New Venture Finance
What are the major funding stages that new businesses progress through? Develop your product, prove your business model, scale your business Conceive your business idea, create a true opportunity, develop your prototype Create a prototype, gain a trademark, apply for a patent Proving your business model, scaling your business, selling your company
Develop your product, prove your business model, scale your business
A creative approach to debt financing is to you offer individuals or organizations ownership in your company in lieu of required payments.
False
A disadvantage of bootstrapping is you end up giving ownership in your company to other people.
False
All key financial ratios need to be as high as possible for you to succeed in business.
False
Angel investors are loan officers at banks who specialize in small business lending.
False
Attractive sources for equity financing include credit cards, trade credit, private lenders, and the Small Business Administration.
False
If your cost on a product is $39 and you sell it for $129, your Cost of Goods Sold will be 45 percent.
False
It doesn't really matter whether your business name and you web domain name match.
False
Net Profit Margin Percentage is calculated by dividing your operating expenses by your total revenue.
False
One of the worst things an aspiring entrepreneur can do is to sell a product before it is perfected.
False
Successful entrepreneurs secure as many financial resources as possible before they consider using nonfinancial resources.
False
The major goal of acquiring resources is to build out your full product line before you start selling anything to customers.
False
The same kind of funding is generally required at all three stages of business development and growth.
False
Your business will be more successful if you create 10 years of financial projections before you launch you venture.
False
It helps to find out what milestones various lenders and investors want you to achieve in order to obtain financing from them.
True
When trying to secure debt financing through a bank, the loan officer will carefully examine: Your capacity to pay back the loan you will receive Any collateral you can pledge to secure the loan Your character, education, training and experience in the industry All of the above
All of the above
Which of the following is not an assumption you would make before creating sound financial projections? How many products you expect to sell during your first year in business How your cost of goods sold may change as you produce more products How labor cost might change as you grow the company and add employees All of the above are important assumptions to consider
All of the above are important assumptions to consider
When searching for an equity investment partner, you need to know: What types of businesses they like to invest in How much money they typically invest in each deal At what stages of the business do they generally invest All of the above are important questions when seeking an equity partner
All of the above are important questions when seeking an equity partner
When finding resources for a new business, most successful entrepreneurs: Use collateral they have to secure a line of credit from a bank Secure at least two sources of funding before launching their product or service Raise more money than they will need so they won't run out Are masters of efficiency and create something from practically nothing
Are masters of efficiency and create something from practically nothing
Which of the following are NOT sources of equity financing: Friends and family members Private placement and venture capital groups Public stock offerings Banks and credit unions
Banks and credit unions
What is the formula for determining your Costs of Goods Sold if you purchase and carry inventory from month to month? Purchased Inventory + Ending Inventory - Beginning Inventory Beginning Inventory + Purchased Inventory + Ending Inventory Ending Inventory + Beginning Inventory - Purchased Inventory Beginning Inventory + Purchased Inventory - Ending Inventory
Beginning Inventory + Purchased Inventory - Ending Inventory
What is the most common funding sequence entrepreneurs typically use for new ventures? Equity to bootstrapping to debt Debt to equity to bootstrapping Bootstrapping to debt to equity Debt to bootstrapping to equity
Bootstrapping to debt to equity
When using debt financing to grow your business you: Borrow money through credit cards, banks, or private lenders, and then pay the money back according to specific terms you agree on Give up ownership in your business in exchange for funds from family members, private investors, or venture capital groups Use your own savings and resources, other people's resources, free consulting services, and grow your company with your own cash flow as much as possible None of the above
Borrow money through credit cards, banks, or private lenders, and then pay the money back according to specific terms you agree on
Which of the following is the most effective strategy for starting your new business? Get your friends and family members involved because they know you the best Get as much help as you can from the various government programs in your area Keep everything you do as secret as possible so no one will steal your idea Build a low-cost prototype of your product and prove that customers will buy it before you spend a great deal of money
Build a low-cost prototype of your product and prove that customers will buy it before you spend a great deal of money
Which of the following statements is true about copyrights? Copyrights are names, phrases, symbols or designs that distinguish your goods from other goods in the marketplace Copyrights are issued for new machines, useful processes, articles of manufacture, and compositions of matter Copyrights protect original work of authorship that is expressed through a tangible medium such as manuals, training programs, books, software, and videos Copyrights are formulas, practices, processes, or compilation of information that is not generally known to the public, which gives a business a competitive advantage
Copyrights protect original work of authorship that is expressed through a tangible medium such as manuals, training programs, books, software, and videos
Which of the following items would be considered part of your Cost of Goods Sold if you are operating a pizza truck? Dough, sauce, cheese, toppings Sauce, toppings, salaries Dough, salaries, utilities Sauce, cheese, truck repairs
Dough, sauce, cheese, toppings
An Employer Identification Number (EIN) is required of all businesses whether you hire employees or not.
False
Cost of Goods Sold is the amount of revenue you generate from selling your products.
False
Creating a long-term funding plan is not always helpful because you never know what pivots your business might take.
False
EBIT stands for Earnings Before the Innovation of Technology.
False
Friends and family members are almost never an attractive source for debt financing.
False
Friends and family members are almost never an attractive source for equity financing.
False
Going public is a great way to quickly secure low-cost financing for your new venture.
False
Going public is a great way to secure low cost debt financing.
False
Good sources for debt financing include angel investors, venture capital firms, and private placement groups.
False
Gross Profit is calculated by subtracting your operating expenses from your total revenue during a given time period.
False
If an investor gives you $100,000 for 50 percent of your company, and the business earns $30,000 the first year, the ROI to the investor would be 30 percent.
False
If you are a service business without a physical product, you still need to have a Cost of Goods Sold section in your financial projections.
False
If you develop cash flow early you will seldom need any additional funding, even during the scale up stage.
False
If you form a Sole Proprietorship you will be taxed twice, once for the business entity, and again when you distribute earnings to yourself. TrueFalse
False
Intellectual property includes all of the tangible assets owned by a business like equipment, inventory, buildings, land, etc.
False
Most successful entrepreneurs start with debt financing to fund their new venture.
False
Registering for and securing a federal trademark for your business gives you national rights to use that mark in every class of business.
False
Since bootstrapping slows down the launch of a new venture, most successful entrepreneurs raise funds from banks or investors before getting started.
False
Since corporations give you the best legal protection, it is the business entity that entrepreneurs should strive to form.
False
The best way to protect trade secrets is to register them with the federal government.
False
The expenses section of your financial projections should include both business expenses and the personal expenses you incur while building your company.
False
The tremendous value of Facebook is primarily based on the expansive physical assets the company owns.
False
Three main sections that are almost always included in financial projections are (1) Revenue, (2) Expenses, and (3) Taxes.
False
Venture capitalists are experts at picking winning companies and most of their investments are very successful.
False
While "Proving Your Business Model" you are finalizing your prototype and seeking your first customers.
False
While "Scaling Your Business" you are revising your product as needed, adding additional products, and fine tuning all operating systems for rapid growth.
False
While bootstrapping the launch of a new product has real advantages, it is better to use more traditional financing options as you grow your company.
False
With equity financing you borrow money from an individual, bank, or credit union and pay the loan back with interest.
False
You cannot start selling any type of product or service until you get a business license from your state.
False
Your chances of securing a loan for your new business are far better if your FICO score is less than 700.
False
Which of the following legal issue is the most important to address when you start a new business: Finalizing your business name Obtaining your web domain Registering your business All of the above should be addressed early on
Finalizing your business name
To operate your business as a sole proprietorship you need to: File legal documents in the state in which you reside File for an Employer Identification Number with the federal government Open a separate bank account in the name of your new business Just start selling your product or services
Just start selling your product or services
The simplest and easiest business entity to form that also protects your personal assets is the: Sole proprietorship Limited Liability Company S Corporation C corporation
Limited Liability Company
While scaling your business, you may need funding for: Raw materials, programming, design services, branding More team members, more locations, technology, more products Revising your original product Fine tuning all of your operating systems
More team members, more locations, technology, more products
Which of the following is NOT an effective bootstrapping strategy for launching your new venture: Forming partnerships with your first customers and suppliers Negotiating a sufficient bank loan with favorable terms Bartering or trading for the supplies, products or materials you may need Using your mentors, advisors and other sources for free or low-cost consulting
Negotiating a sufficient bank loan with favorable terms
Which of the following statements is true about patents? Patents are names, phrases, symbols or designs that distinguish your goods from other goods in the marketplace Patents are issued for new machines, useful processes, articles of manufacture, and compositions of matter Patents protect original work of authorship that is expressed through a tangible medium such as manuals, training programs, books, software, and videos Patents are formulas, practices, processes, or compilation of information that is not generally known to the public, which gives a business a competitive advantage
Patents are issued for new machines, useful processes, articles of manufacture, and compositions of matter
The second stage of business development for which you may need funding is: Developing your product or service Proving your business model Scaling your business Selling your business
Proving your business model
While developing your new product or service, you may need money for: A strong executive team New physical facilities Raw materials, programming, design services, branding Additional locations
Raw materials, programming, design services, branding
What are the three main sections of most financial projections? Revenue, Cost of Goods Sold, Amortization Revenue, Cost of Goods Sold, Operating Expenses Revenue, Expenses, Profit/ Loss Cost of Goods Sold, Operating Expenses, Profit/ Loss
Revenue, Expenses, Profit/Loss
Which of the following can be legitimate operating expenses? Salaries, rent, supplies Insurance, raw materials, utilities Marketing, web services, finished products Travel, raw materials, rent
Salaries, rent, supplies
Which of the following statements is true about trademarks? Trademarks are names, phrases, symbols or designs that distinguish your goods from other goods in the marketplace Trademarks are issued for new machines, useful processes, articles of manufacture, and compositions of matter Trademarks protect original work of authorship that is expressed through a tangible medium such as manuals, training programs, books, software, and videos Trademarks are formulas, practices, processes, or compilation of information that is not generally known to the public, which gives a business a competitive advantage
Trademarks are names, phrases, symbols or designs that distinguish your goods from other goods in the marketplace
What are the four types of intellectual property you can obtain and protect by federal law? Trademarks, logos, slogans, copyrights Patents, hardware, fiber optics, medications Trademarks, patents, copyrights, trade secrets Trade secrets, formulas, documents, artwork
Trademarks, patents, copyrights, trade secrets
A patent is an exclusive property right for an invention granted by the United States Patent and Trademark Office in exchange for the public disclosure of the invention after 20 years.
True
An important advantage of bootstrapping a new venture is that it forces you to focus on key customers, early sales, and cash flow.
True
Angel investors are one of the most important sources for funding new business ventures each year.
True
Angel investors prefer to invest in local businesses and are flexible about the Return on Investment (ROI) they receive.
True
Anyone in the country can form a business and start selling products or services as a Sole Proprietor.
True
Being the low-cost operator in an industry allows you to maintain market prices and reap larger margins than your competitors, or lower your prices and quickly pick up market share.
True
Bootstrapping is the most common strategy used by aspiring entrepreneurs because other funding options are not always available.
True
Equity financing could end up being far more expensive to you than debt financing if your business is wildly successful because your investors may own a large percentage of your company.
True
Financial projections are more accurate when they are based on sound assumptions you make about the future growth and development of your venture.
True
Going public makes sense if you need a large amount of capital to scale your business, and you want an easy exit strategy for yourself, team members, and early investors.
True
Identifying and obtaining intellectual property can be one of the most important things you do to increase the value of your company.
True
If is often easier to secure funding once you have a business model that is working well.
True
If the future of your business is unclear, you can always start as a sole proprietorship, transition to an LLC, and then become a corporation if and when it makes sense.
True
If you don't qualify for a loan, you can find a cosigner with the required assets and collateral.
True
If your business earns $3,000 in a month on sales of $15,000, your Net Profit Margin Percentage is 20 percent.
True
In the end, your character is a big factor in whether or not you receive debt financing.
True
One way to improve your "Gross Profit Margin" is to lower your Cost of Goods Sold by becoming more efficient in buying, making, and producing your products.
True
Resources for bootstrapping a new venture may include free software, outsourcing, customer partnerships, and social media.
True
Return on Investment or ROI is calculated by dividing the gain from the investment by the cost of the investment.
True
Some of the critical assumptions you will make before creating your financial projections are: the number of products you expect to sell during specific time periods, the cost you will pay for these products, and what might happen to these costs as your company grows.
True
Some states require licenses for some types of businesses, but not for others, so you need to check on the requirements.
True
Three types of patents are available: design patents, utility patents, and plant patents.
True
When trying to secure debt financing through a bank, the loan officer will want collateral to secure the loan such as your car, house, and other possessions.
True
With debt financing you borrow money from an individual, bank, credit union or private lender and pay the loan back with interest over time.
True
Written materials are protected by copyright law as soon as they are produced and presented in a tangible format, regardless of whether they are registered with the federal government.
True
You are more likely to use bootstrapping during the first stage of business development because other funding sources are not always available.
True
You can protect your trade secrets by keeping them in secure locations, only sharing them with people who need to know, and having employees sign non-disclosure agreements. TrueFalse
True
You will probably never form a C Corporation unless you grow significantly, raise a lot of money, and want to eventually go public.
True
Your revenue section should include all of the products you propose to sell and the amount of revenue you expect from each during a given periods of time.
True
When using bootstrapping to grow your business you: Borrow money through credit cards, banks, or private lenders, and then pay the money back according to specific terms you agree on Use your own savings and resources, other people's resources, free consulting services, and grow your company with your own cash flow as much as possible You give up ownership in your business in exchange for funds from family members, private investors, or venture capital groups All the above
Use your own savings and resources, other people's resources, free consulting services, and grow your company with your own cash flow as much as possible
A real advantage of debt financing is that: You maintain full ownership of your venture You don't have to pay the funds back if your business fails You get committed partners who have ownership in your company None of the above are advantages of debt financing
You maintain full ownership of your venture
The main reason you should consider forming a legal business entity is: You cannot do business in most states without a formal legal entity People cannot buy products from you if you are not a formal business Your taxes and personal liabilities can vary with different business entities All of the above
Your taxes and personal liabilities can vary with different business entities
While knowing your Gross Profit Margin Percentage is important, it is not very helpful to include it in your financial projections.
False
While knowing your key financial ratios will help you manage your business, they are generally not of interest to lenders, investors, and suppliers.
False
While securing a federal trademark is important, they are very expensive to obtain and should only be pursued when your business becomes much larger and sustainable.
False
The Limited Liability Company gives you all of the tax advantages of a partnership, but the legal protection of a corporation. TrueFalse
True
The goal of the first stage of business development is to create a product or service you can take to market.
True
The two types of expenses included on your financial projections are Cost of Goods Sold, and other operating expenses like salaries, rent, marketing, etc.
True
The type of funding you need depends on the kind of organization you are building.
True
When using equity financing to grow your business you: Use your own savings and resources, other people's resources, free consulting services, and grow your company with your own cash flow as much as possible You borrow money through credit cards, banks, or private lenders, and then pay the money back according to specific terms you agree on You give up ownership in your business in exchange for funds from family members, private investors, or venture capital groups Entrepreneurs seldom use equity financing to launch and grow a new business
You give up ownership in your business in exchange for funds from family members, private investors, or venture capital groups
If an investor gives you $250,000 for 35 percent ownership in your company and your business earns $65,000 the first year, what is the ROI to the investor? 26 percent 9 percent 15 percent 18 percent
$65,000 * .35 = $22,750 / $250,000 = 9% ROI
If your sales for a given period are $85,000, your Cost of Goods Sold is $32,800, and your operating expenses are $42,000, what is your Net Profit Margin Percentage? 10 percent 15 percent 12 percent 18 percent
$85,000 - $32,800 - $42,000 = $10,200 / $85,000 = 12% NET Profit Margin Percentage (Revenue - COGS - Overhead) / Revenue
If your total revenue for a year is $550,000, you cost of goods sold is $165,000, and your operating expenses are $325,000, what is your Gross Profit Margin Percentage for the year? 30 percent 70 percent 11 percent (Net Profit Margin Percentage: (550k-165k-325k/550k)) 59 percent
($550,000 - $165,00) / $550,000 = 70% GPMP,
The business entity that exposes your earnings to double taxation is the: Limited Liability Company S Corporation C corporation All of the above
C corporation
What is the best way to protect your trade secrets? Threaten to fire any employee that shares trade secrets outside the work setting Register your trade secrets with the US Patent and Trademark Office Add the copyright symbol to your trade secrets with a sentence indicating that they are protected by law Keep them locked in a secure location and only share them with people who need to know
Keep them locked in a secure location and only share them with people who need to know
Which of the following is a source for debt financing? Private placement Venture capital Public stock offering Trade credit
Trade credit
A real advantage of equity financing is that: You maintain full ownership of your venture You don't have to pay the funds back if your business fails You can stretch out your payments with a promissory note Interest rates are lower with equity financing
You don't have to pay the funds back if your business fails
