Creating a Successful Financial Plan

Assignment 13:  Chapter 11 Questions

 Respond to the following Questions.  Students should complete this assignment after reading and reviewing the material for each chapter, attending class and taking lecture notes.  This assignment is designed to help students review material and prepare for exams.  Save a copy of your chapter questions for your review sheet to study for exams.  Students are expected to provide at least one paragraph (3-5 sentences) for each question.  Each question assignment submission is worth 20 points. 

1.   Why is developing a financial plan important to an entrepreneur about to launch a business?

            Preparing a financial plan is a critical step. It allows entrepreneurs to know not only how their businesses are doing financially but also why they are performing that way. Financial planning is essential to running a successful business.

2.     Define the following financial statements: balance sheet, income statement, statement of cash flows.

•Balance sheet = net worth statement: a listing of all assets, liabilities and capital at a point in time

•Income statement = profit and loss statement: states all revenues and expenses over a given period of time

•Statement of Cash Flows: reports cash receipts (inflows) and disbursements (outflows) over a given period of time

3.      How do financial ratios help entrepreneurs improve their business?

            Ratio analysis = various ratios are calculated to analyze various aspects of the firm’s financial performance. It is important barometers of a company’s health and becomes standards vary from one industry to another; the key is to watch for “red flags.” Studies indicate few small business owners compute financial ratios and use them to manage their businesses. 

4.    Why do entrepreneurs need to identify startup costs?

            Startup expenses are one-time expenses that occur before you open your doors for your business and start selling products or services. So that entrepreneurs have a clear picture about how much the cost to build a new business. In the end, they determine the decision to use their own money or loan to start-up.

5.      What is the different between fixed and variable expense?

            Fixed cost is annual cost that owner spent in period of production. The cost always same all the time. It is not influenced by production’s volume. Variable expense is cost that owner spent in period of production. This cost always changes depended on input or production’s volume.