Role of Entrepreneurial Finance Throughout the Entrepreneurial (Essay Sample)

Role of Entrepreneurial Finance throughout the Entrepreneurial Life Cycle Process
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Role of Entrepreneurial Finance throughout the Entrepreneurial Life Cycle process
Introduction
Glenn et al. (2013) explain that entrepreneurial finance entails application and implementation of all financial tools, principles, and techniques to the planning, funding, valuation, and all other operations of an entrepreneurial venture (San Diego State University, 2014). In this case, an entrepreneurial venture refers to entire entrepreneurial life cycle. Entrepreneurial firms go through various growth stages. As a firm grows, the managers must ensure that the firm has sustainable financial flow. Firms that have cash flows that are insufficient to meet the obligations usually experience financial distress. Restructuring entails improving factors such as assets, loan interest, and all financial repayments. Generally, the role of entrepreneurial finance is anticipating and avoiding any kind of financial distress to a firm (GCASE, 2010).
Entrepreneurial Growth Life Cycle Using Churchill and Lewis Growth Model
Churchill and Lewis growth model give six growth stages that any venture goes through. The stages are conception, survival, profitability and sustainability, profitability and growth take-off, and maturity stage. All the five stages have unique financial challenges. This implies that managers must ensure that they have the tools to handle unique challenges in specific growth stages (Churchill & Lewis, 1983).
Conception Phase
According to Churchill & Lewis C1983), this is the very first stage of growth of a business venture. At this phase entrepreneur is in his or her full sense and thus responsible for ensuring that all of the business activities happens as planned. This stage features very minimal sense of formal planning and defining the business activities. It is characterized by sole intention of ensuring that the business survives (Yola, 2013). Key primary sources of funds in this stage include entrepreneur’s own finance, securing loans, and using credit cards. Key secondary sources of finance include finance from family and friends and buying equity shares in other companies. Many businesses collapse at this stage (Muriithi & Ventures 2014).
Survival
At this development phase, the business has attainable a workable status but its key agenda is survival. Churchill and Lewis growth model explain that businesses at this phase have an ordinary organization structure. The founder of the business usually heads the business. The founder carries the face of the business. Few people might be employed depending with the nature of the business. However, the employees do not have liberty to make decisions. Decisions are made by the owner (Muriithi & Ventures 2014). The level of formally planning the business is usually too low. Many businesses will start making profits at this level. For the purpose of financing a business, entrepreneur can dig deeper in his or her own sources of finance as well as seeking more from family and friends. If funds collected from the two sources are not sufficient, the entrepreneur should seek more financing form formal venture investors such as ‘venture capitalists’ and ‘business angels’.
Profitability and Stabilization
At this growth phase, the business venture has grown into a large venture. Therefore, the owner hires more employees. Duties including freedom to make decisions are delegated to the employees (Muriithi & Ventures 2014). Additionally, the owner is still the top manager of the business but assisted by a management team. Further growth of the business will force the manager to lose total control of the business to other executive managers employed. Churchill and Lewis model explain that any business at this growth stage will have a different identity with the owner. Companies start registering new shareholders at this stage. Key sources of finance at this stage include money from business operations, customers and suppliers, venture capitalists, government special assistance programs such as low interest loans, and loans from commercial banks (Yola, 2013).
Profitability and Growth
At this stage, the venture starts recording increased profits or revenue (Yola, 2013). However, most firms will stay at the previous stage for a very long time until its owner decides to incur more expenses in bid to have more resources in the business. Availability of enough resources marks the start of this fourth growth stage. The owners are tasked with two key responsibilities, inter alia, ensuring firm profitability and finding competent managers. Key sources of finance at this stage include money from business operations, customers and suppliers, and venture capitalists (Muriithi & Ventures 2014).
Take-off
Churchill and Lewis model explain that at this stage owners are unsuccessful in managing the business. Take-off stage delays because of owners failing to admit their incapability of managing the business through having ineffective delegation. This stage is characterised by more investors, creditors, and suppliers. At this stage, company needs heavy external funding since the firm’s internal cash flow is usually insufficient (Yola, 2013).
Maturity
Yola (2013) explains that at this stage, the owner and the business are two distinctive elements. The business organization is fully decentralized. A formal management structure gets in place. The business has enough resources needed to sustain a high level of profitability. Managers have two key responsibilities: ensuring the entrepreneurial spirit is high and upholding high growth flexibility. Failure to observe these two goals will make the business have unwanted negative traits of avoiding risks and low level of innovation. At this stage,the venture receives high revenues and thus retained earnings is its major source of finance. If the venture needs additional funds, it can get it through issuing new bonds and ordinary shares through the help of investment banks. Additionally, matured firms can obtain debt and equity capital through selling more securities (GCASE, 2010).
Real Life Case Study
Apple Inc.
Apple Inc. is a multinational corporation specialized in creating consumer electronics, computer software, personal computers, video distributors, and commercial servers (Jade, 2011). Core products of the company include iPad, iPhone, smart phones, iPod media players, macintosh, and tablet computers (Nelson, 2010).
Apple Inc. Life Cycle Process
Pre-foundation
In 1975 Steve Wozniak and Steve Jobs, the founders of the corporation, started the preliminary stage of starting a business. The pre-foundation stage was characterized by a lot of research. The research work was done for a short time and the two partners were ready to start the business. The founders used personal money to finance the pre-foundation phase (Nelson, 2010). After one month research, Wazniak was able to design a video terminal that as used in logging on minicomputers at an organization’s call centers. The video terminal was sold to Alex Kamradt’s firm. This stage was also called Apple I (Jade, 2011).
Apple II
The success of the video terminal encouraged the two partners to carry out more research on the field. They attended many conferences including Hembrew Computer Club meetings. The lessons the two had in the research enabled them to build a microprocessor into the video terminal to make a complete computer (Nelson, 2010). The success of the computer made them produce many more electronic devices. This enabled them to move to the second stage, which they called Apple II in 1976. Apple II was characterized by designing more features in already designed devices. Even though the partners had a lot of venture commitments, sales returns were sufficient to finance the business (Jade, 2011).
Apple III
Jade (2011) explain that the manufacture of Apple II in May1980 marked the third growth stage of the company. The company started investing on plant and machinery since it had expanded beyond the control of the two partners. Key sources of financing the venture operations were from bank loans (Nelson, 2010).
Apple IPO
Products produced during Apple II phase enabled the business to grow. By 12th December 1980, the company had grown so much that it offered its first initial public offering (IPO) (Jade, 2011). This was the very first time the company went public (Times, 2010). The IPO helped the company generate a lot of capital that funded its entire investment projects. The IPO offering ma...