201 QUESTIONS AND ANSWERS
1. Q: What is the primary definition of a small business according to the
SBA? A: A small business is typically defined as having fewer than 500
employees for most industries, though specific size standards vary by industry
and are measured by either number of employees or annual receipts.
2. Q: What are the main types of small business ownership structures? A:
Sole proprietorship, partnership (general and limited), corporation (C-corp and
S-corp), and Limited Liability Company (LLC).
3. Q: What is the difference between a C-corporation and S-corporation?
A: C-corporations face double taxation (corporate and personal levels), while S-
corporations are pass-through entities where profits/losses flow to shareholders'
personal tax returns, avoiding double taxation.
4. Q: What are the key characteristics of an LLC? A: Limited liability
protection for owners, flexible management structure, pass-through taxation,
and fewer formalities compared to corporations.
5. Q: What is the primary advantage of a sole proprietorship? A: Simplicity
in formation and operation, complete control by the owner, and direct tax
benefits where business income is reported on personal tax returns.
6. Q: What are the main disadvantages of a partnership? A: Unlimited
personal liability for general partners, potential for conflicts between partners,
and difficulty in transferring ownership.
7. Q: What is working capital and why is it important for small businesses?
A: Working capital is current assets minus current liabilities. It represents the
liquidity available to fund daily operations and is crucial for maintaining cash
flow.
,8. Q: What are the primary sources of small business financing? A:
Personal savings, bank loans, SBA loans, equipment financing, lines of credit,
credit cards, investors, and alternative lending sources.
9. Q: What is the difference between secured and unsecured business
loans? A: Secured loans require collateral to back the loan, while unsecured
loans are based primarily on creditworthiness and do not require collateral.
10. Q: What is a business plan and why is it important? A: A business plan
is a comprehensive document outlining business goals, strategies, market
analysis, financial projections, and operational plans. It's essential for securing
financing and guiding business operations.
11. Q: What are the key components of a business plan? A: Executive
summary, company description, market analysis, organization/management,
products/services, marketing strategy, funding request, financial projections,
and appendix.
12. Q: What is cash flow and why is it critical for small businesses? A: Cash
flow is the movement of money in and out of a business. It's critical because
businesses need adequate cash flow to meet obligations, even if they're
profitable on paper.
13. Q: What is the difference between cash basis and accrual accounting?
A: Cash basis records transactions when money changes hands, while accrual
accounting records transactions when they occur, regardless of when payment is
made or received.
14. Q: What are current assets? A: Assets expected to be converted to cash
within one year, including cash, accounts receivable, inventory, and short-term
investments.
15. Q: What are current liabilities? A: Debts and obligations due within one
year, including accounts payable, short-term loans, accrued expenses, and
current portion of long-term debt.
16. Q: What is the debt-to-equity ratio and what does it measure? A: Total
debt divided by total equity. It measures the proportion of debt financing
relative to equity financing and indicates financial leverage.
17. Q: What is the current ratio and what does it indicate? A: Current assets
divided by current liabilities. It measures a company's ability to pay short-term
obligations and indicates liquidity.
, 18. Q: What is accounts receivable turnover? A: Net credit sales divided by
average accounts receivable. It measures how efficiently a company collects its
receivables.
19. Q: What is inventory turnover? A: Cost of goods sold divided by average
inventory. It measures how efficiently a company manages and sells its
inventory.
20. Q: What is the quick ratio? A: (Current assets minus inventory) divided
by current liabilities. It measures immediate liquidity by excluding inventory
from current assets.
21. Q: What is gross profit margin? A: (Gross profit divided by revenue) ×
100. It measures the percentage of revenue remaining after direct costs of goods
sold.
22. Q: What is net profit margin? A: (Net income divided by revenue) × 100.
It measures the percentage of revenue remaining after all expenses.
23. Q: What is return on assets (ROA)? A: Net income divided by total
assets. It measures how efficiently a company uses its assets to generate profit.
24. Q: What is return on equity (ROE)? A: Net income divided by
shareholders' equity. It measures the return generated on shareholders'
investments.
25. Q: What are the three main financial statements? A: Income statement
(profit & loss), balance sheet, and cash flow statement.
26. Q: What does the income statement show? A: Revenues, expenses, and
net income over a specific period, showing the company's profitability.
27. Q: What does the balance sheet show? A: Assets, liabilities, and equity at
a specific point in time, showing the company's financial position.
28. Q: What does the cash flow statement show? A: Cash inflows and
outflows from operating, investing, and financing activities over a period.
29. Q: What is EBITDA? A: Earnings Before Interest, Taxes, Depreciation,
and Amortization. It measures operational performance by excluding non-
operational expenses.
30. Q: What is the break-even point? A: The level of sales at which total
revenues equal total costs, resulting in zero profit or loss.
31. Q: What are fixed costs? A: Costs that remain constant regardless of
production or sales volume, such as rent, insurance, and salaries.
1. Q: What is the primary definition of a small business according to the
SBA? A: A small business is typically defined as having fewer than 500
employees for most industries, though specific size standards vary by industry
and are measured by either number of employees or annual receipts.
2. Q: What are the main types of small business ownership structures? A:
Sole proprietorship, partnership (general and limited), corporation (C-corp and
S-corp), and Limited Liability Company (LLC).
3. Q: What is the difference between a C-corporation and S-corporation?
A: C-corporations face double taxation (corporate and personal levels), while S-
corporations are pass-through entities where profits/losses flow to shareholders'
personal tax returns, avoiding double taxation.
4. Q: What are the key characteristics of an LLC? A: Limited liability
protection for owners, flexible management structure, pass-through taxation,
and fewer formalities compared to corporations.
5. Q: What is the primary advantage of a sole proprietorship? A: Simplicity
in formation and operation, complete control by the owner, and direct tax
benefits where business income is reported on personal tax returns.
6. Q: What are the main disadvantages of a partnership? A: Unlimited
personal liability for general partners, potential for conflicts between partners,
and difficulty in transferring ownership.
7. Q: What is working capital and why is it important for small businesses?
A: Working capital is current assets minus current liabilities. It represents the
liquidity available to fund daily operations and is crucial for maintaining cash
flow.
,8. Q: What are the primary sources of small business financing? A:
Personal savings, bank loans, SBA loans, equipment financing, lines of credit,
credit cards, investors, and alternative lending sources.
9. Q: What is the difference between secured and unsecured business
loans? A: Secured loans require collateral to back the loan, while unsecured
loans are based primarily on creditworthiness and do not require collateral.
10. Q: What is a business plan and why is it important? A: A business plan
is a comprehensive document outlining business goals, strategies, market
analysis, financial projections, and operational plans. It's essential for securing
financing and guiding business operations.
11. Q: What are the key components of a business plan? A: Executive
summary, company description, market analysis, organization/management,
products/services, marketing strategy, funding request, financial projections,
and appendix.
12. Q: What is cash flow and why is it critical for small businesses? A: Cash
flow is the movement of money in and out of a business. It's critical because
businesses need adequate cash flow to meet obligations, even if they're
profitable on paper.
13. Q: What is the difference between cash basis and accrual accounting?
A: Cash basis records transactions when money changes hands, while accrual
accounting records transactions when they occur, regardless of when payment is
made or received.
14. Q: What are current assets? A: Assets expected to be converted to cash
within one year, including cash, accounts receivable, inventory, and short-term
investments.
15. Q: What are current liabilities? A: Debts and obligations due within one
year, including accounts payable, short-term loans, accrued expenses, and
current portion of long-term debt.
16. Q: What is the debt-to-equity ratio and what does it measure? A: Total
debt divided by total equity. It measures the proportion of debt financing
relative to equity financing and indicates financial leverage.
17. Q: What is the current ratio and what does it indicate? A: Current assets
divided by current liabilities. It measures a company's ability to pay short-term
obligations and indicates liquidity.
, 18. Q: What is accounts receivable turnover? A: Net credit sales divided by
average accounts receivable. It measures how efficiently a company collects its
receivables.
19. Q: What is inventory turnover? A: Cost of goods sold divided by average
inventory. It measures how efficiently a company manages and sells its
inventory.
20. Q: What is the quick ratio? A: (Current assets minus inventory) divided
by current liabilities. It measures immediate liquidity by excluding inventory
from current assets.
21. Q: What is gross profit margin? A: (Gross profit divided by revenue) ×
100. It measures the percentage of revenue remaining after direct costs of goods
sold.
22. Q: What is net profit margin? A: (Net income divided by revenue) × 100.
It measures the percentage of revenue remaining after all expenses.
23. Q: What is return on assets (ROA)? A: Net income divided by total
assets. It measures how efficiently a company uses its assets to generate profit.
24. Q: What is return on equity (ROE)? A: Net income divided by
shareholders' equity. It measures the return generated on shareholders'
investments.
25. Q: What are the three main financial statements? A: Income statement
(profit & loss), balance sheet, and cash flow statement.
26. Q: What does the income statement show? A: Revenues, expenses, and
net income over a specific period, showing the company's profitability.
27. Q: What does the balance sheet show? A: Assets, liabilities, and equity at
a specific point in time, showing the company's financial position.
28. Q: What does the cash flow statement show? A: Cash inflows and
outflows from operating, investing, and financing activities over a period.
29. Q: What is EBITDA? A: Earnings Before Interest, Taxes, Depreciation,
and Amortization. It measures operational performance by excluding non-
operational expenses.
30. Q: What is the break-even point? A: The level of sales at which total
revenues equal total costs, resulting in zero profit or loss.
31. Q: What are fixed costs? A: Costs that remain constant regardless of
production or sales volume, such as rent, insurance, and salaries.
