24,500
$ 180,000
30,000
$ 210,000
$ 234,500
$ 186,500
$ 421,000
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Table 3-6 Balance Sheet, Partnership
Tom Jones and Partners
Partners' Equity
Tom Jones
Larry Smith
Kathy Moore
Total Partner's Equity
Total Liabilities and Partners' Equity
Entrepreneurial Finance 1, Anton Miglo
$
18,650
83,925
83,925
$ 186,500
$ 421,000
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Table 3-7 Balance Sheet (Statement of Financial Position), Corporation
The Tom Jones Corporation
Balance Sheet
As of December 31, 2013
Assets
Current Assets
Checking Account
Certificates of Deposit
Accounts Receivable
Inventory
$
2,000
50,000
40,000
35,000
Total Current Assets
$
127,000
Total Fixed Assets
$
294,000
Total Assets
$
421,000
$
35,500
Total Long-Term Liabilities
$
210,000
Total Liabilities
$
245,500
$
175,500
$
421,000
Fixed Assets
Land
Buildings
Less: Accumulated Depreciation
Equipment
Less: Accumulated Depreciation
$
$
$
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable--Trade
Notes Payable--Bank
Taxes Payable
Total Current Liabilities
Long-Term Liabilities
Building Mortgage Payable
Equipment Loan Payable
Stockholders' Equity
Preferred Stock, $5 par (10,000 Shares)
Common Stock, $0.10 par (100,000 Shares)
Paid-in Capital in Excess of Par--Common
Total Paid-in Capital
Retained Earnings
Total Stockholders' Equity
Total Liabilities and Stockholder's Equity
Entrepreneurial Finance 1, Anton Miglo
250,000
50,000
50,000
6,000
50,000
200,000
44,000
$
$
$
$
16,500
5,000
14,000
180,000
30,000
50,000
10,000
50,000
110,000
65,500
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Table 3-7a Balance Sheet (Statement of Financial Position), Corporation
The Tom Jones Company
Balance Sheet
As of December 31, 2012
Assets
Current Assets
Checking Account
Certificates of Deposit
Accounts Receivable
Inventory
$
3,000
23,000
18,000
Total Current Assets
$
44,000
Total Fixed Assets
$
150,000
Total Assets
$
194,000
$
11,500
Total Long-Term Liabilities
$
170,000
Total Liabilities
$
181,500
Fixes Assets
Land
Buildings
Less: Accumulated Depreciation
Equipment
Less: Accumulated Depreciation
Liabilities and Owner's Equity
Current Liabilities
Accounts Payable--Trade
Notes Payable--Bank
Taxes Payable
Total Current Liabilities
Long-Term Liabilities
Building Mortgage Payable
Equipment Loan Payable
Owner's Equity
Total Liabilities and Owner's Equity
Entrepreneurial Finance 1, Anton Miglo
$
$
$
100,000
45,000
50,000
5,000
50,000
55,000
45,000
$
8,000
3,500
`
$
$
135,000
35,000
12,500
12,500
$
194,000
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Table 3-8 Statement of Cash Flows
The Tom Jones Corporation
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash and Cash Equivalents
(Amounts in thousands)
Cash flows from operating activities
Net Income
Adjustments to reconcile net income to net cash
provided by operating activies
Depreciation Expense
Increase in Accounts Receivable
Increase in Inventory
Increase in Accounts Payable
Increase in Notes Payable
Increase in Taxes Payable
Net Cash provided by Operating Activities
(150,000)
Cash flows from financing activities:
Proceeds from issuance of preferred stock
Proceeds from issuance of common stock
Proceeds from Mortgage Payable
Payment of long-term debt
Net cash inflow from financing activities
50,000
60,000
45,000
(5,000)
Entrepreneurial Finance 1, Anton Miglo
53,000
$
(4,000)
49,000
6,000
(17,000)
(17,000)
8,500
1,500
14,000
Cash flows from investing activities:
Acquisition of plant assets
Net cash outflow from investing activities
Net increase in cash
Cash balance, December 31, 2007
Cash balance, December 31, 2008
$
(150,000)
$ 150,000
$
$
49,000
3,000
52,000
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Some recent innovations
 Lean management:
 Inc.com
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Marketplace game
The Marketplace Live scenario follows the
lifecycle of a new product and new business.
Business decisions are introduced as they
become relevant in the evolution of the
company.
The participants need to crystallize the financial
implications of business decisions and how
they flow to bottom-line performance.
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How Conducted?
Teams receives information on current situation.
Current situation is evaluated, strategy formulated and tactics set in place.
Team can acquire more information on what is happening in the game:
– customer reaction to market decisions
– competitor actions
Tactical decisions are fed into the game simulator, along with decisions of opponents.
Results of decisions are fed back to teams.
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Game Scenario
You and your business
partners have decided to
enter the international
microcomputer industry.
The microcomputer
industry is in its
introductory stage of the
product life cycle.
Several other international new venture firms are
entering the market at the same time.
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Entrepreneurial Finance 1, Anton Miglo
Sales Offices
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Market Segments: Market Structure
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Chronology of Events
Q1: Organize the team, name the company, analyze market information,
establish strategic direction and set up shop (design brands open a sales
office and/or international web center, and build a factory).
Q2: Test-market brands, prices, ad copies, media campaigns, sales staffing,
and internet tactics. Determine compensation package for employees and
production schedule for each brand.
Q3: Study end user feedback, competitive tactics, employee productivity,
factory operations, and financial performance and adjust strategy.
Q4: Large injection of capital from outside investors.
Q4 – Q6: Growth stage.
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Equity Financing (Q1-Q3)
The initial capitalization is $4M which is being invested by the
executive team over the first 3 quarters; $2M in Q1 and $1M in Q2
and Q3.
The executive team owns 100% of the company.
Forty thousand shares of stock will be issued to the executive team
in exchange for their $4M. The initial stock value is
$100/share.
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Equity Financing (Q4)
At the start of Q4, the executive team will have
the opportunity to request up to $4M from
venture capitalists.
(in real life the venture capitalists will expect a
strategic plan for the second year in business,
including an analysis of the current situation,
priorities, strategic thrusts , tactical plan:
geographic expansion, R&D, plant expansion, pro
forma financial statements through Q6 etc.
In our game the price of your shares in Q4 will be
determined as weighted average of financial
performance multiplied by 10 and wealth
performance multiplied by 100 (discuss in class)
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Debt Financing (Q4 and Beyond)
The bank will extend a line of credit
to the executive team equal to one
and a half times the firm's equity
position in the previous quarter.
The bank is highly risk adverse and
will call in your loan in part or whole
if your debt capacity declines due to
unusual or extended losses.
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Special Financing Needs
The bank is intolerant of poor financial management.
If a firm ends a quarter
with a negative cash
position, the bank will
contact a loan shark by
the name of Guido to
obtain an emergency
loan to cover the firm's
checking account.
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Guido’s Financing Terms
Guido requires repayment
in the next quarter.
The emergency loan interest
rate is a sliding scale
which begins at 10% per
quarter and may go as
high as 25% per quarter.
For each $100 which Guido places in your checking
account, he will take one share of stock in your firm.
The issuing of stock to Guido causes a dilution of your
stock value and your share of the company.
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Bankruptcy
A firm is technically bankrupt if its cumulative losses exceed its
equity investment.
Bankruptcy occurs when the
sum of retained earnings and
the common and preferred
stock is a negative number.
Stated differently, the
management has used up all
of the equity of the firm
when the negative value of
the retained earnings
exceeds the value of the
common stock.
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Entrepreneurial Finance 1, Anton Miglo
Balanced Scorecard
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The Following Slides are for Q1
Establish the Firm’s Strategic Direction and Setting Up Shop
(with a focus on brand design considerations.)
Organize the Business
• Name the company
• Assign the organizational
responsibilities
• Share personal learning goals
• Establish team norms
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Q1: Establish General Direction
• Analyze market information to evaluate the market
opportunity
• Consider
Available financial resources
Costs to open sales outlets
Costs to set up and operate factory
• Establish general direction
Formulate corporate and functional norms
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Q1: Setup Shop – Tactical Decisions
• Locate factory in Shanghai – all firms
• Build fixed plant capacity
• Develop channel options
Decide on relative emphasis of
brick and mortar offices versus
web center
Open initial sales office and/or web center
• Design two brands for target market segments
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Once You Select a Segment, You Must Design a
Brand to Meet the Needs of the Segment.
Using the computer on the road is
important to the Traveler’s segment.
What Features Would Enable a Computer
to be Used on the Road?
Using the computer on the road
Slim, rugged,
portable design
Entrepreneurial Finance 1, Anton Miglo
10” color,
flat screen for portable
Network and
internet connections
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How Far Do You Go in Giving the Customers What
They Say They Want?
Is more speed, software
applications, memory,
keys on the keyboard, etc.
always valued?
Could “more of some
feature” even make a
customer unhappy?
To answer these questions, you must understand the
elasticity of your components.
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Take Any PC Segment, How
Excited Will It Become if You Provide…?
More memory
More functions on the keyboard
More software
More…
Just like the candy bar ingredients, you must discover the
response function for each PC component.
Entrepreneurial Finance 1, Anton Miglo
Take Any PC Segment, How Excited Will It
Become if You Provide?
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Portability
Rugged
casement
Microcircuitry
Use on road
High res
resolution
flat LCD
display
Entrepreneurial Finance 1, Anton Miglo
Wireless
modem
Connect to office
6-hour
battery
Low-profile,
built-in disk,
CD drives
Compact
keyboard
Easy to use
Trackball
mouse
Wrist rest
on keyboard
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WEB SOURCES
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Atlantic Canada Opportunities Agency
Government Services for Entrepreneurs
Profit Magazine
Canadian Council for Small Business and Entrepreneurship
Canadian Federation of Independent Business
Canadian Innovation Centre
Canadian Youth Business Foundation
Export Development Canada
Guerrilla Marketing
Statistics Canada
GD Sourcing
Industry Canada’s SME Benchmarking Tool
Tax information for small business
Canada Business
Business Service Centers such as Canada Business
www.canadabusiness.ca
 inc.com
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Lean management:
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Last slide: 
Entrepreneurial Finance 1, Anton Miglo