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Wednesday, 6 May 2015

SMALL BUSINESS MANAGEMENT – EXAM QUESTIONS AND ANSWERS



For questions and answers, email theotherwomaninmarriage@gmail.com 

QUESTION:
In your opinion, will small businesses continue to survive in Nigeria, will big businesses eventually swallow them all?

ANSWER:
The small businesses will continue to survive in Nigeria due to the contribution to the development of the country.  The social importance of small business is attributed to their influence in stimulating indigenous entrepreneurship and technology.
A social contribution in small enterprises is the transformation of traditional sector has served and continued to serve as the springboard for lunching into a vibrant modern sector.  Economically, small enterprises assist in the dispersal of economic activities by encouraging the development and modernization of these activates outside the metropolitan areas.


Another economic role of the small enterprises is their ability to mobilize financial resources, which would otherwise be idle or untapped by the formal financial sector.  Despite the economic advantage over the small, both will continue to co-exist due to the following roles of the mall businesses. 

1.    They provide a good training ground for entrepreneurship
2.    They are more labour intensive and so create more employment opportunities
3.     They are less complex in terms of technology and therefore can be manage by the entrepreneurs themselves.
4.    They are likely to utilize local raw materials thus conserve foreign exchange.
5.    They are likely to provide the linkages between larger enterprises and local producers of basic raw materials

QUESTION:
How can a prospective small business owner/manager go about evaluating the finical picture of the proposed enterprise? Briefly incorporate the following terms into your answer.
a.   Type of Capital (b). Source of Fund (c). Use of Fund (d). Cash flow


ANSWER:
A good knowledge of the types of capital and how to source them should be known by the entrepreneur so as to know how to maximize them.  There are two categories of capital namely:
1.    Equity Capital, this is the investor’s own capital that is the worth of his contribution to the organization or the venture.

2.   Debt capital:  This is the type of financing that involves a loan to be repaid, usually with interest.  Debt capital can be divided into three types, namely, SHORT TERM LOANS, MEDIUM TERM LOANS, AND LONG-TERM LOANS.

SOURCE OF FUNDS
The source of funds can be categorized into internal and external.
i.             THE INTERNAL SOURCE FOUNDS: Retained profits, promoters of the business revenue reserve, account receivable etc.

ii.           EXTERNAL SOURCE OF FUND INCLUDES; Short term bank loans, trade credit, bill of exchange, hire purchase, lease, sales of shares etc.

USE OF FUNDS
The money obtain from various sources is to cover expenses of the business and to acquire new assets.  Some financing needs are related to day to day operation such as meeting the paying of rent, production facilities, buying of equipment, Staff Salaries, Advert, etc.
Note students; take example, if you own a company, what will be your expenses of running the company? That is what this question is all about.

CASH FLOW
It is important to always prepare a cash flow forecast when everyone wants to start a new business, expand or change an existing one.  This is the determination of the amount of cash coming in (Cash flow) and going out (outflow) within a particular period e.g. one year. 

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