business chapter 5

Clothes By You, a clothing store in the mall, wants to give customers an opportunity to place orders. What is one form of direct marketing the store can use to provide this service?

It can send catalogs to its customers.

Axel has recently quit his job as an investment banker because he plans to open a restaurant. He has two options: he can either start his own new restaurant from scratch or purchase a franchise from an already established restaurant or fast food chain. His wife Lisa supports the former plan. Which of the following statements strengthens the argument in favor of Lisa's choice of opening a restaurant independently?

It is easier and more flexible to make and execute decisions in an independent business.

Which of the following statements best describes bartering?

It is the practice of small businesses trading their own products for the goods and services offered by other businesses.

________ are often the Small Business Administration's principal means of providing direct management assistance to small businesses and entrepreneurs.

Small Business Development Centers

Isabella makes unique clothing pieces, jewelry, and hair accessories. To avoid the costs of opening a store, she sells these pieces on Etsy. This is an example of

direct marketing.

While Beau attends college, he is working part-time for a life insurance company. He goes door to door and offers consumers face to face presentations in their homes. This is an example of

direct selling.

Obtaining money from venture capitalists to start a new business venture is an example of

equity financing.

Sarah is starting her own house painting company, Pickett Fence Painting. She is working on developing the company's business plan. Which of the following is something the business plan should accomplish?

estimating the business's income and expenses

When Marco first moved from Mexico to the United States, he struggled to find and keep work because he couldn't speak English fluently. After learning English, he started a new business to help other Mexican Americans learn English and to help place them in jobs. Marco's business is a

minority-owned small business.

Neehara recently opened a premium bakery. She did not have enough savings, so she applied for a loan to obtain the additional funds required to start the bakery. She had to provide her house as collateral to obtain the loan. The type of financing obtained by Neehara can be regarded as a

mortgage.

Which of the following is a source of equity financing?

selling personal assets to raise funds

Jason owns a barbershop that specializes in men's haircuts and shaving. This is an example of a

service business.

A ________ is best described as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people.

small business

Since Eva has decided to use her savings to purchase the rights to own and operate a McDonald's outlet rather than starting her own restaurant, she is most likely to be

a franchise.

Chang is an interior designer who starts his own consulting firm. His friend Rachel is the owner of a coffee shop. Chang decorates Rachel's new coffee shop in exchange for a supply of coffee whenever his clients visit his office. Which of the following sources of funding does this scenario best illustrate?

bartering

Walter sold a piece of land he inherited from his grandparents and started a business with the proceeds. Which of the following sources has Walter used to raise funds for his business?

equity financing

Small businesses may obtain funding from their suppliers in the form of a ________, which means that suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.

trade credit

What percentage of all U.S. businesses are classified as small businesses?

60%

Which of the following statements describes an advantage of franchising instead of building an independent business from scratch?

A franchise outlet often reaches the break-even point faster than an independent business would.

Which of the following statements is true of franchising?

A franchisee often receives building specifications and designs from the franchiser.

Allison's flooring store requires more financing than she can provide from her savings. As a result, she is looking for investors to provide financing in exchange for stock ownership. What is a disadvantage of this arrangement?

Allison will have to share the profits of her business.

Gary decides to buy an existing home goods store, instead of starting his own from scratch. Once he takes over the business, he learns that several customers have complained that one of the company's distributors doesn't pack items sufficiently for shipping, and their items arrived broken. What is Gary's responsibility in resolving this problem?

Gary is responsible for taking on and resolving any problems the business already has.

Which of the following statements accurately describes intrapreneurs?

Individuals in large firms who take responsibility for the development of innovations within the organizations are intrapreneurs.

Mercy and Diego are entrepreneurs who want to start their own business. Which of the following would attract them to retailing?

Retailing requires low initial financing.

Samar has started a new zip-line business in Jamaica. What is the most important source of funds for this new business?

Samar, the owner

________ is (are) a volunteer agency funded by the Small Business Administration to provide advice for owners of small firms.

Service Corps of Retired Executives

Paula works for a large company that is trying to function like a smaller company. Which of the following is something the company can do to achieve this goal?

The company can make its operating units function more like independent small businesses.

Which of the following statements is true of baby boomers?

They are not actively pursued by many small businesses.

Millennials number around 83 million and represent a huge business opportunity in the United States. Which of the following is a defining feature of millennials?

This cohort is concerned with advancement, recognition, and improved capabilities.

________ is best described as the lack of funds to operate a business normally.

Undercapitalization

Which of the following best illustrates a small business operating in a retail industry as opposed to wholesaling its products?

Wax Creations Inc. imports candles and directly sells them to customers through kiosks.

White Carpet Inc. is a small apparel store started by an aspiring designer. The store needs to compete against larger, well-established, multinational brands. Which of the following strategies will most help White Carpet Inc. avoid competition from larger firms?

White Carpet Inc. should focus on and target small market niches or product needs.

Which of the following is true of wholesalers?

Wholesalers provide both goods and services to producers and retailers.

Margaret was born in 1952. She is a wealthy Florida native. As she ages, Margaret spends much of her money on travel, financial planning, and health care. Margaret is

a baby boomer.

Arnold approached a bank to get a loan for a business he planned to launch later that year. He explained his business idea and its capital requirements to the bank manager. The manager asked Arnold to provide a formal document that included a rationale for the business, an explanation of how it will achieve its goals, an analysis of the competition, and estimates of income and expenses, among other information. Which of the following documents does the bank expect from Arnold in this scenario?

a business plan

Which of the following demographic trends has made health care and financial planning industries attractive for small businesses in the United States?

aging baby boomers who are wealthy

Mi Sun is a taekwondo expert who starts her own martial arts training academy. She conducts taekwondo classes for women and teaches them the art of self-defense. Mi Sun can be regarded as

an entrepreneur.

The Small Business Administration is

an independent agency of the federal government that offers managerial and financial assistance to small businesses.

Jorge is an employee at a company that provides information technology solutions to other firms. Recognizing his potential to innovate, the top management of the company has given him the complete liberty to develop a new smart-phone application using the resources of the company. In this scenario, Jorge best illustrates

an intrapreneur.

What is the main supplier of external financing to small businesses?

banks

One of the major reasons people want to own and operate their own business is to

be their own boss.

In the manufacturing sector, small businesses sometimes have an advantage over large firms because small businesses

can customize products to meet specific customer needs and wants.

To make profits from a small business, the owner must first provide or obtain ________ to start the business and keep it running smoothly.

capital

Lara, a single mother, borrowed some capital for her business from Women Progress Council at an extremely low rate of interest. Which of the following forms of funding a new small business does this scenario best illustrate?

debt financing

Securing a mortgage from a bank for a new business venture is an example of

debt financing.

In the process of starting a business, the step that immediately follows the development of a business plan involves

deciding an appropriate legal form of business ownership.

Bart is a human resource manager at a large multinational company. After a drastic drop in revenue, his company needed to correct the situation. At a meeting with the top management, the CEO suggested that the company should reduce its workforce by 20 percent. This move would help the company cut costs and continue functioning on the current projects. In this scenario, which of the following strategies is Bart's company planning to use?

downsizing

Abigail is an animal lover and vegetarian. Frustrated by trying to find vegetarian substitutes for commonly needed items, she has started her own vegetarian boutique. Her store sells vegetarian food, shoes, toiletries, and many other items. Which advantage of small-business ownership is this scenario most closely related to?

focus

A license to sell another's products or to use another's name in business, or both, is called a

franchise.

Nate started the first outlet of Dynamix Gym in New York City in 1995. The business expanded over time, and he became the owner of a chain of gyms in New York State. Though the business had potential to expand outside New York, Nate did not want to take the risk or responsibility. Hence, he decided to sell the license to own and operate gyms under the brand name Dynamix Gym to independent owners. In return, he charged them an initial fee and a small share in the monthly profits. In this scenario, Nate is a(n)

franchiser.

Sheryl and Harry recently had their first child. As two working parents, they struggled to find good, economical child care. As a result, they decided to rent out the basement of their home to a daycare, so they could get reduced-cost child care. This is an example of the

sharing economy.

Downsizing is an effective way to

gain the advantages of small businesses.

Steven opened his own Quiznos franchise in his community. He is pleased with how quickly he was able to open his franchise and that he was able to establish a good customer base from the start because of name recognition. However, since he started this business to be his own boss, he is likely to

get frustrated with the restrictions of the franchise.

Simitri has worked for a large corporation for years, and he feels like he just doesn't fit in the "corporate mold" anymore. He decides to start his own business because he wants the freedom to choose whom he works with and when and where he works. What advantage of small business ownership seems the most prevalent in this example?

independence

Jason works for a large sporting goods corporation. He champions a new hockey helmet with advanced concussion protection. Jason is a(n)

intrapreneur.

All of the following are true of direct selling EXCEPT

it requires a large investment in inventory.

Andrew, a pharmacist, realized that he should stock extra supplies of a particular medicine to respond to an outbreak of a particular infection in the city. Lacking sufficient capital to purchase the extra inventory, he borrowed a predetermined sum of money from his bank. Which of the following sources of funding does this scenario best illustrate?

line of credit

Banks and other financial institutions can grant a small business a ________, which is an agreement by which a financial institution promises to lend a business a predetermined sum on demand.

line of credit

All of the following are advantages of franchising EXCEPT

more freedom in business decisions.

Samantha owns a small office supply company. In setting up her business, she asks a few other small-business owners she knows for advice on dealing with employees and government regulation, improving processes, and solving problems. What does this scenario exemplify?

networking

Many opportunities exist for ________, which involves selling products outside of a retail facility.

nonstore retailing

Victor runs Bizz, his own event management company, which frequently organizes large corporate events. He has built a good reputation for organizing corporate events with a fair degree of professionalism at reasonable costs. He works out of his own house with a staff of about 55 employees. Victor's company can be categorized as a

small business.

Marcia is opening her own small retail store that sells women's purses and accessories. To start her business, she needs at least $50,000 in initial financing to do all of the following EXCEPT

pay off any debts so they don't affect her business.

Which of the following traits will help entrepreneurs succeed?

persistence

Which of the following is a reason behind the failure of small businesses?

poor business concept

Which of the following is a challenge associated with the sharing economy?

pressure over whether workers are independent contractors or employees

Growing up, Casey noticed that many families in his community struggled to make ends meet and provide for their children's education. As a result, after he finished school, he started a business to provide low-cost tutoring and scholarship opportunities for low-income families in his community. As his company has grown, Casey has been able to extend free tutoring and college scholarships to five impoverished students per year. Casey is a

social entrepreneur.

Brad and Sean live and work in Texas, but they love vacationing in Hawaii. They go there as often as time and money will allow. Finally, they take the plunge and buy a vacation home in Hawaii. When they aren't there, they rent the property to other people for $1000 per week. This is an example of

the sharing economy.

All of the following have provided new opportunities for small businesses EXCEPT

the success of large information technology companies.

Anisha, an entrepreneur, starts a real estate firm with very limited funds. In order to conduct business, she purchases a few laptops, LED screens, and other office equipment from a local electronics wholesaler. The wholesaler understands her financial situation and allows her to pay for the goods in installments. In this scenario, the type of funding obtained by Anisha can be regarded as a

trade credit.

Gerard started a business using the savings from his previous job. He planned to run his business on the revenue generated from sales. However, a few months later, he found it difficult to pay his staff, rent, and other expenses. Seasonal sales and inability to secure sufficient credit from local banks made it difficult for Gerard to operate the business normally. Which of the following causes of small-business failure does this scenario best illustrate?

undercapitalization

Which of the following is the shortest path to failure in business?

undercapitalization

Kevin makes rustic wood furniture and home accessories. During a recent time of economic turbulence, when well-funded dot-coms were failing, Kevin continued to succeed, likely because he learned how to

use the Internet to promote himself and sell his products online.

Ramon funds small businesses that he believes have the potential to grow large. When these companies are still in their initial stages and need investment, he buys their stocks at a low price and later sells them at higher prices when they are successful. Thus, Ramon is a(n)

venture capitalist.

Hester wants to run her own picture framing business, but she doesn't want to start it from scratch. She decides to buy an existing business. What is one advantage of doing this?

It provides a built-in network of customers, suppliers, and distributors.

Which of the following is an implication of technological advances to small businesses?

It provides new opportunities for small businesses to expand their operations abroad.

Which of the following statements is true of a business plan?

It should establish a strategy for acquiring sufficient funds to keep a business going.

Stephanie has always dreamed of owning and managing a hotel. Instead of starting her own independent hotel, she decides to buy a franchise from the Marriott. What is one thing she should keep in mind about becoming a franchisee?

She will need to buy equipment, pay for training, and obtain a mortgage or lease.

It has often been said that the greatest impediment to the success of a small business is the

entrepreneur.

Sue and Christy are business partners, and their company manufactures portable solar panels. They initially started the business with their savings. However, now the company plans to expand its operations, and the required amount of capital cannot be raised through savings or by reinvesting profits. Thus, the partners have decided to sell stock in their business to family members, friends, and employees. Which of the following sources of capital have Sue and Christy planned to use for the expansion of their business?

equity financing

The act of financing one's business by using real personal assets is known as

equity financing.

Which of the following is an advantage of a small business?

greater adaptability to changing market demands

Meredith wants to start her own small business. All of the following are things she needs to do before she starts her business EXCEPT

hire employees to work for the business.

Which of the following demographic segments should both small retailers and small-service providers specializing in ethnic products target?

immigrants

Sofia opens a fashion boutique with the money she inherited from her parents. She is successful in creating a strong brand image and a loyal customer base. In order to meet the increasing demands of her business, she hires a store manager. However, she finds it hard to let the manager make important decisions about the store. She often finds herself disagreeing with the manager's decisions, and in the process, she loses a lot of existing customers. Which of the following causes of small-business failure does this scenario best illustrate?

inability to cope with growth

Tiffany recently started a small firm that manufactures for leading fashion brands in the United States. Which of the following would likely be an immediate threat to this firm?

rising inflation

Wilbur and Fred run a small farm stand on their property, selling vegetables, fruits, plants, and eggs to support themselves. During a particularly bad season, they tried to get financing from a small rural bank in their community. However, they were unable to obtain financing because

the small rural bank lacked the necessary assets to counter the risks involved with small-business loans.

Persons or organizations that agree to provide some funds for a new business in exchange for ownership interest or stock are called

venture capitalists.

Alanis works in a factory that manufactures decorative accessories for office spaces, hotels, and designer homes. She wants to start her own business because she believes that the market for decorative products has a great growth potential. However, she does not want to depend on anyone else for procuring the initial capital and would like to raise the amount herself. In this scenario, which of the following methods could Alanis adopt to raise funds through equity financing?

Alanis could invest her savings in the new business.

Nadim wants to start a small moving company. He has enough funds to start the business, but not enough to run it effectively. What is one thing he can do to provide working capital to his company?

He can refrain from drawing a full salary.

Cravin is an avid genealogy buff. He wants to open a store and workshop where he teaches people how to trace their family history and provides tools for doing so. What must he do first to make sure this business will succeed?

He must identify whether a genuine market niche exists for genealogy.

Sasha is a human resource (HR) manager at a company. A survey of the company's employees reveals that more than 80 percent of the employees belong to the demographic segment Generation Y. In this scenario, which of the following HR strategies should Sasha implement in order to best serve the needs of the employees?

Sasha should use recognition and advancement as the driving forces to motivate employees.

Mai has decided to open a Vietnamese restaurant in her neighborhood. She will be solely responsible for the management of the restaurant. Which of the following problems is she likely to face while running the business?

She may find it difficult to deal with the stress of rent increase.

A precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals is known as

a business plan.

Alejandro owns a gluten-free bakery. In addition to being the owner, he also serves as the manager, sales force, head baker, shipping and receiving clerk, bookkeeper, and custodian. Alejandro is the first person to arrive at the bakery every morning and the last to leave every night. Which of the following is the most applicable challenge Alejandro faces?

a high stress level

Michelangelo owns a small catering business that mostly serves his community. He has been hired for company picnics, backyard barbecues, and family celebrations. As word of mouth has spread about his delicious food, good service, and fair prices, he has started getting more business. To handle this, he has hired four employees to help cook and serve food at these events. What kind of entrepreneur is Michelangelo?

a microentrepreneur

Which of the following is one of the commonly reported disadvantages of franchising?

restrictions on purchasing

Music and Melody, an independent music store, acquires instruments and other music equipment from producers and wholesalers and sells them to consumers. Music and Melody is a

retailer.

Which of the following is one of the difficulties faced by small business owners?

worries about employee problems or competition

Derek borrowed $50,000 from his mother for his new business venture. He promised that she would be a partner in the business and would be entitled to a significant percent of profits from the business at the end of the year. This is an example of

equity financing.

Raphael is an artist who wants to turn his art into a small business. He had the great idea to go to other hobby-based businesses in his community and give painting lessons to their clients. First, he went to a local stable and taught its boarders how to paint portraits of their horses. Then, he went to a local dance studio and taught its patrons how to paint their dream dance costumes. Based on the buzz created by his new business, several other local businesses want to hire Raphael. What is one area where he may struggle in managing his new business?

He may lack the skills and experience to make good management decisions.

Which of the following is a difference between high technology businesses and other small businesses?

High technology businesses require greater capital and have higher initial startup costs than other small businesses.

If a small business fails to repay a bank loan, what will the lending institution do to recover its loss?

claim and sell the collateral or mortgage

Jordan has requested financing from the bank for his medical marijuana store. The bank requires Jordan to put up a financial interest in the property or fixtures of the business to guarantee payment of the debt. What is this financial interest called?

collateral

When a small business begins to see significant growth, it requires the owner to

give up a certain amount of direct authority.

Phuong is a very talented engineering student who starts her own small software development firm. She finances the firm from her savings. Initially, she is able to get many projects from customers and completes them successfully. However, as her business grows, she fails to make good decisions in hiring new employees, billing the clients, and negotiating prices. She eventually ends up liquidating the business. Which of the following causes of small-business failure does this scenario best illustrate?

managerial inexperience

Many service providers are considered retailers because they

provide their services directly to ultimate consumers.

Sareena owns a Lebanese restaurant that employs around 25 people. She is solely responsible for the management of the restaurant. Her business competes with a larger chain of restaurants that offer the same cuisine. Sareena's restaurant can be classified as a

small business.