Small Business Chapters 1-8

Flashcard maker : Lily Taylor
A reluctant entrepreneur is a woman who
starts her own business after her grown children return to live with her.
Gill Balstock started his business after inventing an environmentally-friendly disposal foam container for dairy products. His son Larry now runs the business while Gill pursues other projects. Gill is a(n) ____ and Larry is a(n) ____.
founder, second-stage entrepreneur
Amy Mendez is contemplating opening her own business. She should
realize that many banks will be slow to offer loans because she is a woman.
T or F: “Second-stage” entrepreneurs are entrepreneurs who take over the operations of a successful ongoing business from its founder.
T or F : The ideal age for starting a business appears to be between 40 and 50.
T or F: Sara Blakely founded SPANX by designing an improved pantyhose and building a business on that platform.
T or F: The terms founder and entrepreneur are mutually exclusive.
False ;

According to the definition in the text, founders are considered to be entrepreneurs.

Individuals are typically pulled toward entrepreneurship by the hope of obtaining
financial rewards.
A professor of entrepreneurship is trying to identify students who are the best prospects for entrepreneurial careers. Based on prior research and especially the work of J. B. Rotter, she is looking for students having a
high internal focus of control.
Compared to large corporations, small businesses
play just as important a part in the economy
Miriam Motif is an example of Stanley and Danko’s The Millionaire Next Door. She is ____ more times likely to be a millionaire than those who work for others.
Valerie Weatherspoon has been described as a “free spirit.” She has tolerated but seldom appreciated parental, academic, or even job authority. The factor most likely to lure her to entrepreneurship is
freedom to operate independently.
The daughter of an entrepreneur disliked her father’s criticism and eventually decided to quit the family business and show her father that she could start her own business. The daughter is a
Compared to the general population, entrepreneurs tend to have
a passion for business
One drawback of entrepreneurship is the
risk of business failure.
A prospective entrepreneur is evaluating the suitability of his own characteristics for an entrepreneurial career. He realizes that he should be prepared to assume
moderate risk
A small business’s advantages of finding a special niche include all of the following EXCEPT:
diminishing overall profitability
A person that opens a franchise would be considered a(n) ____ entrepreneur
What would best describe a go-to person?
T or F: Some estimate that entrepreneurs are four times more likely to be millionaires than are those who work for others.
T or F: Entrepreneurial teams are formed by bringing together two or more persons who together function as entrepreneurs.
T or F: A mechanic who starts an independent garage can best be thought of as an opportunistic entrepreneur.
T or F: Older people are often discouraged from starting businesses because of family responsibilities and interests in retirement programs.
In this weeks Video, we learned that Sara Blakely started her company “Spanx” with $____________, and in 2006, her annual revenue was $__________million dollars.
$3,000., $5 million
Integrity is as much about what to do as it is
who to be
Unethical business practices often decline when firms
set a flexible code of ethics.
One glaring example of poor ethics practiced by small businesses in general is
skimming: fraudulent reporting of income and expenses for income tax purposes.
A code of ethics becomes increasingly appropriate and necessary as a small business….
grows larger, with a consequent lessening of the owner’s personal influence.
Skimming is an unethical business practice involving
failure to report all income on tax returns.
Though it is sometimes expensive to make socially responsible choices business must…..
businesses must recognize that profits are not the only important factor.
A small manufacturer is concerned about a possible cost disadvantage caused by expensive environmental requirements. She should realize that her own firm’s competitive position is best served by restrictions imposed by
federal legislation
Bob’s Bistro and Come-by & Take-out are two restaurants located within one mile of each other, but they operate within two separate city jurisdictions. Which of the following best describes the legal and competitive situation for these two businesses?
Local environmental laws may prove discriminatory by forcing higher costs on one competitor than the other.
If a student copies his favorite record album and gives it away to a friend to use, the student is engaged in the theft of ____ property.
A small business owner finds that his salesperson has lied to a customer about test results on a new product. The owner recognizes that this breach of good ethics falls into the category of
relationships with customers and competitors.
Which is NOT a question a business owner should ask when evaluating the identified alternatives for an ETHICAL decision?
Will it result in the most profits?
Temptations and pressures to act unethically are such that small firms are
more vulnerable than large firms.
T or F: Unethical business behaviors take place in every country, but some countries must deal with more serious forms of illegal business activity than others.
T or F: Small business owners cannot formulate codes of ethics; they must be issued by law or by professional associations.
T or F: Bait advertising is considered unethical because the business lures customers with an attractive price only to try to convince them to purchase more expensive products or services.
T or F: Employer monitoring of employees’ Internet activities has become so commonplace that it is no longer a subject for debate.
T or F: Sales people must often walk a fine line between persuasion and deception.
T or F: Income-tax cheating by small business is sufficiently widespread to be recognized as a general problem.
An Internet innovation known as donuts were developed so that Web sites could recognize return visitors and thus generate a customized and personalized response
False; cookies
T or F: An employee loafing on the job or taking an unjustified sick leave would be considered examples of unethical behavior towards the employer.
According to a study by the National Federation of Independent Business Foundation, new product ideas for small business startups originate from all of the following except
existing records of a business.
Competitive advantage in an industry is protected by
barriers to entry.
An increase in the bargaining power of suppliers decreases….
both the attractiveness and the profitability of the target market.
According to Peter Drucker, the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth is
A SWOT analysis can be described best as
a concise overview of the firm’s strategic situation.
The two broad strategies for building a competitive advantage are the ____ strategies.
cost-based and differentiation-based
Mark Michaels is the owner of Delectable Delights, a specialty store offering chocolates, candies, and fruit baskets. After a recent analysis of the competitive environment, Michaels concluded that three distinct consumer segments exist for his products-A, B, and C consumers. In an effort to maximize the effectiveness of its strategy, Michaels has decided to focus on fulfilling the needs of A consumers. He is employing a ____ strategy.
____ refers to the way entrepreneurs identify new products or services that may lead to promising businesses.
Opportunity recognition
Attractiveness of a target market ____ as the time required to breakeven in the market ____.
T or F: Many new businesses are formed as a result of the entrepreneur’s previous work experience, through which he or she sees ways to improve or modify a product.
T or F: The entrepreneurs are usually drawn to opportunities that others reject because they misread their potential.
T or F: SWOT analysis provides a concise overview of a firm’s strategic situation.
T or F: good idea will always result in a successful business.
T or F: Startups are more likely to be successful when the entrepreneur first evaluates his or her own capabilities and then looks for a new product or service idea, as opposed to beginning with a need in the marketplace and then relating those to personal capabilities.
When people become infatuated with a business idea, they tend to ____ the difficulty of developing market receptivity to that idea.
Which type of strategy requires a firm to be the lowest-cost producer within the market?
T or F: Core competencies are those resources and capabilities that provide a firm with a competitive advantage over its rivals.
T or F: In practice, a SWOT analysis is usually based on a dynamic view of the firm and its situation.
T or F: A cost-based strategy requires a firm to create and sustain differentiation in the marketplace.
T or F: A differentiation-based strategy usually does not lead to a competitive advantage in business.
Individuals or firms that possess the legal right to open multiple outlets in a given area are referred to as
area developers.
A ____ is an independent firm or individual acting as a sales agent with the responsibility for finding new franchisees within a specified territory.
master licensee
A Krispy Kreme franchise located inside of the local Wal-Mart store is a type of franchise operation referred to as
One primary source of information for a potential franchisee should be
the franchisor being evaluated.
Why would a businessperson wish to become a franchisor?
Reduction of capital requirements
The disclosure statement provided to a prospective franchisee must contain all of the following information Except:
strategic plans for future expansion.
A document called the ____ has, in recent years, been the accepted format for satisfying franchise disclosure requirements.
Uniform Franchise Offering Circular
The cost of a franchise may include
royalty payments.
Entrepreneur Carrie McAbee’s purchase of a Hair Diamond kiosk franchise is an example of
how important franchisor support can be to a franchisee’s success.
When negotiation the purchasing of an existing business, the terms of the sale may become more attractive to the buyer if the expected down payment is
When purchasing a business during closing, which of the following is not a document that should be completed?
New drivers license with organ donor consentient
Which of the following is (are) valid techniques for valuing a company?
All of the above:

Asset-based valuation
Market-comparable valuation
Cash flow-based valuation

T or F: In many cases, a franchisee will receive payments in the form of royalties that are based on a percentage of the franchisee’s gross income.
T or F: Aside from consulting an attorney, a potential franchisee should avoid using other sources of assistance.
T or F:Subway is the franchise and the local owner is the franchisor?
T or F: As part of the valuation process, a buyer should scrutinize the seller’s balance sheet to see whether asset book values are realistic.
T or F: The entrepreneur who enters into a franchising agreement does not acquire the right to use the franchisor’s trademark or brand name.
T or F: Three shortcomings of franchising include cost, restrictions on operations, and loss of independence.
Investment costs related to franchising include all of the following except
royalty payments.
The offer and sale of a franchise are regulated by___________________
Federal and State Laws
One of the most common problems for a founder in passing the business on to a son or daughter is
deciding whether the child has the necessary temperament and ability.
While running a family business, a couple is experiencing a strain on family relationships. Which of the following might be the most likely cause of the tension?
They have a difference of opinion about a business matter
Sibling rivalry in a family business may create…
disagreements about business policy or about siblings’ roles within the business.
A successor assumes a supervisory position in a family firm in the
advanced functional stage.
The influence of ____ is shown when an entrepreneur sends personal messages of condolence to customers because her mother who founded the firm always sent them when she was operating the firm.
core values
Fran and Bob Smithers (wife and husband) own and manage a cleaning service. A potential advantage of this arrangement is that
it affords the opportunity to share more of their lives.
Tom is taking over the family business because it was what his parents told him all his life that they wanted him to do. Tom is showing ____ commitment.
From the children’s standpoint, one common reason that they may be reluctant to join the family firm is
a desire to prove their abilities in another company.
Concerning the need for good management in the family business, which of the following is one of the “best practices” identified by John L. Ward?
Stimulate new thinking and fresh strategic insights.
Family retreats, which open lines of communication,
may result in formation of a family council to continue discussion.
In the early stages of a family business, according to Dyer, a common cultural configuration consists of a ____ business pattern.
The parent-founder of a family business is contemplating the potential conflict between family concerns and business interests. He concludes that a primary family concern is
In which of the following cases is the business best described as a family business?
The son works in the business part-time during the school year and full-time during the summer.
T or F: A small equipment rental business strives to answer every phone call before the phone rings three times. This practice is part of the firm’s organizational culture
Tor F: The most appropriate way for a family firm to deal with younger family members whose abilities are untested is to adopt a policy of “no jobs in the business until you own at least 10 percent.”
A business plan is
A selling document
A potential investor’s single goal is to
maximize potential return on investment through cash flows received while minimizing personal risk exposure.
A business plan is best described as a
a game plan
Experience has shown that an effective plan should
be brief
The basis of the perceptions of entrepreneurs and investors about a new venture are……
are very different
A business plan should generally project financial and operational aspects of the proposed business for the first
3 – 5 years
The mission statement is best described as the
intended strategy and business philosophy for making the entrepreneur’s vision a reality.
It is most important that the marketing plan
identify user benefits.
Ideally, investors like a business plan that shows evidence of
a well-balanced managerial team.
Sources of cash identified by a statement of cash flows include
All of these:

cash generated from operations.
cash raised from investors.
cash devoted to investments.

The owner of Alison Sportswear, a small manufacturer of women’s tennis apparel, uses a computer in preparing a business plan. She finds that a major advantage of using a computer is that
spreadsheets enable the planner to prepare and make changes to the financial reports.
T or F: Entrepreneurs typically focus on the positive potential of the startup—what will happen if everything goes right.
T or F: Even if the business plan reveals sensitive information (e.g., details of an advanced technology or the specifics of a marketing plan), prospective investors can be trusted with that knowledge.
T or F: The executive summary of a business plan presents a firm’s history and its form of organization.
T or F: The business plan should never include photographs because these tend to make the plan look unprofessional.
T or F: Pro forma financial statements reflect the past financial performance of a firm.
T or F: Incubator organizations can provide advice on structuring a new business.
T or F: One advantage of preparing a formal written plan for a business is the discipline provided for the prospective entrepreneur.
T or F: Though all financial statements are important, the cash flow statement deserves special attention.
T or F: The sole purpose of a business plan is to persuade potential investors to supply funding for the business.
The description of potential customers in a target market is commonly called a
customer profile
Traditionally, marketing philosophies have been categorized as
consumer-oriented, production-oriented, and sales-oriented.
Techniques used to collect primary data are often classified as ____ and ____ methods.
Marlene Carlson selected a ____ strategy when she chose to market her Puzzle Toes product to parents with young children.
An entrepreneur is thinking about a location for starting a restaurant, the information she most needs about her potential customers is
How often they eat out
Which of the following marketing strategies was not discussed in the book?
Bivariate Strategy
T or F: Small business marketing is best defined as the performance of distribution activities that affect the flow of goods and services from producer to consumer or user.
T or F: Because of the costs involved, it is typical for a business to formulate only a single sales forecast.
T or F: When a strategist divides the total market for a product or service into groups with similar needs, so that each group is likely to respond to the same marketing strategy, he or she is engaging in a practice called market segmentation.
T or F: If an entrepreneur has found a truly unique niche market he or she can charge a premium price, at least for a while.
T or F: Customer satisfaction is not the means to achieving a certain goal—it is the goal.
Trained as an artist and painter, Lincoln Mayne seized upon an entrepreneurial idea and opportunity to create a company in the_______
Fashion Industry
If someone presents a coupon with an expired date, it’s good business_______
To gladly honor it
T or F: Market is defined as a group of customers or potential customer who have purchasing power and satisfied needs
One section of the competitor analysis of a formal marketing plan should include all of the following, except
the competitiveness of plans such as warranty and repair policies.
A firm’s marketing mix consists of ____ activities.
product, pricing, promotion, and distribution
In a partnership, each partner has agency power, which means that
a partner can legally bind all members of the firm.
Which of the following entities is liable for a corporation’s debts?
The corporation itself
The residual assets of a sole proprietorship belong to the ____ after the owner’s death.
owner’s heirs
The income from a limited partnership is taxed at the same rate as
ordinary income.
Lauren Hassell, a partner in Jales & Jales Bonding Company, manages its day-to-day operations. She is considered to be a ____ partner.
A(n) ____ would be the choice for a form of organization if you intend to provide extensive fringe benefits for owners or employees that would not be treated as taxable income to employees.
C corporation
A sole proprietor does what
assumes all losses of the business.
T or F: Partners always share profits and losses equally.
T or F: The death of a majority stockholder of a corporation results in the dissolution of the corporation.
T or F: A corporation’s life span is equal to that of its owners.
T or F: Limited partners have limited personal liability.
T or F: Social capital is the advantage created from an individual’s location within a web of social connections.
T or F: There are no limits on the owner’s personal liability in a sole proprietorship.
A typical common stockholder of a corporation
has the right to receive declared dividends.
Which of the following is not a common form of legal organization for a small business?
sub chapter 5 corporation
T or F: To transfer ownership in a corporation, it is only necessary to transfer shares of stock.
T or F: The death of the sole proprietor terminates the business entity.
T or F: S corporations can have nonresident alien stockholders.
T or F: The concept of balance on the management team means that the entrepreneur should not be wrapped up too much in one area, such as sales or production, but be well rounded.
T or F: A sole proprietorship is a business owned by one person.

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