- The first step in creating the pro forma income statement is to:
create a sales forecast.
determine a reasonable salary and return on investment in the company.
find published figures on the specific type of business in order to forecast sales.
figure out operating costs and make a realistic sales estimate.
- ________ ratios help a business owner evaluate the company’s performance and indicate how effectively the business employs its resources.
- The ________ ratio is a conservative measure of a firm’s liquidity and shows the extent to which a firm’s most liquid assets cover its current liabilities.
- Depreciation is:
the difference between the total sources available to the owner and the total uses of those assets.
listed as a source of funds because it is a noncash expense, deducted as a cost of doing business.
the owner’s total investment at the company’s inception plus retained earnings.
creditors’ total claims against the firm’s assets.
- ________ are those items of value the business owns; ________ are those things the business owes.
- Once a credit account becomes past due, a small business owner should:
wait patiently; the customer will most likely pay the bill sooner or later.
turn the account over to a collection agency the day it becomes past due.
contact the customer immediately, ask for full payment, and set a deadline.
call the “deadbeat” in the middle of the night and make harassing and threatening remarks until he pays.
- Small businesses selling on credit find that:
it is relatively inexpensive and simple.
it is expensive and requires a great deal of effort.
it is essentially borrowing money from the customer.
many can get by without selling on credit because their business customers don’t expect to use credit.
- Bill and Henry are discussing the volume of cash that has been coming into and going out of their business during the accounting period. They are discussing:
accounts receivable and payable.
- When creating the cash budget, keep in mind that:
it should be a monthly plan, projected out for 3 years.
the more variable the sales pattern, the shorter the planning horizon should be.
it should be quarterly estimates for a period of 1 year.
it is a verbal or mental “document” in order to permit maximum flexibility.
- Marking down inventory items that don’t sell will result in:
keeping the inventory lean.
reduction in inventory turn over ratio.
paying expenses on time.
All of the above
- Tien is looking for capital to purchase new buildings and equipment for her small manufacturing company. Tien is looking for ________ capital.
- When looking for an angel, the key is:
using the SBA as a contact point.
searching the web.
using business incubators’ computer matching services.
- The most common source of equity funds used to start a small business is:
private investors or “angels.”
loans from commercial banks.
the entrepreneur’s pool of personal savings.
public stock issues.
- A disadvantage of using friends and relatives as investors is:
they tend to demand more stock options.
familial seniority often conflicts with the “chain of command.”
they require more leniency with benefits and pay.
unrealistic expectations or misunderstood risks destroy friendships or family relationships.
- Private investors, or “angels,” are often:
persons who invest in business startups in exchange for equity stakes in the companies.
All of the above
- The SBA’s ________ program offers short-term capital to growing companies seeking to finance seasonal buildups in inventory or accounts receivable.
The Direct Loan
Immediate Participation Loan
- A small business that uses factoring:
pledges its accounts receivable as collateral to obtain a loan from a financial institution.
relies on a third-party consultant to apply for SBA-guaranteed loans.
sells its accounts receivable to a third party to get the capital it needs.
borrows money from lenders by offering them the option to convert the loan into stock in the company.
- Asset-based borrowing permits small businesses:
to borrow up to 100% of the value of their inventory or their accounts receivable for the money they need for long-term goals.
to use normally unproductive assets—accounts receivable and inventory.
to obtain loans more easily but with less borrowing power than if they used an unsecured line of credit.
access to a source of funds ideally suited for long-term financing needs.
- A(n) ________ is a hybrid between a conventional loan and a bond; at its heart it is a bond, but its terms are tailored to the borrower’s individual needs, as a loan would be.
industrial revenue bond
zero coupon bond
- A(n) ________ is a private nonprofit financial institution that will make small loans to its members for the purpose of starting a business.