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Entrepreneurs As Good Financial Manager

Entrepreneurship

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38 views3 pages

Entrepreneurs As Good Financial Manager

Entrepreneurship

Uploaded by

yushirozenji
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Entrepreneurs As Good Financial Manager

Overview on Entrepreneurial Financial Concept

Introduction

Entrepreneurs’ influence in the greater economy should not be underestimated. The effects of
entrepreneurship on employment, industrial value-added, innovation, and entrepreneurship culture are
well-documented all throughout the world. It is critical to emphasize that business owners must identify,
evaluate, and implement essential financial decisions.

Future entrepreneurs need to be introduced to basic financial literacy and tax education so that
they are better prepared to make well-informed and successful decisions when establishing a firm. This
is especially true for the younger generation, who are exposed to new job and business options in the
so-called “sharing economy,” which includes a plethora of internet platforms, financial products, and
services. Entrepreneurs must be able to understand basic financial/economic terminology, assessable
income, and tax implications in order to avoid becoming victims of tax and financial hoaxes and frauds. In
this last chapter, we’ll go over some basic entrepreneurial financial concepts to help you better
comprehend their significance and use them in your daily life.

Lesson 1: Financial Planning and the Individual’s Life Cycle

Most people want to make the most of every peso they have. A new car, a bigger house, more
career training, more vacation time, and financial self- sufficiency during working and retirement years
are all popular financial goals. To attain these and other goals, people must define and develop priorities.
Financial and personal satisfaction are the outcomes of an organized technique called as personal money
management or personal financial planning.

Personal financial planning is the process of managing your money in order to achieve personal
economic contentment. This style of budgeting allows you to keep a tight grip on your finances. Every
person, family, or household has a unique financial condition; therefore, any financial activity must be
carefully planned to meet particular needs and objectives.

The four life cycle phases were identified by Brown and Reilly (2014) as follows:

1. Accumulate Phase: Those who have just started working or in early part of their respective
careers. Since they are relatively young, they can afford to take on high-risk investments for they
can simply start again if they fail in some of their business ventures and investment. They are still
“accumulating” assets that will help them achieve their respective goals at this stage. A person’s
or a family’s own car or home are common assets acquired at this time. Individuals begin to live
independently from their parents at this age.
2. Consolidated Phase: Those in this stage have most of their outstanding liabilities paid off and
have the essential assets for a regular household. Major concerns at this stage include the ability
to pay for the education of their children (from grade school to college).

3. Spending Phase: Retired individuals belong to this stage. Their main source of income comes
form their pension although they also benefit from the returns of their existing investment.
Capital preservation is their main return objective with the intention of earning more than
inflation to project the value of their investments in real terms. Capital preservation objective
require the individual to put his money in very safe investment as described in the previous
chapter.

4. Gifting Phase: Not everyone is expected to reach this phase and most of the time this stage is
concurrent with the consolidation phase. This stage focuses on how the individual provides
support to the family members, friends, or nay charitable institution. The focus of the individual
is consistent on how he wants to allocate his funds to these beneficiaries in case of his death or
even during his remaining years.

Basic Principles of Personal Finance:

Keown (2010) summarized the basic principles of personal finance management in the following
points:

1. The Best Protection is Knowledge


2. Nothing Happens Without a Plan
3. The Time Value of Money
4. Taxes Affect Personal Finance Decisions
5. Stuff Happens, or the Importance of Liquidity
6. Waste Not, Want Not – Smart Spending Matters
7. Protect Yourself Against Major Catastrophes
8. Risk and Return Go Hand in Hand
9. Mind Games and Your Money
10. Just Do it!

A Comprehensive financial plan can enhance the quality of your life and increase your
satisfaction by reducing uncertainty about your future needs and resources. The Specific
advantages of personal financial planning are the following:

 Increased effectiveness in obtaining, using, and protecting your financial resources


throughout your lifetime.
 Increased control of your financial affairs by avoiding excessive debt, bankruptcy,
and dependence on other for economic security.
 Improved personal relationship resulting from well-planned and effectively
communicated financial decisions.
 A sense of freedom from financial worries obtained by looking to the future,
anticipating expenses, and achieving your personal goals.
Everu day, we all make hundreds of decisions. The majority of these choices are
straightforward and have few consequences. Some are complex and have long term
effects for our personal and financial well-being.

The financial planning approach follows a six-step logic:

1. Determine your current financial situation


2. Develop financial goals
3. Identify alternative courses of action;
4. Evaluate alternatives
5. Create and implement a financial action plan, and
6. Re-evaluate and revise the plan.
(Education, 2003)

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