Small Business Chapters 9-18, 22

Flashcard maker : Lily Taylor
For manufacturers, which of the following is a top priority in location decisions?
Closeness to raw materials
A good reason for relocating a typical manufacturing business is to
Get closer to raw materials
Using special-purpose equipment in the manufacturing process typically results in
greater output per machine-hour of operation.
A woman is planning to establish a business in her residence. In order to maintain a proper balance between family and business matters, she should
establish spatial and nonspatial boundaries.
The Internet has brought new life and technology to the old-fashioned notion of
customer service
Dell Computer Corporation deals directly with corporate customers online and builds computers to specifications after an order is placed, which reduces the firm’s storage and carrying costs. This illustrates that B2B firms can create
greater efficiency in their selling.
In the B2B model, the customers can best be described as
businesses
Which of the following is not one of the advantages B2C models have over bricks-and-mortar retailing?

Speed of access
Speed of transaction
24/7 service
Superior customer service

Superior customer service
B2B firms, in particular, use e-commerce to reduce costs associated with
sales force management.
Which statement is not correct concerning business incubators?
Their goal is to build businesses that will develop into a long term office rental relationship.
Which of the following lists are the three types of business startups talked about in the book?
Brick-and-mortar, Home-based-business, E-commerce.
Which of the following is a true statement?
The Internet is basically a tool that parties use to communicate
T or F: Locating close to niche market customers often requires placement at a site that otherwise would be less than desirable.
True
T or F: If the cost of shipping the finished product is high, the factory should probably be located near a source of raw materials.
False
T or F: A building’s functional attributes determine its suitability for the operation of a business.
True
T or F: A milking machine in a dairy is a type of general-purpose equipment.
False
T or F: To function successfully, owners of home-based businesses need to establish both spatial and nonspatial boundaries between the business and the home.
True
T or F: Because of its complexity, modern technology has had no noticeable effect in expanding the number of home-based businesses.
False
T or F: Customer accessibility is important in locating an electrical contracting firm.
False
T or F: If a brand’s product, such as a snack food, is not located close enough to the target customer, the customer will most likely be inconvenienced by traveling further to get the product.
False
The ____ shows the results of a firm’s operations over a period of time, usually one year.
cash flow statement
Which of the following does not increase or decrease cash flows from assets?
Changes in working capital
Earnings before taxes are computed by deducting the firm’s financing costs from its ____ income.
Total
Pro forma financial statements can answer the following question:
How profitable can the firm be, given past sales and expense relationships?
A startup typically does not become profitable or breakeven for
two to three years.
An example of a current asset is
accounts receivable.
A common weakness in small business financing is
too much investment in fixed assets.
A ____ shows the level that sales must reach before profitability is achieved.
break-even case
T or F: A profitable company does not necessarily have positive cash flows.
FALSE
T or F: The income statement shows the profit or loss from a firm’s operations over a given period of time.
TRUE
T or F: A conventional measure of a firm’s liquidity is a comparison of current assets to current liabilities.
TRUE
T or F: Dividends to a firm’s owners are not considered an expense in the income statement.
False
T or F: Accounts payable consist of payments due from a firm’s customers.
False
T or F: Net working capital includes
stockholders’ equity.
The number resulting when taxes are subtracted from earnings is the ____ income
total
T or F: The money that owners invest in the business is called owners’ equity.
True
T or F: Jan Woodring is considering investing in a business. To see the firm’s financial position over a period of time, she should look at its balance sheet.
True
T or F: Inventory is a relatively permanent asset that is intended for use in the business rather than for sale.
False
Harvesting refers to
exiting a business.
Matt Townsend owns a car dealership that is very profitable. Since he plans to retire in 5-10 years, Townsend has decided to retain ownership for now, but without continuing to grow the business. This change would also allow him to invest for retirement some of the cash that the business is now generating. Which of the following harvesting methods does this illustrate?
A strategy to release the firm’s free cash flows to the owners
Which of the following steps in the IPO process precedes the others?
Audit the last three years of financial statements
The owner of a hardware store has agreed to sell his business to another local hardware store owner. The purchaser would likely be described as a sale to a ____ buyer.
strategic
The sale of Linda Bush’s company, SafeRent, Inc., to First American Corporation is an example of
a sale to a strategic buyer.
Harvesting owners generally prefer ____ over ____.
cash, stock
The value of a business is determined by
what a buyer with the cash is prepared to pay.
Running a public company requires
managing the firm toward a track record of successful performance.
T or F: Investors always think ahead about how to exit an enterprise, but the entrepreneur should not have this focus since the business will perform better if it is managed with day-to-day operations in mind.
False
T or F: Most businesses with ESOPs are large, and eventually all of them become publicly traded.
False
The mere fact that a firm is earning high rates of return on the firm’s asset indicates that
the firm is worth more as a going concern than as a dead one.
A leveraged buyout involves a high level of ____ financing.
debt
Uncertainties accompanying an impending sale of a business often
lead to lower employee morale.
After harvesting, many entrepreneurs experience conflicts that are ____ in nature.
emotional
Which of the following is not one of the common harvest strategies used by small businesses?
Inviting a friendly takeover
The different types of transactions involving small businesses are
strategic, financial, and employee acquisitions.
T or F: One of the reasons for going public to raise equity capital is to create a liquid market for the company’s stock.
TRUE
T or F: Entrepreneurs frequently do not appreciate the difficulty of selling or exiting a business.
True
T or F: The opportunity to exit a business is triggered by an interested seller.
False
T or F: As in any exit strategy, the sale of a firm is solely about determining the value of a company.
False
Buying an expensive set of underwear is most likely an attempt to satisfy which category of need?
physiological
Attending a wedding is most likely an attempt to satisfy which category of need?
social
Working out at the gym is most likely an attempt to satisfy which category of need?
physiological
The basic ideas forming the foundation of customer loyalty for small firms include the notion that
small firms possess great potential for providing superior customer service.
Divisions in society with different levels of social prestige are called
social classes.
Erin Withers, a typical consumer, often purchases goods and services because she feels her family and fellow workers will approve of these items. Family and co-workers are ____ for this consumer.
reference groups
Which of the following does not cause a customer to recognize a problem and desire a change?
Using up the last tube of toothpaste
Which of the following is not a psychological influence?
Culture
Long-term transactional relationships with customers are fostered by
good information.
T or F: Long-term transactional relationships with customers are fostered by good information.
True
T or F: Sales endeavors generate the second largest amount of customer contact.
False
T or F: Mac McConnell, owner of the Artful Framer Gallery in Plantation, Florida. reworked his business based on the results of a survey showed that price was a top priority and quality was last. He added a low end line and made inexpensive framing his specialty.
False
T or F: Customer profiles primarily reflect demographic variables such as age, gender, and marital status, but they can also include behavioral, psychological, and sociological information.
True
T or F: Small businesses must strive to recognize cognitive dissonance among their customers and to manage it effectively.
True
T or F: An evoked set is a group of brands that a consumer is aware of but unwilling to consider as a solution to a purchase problem.
False
T or F: Post-purchase dissonance has been shown to be unrelated to customer satisfaction because it occurs after customers have satisfied their needs.
False
T or F: Attitudes have an indirect impact on consumer behavior.
False
T or F: Three classes of needs—social, psychological, and spiritual—cannot be connected to behavior through motivations.
False
T or F: Buying or developing CRM software leads to higher customer retention.
False
T or F: Customer satisfaction is all about providing extraordinary services to the buyer.
False
The seller’s measure of what he or she is willing to receive in exchange for transferring ownership or use of a product or service is known as
Price
A competitor would likely use a ____ pricing strategy for a gaming console intended to compete directly with Sony’s Playstation gaming console.
follow-the leader
Within the framework of a break-even analysis, an examination of ____ is conducted to determine the quantity at which the product, with an assumed price, will generate enough revenue to start earning a profit.
costs and revenue
Clock Tickers, a small retailer of a quality alarm clock, sells its product for $180. If Clock Tickers adheres to pricing based on a 35% markup of cost, the firm’s product costs are approximately
$133
Gomez is pricing his products at a lower than normal, long-range market price in order to gain more rapid market acceptance. He is using a ____ strategy.
penetration pricing
Which one of the following is not true with respect to pricing in a small business?
Conducted properly, price determination is an exact science.
Benefits of credit to sellers include all of the following except
sustaining long-term sales, even if these exceed the buying power of the customer.
Which of the following is true with respect to installment accounts?
A down payment is normally required.
Handyman Hardware, a small community-based store, offers its consumers the option of using credit. Creditworthy individuals are able to use the “HH Credit Card” for all purchases up to a credit limit of $1,000. Consumers are required to pay at least 20 percent of their outstanding balance at the end of each month. A two percent finance charge is assessed on the unpaid balance at the end of each billing cycle. Handyman Hardware is employing ____ in its business.
revolving charge accounts
How much discount will a buyer receive if the buyer pays a trade credit bill of $60,000 with terms of sale of 2/5, net 30 on the net due date?
$0
CarePair, a small business specializing in making and distributing hospital gowns to medical facilities, often sells its product on credit. The company maintains a ledger that divides accounts receivable into age categories based on the length of time they have been outstanding. Receivables 1-6 months old are deemed grade A (regular business); 7-12, grade B (overdue business); and 13-24, grade C (delinquent business); those accounts receivable over 24 months old are turned over to a collection agency. CarePair is relying on ____ to keep track of accounts receivable.
an aging schedule
All of the following are acceptable options available to entrepreneurs attempting to collect delinquent accounts receivable except
telephone calls to a customer’s employer.
One of the primary purposes of the federal Consumer Credit Protection Act is to
require creditors to specify how finance charges are computed.
Which of the following is a retailer credit card?
Sears card
In general, products that are consumed in different amounts have
elastic demand.
T or F: Markups may be expressed as a percentage of either the firm’s cost or the industry-standard cost.
True
T or F: Trade credit is extended by businesses to consumers purchasing large volumes of products.
False
In the Video “Profit Vs. Margin”, what was the common mistake discussed by the contractor?
His numerator, the number on top, should have been the the total Price
The “spending as much as the competition” method
can be used to duplicate the promotional efforts of close competitors.
Mary White, a sales representative for a small cleaning business, asks current customers for names of friends, customers, and other businesses that might be interested in the company’s cleaning services. White is relying on ____ to identify potential customers.
personal refferals
Telephone calls and mail surveys are examples of
marketer-initiated contacts
Aaron Michels, a corporate account salesperson for Software Etc., is conducting a sales presentation for a potential new customer. Following the presentation, the prospective client states that her firm already uses a competing product. Intuitively, Mr. Michels replies, “In that case, I’m certain that you are now ready to upgrade to the best product available.” Mr. Michels’s response is an example of using
the boomerang technique.
Which of the following is not one of the services ad agencies provide?

-Furnishing design and artwork
– Evaluating the effectiveness of different advertising appeals
-Analyzing the balance of a firm’s marketing mix
-Advising on sales promotions

Analyzing the balance of a firm’s marketing mix
Which of the following is one of the basic promotional methods?
Advertising
One of the ways that a company can promote its online business is by
making sure that the Web site is accessed by Internet search engines.
John Frye, a small business manager, is interested in creating more company goodwill. Which of the following promotional tools should he use?
Specialties
The “lasting medium” is a term that refers to which of the following?
Specialties
Promotional funds are determined according to past experience in which of the following methods?
Percentage of sales
Which of the following is not one of the three traditional categories of Promotion?
Argumentation
Of the following advertising mediums, which is considered to have a high pass-along rate?
Magazines
Which of the following is not one of the techniques for responding to customers objections?
Clutter Hachette Method
The major problem with the ____ method of determining promotional expenditures is the tendency to spend more when sales are increasing and less when they are declining.
precantage of sales
T or F: The way small businesses communicate with their customers is completely different from the way family members communicate with one another.
False
T or F: Inquiries by a potential customer that do not lead to a sale can still create what is known as a “promising prospect.
False
T or F: In relationship selling, a salesperson must exhibit professional etiquette in all contacts with customers, since this will determine the success of the sale.
False
T or F: Straight salaries are best for motivating salespeople because of the financial security salaries provide.
False
T or F: Institutional advertising is primarily concerned with a company and its reputation
True
T or F: Only institutions such as universities use institutional advertising.
False
Which of the following is not a constraint on management in small firms?
Bureaucratic red tape
Stage 1 in the growth of a business is characterized by
one-person operation
Barry Ramirez demands that his employees immediately comply with his orders. His leadership style is typical of ____ leaders.
coercive
A new business has been launched with four employees who work for the entrepreneur-owner. As the owner contemplates growth in sales and personnel, she realizes that the next step of growth will involve the special problem of
intermediate supervision.
Controlling is the managerial function that involves the manager’s
keeping track of performance and investigating when results are out of line.
A budget is an example of a
A short-range plan
The best feature of an organizational structure that evolves naturally is its
practicality.
In a line-and-staff organization, which of the following is a staff activity?
Human resource management
The number of subordinates reporting to one superior constitutes that manager’s
span of control
SCORE refers to
a group of retired executives who act as consultants to small firms.
The process of developing and engaging in mutually beneficial relationships with peers is
networking
Which of the following is the first stage of a small business?
one-person operation
Which is not a typical constraint placed on managers?
Ample marketing budget
If Fran Fishburn, who runs a wholesale flower business, successfully creates properly functioning self-managed teams among her employees, her supervisors
will likely become fewer in number.
T or F: Entrepreneurs who follow a win-win strategy are taking an approach that ensures that their own firm will achieve the outcomes that are best for their own firm.
False
T or F: Developing a plan for the firm helps the entrepreneur to think through the issues faced by the firm as well as providing a focus for the firm.
True
T or F: In his study of the origin and evolution of new businesses, Amar V. Bhide found that entrepreneurs play different roles in starting businesses than they play in building what he calls long-lived firms.
True
T or F: If staff specialists begin to give orders instead of being helpers, they destroy the unity of command.
True
T or F: Stewardship delegation focuses on results in judging the performance of a subordinate in carrying out assigned tasks.
True
T or F: The early growth stages of a new business involve significantly less change than that which occurs during the growth of a relative mature business.
False
Excess cash should be
Invested
The life cycle of receivables begins with which of the following stages?
A credit sale
When a business sells its accounts receivable to a finance company, this is called
factoring
Inventory is called an “evil” because it
ties up funds that are not actively productive.
Assuming that cash is available, payment for an account payable with terms of 3/10, net 30 should be made on day
10
Which of the following questions do all types of capital budgeting techniques try to answer?
Do the future benefits from the investment exceed the cost of making the investment?
Long-term investments are the focus of
capital budgeting.
Discounted cash flow techniques answer which of the following questions?
How does the present value of future benefits from the investment compare to the investment outlay?
The question “How many dollars in average profits are generated per dollar of average investment?” is answered using
accounting return on investment.
Failure to recognize the time value of money is a weakness of
the accounting return on investment technique.
Discounted cash flow (DCF) techniques compare the present value of future cash flows with
the investment outlay.
The cash budget
is concerned with dollars received and paid out.
Cash deposits during a month less checks written during the same period equal
net cash flow.
T or F:Accounts receivable are sometimes called near cash because they can be converted to cash whenever a business needs to do so.
False
T or F: Improperly managed stockpiling is harmful to cash flow and should be minimized if possible.
True
T or F The accounting return on investment technique reveals how many dollars in average profits are generated per dollar of investment
True
T or F: The date on which accounts receivable are collected affects the working-capital cycle.
True
Failure to take cash discounts from suppliers
typically makes a big difference to a firm’s financial well-being, since a business pays a high rate for use of a supplier’s money
T or F: The payback period technique measures how long it will take to recover the initial cash outlay of an investment.
True
T or F: Net profit is the difference between cash inflows and outflows.
False

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