Intro to Business Exam 1 review

Which of the following are common causes of small business failure?

Undercapitalization

Debt Financing

- Borrowing financial resources typically from a bank or lending institution

Family Business

- In Canada, account for 80-90% of all firms - create 50% of all new jobs - represent 40% of the largest 100 companies

Business Plan

- a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals 1. Explanation of the business 2. Analysis of competition 3. Income/ expense estimates

Retailer

- acquires goods from producers or wholesalers and sells them to consumers

Opportunity Identification & Assessment

- an opportunity is an idea that can be a profitable business - assess the idea and see if it can be profitable 1. Own skills 2. Marketing - price - promo - product - place 3. Need/Niche 4. Competition 5. Costs 6. Where does $ come from in 1st year in particular

Retailing and Wholesaling

- both involve buying and selling inventory - relatively low cost (building, employees, product to sell)

Venture Capitalists

- businesses or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock - hope to buy stock at a low price and the sell for a profit after business has grown

High Technology

- businesses that depend heavily on advanced scientific and engineering knowledge - people who have been able to innovate or identify new markets in the fields of computers, biotechnology, genetic engineering, robotics, and other markets have become today's high-tech giants - most now involve Internet - APPS are big player eg. - RIM first to enable email on phone

Manufacturing

- could be a Malcolm Baldrige Award candidate

Small Business

- independently owned and operated - not dominant in its competitive area - employs less than 500 people

Undercapitalization

- lack of funds to operate a business normally - almost all businesses suffer from seasonal variations

Equity Financing

- owner can provide working capital by reinvesting profits into the business - can obtain equity financing by finding investors for their operation - sell stock in the business to family, friends, employees or other investors

Angel Investors

- private, wealthy investors who typically invest anywhere from $10,000 to $500,000 in a business for an equity stake in the company - In Canada - typically males with entrepreneur experience, want to provide some type of management assistance or mentoring

Wholesalers

- supplies products to industrial, retail, and institutional users for resale

Niche

- targeting a very specific need or product eg. gluten free products

External Shocks

- unanticipated events that occur in a firm's external environment that hurt the company's business (p. 122)

Role of Small Business in Canadian Economy

- vital to economy - More than 99% of Canadian firms are classifies as small business - employ 48% of private workers - important as exporters, representing approx. 97% of exports - responsible for fueling job creation and innovation

Sources of Debt Financing

1. Banks 2. Money from friends and family 3. Government sources 4. Trade credit

Advantages of Buying an Existing Business

1. Comes with a network of existing customers, suppliers, and distributers 2. Reduces some of the guesswork in starting a new business from scratch

Advantages of Small Business Ownership

1. Desire for Independence 2. Enjoyment - enjoy being own boss 3. Financial Rewards 4. Low Start-up Costs - small firms can be started with little money 5. Management - can be flexible as they want in running business 6. Focus - focus on a niche 7. Reputation - can build a favorable reputation

Why Businesses Fail

1. External Shocks 2. Undercapitalization 3. Inability to Cope with Growth

Disadvantages of Franchises

1. Fees and profit sharing 2. Standardized operations 3. Restrictions on purchasing 4. Limited product line 5. Possible market saturation 6. Less freedom in decisions

Top 5 Concerns, Challenges, & Goals of Small Business

1. Finding and retaining qualified employees 2. Increasing sales/revenue; demand 3. Growth of Business 4. Economy/ changing conditions 5. Increased costs of materials/energy/health care

Disadvantages of Small Business Ownership

1. High Stress Level 2. High Failure Rate

Starting a Business

1. Idea Generation - most ideas from previous experience 2. Opportunity Identification & Assessment 3. Develop a Business Plan and Make Decisions

Future of Small Business - Technological & Economic Trends

1. Internet usage continues to increase 2. Increase in service exports 3. Economic turbulence 4. Deregulation of the energy market & alternative fuels

Disadvantages of Buying an Existing Business

1. Must deal with problems from previous ownership 2. Often difficult to determine a price for a business that satisfies both buyer and seller.

Approaches to Starting a Small Business

1. Starting from scratch 2. Buying an existing business 3. Family Business 4. Franchising

Entrepreneurial Characteristics & Traits

1. Strong desire to act independently 2. High need for achievement 3. Willingness to take some risks 4. Energetic 5. Neuroticism - helps to focus on details 6. Extroversion - facilitates network building 7. Conscientiousness - facilitates planning 8. Agreeableness - facilitates networking 9. Openness to new ideas

Disadvantages of Family Business

1. Succession plan a necessity 2. Disputes among family members 3. Family ties preventing people from being honest with one another 4. The inability of participants to separate work from home 5. Problems in establishing fair remuneration policies 6. Difficulty in attracting qualified non-family workers

Future of Small Business - Demographic Trends

1. The Boomers 2. Generation Y 3. Immigrants

Advantages of Franchises

1. Training & Support 2. Brand name appeal 3. National Advertising 4. Financial assistance 5. Proven products 6. Greater chance for success

Advantages of Family Business

1. outperform non-family businesses in terms of profit and longevity 2. ability to combine the strengths of family members 3. Family tend to be more loyal to family business than non-family 4. Often more driven to succeed than traditional businesses 5. Family tend to trust each other

Which of the following would not likely be an advantage of buying an existing business versus starting one from scratch?

Cost of purchasing the business

One of the major reasons people want to own and operate their own business is to:

Have more freedom in choosing where and when to work.

All of the following are advantages of small-business ownership EXCEPT:

High start-up costs

Small business opportunities in homecare franchising are aimed at which demographic category?

Baby Boomers

Another greatly untapped market for small businesses are new immigrants to Canada, to supply all of the following EXCEPT:

Canadian restaurant food choices.

Which of the following is not one of the industries considered attractive to entrepreneurs?

Construction

Which of the following is not one of the characteristics of a small business, as defined in the text?

Does not use technology in a significant way

As discussed in the text, what have Air Canada, Zellers, Nortel and Bell Canada all done what in recent years to improve competitiveness?

Downsized

The process of creating and managing a business to achieve desired objectives is known as:

Entrepreneurship

Which of the following is NOT a disadvantage of small-business ownership?

Government regulation

One of the most significant roles (and strengths) of small businesses in Canada is their ability to:

Innovate.

As discussed in the text, individuals in large firms who take responsibility for the development of innovations within the organization can be called a(n):

Intrapreneur.

Entrepreneurship

The process of creating and managing a business to achieved desired objective

Which of the following would not likely be a potential source of financing for a new business?

Trade credit extended to customers