Economic value creating both tangible and intangible sources are considered as entrepreneurial resources. Their economic value is generating activities or services through mobilization by entrepreneurs. Entrepreneurial resources can be divided into two fundamental categories: tangible and intangible resources.
Tangible resources are material sources such as equipment, building, furniture, land, vehicle, machinery, stock, cash, bond and inventory that has a physical form and can be quantified. On the contrary, intangible resources are nonphysical or more challenging to identify and evaluate, and they possess more value creating capacity such as human resources including skills and experience in a particular field, organizational structure of the company, brand name, reputation, entrepreneurial networks that contribute to promotion and financial support, know-how, intellectual property including both copyrights, trademarks and patents.
Bootstrapping
At least early on, entrepreneurs often "bootstrap-finance" their start-up rather than seeking external investors from the start. One of the reasons that some entrepreneurs prefer to "bootstrap" is that obtaining equity financing requires the entrepreneur to provide ownership shares to the investors. If the start-up becomes successful later on, these early equity financing deals could provide a windfall for the investors and a huge loss for the entrepreneur.
If investors have a significant stake in the company, they may as well be able to exert influence on company strategy, chief executive officer (CEO) choice and other important decisions. This is often problematic since the investor and the founder might have different incentives regarding the long-term goal of the company. An investor will generally aim for a profitable exit and therefore promotes a high-valuation sale of the company or IPO in order to sell their shares. Whereas the entrepreneur might have philanthropic intentions as their main driving force. Soft values like this might not go well with the short-term pressure on yearly and quarterly profits that publicly traded companies often experience from their owners.
One consensus definition of bootstrapping sees it as "a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors". The majority of businesses require less than $10,000 to launch, which means that personal savings are most often used to start.
In addition, bootstrapping entrepreneurs often incur personal credit-card debt, but they also can utilize a wide variety of methods. While bootstrapping involves increased personal financial risk for entrepreneurs, the absence of any other stakeholder gives the entrepreneur more freedom to develop the company. Many successful companies, including Dell Computer and Facebook, started by bootstrapping.
Bootstrapping methods include:
- Owner financing, including savings, personal loans and credit card debt
- Working capital management that minimizes accounts receivable
- Joint utilization, such as reducing overhead by coworking or using independent contractors
- Increasing accounts payable by delaying payment, or leasing rather than buying equipment
- Lean manufacturing strategies such as minimizing inventory and lean startup to reduce product development costs
- Subsidy finance
Additional financing
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Many businesses need more capital than can be provided by the owners themselves. In this case, a range of options is available including a wide variety of private and public equity, debt and grants. Private equity options include:
- Startup accelerators
- Angel investors
- Venture capital investors
- Equity crowdfunding
- Hedge funds
Debt options open to entrepreneurs include:
- Loans from banks, financial technology companies and economic development organizations
- Line of credit also from banks and financial technology companies
- Microcredit also known as microloans
- Merchant cash advance
- Revenue-based financing
Grant options open to entrepreneurs include:
- Equity-free accelerators
- Business plan/business pitch competitions for college entrepreneurs and others
- Small Business Innovation Research grants from the U.S. government
Effect of taxes
Entrepreneurs are faced with liquidity constraints and often lack the necessary credit needed to borrow large amounts of money to finance their venture. Because of this, many studies have been done on the effects of taxes on entrepreneurs. The studies fall into two camps: the first camp finds that taxes help and the second argues that taxes hurt entrepreneurship.
Cesaire Assah Meh found that corporate taxes create an incentive to become an entrepreneur to avoid double taxation. Donald Bruce and John Deskins found literature suggesting that a higher corporate tax rate may reduce a state's share of entrepreneurs. They also found that states with an inheritance or estate tax tend to have lower entrepreneurship rates when using a tax-based measure.
However, another study found that states with a more progressive personal income tax have a higher percentage of sole proprietors in their workforce. Ultimately, many studies find that the effect of taxes on the probability of becoming an entrepreneur is small. Donald Bruce and Mohammed Mohsin found that it would take a 50 percentage point drop in the top tax rate to produce a one percent change in entrepreneurial activity.
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