In a partnership, each partner has agency power, which means that
a. upon the death of one partner, the remaining partners can operate the business.
b. a partner can legally bind all members of the firm.
c. an executor can act as a partner.
d. a partner can compete in business and remain a partner.
A potential investor’s single goal is to
a. make as much money as possible.
b. minimize taxes.
c. avoid risk.
d. maximize potential return on investment through cash flows received while
minimizing personal risk exposure.
An analysis of which of the following records reveals the degree of effectiveness of a
firm’s credit and collection policies?
a. Accounts payable records
b. Accounts receivable records
c. Cash records
d. Inventory records
John Dresser, who owns a small manufacturing concern, has just signed a commercial
property policy with a clause requiring Dresser to maintain insurance equal to 80
percent of the property’s value at the time of an actual loss. Dresser has accepted what is
known as a __________ clause.
a. coinsurance
b. realty protection
c. realty reserve
d. override protection
If a small business sets up a design studio in Milan, Italy to create its line of specialty
apparel, it is going global to
a. expand its market.
b. take advantage of special features of location.
c. seek protection for its design patents.
d. obtain critical raw materials.
If a small firm is to maintain its performance over time, it is essential to
a. produce a continuous stream of competitive advantages.
b. extend the competitive advantage of the firm.
c. replicate the strategies that have led to success in the past.
d. retain the personnel who made the firm successful in the first place.
Sibling rivalry in a family business
a. rarely affects nonfamily members in the firm.
b. may create disagreements about business policy or about siblings’ roles within the
business.
c. is unusual since only one child will normally be employed in a family business.
d. is often good because it spurs healthy business competition.
Lee Marine’s attempt to extend the product life cycle of older models of its boats by
selling them in international markets has not been effective strategy, in part, because
a. international delivery systems cannot handle the variety of company distribution
systems.
b. of the increasing similarity of customer preferences around the world.
c. income levels in many countries are insufficient to support this strategy.
d. product life cycles have already been growing over the years.
The marketing plan should include
a. a competitor analysis.
b. a summary of market assumptions.
c. an analysis of alternative markets.
d. a sales forecast broken down by government industrial classifications.
All of the following are benefits of becoming a franchisee except
a. increase in management motivation.
b. speed of expansion.
c. reduction of capital requirements.
d. reduction in control.
Other assets include
a. land.
b. machinery.
c. contingency funds.
d. goodwill.
In what way is a franchisee’s control over the business greatly reduced?
a. Most franchisors are located near the franchisee.
b. The franchisees are technically employees of the franchisor.
c. The franchisee is bound by the terms the franchise contract.
d. The franchisee is completely dependent on the franchisor for funding.
According to Amar Bhide, a professor at Columbia University, “_____________ with
products that do not serve clear and important needs cannot expect to be “discovered”
by enough customers to make a difference.”
a. startups.
b. buyouts.
c. family business.
d. franchises.
For small businesses, one growing threat to sustainable competitive advantage is a lack
of
a. available new technology.
b. government support.
c. legal planning.
d. new product development.
An effective internal control system allows a small business to
a. stabilize its financial statements.
b. eliminate fraud and theft.
c. reduce the chances of bad decisions based on inaccurate accounting information.
d. maintain flexible accounting procedures.
Raymond Cassion, a caf owner, is also a member of the city council. Cassion believes
that a proposed ordinance requiring restaurants in the city to be smoke-free would be
good for consumers. Cassion’s vote for the proposed ordinance would
a. create an unfair advantage for his restaurant.
b. increase operating costs for his restaurant.
c. aid most consumers without handicapping any particular restaurant in the city.
d. run contrary to the whole idea of social responsibility.
Mario has just begun to personally supervise employees, his firm is in the stage of
growth called
a. one-person operation.
b. intermediate supervision.
c. player-coach.
d. formal organization.
The daughter of an entrepreneur disliked her father’s criticism and eventually decided to
quit the family business and show her father that she could start her own business. The
daughter is a
a. corporate opportunist.
b. feminist advocate.
c. potential housewife.
d. refugee.
The functional requirements of a business should determine the
a. geographic location of the business.
b. suitability of a building.
c. labor requirements.
d. spatial requirements.
Which of the following is not a potential advantage of establishing a small business in
one’s home community?
a. Appreciation of the atmosphere of the community
b. More extensive knowledge of consumer tastes
c. Greater ability to establish favorable credit arrangements
d. Increased stability of operations
The corrective plant maintenance function includes
a. inspection of equipment and replacement of worn parts.
b. minor and major repairs following equipment breakdowns.
c. lubrication of equipment.
d. housekeeping.
All of the following are acceptable options available to entrepreneurs attempting to
collect delinquent accounts receivable except
a. written reminders.
b. personal contacts.
c. telephone calls to a customer’s employer.
d. referrals to collection agencies or attorneys.
Primary data collection methods are often classified as
a. expensive or inexpensive.
b. observational or questioning.
c. broad or comprehensive.
d. issue-related or concept-related.
Economies of scale refers to
a. learning effects from manufacturing experience.
b. the incremental drop in costs that results from the doubling of output.
c. efficiencies that are most common in low-tech operations.
d. gains from the spreading of investment across more units of production.
A differentiation-based strategy requires that a firm
a. be the lowest-cost provider in an industry.
b. emphasize the uniqueness of its product or services.
c. achieve the highest resource efficiency in an industry.
d. be the lowest-priced competitor in an industry.
The most productive deliberate search approach for new businesses starts by looking at
a. prior work experience.
b. personal interests and hobbies.
c. a chance happening.
d. marketplace needs.
A survey of time usage has been recommended to a small business owner by a
management consultant. This will provide the owner with a basis for improving the
business by
a. classifying time spent according to functional areas of the business.
b. avoiding procrastination.
c. focusing attention on the most crucial tasks.
d. minimizing use of meetings.
Jack should use _________ to answer the question “How does the present value of
future benefits from the investment compare to the initial investment outlay?”
a. the analysis of long-term investment method
b. the investment outlay reduce valuation method
c. an extended ratio analysis
d. a discounted cash flow analysis
The importance of a strong management group in a new venture is evidenced by the
a. attitudes of investors.
b. eagerness of new entrepreneurs to sign up for management seminars.
c. comparative profit data compiled by the Internal Revenue Service.
d. reading interests of new management teams, who seek management books and
periodicals.
The projection of the financing needed by a new business should not be based on
a. the firm’s anticipated sales volume.
b. anticipated regularity of cash receipts.
c. predicted regularity of cash payments.
d. estimates of the fixed assets held by the startup’s strongest competitor.
Questions that a would-be entrepreneur should consider before deciding to implement a
startup include all but which of the following?
a. Will I acquire the benefit of the experience of the prior owner?
b. How do I identify a genuine opportunity?
c. What are some of sources for new ideas?
d. What are the different types of startup ideas I should consider?
The firm’s operating profit margin is computed as a ratio of operating profits to
a. sales.
b. inventory.
c. assets.
d. total debt.
Venture capital companies
a. provide investment support to young businesses.
b. provide for the financing needs of large companies only.
c. are corporations or partnerships that operate as liquidation groups.
d. no longer operate in the U.S. market.
The payback period technique deals with accounting profits in measuring how long it
will take to recover the initial cash outlay of an investment.
Asset-based lending is a type of financing secured by assets such as receivables,
inventory, or both.
A firm that is able to create and sustain product and/or service differentiation will most
likely be a successful performer in the marketplace.
You Make the CallSituation 4
The following letter was written by a parent about her son:
My son was caught with his hand in the cookie jar. He has been working with me in our
car dealership for the past two years, and I have been very proud of some of the ideas
he has come up with to save us money and increase efficiency. Most of the other men
we work with seem to respect him, not only because he’s my son but because he is a
talented salesman with true leadership qualities. It’s because he’s such a good
salesman that I have allowed him to pad his expense reports. Well, I didn’t exactly
allow it; I simply let it go, since it didn’t amount to much at first, and [I] hoped that he
would eventually stop doing it. Now his expenses have gotten so inflated, our
bookkeeper asked me what to do about the charges. I”m not sure how to handle this. I
don”t want to embarrass my son, but now that others know about it, I can”t let it
continue.
Source: “Confronting a Son Who Pads His Expenses,” Family Business, Vol. 5, No. 3
(Summer 1994), p. 9.
Question 1 Given that the parent owns the business and knew what the son was doing,
should the son’s actions still be considered wrong?
Question 2 Do you agree with the parent’s handling of this situation up to this point?
Question 3 What should the parent do now?
Question 4 What internal controls should be established to prevent paddingeither by the
son or by others in the firmfrom recurring?
E-commerce can provide a benefit to small firms by compressing the sales cycle and
easing cash flow difficulties.
The universally accepted definition of the term small business is based on the number
of people employed by the firm.
The way small businesses communicate with their customers is completely different
from the way family members communicate with one another.
If the cost of shipping the finished product is high, the factory should probably be
located near a source of raw materials.
In most cases, the pressures of environmentalism have contributed to the profitability of
small firms.
Small business marketing is best defined as the performance of distribution activities
that affect the flow of goods and services from producer to consumer or user.
Small businesses have many options when they choose to go global, but it is not a good
idea for such firms to establish a sales or production facility abroad because of the
resources this requires.
As the game plan for a new venture, the business plan focuses on the entrepreneur’s
bank account and other cash sources.
Why would undercapitalization affect a small firm’s use of discounted cash flow
techniques?
Target market analysis refers to identifying and describing the types of customers to
whom you will sell, and this is an important part of a new venture marketing plan.
One weakness of a family business is the tendency of family members to leave quickly
when the business “falls on hard times.”
Distribution and selling are the essence of marketing.
A corporation’s charter should be brief, in accord with state law, and broad in the
statement of the firm’s powers.
The sole proprietorship is usually the most appropriate form of business organization
for a new small business.
List several of the objectives of an accounting system used in a small business, as
discussed in the text.
Some estimate that entrepreneurs are four times more likely to be millionaires than are
those who work for others.