Chapter 5

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

Advantages of starting a small business include independence, lower startup and maintenance costs, flexibility when it comes to making decisions and executing them, a special kind of focus on a specific group of customers (they don't have to please everyone), and lastly, it is easier to develop a great reputation when all of your focus and efforts can be on a small niche of the market. Disadvantages include high stress levels and high failure rates.

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

Many large corporations want to become more like small businesses because they want to make their firm more flexible, resourceful, innovative, and competitive.

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

When starting a small business, an entrepreneur must have a general idea of what kind of business they want to start. They also need to develop a business plan, or a strategy to guide planning and development. Lastly, they need to make a decision about the form of ownership, financial recourses, and whether to acquire an existing business, start a new one, or buy a franchise

2.Which fields tend to attract entrepreneurs the most? Why?

Fields such as retailing, services, manufacturing, and high technology attract entrepreneurs the most because they are relatively easy to enter, they require low initial financing, and these businesses can focus on specific customer groups all while avoiding the same pressures established firms feel.

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

The different types of management and financial assistance that the Small Business Administration offers are including counseling for firms in difficulty, consulting on improving operations, and training for the owner/managers and their employees. The Small Business Administration also funds different programs such as SBDCs, which also provide advice and training for small businesses.

8.Describe the franchising relationship.

Positives that come along with being a franchisee are things like: management training and support, brand-name appeal, standardized quality of goods and services, national and local advertising programs, and greater chance of success. Some of the downfalls that come along with owning a franchise are: franchise fees and profit sharing with the franchiser, restrictions on purchasing, strict adherence to standardized operations, and less freedom in business decisions.

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

Small business owners usually use either equity or debt financing. A pro to equity financing is that the owner can use personal assets rather than borrowing fund from outside sources, they can also sell shares of their company to investors. Cons to both of these would be that if the business were to fail, the owner risks losing the assets they borrowed against, and they have to share a profit with investors. The second kind of financing business owners use is debt financing. Pros to debt financing would be that they can borrow from the bank and start a repayment plan sometimes with very low interest rates. Cons would be that if the business were to fail, the losses could be worse than losing the business, but losing important relationships as well.

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

Small businesses are so important to the U.S. economy because 99% of all U.S. firms are small businesses, and they employ about half of the private workforce. They are responsible for 98% of the good exports, while creating jobs and igniting innovation. They also are giving women and minorities a chance to compete in the world of business.

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

Some of the demographic trends that are influencing the future of small businesses are 1) the untapped potential and wealth of the baby boomer generation—small business owners are not catering to them. 2) there is a growing trend in both the number of Generation Y and immigrant work force participants and consumers. Some technological and economic trends influencing the future of small businesses are 1) the fact that newly developed technologies have opened doors to markets for small businesses and has allowed for owners to work out of their homes. There have been both economic opportunities and stresses for the small business owner. For businesses based off the internet, they are able to adapt to market changes quickly.

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

The principle reasons for the high failure rate among small businesses are undercapitalization (the lack of funds to operate a business normally), managerial inexperience or incompetence, and the inability to cope with growth (owner has to give up a piece of power, and requires specialized management skills).