Wilbur is attempting to raise some quick cash for his business by selling its accounts
receivable to a finance company, this is called
a. selling short.
b. factoring.
c. mortgaging the future.
d. pledging receivables.
Entrepreneurs’ choices that affect the nature of a small firm and its basic direction are
known as
a. market-based decisions.
b. tactical decisions.
c. strategic decisions.
d. focus-based decisions.
When negotiation the purchasing of an existing business, the terms of the sale may
become more attractive to the buyer if the expected down payment is
a. reduced.
b. placed in escrow.
c. increased.
d. aged as a receivable.
The _____ is used to evaluate a firm’s financial leverage.
a. debt ratio
b. acid-test ratio
c. current ratio
d. investment ratio
Credit sales ______ the amount of working capital needed by the business doing the
selling.
a. augment
b. decrease
c. increase
d. offset
Discounted cash flow techniques of analysis include
a. return on investment and net present value methods.
b. net present value and investment outlay valuation methods.
c. accounting ratio analysis and internal rate of return methods.
d. net present value and internal rate of return methods.
Ownership in a corporation
a. is difficult to transfer.
b. is more easily transferable than ownership in other forms of organization.
c. is transferred in much the same way as stock in a partnership.
d. noticeably affects the operation of the business.
Ben is a member of a small group of employees who meet periodically to discuss
quality problems. He is a member of a(n) ___________.
a. control group
b. quality achievement forum
c. quality circle
d. focus group
The major objective of a firm in granting credit is
a. generating consumer goodwill.
b. reducing bad debt risk.
c. expanding sales.
d. promoting the business.
If a firm’s current ratio ________, its liquidity ________.
a. increases. increases
b. increases, decreases
c. decreases, increases
d. increases, remains the same
Traditionally, U.S. franchisers have done most of their international franchising in
a. Canada.
b. Japan.
c. Mexico.
d. China.
The limited liability company form of organization
a. avoids the double taxation of C corporations.
b. affords less protection from liability than partnerships.
c. is a poor choice for new businesses.
d. can offer stock incentives to employees.
Because many entrepreneurs are innovators, they
a. are unable to build strong organizations.
b. usually keep a close eye on the innovations generated by big companies.
c. tend to see different and often better ways of doing things.
d. are usually engineers by training.
Aloft Aircraft Company can purchase ___________ life insurance on its chief aircraft
designer as an inexpensive way to cover its losses should something untoward happen
to that key person.
a. whole
b. universal
c. term
d. blanket coverage
The assets most commonly used for security by asset-based lending companies are
a. land and buildings.
b. accounts receivable and inventory.
c. equipment and buildings.
d. inventory and equipment.
Nikita’s decision to buy her shoes at same shop that her favorite professor patronizes is
the result of which sociological influence?
a. culture
b. opinion leaders
c. reference groups
d. social class
Sara has decided to make an offer on a particular house. She is in the ________ stage of
the consumer decision making process.
a. information search and evaluation
b. problem recognition
c. post-purchase evaluation
d. purchase decision
Which of the following is not true with respect to labeling?
a. It shows the product brand.
b. It is an informative tool for consumers.
c. It should include only the minimum legal requirements.
d. It should emphasize brand visibility.
A corporate charter should
a. be detailed.
b. be in accord with state law.
c. include bylaws.
d. indicate profit potential.
Companies that lease employees to small businesses
a. do not charge for their services.
b. charge from 25 to 50 percent of payroll.
c. take over personnel paperwork.
d. lease only highly trained personnel.
The basic ideas forming the foundation of customer loyalty for small firms include the
notion that
a. superior customer service will almost always lead directly to customer satisfaction.
b. customer satisfaction demands customer loyalty.
c. small firms possess great potential for providing superior customer service.
d. customer satisfaction is “the name of the game” for such businesses.
International franchising is a variation on the theme of
a. exporting.
b. importing.
c. foreign licensing.
d. international strategic alliances.
Compared to their larger competitors, small firms may be better positioned to provide
good customer service because they
a. do not struggle as much with bureaucracy.
b. tend to have established corporate policies that emphasize a customer focus.
c. have a narrow range of products or services to offer.
d. refuse to be distracted by other developments in the industry.
Hollywood Entertainment analyzed its customer base to ascertain the characteristics of
customer segments and understand special market conditions. The independent movie
theater found that senior citizens thought the current $5 admission price was too high
and that most consumers preferred to go to the movies after 6:00 p.m. To strengthen
ticket demand, Hollywood Entertainment began offering $3.50 tickets to all seniors and
$4 tickets for all movies starting before 6:00 p.m. Hollywood Entertainment was
employing a
a. variable pricing strategy.
b. flexible pricing strategy.
c. price lining strategy.
d. differentiated pricing strategy.
Job shops are most closely related to
a. short production runs.
b. long production runs.
c. special-purpose equipment.
d. standardized products.
Personal selling is widely used in
a. retail establishments only.
b. wholesale and retail establishments only.
c. service establishments only.
d. retail, wholesale, and service establishments.
From the owner’s perspective, which of the following would be considered an
advantage of harvesting via withdrawal of cash flows from the firm?
a. Retaining control
b. Preserving cash for later reinvestment
c. Greater latitude in seeking out a buyer for the firm
d. Increasing long-term returns from the business
Most customer service problems are identified by
a. personal observation.
b. outside consultants.
c. customer complaints.
d. entries in a suggestion box.
An employee stock ownership plan represents
a. a good way for a business founder to build his/her position in the company.
b. an opportunity for employees to acquire an ownership interest in their company.
c. a harvest method of choice.
d. an effort to ease investor concerns.
A prospectus is
a. a legal document for soliciting investment.
b. the legal document that replaces a draft business plan.
c. a marketing document intended to sell a concept.
d. a document containing confidential business information.
Environmentalism poses the greatest threat to small
a. iron foundries.
b. drugstores.
c. movie theaters.
d. auto repair shops.
Identify and explain three major types of rewards for entrepreneurs.
A good training program enhances morale and helps in recruitment.
One of the drawbacks of harvesting by withdrawing cash flows is that the owner must
seek out a buyer for the eventual sale of the business.
Judeo-Christian values have traditionally been left in the churches and synagogues and
have not entered the marketplace.
In deciding on the location for a business, the entrepreneur must consider five major
factors. Identify these factors and briefly summarize the impact each factor has on the
entrepreneur’s decision.
Third-party coverage is of little use in evaluating the credibility of information provided
directly by the franchisor.
You Make the CallSituation 3
After an inauspicious start in a spare bedroom in his home, an entrepreneur’s business
had flourished. He wondered if he had the necessary talent to ensure its continued
success. The business had grown to 100 employees and then to 200 employees. When
the business was small, the entrepreneur could figure out the solutions to problems on a
case-by-case basis, but the problems were becoming increasingly complicated.
Question 1 What kinds of practices or procedures will this entrepreneur need to adopt
to enable the business to continue to operate successfully?
Question 2 What resources might this entrepreneur use to get good feedback to help
him assess his competence and understand the issues his growing business is facing?
You Make the CallSituation 1
In 1991, brothers Josh and Seth Frey were driving an ice cream truck. After buying a
former postal vehicle and converting it into a dessert-mobile, they operated it between
semesters at the University of Wisconsin at Madison. Seth, a senior, planned to join the
corporate world after graduating, but Josh was enjoying being his own boss. Josh felt he
had finally figured out his future, but he didn’t want to be the neighborhood ice cream
guy for the rest of his life.
What else could he sell? Care packages. Josh was impressed that a few dorms at his
university offered care packages for parents to send to their kids. How could Josh
improve on the product? The care packages should be offered campus-wide, he thought.
Source: Geoff Williams, “Staying Power,” Entrepreneur, Vol. 26, No. 6 (June 1998), p.
154.
Question 1 What type of research could Josh use to estimate demand for the care
packages?
Question 2 How could he develop a sales forecast for his product?
Question 3 Would the Internet be helpful to his marketing plan?
A family business involving two or more children may experience either sibling
cooperation or sibling rivalry.
Work methods cannot be analyzed for service or merchandising firms as well as for
manufacturers.
You Make the CallSituation 4
Entrepreneur Karen Moore wants to start a catering and decorating business to bring in
money to help support her two young children. Moore is a single parent; she works in
the banking industry but has always had the desire to start a business. She enjoys
decorating for friends’ parties and is frequently told, “You should do this professionally.
You have such good taste, and you are so nice to people.”
Moore has decided to take this advice but is unsure whether she should locate in a
commercial site or in her home, which is in rural central Texas. She is leaning toward
locating at home because she wants more time with her children. However, she is
concerned that the home-based location is too far away from the city, where most of her
potential customers live.
Initially, her services would include planning for wedding receptions and other special
events, designing flower arrangements, decorating the sites, and even cooking and
serving meals.
Question 1 What do you see as potential problems with locating Moore’s new business
at home?
Question 2 What do you see as the major benefits for Moore of a home-based business?
Question 3 How could Moore use technology to help her operate a home-based
business?
Pure risk refers to a situation where only loss or no loss can occurthere is no potential
gain.
Recent observations have shown that most businesses are started in a new building.
With the right assistance from professional sources (e.g., attorneys, accounting firms,
incubator services), the entrepreneur can avoid direct involvement in developing the
business plan.
When estimating sales promotion expenditures, it is usually a good idea to consider all
four methods of budgeting funds for small business.
What is the principal advantage of an S corporation, and why is it given this name?
Borrowing allows owners to retain voting control of the company.
Aside from consulting an attorney, a potential franchisee should avoid using other
sources of assistance.
You Make the CallSituation 3
Steve Peplin is the president of Talan Products, a metal stamper based in Cleveland.
Peplin has a long-term relationship with his banker. But recently his firm ran into
financial difficulty, and the bank is demanding that Peplin personally guarantee 100
percent of the company’s loans. Peplin would prefer not to do so, but isn”t sure that he
has a choice.
Source: “Hands On,” Inc., Vol. 25, No. 8 (August 2003), p. 50.
Question 1 Should Peplin be surprised by the bank’s demand for a personal guarantee?
Why or why not?
Question 2 What would you advise Peplin to do?
Small firm owners may be tempted to rationalize bribery as a way of offsetting what
seems to be a competitive disadvantage.