The entrepreneur must be very clear about the purpose in establishing the enterprise. Whether it is for generating profits or feeding the family, making a difference in the industry or actualizing the self, the purpose must be compelling enough to motivate the entrepreneur.
After seeking, screening, and seizing entrepreneurial opportunities, the next step is to establish the enterprise.
Many new enterprises need to convince prospective business investors about the soundness and potentials of their business. They need to convey the capabilities and competencies of their owners and managers. This is when a good business plan is needed.
To invest or not to invest? That is the major question confronting the entrepreneur. Whether it is for a small project or a large project, investing is an important decision because of its financial implications.
Some entrepreneurs do not want to build a business from scratch. It would take too long to put the elements of the business together, like looking for the right location, the right people, the right equipment and the right system of production. It is easier to buy a business provided one could be bought at an acceptable price. This is where the art of proper valuation enters. From the seller’s point of view, how much should I sell the business for? From the buyer’s point of view, how much do I buy the business for?
For any enterprise, the need for financing follows the investment decision. In a new enterprise, these investments are represented by assets. The assets are composed of current assets or working capital, fixed assets or property, plant and equipment and other assets. Aside from these assets, a new enterprise may incur initial operating losses. These losses have to be financed also. In the balance sheet of an enterprise, the investments are represented by assets. But these assets have to be financed by the liabilities or the financing by the enterprise. The liabilities are the sources of funds of the enterprise while the assets are the uses of funds. When the enterprise is growing, necessarily the assets will grow. As the assets grow, necessarily the liabilities or financing will grow.
Five hundred years ago, the merchants of Venice invented accounting. They wanted to record all of their business transactions as they imported goods from Asia and exported goods from Europe. Today, accounting has come a very long way. Professional organizations have established generally accepted accounting principles.
For management purposes, costs can be designed and constructed in many ways because they can be used by managers for different purposes or cost objectives. Management Accounting for costs would change depending on the business analysis and decision to be made by management. Top management may be the most frequent users of Financial Accounting, along with external stakeholders such as banks, government institutions, investors and industry analysts.
A lot of people say that entrepreneurs are risk takers and that is what sets them apart from ordinary mortals. In talking to, writing about and mentoring entrepreneurs, the topic of risk seldom comes up. Contrary to popular belief, entrepreneurs are not even conscious about the risks they take. Maybe their enthusiasm about the venture they are about to embark on overshadows the risks.