Chapter 5: Small Businesses, Entrepreneurship, and Franchises

A person who buys a franchise is known as the:

Franchisee

While the _____ owns the business, the______ controls it.

Franchisee/Franchisor

franchising

the actual granting of a franchise

A franchise arrangement includes a franchisor and a franchisee with the franchisor______ to the franchisee.

granting a franchise

Every business must keep records of sales, profits and losses, fixed assets, contacts, tax returns, customers, and a variety of other information that affects the growth and operability of the business. Which of the following is true about small business?

Many small firms need only a simple set of records.

What percentage of home-based businesses have no employees?

Over 90%

Which of the following is an accurate statement about business profitability?

According to the SBA, the most profitable companies in the United States are small firms that have been in business for more than ten years and employ fewer than 20 people.

Which of the following is not a management resource provided by the Small Business Administration?

Free assistance in closing failed small businesses

A business plan is essential for starting a new business because it

is a guide for the person starting a business

The growth of women and minorities in franchising is attributable to which of the following activities?

Special outreach programs designed to encourage franchisee diversity

MBSC has noticed several new trends in strength and conditioning. Often, MSBC has implemented the trend before clients even have a chance to ask about it. This demonstrates which advantage of small business?

ability to adapt to change

franchisor

an individual or organization granting a franchise

small-business institutes (SBIs)

groups of senior and graduate students in business administration who provide management counseling to small businesses

There are many reasons why entrepreneurs start businesses. Mike Boyle likely started MBSC because _____.

he had a passion for the industry

____________ is a new alternative to traditional financing that uses online sites to invite people to contribute.

Crowdfunding

________ franchises occur when two franchisors offer their products together; this is becoming a new small-business trend.

Dual-branded

Which of the following is NOT an advantage of smallness in business?

Easy to raise capital

Which of the following is the most likely reason that a small-business owner may become frustrated as a franchisee?

Excessive restrictions resulting in less freedom

Statistics show that most small business failures are related to .

Poor management

Basic rights and obligations are delineated in a franchise agreement. Which of the following is a franchising obligation?

Requirement to purchase goods or products from the franchisor

According to the authors, franchises may become unsuccessful because the franchisor ________.

expanded to rapidly

Knowledgeable entrepreneurs choose areas with which they are familiar. These are most often the more established industries that require only a ___________ investment and some special ______________.

low initial; skills or knowledge

venture capital

money that is invested in small (and sometimes struggling) firms that have the potential to become very successful

small business

one that is independently owned and operated for profit and is not dominant in its field

Franchising allows a _____ the opportunity to set up a small business relatively quickly, and because of its association with an established brand, a _____ outlet often reaches the break-even point faster than an independent business would.

franchisee; franchise

A franchisee acquires rights to all of the following, except:

Other franchisee's employees and management.

Explain the concept and types of franchising.

A franchise is a license to operate an individually owned business as though it were part of a chain. The franchisor provides a known business name, management skills, a method of doing business, and the training and required materials. The franchisee contributes labor and capital, operates the franchised business, and agrees to abide by the provisions of the franchise agreement. There are three major categories of franchise agreements.

Which of the following is a way in which the Small Business Administration provides financial assistance to small businesses?

Small-business investment companies (SBICs)

franchise

a license to operate an individually owned business as though it were part of a chain of outlets or stores

franchisee

a person or organization purchasing a franchise

All of the following are factors that encourage certain people to start new businesses, except:

a reclusive nature.

Business plan is essential for starting a new business because it

it is a guide for the person starting a business

According to the U.S. Office of Management and Budget, __________ of the major technological advances of the 20th century originated with individual inventors and small companies.

more than half

_______businesses are important to the U.S. economy because, among other things, they employ about half of all private sector employees, pay 42 percent of total U.S. private payroll, and hire 37 percent of high-tech workers (scientists, engineers, computer programmers, and others).

small

Sears, Roebuck & Co., and General Motors rely heavily on _______ to provide merchandise, parts, supplies, and other goods and services. Companies like these buy parts and assemblies for these businesses because it is less expensive than manufacturing them in their own factories.

small business firms

Studies show that the incidence of innovation among _________business workers is significantly higher than among workers in______ businesses

small/large

Small businesses enjoy several unique benefits that larger firms may not have such as

the ability to adapt to change and simplified record keeping

small-business development centers (SBDCs)

university-based groups that provide individual counseling and practical training to owners of small businesses

small-business investment companies (SBICs)

privately owned firms that provide venture capital to small enterprises that meet their investment standards

Franchising agreements fall into three general categories, which of the following is not one of those categories?

A distributor franchises the channels of distribution to franchisees.

Which of the following is a definition of "franchise"?

A franchise is a license to operate an individually owned business as if it were part of a chain of outlets or stores.

Franchises offer people starting a business the advantage of a recognized name, management assistance, and

A greater chance for success

Define what a small business is and recognize the fields in which small businesses are concentrated.

A small business is one that is independently owned and operated for profit and is not dominant in its field. There are about 28.8 million businesses in this country, and 99.9 percent of them are small businesses. Small businesses employ more than half the nation's workforce. Recently, an average of 78.5 percent of new businesses survived one year. About one-half of all firms survived five years or longer and about one-third of firms survived ten years or longer.

The Small Business Administration (SBA) defines a small business as "one which is independently owned and operated for profit and is not dominant in its field." How small must a firm be to not dominate its field?

By the SBA's definition, the factors that determine the size of a business depend on the particular industry it is in.

What are the three key ingredients in small business survival as well as failure?

Capital, management, and planning

Which category of industries includes retailing, wholesaling, transportation, and communications—industries concerned with the movement of goods from producers to consumers?

Distribution

Analyze the growth of franchising and its advantages and disadvantages.

Franchising has grown tremendously since the mid-1970s. The franchisor's major advantage in franchising is fast and well-controlled distribution of products with minimal capital outlay. In return, the franchisee has the opportunity to open a business with limited capital, to make use of the business experience of others, and to sell to an existing clientele. For this, the franchisee usually must pay both an initial franchise fee and a continuing royalty based on sales. He or she also must follow the dictates of the franchise with regard to operation of the business. Worldwide business opportunities are expanding for small businesses. The SBA assists small-business owners in penetrating foreign markets. The next century will present unique challenges and opportunities for small-business owners.

A franchise arrangement includes a franchisor and a franchisee with the franchisor _______ to the franchisee.

Granting a franchise

Which of the following is considered a shortcoming of owning a franchise?

Possible market saturation

The government agency that advises and assists small businesses by providing management and financial assistance including counseling on improving operations and assisting with obtaining debt financing is known as the _____.

Small Business Administration (SBA)

______ are independently owned and operated, not dominant in their field of operation, and meet certain standards of size in regard to number of employees or average annual sales.

Small business

Jeffrey Inc. is a large business that produces off-road vehicle parts. In addition to this market stream, Jeffrey produces auto parts, boat parts, and parts for machinery and equipment. Inventions, LLC is a small business that focuses only on the off-road vehicle market and has created lighter weight, stronger, and more efficient parts for off-road vehicles. Its primary market is off-road racing which it believes will serve the dual purpose of showcasing its product and filling the needs of its customers. Inventions has significantly increased its market share in the off-road vehicle parts market over the years causing Jeffrey to revamp its marketing techniques and reanalyze its customer's needs. Which of the following is true about the relationship of small businesses to large businesses?

Small businesses challenge larger, established firms in many ways, causing them to become more efficient and more responsive to consumer needs.

Assess the contributions of small businesses to our economy.

Small businesses have been responsible for a wide variety of inventions and innovations, some of which have given rise to new industries. Historically, small businesses have created the bulk of the nation's new jobs. Further, they have mounted effective competition to larger firms. They provide things that society needs, act as suppliers to larger firms, and serve as customers of other businesses, both large and small.

_____ are business clinics, usually located on college campuses that provide free counseling and training for owners of small businesses.

Small-business development centers (SBDCs)

Identify the people who start small businesses and the reasons why some succeed and many fail.

Such personal characteristics as independence, desire to create a new enterprise, and willingness to accept a challenge may encourage individuals to start small businesses. Various external circumstances, such as special expertise or even the loss of a job, also can supply the motivation to strike out on one's own. Poor planning and lack of capital and management experience are the major causes of small-business failures.

Explain how the Small Business Administration helps small businesses.

The Small Business Administration (SBA) was created in 1953 to assist and counsel the nation's millions of small-business owners. The SBA offers management courses and workshops; managerial help, including one-to-one counseling through SCORE; various publications; and financial assistance through guaranteed loans and SBICs. It places special emphasis on aid to minority-owned businesses, including those owned by women.

Describe the advantages and disadvantages of operating a small business.

The advantages of smallness in business include the opportunity to establish personal relationships with customers and employees, the ability to adapt to changes quickly, independence, and simplified record keeping. The major disadvantages are the high risk of failure, the limited potential for growth, and the limited ability to raise capital.

Having a business plan causes a new business owner to think through all of the aspects of business ownership, costs, capital needed for start-up, and can be used to review company goals and benchmark when they are met. Which of the following is true about the company and industry portion of the business plan?

This section of the business plan gives the background of the company, explains the legal business form it will take, provides information about the products or services to be offered, reviews potential customers, current competitors, and the business's future.

What is meant by dual-branded franchises?

Two franchisors offer their products together

business plan

a carefully constructed guide for the person starting a business

Small Business Administration (SBA)

a governmental agency that assists, counsels, and protects the interests of small business in the United States

SCORE Association

a group of businesspeople who volunteer their services to small businesses through the SBA

Suppose the owners of Mike Boyle Strength and Conditioning feel that the neighboring city of Worcester, Massachusetts is a good market for another location. If MBSC were to franchise their brand, Mike Boyle could benefit from:

a well-controlled distribution of the brand without spending the money to construct and operate the franchise.

Several factors contribute to the entrepreneurial spirit in the United States, but the most important is the personal characteristics of the individuals who start businesses. Studies have shown that personal factors in small-business success include family background, willingness to accept a challenge,_________

and a desire to determine one's own destiny

John had a good idea for a candy manufacturing business. He decided that he wanted to take the risk, become an entrepreneur, and start his own business. Now, ten years later, John's candy company has 20 locations all over the United States and employs nearly 1,000 people. This example illustrates:

how small business fuels job creation and innovation.

Mike Boyle's Strength and Conditioning can be described as a small business in _____.

A service industry