SM Business management chap. 6

The point of indifference is the

price at which a buyer is indifferent about buying or not buying a business.

A Blank______ is a new business that is started from scratch

start-up

The ______ method reduces the value of the business' cash flows because they will be received in the future.

discounted cash flow

A transfer is a(n)

endgame strategy in which ownership is moved from one person or group to another.

An industry Blank______ is a commonsense rule or a rule of thumb.

heuristic

One of the best predictors that a founder will be successful is

his or her level of experience.

Which of the following statements are disadvantages of purchasing an existing business? (Check all that apply.)

It is difficult to value a small business. The business may have a poor reputation. Finding a successful business that is right for the entrepreneur can be difficult.

Which of the following are true of key resource acquisitions? (Check all that apply.)

They are the only way of purchasing a sole proprietorship. They are also known as bulk asset purchases.

The ______ is the ratio of the value of a firm to its annual revenues.

earnings multiple

Which of the following are advantages to buying an existing business? (Check all that apply.)

There are established customers and sales. The seller will often provide some financing. The business' plant and equipment and employees are already place.

What is the UFOC document that a franchisor provides to a potential franchisee?

It is an important document created by the franchisor that explains the firm's operations, requirements, and costs of owning the franchise

Which of the following are essentials skills that a successor should have? (Check all that apply.)

Knowledge of own limitations. Leadership skills. People skills. Financial knowledge. Technical knowledge.

______ is the process of investigating a business to determine its value.

Due diligence

Which of the following statements regarding employee managers are true?

One benefit of becoming an employee manager is the opportunity to run a small business while avoiding the risks. Finding experience professional managers who are willing to work for a small business owner are difficult to find. Employee managers who run a small business are often would-be entrepreneurs.experienced

A __________ - ___________ is defined as the purchase of substantially less than 100% of a business. (Enter one word in each blank.)

Blank 1: buy Blank 2: in

In the context of disadvantages of start-ups, ____________ ______________ , which allows borrowers to pay all or part of loan balance at any time, cannot be easily gained by start-ups from suppliers and financial institutions.

Blank 1: revolving Blank 2: credit

Which of the following is one of the methods used to estimate the value of a firm's assets? (Check all that apply.)

Book value. Replacement value. Net realizable value.

______ is a combination in which the whole is greater than the sum of its component parts.

Synergy

Which of the following statements are disadvantages of purchasing an existing business?

The facilities and equipment may be obsolete or in need of major repair. Existing employees may be resistant to change. The business may be declining, because of new technology that is being used by competitors.

Which of the following is a benefit of purchasing an existing business?

The business is already successful, so there is good demand for its products and services.

______ partnerships or alliances are formal or informal relationships with customers, vendors, or mentors to ensure the success of an entrepreneurial venture.

Strategic

True or false: As a firm's successor-to-be, an individual gains responsibility, authority, experience, and skill in various activities and functions of the firm.

True

UFOC stands for the uniform franchise ________________ ____________ and is a document that the franchisor must provide to each potential franchisee.

Blank 1: offering Blank 2: circular

Which of the following statements regarding ownership transfers are correct? (Check all that apply.)

Often a gradual transfer to the heir should take place. A comprehensive succession plan should be created far in advance of a planned transfer. One should not wait until his or her death to transfer ownership of the business.

A start-up is

a new business that is started from scratch.

Franchising is defined as a legal agreement that _____.

allows one firm to operate using the name and business processes of another firm

The single greatest advantage of purchasing a franchise is

getting a complete business system.

The three most commonly used methods to estimate a firm's assets' values are

book value, net realizable value, and replacement value.

A ______ is the purchase of substantially less than 100% of a business.

buy-in

The Blank______ method reduces the value of the business' cash flows because they will be received in the future.

discounted cash flow

The Blank______ is the price at which a buyer is indifferent about buying or not buying a business.

point of indifference

The ______ is the price at which a buyer is indifferent about buying or not buying a business..

point of indifference

In a takeover, a buyer or Blank______ seizes control of a business without the permission of all business owners.

raider

The discounted cash flows method

reduces the value of the business' cash flow because they will be received in the future.

Due diligence is

the process of investigating a business to determine its value.

A buyout is

the purchase of substantially all of an existing business.

A business' good will is

the value of the business in excess of the value of the identifiable assets.

A Blank______ is an endgame strategy in which ownership is moved from one person or group to another.

transfer

Synergy is:

a combination in which the whole is greater than the sum of its component parts.

Which of the following is a resource that all entrepreneurs have access to?

A network of friends and business associates.

Which of the following are one of the four resources that entrepreneurs have access?

A network of friends and business associates. Their own skills and abilities. Access to capital. Their own knowledge.

Which of the following are the disadvantages of starting a business from scratch? (Check all that apply.)

Bank credit is usually hard for a new business to qualify to receive. The business owner will have to attract, hire, and train employees. A new business has no initial name recognition. A start-up requires a great deal of time to establish.

True or false: An advantage of a start-up is that the owner of the start-up can make use of "legacy" locations, buildings, software, and equipment to boost productivity.

False

True or false: One disadvantage of business ownership is the capability to protect income by making use of noncash deductions to decrease income taxes.

False

True or false: Professional management is an issue of a person's education and credentials.

False

______ are people who create or start new businesses.

Founders

Heuristic is

a commonsense rule or rule of thumb.

______ are responsible for advertising and facilitating the sale of businesses for a payment, usually a percentage of the selling price.

Brokers

Which of the following statements regarding strategic partnerships or alliances are correct? (Check all that apply.)

These partnerships are often key to a young company's success. Sometimes these partnerships happen through serendipity. Entrepreneurs often seek out partnerships with other companies.

Which of the following are true of takeovers? (Check all that apply.)

They are hostile events. They are only possible in businesses with freely transferable stock.

Which of the following is true of brokers?

Brokers are always trying to get the highest price.

A prepackaged business bought, rented, or leased from a company is called a(n) ________________ .

Franchise

Which of the following organizations can provide assistance with transfer of ownership issues and questions? (Check all that apply.)

Family Firm Institute. Experts such as attorneys and accountants. Business broker association.

Which of the following are benefits of own a franchise business? (Check all that apply.)

The franchisor offers training to new franchisees. Getting help selecting a suitable location and getting assistance with the construction of the facility. Being able to purchase a turnkey business with a well-established model.

Which of the following statements about buyouts are correct?

Partnerships and sole proprietorships do not exist separately from the owners and thus cannot be purchased. They are restricted to businesses that have a formal legal form of organization, including corporations, limited liability companies, and some partnerships. The assets of the business must be purchased and the liabilities assumed in a process called key resource acquisition or bulk asset sale.

Which of the following are advantages of starting a business from scratch? (Check all that apply.)

The entrepreneur can obtain the latest technologies, the best location, and equipment. An entrepreneur can build the business to suit his or her preferences. The entrepreneur decides how big or small to keep the business. There are no existing employee problems, debts, law suits, etc.