Week 3 Small Business Review

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Questions and Answers

What is one benefit of starting a business on a small scale?

It allows for testing the viability of the business idea (correct)

It requires massive investments right from the start

It guarantees immediate success on a large scale

It attracts more investors from the beginning

Why is it challenging for entrepreneurs to figure out how much starting capital they need?

Because they rely solely on outside investors

Entrepreneurs' plans often change (correct)

Due to lack of creativity

Plans for a business remain static

What is 'bootstrap financing' as described in the text?

Utilizing creativity to maximize existing resources (correct)

Hiring full-time employees right from the start

Using external investments to fund the business

Taking out loans from financial institutions

Why is it important for entrepreneurs to get the needed money when they need it?

To ensure smooth execution of business plans Signup and view all the answers

What role does an MVP play in the early stages of a business?

It helps in keeping fixed costs low Signup and view all the answers

Why do entrepreneurs need to come up with new plans if they can't get the money they need?

To pivot and adapt to the financial constraints Signup and view all the answers

What is the main source of funding that comes from friends and family to support an entrepreneur?

Love money Signup and view all the answers

What is the purpose of collateral in debt financing?

To decrease the risk for the lender Signup and view all the answers

What advantage does debt financing offer in terms of ownership and control?

Borrowers give up minimal ownership and control Signup and view all the answers

What is a common reason why companies choose debt financing instead of equity financing?

To make investments that earn more than the cost of the loan Signup and view all the answers

How do equity investors typically expect to be rewarded for their investment?

By sharing ownership and dividends Signup and view all the answers

What distinguishes angel investors from venture capitalists?

Angel investors are less restricted but conduct due diligence Signup and view all the answers

What key advantage does equity financing offer concerning payback requirements?

Equity financing allows companies to avoid regular payback schedules Signup and view all the answers

How does equity financing differ from debt financing in terms of collateral pledging?

Collateral is not required in equity financing Signup and view all the answers

"Young companies can avoid the burden of regular monthly expenses" is associated with which type of financing?

Equity financing Signup and view all the answers

What is a distinguishing feature between debt and equity investors concerning returns on investment?

Equity investors aim for competitive returns based on risk levels. Signup and view all the answers

What is one advantage of starting a business on a small scale?

It helps test if the business model is viable on a larger scale Signup and view all the answers

Why is it important for entrepreneurs to get the needed money when they need it?

To reduce the chances of business failure Signup and view all the answers

What is the purpose of collateral in debt financing?

To secure the debt with assets in case of default Signup and view all the answers

How does equity financing differ from debt financing in terms of collateral pledging?

Debt financing requires giving up ownership stakes as collateral, while equity financing does not. Signup and view all the answers

Why is it challenging for entrepreneurs to figure out how much starting capital they need?

Entrepreneurs often face uncertainties and changing circumstances. Signup and view all the answers

'Bootstrap financing' involves entrepreneurs using their creativity to:

Stretch existing resources to cover needs until attracting outside investors Signup and view all the answers

What is the main source of 'Love Money' as described in the text?

Friends and family Signup and view all the answers

What is the primary reason why borrowers pledge collateral in debt financing?

To protect lenders in case of default Signup and view all the answers

Why is debt financing considered advantageous in terms of ownership and control?

Entrepreneurs retain ownership without giving up control Signup and view all the answers

What distinguishes angel investors from venture capitalists based on the text?

Angel investors invest individually or in networks Signup and view all the answers

What advantage does equity financing offer concerning payback requirements?

No need for regular cash flow paybacks Signup and view all the answers

'Debt financing allows companies to be smart with money' is primarily related to what aspect mentioned in the text?

$20,000 investment making 20% more money Signup and view all the answers

What is the primary purpose of collateral in debt financing according to the text?

To protect lenders in case of default Signup and view all the answers

'Equity financing doesn't involve pledging collateral' highlights what key advantage mentioned in the text?

Flexibility in decision-making Signup and view all the answers

Study Notes

Evaluating Business Ideas

To determine if an idea is good, ask: "Why now, why me?" and "Why will it continue to succeed once others know about it?"
Consider: "What's an area where I could go into business without being a test for bigger companies?"

Starting Small and Failing Cheaply

Start with a Minimum Viable Product (MVP) to test the market with low fixed costs and high variable costs
Example: Hand labeling drink bottles initially to avoid investing in massive machinery
Having a successful business on a small scale is a good indicator of its potential for large-scale success

Starting Capital

Entrepreneurs need money to start their business, but it's challenging to determine how much and when it's needed
Bootstrap financing: Using personal resources, including money and time, to make the business attractive to outside investors
Types of starting capital:
- Personal money: Entrepreneurs invest their own funds
- Love money: Funding from friends and family
- Grants and start-up prize money: Government or agency grants and competition prizes

Debt Financing

Cost: Interest paid by the borrower
Reward: Interest earned by the investor
Collateral: Pledged to protect the investor in case of default
Advantages:
- Ownership and control: No need to give up control with debt financing
- Certainty in payments: Predictable monthly payments help businesses plan their budget
- Trading on equity: Borrowing to make investments that earn more than the loan cost

Equity Financing

Cost: Giving up some control over the business
Reward: Potential returns include dividends and selling ownership for more than the initial investment
Investor protection: Shareholders have influence in decision-making, matching their share of ownership
Advantages:
- No regular payback: No need for regular cash flow paybacks
- No collateral pledging: Company assets remain unencumbered and not at risk
Angel investors: Wealthy individuals investing in new ventures for ownership, with the option to invest through ownership or convertible debt

Studying That Suits You

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Description

This quiz discusses the criteria for evaluating business ideas, including why an idea would succeed now, the uniqueness factor, and strategies for starting on a small scale. Explore this quiz to understand how to assess the potential success of your business ideas.

Week 3 Small Business Review

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Podcast

Questions and Answers

What is one benefit of starting a business on a small scale?

Why is it challenging for entrepreneurs to figure out how much starting capital they need?

What is 'bootstrap financing' as described in the text?

Why is it important for entrepreneurs to get the needed money when they need it?

What role does an MVP play in the early stages of a business?

Why do entrepreneurs need to come up with new plans if they can't get the money they need?

What is the main source of funding that comes from friends and family to support an entrepreneur?

What is the purpose of collateral in debt financing?

What advantage does debt financing offer in terms of ownership and control?

What is a common reason why companies choose debt financing instead of equity financing?

How do equity investors typically expect to be rewarded for their investment?

What distinguishes angel investors from venture capitalists?

What key advantage does equity financing offer concerning payback requirements?

How does equity financing differ from debt financing in terms of collateral pledging?

"Young companies can avoid the burden of regular monthly expenses" is associated with which type of financing?

What is a distinguishing feature between debt and equity investors concerning returns on investment?

What is one advantage of starting a business on a small scale?

Why is it important for entrepreneurs to get the needed money when they need it?

What is the purpose of collateral in debt financing?

How does equity financing differ from debt financing in terms of collateral pledging?

Why is it challenging for entrepreneurs to figure out how much starting capital they need?

'Bootstrap financing' involves entrepreneurs using their creativity to:

What is the main source of 'Love Money' as described in the text?

What is the primary reason why borrowers pledge collateral in debt financing?

Why is debt financing considered advantageous in terms of ownership and control?

What distinguishes angel investors from venture capitalists based on the text?

What advantage does equity financing offer concerning payback requirements?

'Debt financing allows companies to be smart with money' is primarily related to what aspect mentioned in the text?

What is the primary purpose of collateral in debt financing according to the text?

'Equity financing doesn't involve pledging collateral' highlights what key advantage mentioned in the text?

Study Notes

Evaluating Business Ideas

Starting Small and Failing Cheaply

Starting Capital

Debt Financing

Equity Financing

Studying That Suits You

Description

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