Test 2 (ENT 3315 Allen)

To convert the company's income statement from an accrual basis to a cash basis, we take two steps:

(1) Add back depreciation to net profits, since depreciation is not a cash expense (2) subtract any uncollected sales (increase in accounts receivable) and payments for inventory (increases in inventory less increases in accounts payable).

To rank the states in terms of the costs of their tax systems on small business (based on a composite score pulled from 18 different tax measures), the Small Business & Entrepreneurship Council publishes a "Business Tax Index" each year. In its 2014 report, the council found that the five states with the most favorable tax systems, in order, were ......

(1) Nevada (2) South Dakota (3) Texas (4) Wyoming (5) Washington.

To obtain S corporation status one must:

- The corporation must be domestic. - The corporation can have no more than stockholders. - All stockholders must be individuals or certain qualifying estates and trusts. - Only one class of stock can be outstanding. • Fiscally, the corporation must operate on a calendar-year basis. - Partnerships, corporations, and nonresident aliens cannot be shareholders..

Assuming that suitable building space is available, the entrepreneur must decide whether to lease or buy. More small business owners choose to purchase rather than lease their buildings (57 percent, according to one study), but the benefits of leasing can sometimes outweigh the gains of owning

-allen advises against owning for a new business

A large cash outlay is avoided, which can be especially important for a new small firm that lacks adequate financial resources.

-perks of leasing

A growing number of entrepreneurs who sell their wares over the Internet do so without creating either a website or a storefront.

C2C

Companies that depend on semiskilled or unskilled workers usually locate in an area with surplus labor, while other firms may need to be close to a pool of highly skilled labor.

Clothing manufacturing is labor intensive ********WILL BE ON EXAM

____________(short-term liabilities) is borrowed money that must be repaid within 12 months.

Current debt

Current Ratio= Current Assets/ Current Liabilities

Current ratio equation

Consumer orientation is put into practice by applying a two-stage process that underlies all marketing efforts: identifying customer needs and satisfying those needs. This simple formula is easy to understand but difficult to implement, given the competitive nature of most markets. But this is what it takes for a company to be successful in the long term. We strongly recommend that all new businesses begin with a consumer orientation. _______________ is not a means to achieving a goal—it is the goal!

Customer satisfaction

a ________________________ deemphasizes production efficiencies and customer preferences in favor of a focus on "pushing product."

sales-oriented philosophy

________ include land, buildings, machinery, trucks, computers, and every other physical asset a company owns that will be used in the business for more than one year.

Fixed assets

Total assets = Debt + Owners' equity

In its simplest form, a balance sheet follows this formula:

The suitability of the labor supply for a manufacturer depends on the nature of its production process. ____________________ operations need to be located near workers with appropriate skills and reasonable wage requirements.

Labor-intensive

A detailed discussion of the major benefits to customers provided by the new product or service should also be included in this section of the plan.

Marketing Plan - market analysis

______________ may be defined as the gathering, processing, interpreting, and reporting of market information.

Marketing research

Return on Equity

Net income / avg owners equity

If the secondary data are insufficient, a search for new information, or primary data, is the next step.

Observational/ questioning methods

Sales (revenue)- Expenses= Profits (income)

Profit and loss statement/ income statement

_________________ Surveys and experimentation are questioning methods that involve contact with respondents.

Questioning Methods

_______________ represent cash amounts borrowed from a bank or other lending source for 12 months or less.

Short-term notes

Balance sheet

Specific point in time

________________ and personal interview surveys achieve higher response rates. But ______________________ are very expensive, and individuals are often reluctant to grant such interviews if they think a sales pitch is coming.

Telephone surveys, personal interviews

Now the owners have to decide what to do with these profits. They can let the company pay them a dividend out of the profits, which represents a withdrawal of capital from the business (assuming cash is available to do so).

The net profits of 60000 are the profits that the business earned from its owners after paying all expenses- cost of goods sold, operating expenses, interest expenses, and income taxes.

it would be better to use a C corporation:

You want to provide extensive fringe benefits to owners or employees. The C corporation can deduct these benefits, and they are not treated as taxable income to the employees.

An income statement is not a measure of cash flows because it is calculated on an accrual basis rather than a cash basis. This is an important point to understand. In ______________, profits are recorded when earned—whether or not the profits have been received in cash—and expenses are recorded when they are incurred—even if money has not actually been paid out.

accrual-basis accounting

The greater a firm's sales, the greater the ___________________ and, in turn, the greater the need for financing

asset requirements will be

To form a corporation, one or more persons must apply to the secretary of state (______________) for permission to incorporate.

at the state level

While an income statement reports the results of business operations over a period of time, a _____________________ provides a snapshot of a business's financial position at a specific point in time.

balance sheet

Not all members of a management team need competence in all areas—the key is_____________

balance.

By utilizing the experience of a _______________, the chief executive of a small corporation is in no way giving up active control of its operations. Instead, he or she is simply drawing on a larger pool of business knowledge. A group will typically make better decisions than will a single individual working alone.

board of directors

In contrast to the breakdown process, the ______________ calls for identifying all potential buyers in a target market's submarkets and then adding up the estimated demand.

buildup process

Small business marketing consists of those business activities that direct the creation, development, and delivery of a ___________________ from the creator to the targeted user. This definition emphasizes the benefits customers will gain from a product or service. It may be helpful to view a bundle of satisfaction as having three levels: core product/service, actual product/service, and augmented product/service.

bundle of satisfaction

three types of e-commerce

business to consumer (B2C), business to business (B2B0, consumer to consumer(C2C)

No single planning document is more important in the life of a small company, either for avoiding cash flow problems when cash runs short or for anticipating short-term investment opportunities if excess cash becomes available.

cash budget

In _____________, profits are reported when cash is received and expenses are recorded when they are paid. For a number of reasons, profits based on an accrual-basis accounting system will differ from the firm's cash flows

cash-basis accounting

a firm adopting a ________________________ believes that everything, including production and sales, centers on the consumer and his or her needs. The result: All marketing efforts begin and end with the consumer. Needless to say, we believe that a consumer-oriented philosophy leads to success in many areas, not just marketing. ***ALLEN RECCOMENDS***

consumer-oriented philosophy

Thus, a balance sheet captures the ________________of all earlier financial decisions up to a specific date. It shows the assets a firm owns, the liabilities (or debt) outstanding or owed, and the amount the owners have invested in the business (owners' equity) on that date.

cumulative effects

The _________________ is traditionally used to measure a company's liquidity. This ratio compares a firm's current assets to its current liabilities

current ratio

For many businesses, ____________________ is an extremely important consideration in selecting a location. It is vital in industries in which the cost of shipping the finished product is high relative to the product's value.

customer accessibility

A _________________ identifies the key demographic and psychological characteristics of the customers you consider most likely to be qualified purchasers of your products and services.

customer profile

From the firm's operating profits, we deduct any interest expense incurred from borrowing money (_______) to find profits before taxes, or taxable profits—a company's taxable income.

debt

When starting a new business, however, there is limited, if any, past experience on which to base your numbers. You make assumptions, which may feel like no more than __________________.

educated guesses

However, at this point, he should test how sensitive the results of the model are to changes in the assumptions being made. He needs to determine which assumptions have the _____ impact on the ____.

greatest, outcome

Information that has already been compiled is known as _______________. Generally collecting this data is much less expensive than gathering new, or primary data.

secondary data

No matter which platform they adopt, B2B e commerce business certainly face unique challenges ( payment security risks, customers who refuse to purchase a product without first seeing it or trying it one) But they also enjoy the advantages of_________________. For example, they are able to change merchandise mixes and prices quickly, and they can easily modify the appearance of their online store.

flexibility (B2C)

Despite the difficulties, a small business entrepreneur should not neglect the ______________. Instead, she or he should remember how important the sales outlook in the business plan is to obtaining financing.

forecasting task

An________________, or profit and loss statement, indicates the amount of profits or losses generated by a firm over a given time period, usually monthly, quarterly, or yearly.

income statement

2. As the amount of a firm's debt __________, its return on equity will increase, provided that the return on assets is higher than the interest rate paid on any debt.

increases

To ensure balance, a management team should comprise both competent _____________________ specialists.

insiders and outside

partners share profits or losses equally, unless they have agreed to a different ratio. But these rights are also balanced against serious liabilities. In a general partnership, each party bears _______________________, which means that a business decision by one partner binds all other partners, even if they were not consulted in advance, didn't approve the agreement or contract in question, or didn't even know about it!

joint and several liability

A business—or a person, for that matter—that has enough money to pay off any debt owed is described as being liquid. The____________ of a business depends on the availability of cash to meet maturing debt obligations.

liquidity

If raw materials required by a company's operations are not readily available in all areas, then regions in which these materials abound will offer significant _________________. This is especially true for businesses that are dependent on bulky or heavy raw materials that lose much of their size or weight in the manufacturing process. A sawmill is an example of a business that must stay close to its raw materials in order to operate economically.

location advantages

A ________ is a group of customers or potential customers who have purchasing power and unsatisfied needs.

market

Marketing activities include taking the steps necessary to locate and describe potential customers—a process called __________________.

market analysis

________________ is the process of dividing the total market for a product or service into smaller groups with similar needs, such that each group is likely to respond favorably to a specific marketing strategy.

market segmentation

Marketing activities also encompass product and/or service, pricing, promotion, and distribution, which combine to form the __________________.

marketing mix

The information on _____________________ forms the most detailed section of the marketing plan and, in many respects, is subject to the closest scrutiny from potential investors.

marketing strategy

Income Statement

over a given time period

There are advantages and drawbacks to each approach, of course, but research shows that many entrepreneurs prefer to launch a ____________________to keep the income flowing until they can afford to make a complete transition to the new business.

part-time enterprise

A ____________________ reports the income it earns to the Internal Revenue Service, but the partnership itself does not pay any taxes.

partnership

Although the assets-to-sales relationship varies over time and with individual businesses, it tends to be relatively constant within an industry. For example, assets as a percentage of sales average 20 percent for grocery stores, compared with 65 percent for oil and gas companies. This method of estimating asset requirements is called the ____________________.

percentage-of-sales technique

A ____________________ emphasizes the product as the single most important part of the business.

production-oriented philosophy

Fixed assets, also called

property, plant, and equipment (PPE)

Sometimes, board members are also given a ________________ of the company's profits as a bonus for their participation, and some cash-strapped businesses may grant them stock (often 1 percent, but as high as 2 percent or more to lure top talent) in lieu of compensation.

small percentage

An S corporation does not pay income taxes but instead passes ________ or ________ on to the stockholders. This allows stockholders to receive dividends from the corporation without double taxation on the firm;s profit ( once through a corporate tax and again through a personal tax on dividens)

taxable income losses

The last financial ratio considered here is the rate of return that the owners are receiving on their equity investment, or __________________.

the return on equity

The role of a website can range from merely offering content and information to enabling complex business transactions. True False

true

IN a sole proprietship an owner is free from interference by partners, shareholders, and directors. However, a sole proprietorship lacks some of the advantages of other legal forms. For example, there are no limits on the owner's personal liability—that is, the owner of the business has ___________________, and thus his or her personal assets can be taken by business creditors if the enterprise fails.

unlimited liability