Particularities of Starting a Small Business - Assignment Example

Question 1 Financial statements in business are so far the most vital subject matters of all when managing or planning a business. Finance and accounting is highly essential in any business organization. Scanty running of one’s business financial statements can damage businesses. For instance, owners of businesses are mandated to understand information on accounting so as to: develop new services or products; borrow or loan finances to assist the business; decrease or increase the quantity or price of services or products, and increase or decrease the business production capacity. In addition, business financial statements are existent to assist the owners of businesses and decision makers, and are the leading business planning function (Drucker 83). For a business to grow, the business financial statements should establish the finest forms of costs, benefits of every form of finance, available finance, the responsibility of financial markets in providing finance, and the risk connected to finance. Balance Sheet These financial statements are employed to give insight into a business’ debts and asset at a given time. Apart from that, the information on the shareholder’s equity in the business is also incorporated. A balance sheet also indicates the abilities and strengths of a business. Moreover, the balance sheet evaluates the decrease or increase in the business value from time to time. The balance sheet appraises the asset and liability composition, the value of retained earnings, and the relative equity financing and proportion of debt (Drucker 84). Income Statement Income statement provides information that concerns the business income earned in a given time. In addition, income statements illustrate the expenses of the business in acquiring the shareholder earnings and income per share. More often than not, income statements give a record of incomes after a year (Drucker 86). Every expense in the income statement should be equal to the business and its functions. Cash Flow Statement Cash flow statements grant an evaluation of money movement in and out of business. Cash flow statements are essential in deciding whether or not a business has adequate finance to handle expenses, acquire assets, and pay bills (Drucker 87). The cash flow statements entail information from financial activities, operating and investing. Question 2 Various entrepreneurs find fault in building forecast with the perception that it takes too much time; time that could be used for business transactions instead of planning. Nonetheless, a financial forecast that is appropriate will assist in establishing staffing and operational plans that will contribute to the success of the business. On the other hand, financial information can guide an entrepreneur to make key forecasts. An entrepreneur should begin by looking at expenses instead of revenues (Drucker 45). For example, he or she should estimate for expenses like salaries, rent, packaging, direct marketing and direct sales. This information will help one to make forecasts. Financial information is often pivotal in the business planning. Financial information permits a business owner to establish ways of managing the company, take stock of the business level and situation, and develop a process that can be clearly followed. Consistent planning helps an entrepreneur to manage alterations, both within and outside the business. A regular evaluation of the competition, strengths, and markets help the owner of the business to be familiar with opportunities and problems (Drucker 47). Furthermore, financial information determines the composition of a successful outcome. Financial information also gives prior warning of problems that the business may encounter. Moreover, financial information spells out the projections that depend on signs. Question 3 There are numerous reasons for an individual to set up his or her own business. When an individual establishes a business, it is essential to have a plan that delineates the business objectives and goals. A business plan assist’s a person to develop and grow the business, and eventually protect it from collapsing. There are advantages to entrepreneurs using their own money. An entrepreneur avoids incurring expenses of utilizing other people’s money, for example, payment of interests. Entrepreneur use their own money in business because they love to be their own bosses. These people have a spirit of entrepreneurship and are open to challenges. These people also like to be financial independent. Additionally, people use their money because they demand freedom in their businesses (Drucker 65). They do not like to be restricted by rules and regulations. There are also entrepreneurs who use money provided by other people. This money may come from family, banks, friends, venture capital funds, credit cards, and angel investors. Entrepreneurs who use the money from other sources do so because the lenders have the ability to assess business risks and make knowledgeable choices. Apart from that, entrepreneurs can acquire enormous sums of money, which will in, turn allow for investments that are immense. Those who lend money to entrepreneurs are also sophisticated. By the use of other people’s money, entrepreneurs see this as a chance to pursue business opportunities that need more resources than an individual currently has in possession (Drucker 67). As a result, entrepreneurs can use most of their time in business rather than worrying about money and resources. Question 4 Local government and state have established programs have supported the advancement of businesses that are small. In a situation where the financial requirement is small, potential sources include friends and associates, and members of the family. Characteristically, banks have been the source of small business funding. Banks have been offering lines of credit, and demand loans (Drucker 96). Nonetheless, banks have been unwilling to give small businesses loans that are long-term. In addition, the nature of small businesses has an impact on their source of funding. More often than not, small businesses encounter an array of challenges associated with their size. Small businesses face the problem of undercapitalization. This is more often than not because of their planning that is inadequate. There is a perception that the entrepreneur should raise money that is comparable to the revenue that is estimated to the expected expenses (Drucker 115). For example, if the entrepreneur thinks he or she will make revenue of $200,000 in the opening year with $50,000 in expenses, he or she should have a minimum of $250,000. Lack of these amounts of money makes the entrepreneur liable for the business losses. Work Cited Drucker, P. F. Innovation and Entrepreneurship. New York: Collins, 1993. Print. Read More