The Most Important Finance Skills for Entrepreneurs: Differing Views among Finance Professionals

Article excerpt

ABSTRACT

Finance is commonly viewed as one of the most important topics for entrepreneurs to understand to ensure their survival and success. This study addresses 10 finance topics commonly taught in university courses. Each topic was evaluated by financial advisors on its level of importance for inclusion in entrepreneurial finance courses. The financial advisors include accountants/CPAs, bankers (lenders), investment bankers, venture capitalists, angels, personal financial advisors, and "others." The financial advisors considered all 10 topics to be at least "very important." However, some important differences did emerge among the various types of financial advisors on the topics of financing sources and methods, the relationship between outside investors and the entrepreneur, and the time value of money.

INTRODUCTION

Entrepreneurial finance is a relatively new subdivision within the discipline of finance and researchers have only begun surveying finance professionals as to which finance skills are most important for entrepreneurs. In this study, we compare the perceptions of different groups of finance professionals who advise entrepreneurs. These groups include venture capitalists, bankers, investment bankers, angels, accountants/CPAs, personal financial advisors, and others. Each group was asked to comment on the importance of ten finance skills for entrepreneurial success (see Table 2 for a list of these topics). Our results suggest that there is reasonable agreement among finance professionals, although some significant differences are observed. In general, these differences support the view that finance professionals place a higher value on the skills most closely related to their specific professions within the larger field of finance.

LITERATURE REVIEW

Several prior studies have surveyed financial professors to learn what topics are most important to cover in finance courses. For example, Cooley and Heck (1996) surveyed finance professors to investigate the perceived importance of various topics that might be covered in an introductory finance course. These researchers asked respondents to rank topics on the degree of importance and course coverage. Cooley and Heck found that time value of money, capital budgeting, risk and return, security valuation, and cost of capital were the introductory finance course topics viewed as most important by academics. Mergers and bankruptcy, leasing, inventory management, international finance, and receivables management were viewed as least important by finance professors. Other researchers have surveyed finance professors to identify what topics are most important to cover in specialized finance courses. Gardner and Mills (1990) and Granger and Aby (1977) gathered data on the financial institutions and the investments subdivisions, respectively.

An alternative approach taken by some researchers is to gather data on the perceptions of finance practitioners, or of finance practitioners and academics (see Graham & Krueger, 1996; Gup, 1994; DeMong, Pettit & Campsey, 1979). McWilliams and Pantalone (1994) surveyed top financial executives (mostly vice presidents of finance, chief financial officers, treasurers, or controllers) of large corporations to identify what skills these professionals believed were most important for finance majors. Respondents were asked to rank specialized finance courses in the major subdivisions according to their importance. McWilliams and Pantalone found that a majority of large-firm financial executives believed that working capital management, capital budgeting, and financial institutions should be required courses for finance majors. At a time when courses in entrepreneurial finance were becoming much more popular, these respondents placed a very low priority on the specialized course "small business finance." Perhaps this is not surprising, given that the respondents all had successful careers in large corporations. …