Module 2 – Investment & Start-Up Industry – Written Course

Module 2 – Investment and the start-up industry

 

  1. Understanding your finances

Perhaps one of the biggest challenges an entrepreneur faces is getting to grips with the way firms are expected to conduct their finances, and understanding key financial concepts such as profit, loss and cost – the cornerstones of a company’s success.

 

When setting up a business, an entrepreneur needs to have a firm idea of how much their product or service is going to cost them to provide or make, and how much they are going to sell it for.

 

This contributes towards what is know as a ‘profit margin’ – the difference between how much it costs to run a business, and how much money an entrepreneur manages to generate via sales etc.

 

An entrepreneur’s ability to increase revenue (the amount people pay them) and maximise their profits whilst keeping costs to a minimum, is often the difference between a business failing or a business succeeding, and transforming into a limited company with lots of employees.

 

Investors, financial advisers and bank managers all expect to be able to gain a clear understanding of a business’ balance sheet, or a ‘statement of financial position’ – a summary of the financial transactions in and out of a business.

 

Entrepreneurs are expected to keep a detailed record of how money and physical flow through their business, and there are legal consequences to giving a false representation of how much money is being made, or lost, as the case may be.

 

For small to medium businesses (SMEs), entrepreneurs sometimes take this task on themselves. Others ‘outsource’ (paying someone else to carry out a business function) their financial affairs to accountants or financial managers, who interact with the UK Government on the business’ behalf.

 

Key financial terms

 

  • Assets – Monetary assets which are constantly changing in value, such as stocks, debtors and bank balances
  • Creditor – Someone who is owed money
  • Debtor – Someone who owes money
  • Debit – A payment or the cost of buying goods/services
  • Expenditure – Running costs (bills, overheads etc.)
  • Liabilities – Monetary amounts which are due to be paid in less than one year, such as bank overdrafts, money owed to suppliers and employees’ PAYE
  • Revenue – The total amount of income from goods or services sold

 

  1. Creating a business plan

If all of this sounds daunting, that’s because most of it is. Being an entrepreneur involves linking lots of different business functions, financial concepts, people and ideas together into one over-arching plan.

 

On any given day, entrepreneurs need to have a clear vision of where their business is heading in terms of growth and sustainability, as well as being able to oversee the day-to-day operation of the company.

 

They do this via the use of the single most important document an entrepreneur relies upon in the running of their company – a business plan.

 

Business plans are documents that clearly define what an entrepreneur’s objectives are for the years ahead, and how they are going to achieve them.

 

This can mean anything from how much total profit they expect to make in 3 years’ time, to how many extra employees they want to employ or even how many extra telephones they may need.

 

All of this is designed to maintain a sense of perspective and demonstrate to potential investors, or anyone who wants to get involved in the business on an strategic level, where the company is heading financially.

 

Entrepreneurs often seek assistance when creating a business plan from experts such as financial advisers (profit and loss forecasting), copywriters (the wording of the document) and graphic designers (to make it look visually appealing).

 

Business plans are usually limited to what are called ‘start-up’ companies – small entrepreneurial organisations operating on a very tight budget, with most of the funding usually coming from friends, family members and small groups of private investors.

 

A business plan is must-have for any entrepreneur that wants to attract investment, for a loan or enlist the support of a business partner.

 

  1. Networking

Entrepreneurs need to be adept at communicating their ideas to large groups of people and forging links within the business community that helps their firm grow. This method of promotion is known as ‘networking’, and is seen as a low cost method of increasing sales and growth.

 

Individuals generally act in their own self-interest, but entrepreneurs need to develop mutually beneficial relationships with other entrepreneurs for all kinds of reasons. Knowing the right people, understanding how you may be able to help them, and identifying how they could help you, is the essence of modern networking.

 

Business owners and service providers attend ‘networking events.’ These are essentially large social gatherings of businesspeople, brought together to listen to a prominent speaker, promote their business and share ideas. During the COVID-19 pandemic, real world events were replaced with virtual events. Prominent social networking sites for businesses, such as LinkedIn, offer a hybrid solution for entrepreneurs to enhance their status online and connect with other business owners in the real world.

 

Networking also enables entrepreneurs to keep abreast of any industry-specific developments or expose themselves to ideas and concepts they hadn’t considered before.

 

How good an entrepreneur is at networking is dependent on how outgoing they are, how they hold a conversation and how well they listen to those around them. It’s hard to judge in figures and statistics how much networking affects the performance of a business, but it certainly doesn’t hinder it.

 

  1. Raising finance

There comes a time when an entrepreneur needs to raise money – also called ‘capital’ (the cash that a business needs to keep trading) – in order to either grow their business, or merely sustain it during troubled times.

 

Start-up businesses have a limited trading history. It can often be difficult for entrepreneurs to attract investment or borrow money from traditional sources, so an entrepreneur’s ability to raise finance and attract investment, especially early on in a start-up’s life, can often mean the difference between a business succeeding or failing, stagnating or growing, and being left behind by its competitors or becoming a trendsetter itself.

 

If an entrepreneur’s idea is good enough, sells well, and there’s no sign of orders slowing down, they’ll often ask private investors for money to expand their business, to meet the demand from their clients. If the business is profitable enough, investors may ask for a share in the business, and provide advice to entrepreneurs on how to grow their company. This is called ‘venture capitalism’.

 

Entrepreneurs can also raise money through standard channels available to the public, such as bank loans and private lending.

 

More recently, websites such as Kickstarter and GoFundMe have introduced the concept of ‘crowdfunding’, where large groups of people give money directly to a start-up to get the business off the ground.

 

 

  1. Conclusion

 

Entrepreneurs are the lifeblood of the British economy. Running your own business can be an incredibly rewarding experience, but there is a lot to consider from both a legal and commercial perspective. The advice and information provided in this video will stand you in good stead if you decide to start your own company, or operate as a sole trader.

 

Thank you for taking the Introduction to Entrepreneurship course, and good luck in your future endeavours!

 

 

 

 

 

 

 

 

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