Q&A Hero

Q: Typically, debt financing requires: A.an asset as collateral. B.a degree of ownership in the firm. C.reduction of short-term assets. D.reduction of working capital.

Q: Outside capital should be sought only after all possible internal sources of funds have been explored.

Q: Bootstrap financing helps avoid some of the problems of external capital like decreases in flexibility and increased impulse to spend.

Q: Bootstrap financing involves using any possible method, such as discounts for volume purchasing, to conserve cash.

Q: Bootstrap financing decreases the company's flexibility and drive for sales.

Q: Rule 506 goes one step further than Rule 505 by allowing an issuing company to sell an unlimited number of securities to 35 investors and an unlimited number of accredited investors and relatives of issuers.

Q: When using private placement funding the entrepreneur must disclose all information as accurately as possible.

Q: Under Rule 504 of Regulation D, a company can sell up to $1,000,000 of securities to any number of investors, regardless of their sophistication, in any 12-month period.

Q: Regulation D regulates private placements.

Q: Private offerings involve more time, expense, and paperwork than public offerings.

Q: Any patent rights on technology developed in SBIR grants are the property of the federal government.

Q: Small Business Innovation Research grants are funded by federal agencies which provide a portion of their R&D funds to small businesses.

Q: Most R&D limited partnerships are not successful.

Q: The costs of establishing R&D limited partnerships are greater than conventional financing.

Q: The sponsoring company in a R&D limited partnership is the limited partner.

Q: In an R&D limited partnership the liability for losses incurred is borne by the limited partners.

Q: Research and development limited partnerships provide small businesses funds from investors looking for tax shelters.

Q: The SBA's Microloan program provides short-term loans of up to $100,000 to small businesses for working capital or purchase of inventory.

Q: SBA guaranteed loans are guaranteed for 100 percent of the loan amount.

Q: The SBA 7(a) loan program has a maximum loan amount of $5 million.

Q: All owners, regardless of percentage of ownership, are required to personally guarantee SBA loans.

Q: The SBA's Microloan program is their primary business loan program.

Q: SBA 7(a) loans can be used for such things as equipment and land.

Q: The SBA's 7(a) Loan Guarantee program helps qualified small businesses obtain financing when they can't get a business loan through regular lending channels.

Q: The funds for a SBA guaranteed loan are provided by the federal government.

Q: To improve the chances of being approved for a bank loan, the entrepreneur should prepare a "mini" business plan for the loan committee.

Q: The five C's of credit are character, capacity, collateral, capital and competence.

Q: Long-term loans from commercial banks are usually readily available to small startup firms.

Q: Installment loans are typically given for a period of 30-40 days.

Q: When a bank grants a line of credit, a "commitment fee" is assessed at the start of the loan.

Q: Trust receipts are inventory loans used to finance floor plans of retailers such as automobile dealers.

Q: When new equipment is being purchased or presently owned equipment is used as collateral, usually 50 to 80 percent of the value of the equipment can be financed depending on its salability.

Q: About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan.

Q: Banks will lend a company up to 50% of their account receivable value.

Q: In a factoring arrangement, the bank lends the business money using inventory as collateral.

Q: The asset base for loans usually is accounts receivable, inventory, equipment, and real estate.

Q: If the amount of money provided by family members or friends is small and in the form of equity financing, they do not have an ownership position in the venture.

Q: When borrowing from friends and family, the entrepreneur should avoid putting agreements in writing to avoid future disagreements.

Q: External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.

Q: The most popular means of obtaining capital is from friends and family.

Q: The personal funds of the entrepreneur are the most expensive.

Q: A short-term, internal source of funds can be obtained by reducing short-term assets such as inventory, cash, and other working-capital items.

Q: An entrepreneur contributing his or her own capital would be an example of internally generated funds.

Q: Extending payments to suppliers is an example of generating funds internally.

Q: The type of funds most frequently used by businesses is externally generated funds.

Q: All ventures have some equity.

Q: Equity financing requires collateral.

Q: Long-term debt financing is normally used to provide working capital to finance inventory, accounts receivable, and operation of the business.

Q: Debt financing requires the entrepreneur to repay the amount borrowed plus interest.

Q: The formula for break-even analysis is: A.total fixed costs divided by selling price minus variable cost per unit. B.total variable costs divided by marginal contribution. C.total sales divided by selling price plus variable cost per unit. D.total fixed costs divided by selling price plus marginal contribution.

Q: Profit from the business would be included on the balance sheet in which section? A.Assets B.Liabilities C.Owners equity D.Assets or liabilities

Q: ________ is the amount owners have invested and/or retained from the venture operations: A.Cash flow B.Retained earnings C.Profit D.Owner's equity

Q: Owner's equity represents: A.the net worth of the business. B.only capital invested by the entrepreneur. C.everything of value owned by the firm. D.all assets owned by the entrepreneur.

Q: Notes payable is considered a(n) ________ on the balance sheet. A.cash out-flow B.current asset C.current liability D.long-term liability

Q: Equipment would be included on the balance sheet in which section? A.current assets B.fixed assets C.retained earnings D.owner's equity

Q: Current liabilities are: A.those liabilities due for payment within a year. B.everything owed to creditors. C.everything of value owned by the company. D.those liabilities that represent the excess over all assets.

Q: ________ represent(s) money that is owed to creditors. A.Assets B.Cash flow C.Owner equity D.Liabilities

Q: Fixed assets are those that: A.are intangible. B.include cash. C.will be used over a long period of time. D.are similar to loans and advances.

Q: Which of the following would not be a current asset? A.Certificates of deposit that mature in six months B.Customer receivables C.Cash D.Supplier bills payable in thirty days

Q: The basic balance sheet relationship is: A.assets plus owner's equity equal liabilities. B.assets equal liabilities plus owner's equity. C.assets plus liabilities equal owner's equity. D.assets equal owner's equity minus liabilities.

Q: ______ is/are a cash disbursement and _____ is/are an operating expense. A.Debt; interest B.Amortization; salaries C.Depreciation; rent D.Depreciation; cost of goods sold

Q: The pro forma cash flow, like the _________, is based on best estimates. A.business cash flow at a certain point of time B.expense statement C.income statement D.actual cash flow statement

Q: Pro forma cash flow is A.cash flow based on the actual. B.calculated from subtracting assets from liabilities. C.cash flow calculated on past receipts and expenses. D.projected cash inflow and outflow.

Q: The _____ method is the most popular method used to project cash flow. A.direct B.indirect C.depreciation-adjusted D.present value method

Q: Using the ________ method of projecting cash flow, adjustments are made to net income based on the fact that cash may not actually be received or disbursed. A.indirect B.breakeven C.direct D.pro forma

Q: Negative cash flow: A.results when cash receipts exceed cash payments. B.can cause a firm to fail. C.is included in the pro forma income statement. D.is common for a business during its phase of expansion.

Q: Cash flow: A.results from the differences between cash receipts and cash payments. B.is the result of subtracting expenses from sales. C.is the same as profit. D.is the sum total of all sales at a point in time.

Q: In projecting operating expenses for the second and third year costs like ______ are likely to remain stable unless new equipment or additional space is purchased. A.cost of goods sold B.gross profit C.advertising D.insurance

Q: As the business grows: A.selling expenses should go down. B.salaries and wages will go up as output increases. C.the pro forma income statement becomes unimportant. D.advertising expenses should go down.

Q: ______ is projected net profit calculated from projected revenue minus projected costs and expenses. A.Pro forma Income B.Gross profit C.Net sales D.Cost of goods sold

Q: ______ is(are) the major source of revenue. A.Borrowing from banks B.Outside investors' contributions C.Sales D.Dividends

Q: Capital budgets project expenditures on: A.new equipment. B.future production costs. C.advertising. D.costs of goods sold.

Q: The _____ budget is used to evaluate expenditures that will impact the business for more than one year. A.production B.operating C.depreciation D.capital

Q: Fixed operating expenses include all of the following except: A.Rent B.Utilities C.Raw Materials D.Depreciation

Q: Which of the following would be considered a variable expense? A.Rent B.Raw materials C.Interest D.Insurance

Q: Fixed expenses: A.are incurred regardless of sales volume. B.can be estimated by taking into consideration the production. C.includes labor, raw materials, and commissions. D.must be linked to strategy in the business plan.

Q: The _____ budget is used to project cash flows for the cost of goods produced. A.operating B.production C.capital D.depreciation

Q: The sales budget: A.should be prepared before developing the pro forma income statement. B.must be prepared by the venture's accounting firm. C.must be based on actual sales figures for the last month. D.needs to be prepared only in case of a manufacturing firm.

Q: Zappos, under a cash flow crunch, was bought out by _______. A.Google B.Microsoft C.Amazon D.Netflix

Q: One of the simplest and probably the most widely used small business accounting software package is Intuit's Quickbooks.