SBANC
Newsletter
August
1, 2006
Issue 432-2006
|
QUOTE
"I've
always said that the better off you are, the more responsibility
you have for helping others. Just as I think it's important
to run companies well, with a close eye to the bottom line,
I think you have to use your entrepreneurial experience to
make corporate philanthropy effective."
-- Carlos
Slim Helu
|
FEATURE
PAPER
Toward
a Framework of Financial Planning in New Venture Creation
The
following paper was presented at the 2005 USASBE/SBI Joint Conference.
It was written by Benjamin B. Gansel of Otto-von-Guericke-University
of Magdeburg, Dept. of Economics and Management.
Abstract
Empirical
studies across different industrial countries have shown a positive
correlation between
planning intensity and the success of a business venture. Nevertheless, financial
planning is
typically regarded as a major obstacle in the process of new venture creation.
Analytical
techniques for large-scale and international enterprises are not fully appropriate
for dealing with
start-up planning. However, the existing literature which focuses on business
ventures lacks a
clear theoretical approach.
In this article, we develop a coherent comprehensive framework that draws out
interdependencies among the financial planning components, elements, and individual
items. We
also determine a starting point of the planning process, show the linkage to
other functional areas
of business planning, and emphasize the structure, interdependence, and adjustment
of elements
within an iterative planning process. This provides the firm founder with a fundamental
decisionmaking
instrument, which supports the evaluation and exploitation of entrepreneurial
opportunities, as well as the formulation and implementation of the corporate
strategy.
The framework comprises five financial planning elements concerning sales, related
expenses,
investments, capital requirements, and financing, which results in three components:
planning of
income statement, balance sheet, and cash flow statement. We demonstrate how
the robustness
of the financial plan can be tested by employing sensitivity analysis, scenario
analysis, and
simulation. The quantitative result of this process is a consistent financial
plan. The components
of our approach are fully consistent with generally accepted accounting principles
(IAS and U.S.
GAAP).
Introduction
Financial planning is
one of the most important but also difficult hurdles to overcome
when
planning a new venture. This topic has been discussed in several articles (Gumpert & Stancill,
1986; Hayen, 1982; Hergert, 1987; McGrath & MacMillan, 1995; Pettit & Singer,
1985;
Wilkinson, 1987). Yet, there exists no generally accepted guideline for aligning
financial
planning with the creation process of a start-up. A coherent comprehensive framework
which
draws out interdependencies among the planning components, elements, and items
is still
lacking. The importance of planning in new venture creation is supported by recent
research
which has detected a positive correlation between planning intensity and the
success of new ventures (Stewart, Watson, Carland, & Carland, 1999). Delmar and
Shane (2003) argue that
planning is a significant precursor to action in start-ups. There also exists
a significant positive
relationship between formal planning by small firms and financial performance
(see, for example
Bracker & Pearson, 1986; Schwenk & Shrader, 1993).
Our starting point is the framework suggested by Shane and Venkataraman (Shane &
Venkataraman, 2000; Venkataraman, 1997). They view entrepreneurship as a nexus
of
enterprising individuals and valuable opportunities which constitute the process
of existence,
discovery, and exploitation of entrepreneurial opportunities. Once the opportunity
is discovered,
its exploitation requires the investment of limited resources. The expected value
is determined by
four groups of factors: the characteristics of the opportunity itself, psychological
factors (such as
motivation, core self-evaluation, cognitive properties, risk taking, extraversion),
nonpsychological
factors (as for instance education, career experience, age, social position,
opportunity cost) (Shane, 2003; Shane & Venkataraman, 2000), and the entrepreneur’s
personal
characteristics. Together, this leads to significant deviations in the estimation
of the expected
value of an opportunity and the resulting financial planning process.
Read
the Entire Paper...
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CONFERENCES
IEF
|
| Who: |
International
Entrepreneurship Forum
|
| What: |
6th
International Conference
|
| Where: |
Riga,
Latvia |
| When: |
August
31-September 2, 2006 |
|
|
|
EFMD
|
| Who: |
European
Foundation for Management Development
|
| What: |
EFMD
36th EISB Conference
|
| Where: |
Southampton,
UK |
| When: |
September
6-8, 2006 |
|
|
|
BI
|
| Who: |
Barcoding
Inc.
|
| What: |
The
Future of Barcoding and RFID Conference and Exhibition
|
| Where: |
Schaumburg,
Illinois, USA |
| When: |
October
12, 2006 |
|
|
|
IABE
|
| Who: |
International
Academy of Business and Economics (IABE)
|
| What: |
IABE-2006
Annual Conference
|
| Where: |
Las
Vegas, Nevada, USA |
| When: |
October
15-18, 2006 |
|
|
|
CEE
|
| Who: |
The
Consortium for Entrepreneurship Education
|
| What: |
24th
Annual Entrepreneurship Education Forum
|
| Where: |
Sheraton
Crescent Hotel, Phoenix, Arizona, USA |
| When: |
November
4-7, 2006 |
|
|
|
CALLS FOR PAPERS
WBM
|
| Who: |
Western
Business and Management
|
| What: |
WBM
2006
|
| Where: |
Sam's
Town Casino & Resort: Las Vegas, Nevada, USA |
| When: |
October
15-17, 2006 |
Submission
Deadline:
August 3, 2006
|
|
|
|
ABEAI
|
| Who: |
Applied
Business and Entrepreneurship Association International
|
| What: |
Annual
Meeting
|
| Where: |
Marriott
Waikoloa Beach Resort, Kona, Hawaii, USA |
| When: |
November
16-20, 2006 |
Submission
Deadline:
August 15, 2006
|
|
|
|
ISOBD
|
| Who: |
International
Society of Business Disciplines
|
| What: |
Fall
Conference
|
| Where: |
Flamingo
Hotel - Las Vegas, Nevada, USA |
| When: |
November
5-8, 2006 |
Submission
Deadline:
August 31, 2006
|
|
|
|
ASC
|
| Who: |
American
Society for Competitiveness |
| What: |
International
Conference on
Emerging Competitiveness Paradigms
|
| Where: |
Goa,
India |
| When: |
January
11-12, 2007 |
Submission
Deadline:
September 1, 2006
|
|
|
|
ACME
|
| Who: |
Association
of Collegiate Marketing Editors |
| What: |
2007
Annual Meeting
|
| Where: |
San
Diego, California, USA |
| When: |
March
13-17, 2007 |
Submission
Deadline:
October 1, 2006
|
|
|
|
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TIP
OF THE WEEK
S-Corporation
The S-Corporation,
often referred to as a Sub-S corporation, is a corporation
that elects under federal and state tax laws to be taxed like
a partnership. Its
profits and losses are recognized for tax purposes at the individual
shareholder level. It is the shareholder's responsibility to
report the profits or losses on his or her individual income
tax returns. To
become an S-Corporation, the following must occur:
• The company must be a domestic company
• Only one class of stock is allowed.
• Only individuals and certain trusts may own stock.
• Shareholders cannot be nonresident aliens.
• There can only be a maximum of 100 shareholders.
• The shareholders must elect to become and S-Corporation at the federal and
state levels.
Advantages
of an S-Corporation
The S-Corporation retains all the advantages of a regular corporation
such as continuity of existence, transferability of ownership,
and limited personal liability. The most notable provision of
the S-Corporation is that it avoids the corporate income tax
(and the resulting double taxation) and enables the business
to pass through operating profits or losses to shareholders.
In effect, the tax status of an S-Corporation is similar to that
of a sole proprietorship or partnership.
Entrepreneur Fanny Chin, who launched Creative Calendar in 1998 as an S-Corporation, maintains that form of ownership today. "Since there were no shareholders except me, I didn't see any advantage to C-Corporation status since my earnings would have been taxed twice."
Disadvantages of an S-Corporation
An S-Corporation has restrictions on use of its losses and
tax recognition on sales of its assets different from those
of a C-Corporation. These may be disadvantages to the owners.
Thus, although one may face double taxation as a C-Corporation,
the loss of flexibility on the sale of assets or stock of
the corporation may require one to remain a C-Corporation
and ultimately gain the most profit upon the sale of a business.
In addition, if the entrepreneur's intention is to raise
capital from third parties, such as venture capitalists,
the company will have to be restructured into a C-Corporation
before this can occur.
When Is the S-Corporation a Wise Choice?
Choosing the S-Corporation status is usually beneficial
to startup companies anticipating net losses and to highly
profitable firms with substantial dividends to pay out to shareholders.
In these cases, the owner can use the loss to offset other
income, or the owner is personally in a lower tax bracket than
the corporation, thus saving money in the long run.
Small companies
with these following characteristics, however, are not likely
to benefit from S-Corporation status:
• Highly profitable personal
service companies with large numbers of shareholders, in which most
of the profits are passed on to shareholders as compensation or
retirement benefits
• Corporations in which the loss of fringe benefits to shareholders exceeds
tax savings
• Corporations with sizable new operating losses that cannot be used against
S-Corporation earnings
| Jack
M. Kaplan and Anthony C. Warren Patterns of Entrepreneurship.
2nd Edition Von Hoffman Press, Inc. 2007 Pages
99-101. |
ANNOUNCEMENTS
AACSB
Strategic Management Seminar
Engage your entire
leadership team in strategic planning at the AACSB International
Strategic Management Seminar - September 14 and 15 in
Montclair, New Jersey. This hands-on seminar is designed to help you and
your key leaders work collaboratively on strategic management processes
and techniques. Together, you will focus the resources and efforts of
your organization to accomplish your strategic goals in support of AACSB
accreditation standards.
Participating schools
recognize that strategic management is central to
the maintenance of a quality business school and its continuous
improvement. Your team will receive two full days of concentrated
work
on the direction of your program with personalized counsel from
experts
in the fields of strategic management and accreditation resulting
in
cohesiveness and alignment in your leadership team. For more information go to AACSB
|
The
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for Small Business & Entrepreneurship (ASBE), Federation of
Business Disciplines (FBD), International Council for Small Business
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Small Business Congress (ISBC), Marketing Management Association
(MMA), Small Business Administration (SBA), Service Corps of Retired
Executives (SCORE), Small Business Institute (SBI), Society for
Marketing Advances (SMA), United States Association for Small Business & Entrepreneurship
(USASBE), U.S. Department of Veterans Affairs (VA).. If you are
interested in membership or would like further information on one
of our affiliates, please see our web site at http://www.sbaer.uca.edu
SBANC STAFF
Main Office Phone: (501) 450-5300
Dr.
Don B. Bradley III, Executive Director of SBANC & Professor
of Marketing;
Direct Phone: (501) 450-5345
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Tabor, Development Intern
Tyler
Farrar, Development Intern
Garion
McCoy, Development Intern
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