INTANGIBLE CAPITAL VALUE

by Erwan COATNOAN DE KERDU

Your copilot in creating a successful company

Measuring entrepreneurial capacity

  by Erwan Coatnoan de Kerdu

The entrepreneur is usually the owner of the business. He participates in its development and controls it in order to generate profits. This activity assumes that he has certain skills. Many of these are required and arise from the entrepreneurial process. How can entrepreneurial capacity (EAC) be measured? 

The entrepreneur is usually the owner of the business. He participates in its development and controls it in order to generate profits. This activity assumes that he has certain skills. 

Many of these are required and arise from the entrepreneurial process. How can entrepreneurial capacity (EAC) be measured? 

Modeling entrepreneurial capacity 

The conduct of entrepreneurship implies the possession of an entrepreneurial capacity, defined by the acronym CAE. It is a solution for measuring the value of the company and the entrepreneur’s skills. Measuring it allows us to appreciate the entrepreneurial capacity linked to the result obtained, which therefore corresponds to the value created. 

The entrepreneur at the heart of the measure 

The entrepreneur is the actor of the company’s development. He structures it, controls it and masters the creation of value. He manages the equity and implements the means to generate added value. The PPA can then be understood as a capacity to conduct certain means with the aim of creating added value. But it is also defined by the entrepreneur’s ability to maintain this creation trend thanks to a good allocation of value. 

In a changing environment, with constraints related to resources and objectives, it is the entrepreneur’s own capacity to undertake that is put into action. 

Measuring entrepreneurial capacity 

In order to understand ACE, it must be broken down into several sub-ACEs so as to make it specific to each type of business, at a particular place and time. It may then be possible to differentiate the various capabilities by looking for actions that generate ACE. 

The latter is largely based on the analysis of accounting data, but also on the general impression given by the manager. It is also based on the ability of the manager to provide a quality and convincing business plan. For the time being, measurement tools linked to entrepreneurial performance already exist, notably in banks. However, the measurement is based exclusively on balance sheets. 

In order to achieve a true measure of PPA, the value of the assets will have to be weighted by the measured PPA, and then it will be necessary to carry the resulting value over to the liabilities since the business owes it to the entrepreneur. 

 

Criteria to be assessed in the EAC

Several articles already exist and all propose a specific method of evaluating PPA. A model should measure the efficiency of the method while many entrepreneurs do not look for the result, but only for a satisfactory balance. The entrepreneur with the best capabilities will be able to exploit all the opportunities available to him and the company during the operating cycles. 

Contractors on trial 

Entrepreneurship actors really want to work together. For this to happen, trust must be ensured through personal analysis of each other’s capabilities. These observations are predominant among bankers, accountants, legal representatives and other professionals. However, entrepreneurs constantly feel judged, while the other actors define themselves as judges. 

In order for the entrepreneur to be judged, these actors must be able to base themselves on skills and indicators. In addition, each leader’s background is different. Some have created their own business, while others have entered into a kind of family adventure. The differences observed between the entrepreneurs then lead to divergences in terms of finances, operations and strategies. 

Value and operating cycles 

Many professionals like to rely on concrete indicators. Grouping together the entrepreneurial skills conducted in a company with a majority leader provides a specific indicator.

 The latter determines the manager’s ability to create value, to manage his operating cycles by combining human strength and capital. To do this, the calculation must be done as follows: VA = K + T. The manager uses this VA in order to stabilize the company, develop its existing and new activities. Three main variables emerge: 

The number of cycles performed over a period of time, their volume, and the number of cycles of different types performed. These variables, in addition to being measured, must be compared year after year. The more cycles there are, the higher the value can be. Each cycle creates more value and the multiplication of cycles implies cycles of different natures. 

In short, a quality assessment of the entrepreneurial capacity would provide the entrepreneur with more guarantees. The whole assessment must be based on the real capacities of the entrepreneur, his assets, achievements and objectives. 

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