Small Business Management Test 1 Ch 1-8

Flashcard maker : Lily Taylor
Who is an entrepreneur?
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.
What are the 5 primary rewards or incentives for entrepreneurs?
1. Profit
2. Independence
3. Freedom
4. Personal Satisfaction
5. Personal Fulfillment
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?
4 times more likely.
What makes up an entrepreneurial team?
Two or more people working together as entrepreneurs on one endeavor.
When is the ideal period of life for starting a business?
• None – when passion, experience and determination collide with an opportunity.
• When you know and understand your industry.
• between the mid-20s and mid-30s
How much risk propensity do entrepreneurs show a willingness to assume?
Moderate risk takers – accepting risks over which they have some control. Assumes both risk and reward for the effort.
How would you best describe a mentor?
A knowledgeable person who can offer guidance from their experience in a given field.
Who are the stakeholders in a business?
People who can affect, or be affected, by the performance of the Company. Customers, employees, stockholders and the community.
In a typical business, the most commonly reported ethical problems relate to . . .
Relationships with customers, clients, and competitors (outside parties).
What is embezzlement?
When an employee steals money from the firm.
What is the practice of skimming?
Concealing of business income
What is perhaps the greatest benefit of integrity in business?
The trust it generates.
What is ethical relativism?
How does it relate to the Romans?
The belief that ethical standards are subject to local interpretation: “When in Rome, do as the Romans do”
What is the most important key to ethical performance?
The personal integrity of the founder or owner; Strong, ethical managerial leadership.
What are the four types of small business ownership opportunities?
1. Start-ups,
2. Buy-outs,
3. Franchise,
4. Family
What is a Type A, B and C idea? Which type of idea accounts for the largest number of startups?
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
Most common source of new product ideas?
Prior work experience
According to Peter Drucker, what does innovation do?
• Innovation is the specific instrument of entrepreneurship
• The act that endows resources with a new capacity to create wealth.
Using innovative thinking, an example of “begin with a problem in mind”
Think about a significant problem others have, and come up with possible solutions.
What are economic trends?
Changes in the rate of inflation, interest rates and currency exchange rates, all of which encourage or discourage business growth.
From where was the term franchising derived?
French word meaning “freedom” or “exemption from duties”
What is a franchisee?
What is a franchisor?
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.

Example of piggyback franchise?
An operation of a retail franchise within the physical facility of a host store
Why would an entrepreneur would choose a franchise over an independent startup?
a. Probability of success is greater – Trade Names / Trademarks
b. Training provided – Operations manual
c. Franchisor-aided operations – Management Support
What makes franchising attractive and unattractive?
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
Do all profits of a franchise go to the franchisor?
What percentage of all businesses in the U.S. are family businesses?
What is obligation-based commitment?
Commitment that results from a sense of duty or expectation (i.e. family business).
Family business people more likely to support efforts to promote change have what type of commitments?
Desire-based & obligation-based commitments.
What is a common reason children feel they need to go outside the family firm?
• Prove he/she can do it themselves
• Personal preferences different
• Personal qualifications insufficient
• Desire for personal freedom
What can an owner of a family business do to avoid a stifling atmosphere for nonfamily employees?
• Identify family-only positions in advance
• Treat family and non-family fairly in rewards and promos
How to best describe a business plan?
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.
When to complete a feasibility study?
6-8 months Before the Business Plan
What type of business plans appeal to investors?
Market-oriented Plan
What is a potential investor’s single goal ?
Maximize potential return on an investment while minimizing risk
Which marketing philosophy is the preferred approach?
Consumer-oriented: All marketing efforts begin & end with the customer Focus on consumers’ needs.
In the analysis of a market, what should the customer profile include?
A description of potential customers in a target market.
What is the most detailed section of the marketing plan?
Marketing Strategy
What are the marketing mix elements?
Product, Pricing, Promotion, Distribution
What is the proper order of the steps in the typical research process
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?
Two classifications of primary data collection?
1. Observational Methods
2. Questioning Methods
What is the oldest form of research?
Major disadvantages of sole proprietorship?
• 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
Key characteristics of partnerships?
2 or more co-owners, to carry on business for profit, owners share unlimited liability, does not pay taxes.
What is joint and several liability?
The liability of each partner, resulting from any one partner’s ability to legally bind the other partners.
Who is liable for a corporation’s debts?
The Corporation
What is the legal principle involving stockholders?
an ownership interest in a corporation does not confer a legal right to manage the firm.
Who typically has Formal control and function control in a small corporation?
Formal control = stockholders who own the majority of the voting common shares

Function control = Corporate officers in conducting daily operations.

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