Chapter 06 – Entrepreneurship and Starting a Small Business
If you go through the exercise of preparing a business plan, only to determine that you
need twice the amount of money to start the business than you have, the SBA and other
expert organizations encourage you to go ahead with your plans because if you understand
the market, you can use the revenues you accrue to make-up the short-fall.
Feedback: A major cause of small business failure is lacking the necessary capital to start the
business. Creating a business plan is a good exercise for determining capital needs.
86. Small businesses lack the resources to compete directly with big businesses.
Feedback: Small businesses can often compete successfully against big businesses because
they are more able to quickly respond to business opportunities and able to offer more
personalized customer service.
87. Because of their superior financial resources and specialized staffs, big corporations can
almost always outperform small businesses.
Feedback: Small businesses have some advantages over big firms. They are often more
flexible, and able to offer their customers more personalized service.
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95. Many entrepreneurs got the idea for their own business from their experience of working
for others.
96. Since entrepreneurs are starting new businesses, experience gained from working for an
established business isn’t particularly helpful.
97. Offering to manage an established business for a percentage of the profits plus a salary
offers experience to the would-be entrepreneur and free time to the business owner.
98. Entrepreneurs are well advised to avoid starting businesses in the same market in which
they were previously employed.
99.
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You can negotiate a win-win situation by offering to manage an established small
business. You win from the experience; the owner wins with free time.
Feedback: Often times it is difficult to start your own business when you lack the capital. One
way to become an owner is to offer to manage a business that is already established. You gain
experience and the owner gets free time.
100. If you were to begin gathering information on a particular type of business, it is
doubtful that a community college class would benefit your search because the
information you would gain is too generic in nature.
Feedback: Many community colleges bring together would-be entrepreneurs from diverse
backgrounds. These resources will often connect students with a network of other
entrepreneurs and small business owners. However, many tips for prospective small business
owners are universal in nature, such as keeping accurate financial records and finding out
where to go to learn how to do these things.
101.
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There are several ethical considerations when starting a business, but competing against
current and former work relationships is always fair game.
Feedback: Similar to managers who work for large organizations, small business
owners/managers must consider ethics when making decisions. The Making Ethical
Decisions box depicts a situation where two employees plan to quit their jobs and create a
business that directly competes against their current employer. Although they have a right to
create a business and compete, how do they ethically compete for the same customers that
their former employer serves?
102. Carlos hopes to start his own business. He needs to avoid talking to other small
business owners about his plans because they might steal his ideas.
Feedback: Talking to small business owners is one of the best ways to learn how to start and
run a small business.
103. Felicia decided to work for a floral design studio before opening her own shop. This
approach to learning the business is okay, but her time would be put to better use starting
her own business.
Feedback: Felecia will gain valuable training and insights into the floral design business by
working for someone else. Her experience should reduce her risks and help her operate more
efficiently when she starts her own business.
104.
Chapter 06 – Entrepreneurship and Starting a Small Business
As an employee of a small business, DeMonte has observed the owner’s desire to retire.
Since DeMonte would like to buy the business, he needs to determine how much the
business is worth. In order to determine a fair price for the business, DeMonte should add
up the market value of all of the firm’s physical assets such as buildings, machinery,
equipment, and inventory, and willingly pay this amount for the business.
Feedback: A fair value for a business depends not only on what the firm owns, but also on
what it earns and what makes it unique.
105. The two primary concerns of an entrepreneur starting a new business are planning and
record keeping.
106. According to the Small Business Administration, poor management is the cause of the
majority of small business failures.
107. Business plans are necessarily a bit vague since these are prepared prior to the
beginning of business operations.
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108. A good business plan describes the nature of the proposed business, the target market,
the competitive advantages, and the qualifications of the owners.
109. Bankers and investors require entrepreneurs to present a well-conceived business
plan.
110. An entrepreneur’s personal financial position will have a minor impact on negotiations
with bankers for a small business loan.
111. Getting a business plan into the hands of the right people is nearly as important as
getting the right information in the plan.
112.
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The entrepreneur’s integrity is not relevant to bankers when determining the credit
worthiness of a business loan.
113. Software designed to help create business plans has proven to be of little value
because it is difficult to apply it to every business situation.
114. Since creating a detailed business plan is almost impossible, entrepreneurs should
focus on the other tasks needed to get their firm started.
115. Management includes attention toward financing the business, hiring employees,
marketing, and record keeping.
116.
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Identifying “poor management” as the cause of a small business failure likely covers a
variety of problems.
117. Aside from personal savings, the only other viable source of financing for an
entrepreneur would be funds available from friends and family.
118. Potential suppliers can be an excellent source of financing for a new business since
lending money to a new customer may be very much in their own interest.
119. Angel investors are the government agencies that invest money in new companies
before they go public.
120.
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Venture capitalists provide funds for startup businesses in exchange for part ownership in
the new firm.
121. State and local governments often act as venture capitalists.
122. While the Small Business Administration provides management advice to new
business owners, it is not empowered to provide financial assistance.
123. Venture capitalists provide funds for small businesses as part of their philanthropy
programs.
124.
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Venture capitalists prefer investing in smaller start up businesses in order to reduce their
overall risk.
125. The burst of the dot com bubble caused venture capitalists to limit their funding of
new businesses.
126. The Small Business Administration’s microloan program offers small businesses very
small loans.
127. Small Business Administration microloans are based on the borrowers’ integrity rather
than collateral and credit history.
128.
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In order to qualify for a microloan from the SBA, an entrepreneur must have adequate
collateral, and a proven track record of success.
129. Small Business Investment Companies (SBICs) are privately owned companies
licensed by the Small Business Administration to lend money to small businesses.
130. The SBA may guarantee loans made by a financial institution and repay them if the
borrowers stop making payments.
131. Success in running a business depends on knowing your customers, managing your
employees, and keeping efficient records.
132.
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In the business world, a market consists of those people who have a willingness to buy a
particular product.
133. One of the greatest advantages that small businesses have over larger ones is the
ability to know their customers better and to adapt quickly to the customers’ needs.
134. Attracting qualified workers presents a problem for small businesses since they
usually offer less money, fewer benefits, and less room for advancement than larger firms
offer.
135. As their firms grow and prosper, busy entrepreneurs take pleasure in delegating
authority to others.
136.
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Studies show that seniority is the most important criteria when selecting employees for
promotion to management positions.
137. Compared to employees of large businesses, small business employees are less
satisfied with their work because they see their jobs as less challenging.
138. Hiring family members offers the best answer to the problem of attracting qualified
employees.
139. Questions about how much authority to delegate, and to whom, are easier issues for a
family-run businesses since they “can’t fire family.”
140.
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With fewer employees and less revenue, small businesses have less need for detailed
records than do larger business organizations.
141. Many small business owners report that they needed assistance with accounting when
they first started businesses.
142. Commercial loan officers and insurance agents offer expert assistance that can be
valuable to small business owners.
143. One way to control the legal costs associated with operating a small business is to
purchase a prepaid legal plan.
144.
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Commercial loan officers serve as a resource for small business owners for information
regarding risk management.
145. The SCORE (Service Corps of Retired Executives) program, sponsored by the SBA, is
designed to provide financial assistance to minorities and women.
146. Prior to creating a business plan, discussions with bankers and investors can help
entrepreneurs determine the amount of financing available.
Feedback: Bankers and investors will want to look at an entrepreneur’s business plan in order
to determine whether they are interested in providing funds. Entrepreneurs who are unable to
provide bankers and potential investors with a well-developed plan will appear disorganized
and unprepared.
147.
Chapter 06 – Entrepreneurship and Starting a Small Business
An effective business plan analyzes the competition and identifies the resources required
to profitably serve a target market.
Feedback: An effective business plan must consider all the aspects of operating a new
business in detail.
148. When writing a business plan, prospective entrepreneurs should remember to omit
details regarding their experience and education since investors are only interested in the
proposed business.
Feedback: A business plan should include information about the resources and qualifications
of the owner.
149. As opposed to venture capitalists, angel investors prefer to target their investments in
new firms requiring large sums of money.
Feedback: Venture capitalists often invest in businesses in need of large sums of money.
Angel investors are private individuals investing their own money. The amount of money
invested by angel investors tends to be less than amounts invested by venture capital firms.
