MODULE 8:

Entrepreneurial Accounting
and Financial Management
Presented by: ATTY. RANDY B. BLANZA, CPA, MPA

October 17, 2018

8:30 a.m. – 12:00 noon

Legazpi, Albay
MODULE 8
Entrepreneurial Accounting and Financial Management

Topics to be included:
• Revisit Business Model canvas
• The Financial Statements - Statement of Financial Position
• Simplified Income Statement
• Simple Cash Flow
• Understanding the Balance Sheet
• Strategies of Financing Growth of the Business
• Evaluating Investment Opportunities/Options.
BUSINESS MODEL CANVASS
 BASIC FINANCIAL
STATEMENTS
• STATEMENT OF FINANCIAL POSITION
(BALANCE SHEET)

• STATEMENT OF OPERATIONS
(INCOME STATEMENT)

• CASH FLOWS STATEMENT

FINANCIAL STATEMENTS
• Financial statements are reports prepared by a
company’s management to present the financial
performance and position at a point in time.

• A general-purpose set of financial statements usually

includes a balance sheet, income statements,
statement of owner’s equity, and statement of cash
flows.

• These statements are prepared to give users outside of

the company, like investors and creditors, more
information about the company’s financial positions.
 STATEMENT OF FINANCIAL
POSITION (BALANCE SHEET)
• It reports a company’s assets, liabilities, and equity at a
single moment in time.

• The balance sheet is essentially a picture a company’s

recourses, debts, and ownership on a given day.

• This is why the balance sheet is sometimes considered

less reliable or less telling of a company’s current
financial performance than a profit and loss statement.
Annual income statements look at performance over
the course of 12 months, where as, the statement of
financial position only focuses on the financial position
of one day.
BASIC ACCOUNTING EQUATION
ELEMENTS OF BALANCE
SHEET
1. ASSETS
• An asset is a resource with economic value that an
individual, corporation or country owns or controls
with the expectation that it will provide a future
benefit.

• Assets are reported on a company's balance sheet

and are bought or created to increase a firm's value
or benefit the firm's operations.
KINDS OF ASSETS
1. Current assets are short-term economic resources
that are expected to be converted into cash or to be
used in operation within one year.

Current assets include:

• cash and cash equivalents,

• accounts receivable,
• inventory, and
• various prepaid expenses
2. Non-current assets – are resources of the
company that has useful life lasting more than 1
year

• Land
• Equipment
• Leasehold Improvements
• Buildings
• Vehicles
• Long-term Notes Receivable
• Appliances
• Furniture and Fixtures
Intangible assets,
- property that doesn’t fit into the first two. Here are
some examples of these balance sheet items:

• Investments
• Goodwill
• Trademarks
• Mineral Rights
2. LIABILITIES – are the obligations / debts of
the business still unpaid as of balance sheet
date

Kinds of liabilities:

1. Current liabilities - includes debt and other

obligations that will become due in the current
period. This usually includes trade debt and
short-term loans, but it can also include the
portion of long-term loans that are due in the
current period.
Examples of current liabilities
• Current Liabilities
• Accounts Payable
• Accrued Expenses
• Unearned Revenue
• Lines of Credit
• Current Portion of Long-term Debt
2. Long-term liabilities
obligations that will become due in more than one
year.

Examples are:
• Long-term Liabilities
• Mortgage Payable
• Notes Payable
• Loans Payable
EQUITY
• Is the residual interest in the business after
liabilities are considered

• Includes original investments, additional

investments and personal drawings

EQUITY = ASSET - LIABILITIES

INCOME STATEMENT
• The income statement, also called the profit and
loss statement, is a report that shows the income,
expenses, and resulting profits or losses of a
company during a specific time period.

• The income statement calculates the net income of

a company by subtracting total expenses from
total income. This calculation shows investors and
creditors the overall profitability of the company as
well as how efficiently the company is at generating
profits from total revenues.
INCOME
Income is money (or some equivalent value) that an
individual or business receives in exchange for
providing a good or service or through investing
capital. Income is used to fund day-to-day
expenditures.

Sources of income:
• Sales
• Service
• Others
EXPENSES
• Expenses are outlays of resources for goods or services.
These costs include wages, depreciation, and interest
expense among others.

They are reported on several sections of the income

statement.
• Cost of goods sold expenses are reported in the gross
profit reporting section
• Operating expenses are reported in the operations
section.
• Other expenses are reported further down the
statement in the other gains and losses section.
3. CASH FLOWS STATEMENT
• The statement of cash flows, or the cash flow
statement, is a financial statement that summarizes the
amount of cash and cash equivalents entering and
leaving a company.

• The cash flow statement (CFS) measures how well a

company manages its cash position, meaning how well
the company generates cash to pay its debt obligations
and fund its operating expenses.

• The cash flow statement complements the balance

sheet and income statement and is a mandatory part
of a company's financial reports since 1987.
The main components of the cash flow statement
are:

1. Cash from operating activities

2. Cash from investing activities
3. Cash from financing activities
4. Disclosure of noncash activities
is sometimes included when prepared under
the generally accepted accounting principles, or
GAAP
Operating Activities
• The operating activities on the CFS include any sources and uses
of cash from business activities. In other words, it reflects how
much cash is generated from a company's products or services.

These operating activities might include:

• Receipts from sales of goods and services
• Interest payments
• Income tax payments
• Payments made to suppliers of goods and services used in
production
• Salary and wage payments to employees
• Rent payments
• Any other type of operating expenses
Investing Activities
• Investing activities include any sources and uses of
cash from a company's investments.

• A purchase or sale of an asset, loans made to

vendors or received from customers or any
payments related to a merger or acquisition is
included in this category.

• In short, changes in equipment, assets, or

investments relate to cash from investing.
Financing Activities
• Cash from financing activities include the sources
of cash from investors or banks, as well as the uses
of cash paid to shareholders.

• Repayment of debt principal (loans) are included in

this category.
STRATEGIES OF FINANCING
GROWTH OF THE BUSINESS
Funding your company involves obligations and risks.
Here are steps you can take to make your finance
strategy a powerful tool for the company:

• A finance strategy, and a financial plan, will be

unique to each company. The strategy will reflect
the economic dynamics of the business sector, the
position of the company in that sector and where
your company leadership wants to take the
company.
• Whether your company is big or small, think about
your company’s financial plans over the coming
two to five years. Be specific about the implications
of alternative approaches and their risks.

• Actually choose. Make a decision.

• Include your core team members, your board and

your outside advisers. Consulting support can help
keep you honest about where you are going and
what you are deciding.
• Don’t run out of cash!

• Cash is very expensive, particularly for young, high-risk

companies. Find ways to get essential work done without
paying cash for it.

• Match equity sales to major step-ups in company valuation.

Each incremental sale of company stock should be sufficient
to pay for significant development progress.

• That could be a new-product introduction, clinical trials or

company acquisition. Each development step such as these
significantly reduces the risks for the next investors and
materially increases the overall value of the company.
EVALUATING INVESTMENT
OPPORTUNITIES/OPTIONS
The Five Questions to Consider…

1. MARKET

Is there a market that can be identified that has an

appealing growth potential?

(Does it exist or it should be created? What is the

feasibility of entry and to what extent?)
2. OPPORTUNITY WINDOW

Is this the right time?

(Why today? Why not yesterday? Too early? Too

late? How long will the window remain open?)
3. COMPETITION

What is the existing and likely competition?

(And to what extent has the sector in which the

venture attempts to operate been adequately
evaluated, i.e., entry barriers, new entrants,
substitutes, customers, suppliers, etc.? What is the
profit potential in the this sector?)
 BUSINESS MODEL

• Does it have an economically, and conceptually

viable, business model?

• (Margins, profits, breakeven, etc. What is the

required know-how? To what extent can it be
protected?)
 5. STRATEGY
• Does it have a focused and differentiated strategy?

• (Who are the customers? How are they acquired

and retained? What is the value proposition to the
customer?

• How sustainable is the competitive advantage?

What operating advantages can be gained from
focus?)
Here we have five additional and specific questions
that investors always make (and everybody should
make) when conducting a comprehensive
assessment of the investability potential of a
business opportunity:
•SCALABILITY
Is the concept scalable?

(Or similarly, how big could it become, and as it gets

bigger and bigger, how much more profitable will it
be and to what extent could the concept be easily
replicated?)
• EXIT
Is there a possible exit for the investor to recover
his/her investment with the expected return?

(What are the likely options to exit? Can tag or drag

along rights be considered?)
•CO-INVESTMENT
Can the project attract other co-investors to come on
board?

(If so, to what extent are they likeminded partners to

co-invest with?

To what extent can other potential co-investors be

spotted within the investor’s own network?)
•RETURN
Does the deal provide an adequate return consistent
with level of risk implied?

(At what stage of development is the project

(technology/product, financial metrics/revenue)?

What is the probability of getting an IRR of -100%,

0%, 10%, 20%, 50% or 100%?
•TEAM
Does it have a complete, committed, compatible and
complementary management team (4 C’s)?

(Have they work together before? To what extent are

their skills complementary?

What are the personal objectives/vision of the team’s key

members?

Are they the kind of people with whom one is able to get
on well, and develop a good relationship?)
THANK YOU!
Atty. Randy B. Blanza, CPA
0917-5129558
[email protected]