Business Plan Financial Projections 3

Question 1

What is the purpose of an accounts receivable projection in a business plan?

Accepted Answer

To estimate cash expected from credit sales

Answer

Accounts receivable projections estimate the cash a business expects to collect from credit sales over time.

Question 2

What does a debt-to-equity ratio indicate?

Accepted Answer

The proportion of financing from creditors versus owners

Answer

The debt-to-equity ratio shows how much of the company is financed by debt compared to equity, indicating financial leverage.

Question 3

What is the purpose of a funding request section in a business plan?

Accepted Answer

To specify the amount of funding needed and its intended use

Answer

The funding request section specifies exactly how much money is needed, how it will be used, and the preferred funding structure.

Question 4

What is the difference between fixed and variable costs?

Accepted Answer

Fixed costs remain constant; variable costs change with production volume

Answer

Fixed costs remain constant regardless of production volume, while variable costs change in proportion to output.

Question 5

What does 'runway' mean for a startup in financial terms?

Accepted Answer

How long the company can operate before running out of cash

Answer

Runway is the amount of time a startup can continue operating at its current burn rate before exhausting its capital.

Business Plan Practice Test