18 November 1992 Adequate Capital Essential to Business Success Says Visiting Finance Professor

Correctly balancing risks against returns is the essence of business success, says Lincoln University's Trust Bank Canterbury Visiting Professor of Finance, Dr Allan Young of New York. But he adds that at the heart of prosperity is an adequate supply of capital.

Professor Young links the failure of so many small businesses to an inadequate supply of capital.

"Why do small businesses fail? It's largely an inability to obtain the necessary capital to have a leeway period during which sales can grow and the business can prosper. If a business doesn't have adequate capital at the start it's very difficult to make a go of it.

"Messages I'm conveying in the seminars and lectures I'm giving in New Zealand include how to balance risks and returns, how to obtain working capital, how to obtain long-term capital, how to assess the real cost of capital obtained, and how to keep meaningful accounting.

"There is also something of a personnel matter involved in the failure of small businesses. Initially the primary entrepreneur has to be manager, salesperson, record-keeper, and financial analyst and it's very difficult to do and be everything.

"Also competition can be fierce. You have to remember that the marketplace is a competitive place. Almost by definition it's an arena of winners and losers.

"But at the same time small businesses can fit niches, be more flexible and respond more rapidly to the vagaries of the market than is possible with many big businesses. So they have an advantage there."

Professor Young is in New Zealand for two months as Lincoln's second Trust Bank Canterbury Visiting Finance Professor. He follows in the footsteps of Professor Jerry Osteryoung from Florida State University who was based at Lincoln in 1991.

The visiting professorship is funded by Trust Bank Canterbury as a contribution to business and finance education. The General Manager of Trust Bank Canterbury, Richard Bray, said he believed that economic recovery in New Zealand would be led by small and medium sized businesses rather than the corporates, and that the bank saw the professorship as one way of assisting and hastening that process.

"We also see Lincoln University as an institution which has much to offer both rural and urban based businesses," he said.

Aged 52, Professor Young is Professor of Finance at Syracuse University, New York. He has combined this position with a number of international appointments, the most recent being in Hungary. On a Fulbright lectureship and consultancy in Budapest he was Professor of Entrepreneurship at the Hungarian Foundation for Small Enterprise Economic Development. He has also held visiting professorships in finance at universities in Austria and Germany.

As a consultant Professor Young has had a close involvement with the emerging market-driven economies in a number of eastern European countries and has lectured in valuation, privatisation and financial management in Poland and Yugoslavia.

He participated in the re-opening of the Budapest Stock Exchange in 1990 and has also worked within the European Community on the harmonisation of various European stock exchanges as a preliminary to financial integration of the Community.

During his time in New Zealand Professor Young is giving public and university seminars as well as conducting sessions with Trust Bank Canterbury staff, the Society of Accountants, the Canterbury Chamber of Commerce, and other groups.

A public seminar entitled "Planning and Operating a Small/Medium Sized Business Venture" will be held by Professor Young at Lincoln University on Saturday 28 November from 9.30am - 4.30pm. The University can be contacted for further details.

Professor Young says his life has revolved around three careers – as a Wall Street financial analyst, as a consultant for various international and governmental agencies, and as a university professor.

He describes Wall Street as an archetype of the capitalist system.

"It's where the users of money meet the suppliers of money and in the competition there you come to understand the relationship between risks and returns and how to equate them."

Working on Wall Street provided valuable experience which has been complementary to his other activities and he feels it is important for university professors to spend some time in the business world.

Ian Collins, Journalist, Lincoln University, Canterbury, New Zealand