small business management test 1

regulating the activities or course of activities of an organization; to guide and/or supervise the activities of an organization; refers to those activities which encourage subordinates to work toward the achievement of the company’s goals
private investors who are willing to supply financing for new and or risky small venture start ups
the emphasis is placed on providing to customers products and services that are safe, reliable, and honestly advertised; also a social movement that seeks to strengthen the rights of consumers relative to sellers
a management function which compares organizational and individual performance with predetermined standards of expected results
the registered right of a creator to reproduce, publish, and sell the work which is a product of the intelligence and skill of that person
corporate refugees
those individuals who flee th bureaucratic environment of big business by going into business for themselves
delegation of authority
a superior’s act of granting to subordinates, on the basis of competence, the right to act or decide
one who organizes, manages, and assumes the risk of a business firm adventures
intangible asset such as the name of the funeral home; also an intangible asset which enables a business to earn profit in excess of the normal rate of profit earned by other businesses of the same kind
intangible asset
a type of asset that is not able to be physically touched but is retained by a small business because of its genuine value
the art and science of motivating people toward the achievement of a goal; is a process of planning, organizing, staffing, directing and controlling activities in an organization in a systematic way in order to achieve a common goal
to arrange or constitute in interdependent parts, each having a specific function or relation with respect to the whole; the way in which work is arranged and distributed among members of the firm
the registered right of an inventor to make, use, and sell an invention
the function of determining in advance what needs to be accomplished in order to achieve a particular goal
tangible assets
a physical asset that possesses genuine value
an intangible asset that is a distinct name, sign, or symbol that the federal government grants exclusive rights to use for a specified period of time
artisan entrepreneur
a person with primary technical skills and little business knowledge who starts a business
an entrepreneur who brings a new firm into existence
internal locus of control
a belief that one’s success depends on one’s own effort
opportunistic entrepreneur
a person with both sophisticated managerial skills and technical knowledge who starts a business
a person who becomes an entrepreneur to escape an undesirable situation
reluctant entrepreneur
a person who becomes an entrepreneur as a result of some severe hardship
an organization that takes inputs of raw materials, capital, labor, and management skills to produce useful outputs of goods and services so as to earn a profit; a person, partnership, or corporation engaged in commerce, manufacturing or services as a profit seeking enterprise or concern
trends of small business
– actively managed by the owners
– highly personalized
– largely local in its area of operations
– largely dependent on internal sources of capital
– independently owned and operated and does not dominate the field of operation
small business administration act
principal government agency concerned with the financing, operation and management of a small business; established by the small business act in 1953 to combat growing monopolies by the larger business; purpose is to encourage competition by small business as a basis for free enterprise
500-1500 employees
500 employees
25-100 employees
25-300 employees
dollar sales volume
3.5 million on up depending on the type of business
manufacturing business
makes finished goods from raw materials by hand or machinery
service business
a business that provides a service as opposed to a product
economic contributions of small business in the US
interdependence of business: small businesses are essential to enable a few large ones to concentrate on those economic activities where their efforts are more effective; small business creates 52% of all private employment and 51% of the nations total output of goods and services

stimulating economic competition: economic development of the US has resulted form the efforts of small business

innovation: individuals and small businesses provide the major source of new ideas, inventions and innovations

external factors that influence management
competitors: important for managers to recognize and understand the activities of their competitors in a market in order to make decisions about pricing, product modification, and advertising

technological change: this can lead to a decrease in price due to the discovery of a cheaper method for manufacturing a product (steel) or can result in an organization’s product becoming obsolete

economic conditions: inflation rate, interest rates

societal values and attitudes: environment, 7-11 vs Playboy, cremation

political process: federal, state, and local taxes

physical condition: natural events; sunny, rainy, snowy, tornadoes, hurricanes, earthquakes

internal factors that influence management
– employees
– research and development
– financing
– marketing
– advertising
management skills
technical skill: abilities necessary to carry out a particular task

human skills: ability to work with, motivate and direct individuals toward a common gal

conceptual skills: ability to understand the degree of complexity in a given situation and to reduce that complexity to a level at which specific courses of action be derived

management activities
– planning
– organizing
– motivating: energizing, channeling and sustaining people’s behavior
– directing
– controlling
organizational goals: two main functions
– goals affect the way the organization relates to the environment , serving to clarify the connection between organizational activities and other organizations, groups and individuals in the environment

– goals build the internal activities of the organization, providing employees knowledge of task scope, decision, guidelines, methods of motivation, performance criteria, and a rational for organizing

reason for the organization’s existence, without it the organization need not exist; is determined by its creators
the path that managers choose to achieve their purpose
the acceptance of the organization’s activities by non-members of the organization
written statements of actions and decisions that will lead the company to its goals or mission
long range planning
over 10 years
intermediate planning
2-9 years
short-term planning
1 year or less
external causes of failure in small business
human resource planning: developing a comprehensive strategy for meeting future human resource needs

capital shortages: the lack of available money; securing funds or good interest rates, maintaining cash

tax burdens

government regulations: EPA, OSHA, EEOC, FTC, IRS


internal causes of failure in small business
– lack of expertise; mismanagement
– financial shortages; poor cash flow
– human resource management: a process of acquiring training, developing, motivating and appraising a sufficient quantity of qualified employees to perform necessary activities
reasons for selling a small business
– old age, illness, retirement
– desire to relocate in a different part of the country
– made a decision to accept a position at another company
– the owner is about to lose a contract or franchise
– proposed changes in road routes or zoning
profit potential
– secure financial statements from independent audit for accuracy and completeness of financial statements of the business
– insist upon seeing the records of bank deposits for at least 5 years or for the length of time the business has been operating, which ever is shorter
– ask to see the owner’s copy of his or her tax returns, which any honest seller should be willing to show
– make certain all back taxes have been paid and that interest payment can other current obligations are not in arrears
– make sure there are no liabilities due from federal, state, or city fines and penalties due for violations
tangible assets
examples: accounts and notes receivable, fixtures, the building, prepaid expenses, supplies, equipment

– timely, fresh, well balanced selection of materials and merchandise
– consist of items the public wants
– raw materials and supplies that will be used up within a reasonable production time
– “close buying” is essential to profit in any business when just starting
– don’t buy “dead” stock that the seller lists as worth, (original value)- the loss rightly the original buyers

intangible assets
– the name of your funeral home
– is subjective
– every business has good will because of its public acceptance over the years
– the difference between the selling price and appraised value of the tangible and other intangible assets
– leases and other contracts: favorable lease in a good location is a valuable business asset; new owner must determine if lease is transferable or must be re-negotiated and the terms
– patents: protective product ideal from unauthorized or infringement for a limited time
– copyrights: offer the best protection for books, periodicals, and orally presented materials; difficult to protect against infringement
trademarks: provide protection against unfair competition in business, chief function is to identify certain products and to create and maintain a demand for them
– a prospective buyer should look into the extent, intensity, and location of competing businesses
– is the competition losing or gaining on the business
human resources
– are there qualified people presently employed
– how many will depart with the old owner
– will key employees stay or leave
reduction of uncertainties: successful going concern has been demonstrated
– an ability to attract customers
– an ability to control costs
– an ability to make a profit
– have a track record under actual marketing conditions
acquisition of ongoing operations and relationship a buyer usual obtains:
– personnel
– inventories, equipment and fixtures
– physical facilities
– established banking facilities
– ongoing relationships with trade suppliers
a bargain price: must be determined by prospective new owners: reasons for low price may be as follows
– business is losing money
– the location is deteriorating
– sellers may intend to re-open another business in competition
market value approach: valuation based upon the sale of similar businesses
– depends on the similarity of business
– recent sales of like business
– real estate agents rely extensively on this method
replacement cost approach: asset valuation that relies on replacement value of the business
– attempts to find replacement value of tangible assets being purchased
– starts with most recent balance sheets
– this method usually ignores intangible assets
– difficult if small business has poor business records, need good accounting records
liquidation value approach: asset based method that equates the salvage value of the business assets
– provides a “minimum” value, worst case scenario
– is the worst method for the seller
earnings approach: valuation bases on the business’s part earning record
– centers on estimating the amount of potential income that may be produced by the business
– capitalization of the average earning of the company; usually 5 year average
– the average annual earnings are divided by expected rate of return
– funeral home rate of return is about 12.9% before taxes
terms of sale
– cash
– owner financing
– third party financing
sources of new venture ideas
– prior work experience
– hobbies
– deliberate search
– personal experience
– accidental discovery
preparing a business plan
a written description of a new idea that projects marketing, operational, and financial aspects of a proposed business
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