Intro to business CH 5

What is the difference between debt and equity financing?

Debt: borrowed funds must be repaid with interest over time equity: funds raised through the sale of stock in the business.

What should a small business owner consider before buying an existing business?

why? problems? profit? value (fairness)? assistance? loyal customers? noncompete clause?

Is it necessary to develop a business plan for an existing business purchase

yes, analyzes all aspects of business.

Who are Angel Investors?

individual investors or groups of experienced investors who provide financing for start-up businesses by investing their own money, (early stages of businesses)

Why do people become entrepreneurs?

today's global economy rewards innovative, flexible companies that can respond quickly to changes in the business environment

One of the reasons why there has been a dramatic increase in the number of small business startups is rapidly changing technology.

True

The Small Business Administration (SBA) assists small businesses by providing advice in management and financial matters.

True

Key characteristics that make-up the entrepreneurial personality.

Ambitious, independent, self confident, risk takers, visionary, creative, energetic, passionate, committed.

_____financing is a form of business financing consisting of borrowed funds that must be repaid with interest over a stated time period

Debt

When is being small not an asset for a company?

limited managerial skills or encounter difficulties obtaining adequate financing, potential obstacles to growing a company. Complying with federal regulations is also more expensive for small firms.

What does the Kaufman Foundation hope to determine?

measures and interprets indicators of U.S. entrepreneurial activity at the national, state, and metropolitan level. Economic and demographic characteristics of employer businesses and their owners by gender, ethnicity, race, and veteran status

What other group has seen a significant increase in small business ownership

minorities

What groups are becoming business owners at a higher rate?

minority groups and women are becoming business owners at a much higher rate than the national average

What can these loans be used for?

most business purposes, including purchasing real estate, equipment, and materials

Criteria used to determine if a business is considered a small business.

new/ start-up businesses, the # of employees, total revenue, length of time in business, nonemployees, businesses with employees, geographic location

Who sets this criteria?

north american industry classification system - NAICS

small-business owner

owners are managers or people with technical expertise who started a business or bought an existing business and made a conscious decision to stay small

entrepreneur

people with vision, drive, and creativity, who are willing to take the risk of starting and managing a business to make a profit

When hiring employees, what do managers need to take into consideration?

recruiting, ads, space, taxes, training, managing

Important role small business plays in the U.S. economy.

representing 1/2 U.S. economic output, employing about 1/2 private sector workforce, & giving individuals from all walks of life a chance to succeed.

Basic characteristics entrepreneurs need.

requires special drive, perseverance, passion, and a spirit of adventure, managerial and technical ability

What are the characteristics of classic entrepreneurs?

risk-takers who start their own companies based on innovative ideas (micro or growth oriented)

Places where the chance of creating wealth are greater.

san francisco, NY metro, silicon valley, new england

First step in owning a business

self-assessment to determine whether you have the personal traits you need to succeed and what type of business would be best for you

Why are entrepreneurs and small-business owners important to the economy?

small businesses take leadership roles in technological change and the development of new goods and services

The first step in starting your own business is the creation of a unique marketable idea.

False

A business plan: describes in detail the idea for the new business and how it will be carried out is used to persuade lenders and investors to finance the venture may take many months to write serves as the first operating plan for a new business,

Is accurately described by all of the above

Key elements of a business plan

executive summary, vision and mission statement, company overview, product and service plan, marketing plan, operating plan, financial plan, appendix of supporting documents.

Businesses close down for many reasons. Which of the following is NOT a typical reason for a business failure?

expenses are lower than the owner expected

What would be the easiest way for small businesses to enter the global marketplace?

exporting

Types of assistance the SBA provides.

financial assistance, management assistant programs, Assistance for minorities and women

other reasons people want to become entrepreneurs?

financial independence, own boss,

One of the advantages of owning a small business is

flexibility

Which of the following is NOT a reason why small business thrives in the United States?

guaranteed profits

Why is the business plan beneficial for new business owners?

help to attract appropriate loan financing, minimize risks involved, be a critical determinant in whether a firm succeeds or fails

Challenges managers face in small business

hiring, training and managing

What is one of the primary reasons people start their own companies?

independence & better lifestyle

In buying an existing business, the prospective buyer should ask questions about the operation of the business. Which of the following would be an appropriate question to ask? Is the business operating at a profit? Why are you selling? Are there any problems with the business? Will the customers stay with the business?

All of the above are appropriate questions to ask.

Types of equity financing.

Angel investors and Venture capitalists

How does the SBA assist small businesses financially?

Loans qualified small businesses that cannot obtain financing on reasonable terms through normal lending channels.

Are entrepreneurial characteristics enough to make a person successful? What else is needed?

No Managerial ability and technical knowledge

Why is a business plan important even after you obtain financing?

Reviewing plan on constant basis will help identify strengths and weaknesses in marketing and management strategies and help evaluate possible opportunities for expansion in light of both original mission and goals, current market trends, and business results.

Noncompete clause, Why is it important to have one?

Seller is not be allowed to compete in the same industry of the acquired business for a specific amount of time. So customers wont leave

Types of management assistance programs

Service Corps of Retired Executives (SCORE), Active Corps of Executives (ACE)

Where do most entrepreneurs get ideas for their business? What other sources of inspiration are there?

While working in the same or related field. Personal experiences as consumer; hobbies & personal interests; suggestions from customers, family, &friends; industry conferences; & courses or other education

Do most entrepreneurs feel going into business is worth it? What motivators influenced their decision to become an entrepreneur?

Yes Feeling personal satisfaction with their work and creating lifestyle they want

Demographic changes that have created entrepreneurial diversity.

age (babyboomers)

Mark Ghermizian had quit his job and was looking to start a small business so he could be his own boss. When he read that people spend up to fifteen minutes every day staring at a bathroom stall door, he decided he would find advertisers who wanted to pay to have their advertising messages on bathroom stall doors. Since he has his idea, Ghermizian's next step is to: choose a form of ______ organization

business

How has the SBA increased their responsiveness time?

by giving regional offices more decision authority and creating high-tech tools for grants, loan transactions, and eligibility reviews.

How is hiring outside consultants helpful?

can help with financial record keeping, decision-making, and tax planning.

How are they different from Venture Capitalists?

investment firms that specialize in financing small, high-growth companies. Venture capitalists receive an ownership interest and a voice in management in return for their money.

Entrepreneur categories

classic, multipreneurs, intrapreneurs

How do managers of a small business attract good employees?

company culture, nurturing comfortable environment, flexible hours, benefit programs, opportunities to help make decisions, and a share in profits and ownership

Outsourcing in relation to small business ownership?

creates opportunities for smaller companies that offer these specialized goods and services

The two forms of business financing are _____ (borrowed funds) and _____(ownership funds)

debt, equity

Why is rapidly changing technology considered an advantage?

decreases costs, helps small businesses compete

What major changes result in entrepreneurial opportunities?

demographics, society, and technology

Common causes of business closures

economic factors, financial causes, lack of experience, personal reasons

Are all small-business owners considered entrepreneurs?

entrepreneurs may be small-business owners, not all small-business owners are entrepreneurs.

Jon P. Farmer is the founder of Kolopua Hawaii LLC, a company that markets Pure Hawaiian Air. Bottles of Pure Hawaiian Air contain air that smells like the floral bouquet that greets tourists as they get off the plane in Hawaii. Retailing for about $5 apiece, the bottles are sold at gift shops in Hawaii, as well as to travel agents nationwide who give them to clients. As a(n) ________, Farmer's annual income exceeds $100,000 annually.

entreprenuer

Why do they need technical knowledge?

technical knowledge to carry out their ideas and the managerial ability to organize a company, develop operating strategies, obtain financing, and supervise day-to-day activities.

What do they mean when they say "Entrepreneurs are the company"?

tend to work longer hours, take fewer vacations, cannot leave problems at office at end of the day

Why would a manager consider outsourcing or contracting work to specialists?

to concentrate on planning and operations.

Most important step in starting a business after you have decided what type of business ownership you will have

Business plan

Why do people want to become entrepreneurs?

Challenge of building a business, and the desire to control their own destiny.

Why is it important to have good interpersonal and communication skills?

to deal with employees, customers, business associates such as bankers, accountants, and attorneys.

How can you tell the difference between an entrepreneur and a small-business owner?

Entrepreneurs are less likely to accept the status quo, and they generally take a longer-term view than the small-business owner.

How do you know if you are the entrepreneurial type?

Entrepreneurship involves taking a risk, either to create a new business or to greatly change the scope and direction of an existing one. Typically are innovators who start companies to pursue their ideas for a new product or service. They are visionaries who spot trends.

Who are SCORE and ACE?

Executives use their own business backgrounds to help small-business owners

Established small businesses are defined as companies that have been in business at least fifteen years and employ between 50 to 500 employees.

False

Who are the SBIC and how do they assist the SBA?

Small business investment companies, provide long term financing for small businesses

Small Business Administration (SBA) What is their mission?

Speaks in behalf of small business, and through its national network of local offices it helps people start and manage small businesses, advises them in the areas of finance and management, and helps them win federal contracts.

An advantage of a small manufacturer over a large manufacturer is the speed with which new products can be introduced to the marketplace.

True

Jeff Arnold and Reggie Bradford created WebMD, an Internet provider of health care information. During the development of this high-growth company, Arnold and Bradford attracted a group of investors who purchased stock in their company and provided them with _____ financing.

equity

Why do some business owners prefer to stay small?

flexibility, uncomplicated company structure, fewer financial resources,

Why does the Kaufman Foundation track entrepreneurial growth?

focuses on projects that encourage entrepreneurship and support education through grants and research activities

Where is the highest rate of growth in small business?

from women-owned firms

How does a prospective business owner determine what type of financing they will need?

funding required depends on the type of business and the entrepreneur's own investment

Ongoing challenges business owners face.

growing too quickly: can strain finances, hiring staff, raw materials and equipment