Standard 5 Flashcard

Front

What are start-up costs?

Back

Costs incurred to start a business, including research and licensing

Answer explanation

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.

Front

Which of the following is an example of a fixed cost? Raw materials, Rent, Commission fees, Packaging costs

Back

Rent

Answer explanation

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.

Front

Explain the difference between variable costs and fixed costs.

Back

Variable costs fluctuate based on production, while fixed costs remain constant.

Answer explanation

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.

Front

What is the formula for calculating profit?

Back

Revenue - Cost = Profit

Answer explanation

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

Front

Identify a disadvantage of debt financing.

Back

Interest payments

Answer explanation

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.

Front

Compare and contrast debt and equity financing.

Back

Debt financing requires repayment with interest, while equity financing involves giving up ownership.

Answer explanation

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.

Front

What is bootstrapping in the context of entrepreneurship?

Back

Relying on personal finances or operating revenue to run a company

Answer explanation

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.

Front

Why is pitching important in the fundraising process?

Back

It helps entrepreneurs communicate their business ideas effectively to potential investors.

Answer explanation

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.

Front

Define a pro-forma financial statement.

Back

A projected statement of revenue and sources of revenue

Answer explanation

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

Front

What is the purpose of sales and budget forecasting in business planning?

Back

To predict future financial needs and performance

Answer explanation

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