9.1 Financing Your Business

Net worth is the difference between items of value that you own and amounts you owe to others.

• True

• False

To calculate your net worth, you should prepare a pro forma financial statement.

• True

• False

Your company’s debt-to-equity ratio measures how much money a company can safely borrow over time.

• True

• False

Equity capital does not include money invested by the owner of the business.

• True

• False

Venture capitalists are usually interested in companies that have the potential of earning hundreds of millions of dollars within a few years.

• True

• False

Debt capital is money invested in a business in return for a share in the profits of the business.

• True

• False

A bank usually will loan a business up to 50 percent of the total value of its accounts receivable if it feels that that business’s customers are good credit risks.

• True

• False

Banks require collateral for most unsecured loans.

• True

• False

The Small Business Administration (SBA) does not make direct loans.

• True

• False

Before you can approach a lender or investor about financing your business, you must prepare all of the following except

• a personal cash flow statement

• a personal financial statement

• a pro forma balance sheet

• a pro forma income statement