 |
| © 2000 - 2002 |
|
EQUAL OPPORTUNITY AND CORPORATE FINANCE
|
||
|
|
|
|
2 THE BUSINESS START UP
2.1 The start up The creation of a firm, or rather the start up of a new business, certainly represents the source of enormous wealth for all Countries' economy. The vitality of small and medium-sized enterprises, specially as a towing factor for the economy and in particular for the employment, represents at this point an acquired datum of modern literature: in the United States the SME are responsible for the larger number of engagements, contrasting, therefore, the big firms which for years started policies of reorganisation which ended up with considerable reduction in personnel. Notwithstanding the vitality which distinguishes them, the SME are characterised by a high death- rate, which during the first five years of their life reaches percentages above 50%. One of the main causes of the high death-rate is to be found in problems of financial origin, rather in difficulties the SME encounter in finding new financial sources (financial tie). The existence of a finance gap between SME and big firms is at this point a datum confirmed by several researches. Many authors have often recalled that the SME's finance avoids the marginalist models which are present in the financial theory. According to the marginalist theory it's convenient for every firm to invest as long as the borrowed capitals' cost is lower than the estimated return on the same investment, or rather as long as the investment offers a positive net present value. Unfortunately, these principles do not consider the existence of the financial tie which subjects the obtainment of financial resources required for the investment's realisation to numerous conditions. In this context, the SME are often forced to waive the needed investments, or rather, at best, to remunerate at a high price the borrowed capitals. With regard to this last statement it's to be pointed out some authors emphasise the existence of similar differences with reference to geographic localisation. Hence, firms which operate in South regions of Italy are disadvantaged, while it's not difficult to find SME in Northern Italy which benefit of a capital cost similar to the one recognised to the big enterprises working in Southern Italy. Similar difficulties can be noticed in the access to the venrure capital. Therefore, it is certainly possible to affirm that the SME live, during their life, moments of great financial tension. It is possible to individualise two causes for the above mentioned facts: 1. the existence of a scarce financial culture from the ownership's structure; 2. the presence of a high informative asymmetry. 1. As for the first point, it's necessary to notice that frequently the ownership's structure of SME has a strong personal character, or rather the entrepreneur, generally of a technical or commercial origin, has started the business himself and for this reason he pretends that all the main firms' decisions, if not all of them, are subordinate to his control. Obviously the entrepreneur is not always able to be deeply knowledgeable of the operating problems and of the theoretical foundations of all directional functions, and therefore it will be very simple to incur into phenomena defined of undermanagement. From this point of view, the SME often suffer considerable damages for not being able to show effectively, to the potential financers, their problems and their development projects. Being self financed therefore penalises the enterprises, which are denied the financing requests, or, at best, they discount a cost of the money to the limit acceptable in the logic of the adverse selection, better explained as follows. 2. For what concerns the second point, it's necessary to specify that the informative asymmetry consists in the distorted perception of the corporate facts from the outsiders. All this leads to a wrong perception of the risk concerning the investment (as credit or risk instrument) and to the request, from the investors, of a return increased for the hypothetical higher risk (adverse selection). The origin of such phenomenon has far-off roots, and it's composed by two elements: the first with a general nature, concerns the market as a whole; and the second is peculiar to the SME and it derives from the following factors: a. ownership's structure strongly individualist; b. accounting data not always truthful; c. resolute opposition of the entrepreneur to suffer the cognitive interference from the outsiders; d. business administration not always neutral from the entrepreneur, with consequent sacrifice of the business purpose in favour of the owner. Bear in mind, in fact, that the economic future of a firm is closely connected to the entrepreneur's capability, as well as to the events which occur. Besides the presence of under-management phenomena, and in particular those concerning the lack of control and programme systems, makes the creation of informative systems difficult, which allow the investor to carefully examine his knowledge of the firm. It's furthermore necessary to bear in mind that the scarce propensity of the small entrepreneur to the administrative activity in general, together with the traditional mistrust and reservedness in spreading the accounting data, unlikely makes exhaustive and comprehensible the budget's data for the financers; rather often these data have a scarce aptitude in reflecting the real firm's trend, and they can hide situations very different from reality. Then, the presence of a very complicated and heavy taxation system, has contributed to spread budget's politics not exactly orthodox, making the situation worse. In this context, however, the SME have been able to grow. The Italian industrial system under this profile is, in fact, characterised by two factors: a scarce concentration and the presence of a small firms' myriad. In fact if we wanted graphically to represent the industrial structure of Italy, we should imagine a constellation of more or less big masses, surrounded by a multitude of small particles. This dualistic, or polarised, structure has a precise historical origin of its own, retraceable in big enterprises central group which has been heir of the first industrialisation's process, then consolidated during the period between the two wars. Besides it is the outcome of an evolution which, although having showed alternate and contrasting trends, has not led to considerable changes during the forty years after the post-war reconstruction. Till today, therefore, the SME, to start and develop, took almost exclusively advantage of the entrepreneur's patrimonial/financial strength, of the enterprise's capacity in producing cash flow, and of banking and commercial borrowing, in compliance with a path of growth defined as follows: 1. contribution to capital; 2. banking and/or supplier's borrowing; 3. self-financing. In a scenery like the described one, it's evident the necessity of hoping in immediate changes aimed at the reduction of the SME's finance gap, and in particular of those ones located in the depressed areas of Southern Italy, towards the other operators, above all the international ones. In particular, among the several factors which could contribute to the creation of a virtuous circle between real economy and financial system, the following is pointed out:
Literature has in time individualised three stages in the enterprise's cycle of life, which synthetise the state of the business idea: 1. starting stage, or rather the period which goes from the conception of the business idea to the launching of a product on the market; 2. expansion stage, characterised by the composition and by the expansion of the sales channels in order to increase the sales and the market shares; 3. maturity stage, characterised by the production systems' development and by the further improvement of the sales network, as well as by the full utilisation of the market potential. The starting stage represents, obviously, the phase of greatest tension for the new enterprise, forced to compare itself with several obstacles:
On this subject, it's important to underline that in this phase the entrepreneur doesn't have the support of economic and/or commercial data to show to the financers. The entrepreneur, in his persuasion's activity, can exclusively appeal to his own communication's capacities and to the "objective initiative's potential". It's therefore hoped the intervention of an informative agent, or rather of an individual who takes the responsibility upon himself of guiding externally the firms' acquired information, in this way filling in the informative gap between the investor and the project. In absence of this intervention, the return required from the external financer would rise to unbearable levels according to the adverse selection 's logic. The starting phase is conventionally divided into three stages of growth: 1. experiment; 2. start up; 3. first development stage. In the experiment stage the entrepreneur, starting from the business idea, goes on with the product's elaboration and refining through a research and development process. Meanwhile he goes on with the evaluation of the organisation structure which he wants to give to his own enterprise, and with the development of a market analysis as well, aimed at the knowledge of the product's commercial potentials. The start up stage is characterised by the establishment of the real business: it goes on with the fulfilment of the bureaucratic formalities, with the product's development, with the industrialisation of the productive activity, and with the arrangement of a detailed commercial plan as well. The first development stage is, instead, characterised by the beginning of the production, by the product's introduction on market, and by pursuing penetration's and commercial achievement's politics towards customers. |
||
|
|
|
|