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Erin C.
MBA graduate and Certified Public Accountant
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Entrepreneurship
TutorMe
Question:

Can a business be profitable without having liquid cash available?

Erin C.
Answer:

Yes, but it's not very sustainable! A business can be selling their goods and creating a profit, but also not have cash to cover their operating expenses. This often happens because 1) they're holding too much inventory and they're not selling it fast enough so their cash is "stuck" in inventory or 2) They're selling products but they aren't being paid cash quickly enough by their customers. This would show up as a large Accounts Receivable balance that likely had some long outstanding accounts.

Accounting
TutorMe
Question:

How is interest paid on a loan for a construction project treated differently than interest paid on the mortgage of a completed building?

Erin C.
Answer:

During the construction phase of a building all interest paid on the construction loan is capitalized as part of the building's cost, which is then depreciated over the useful life of the building. Interest that is paid on a mortgage of a completed (and placed in service) building is immediately expensed in the period of use.

Business
TutorMe
Question:

What is a business' value proposition?

Erin C.
Answer:

A business' value proposition is the benefits that they add to a good or service. Why would someone buy one good or service over a similar good or service? It's the perceived benefit that each company adds. If you could buy a winter coat from Wal-Mart or Nike, each coat will likely keep you warm but one will be cost-effective, and one will have a perceived benefit related to the brand name and quality of the garment's inputs.

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