A change in leadership may play a role in bringing about a break with traditional
methods of operation.
Two major factors involved in grooming a son or daughter to enter the family business
are the child’s aptitude and the child’s right to choose a career.
General liability insurance covers
a. business interruption.
b. injury to customers caused by a firm’s product.
c. injury to employees.
d. explosion.
Which of the following is not one of the tools for managing a high severity, high
frequency loss?
a. Loss prevention
b. Loss avoidance
c. Loss reduction
d. Risk retention
An example of a Type B startup idea is
a. a new microsponge technology allowing oils to be contained inside billions of
microscopic sponges.
b. a baby stroller that pushes more easily and is more difficult to overturn than previous
designs.
c. opening a new hamburger stand on the corner with no unique product differentiation.
d. a new mail-order business selling a foreign-produced item never sold domestically
before.
Plans that appeal effectively to investors are
a. long and thorough.
b. market-oriented.
c. product-oriented.
d. ten or fewer pages.
Which of the following is not considered a sales promotion tool?
a. Coupons
b. Newspaper ads
c. Premiums
d. Point-of-purchase displays
A web site lists a digital camera at sale price that is twenty percent less than the online
prices of its competitors. When a customer attempts to purchase the camera online, the
customer is redirected to web page that offers a different camera at a higher price, with
the disclaimer that the originally-offered camera is out-of-stock for an “indefinite
period.” The web site is engaging in __________.
a. in-cart conversion
b. customer deflection
c. aggressive merchandising
d. bait advertising
Juan is using ________ when he systematically compares various cost and revenue
estimates in order to determine the acceptability of alternative prices.
a. break-even analysis
b. price lining
c. cost functioning
d. demand functioning
When an American biotechnology startup establishes an office in Brazil to manage
teams of biologists that search the rain forest to find new plants that may have
undiscovered medicinal properties, the firm has globalized to
a. gain access to essential raw materials.
b. capitalize on special features of location.
c. expand its supply chain.
d. extend the life cycle of its products.
Sources of cash identified by a statement of cash flows include
a. cash generated from operations.
b. cash raised from investors.
c. cash devoted to investments.
d. all of these.
Which of the following steps in the IPO process precedes the others?
a. Audit the last three years of financial statements
b. Draft a registration statement
c. Explain IPO attributes to potential investors
d. Decide upon a price for the business
A small business’s advantages of finding a special niche include all of the following
EXCEPT:
a. avoiding intense competition
b. serving a particular geographic
c. having room for expansion
d. diminishing overall profitability
All of the following are specified by Michael Porter as factors that determine the nature
and degree of competition in an industry except
a. threat of new competitors.
b. rivalry among existing competitors.
c. industry cost/price structure.
d. bargaining power of buyers and/or suppliers.
The intent of the North American Free Trade Agreement (NAFTA) was to
a. duplicate government regulatory systems.
b. reduce tariffs to increase trade.
c. coordinate the currencies of included countries.
d. accommodate the demands of organized labor.
Which of the following is sometimes called near cash?
a. Accounts payable
b. Inventory
c. Accounts receivable
d. Pledges
The narrative form of an executive summary
a. is more straightforward than the synopsis form.
b. allows the author to include hyperbole that builds enthusiasm.
c. is a better format for ventures that have one dominant advantage.
d. gives each topic relatively equal treatment.
The traditional way to locate business angels is through
a. contact with business associates, accountants, and lawyers.
b. formal angel networks or clubs.
c. advertisements in magazines.
d. contact with friends and relatives.
Peter Hansom believes in using other people’s money (OPM) because his firm’s use of
debt can
a. increase a firm’s return on equity.
b. reduce a firm’s risk.
c. improve a firm’s inventory turnover ratio.
d. enhance market response to a firm’s performance.
One aid to assure the understanding of a new business opportunity is a
a. charter.
b. written business plan.
c. computer.
d. partner.
Unlimited liability for business debts is imposed on
a. shareholders in a C corporation.
b. shareholders in an S corporation.
c. sole proprietors.
d. limited partners.
A customer’s slip and fall injury would be covered by
a. general liability insurance.
b. surety bonds.
c. business interruption insurance.
d. commercial property coverage.
The “bottom line” of the income statement is affected by all of the following EXCEPT:
a. cost of good sold
b. dividends paid to owners
c. general and administrative costs
d. marketing expenses
A small business operations manager is confronted with a quality problem. A typical
small business handicap that will hamper his efforts to solve the problem is a lack of
a. time.
b. chain of command.
c. accounting data.
d. specialized staff assistance.
One of the greatest contributions that incubator facilities provide to small businesses
include
a. shared manufacturing space.
b. postal services.
c. management assistance.
d. university sponsorship.
Family retreats, which open lines of communication,
a. use the father as a communication facilitator.
b. avoid discussing sensitive issues.
c. involve family members but not in-laws.
d. may result in formation of a family council to continue discussion.
A nonfamily employee of a family business complains that the recent promotion of a
family member was unfair. The owner should
a. enter into a discussion of the roles and opportunities for both family members and
outsiders.
b. point out the fact that family members always have the inside track, even though this
is disappointing to the bypassed employee.
c. get the employee to think more positively by describing other attractive features of
the employee’s job.
d. shrug his shoulders and acknowledge that a tension always exists and that it can
never be satisfactorily dealt with.
Which type of strategy requires a firm to be the lowest-cost producer within the
market?
a. Price-based
b. Marketing-based
c. Efficiency-based
d. Cost-based
It is becoming clear that international markets are demanding
a. the same products that are distributed to other national markets.
b. differentiated products that satisfy their unique needs and interests.
c. direct access to products sold elsewhere in the world.
d. more expensive products and fewer inexpensive products.
Which is the compensation plan best suited for salespersons in a small business?
a. Straight salary plan
b. Strictly commissions-on-sales plan
c. Combination of salary and commissions, with the salary representing the larger
portion
d. Combination of salary and commissions, with the commissions representing the
larger portion
Sundra Ryce’s SLR Contracting & Service Company is a success for all of the
following reasons EXCEPT:
a. She had experience in construction.
b. She used her startup resources carefully
c. She relied on set-aside contracts.
d. She had access to family financing.
In the operation of their Woodplay franchise, Nicole and Jason Gullege’s attitude
toward business can be described as
a. take care of the franchise and it will take care of the family.
b. putting the family first and the business second.
c. satisfying their customers is the most important priority.
d. doing business is fun but only if you make it so.
A line of credit is the ________ amount of credit a bank will provide a borrower at any
one time.
a. average
b. annual
c. maximum
d. minimum
Ideally, investors like a business plan that shows evidence of
a. a management staff that will minimize overhead.
b. a well-balanced managerial team.
c. an entrepreneur who has studied management.
d. an entrepreneur who will spend more time managing than selling.
A forklift is an example of a
a. general-purpose machine.
b. operationally-induced machine.
c. highly specialized equipment.
d. short-lived asset.
Being an entrepreneur can often bring a sense of dignity or significance that makes life
worth living.
You Make the CallSituation 4
Michael Richcreek is the owner of Rolling Wheels Mobile Home Repair, in Swayzee,
Indiana, a mobile-home maintenance and repair business he operates on a part-time
basis. Richcreek is now trying to acquire financing to buy a mobile-home park with an
asking price of $1.2 million; he has approximately $40,000 in cash to invest. He
realizes that he would need to prepare a business plan to sell the concept to a
prospective investor. But he also recognizes that he does not have the knowledge or
expertise to write a business plan, financial plan, or any of the other plans required to
secure the funds needed for this venture.
Source: Adapted from Jill Andresky Fraser, “Who Can Help Out with a Business Plan”,
Inc., Vol. 21, No. 8 (June 1999), pp. 115-117.
Question 1 Given Richcreek’s seeming inability to write a business plan, do you think
that a computer software package could help him? Why or why not?
Question 2 What are some questions that Richcreek should try to answer before writing
a business plan?
Question 3 Given the situation, where should Richcreek go to get help in preparing a
business plan? Where should he not go for assistance?
How should a small business go about analyzing international markets and planning a
strategy to enter targeted markets? Identify specific sources of information in your
answer.
In reviewing business plans, investors show great concern for the quality of venture
leadership.
The policy of pricing on the basis of what the traffic will bear will work only for
nonstandardized products in markets in which little or no competition exists.
The ratio of operating income to total assets reveals the rate of return that is being
earned on the total invested capital.
A partnership is a legal form of organization in which two or more individuals are
forced to carry on, as co-owners, a business for profit.
A small business should limit the amount of debt it takes on because debt can add to the
firm’s risk.
List the advantages and disadvantages of franchising to a potential franchisee.
Customer profiles are limited to demographic variables such as age, gender, and marital
status.
Some family businesses benefit from effective collaboration among brothers and sisters.
Borrowing money rather than issuing common stock increases the potential for higher
rates of return to owners.
Total quality management refers specifically to management of the process of
manufacturing.
Because they are used and tested constantly, naturally evolving organizational
structures are as nearly perfect as one can hope for.
A strategic buyer is most interested in the stand-alone, cash-generating potential of a
business.
Explain the role of the entrepreneur’s spouse as it affects a family business and show
how it can be made most effective.
Markup pricing is a cost-plus method of pricing that arrives at a markup percentage
high enough to cover operating expenses, subsequent price reductions, and desired
profit levels.
Mom or Dad, the founder, may logically assume that a son or daughter will be
interested in taking over the family business.