Intro to Business Exam Chapter 5 – Flashcards

One which is independently owned and operated for profit and is not dominant in its field.

-Represent 99.7% of all employer firms -Employ about half of all private sector employees -Pay 43% of total US private payroll -Have generated 64% of net new jobs over the past 18 years -Create more than half of the non-farm private GDP -Hire 43% of high-tech workers -Are 52% home-based and 2% franchises -Made up 97.5% of all identified exporters and produced 31% of export value -Produced 16.5% times more patents per employee than large patenting firms

Less than a week and $600

-Registering the name of the business -Applying for tax IDs -Setting up unemployment and workers compensation insurance

27.9 million

For the last few years, new-business formation in the United States has broken successive records

69%

50%

31%

Mismanagement resulting from the lack of business know-how

-Distribution -Service -Production

-Retailing -Wholesaling -Transportation -Communication

-33% -Almost 3/4 are involved in retailing -Less than 1/4 are wholesaling

-48% -3/4 provide non-financial services (medical, dental, repairs, hairstylists, restaurants, and dry cleaning) - 8% of the small service firms offer financial services ( accounting, insurance, real estate, and investment counseling) -An increasing number of self-employed Americans are running service businesses from home

-Construction, mining, and manufacturing -19% -Require relatively large initial investments -Make parts and sub-assemblies for larger manufacturing firms -Supply special skills to large construction firms

Desire to create a new business

-Independence -Desire to determine one's own destiny -Willingness to find and accept a challenge -Family background -Age

-Women are 51% of the US population & own 30% of all small businesses -Women already own 66% of the home-based businesses in this country -About 7.8 million women-owned businesses in the US provide almost 7.6 million jobs and generate $1.2 trillion in sales -Women-owned businesses in the US have proven that they are more successful -More than 40% have been in business for 12 years or more -Financially sound and credit worthy and their risk of failure is lower than average -Compared to other working women, self-employed women are older, better educated, and have more managerial experience -1/2 of small business are home based and 91% have no employees -60% of home based businesses are in service industries -16% in construction -14% in retail trade -Rest in manufacturing, finance, transportation, communications, wholesaling, and other industries

-Planning -Persistence -Patience -People -Profit

He or she must handles sales, advertising, purchasing, pricing, and a variety of other business functions. The knowledge and ability to do so are acquired most often through experience working for other firms in the same area of business.

-Capital -Management -Planning

A series of cash flow predicaments usually ends in a business failure.

Many entrepreneurs lack the management skills required to run a business. Money, time, personnel, and inventory all need to be managed effectively if a small business is to succeed.

New ways to do a job with less effort for less money.

Small firms employ 43% of all high tech workers such as scientists, engineers, and computer specialists. Small firms produce 16-17 times more patents per employee than large patenting firms.

Small businesses creating the most new jobs recently included business services, leisure and hospitality services, and special trade contractors. Small firms hire a larger proportion of employees who are younger, older, women, or part time.

Small businesses represent 99.7% of all employers, employ more than 50% of the private workforce, and provide about 2/3 of the net new jobs added to our economy. Small businesses thus contribute significantly to solving unemployment problems.

Large firms generally buy parts and assemblies from smaller firms for one very good reason: It is less expensive than manufacturing the parts in their own factories. This lower cost eventually is reflected in the price that consumers pay for their products.

Small business owners often become involved in the social, cultural, and political life of the community.

Owner is a friend and counselor as well as boss.

Close relationships with employees often help the small business owner to keep effective workers who might earn more with a larger firm.

Through personal relationships with customers, the owners of a small business quickly become aware of changes in peoples needs and interests, as well as in the activities of competing firms.

Small business owners do not have to punch in and out, bid for vacation times, take orders from superiors, or worry about being fired or laid off.

-Being able to keep all profits -Ease and low cost of going into business and going out of business -Being able to keep business information secret

50%

Such a business in unlikely to grow into big business. Employees potential for advancement is limited.

Most small business financing comes out of the owners pocket

-50% of all new firms begin with less than $30,000 in total capital -36% of new firms begin with less than $20,000 usually provided by the owner or family members and friends -Average capital for starting a business is $80,000 -A well conceived business plan may help to avoid the risk of failure

Carefully constructed guide for the person starting a business. -Communication -Management -Planning Track, monitor, and evaluate the progress The business plan is a living document; it is modified as the entrepreneur gains knowledge and experience. Also serves to establish time lines and milestones and allows comparison of growth projections against actual accomplishments. Guides a businessperson through the various phases of business. The plan helps to identify obstacles to avoid and to establish alternatives.

-Easy to read, unclutter, and complete -What exactly is the nature and mission of the new venture? -Why is this new enterprise a good idea? -What are the businessperson's goals? -How much will the new venture cost? -Accuracy and realistic expectations are crucial to an effective business plan.

-Governmental agency that assists, counsels, and protects the interests of small business in the US. -The agency provides assistance to owners and managers of prospective, new, and established small businesses. -Provides both financial assistance and management counseling. -Recently, the SBA provided training, technical assistance, and education to more than 3 million small businesses.

-Includes free individual counseling, courses, conferences, workshops, and a wide range of publications. -Recently, the SBA provided management and technical assistance to nearly 1 million small businesses through its 900 small business development centers and 13,000 volunteers from the service corps of retired executives.

-Management courses offered by the SBA cover all the functions, duties, and roles of managers. -Fees for these courses are quite low. -The SBA occasionally offers one day conferences -Aimed at keeping owner managers up to date on new management developments, tax laws, and the like.

-Online training network consisting of 23 SBA run courses, workshops, and resources. -Recently, more than 240,000 small business owners benefited from SBAs free online business courses

Counselors to Americas Small Business, is a group of more than 13,000 retired and active business people, including more than 2,000 women who volunteer their services to small businesses through the SBA

An assigned counselor visits the owner in his or her establishment and through careful observation analyzes the business situation and problem. The counselor offers a plan for solving the problem and helping the owner through the critical period.

Since its inception SCORE has assisted more than 10 million small business people with online and face to face small business counseling

Groups of senior and graduate students in business administration who provide management counseling to small businesses. SBIs have been set up on more than 520 college campuses as another way to help business owners.

University based groups that provide individual counseling and practical training to owners of small businesses. These groups can provide managerial and technical help, data from research studies, and other types of specialized assistance of value to small businesses.

It's primary financial function is to guarantee loans to eligible businesses

-Most of the SBA business loans are actually made by private lenders such as banks, but repayment is partially guaranteed by the agency. -SBA may guarantee that it will repay the lender up to 90% of the loan if the borrowing firm cannot repay it. -The average size of an SBA guaranteed business loan is about $300,000 and its average duration is about 8 years.

Money that is invested in small firms that have the potential to become very successful

-Privately owned firm that provides venture capital to small enterprises that meet its investment standards. -More than 300 SBICs are intended to be profit making organizations -The aid that SBA offers allows them to invest in small businesses that otherwise would not attract venture capital -SBICs have financed more than 107,000 small businesses for a total of about $60 billion -SBICs benefited 1,339 businesses and 34% of these firms were owned by women or other minorities

License to operate an individually owned business as if it were part of a chain of outlets or stores.

Actual granting of a franchise

An individual or organization granting a franchise

Person or organization purchasing a franchise. -The franchisor supplies a known and advertised business name, management skills, the required training and materials, and a method of doing business. -The franchisee supplies labor and capital, operates the franchised business, and agrees to abide by the provisions of the franchise agreement.

-In the first approach, a manufacturer authorizes a number of retail store to sell a certain brand name item. -In the second type of franchising arrangement, a producer licenses distributors to sell a given product to retailers. -In a third form of franchising, a franchisor supplies brand names, techniques, or other services instead of a complete products.

2 franchisors offer their products together, are a new small business trend

-Franchising is designed to provide a tested formula for success, along with ongoing advice and training. -The success rate for businesses owned and operated by franchisees is significantly higher than the success rate for other independently owned small businesses. - Franchising is not a guarantee of success for either franchisees or franchisors -Too rapid expansion, inadequate capital or management skills, and a host of other problems can cause failure for both franchisee and franchisor.

-Franchising plays a vital role in our economy and soon may become the dominant form of retailing. -Franchising offers advantages to both the franchisor and the franchisee.

-Gains fast and well controlled distribution of its products without incurring the high cost of constructing and operating its own outlets -More capital available to expand production and to use for advertising -Outlets are maintained and operated according to its own standards -Franchisor also benefits from the fact that the franchisee- a sole proprietor inmost cases- is likely to be very highly motivated to succeed - The success higher royalties for the franchisor.

-Opportunity to start a business with limited capital and to make use of the business experience of others -If business problems arise, the franchisor gives the franchisee guidance and advice -Counseling is primarily responsible for the very high degree of success enjoyed by franchises -Franchisee does not pay for such help -Receives materials to use in local advertising and can take part in national promotional campaigns sponsored by the franchisor -Franchisee may be able to minimize the cost of advertising, supplies, and various business necessities by purchasing them in cooperation with other franchisees.

-The main disadvantage of franchising affects the franchisee and it arises because the franchisor retains a great deal of control -The franchisors contract can dictate every aspect of the business: decor, design of employee uniforms, types of signs, and all the details of business operations. -Other franchisees claim that contracts are unfairly tilted toward the franchisors -Yet others have charged that they lost their franchise and investment because their franchisor would not approve the sale of the business when they found a buyer -To arbitrate disputes between franchisors and franchisees, the National Franchise Mediation Program was established by 30 member firms. -Because disagreements between franchisors and franchisees have increased in recent years, many franchisees have been demanding government regulation of franchising -Some of the largest franchisors proposed a new self policing plan to the Federal Trade Commission -Franchise holders pay for their security, usually with a one time franchise fee and continuing royalty and advertising fees, collected as a percentage of sales. -In some fields, franchise agreements are not uniform. One franchisee may pay more than another for the same services -Sometimes a franchise is so successful that the franchisor opens its own outlet nearby, in direct competition -A spokesperson for one franchisor contends that the company "gives no geographical protection" to its franchise holders and thus is free to move in on them. -They often put in 10 and 12 hour days, six days a week

-National and international economies are growing more and more interdependent as political leadership and national economic directions charge and trade barriers diminish or disappear -Globalization and instant worldwide communications are rapidly shrinking distances at the same time that they are expanding business opportunities. -Internet is increasingly important to small business strategic thinking -More than 50% of those surveyed indicating that the internet represented their most favored strategy for growth -The internet and online payment systems enable even very small businesses to serve international customers -70% of the worlds purchasing power is outside of the US and over the next 5 years 85% of the worlds economic growth will be overseas -The SBA offers help to the nations small business owners who want to enter the world markets -SBA efforts include counseling small firms on how and where to market overseas matching US small business executives with potential small US firms into direct contact with potential overseas buyers and partners. -The SBA International Trade Loan program provides guarantees of up to $5 million in loans to small business owners -These loans help small firms in expanding or developing new export markets -The US Commercial Service, a Commerce Department division, aids small and medium sized businesses in selling overseas. -The divisions global network includes more than 100 offices in the US and 151 others in 75 countries around the world -International trade will become more important to small business owners as they face unique challenges in the new century. -Small businesses which are expected to remain the dominant form of organization in this country must be prepared to adapt to significant demographic and economic changes in the world marketplace