BUS 101 Chapter 5 Study Questions

What are the advantages of starting a small business? The disadvantages?

• Advantages of small business ownership include independence and flexibility in terms of the location and opening hours of the business. Additional advantages include lower costs, flexibility to adapt to changing market conditions, focus on a limited market niche, and reputation. • Among the disadvantages of small businesses are the high stress level and the high failure rate.

What demographic, technological, and economic trends are influencing the future of small businesses?

• Aging baby boomers, echo boomers, and an increasing number of immigrants living in the United States represent potentially huge markets for small businesses. • Technological advances have opened many new markets to small businesses. Small businesses can adapt to changing trends faster than large corporations.

List the types of management and financial assistance that the Small Business Administration offers.

• Counseling for firms in difficulty • Consulting on operations improvements • Training for owners/managers and employees • Business clinics • Advice from SCORE and other business organizations Business 101 | Introduction to Business | Fall 2016 | Professor Lafferty • Loan programs

What types of financing do small entrepreneurs typically use? What are some of the pros and cons of each?

• Few small-business owners have the funds necessary to start a business. Small-business owners can obtain financing from friends and family. However, the relationship may suffer if the business fails. Small businesses may seek financing from banks or other financial institutions. A bank may require collateral or a mortgage, and the bank can repossess the property if the business fails to repay the loan. • A financial institution may grant a line of credit, an agreement by which the financial institution promises to lend the business a predetermined sum of money on demand. • Other sources of financing include local and state agencies, the Small Business Administration, and venture capitalists.

Describe the franchising relationship.

• Franchisees purchase a franchise for a fee, plus start-up costs. • Franchisees may also pay a fee, based on a percentage of sales, for advertising and promotion.

Why are small businesses so important to the U.S. economy?

• More than 99 percent of all U.S. firms are classified as small businesses. Small businesses are fueling job creation and innovation.

Why do large corporations want to become more like small businesses?

• The continuous success of small businesses, their capacity to innovate, their flexibility, and their ability to adapt quickly to market changes are some of the reasons why large corporations want to become more like small businesses.

Which fields tend to attract entrepreneurs the most? Why?

• The fields of retailing, services, and high technology tend to attract small businesses because these fields (except for high technology) are relatively inexpensive to enter. They generally do not require a large initial investment or a lot of experience.

What are the principal reasons for the high failure rate among small businesses?

• The main reasons for the high rate of failure among small businesses are undercapitalization, inability to cope with growth, poor business management, over optimism, burdens imposed by government regulation, insufficient reserves to withstand slow sales, and vulnerability to competition.

What decisions must an entrepreneur make when starting a small business?

• When starting a small business, an entrepreneur must first conceive a business plan. • He or she must then select a specific form of business ownership and secure sufficient financial resources.