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Chapter Seven: Financing and Accounting
Key Terms
Asset-based lending: A loan provided for the purchase of a necessary asset for the
business. (LO 7-2)
Asset lease: A form of lease tied to a particular asset used by a business to conserve
cash and maintain the latest versions of whatever equipment is available. (LO 7-2)
Business angels: High-net-worth individuals who invest in businesses not as a
business, but as an individual. (LO 7-2)
Credit card: Card entitling one to revolving credit that is not tied to any particular asset,
does not have a set repayment schedule, typically has a set upper limit, and is usually
tied to a much higher interest rate than that of a bank loan. (LO 7.2)
Crowdfunding: Funds received by a business by soliciting a large number of very small
investors usually via the Internet. (LO 7-2)
Debt: A generic term used to describe any type of non-equity funding tied to the
business. (LO 7-2)
Equity investment: Funds received by a business in exchange for a percentage
ownership of the business. (LO 7-2)
Factoring: Accounts receivable that are sold at a discount to another company in order
to receive immediate cash. (LO 7-2)
Grants: Special funds, neither equity nor debt that do not require repayment and are
designed to aid businesses in specific areas. (LO 7-2)
Loan: Contractual agreement whereby the firm receives some amount of money that
must be repaid over a specified period of time at a specified interest rate. (LO 7-2)
Profit & Loss (P&L Statement): A financial statement that summarizes the revenues,
costs and expenses incurred during a specific period of time. (LO 7-3)
Shrinkage: The difference between what is sold and what was brought into the
business. (LO 7-3)
IM 7-1
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
Supplier credit: Another form of non-equity funding that is available. Suppliers often
will provide credit on both physical assets (refrigerators, molding, equipment, etc.) and
the actual supplies provided. (LO 7-2)
Venture capital fund: A fund that is organized to make significant equity investments in
high-growth new ventures. (LO 7-2)Suggested Text Respons
Opening Vignette – “Christopher Gray-Scholly” p. 123
IM 7-2
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
Student responses will vary.
Exercise 1- p. 132
Student responses will vary.
Ethical Challenge – p. 132
Student responses will vary.
Exercise 2 – p. 133
Student responses will vary.
Review Questions p. 137
1. How can using loans help the new business grow? Loans may provide the
2. Explain the best use of credit cards in a new business operation. Credit cards
3. What are the negative impacts of supplier credit on the new business start-up?
4. How can a new business take advantage of grants? If the business is in a specific
IM 7-3
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
5. Why should a new businessperson be wary of equity investments by other
companies? Other companies may be using the new business to try out new ideas or
6. How will venture capital impact a growing business? Venture capitalists seek
7. What are the pros of having angel investors in a new business? Angel investors
8. How can asset leases be used to improve the income generation of a new
9. Why might a business choose to factor its accounts? Factoring allows the
10. How might an entrepreneur find out how much a business is worth? An
11. What factors impact how much equity a new business gives away for a set
12. How does a new businessperson use a P&L statement? The P & L represents
13. Why should a new business spend time setting up a chart of accounts? The
IM 7-4
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
Class Activities and Sample Assignments
1. In groups, ask students to discuss the importance of proper accounting systems
when starting a new business. Next, ask each group to list at least one or two
important concepts. List the student responses on a blackboard or a flip chart and
discuss them as a group. (LO 7-3)
2. Discuss the Profit and Loss Statement (P&L Statement) and explain to the students
that it provides data that represents the performance of a firm over a specific period
of time. Next, ensure that the students understand how important accurate records
are to the small business. (LO 7-3)
3. In groups, ask students to evaluate the various sources a new small business owner
can consider to fund the new small business. Next, ask students to rank order the
sources from the most attractive sources to the least attractive sources. Next, ask
them how a new small business owner can obtain the financing needed to initiate
the business. (LO 7-1, 7-2, 7-3)
4. Divide the students into groups. Ask each group of students to find an accounting
software package that a new small business owner could use to initiate the owner’s
accounting records. Ask them to discuss the features, benefits, advantages,
disadvantages of each, and to discuss a particular business that the software would
be most appropriate for. Discuss this as a group and list the outcomes revealed on a
flip chart or blackboard. (LO 7-3)
5. Discuss with the students the key components in the chart of accounts. Ask the
students to summarize what it is, and why it should continue to be evaluated by the
new small business owner. (LO 7-3)
6. Ask students to discuss how a new small business owner can manage the data flow
for the new small business. Next, ask them to discuss the advantages and
disadvantages to the founder. (LO 7-3)
7. In groups, ask the students to discuss what resources they would use to fund the
following types of business: (LO 7-1, 7-2, 7-3)
a. Large manufacturing business
b. Small restaurant business that accepts cash only
c. A large retail store
d. A medium size contracting firm
IM 7-5
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
Discussion Questions for Online/Hybrid classes
1. What are equity investments? Discuss how they assist the new entrepreneurial
business owner with the costs related to the new business start-up. (LO 7-2)
2. Summarize the key issues associated with new small business financing. Why is the
appropriate amount of funding important to the new small business owner. (LO 7-1,
7-2, 7-3)
3. What is non-equity funding? Summarize the different types of funding that new small
business owners can consider for their funding needs. (LO 7-2)
4. What is equity funding? Discuss how businesses make equity investments in other
start-up firms. Be specific. (LO 7-2)
5. What are business angels? What are the advantages and disadvantages associated
with angel investing? (LO 7-2)
6. What is a chart of accounts? What activities does it list? Be specific. (LO 7-3)
7. Summarize how a new small business person can manage the data flow for the new
small business. (LO 7-3)
8. What is just-in-time inventory? What does it accomplish? (LO 7-3)
9. Compare and contrast grants and loans. Discuss the advantages and disadvantages
of each type of fund source. (LO 7-2)
10. What is the importance of proper accounting when starting a business? (LO 7-3)
Discussion Questions for Online/Hybrid classes-Responses
1. What are equity investments? Discuss how they assist the new
entrepreneurial business owner with the costs related to the new
business start-up. (LO 7-2) Equity investments are funds received by a
IM 7-6
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
2. Summarize the key issues associated with new small business financing.
Why is the appropriate amount of funding important to the new small
business owner (LO 7-1, 7-2, 7-3) The new small business must determine
3. What is non-equity funding? Summarize the different types of funding
that new small business owners can consider for their funding needs.
4. What is equity funding? Discuss how businesses make equity
investments in other start-up firms. Be specific. (LO 7-2) Equity funding is
5. What are business angels? What are the advantages and disadvantages
associated with angel investing? (LO 7-2) Angel investors are high net
6. What is a chart of accounts? What activities does it list? Be specific. (LO
IM 7-7
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
7. Summarize how a new small business person can manage the data flow
for the new small business. (LO 7-3) The key to managing data is obtaining
8. What is just-in-time inventory? What does it accomplish? (LO 7-3)
9. Compare and contrast grants and loans. Discuss the advantages and
disadvantages of each type of fund source. (LO 7-2) Grants do not need to
10.What is the importance of proper accounting when starting a business?
IM 7-8
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
