Small Business Management Test 1 Ch 1-8 – Flashcards
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Who is an entrepreneur?
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One who is relentlessly focused on an opportunity, either in a new or existing business, to create value for the customer and owner. Assumes both risk and reward for the effort.
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What are the 5 primary rewards or incentives for entrepreneurs?
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1. Profit 2. Independence 3. Freedom 4. Personal Satisfaction 5. Personal Fulfillment
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According to The Millionaire Next Door, how many more times likely is a business owner to be a millionaire than those who work for others?
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4 times more likely.
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What makes up an entrepreneurial team?
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Two or more people working together as entrepreneurs on one endeavor.
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When is the ideal period of life for starting a business?
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• None - when passion, experience and determination collide with an opportunity. • When you know and understand your industry. • between the mid-20s and mid-30s
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How much risk propensity do entrepreneurs show a willingness to assume?
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Moderate risk takers - accepting risks over which they have some control. Assumes both risk and reward for the effort.
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How would you best describe a mentor?
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A knowledgeable person who can offer guidance from their experience in a given field.
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Who are the stakeholders in a business?
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People who can affect, or be affected, by the performance of the Company. Customers, employees, stockholders and the community.
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In a typical business, the most commonly reported ethical problems relate to . . .
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Relationships with customers, clients, and competitors (outside parties).
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What is embezzlement?
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When an employee steals money from the firm.
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What is the practice of skimming?
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Concealing of business income
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What is perhaps the greatest benefit of integrity in business?
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The trust it generates.
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What is ethical relativism? How does it relate to the Romans?
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The belief that ethical standards are subject to local interpretation: "When in Rome, do as the Romans do"
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What is the most important key to ethical performance?
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The personal integrity of the founder or owner; Strong, ethical managerial leadership.
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What are the four types of small business ownership opportunities?
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1. Start-ups, 2. Buy-outs, 3. Franchise, 4. Family
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What is a Type A, B and C idea? Which type of idea accounts for the largest number of startups?
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A = provide customers with an existing product not available in their market B = New ideas, new technology, centered around providing a new product C = providing an improved product or benefit *Largest number of start-ups = C
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Most common source of new product ideas?
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Prior work experience
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According to Peter Drucker, what does innovation do?
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• Innovation is the specific instrument of entrepreneurship • The act that endows resources with a new capacity to create wealth.
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Using innovative thinking, an example of "begin with a problem in mind"
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Think about a significant problem others have, and come up with possible solutions.
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What are economic trends?
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Changes in the rate of inflation, interest rates and currency exchange rates, all of which encourage or discourage business growth.
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From where was the term franchising derived?
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French word meaning "freedom" or "exemption from duties"
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What is a franchisee? What is a franchisor?
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Franchisee: An entrepreneur whose power is limited by a contractual agreement with a Franchisor. Franchisor: Party in franchise contract that specifies methods to be followed and terms to be met by the other party.
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Example of piggyback franchise?
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An operation of a retail franchise within the physical facility of a host store
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Why would an entrepreneur would choose a franchise over an independent startup?
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a. Probability of success is greater - Trade Names / Trademarks b. Training provided - Operations manual c. Franchisor-aided operations - Management Support
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What makes franchising attractive and unattractive?
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1. Advantages: a. Probability of success (proven line of business, pre-qualification of franchisee) b.Training (provided by franchisor) c. Financial assistance (franchisor assistance) d. Operating benefits (franchisor-aided) 2. Limitations: a. Franchise costs (Initial franchise fee, investment costs, royalty payments, advertising costs) b. Restrictions on business operations c. Loss of independence d. Lack of franchisor support
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Do all profits of a franchise go to the franchisor?
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??
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What percentage of all businesses in the U.S. are family businesses?
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80-90%
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What is obligation-based commitment?
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Commitment that results from a sense of duty or expectation (i.e. family business).
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Family business people more likely to support efforts to promote change have what type of commitments?
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Desire-based & obligation-based commitments.
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What is a common reason children feel they need to go outside the family firm?
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• Prove he/she can do it themselves • Personal preferences different • Personal qualifications insufficient • Desire for personal freedom
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What can an owner of a family business do to avoid a stifling atmosphere for nonfamily employees?
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• Identify family-only positions in advance • Treat family and non-family fairly in rewards and promos
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How to best describe a business plan?
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A "working" document that sets out the basic idea for the business and related startup considerations - "a game plan", • where you are now, where you want go, and how you plan to get there.
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When to complete a feasibility study?
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6-8 months Before the Business Plan
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What type of business plans appeal to investors?
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Market-oriented Plan
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What is a potential investor's single goal ?
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Maximize potential return on an investment while minimizing risk
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Which marketing philosophy is the preferred approach?
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Consumer-oriented: All marketing efforts begin & end with the customer Focus on consumers' needs.
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In the analysis of a market, what should the customer profile include?
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A description of potential customers in a target market.
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What is the most detailed section of the marketing plan?
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Marketing Strategy
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What are the marketing mix elements?
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Product, Pricing, Promotion, Distribution
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What is the proper order of the steps in the typical research process
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1. Identify Info Need - what do we need to know, why do we need to know this? 2. Search for Secondary data - Who has already researched this? 3. Collect Primary Data - Who do we ask, what do we ask them? 4. Interpret Data Gathered - Got the info, now what does it mean?
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Two classifications of primary data collection?
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1. Observational Methods 2. Questioning Methods
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What is the oldest form of research?
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Observational
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Major disadvantages of sole proprietorship?
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• Bears all risk! • Subject to all creditor claims • Unlimited personal Liability • Receives no tax free benefits as an employee • Death/incapacity of owner terminates business • Limited to proprietor's personal capital • Taxed on business income as personal income
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Key characteristics of partnerships?
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2 or more co-owners, to carry on business for profit, owners share unlimited liability, does not pay taxes.
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What is joint and several liability?
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The liability of each partner, resulting from any one partner's ability to legally bind the other partners.
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Who is liable for a corporation's debts?
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The Corporation
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What is the legal principle involving stockholders?
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an ownership interest in a corporation does not confer a legal right to manage the firm.
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Who typically has Formal control and function control in a small corporation?
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Formal control = stockholders who own the majority of the voting common shares Function control = Corporate officers in conducting daily operations.
