EFM03-01(1)

Question 1

Describe each of the three categories of new businesses.

Answer 1

• lifestyle business: self-employed family members, homebased, little/no outside funding
• small business: serve local markets, less than 20 employees, outside funding mostly bank
• high-growth, high-potential ventures(rare) that need large amounts of money for rapid growth and equity funded through angels

Question 2

Define financial success and personal success for a small business

Answer 2

Financial success of adequate income and wealth given the risk.

-goals for balanced life and social change.

Question 3

What are the four characteristics of a free-market system?

Answer 3

• individuals and companies compete for their own economic gain
• private property ownership and wealth are permissable
• free-market forces determine prices
• based on voluntary exchange: transactions between two parties who agree to trade money for product or service

Question 4

How is “profit” for the entrepreneur related to creating value for society?

Answer 4

Profit is how the public rewards those who use resources efficiently to satsify consumer needs.

Question 5

Describe the six uses for enterpreneurial financial management?

Answer 5

• set clear financial goals
• help make financial and operating decisions
• building a financial forecast(pro forma financial statements)
• manage cash flow
• attract outside financing
• plan an exit for the business

Question 6

How are the “Marketing Plan” and the Operating plan related to the financial forecast?

Answer 6

Marketing plan is what you use to build the revenue forecast and the operating plan is used to build the expense forecast.

Question 7

How is Entrepreneurial finance similar to traditional finance?

Answer 7

• Financial markets(raising funds) both have to do with capital and money markets.
• Investments(What do investors want?)
• Corporate Finance(How to best use funds available to firm)

Question 8

What are the four preferences of investors and why are they important to the entrepreneur?

Answer 8

• Less risk(diversified: systemic, non-diversified total risk)
• prefer more return
• prefer quicker return
• prefer liquidity(ability to turn an investment into cash)

Question 9

What are the three key differences between entrepreneurial finance and traditional finance?

Answer 9

• lack of historical data to measure risk and make forecast
• fully committed, rather than diversified, investors.
• cash flows are critically important because of lack of access to external funding.

Question 10

What three questions are important in the framework for ethical analysis?

Answer 10

• Who are your stakeholders/
• What do you “owe” each stakeholder”
• specifically, how will your firm deliver what is owed to each stake holder?