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Adding Value to Entrepreneurs through FP&A

By Karl Kern, Founder/President, Kern Analytics LLC

This blog post looks at the ways of how FP&A can help entrepreneurs to accomplish their goals.  

The action that entrepreneurs take is described through financial reports.  Financial reports establish a communication process that reveals what entrepreneurs want to do and how they will do it.  Financial reports also establish a learning process that provides insight into the ability to achieve objectives.  
These processes are linked to the value proposition that entrepreneurs present.  What entrepreneurs present is a value proposition that creates wins for stakeholders.

Raising Money

Entrepreneurs face a number of challenges to establish their businesses.  These challenges focus on a number of tasks that establish the viability of their ventures.  Perhaps the most important task is raising money.

Raising money establishes the financial position of a new business.  Raising money also establishes the ability to conduct relationships with stakeholders.  Perhaps the most important relationship that a new business establishes is with stockholders.

In order to establish relationships with stockholders I emphasize to entrepreneurs a rule from an angel investor: “I don’t care what your idea is; I want to know how I’m going to make money.”

Financial Reports

How does an entrepreneur describe to prospective stockholders how they will make money?  An entrepreneur describes how they will make money through financial reports.  An income statement describes how an entrepreneur will provide products or services.  A balance sheet describes the resources that an entrepreneur will acquire and how the resources will be acquired.  A statement of cash flows describes how an entrepreneur will receive and spend money.

Describing how prospective stockholders will make money is an opportunity for FP&A practitioners to add value to entrepreneurs.

The Learning Process

How can an FP&A practitioner add value to entrepreneurs?  An FP&A practitioner can add value by creating an insightful learning process.  The learning process is centered on creating insight into how prospective stockholders can make money.  The learning process focuses on creating insight into elements that prospective stockholders evaluate like revenues, expenses, assets, liabilities, and stockholders’ equity.  

The learning process also focuses on creating insight into activities that affect elements within financial reports like selling products versus services, using employees versus consultants, acquiring fixed versus intangible assets, obtaining credit from banks versus suppliers, and issuing common versus preferred stock.  

The learning process is grounded on the relationship between the activities that entrepreneurs take and the perception that prospective stockholders have.  The learning process ultimately develops a monetary basis for the entrepreneurs’ description of their value propositions.  

Creating a learning process that helps entrepreneurs describe their value propositions is how FP&A practitioners can add value to entrepreneurs.

Conclusions

FP&A focuses on learning what entrepreneurs want to accomplish and how they intend to do so.  These acts must not be described through ideas; they must be described through action.  

The action that entrepreneurs take is described through financial reports.  Financial reports establish a communication process that describes what entrepreneurs want to do and how they will do it.  Financial reports also establish a learning process that provides insight into the ability to achieve objectives.  
These processes are linked to the value proposition that entrepreneurs present.  What entrepreneurs present is a value proposition that creates wins for stakeholders.

Remember…the most important win for entrepreneurs to create is how stockholders will make money through relationships with customers, employees, and vendors. 

One can think without planning but one cannot plan without thinking.