Visual representation of small business financial literacy - decorative

Module 1: Financial Management


Now that you’re warmed up, let’s try a little pre-test so you can test your knowledge of financial management and its role in your business. There are one or more correct answers to each question. You can check your answers with the link under the Modules navigation bar.

  1. Which of the following are reasons to understand financial management? Select all that apply.

a. Helps to show which products or services are profitable.
b. Provides information on the size of a loan a business can afford.
c. Helps in deciding what inventory a business should purchase.
d. Provides a tool for planning to reach new markets.

  1. New businesses should start financial management with a(n)?

a. Business credit card
b. Budget
c. Inventory purchase
d. Profit and loss statement

  1. Bookkeeping is the basis for all sound financial management.

a. True
b. False

  1. When business owners pay themselves, it is called…

a. Owner’s draw
b. Check cashing
c. Profit and loss
d. Ownership transfer

  1. What is the definition of cash flow?

a. Sales minus cost of goods sold.
b. Moving cash in or out of your business.
c. Balance of cash received minus the amount of cash paid out over a period of time.
d. Both b. and c.
e. All three: a., b., and c.

  1. Which of the following is a good use of a cash flow projection? Select all that apply.

a. Setting sales and expense goals.
b. Determining the breakeven point for a business.
c. Tracking sales.
d. Planning equipment purchases.
e. Tracking liquidity.

  1. What is the basic formula for a profit and loss statement?

+ Sources of Cash
– Operating Uses of Cash
– Non-operating Uses of Cash
= Ending Cash

+ Sales
– Cost of Goods Sold
= Gross Profit
– Overhead
= Net Profit

+ Purchase Price
– Cost of Goods Sold
= Profit

+ Cash Flow from Operations
+ Cash Flow from Financing
+ Cash Flow from Investments
= Net Cash Flow

  1. For most small businesses, debt financing comes from owner or family savings and is frequently the only source of funds to start a small business.

a. True
b. False

  1. Which of the following might be an element of a small business loan package? Select all that apply.

a. Business plan
b. Business financial statements
c. Business tax returns
d. Credit report
e. Collateral
f. Personal financial statements
g. Personal tax returns
h. Purchase agreements

  1. Of the following financial management statements, which is the most important?

a. Balance Sheet
b. Cash Flow Statement
c. Profit and Loss Statement
d. All of the above
e. None of the above