Small Business Finance Test 1

Incubator

A facility that houses new businesses and provides many critical services for the new ventures. New businesses are expected to develop and typically leave the facility often within 18 months of founding.

Break-even Point

The time when a new business has reached a level where revenue coming into the firm is sufficient to cover expenses.

Threats to operational financing

The threat of not obtaining sufficient financing to operate a firm.

Family Business

A business in which ownership and employment are centered around the family.

Brainstorming

A creative process whereby a group of individuals are brought together and asked to generate ideas with little or no effort made to evaluate the potential for each idea rather the focus is to generate numerous ideas

Agency Theory

A managerial theory that believes individuals act to maximize their own benefit. Where there is a split between ownership and control, the agents must be monitored or they will act to maximize their own benefit

Harvest plan

A plan to exit the business that allows the investors to take advantage of growth. It may include selling the business to another firm or a group of investors.

Why is founder involvement in a new venture so critical to its success?

Because of the agency theory, which suggests that individuals act to maximize their own individual benefit.

List some triggers that push people into starting a new business.

Being laid off from established employment. Being approached by one or more people with anew business idea. Reaching a point financially where the risk-return level of proposed new business is tolerable.

Small Business Assistance Centers

Centers funded by the SBA that provide free advice to individuals wishing to start new businesses.

How have entrepreneurial businesses impacted the growth of the US?

Entrepreneurial businesses are said to have been the backbone of the economic success of the nation. They helped the united states get through the Great Depression in the 1930's

What differentiates an entrepreneurial business from one that is a venture-backed business?

Entrepreneurs develop their own plans while venture-backed hire consultants to develop their plans.

Organizational Slack

Excess resources in an organization that allow for redundancy and the quick deployment of personnel in crisis.

Stakeholders

Individuals or other organizations that may impact the success of the business. Stakeholders include key suppliers, customers, and employees.

Why does "profit as a goal" present an ethical challenge to new business owners?

It could present an ethical challenge because it could mean that in order to achieve the desired profit you might have to be unethical

How does bounded rationality affect the way an entrepreneur determines what type of business to start?

It helps rational decision-making that is constrained by the background and history of the person making the decision.

Explain what is meant by the science and the art of starting and managing a business.

It is an art and science because it is something that is created from scratch or new and because it can continue to develop like science does.

How does the lack of "slack" resources impact new ventures?

It means that the firm has limited flexibility in responding to emergency issues such as the need to hire replacements if the company loses key individuals.

Economies of Scale

Large firms can sometimes do things more efficiently because of their ability to operate on a larger scale than can a small firm.

Is there some minimum level of risk tolerance required to start a business?

No there is not but when starting a business it takes time for a business to reach a level where the revenue coming into the firm is sufficient to cover expenses.

Fortune 500

Published annually by Fortune magazine and documents the 500 largest corporations (by scales) in the US

Bounded rationality

Rational decision making that is constrained by the background and history of the person making the decision.

Threats to sales generation schemes

The threat of not being able to generate sufficient sales required to make the firm profitable.

United States Small Business Admin

The agency was officially organized to aid, counsel, assist and protect the interests of small business concerns. The agency involves a wealth of information and assistance at all levels of organizational development and management.

Synergy

The connection between the entrepreneur's skills, understanding of an industry, and the ability to create a competitive advantage such that the sum of the parts of the new business is greater than the individual parts alone.

How do entrepreneurial businesses impact the economy?

They generate new employment with entrepreneurial ventures, providing a growing tax revenue base, and providing a basis for significant improvements to the area's economic vitality.

How do you think personality differences matter in the starting of a business?

They matter because the more diversified the personalities of a company are the better production will be.

Name several entrepreneurs who have grown their businesses into major organizations

Thomas Stanley, William Danko, Bill Hewlett, Dave Packard, Steve Jobs, Steve Woznaik.

Gap Analysis

a relatively simple process of systematically examining the difference, or gap, between what is expected and what occurs. Opportunity analysis examines opportunities in the marketplace side-by-side with the individuals ability to address those gaps.

Threats to profit margin

the threat of not being able to achieve a profit margin sufficient to allow the business to attain substantial returns.