Standard 5 Flashcard

Start-up costs are the expenses incurred to establish a business, which include essential activities like research and obtaining licenses. This distinguishes them from other costs that may vary or remain constant.

Rent is a fixed cost because it remains constant regardless of production levels, unlike raw materials, commission fees, and packaging costs, which vary with production volume.

Variable costs change with production levels, increasing or decreasing as output varies. In contrast, fixed costs remain unchanged regardless of production volume, making the correct choice: variable costs fluctuate based on production, while fixed costs remain constant.

The correct formula for calculating profit is Revenue - Cost = Profit. This means profit is the amount left after subtracting costs from total revenue.

A disadvantage of debt financing is the requirement for interest payments, which can increase the overall cost of borrowing and impact cash flow, making it a financial burden for the borrower.

The correct choice highlights that debt financing requires repayment with interest, while equity financing involves giving up ownership in the company. This distinction is crucial for understanding the implications of each financing method.

Bootstrapping refers to relying on personal finances or operating revenue to run a company, rather than seeking external funding like venture capital or loans. This approach emphasizes self-sufficiency in entrepreneurship.

Pitching is crucial as it allows entrepreneurs to effectively communicate their business ideas to potential investors, increasing the chances of securing funding. It does not guarantee funding, nor does it replace a business plan.

A pro-forma financial statement is a projected statement of revenue and sources of revenue, used for planning and forecasting future financial performance.

The purpose of sales and budget forecasting is to predict future financial needs and performance, enabling businesses to plan effectively and allocate resources efficiently.