Finance and Accounting for Entrepreneurs

Case Study: Finance and Accounting At The Core Of Entrepreneurship

• This case study examines how financial and accounting principles guide entrepreneurs in strategic decision-making and effective business management.
• Two entrepreneurs, Jakub Nowakowski (delivery business in Manchester) and Samira Rahman (catering business in London), are central figures.
• Their experiences highlight the crucial role of financial planning and accounting for business success.

Jakub: Finance at the Centre of Production and Pricing Decisions

• Jakub's delivery business has grown steadily but faces challenges in aligning production levels, pricing, and profitability.
• Recently secured a large delivery contract, requiring increased deliveries per day.
• Must decide whether to hire more drivers/vehicles or manage with current resources.
• Worried about balancing increased operational costs with contract profitability.
• Current pricing strategy needs adjustment to cover rising variable costs (e.g., fuel, maintenance).

Key Finance Focus for Jakub

• Balancing Production Levels and Unit Costs: Economies of scale can reduce per-delivery costs by increasing capacity.
• Pricing for Profit Maximisation: Understanding the interplay between costs, pricing, and market competition ensures profitable pricing strategies.
• Managerial Implications: Scaling operations requires assessing cost structures and financial risks.

Reflection Questions for Jakub

• Cost Analysis for Vehicle Leasing: Determining if leasing additional vehicles is financially viable.
• Pricing Strategy Adjustment: Adjusting pricing to maintain profitability while remaining competitive.

Samira: Accounting as a Tool for Managing Financial Balance

• Samira's catering business is popular but struggles with accurate financial records, leading to inefficiencies.
• Increasing orders demand precise expense tracking (ingredients, labor, equipment).
• Inconsistent record-keeping produces discrepancies in profit and cost calculations.
• Uncertainties about future needs and financial health.
• Difficulty managing customer payments and supplier invoices due to transaction recording errors.

Key Accounting Focus for Samira

• Accounting Equation in Practice: Understanding assets, liabilities, and equity to assess the business's financial position.
• Transaction Recording and Monitoring: Accurate recording of income and expenses for financial stability.
• Managerial Insights from Accounting: Using financial statements (e.g., balance sheets) for informed decisions, including purchasing supplies and planning for demand.

Reflection Questions for Samira

• Improving Transaction Recording: Improving the transaction recording process to reduce errors.
• Using Accounting Records for Forecasting: Using accounting records to forecast future resource needs and manage costs effectively.

Lessons for Students and Pre-Lecture Reflection Questions

• Finance:
  • Strategic decisions around production, pricing, and cost control.
  • Using financial planning to optimise operations and maximise profit margins.
• Accounting:
  • Accurate recording and monitoring of transactions to ensure financial stability.
  • Insights from accounting data to support decisions and comply with financial obligations.
• Pre-Lecture Reflection Questions:
  • Why is production, unit costs, and pricing important together for Jakub?
  • How does the accounting equation help Samira maintain balance?
  • What similarities are there between finance and accounting for improved decision making for small businesses?