Chapter 10 + 12 (the financial plan)

Question 1

What are some common mistakes entrepreneurs make

Answer 1

-not understanding the revenue drivers
-underestimating costs
-underestimating time to generate revenue
-lack of comparable
-underestimating time to secure financing

Question 2

What are the 3 financial statements needed

Answer 2

1) income statement
2) statement of cash flow
3) balance sheet

Question 3

What does the income statement show

Answer 3

What comes into the business(revenues) in terms of cash

Question 4

What does the cash flow statement show

Answer 4

Flow of cash, in and out of the business

Question 5

What questions should be able to be answered to finance small businesses

Answer 5

How much money is needed
When will the funds be used
How long did the money last
Do you need fund immediately
Will I get anything else besides money

Question 6

What is often the pitfall of small businesses?

Answer 6

the inability to obtain enough funding

Question 7

List off some expenses that a business may have

Answer 7

-initial inventory
-few months of payroll
-few months of rent
-initial advertising
-prepaid items (rent, utilities, insurance)
-licence and permits

Question 8

What is equity financing?

Answer 8

Where a business gives up part of the ownership for money

Question 9

Name some advantages to equity financing

Answer 9

-no obligation to pay dividends or interest
-often the original owner benefits from the investors expertise (especially in angel investing)
-spreads the risk of failure of the business to others

Question 10

What are some disadvantages of equity financing?

Answer 10

-dilutes ownership
-possibility of disagreement between investor and original owner

Question 11

What are the 3 subsections to private equity financing?

Answer 11

1) Individuals: angel groups, angel funds, family
2) Venture capital: private venture capital firms, small business investment companies
3) private equity firms: limited partners, general partners

Question 12

What may be some reasons an angel rejects a proposal?

Answer 12

-risk/return is not high enough
-inadequate management team
-not interested in business idea
-unable to agree on a price
-angel doesn’t have enough expertise in that area of business

Question 13

What is the idea of going public?

Answer 13

Company raises equity by selling part of company to the public by shares or stocks

Question 14

What are some advantages of going public?

Answer 14

-Obtaining new equity
-Greater liquidity, enhancing company valuation
-easy to raise additional cash

Question 15

What are some disadvantages of going public?

Answer 15

-Public exposure and potential loss of control
-loss of flexibility and increased duties
-expenses involved

Question 16

What are some important factors to consider about the timing of going public

Answer 16

-is the company large enough?
-What is the amount of company earnings and how strong is their financial performance
-are market conditions favourable
-how urgently is money needed
-what is the goal of the current owner

Question 17

If a company doesnt wish to give up equity but wants to raise cash, what might they use?

Answer 17

Royalties

Question 18

What are royalties

Answer 18

It is a way of raising cash by allowing another company to use the others assets, including copyright works, franchises and natural resources