Capital

I reached into my grab bag of ideas and thoughts for this blog and my hand came out with stuff on "capital." Look on Wikipedia and follow the links. Go to any book on finance and you'll find all you want to know about financial capital. Human capital and social capital not so much.

Capital is resources. Stuff you can use for your own good. Items of value. Cars, houses, money market accounts, pre-paid insurance policies, equipment. Capital for a construction company includes front-end loaders, rollers, and equipment. For a restaurant owner it means ovens, refrigerators, tables, chairs, etc. Stuff you can sell.

There are several kinds of capital an entrepreneur needs to think about. First, there's human capital, your health, your ability to think, your ability to listen and learn and convince, your ability push ahead when times are tough.

You could group that into physical capital and intellectual capital. If you can think you can come up with good ideas and if you are creative and can persevere, you can see them through to fruition. Part of intellectual capital is knowing stuff.

There's financial capital, money and access to money. I don't care what they say, you have to have money or the ability to get it.

Then there's social capital. Whom you know. Entrepreneurs should get into an accounting mindset.

Check back on other postings in this blog. I blog on capital quite often.

Entrepreneurship is the life's blood of all my professional activities. It makes them go. And go read my mystery for free at wwww.kearneymusicschoolmurders.blogspot.com or buy it from Amazon.com more cheaply than you can print it out.

Forms of Entrepreneurial Capital

Here are the three forms of entrepreneurial capital you'll need to compete as an entrepreur:

1. Human Capital: your skills, talents, and abilities. Your ability to think, write, communicate, inspire, and listen, your personal health, your creativity, your leadership skills, trustworthiness, etc.

2. Social Capital: the number and types of people you know. The more people you know and the better your "crowd," the more social capital you have. How many people do you know? How much can you rely upon them to share with you information about opportunities in your market or to spread the word about your company.

3. Financial Capital: money or access to money. Do you have investments, savings accounts, checking accounts, CDs, money market accounts, etc. you could use to support the business and pay the lender back.

Ron Burt, Hobard W. Williams Professor of Sociology and Strategy at the University of Chicago's Booth School of Business, came up with this stuff. You can find his argument in Structural Holes; the Social Structure of Competition(Boston, MA: Harvard University Press, 1992, pp. 8-9) or read my blog posting for 7.15.2008.

You will need to assess your capital in each of these areas, then go on to look at what you will need to be fit as an entrepreneur.

My goal here is to promote skilled entrepreneurs. What do you think about this? If you have something substantive to add, post a comment.

This is some of the stuff that will go into my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Five Criteria of Creditworthiness

Okay, so you have to borrow money. You've allocated your resources, gotten help from family and friends, and still you need extra funds and are certain after a year you can pay them back from cash that the business generates.

First of all, you should have been talking to a bank a long time ago, getting money when you don't need it, which is when the bank is most likely to give it to you. But you didn't, so here you are, filling out an application for funds.

Here are the criteria the bank is going to apply to your application for funds:

1. Character. Are you a good person, paid your bills, not gotten in trouble, etc. This is usually embodied in your credit score. Get a copy of your credit report and look at it. If there's false information on there, complain and get it off. Any information you challenge, they have to initiate an investigation within a set period of time. If they don't they have to take it off. So you can usually improve your score just be challenging items. And, don't forget, start acting in a creditworthy way if you are not already.

2. Capacity. How likely are you to pay them back? Is your financial position strong enough to allow you to pay it back. Is the ratio of your debts to your assets too high? If you're maxed out on your credit cards, struggling to make ends meet, even if you have a high income, you may have some problems here. There are plenty of high earners who are also big spenders. If you're one of those, you may run into trouble.

3. Capital. They're going to look primarily at financial capital, but they're going to look at your human and social capital as well. I'll go into that next time.

4. Collateral. What do you have that they can grab if you default on repayment. Of course it's better that you sell these things and use the money, but if it's your house, you need to live somewhere. At any rate, the bank's not going to lend you all the money. You'll have to put a lot of your own money in there. That way the bank has a sense that you're in the deal.

5. Conditions. What's the condition of the industry you're going into. Are you trying to enter a dying business, or do business periodicals point to this as the next big thing?

Remember, banks make their living off of money, so they're very conservative, even in the best of times. If you have a loan officer at a local bank advising you, that helps you. But if you're new, they're probably going to be helpful but not overly forthcoming with money.

What do you think about this? If you have something substantive to add, post a comment.

This is some of the stuff that will go into my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Ron Burt on Entrepreneurial Capital

Ron Burt, Hobard W. Williams Professor of Sociology and Strategy at the University of Chicago's Booth School of Business, writes:

A player brings at least three kinds of capital to the competitive arena....First, the player has financial capital: cash in hand, reserves in the bank, investments coming due, lines of credit. Second, the player has human capital. Your national qualities--charm, health, intelligence, and looks--combined with the skills you have acquired in formal education and job experience give you abilities to excel at certain tasks. Third, the player has social capital: relationships with other players. You have friends, colleagues, and more general contacts through whom you receive opportunities to use your financial and human capital.(Structural Holes; the Social Structure of Competition(Boston, MA: Harvard University Press, 1992, pp. 8-9)

In evaluating your likely success as an entrepreneur, you can do an appraisal of all three. How about your human capital? Do you have the skills you need to do the job? Are you healthy? If you're sick all the time, how are you going to work 10-12 hours a day to get the thing started. Are you charismatic (you don't have to be)? Do you have the passion for it? Do you have the ability to see things through? What financial capital do you have? Do you have assets you can dedicate to the project or access to it through someone else? Thirdly, what about your network. How many people do you know? Are they likely to do you any good? If you're deficient in any of these aspects, what is your plan to remedy them.

This is the supply side of entrepreneurship. You need to assess your capital in each of these areas, then go on to look at what you will need to be fit as an entrepreneur.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Interest

Wikipedia, the free, on-line encyclopedia, gives us "interest" as

A fee, paid on borrowed capital. Assets lent include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money. Interest can be thought of as "rent on money". For example, if you want to borrow money from the bank, there is a certain rate you have to pay according to how much you want lent to you.

If you're interested in interest (no pun intended, but I'll take it) read the entire Wikipedia article and follow its links.

Interest is important for the entrepreneur. Keeping the amount of interest paid out, that is. The more intrest you pay the higher your expenses are, so it's best to incure as little interest as possible. Interest acts like a tax. The more you pay for credit the less you have for other things. Some credit is good, but unmanageable credit acts like a margin-sucking maggot.

What do you think? I'd like to know. Post a comment.

Entrepreneurship informs all my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com/blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com