Entrepreneurship and finance

The Cebu Federation of Junior Financial Executives (CF-JFINEX), as part of their convention, asked me to be one of the speakers in their forum last Saturday on the theme of Entrepreneurship. As a long-time FINEX member, a good follower and finance practitioner/teacher, I readily accepted as it is a chance to get to know the current thinking of business and finance students, impart my experience and interact and learn from them. There were over a hundred students from UP, UC, UV, USJ-R, and USC in attendance at the UP Performing Arts Hall in Lahug.

The speaker ahead of me was Aaron Que, the executive vice president of Golden Prince Hotel and Suites. He narrated the rise of their hotel group from a small inn beside Junquera Street to a three-building hotel group in a span of 25 years. Among other things, their mission/vision and their concept of service brought them to where they are now.

Family experience and family reasons made me both an entrepreneur and a professional. My father, an engineer, was very entrepreneurial. Growing up, I remember we had a salt bed business, poultry, piggery, gas station, bus company, fishponds, commercial farms, a coal mine, and a property company. Half of these businesses did not prosper and half of them succeeded. But he also taught Mathematics and Physics and was an engineer in a cement plant. When I finished my MBA in UP, I was already married and had to raise a family, so aside from business ventures, I also had a full-time job as a consultant in SGV& Co., then later worked as a bank officer, investment banker, among other jobs. The vagaries and uncertainties of entrepreneurship made it necessary that I had another source of income and cash flow.

The success rate for first-time entrepreneurs is only at 18%, then 25% for those who had failed before, and 30% for those with successful prior ventures. Now, even in the hi-tech industries in Silicon Valley which are backed up by venture capitalists, the success rate is still at 27%. So, the failure rates of entrepreneurs are in the 72% to 83% range, and maybe higher in developing countries, but those that make it, make it big, and we are all benefitted by their success.

Half of entrepreneurs fail due to lack of knowledge in finance, production/operations, and marketing, and the other half due to lack of character, motivation, pride, and choice of people. Most entrepreneurs are usually strong in production and marketing that they believe that they can build a better product or sell anything. And they also believe that they can just hire a good accountant to take care of their finances and accounting. Then, they realize that they need a financial plan to secure fixed asset acquisition, to finance the inventory, receivables, to properly cost production, selling, and administrative expenses. As a banker I noticed most entrepreneurs want to borrow all their financial requirements, and as much as they can without putting in equity capital. Then they borrow short-term money to purchase fixed assets that do not generate short-term cash flow. This gets them into trouble as there are very few businesses that can operate without equity and long-term funding, and most of them are illegal. Then there is the need for entrepreneurs to understand Return on Investments and Internal Rates of Return to guide and limit their tendencies for expansion. Lastly, entrepreneurs need to understand financial controls to see if the financial results are what they planned or expected.

Particularly in the Philippines, with our low level of financial literacy, the success rates for entrepreneurs would be higher if they learn financial management. We in FINEX PHILS. are doing our share in this program.