Entrep Ch.15

Gifts

1/3 of small businesses report having unpaid labor contributed by family members Always more than just a gift Loaded with special meanings Costs time, money, feelings involved (family) Often requires time and money for accounting and reporting to the granting agency,

C

A _____ is a legal form of business created by filing documentation with a state government and has a choice of being taxed as either a corporation or a partnership. A) sole proprietorship B) corporation C) limited liability company D) limited partnership

FALSE

A charge for the use of money, usually figured as a percentage of principal is called a dividend.

B

A dividend is: A) the money contributed to the business in return for part ownership of the business. B) a payment of profit made to owners of corporations. C) the percentage amount that the payout of an investment differs from original cost. D) a charge for the use of money figured as a percentage of the principal.

F

A legal "artificial" entity that is formed by filing specific documents with a state government is called a partnership. A) True B) False

D

A(n) _____ is an organization that supports start-up technology businesses by providing inexpensive office space, a variety of support services, and resources. A) small business investment company B) community investment organization C) angel investor D) accelerator

Fair Credit Reporting Act

All information reported by CRA is accurate

Community Development Organization

An organization authorized by the SBA to make insured loans to small business that are expected to increase economic activity within a specific geographic region

Gifts

Any valuable assets or services that are DONATED to your business WITHOUT any obligation to repay or to give any ownership interests

pass through

Business are either taxed as entities or the revenues and expenses of the business are ______to the owners who report them on their individual income tax forms

Credit Reporting Agencies

CRA A business that collects collates and reports information conceding an entities use of debt Solely to collect collate and report the credit histories of individuals and business Lenders pay a fee to join a credit agency and then pay for each report received Equifax Experian Innovis Transunion

Financing With DEBT

Direct loans of cash guaranteeing loans made by commercial banks reducing tax by allowing interest to be deducted

Partnerships

Do not HAVE to have a written agreement Limited liability but general partner is liable determined by partnership share agreements

Foundation

Exist for the purpose of addressing some identified social need that cannot be adequately met by market forces

Institutional

From government agencies and foundations The most common form if in the form of reduced taxes either through tax abetment or in the form of a credit against taxes payable

T

From the point of view of an existing owner, financing with equity is expensive and guaranteed to create problems of control and decision making.

F

From the point of view of an existing small business owner, financing with equity is both inexpensive and problem-free. A) True B) False

Corporation

Limited Liability Required by law to file specific forms with the state in which they are organized. Established by stock certificates

T

Limited liability companies' primary advantage is that owners may easily choose whether to be taxed as an entity or have tax items pass through.

Debt Capital

Money borrowed for the purpose oof investment in a business

F

Money contributed to the business in return for part ownership of the business is referred to as dividends. A) True B) False

Outside Equity

Money from selling part of your business to people who are not and will not be invoked in the management of the business People who buy ownership rights in your business are considered _____ investors Only if your business is Partnership corporation LLC Outside: not part of the business Equity: legal ownership rights to your business Investors: you are using their money Partnership, corporation, limited liability

LLC

New form of organization whose primary advantage is that owners may easily chooses whether to be taxed as an entity or have tax items pass through Determined by share certificates

Incubators "Accelerators

Organizaton that supports start ups technology businesses by providing inexpensive office space and variety of support services and resources Associated with universities

Small Business investment Companies SBIC

Private businesses that are authorized to make SBA insured loans to startups and small business

D

Profitability ratios are used to measure: A) the relative risk of bankruptcy from a business setback. B) the business's ability to pay debts and expenses that are due in the current accounting period. C) the relationship between initial investment and the profits that are expected to be received from making the investment. D) the management's effectiveness in creating wealth from sales and from invested funds.

Tax Abetmatement

Provided by state and local governments to encourage specific activities that are expected to improve blighted areas or to provide additional employment A legal reduction in taxes by the government : a legal reduction or exemption of taxes (federal, state, local) Encourage specific activities to improve blighted areas

Deferral

Repayment of debts is delayed unil the business is doing well

Equity Capital

Sell party of your business, is the money you receive Money contributed to the business in return for part ownership of that business

Self Directed IRA

Small business best kept secret Have to go threw a fiduciary is an IRA held by a trustee or custodian that permits investment in a broader set of assets than is permitted by most IRA custodians. Most IRA custodians are banks and broker-dealers that limit the holdings in IRA accounts to firm-approved stocks, bonds, mutual funds and CDs. Custodians and trustees for self-directed IRAs, however, may allow investors to invest retirement funds in other types of assets such as real estate, promissory notes, tax lien certificates, and private placement securities. While self-directed IRAs may offer investors access to an array of private investment opportunities that are not available through other IRA providers, investments in these kinds of assets may have unique risks that inves- tors should consider. Those risks can include a lack of disclosure and liquidity -- as well as the risk of fraud. tax-de- ferred retirement accounts that carry a financial penalty for prematurely withdrawing money before a certain age allow investors to hold alternative investments such as real estate, mortgages, tax liens, precious metals, and private placement securities. Unlike pub- licly-traded securities, financial and other infor- mation necessary to make a prudent investment decision may not be as readily available for these alternative investments. Even when fi- nancial information for these alternative invest- ments is available, it may not be audited. 70s: pension to responsibility on your Take money in your savings/IRA and allocate to investment vehicle. Have to go threw a fiduciary Investments that are excluded IRS Code Sec. 401 IRC 408(a) (3) 1) Life Insurance Contracts 2) Collectibles such as works of art, rugs, jewelry, IRA: Individual Retirement Account 70s-Pension Companies: Sawb, Bank of America, Wells Fargo Invest money in stock market You decide what they invest in.

C

The HelpAid Foundation, which was setup by a group of wealthy entrepreneurs, provides _____ to nonprofit organizations that work toward the welfare of women and children. A) dividends B) chargebacks C) grants D) set-asides

Accredited Investors "Angel"

The SECs term for individuals with a net worth greater than 1 million of a personal annual income of at least 200,000 in each of the 2 most recent years who are there fore qualified to make private equity investments in business Good source for cash intensive firms at the earliest tags seed and start up banded into two types of groups Netowrks and Funds

T

The most common source of capital for established ongoing small businesses is borrowed funds.

T

The ratio of profits to owner investment in a business is called return on equity. A) True B) False

Diversify

To invest in multiple investments of differing risk profiles for the purpose of reducing overall investment risk 2 % a CE earning 5% Government bond 3.25% no risk at all for above

Bootstrapping

Using low cost or free techniques to minimize your costs of going business

Institutional PErsonal

What are 2 types of gifts

Character Conditions Capacity Collateral

What are the 4 C of borrowing

Picking Up the Tab

When someone buys something on behalf of your business and lets you benefit from it

PiggyBacking

Where family or friends let you add your purchases with theirs in order to get a lower price

A

Which of the following represents money borrowed for the purpose of investment in a business? A) Debt capital B) Equity capital C) Personal equity D) Gift

SBA guarantee Loans

You MUST be turned down by a bank before you qualify You can apply for this loan Through this avenue you will still borrow from the bank but the SBA will guarantee the bank that if you fail, the SBA will pay off you loan Other Sources include Community Development Organizations Micro lenders

TRUE

You can sell ownership in your business only if it is organized as a corporation.

Tax Credit

direct reductions dependent on meeting some legal criteria (energy, housing 8k, multifamily low income) Encouraging investment in specific assets, to increase economic activity, supporting industries Provided by the US government and SOME state governments for the purpose of encouraging investment in specific types of assets to increase economic activity in specified industries that are held to be of national strategic interest Direct reduction in the mount of taxes that must be paid, dependent on meeting some legal criteria

A

he expected mean future cost of funds is called _____. A) weighted average cost of capital B) cost of quality C) dividend D) cost of carry

Debt

A legal obligation to pay money in the future Business can borrow money directly from banks development agency governments or individuals Most lenders require an investment from borrowers 80-20%

Economic Development

Governments expect their gifts of grants and tax abatements to make a return to be repaid in the form of the owner creating more jobs and paying more taxes When business succeeds and grows contributed to the ____ of area

A

The main emphasis of financial management during the growth phase of a business is to: A) obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees. B) conserve what little cash the business has and implement bootstrapping techniques. C) finish all outstanding projects, collect all money due, dispose of all business assets, and pay off any outstanding debt. D) establish internal controls over assets by establishing policies and procedures that are clearly stated and understood by everyone involved in management.

Owners themselves family friends credit cards trade credit banks commercial lenders government programs community based finance stock sales

Where does financing come from for most small business?

Accelerated Cash out

Where you might be given the funds for your business form an account your family set up for your future education or first home Cash outs come when family or friends cash out their retirement or home

D

Which of the following is one of the financial management need when the firm is financing for operations? A) Needing funds for the firm's sustenance B) Needing funds to pay employees C) Investing to build equity and firm value D) Smoothing of cash flow

C

A legal reduction in taxes, _____ are provided by state and local governments to encourage specific activities that are expected to improve blighted areas or to provide additional employment. A) tax credits B) tax aggregations C) tax abatements D) institutional gifts

Sole Proprietorship

Fully Liable Not separate from their owners No specific documentation that creates their existence

Equity Capital

Growth potential is a primary concern for equity investors Time required to receive gains can be a deal killer Financing with this is expensive, guaranteed to create problems of control and decision making Helps reduce own exposure to financial loss will not have increased costs in the form of interests reenergize it by providing new ideas procedures and process Advantages and Disadvantages of Equity Financing? Lose control, less risk, Not monthly loan you have to make at the bank Can a sole proprietorship have outside equity? No longer one owner, equity=ownership

Collateral Value

Simply the estimated market value of the assets of your business Tangible, long term assets are the best Auction markets for automobiles, trucks etc provide both a source for estimating value and an immediate market in which they can be sold Intangible assets are NOT good ex: goodwill the value of a business that exceeds the sum of the value of all individual assets cannot be sold separately from the business

T

The capacity of the business to repay both principal and interest on time is one of the main things that lenders check before they give businesses their money. A) True B) False

Roth IRA

is a retirement savings account that allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you've already paid taxes on the money you put into it. In return for no up-front tax break, your money grows and grows tax free, and when you withdraw at retirement, you pay no taxes. Roth IRA: -Taxed when you put money in (beginning)

crowdfundingq

is the practice of funding a project or venture by raising monetary contributions from a large number of people, today often performed via internet-mediated registries, but the concept can also be executed through mail-order subscriptions, benefit events, and other methods.

Grants

require accurate records and reporting Small Business Innovation Research program Small Business Technology Transfer program Gifts of money made to a business for specific purpose US result of political pressure from congress Highly structured and require very accurate record keeping Two largess are SBIR and STTR SBIR : The Small Business Innovation Research (SBIR) program is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization. Through a competitive awards-based program, SBIR enables small businesses to explore their technological potential and provides the incentive to profit from its commercialization. By including qualified small businesses in the nation's R&D arena, high-tech innovation is stimulated and the United States gains entrepreneurial spirit as it meets its specific research and development needs. First publish a request for proposal that specified the conditions of the grant judged in blind process notified within 30 days Costs time, money, feelings involved (family) Often requires time and money for accounting and reporting to the granting agency,