Business Principles Ch. 3

Reasons Women Give for starting Businesses

46% Gain control over my schedule 24% Saw a market opportunity & decided to pursue it 23% Frustrated w/"glass ceiling" at big companies 7% Other reasons

​K's Deli learned that the deli a couple miles away was having financial trouble and decided to buy the struggling deli and expand it. In what type of corporate action did​ K's Deli take​ part?

Acquisition (In an​ acquisition, one firm buys another outright.)

Who are the owners of a​ corporation?

Stockholders (Stockholders or shareholders are the owners of a​ corporation, investors who buy ownership in the corporation in the form of shares of stock.)

Entrepreneurship

The process of seeking business opportunities under conditions of risk

Which of the following would be considered a small​ business?

A local dress shop with three employees (This fits the definition of being independent and having relatively little influence on its market.)

Small Business (Reasons for Failure)

1. Managerial incompetence or inexperience 2. Neglect 3. Weak control systems 4. Insufficient capital

Entrepreneur

Businessperson who accepts both the risks and the opportunities involved in creating and operating a new business venture

Ryan invested money in a new​ business, but does not have time to help run the company. He is not going to be part of running the​ business, and is only liable for debt up to the amount he invested. Which type of partner is​ Ryan?

Limited partner (A limited partner invests money but is liable for debts only to the extent of his or her​ investment, and cannot take an active role in business operations.)

Which of the following is true of small​ businesses?

They are independent and have little influence in the market. (Small businesses do not have the economies of scale to create a significant impact on the market.)

Brianna buys product in large quantities and then stores that product near the large retailers to which she sells the product throughout the year. Which type of business does Brianna​ own?

Wholesaling (Wholesalers buy products in bulk from manufacturers or other producers and store them in quantities and locations convenient for selling them to retailers.)

A form of competitive advantage that a company achieves by being the first to enter a specific market or industry is known as​ _______ advantage.

first-mover (A​ first-mover advantage is any advantage that comes to a firm because it exploits an opportunity before any other firm does.​ First-mover advantage may allow a company to acquire superior brand recognition and customer loyalty and give it time to perfect its product or service.)

General Partnership (Non-corporate Business Ownership)

- Business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts

Sole Proprietorship (Non-corporate Business Ownership)

-Business owned and usually operated by one person who is responsible for all of its debts business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts

Crafting a Business Plan

- Setting Goals and Objectives - Sales Forecasting - Financial Planning What's in it for me? (WIIFM)

Which of the following trends has made it easier for entrepreneurs to start new​ businesses?

E-commerce (Because the Internet provides fundamentally new ways of doing​ business, savvy entrepreneurs have created and expanded new businesses faster and easier than ever before.)

Better Survival Rates (Trends in Small-Business Start-Ups)

Today, 44% of new start-ups can expect to survive for at least 4 years

Limited (Alternatives to General Partnership)

- Allows for limited partners who invest money but are liable for debts only to the extent of their investments - General (or active) partners run the business

Starting the Small Business

- Buying an existing Busniess-55% start with buying, (Mcdonalds, Burger King) - Franchising - start up costly and royalty. Cook book used (Arrangement in which a buyer(franchisee) purchases the right to sell the good or service of the seller (franchiser) - Starting from scratch -of all in last 10 years , 64% start from scratch Financial Data - Audit financial statements

Cooperatives

- Combine the freedom of sole proprietorships with the financial power of corporations - Groups of sole proprietorships or partnerships agree to work together for their common benefit

Business plan

- Document in which the entrepreneur describes her or his business strategy for the new venture and demonstrates how it will be implemented - Summary of detailed styles - Topics - Setting goals, sales forecasting*** & financial planning-cash budget*** - Questions: Is there a market? Return on investment (ROI)? Cash flow?

Franchising (Advantages & Disadvantages)

Advantages - Proven business opportunity - Access to management expertise - Perhaps financial resources (They will provide you money, but they will charge you) Disadvantages - Start-up costs - Ongoing royalty fee payments(Gross sales) - Management rules and restrictions - Renewal clause (Renewal fees)

According to the U.S. Department of​ Commerce, a business is considered​ "small" if it has fewer than​ _______ employees.

500 (The U.S. Department of Commerce has traditionally considered a business to be small if it has fewer than 500 employees.​ However, the U.S. Small Business Administration has different standards based on industry. For​ example, a manufacturing firm can be considered small if it​ has1,500 or fewer​ employees, but a wholesaling firm is small if it has between​ 100-500 employees, and other industries are classified on the basis of revenue.)

First-mover advantage

- Is any advantage that comes to a firm because it exploits an opportunity before any other firm does. Sometimes large firms discover niches within existing markets or new markets at just about the same time small entrepreneurial firms do, but are not able to move as quickly as small companies to take advantage of these opportunities. -Many of the "app" developers for smartphones are exploiting first-mover advantage. -Caveat: 90% of new products are failures

Global Opportunities (Trends in Small-Business Start-Ups)

- Many entrepreneurs are also finding new opportunities in foreign markets

Master Limited Partnership (Alternatives to General Partnership)

- Master partner has majority ownership and runs the business; minority partners have no management voice

Financing a Small Business (Borrowing resources)

- Personal resources - Loans from family and friends - Bank loans - Venture capital companies - Small-Business Investment Companies (SBICs) - Minority Enterprise Small-Business Investment Companies (MESBICs)-You have to find someone to loan you the money, then the Govt backs up the loan. - ROE - Rental on envestment - SBA financial programs

Entrepreneurial Characteristics

- Resourcefulness - Concern for good, personal customer relations - Strong desire to be their own bosses - Deal with uncertainty and risk - Being self reliant - Gain control over their lives - Relies on networks; build for family - Strong desire to be your own boss

3 Trends in Small-Business Start-Ups

1. Emergence of E-Commerce - The Internet provides fundamentally new ways of doing business 2. Crossovers from Big Business - More businesses are being started by people who have opted to leave big corporations and put their experience to work for themselves 3. Opportunities for Minorities and Women - More small businesses are also being started by minorities and women

4 Utilities

1. Form 2. Place (Convenience) 2. Possession (Easy to buy) 4. Time (Having it at the right time)

Small Business (Reasons for Success)

1. Hard work, drive, and dedication 2. Market demand for the products or services being provided 3. Managerial competence 4. Luck

Entrepreneurship Goals

1. Independence 2. A degree of financial security 3. Desire to grow the business 4. Unknown till the business grows

The Importance of Small Business in the U.S. Economy

1. Job Creation - Small businesses have accounted for about 40 percent of all new jobs in high-technology sectors of the economy - Small businesses are generally the first to hire in times of economic recovery 2. Innovation 3. Contributions to big business

Popular Areas of Small-Business Enterprise

1. Services - 55.8% w/ fewer than 20 employees (Marriage counseling, computer software, management consulting, dog walking, 2. Retailing - 11.8% (Specialty shops like big men's clothing, gourmet coffee 3. Construction - 12.1% (Small local projects like adding a garage or remodeling a home. 4. Wholesaling - 5.2% w/ fewer then 20 employees (Buy products in bulk from manufacturers or producers. 5. Finance & Insurance - 4.2% (Local state farm insurance offices, small local banks. 6. Manufacturing - 3.8% w/ fewer then 20 employees (Electronics, equipment and small parts, and computer software 7. Transportation - 2.8% (Taxi & limousine service, charter airplane services and tour operators 8. Other - 4.3% (Small research-and-development laboratories and independent media companies--start-up web channels, small town newspapers, & radio broadcasters

Starting from Scratch

1. Who and where are my customers? 2. How much will those customers pay for my product? 3. How much of my product can I expect to sell? 4. Who are my competitors? 5. Why will customers buy my product rather than the product of my competitors? *(Over estimate cost and under estimate sales)*

Under a franchise​ agreement, the​ _______ grants the right to conduct business using its business​ model; the​ _______ owns and operates the local business.

franchiser; franchisee The franchiser is the party granting the right to do business under its​ name, and the franchisee is the party purchasing the right.

A​ _______ is a business that is owned and usually operated by one person.

sole proprietorship (A sole proprietorship is a type of business entity that is owned and run by one person and is not registered with the state as a corporation. About 74 percent of all U.S. businesses are sole​ proprietorships; however, they account for only about 4 percent of total business revenues.)

Which of the following is a disadvantage of a sole​ proprietorship?

Unlimited liability (A sole proprietor is personally liable for all debts incurred by the business. If the company fails to generate enough​ cash, bills must be paid out of the​ owner's pocket.)

Paradox of attraction

When business is good, it brings competition.

Which of the following is required to be considered an​ entrepreneur?

You assume the risk of business ownership (Entrepreneurs are people who assume the risk of business ownership. Some entrepreneurs have a goal of independence and financial​ security, and others want to launch a new venture that can be grown into a large business.)

Lee is a sole proprietor and owns a restaurant. When the economy​ falters, he is forced to close his restaurant and owes creditors nearly​ $24,000. The creditors can go after not only​ Lee's business assets but also his personal property such as his​ house, car, and personal bank account. This demonstrates the concept of​ ________.

unlimited liability (A sole proprietor is personally liable for all debts incurred by the business. If the company fails to generate sufficient cash to pay​ bills, these must be paid out of the​ owner's pocket and creditors can sue the owner personally for repayment.)

Sole Proprietorship

Advantages - Freedom - Simple to form - Low start-up costs - Tax benefits Disadvantages - Unlimited liability - Limited resources - Limited fundraising capability - Lack of continuity

Partnerships

Advantages - More talent and money - More fundraising capability - Relatively easy to form - Limited liability for limited partners *Tax benefits (Partners pay taxes)* Disadvantages - Unlimited liability for general partners - Disagreements among partners - Lack of continuity (Assets = Liabilities + Owner equity)

Jake owns his own small business. He has agreed to work with others who have similar small businesses so they can put together a stronger marketing campaign. Jake is now part of which of the​ following?

Cooperative (A cooperative is a group of sole proprietors or partnerships that agree to work together for their common benefit.)

Which is the MOST common type of small business​ partnership?

General partnership (A general partnership is the most common type of partnership and is similar to a sole proprietorship except for the number of owners. Partners may invest equal or unequal sums of money.)

Which of the following often explains why a small business is​ successful?

Luck (The factors usually cited to explain small business success include hard​ work, drive and​ dedication; market demand for the products or services being​ provided; managerial​ competence; and luck.)

Which of the following types of businesses combines and transforms resources into tangible outcomes that are sold to​ others?

Manufacturing (Manufacturers combine and transform resources into tangible outcomes and then sell them to others. Manufacturing was once the dominant technology in the United States.)

Brooke believes that there are many consumers who would like pizza delivery companies to deliver movies and popcorn along with their pizza. Brooke is looking at what type of​ market?

Niche (A niche is a segment of a market that is not currently being exploited. In​ general, small entrepreneurial businesses are better at discovering these niches than are larger organizations.)

Established Market

One in which many firms compete according to relatively well-defined criteria

Small business

One that is independent (not part of a larger business) and that has relatively little influence in its market (Fewer then 500 employees)

Each of the following is a characteristic shared by most entrepreneurs​ EXCEPT?

They must see what they do as risky Most successful entrepreneurs seldom see what they do as risky. Often entrepreneurs are so passionate about their ideas and plans that they see little or no likelihood of failure

According to​ studies, what is one of the MOST common reasons that women are starting their own​ businesses?

They want to set their own hours. (Forty-six percent of women say they want to gain control over their schedule.)

The process of seeking business​ opportunities, typically under conditions of​ risk, is referred to as​ _______.

entrepreneurship (Entrepreneurship is the capacity and willingness to​ develop, organize, and manage a business​ venture, along with the risks of doing​ so, in order to make a profit.)

In contrast to stereotypes of entrepreneurs of the​ past, today's entrepreneurs are often​ ________________.

open-minded leaders (Today's entrepreneur is seen as an​ open-minded leader who relies on​ networks, business​ plans, and​ consensus, and is just as likely to be female as male.)

Dale has been working in IT for a large company for the past 10 years and has often thought about starting his own business- he has decided that now is the time. Dale has plans to start small and quickly build his business based on ideas he has worked on for several years. His goal is to double the size and the profitability of his business in the first three years. Which of the following BEST describes​ Dale's new​ business?

A new venture (The term new venture often refers to launching a new business with the goal of growing into a much larger enterprise.)

Niche

A segment of a market that is not currently being exploited. In general, small entrepreneurial businesses are better at discovering these niches than are larger organizations. (Netflix found a sector that wasn't being served)

Oligopoloy

A state of limited competition, in which a market is shared by a small number of producers or sellers.

Which of the following describes the aspect of business that a company performs better than its​ competitors?

Distinctive competency (A​ company's distinctive competency is the aspect of the business that it performs better than its competition. One distinctive competence is the ability to serve a new unexploited market. Still another is the ability to move quickly to take advantage of new​ opportunities, often called​ "first-mover advantage.")

Which of the following is a strategy in which a firm sells one or more of its business​ units?

Divestiture (Sometimes a corporation decides to sell part of its existing business operations. Such a sale is called a divestiture.)

Small Business Administration (SBA)

Government agency charged with assisting small businesses

Cosmetics pioneer Estee Lauder said of her success in the cosmetics​ industry, "I never dreamed about success. I worked for​ it." Which basic factor of small business success does this BEST​ describe?

Hard​ work, drive, and dedication (Small business owners must be committed to succeeding and willing to spend the time and effort to make it happen.)

Juan is about to start his own business from scratch and needs to study the market to determine how to create his business plan for the bank. He knows that his location is appropriate for what he wants to sell and to whom he wants to sell. He knows where other stores that sell similar products​ are, how they are​ doing, and how much he needs to charge to make a profit and appeal to customers. Which question does Juan still need to​ answer?

How much of the product can he expect to​ sell? (Although he has determined what stores are selling similar​ products, he does not know how much of the product they are actually selling.)

After working for a large firm for several​ years, Tyler started his own landscaping design business.​ However, he soon ran out of money and was forced to close the business because he​ couldn't pay the expenses of the firm along with his personal expenses. Based on this​ information, what is the likely reason for​ Tyler's business​ failure?

Insufficient capital (Many businesses fail because they lack sufficient capital to pay employees and cover expenses​ (both business and personal​ expenses). Experts suggest that you need enough capital to operate at least six months without earning a profit.)

Tim and Ryan each have their own​ business, and together they are starting a new company that uses the best competencies of both their companies. The new organization will remain separate from their existing companies. Which of the following BEST describes their new​ endeavor?

Joint venture (A joint venture occurs when partners share ownership of what is essentially a new venture.)

Market (Ledgers Define)

Money Authority Desire

More than half of all new businesses will fail in the long run. Which of the following is NOT a general factor in small business​ failure?

Repayment of franchise fees (Franchise fees are paid to the franchisor​ upfront, and do not need to be repaid. There are annual fees that are usually based on percentage of profit and so is not one of the general factors of failure.)

Which of the following would likely NOT be a characteristic of a successful​ entrepreneur?

Risk aversion (Entrepreneurs are those who assume the risk of business​ ownership; accordingly, they must be willing to deal with uncertainty and risk.)

Which type of corporation is organized like a corporation but treated like a partnership for tax​ purposes?

S corporation (An S corporation is organized and operates like a​ corporation, but it is treated like a partnership for tax purposes. To​ qualify, firms must meet stringent legal conditions. For​ instance, stockholders must be individual U.S. citizens.)

A majority of small businesses are involved in which​ industry?

Services About​ 55.8% of businesses with fewer than 20 employees are involved in the service industry.

In which step of the business plan will the entrepreneur describe the match between his abilities and experiences and the requirements for producing or marketing the​ product?

Setting goals and objectives (Strategies for production and​ marketing, legal elements and​ organization, and accounting and finance will be defined in this step.)

Which of the following are the owners of a​ corporation?

Shareholders (Shareholders are the owners of a​ corporation, investors who buy ownership shares in the form of stock. For this​ reason, shareholders are also known as stockholders.)