Business Principles: Chapter 5

Janet planned to purchase a McDonald's franchise. Meanwhile, Jason decided to open his own sandwich shop. Both decided to finance their new business ventures by applying for bank loans. Janet's loan application was approved, but Jason's was denied. Which of the following is the MOST likely explanation for these results?

Banks view franchises as having fewer risks than other start-up businesses.

Which of the following past events provides an example of the role that small businesses can play in fostering innovation?

Dell Computer's sale of computers directly to consumers

Because entrepreneurs can hire other people to manage their business for them, they do not need strong leadership skills.

False

One of the biggest reasons that small businesses fail is that the owner spend excessive time engaged in formal planning. T or F

False

Small businesses are important to the economy because they account for nearly 90 percent of America's gross domestic product. T or F

False

What is NOT true of business incubators?

Some business incubators have been started by the Small Business Administration.

Franchises are independent third-party operators who market and sell a company's products or services under the company's name. T or F

True

The Entrepreneurs Organization connects business owners with experts in their industries for individual mentoring. T or F

True

Venture capitalists prefer to invest in innovative companies that have just begun operating. T or F

True

Alex Garcia has an idea for an Internet technology business that involves innovative search engine tools. He was referred to an organization that helps start-up businesses by offering resources such as administrative services, technical support, and business networking. This type of organization is called _____.

a business incubator

An entrepreneurial team is _____.

a group of qualified individuals with varied experiences and skills that come together to form a new venture

Which of the following start-up businesses would a typical venture capitalist be MOST likely to fund?

a producer of unique iPhone applications

People supporting a business on a crowdfunding site like Kickstarter _____.

are making a donation

Bootstrap financing includes all of the following EXCEPT _____.

borrowing from a bank

Which of the following is NOT a disadvantage of franchising?

brand recognition

A _____ is a formal document that states the goals of the business as well as the intended process for reaching those goals.

business plan

Gary Smith, owner of a small business in San Diego, heard that the Small Business Administration will hold a series of workshops in his city. Which of the following topics is MOST likely to be included in the Small Business Administration's workshops?

creating a business plan

A(n) _____ is someone who takes the risk of creating, organizing, and operating a business, usually to satisfy a need in the marketplace that is not being adequately met.

entrepreneur

An advisory board is composed of a group of _____.

individuals who offer guidance to the new business owner

Amy is the founder of a small IT firm that specializes in social networking applications. She meets weekly with the members of her development team to solicit their ideas, address any problems they are having, and provide motivation and encouragement. Amy is demonstrating characteristic of a successful entrepreneur?

leadership and communication skills

Small business owners interested in venture capital funding should know that venture capitalists _____.

look for the potential of a public stock offering before investing in a company

Advisory boards generally do NOT have the authority to _____.

make decisions

A(n) _____ offers the company expertise that a new business owner does not possess in exchange for a share in its profits and liabilities.

partner

Maggie wants to start a fine dining restaurant in her town and dreams someday of having a chain or restaurants all over the country. She can be considered a growth entrepreneur because she _____.

plans to have her business expand beyond her original restaurant

Sam is eager to start a local magazine that will include articles about health and fitness and provide a place for local health and fitness professionals to advertise their services. Which of the following does he NOT need to include in his business plan?

product plan

When borrowing money from friends and family members, you should _____.

provide the person from whom you borrowed money a document indicating how and when you intend to pay them back

Marge designs an innovative and fashionable laptop bag, but feels she lacks experience to turn her creation into a viable business. Marge's BEST option is to _____.

put together an entrepreneurial team to market the bag

Regardless of how well or poorly a franchise business is doing, franchisees must give the franchisor a monthly _____.

royalty fee

Isaac is a franchise owner of a fast food restaurant. When another franchisee is accused of using artificial meat in its hamburgers, sales at Isaac's franchise location drop dramatically. What disadvantage of franchising is BEST demonstrated by Isaac's situation?

sharing common problems

Many e-commerce businesses failed in the late 1990s because _____.

they did not plan for rapid growth and lacked sufficient inventory to fulfill orders

The Service Corps of Retired Executives is composed of _____ who can provide advice to small business owners.

volunteers

The major advantage of borrowing money from friends or family to start a business is they _____.

will not usually expect a high rate of return on their investment

_____ of all start-ups fail in the first year.

Nearly one-fourth