Entrepreneurial Accounting and Finance

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Entrepreneurial Accounting and Finance

• Yash Shah

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Agenda
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Organizational Framework

• Management
• Plan
• Record
• Maintain assets

Concepts Evaluation Decision-Making Application Topics
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Definitions

• Finance allocation of an organizations
  resources
• across financing,
  investing, operating
• activities
• Accounting recording and reporting of the
  organizations financial activities
• Accounting
  Finance

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Underlying Perspective

• Goal Value Creation

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Accounting Basics

• Cash vs. Accrual
• Accrual measures performance and position of an
  organization regardless of cash transaction
• Examples Depreciation
• Account Receivable/Payable
• Generally Accepted Accounting Principles
• FASAB, www.fasab.gov

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Measuring Performance and Position

• Objective capture realistic picture of
  organizations financial situation
  (specifically F.I.O.)
• Accomplished through financial statements
• Balance Sheet
• Income Statement
• Cash Flows
• Costing Analysis

External Users
Internal Users
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Balance Sheet

• Asset economic resource that produces
  future value which can be
  controlled and measured (what you
  have)
• Liability an obligation arising from a
  transaction or event that exerts a
  claim on the organizations assets (what you
  owe)
• Equity residual interest in the
  organizations financial position
  (value created)

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Balance Sheet
Assets
Liabilities
Current CashAccounts ReceivableInventoryPrepaid Expense
Non-Current Land Equipment Intangibles (ex patents)
Current Accounts Payable Deferred Revenue Non-Current Note PayableTax Payable
Investors, Grantors, etcNet Income
Equity
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Income Statement

• Revenue
• - Cost of Goods Sold
• Operating Income
• - Selling, General and Administrative -
  Interest
• - Taxes, Depreciation, etc.
• Net Income
• Other Comprehensive Income

More about COGS in Costing Analysis
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Transactional Accounting

• How are these statements produced in practice?
• Double Entry Bookkeeping
• A L E
• Examples

Make a sale Increase cash (asset) Increase revenue (equity)
Pay a bill Decrease cash (asset) Increase expense (equity)
Secure investment, grant Increase cash, inventory, LE (asset) Increase equity
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Cash Flows

• Accounting Cash Accruals
• Cash Flow from Operations (CFOPS)
• Net Income
• Depreciation, Account Payables
• - Account Receivables
• Cash Flow from Investing (CFI)
• Cash Flow from Financing

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Evaluating Operational Efficiency

• Conceptualize the process of producing the good
  or service

Selling, General, and Administrative
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Activity-Based Overhead Costing

• Scenario Medical Device Production

Activity Estimated Overhead Use of Cost Driver Overhead Rate
Setting up machines 300,000 1,500 setups 200 / setup
Machine Operation 500,000 50,000 machine hours 10 / machine hour
Inspecting 100,000 2,000 inspections 50 / inspection
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Financial Framework

• Working Capital is a core consideration for
  Financing, Investing, and Operating decisions
• Working Capital Cash Equivalents Current
  Liabilities
• Two perspectives
• Event-based (budgeting)
• Time-based (cash flow forecasting)

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Making Forecasts

• Projections of budgets and net income are
  essential to evaluate future working capital
  requirements
• Basic principles for doing forecasts in practice
• Reserves (organizational benchmark)
• Caution on historical outcomes
• Using a conceptual model and data analytics
• y a b 1 x 1 b 2x 2 e
• Consider economic/social context, sales and
  marketing capacity, organizational risks

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Budgeting

• Simple
• Variable
• Variance Analysis

Expenses Ex Lease/Rent, Supplies, Marketing, Labor, etc.
Funding Ex Working Capital, Grants, Sponsors, etc.
GAP
Account Driver
Supplies Expected participation
Matching Donor Commitments
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Cash Flow Forecasting
Certainty
Working Capital
Inflows
Time
Outflows
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Advantages

• Financing identify when to seek funding
• Investing optimize capital decisions
• Operating determine capacity to make
  commitments
• Planning facilitates value generation

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Reporting and Internal Controls

• Traditional reporting structure within
  organization
• Involved at point of transaction (completeness,
  valuation)
• Depends on nature of organization and cost
  feasibility
• Periodic reporting
• Quarterly/annual basis
• Meet the interests of external users and
  management
• Internal Control policies and processes by which
  the organizations financial position is
  verified and safeguarded
• Appropriation of assets
• Expense authorization

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Sustainability Accounting

• Linked with Corporate Social Responsibility (CSR)
• Emerging field given diversity of metrics
• Triple Bottom Line

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Sustainability Accounting
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Valuation

• Equity investors interested in the amount,
  timing, certainty of future cash flows
• Parallel to social ventures

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• Contact
• Yash Shah
• Yash_Shah_at_unc.edu
• (980) 253 - 5207