small business chapter 1 - 23
The startup cost for a McDonald's franchise is:
1-2 million
Which of the following best describes the difference between integrity and ethics?
integrity is based on internal principles that guide behavior; ethics is based on external guides too behavior
_________________________ is the term used to describe specific knowledge and/or abilities that enable a firm to uniquely and exclusively offer a particular benefit to a customer.
intellectual property
Which of the following is the result of a firm having sufficient net working capital?
it indicates an ability to pay debt commitments as they come due
One method of determining how much to spend on promotions is to "see how much is left over" after other expenses have been paid. Which of the following is a potential drawback to this method?
it is not linked to a specific advertising objective
What is the contribution margin for a product that sells for $5 per unit and has total variable costs of $2.75 per unit?
$2.25
A _____________________ is an informal agreement between a borrower and a bank concerning the maximum amount of funds the lender will provide at any given time.
line of credit
a _____________ is a post office box for receiving remittances
lock box
______________________ is achieved by choosing not to engage in a particular hazardous activity.
loss avoidance
Having your business featured in a news story is an example of:
publicity
_______________ property consists of land and anything physically attached to land, such as buildings.
real
The culturally supported sense of obligation to repay in kind what another has done for us is called:
reciprocation
_________________________ identifies the nature and types of income expected to come into the firm from the sale of products and services.
revenue model
a ____________ strategy is used when a firm wants to enter the market at a price lower than its normal, long-range market price in order to gain rapid market entry.
penetration pricing
The definition of a family used in the context of this chapter is:
people bound by a shared history who are committed to a future together
If you want your venture to grow, it is important to think of your employees as:
people who can generate revenue for your company
Stating the assets-to-sales relationship as a ratio is called the ____________________ technique.
percentage of sales
Your friend Hans wants to promote his new smart phone app. It will sell for $2.99. Hans would probably NOT use which of the following types of promotion?
personal selling
__________________ refers to paying employees on the basis of the number of units they produce.
piecework
Michael opened a franchise restaurant within an existing business. He did what is known as:
piggyback franchising
New businesses often find it necessary to __________________ when the original idea is found to have flaws.
pivot
The best definition of operations management is:
planning and control of processes that turn inputs into value added outputs
Roberto has decided to do business in Central Africa. Since many countries in the region have unstable governments, he should take into account not only economic risk but:
political risk
The right to buy new shares of stock in a company in proportion to the number of shares already owned before the stock is offered for public sale is called:
preemptive right
Pricing has a dual effect on total sales revenue. Which of the following best describes those effects?
pricing has a direct impact on the gross revenue equation and an indirect impact on demand
Marcy is concerned about whether her company should add motorcycle accessories to her already established car accessory products. She is thinking about which aspect of her product strategy?
product mix
Which of the following is NOT one of the elements of the "triple bottom line?"
production --- triple bottom line: planet, profits, people
a __________________________ corporation is set up in order to accommodate individuals whose profession requires licensure.
professional
The combination of promotional techniques and strategies a business chooses to use is called its ______________
promotional mix
________________ is the systematic process of continually looking for new customers
prospecting
The fair trade practices used by Theo Chocolate help raise the price paid to farmers by:
providing transparent negotiating system that enables farmers to increase the quality of their product
A sales forecast can best be described as:
A fact-based prediction of the best, worst, and most-likely sales levels of a business.
Integrity is best defined as:
A general sense of honesty and reliability that is expressed in a strong commitment to doing the right thing, regardless of the circumstances.
According to the video, producers of cocoa have a hard time negotiating with chocolate manufacturers because:
The barriers to entry are high in chocolate manufacturing—there are only about 12 producers—making it difficult for farmers to negotiate on price.
Which of the following is the most accurate statement about doing business online?
E-commerce models may have advantages over physical stores and should be considered when launching a business.
Liquidity can also be described as:
The availability of cash to meet maturing debt obligations
_________________________ bring together buyers and sellers of businesses.
business brokers
A facility that rents space specifically to new businesses or to people wishing to start a business is called a:
business incubator
__________________________ is a document that outlines the basic concept of a business and a course of action that will make that business a reality.
business plan
Choosing a focus strategy has its advantages, but it can also lead to:
competition from other companies that decide to imitate the same strategy
The fundamental benefit a customer gains from a product or service is called:
the core product/service
Which of the following statements most accurately describes the relationship between planning and doing in a business?
they are both important and must be balanced intelligently
Spotting trends can come from all of the following EXCEPT:
tinkering with products features alone what they CAN come from: - listening to customers - joining social media groups -using focus groups
The most effective strategy for a newcomer to use when entering a market is:
to offer benefits that allow you to charge a premium
Current assets are also known as:
working capital
The demise of Blockbuster Video stemmed from which of the following vulnerabilities?
- new entrants changed the industry's way of doing things - they stuck to an old, established way of doing business instead of innovating - management failed to take into account the increasing feasibility of delivering video online (all of the above)
Problems with nepotism include:
-Difficulty in disciplining wayward employee/family members. -The perception by non-family members that family members are treated differently.
According to Heidi, franchise culture is:
-The branded materials of your company, its logos, and its presence on the Internet. -The way your company is perceived by the outside world. -Its relationship with franchisees.
Entrepreneurs who start and lead small businesses contribute to the economy in which of the following ways?
-they make up the overwhelming majority of all businesses -they hire nearly half of all high tech employees -they are increasingly going global, representing 97 percent of all exporters
In this context, a "clean" deal means:
All equity investors are accredited and the legal form of organization makes it easy to bring in investors.
Which of the following is NOT an advantage of opening a home-based business?
Customers feel more comfortable in your home
A strategy of ___________________ involves bypassing retailers and going to the customer directly through online operations.
Disintermediation
The best definition of cost of goods sold is:
Expenses associated directly with the production of products and/or services
In order to meet company goals, especially with friends and family who are involved with the company, Heidi has to:
Focus on managing by the numbers and be firm when people don't meet goals, no matter who they are.
Which of the following statements best describes the relationship between Camp BowWow corporate and the franchisees?
Franchise guidelines are followed strictly, but individual owners are encouraged to be innovative as well.
Paulette's decision not to open a retail store was driven by which of the following considerations?
Her margins were too thin if she had the dolls manufactured in the U.S.
The best description of business model risk is:
How changing circumstances may affect the business and how the business model can be adjusted to cope with them.
Heidi, the found of Camp Bow Wow, started a franchise instead of only having one location in part because:
It allowed her to work at realizing her vision and building the brand rather than the day-to-day operations of the business.
Which of the following statements most accurately describes the financial liability of a corporate stockholder?
It is limited to the amount of money invested in the business unless the owner has signed personally for a corporate loan.
A corporation has a distinct advantage when raising new equity capital due to:
Its ease of transferring ownership and distributing shares
The best way to summarize what Paulette learned about location as she started her own business is:
Location is not just about geography—a business can be "located" online.
Entrepreneurs generally think differently about resources than do employee-managers in which of the following ways?
Managers want larger budgets; entrepreneurs work to do more with less.
Which of the following statements best describes the proper way to purchase equipment and furnishings for a new business?
Save money when possible, but make sure the company looks stable and professional.
Heidi's dream for Camp BowWow is being realized mostly because:
She brings fresh energy to the brand constantly by adding things for customers like Home Buddies and Behavior Buddies.
Which of the following is NOT one of the three main financial statements?
Statement of Changes in Owners' Equity
The predator/parasite conflict can best be described as:
The perception by family members who work in the firm that family members who do not work in the firm are benefitting unfairly and the perception by family members who work outside the firm that inside members are benefiting unfairly.
Profits are not the same as cash flows because:
They are calculated on an accrual rather than a cash basis.
Family businesses are best described as:
Those in which the strategic direction of the firm is influenced significantly by family members.
Recent research findings suggest that companies that are successful in making the transition from one generation to the next are:
Those whose new leaders act on their own, take risks, and support innovation.
The chief benefit of a marketing plan is:
To reduce the number of costly errors you make in your marketing.
Which of the following is the most frequent source of new ideas for a business?
prior work experience
based on what you have seen in this video, which of the following is the most accurate statements about growing a large entrepreneurial business
a basic system that must be designed, refined, and replicated over and over
Which of the following statements is the most accurate concerning personal factors in a business?
a business should align with its owner's personal goals
Which of the following statements is NOT one of the desirable traits of entrepreneurs listed by Spinelli and Adams?
a domineering attitude
working on the business and not just in the business is best described as
a mindset that focuses on building a scalable business with high growth potential as opposed to performing the actual work that the business does each day
Which of the following is NOT a cost normally associated with franchise ownership?
a personal vehicle ARE: initial franchise fee investment costs
Which of the following is MOST descriptive of entrepreneurial passion?
an entrepreneur must have passion, but unchecked passion can be destructive
Tom took great care in investigating his purchase of an existing business. He was engaging in:
due diligence
_______________________ is the process of investigating an investment thoroughly and may include background checks, credit checks, employment history, and financial history.
due diligence
Uncle Jake was a/n ______________ investor, meaning that he put money into the business in exchange for part ownership.
equity
The most accurate statement concerning socially responsible actions and firm profitability is:
evidence concerning the link between social responsibility and profit is mixed
A good rule of thumb for managing accounts payable is to:
delay paying for as long as is acceptable under the agreement
Performance-based compensation plans should include all of the following EXCEPT:
demotion when goals are not met
The simplest and cheapest legal form of organization is a:
sole proprietor
_______________________ equipment has a limited use and is only justified at high volumes of output.
special purpose
A __________________________ is a preliminary look at how well a business might do if it were opened.
feasibility analysis
________________________ occur when the insight an employee gains from experience leads to improved work performance.
learning effects
______________ lies are those that are specifically designed to make a new business look bigger and busier than its really is
legitimacy
Businesses that do not attract investors, but allow their owners to live the way they want to live are called ________________ businesses.
lifestyle
a ____________________ involves at least one general partner and one or more limited partners.
limited partnership
a _______________ is the registered, exclusive right of an inventor to make, use, or sell an invention.
patent
A/n _______________ uses the retirement funds of people who work for the company to buy company stock and hold it in trust until it is distributed to their retirement plans.
Employee stock ownership plan (ESOP)
The ______________ is the rate of return that could be earned on an investment of similar risk.
Opportunity cost of funds
All purchase behavior begins with:
Perception of a need on the part of the customer
The "hockey stick" sales forecast is best described as:
Projections that start out flat then skyrocket unrealistically.
The primary purpose of trademarks and service marks is to:
Represent the way people identify your business.
Which of the following are economic benefits of maintaining good relationships with customers?
-It costs more to acquire new customers than to nurture repeat customer relationships. -Happy customers are a good source of referrals. -Current customers often buy without discounts whereas new customers may need to be enticed with sale prices.
During early-stages of a business, equity financing is preferred to debt financing because:
-Outside investors like to see a founder put "skin in the game." -Paying interest on debt is generally unaffordable for a new business.
What is the break-even point in units of a company that sells widgets with a contribution margin of $3 and total fixed costs of $3000?
1000 units
The court case involving Joe Hadeed, owner of a carpet-cleaning service and Yelp, an online business review forum can best be summarized as:
A complex case balancing free speech rights against a company's right to protect its reputation.
Proximate cause is best defined as:
A negligent act that clearly produces an accident.
Perception can best be described as:
An individual process that gives meaning to stimuli experienced by the customer
The best description of the difference between angel investors and venture capitalists is:
Angels invest their own money in early-stage businesses; venture capitalists invest other peoples' money in later-stage businesses.
A "touch point" can be best described as:
Any contact with the customer, including phone, mail, "live" visits, and online interaction.
Jacques has just taken a big step in growing his company. He has obtained angel financing and all are optimistic that the company can be harvested successfully in a few years through a sale or a stock offering. The best advice you can give Jacques about running the company is
Build a solid company that will be successful in the long haul, but also think about harvest options as you build.
Which of the following statements is most accurate concerning financing for businesses?
Businesses that have an established track record are more likely to receive financing from banks and other financial institutions.
Harvesting is best described as:
Capturing value in the form of cash flows, reducing risks, and creating future options.
Which of the following is true of urgency and importance when it comes to managing your time?
Critical items are both important and urgent—do them first.
Vadik's hiking apparel company has grown rapidly in the last two years. He is beginning to show signs of stress and poor health. One day Vadik confides in you that he is overwhelmed with decisions and is not sure how much longer he can last without cracking. What is the first thing you would have him consider doing?
Delegate some decision-making authority to subordinates.
Which of the following is the best summary of Daniel Goleman's study on effective leaders?
Effective leaders mobilize people toward a vision, coach them to achieve that vision, promote team-building, and build consensus. They also set high standards and demand compliance when necessary.
A/n __________________ occurs when a private firm sells its shares for the first time to the public.
Initial public offering (IPO)
A good retirement plan for an entrepreneur:
Is diversified such that it includes both the harvest and other types of investments not tied to the company's success
The best definition of value creation by a company is:
Its return is greater than the investors' opportunity cost of funds.
In the context of the working capital cycle, working capital is best described as:
Liquid assets that are required to run and grow the business, minus accounts payable.
Personal selling is best described as:
Making a presentation and closing a sale face-to-face.
The best description of the current (as of early 2015) state of equity-based crowdfunding is:
Only accredited investors can make actual equity investments.
Which of the following statements is most accurate?
Small entrepreneurial firms produce twice as many incremental innovations as large firms and ninety-five percent of radical innovations.
__________________ describes a firm's position when it uses its unique capabilities and resources to outperform its competitors over time.
Sustainable competitive advantage
Web sites often fail to satisfy customer information needs because:
The designers build web sites based on what they think rather than asking customers what they want.
Anthony wants to insure his investment in a chinchilla herd. Which of the following is the most compelling reason that an insurance company would not be likely to issue a policy?
The market value of the herd could go up as well as down; it is not a pure risk. Therefore it is not insurable.
The greater a firm's sales, the greater the asset requirements and thus the greater its financing requirements. Another way of saying this is:
The need for additional assets, including current assets (cash, inventory, and accounts receivable) and sometimes long-term assets such as (buildings, equipment, etc.), accompanies higher sales. These assets require taking on debt to purchase tangible items or to buffer cash flow fluctuations.
A growth trap is best described as:
The phenomenon wherein a business's need for cash grows faster than its profits.
Dottie had a shop in which she made wind chimes for her business. It burned to the ground after a stray skyrocket from a nearby neighborhood landed on the roof. The shop was 5 years old and cost $50,000 to construct. It showed up on the books as being worth $42,500 after depreciation. However, the replacement cost would be $55,000. Which of the following statements is most likely to be true of Dottie's payout from the insurance company?
They will pay $55,000 because in general most property insurance policies provide replacement value coverage.
The function of an aging schedule is:
To categorize accounts receivable based on the length of time they have been outstanding.
You are the founder of a small company that is growing rapidly. In order to ensure future success, you have to set up hiring standards so that you get only the best employees—ones who fit your work environment. You want to see what the job candidate will actually do in various situations. Rather than using just using standard traditional hiring methods, you might consider:
a behavioral interview
Leopold has been walking through his manufacturing plant daily and lately has noticed a pile of widgets laying next to the polishing machine waiting to be processed. It appears to be the only place where this kind of holdup occurs. He has found what could be:
a bottleneck
Yongmei's company is the target of an acquisition by a larger company that will finance the deal primarily through taking on a large debt. This type of deal is called:
a leveraged buyout
_________________ sampling involves examining random samples of products for compliance with a predetermined standard.
acceptance
A/n __________________ must have an income of at least $200,000 or a net worth of at least $1 million, not including the primary residence
accredited investor
Sally has opened five successful candy shops and wishes to capitalize on the scalability of her business by franchising. Which of the following should she consider before going that route?
all of the above: -She should determine whether her business systems are well-defined and replicable. -She should see if she can get sufficient financing to deploy the franchise. -She should research government regulations regarding her obligations to disclose certain information to potential franchisees.
Which of the following are advantages of buying a franchise as opposed to starting one's own business from scratch?
all of the above: -brand recognition -use of a recognized trademark -the operations manual
Which of the following statements are true concerning globalization by small businesses?
all of these: a. Many small companies are "born global," meaning that they are launched with globalization in mind. b. Rapidly growing economies in places such as India and China make doing business overseas hard to ignore. c. Going global necessitates learning about the culture and social norms of the countries in which you plan to do business.
According to Heidi, the best way to keep franchisees aligned with the plan while still capitalizing on their innovative ideas is:
an open door policy
Social entrepreneurship is best defined as:
applying already established principles of good business to social problems
Tamara takes into account local entertainment and sports event scheduling when she staffs her small retail store near downtown in a large city. She is using:
associative forecasting
The consumer-to-consumer model that allows individuals and companies to list products for sale to potential bidders is called a/an:
auction site
Which of the following is foundational to a company's ability to satisfy its stakeholders?
being profitable
Which of the following is NOT a component of a business's brand?
brand lifespan
A document that expresses future plans in monetary terms is a _______________
budget
Cheng is concerned about his restaurant surviving if something happens to his building, such as a water pipe bursting. He should consider which kind of optional insurance coverage?
business interruption insurance
In ________________ accounting, transactions are reported when they actually occur.
cash basis
The single most important planning document for a small company's survival is the _____________________
cash budget
the _______________ is the number of days required to complete the working capital cycle.
cash conversion period
the term __________________ refers to the series of authority links between superiors and subordinates up and down the organization.
chain of command
The main lesson to be drawn from the Five Guys Burgers and Fries example in your book is:
consistent, outstanding quality can be the foundation of success for a company
Which of the following marketing philosophies is likely to lead to success in many areas, not just marketing?
consumer-oriented
Restrictions that limit or require certain activities as conditions of a loan are called:
covenants
________________ refer/s to the behavioral patterns and values that characterize a particular group of customers.
culture
The ______________________ ratio is traditionally used to measure a company's liquidity.
current
A ________________ is a collection of information about individual customers that can help a company reach and serve people better.
customer database
_______________________ identifies the characteristics necessary to locate and describe potential customers.
customer profile
Small companies are particularly adept at competing with larger companies when they focus on:
customer service
A business that finds it hard to find space to store all its inventory should probably examine which of the following first?
days in inventory for each product it sells
Which of the following is NOT a purpose of developing pro forma financial statements?
defining the demographic that will describe most customers
Taavetti has a restaurant that is extremely busy during the morning through lunch but slow mid-afternoon. He decides to offer a special discount to diners from 1:30-4:30. Taavetti is using a:
demand management strategy
Aahi worries about what will happen to her jewelry business if her business partner were to have to leave the business permanently due to injury or illness. Her partner Pahi feels the same. Each would like to be able to purchase the other's stock in such a case. They should consider taking out what kind of insurance?
disability buyout insurance
A price-skimming strategy is best directed at what kind of customers?
early adopters
the ________________ is an index that determines how much inventory of an item to purchase in order to minimize total inventory costs.
economic order quantity
The factors that help a customer decide whether or not to purchase a product are called
evaluative criteria
___________________ represent the value of one country's currency relative to that of another country.
exchange rates
Ughmeh Inc. manufactures front loaders. In the last two years, the company's output doubled and its production cost per loader went down significantly. The company has realized:
experience curve efficiencies
________________ is an arrangement with a loaning entity that purchases a business's accounts receivable and advances the business a percentage.
factoring
a ____________ is a meeting of family members held (usually off-premises) to discuss family business matters.
family retreat
Sarah is concerned that her unique canvas purses are being copied and sold in another country. Which of the following strategies is most likely to gain her a champion in the problem country and expand her market at the same time?
foreign licensing
A _________________ is a business model that involves a business owner who license trademarks and methods to an independent entrepreneur.
franchise
_______________________ are entrepreneurs who make contractual arrangements with established business chains rather than doing everything themselves.
franchisers
Which of the following is NOT one of the "Big Three" stakeholders?
government regulators
____________________ are firms that locate qualified candidates for high-paying jobs. They typically charge 20-35 percent of the first year's salary.
headhunters
The strategy that the founders of Honest Tea used to get started is best described as:
identifying and attacking a niche
A new business should not expect to exceed the _________________ in profit margins
industry average
Which of the following e-commerce business models do not actually sell anything online?
information based and content based
Gyeong thinks that making people aware of her interior design business will help her sell more of her products. She is considering:
institutional advertising
______________ is acting in ways that are congruent with the values you espouse
integrity
According to Frank Moyes, a successful entrepreneur and former teacher at the University of Colorado, the most important reason for business planning is that:
it requires the entrepreneur to get the answers to some difficult questions
The aspect of partnerships that involves each partner's being held accountable for the decisions of the others even if they were not consulted is called:
joint and several liability
___________________ specify the hard assets and working capital a firm will need to achieve its mission.
key resource requirements
Theresa has been working at SnoBub Inc. for three years. Her boss has suggested she start thinking about her long-term career goals and what roles she might take on in the future. Theresa is being steered toward:
management development
_____________________ involves taking the steps necessary to locate and describe potential customers.
market analysis
Your friend Eduardo asks your advice about distributing the shoes his company makes. He would like to reduce the risk he faces in marketing his products. Which of the following types of intermediaries would best help him do that?
merchant middlemen
Making the jump from founder to professional manager is:
near impossible for most people
The number that results when taxes are subtracted from profits (before taxes) is called ____________________ and represents money that can be reinvested in the firm or paid out to owners (assuming enough cash is on hand).
net profits
Ideas based on selling existing products or services in a new context are called:
new market ideas
Which of the following is NOT an element of SWOT analysis?
obligations ARE: -threats -strengths -weaknesses
The culture at Honest Tea favors which kind of employee?
one who can thrive in an open, entrepreneurial environment
___________________ are expenses that remain constant at different levels of quantity sold.
operating expenses
The main difference between lifestyle business owners and entrepreneurs is the way they perceive
opportunity
The LEAST attractive option for a small company as regards risk is:
self-financing
SCORE is an acronym for:
service corps of retired executives
Juanita wants to know whether her new hair products business will be profitable. So far, she has made them at home in her basement. Now she wants to open a small retail space and make them in the back room of the store. She estimates that each jar of product will cost $5.00 to make and can be sold at a price of $7.00. What can Juanita safely conclude so far about her financial projections?
she can make money, but she still needs to calculate her projected sales volume to see if she can pay her other expenses.
_______________________ are affiliated with colleges or universities as a part of the Small Business Administration's small business programs.
small business development centers (SBDC)
___________________ is advantage created by an individual's connections with a network of social relationships.
social capital
the _____________________ commitment of family members refers to ties that extend beyond the financial rewards of being in the business. They include things like solidarity, identification with the family, and a sense of history.
socioemotional
Ralph took his first tangible step to becoming an entrepreneur rather than a small business owner when he:
started considering expansion strategies to teach other people how to fit 3D modeled shoes
__________________ refers to some business managers' tendency to overbuy inventory.
stockpiling
Which of the following is most likely to result in increased self-confidence in grown children who are thinking about entering the family business?
succeeding in another firm on one's own
Chumley's specialty wool sock business offers a generous credit policy to its customers and is hesitant to rush them to pay. Lately, he has experienced cash shortages even though sales are steady and costs are stable. Which of the following would you recommend he examine first?
the average collection period
The chief principle involved in a just-in-time inventory management system is:
the emphasis is on the pull of inventory rather than its push
Sarita received 12 weeks of unpaid leave when she had her baby as well as not having any lapse in her health insurance coverage while gone. She benefited from which of the following laws?
the family and medical leave act
Which of the following capital budgeting techniques measures how long it will take to recover the initial cash outlay of an investment?
the payback period
Credit sales have what effect on a company's balance sheet?
they increase the amount of working capital needed by the business doing the selling
The lesson that Goldman learned through his experience with the bottling plant was:
to stick with what it did best -- making tea and promoting the brand
Breaking into international markets can be made easier with a _______________________ , a company that can tap its network contacts to help set up export contracts.
trade intermediary
Matilda is planning a visit to Ecuador to establish a market for her digeridoos. She is going on a:
trade mission
For a test to be __________ its results must correspond well with job performance.
valid
The best guide to use when deciding how long and detailed a plan should be is:
write a plan in accordance with what the particular audience will find helpful
________________ restrict and/or limit the operations of home-based businesses.
zoning ordinances
