"Double taxation" refers to the fact that the corporation itself must pay taxes on its net profits, and the stockholders must also pay taxes on the portion of those same profits distributed to them as dividends.Answer T "Knocking on the doors" of businesses an entrepreneur would like to buy—although they are not advertised "for sale"—is a waste time. Answer F ____ percent of small businesses sell on credit.Seventy-seven
____ recognizes any improvement in quality may improve a company’s competitive ability.Return on quality
_____ are those things that a business owns which have value.Assets _____ is simply the money owed the firm by customers because they’ve purchased goods or services on credit. Accounts receivable ______ gives owners the security of a sales contract but permits them to stay at the “helm” for several years.The two-step sale
______ is a small number of customers to give you feedback on specific issues in your business—quality, convenience, hours of operation, service, and so on.Focus Group ______ is not a primary goal of a competitive intelligence program: All these are primary goals of a competitive intelligence program
______ is the process of creating and delivering desired goods and services to customers, and involves all of the activities associated with winning and retaining loyal customers. Marketing
______ publishes Annual Statement Studies, showing ratios and other financial data for over 650 different industrial, retail, and wholesale categories. Robert Morris Associates ______ puts the customer at the center of a company’s thinking, planning, and action and shifts the focus from a product or service to customers and their needs and wants. Customer Relationship Management (CRM)
_______ are negative external forces that inhibit the firm's ability to achieve its objectives. Threats
_______ are positive internal factors that contribute towards accomplishing the company's objectives. Strengths
_______ are those items of value the business owns; _______ are those things the business owes.Assets; liabilities
_______ are those things that a business owes; they represent creditors' claims against the business.Liabilities
_______ is a process in which computer software that uses statistical analysis, database Data Mining
_______ is the notion of drawing customers into a store by creating a kaleidoscope of sights, sounds, smells, and activities, all designed to entertain—and, of course, sell. Entertailing
_______ publishes key business ratios for 22 retail, 32 wholesale, and 71 industrial business categories. Dun and Bradstreet, Inc.
_______ ratios tell whether or not the small company will be able to meet its maturing Liquidity
________ are the broad, long-range attributes the small business seeks to accomplish; _______ are the specific, measurable milestones the company wants to achieve. Goals; objectives ________ corporations have shares that are controlled by a relatively small number of people - family members, relatives, or friends. Closely held
________ focuses everyone’s attention and efforts on the same target market. It is an expression of what the owner believes in. The company vision
________ franchising exists when a franchisee is licensed to sell specific products under the franchiser's brand name through a selective distribution system. Product distribution
________ is one indication that a small business may be undercapitalized. A debt-to-net worth ratio above 1:1 ________ is the money that moves through the business in a continuous cycle.Cash ________ measures a company’s liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time. Cash Flow ________ occurs when a general partner ceases to be associated with the business; __________ is the final act of winding up the business. Dissolution; termination ________ partners are not active in a business but generally are known to be members of the partnership. Silent
________ ratios help a business owner evaluate the company's performance and indicate how effectively the business employs its resources. Operating
________ the value of the owner’s investment in the business. Owner’s Equity _________ companies are most likely to suffer cash shortages. Fast-growth _________ is simply a "cash plan" which shows the amount and the timing of cash receipts and cash disbursements over time. A cash budget _________ is when owners of independent businesses become franchisees to gain the advantage of name recognition. Conversion franchising
_________ ratios indicate how efficiently the small firm is being managed. Profitability
_________ ratios measure the financing supplied by business owners and that supplied by the firm's creditors .Leverage
_________ refers to developing, maintaining, and managing long-term relationships with customers so that they will want to keep coming back .Customer Relationship Management
_________ requiring all franchisers to disclose detailed information on their operations at the first personal meeting or at least fourteen days before a franchise contract is signed or any money is paid. UFDD _________ which is nothing more than a “cash map,” showing the amount and timing of the cash receipts and the cash disbursements day by day, week by week, or month by month. Both a and c
__________ franchising involves providing the franchisee with a complete business system--the established name, the building layout and design, accounting systems, etc. Pure __________ refers to buy much needed materials, equipment, and supplies—without using cash. Bartering __________ typically lead(s) sales; ____________ typically lag(s) sales.Production; receivables
___________ are long-range, broad statements of what the company plans to accomplish in the distant future, and they guide the overall direction of the company. Goals
___________ are negative internal factors that inhibit the accomplishment of a firm's objectives. Weaknesses
___________ are short-term, specific targets which are attainable, measurable, and controllable. Objectives
___________ are specific measurable targets to be accomplished in a defined time period .Objectives ___________ is not one of the three estimates a financial analyst suggests standard
___________ is the vehicle for gathering the information that serves as the foundation for the marketing plan. Market Research
____________ are a unique set of capabilities that a company develops in key areas, such as Core Competencies.
____________ are relationships between a controllable variable—plant size, quality, packaging—and a critical factor influencing the firm's ability to compete in the marketplace. Key success factors
____________ franchising involves the owner of an existing business becoming a franchisee to gain the advantage of name recognition. Conversion
_____________ is a process in which computer software that uses statistical analysis, database Data Mining
______________ measures how efficiently the firm is operating and offer information about its bottom line. Profitability ratios
______________ measures the financing supplied by the company’s owners against that supplied by its creditors and serve as a gauge of the depth of a company’s debt. Leverage ratios
______________ tells whether or not the small business will be able to meet its maturing obligations as they come due .Liquidity ratios ________________ have shares that are controlled by a relatively small number of people, Closely held corporations “Copreneurs” are marked by: a division of labor by expertise.
“Copreneurs” are: Entrepreneurial couples who work together as co-owners of their business “Corporate dropouts” are middle managers who are laid off from large corporations and decide to start their own businesses rather than return to a corporate job. Answer t
“Me-too” franchises are more successful than “me-too” independent business Answer t
104. Developing core competences does not necessarily require a company to spend a great deal of money. Answer f 108. In a competitive profile matrix, a major strength is given a ranking of 1.Answer t
109. A time frame for achieving objectives is important.Answer T
110. A differentiation strategy works well when buyers are sensitive to price changes, when competingAnswer F 111. A strategic plan doesn’t need to be put into action to be complete.Answer F
52. The final step in creating a knowledge management program is: continue to add to the knowledge base the company has assembled. 53. Which strategy recognizes that not all markets are homogenous? Focus
54. A strategic plan should not:begin with extensive objective setting
55. Strategic management is a process that involves:Both b and c
A ___ strategy tends to be ideally suited to the small business.focus A _______ is what a customer gains from the product or service feature. Benefit
A __________ is a descriptive fact about a product or service. Feature A _____________ is a contract in Which a business selling an asset on credit gets a security interest in that asset, protecting the company’s legal rights in case the buyer fails to pay. Security agreement A ________________is a checking account that technically never has funds in it but is tied to another master account like payroll Zero balance account A “limited liability company” is legally treated just like a limited partnership. Answer F A bank account that technically never has funds in it but is tied to another master account so that zero balance account.
A benefit is a descriptive fact about a product or service (e.g., “an ergonomically designed, more comfortable handle”). Answer F
A benefit is a descriptive fact about a product or service.Answer F
A benefit is what the customer gains from the product or service feature.Answer T A break-even analysis has several drawbacks including the fact that it ignores the importance ofAnswer T A bulk transfer prevents creditors of the seller of a business from laying claim to the assets the buyer purchases to satisfy the seller's debts.Answer T A business owner who buys a company whose financial statements show a pattern of short-term profitability is guaranteed of getting a good deal.Answer F
A business plan for the small business owner: contains both a marketing plan and a financial plan.
A business plan performs a number of functions including:attracting capital for the start-up.
A business plan presentation should cover:All of the above A business plan should always have a cash flow projection.Answer T
A business plan:forces an entrepreneur to think a business idea through, considering both its positive and its negative aspects.
A business plan:reduces the risk and uncertainty involved in starting a new company.
A business plan's financial forecasts should reflect the company's ability to repay loans.Answer T A buyer should never trust the firm’s balance sheet evaluation of inventory but should conduct an independent assessment of inventory age and salability.Answer T A cash budget is a forecast of the firm’s cash inflows and outflows over a specific time period.Answer T A cash budget is only as accurate as the ________ forecast from which it is derived.sales A cash budget is the document that shows a company the margin between its profit and its costs of goods and how to manage it.Answer F A common reason cited by banks which reject small business loan applications is "undercapitalization or too much debt."Answer T A company may have a powerful competitive advantage, but it is wasted unless:All of the above
A company’s competitive edge is:based on customers’ perception of its products and services. A company’s intellectual capital is likely to be the source of its competitive advantage in the marketplace Answer T A company's P/E ratio is: the price of one share of its common stock divided by its earnings per share. A competent owner is a master of day-to-day operations of the business and can help a buyer to make a smooth transition into business ownership.Answer T
A competitive profile matrix: compares the firm's and its competitors’ key success factors. A corporation doing business in the state in which it is incorporated is considered to be a/an ______ corporation. domestic A corporation formed and chartered in Kansas is considered a domestic corporation when doing business in Kansas.Answer T A corporation receives its authority to operate from:the state.
A danger of cost leadership is that a company may misunderstand what processes actually drive its true costs.Answer T
A demographic trend is like a train for the small business owner in that:he/she needs to discover where it is going early and decide whether or not to get on board.
A description of the key factors that will dictate the success of your businessquality, price competitiveness, etc. should be contained in the ____ section of the business plan.description of the business
A differentiation strategy carries a risk with it, in that a firm may not adequately segment the market and properly target those special needs. Answer T
A differentiation strategy:focuses solely on making the physical characteristics of the product as unique as possible. A disadvantage of the market approach to valuing a business is finding similar companies for comparison.Answer T A distinct disadvantage of the corporate form of ownership is:Double Taxation A firm whose sales fluctuate widely over a relatively short time might require a ______ cash budget.Weekly A firm whose sales volume is expanding rapidly need not be concerned about managing its cash flow.Answer F
A focus strategy is ideally suited to many small businesses, which often lack the resources to reach a national market. Answer T
A focus strategy recognizes that all markets are homogeneous. Answer F A foreign corporation is one chartered in a foreign country. Answer F A goal is the master plan that covers all of the major parts of the organization and ties them together into a unified whole. Answer F
A great source that profiles a variety of industries and offers projections for the future trends is:The U.S. Industrial Outlook Handbook
A high debt ratio:means that creditors provide a large percentage of the company's total financing. A joint venture is different from a partnership in that the joint venture:is formed for a specific purpose. A joint venture is very similar to a corporation, but is only formed for a specific event or occasion.Answer F A key characteristic of a successful entrepreneur is: learning to fail intelligently.
A key to effective innovation by the entrepreneur is:always looking for new product and service ideas.
A knowledge based business economy favors small business because: Both a & c A lease is treated as an operating expense and is not carried as a liability on a company's balance sheet.Answer T A limited liability company differs from an S-corporation in: that it is not subject to the same amount of restrictions. A limited liability company is formed under: Articles of Organization. A limited partner does not have the right to manage the business in any way and still maintain limited status. Answer T A limited partner is liable only for the amount he has invested in the business .Answer T A limited partnership is a modification of a/an ______ form of ownership. general partnership A lockbox arrangement is very inexpensive to operate and is economical even for small businesses with a low volume of payments on account.Answer F
A low inventory turnover ratio demonstrates that the firm's inventory is liquid and its pricing policies are accurate. Answer F
A marketing plan should have four objectives: profit, profit, profit, and profit. Answer F
A master franchise gives the franchisee the right to combine two distinct franchises under one roof.Answer F A master franchise is also called:Both a and b
A mission statement addresses the first question of any business venture: “Where do I see myself to be?” Answer F
A mission statement should answer which of the following questions? What are the needs and wants of the target customers?
A multi-unit franchise gives the franchisee the right to open more than one franchise outlet in a territory within a specific time frame.Answer T
A new business owner must operate for at least six months in order to collect sufficient information to calculate net sales from a profit target.Answer F A new owner of an existing business can generally introduce change and innovation almost as easily as if the company was a new business start-up.Answer F A partnership agreement sets how the partners will be compensated. Normally:partners are not entitled to salaries or wages, but are compensated by a share of the profits of the business. A partnership cannot be dissolved except in the case of the general partner’s expressed wish that the partnership cease.Answer F A partnership is:not subject to the double taxation of some other forms of business.
A poor image for the entire franchise could result from some franchisees using inferior products to cut costs. Answer T A pro forma financial statements means:Preparing projected financial statements A professional corporation is created in the same way as a regular corporation, and exists to provide limited liability to doctors, lawyers, etc.Answer T A purchase agreement draft should have which of the following?All of the above
A quick ratio greater than 1:1 indicates that a small firm is overly dependent on inventory and on future sales to satisfy short-term debt.Answer F
A ratio greater than ______ days would indicate poor collection procedures.40 days
A significant advantage a franchisee has over the independent small business owner is participation in the franchiser's___________.centralized and large-volume buying power
A significant advantage a franchisee has over the independent small business owner is participation in the franchiser’s centralized and large-volume buying powerAnswer T A significant benefit of starting your own company is: contributing to society and being recognized for your efforts. A significant disadvantage of a partnership is:the difficulty of disposing a partnership interest without dissolving the partnership.
A significant growth area in franchising is providing time-saving services to baby boomers.Answer T
A small business following a focus strategy attempts to serve its narrow target markets more effectively and efficiently than competitors trying to appeal to the broad market. Answer T A small business owner could accelerate accounts payable by:sending or faxing invoices the day of shipment.
A small business owner needs to remember that when it comes to employee involvement in the strategic planning process:involvement is a prerequisite for the achievement of total employee commitment.
A small business owner would conduct a competitive analysis in order to: avoid surprises from existing competitors and to identify potential new competitors.
A small business’ “aggregation of factors that sets it apart from its competitors” is its: competitive advantage.
A small company following a ______ strategy seeks to build customer loyalty by positioning its goods and services in a unique fashion.differentiation A small company's promotional goals may include creating a brand image, persuading customers to buy, and/or to develop brand loyalty.Answer T
A small firm's ability to identify and manipulate the _______ in its business determines its ability to compete effectively. key success factors
A solid business plan is marked by a number of characteristics including:a description of the management team. A sound mission statement needs to be lengthy in order for it to be effective.Answer F A straight business sale may be worst for a seller who wants to step down and turn over the reins of the company to someone else. Answer F
A strategy is a road map of action for fulfilling a firm’s mission, goals and objectives.Answer T A study of 230 fast-growing companies showed that 73% tracked cash flow either daily or weekly.Answer F
A technique that allows the small business owner to perform financial analysis by understanding the relationship between two accounting elements is called:ratio analysis.
A total assets turnover ratio below the industry average may indicate that the small firm is not generating an adequate sales volume for its asset size.Answer T A two-step sale is when the new buyer assumes the role of president and the current owner stays onAnswer F A valuation method that is more realistic than the balance sheet because it adjusts book value to reflect actual market value is the:adjusted balance sheet method.
A well-conceived and defined vision can be a competitive weapon in the marketplace by helping everyone understand and focus on the same target.Answer T
A well-developed business plan provides the entrepreneur with a number of benefits, such as:determining the principle risks confronting the business.
A well-prepared business plan helps determine the risks facing the venture.Answer T A(n) _______ is a form of employee benefit plan in which a trust created for employees purchases their employers’ stock. ESOP A/an _______ operates like a regular partnership except its shares of ownership are traded on stock exchanges.master limited partnership
According to experts, the most important factor in franchising is location.Answer T
According to Forrester Research, although small businesses make nearly 50 percent of all retail sales in the United States, they account for just 6 percent of all online sales.Answer T According to the discounted future earnings technique, a dollar earned in the future is worth more than a dollar earned today.Answer F According to the National Association of Credit Management, receivables are only the second most important item on the balance sheet.Answer T
According to the Trade Regulation Rule, every franchiser must provide detailed information on their operations at the first personal contact, or at least 14 days before a franchise contract is signed.Answer T Accounts receivable are rarely worth face value, and should be “aged” when evaluating a company’s assets.Answer T Accounts receivable in an existing business:are rarely worth their face value. Acme Corporation is chartered in Delaware, but its primary area of operation is in South Carolina. In South Carolina, Acme would be considered a/an ________________ corporation.foreign
ACT!, Clementine, DataScope Pro, GoldMine, MineSet, Nuggets are what type of software packages:Data Mining
Advances in technology available to entrepreneurs permit them to move into manufacturing and compete directly with Fortune 500 companies.Answer F
After a company’s strengths and weakness are assessed, the strategic planning process should identify opportunities and threats facing the company and should isolate the key factors for success in the business.Answer T
All costs directly related to the manufacture and distribution of goods is covered under general expenses.Answer F All partnerships must have:at least one general partner.
Although it is a lower risk way to start, very few entrepreneurs start part-time. Most prefer to cut all ties and “de” into their business full-time, right from the start.Answer F Always tell the truth, even if it’s bad news, in the business plan.Answer T
American customers rate reliability as the top component in quality.Answer T
An above average inventory turnover indicates that the business:is healthy, with a salable inventory.
An adequate profit in a small business must include a reasonable return on the owner's total investment in the business.Answer T An agreement between a business seller and the buyer, in which the seller agrees not to open arestrictive covenant. An arrangement in which customers mail their payments on account to a post office box which the lockbox.
An effective market analysis identifies:how the product will be advertised.
An effective strategic plan does which of the following?Identifies a complete set of success factors—financial, operating, and marketing, that yield a competitive advantage for the company An entrepreneur should not include an exit strategy as a way to "cash out" for investors in the initial plan.Answer F
An executive summary highlights the critical aspects of the plan.Answer T
An executive summary should be:A snapshot of the entire plan
An executive summary should:All of the above
An explanation of how the product will be distributed is contained within the:marketing strategy portion of the business plan.
An external test of a business plan that revolves around proving that a market exists is the:reality test. An important advantage of buying an existing business is the greater likelihood that it will continue to survive and thrive in the marketplace.Answer T An important first step in protecting the small business from bad debt losses is a detailed credit application. Answer T An important source of credit information that collects information on small businesses that other reporting services ignore is:National Association of Credit Management. An invoice marked 3/12 net 30 means that you can take a 3% discount if you pay the bill in 12 days but you must pay the entire balance in 30 days.Answer T An owner should choose an S-corporation form of ownership when he/she:is starting up a company and anticipating either net losses or high profits with large dividends.
An S Corporation can have more than 75 shareholdersAnswer F An S-corporation can issue both voting and non-voting common stock to its shareholders.Answer T An S-corporation form of ownership overcomes which disadvantage of the regular or “C” corporation form of ownership?The double taxation issue An S-corporation maintains the advantages of the corporate form of ownership while having the ability to be taxed as a partnership.Answer T
Another term for Combination Franchising is Piggybacking
Answering the question "What business am I in?" defines the company's: mission. Antonio is a limited partner and is neither active nor generally openly associated with the firm. He is the _____ partner.dormant
Any assets pledged to the bank as security for repayment of the loan are the ____ of the five Cs.collateral Any liens against a business must be satisfied by the current owner before the sale can be consummated.Answer F
As a company's debt-to-net worth ratio approaches 1:1, its creditors' interest in that business approaches that of the owners’.Answer T
As a general rule, financial analysts suggest that a small business maintain a/an ______ ratio of at least 2:1.current
As with most franchises, the key to McDonald’s success is the standardization of their product, processes, etc.Answer T Asset-management accounts are available to small businesses that have at least $1.5 million in annual revenues.Answer F At the end of ____________, a business turns the equipment back over to the leasing company with no further obligation. Operating lease At the end of a capital lease, a business has no option left to purchase the equipmentAnswer F At the end of__________, a business may exercise an option to purchase the equipment, usually for a nominal sum. Capital lease
Attracting a new customer costs ______ as much as keeping an existing one.five times
Balanced scorecards, a set of measurements unique to a company that includes both financial and operational measures and gives managers a quick yet comprehensive picture of the company’s total performance. Answer T Bartering refers to buy much needed materials, equipment, and supplies in exchange of other products or services and cash.Answer F
Based on the principle of ________, the idea is to put a franchise's products or services directly in the paths of potential customers, wherever that may be.Intercept marketing Because inventory is illiquid, cash invested there is tied up and cannot be used for other purposes.Answer T
Because of their organizational and managerial flexibility, small businesses often can detect and act on new opportunities faster than large companies.Answer T
Before a business owner can build any strategies, he/she must have clear goals and objectives in order to have an appropriate target to aim his/her strategies toward.Answer T Before buying an existing business, the buyer should analyze two external elements of the business:its customer characteristics and direct competitors. Before purchasing an existing business, an entrepreneur should analyze closely both direct and indirect competitors.Answer F Bill and Henry are discussing the volume of cash that has been coming into and going out of their business during the accounting period. They are discussing:cash flow. Bill and Sally have been tired of the corporate rat race. corporate castoffs.
Bill is studying those expenses that contribute directly to manufacturing and distribution of goods. He's reviewing:operating expenses.
Bill wants to conduct market research to find out why sales are dropping. He should define his market research problem as, “To discover why sales are declining.”Answer F Book value of a business is not the same as its market value.Answer T Break-even analysis is somewhat complex to use, but it is a final screening device.Answer F Business evaluations based on balance sheet methods offer one key advantage: they consider the future earning potential of the business.Answer F
Business plans need to pass three tests:the reality test, the competitive test, and the value test.
Business prototyping recognizes that every business idea is a hypothesis that needs to be tested before an entrepreneur takes it to full scale Answer T
Business strategy outlines how the owner plans to achieve business objectives in the face of a competitive environment. Answer T
Buying a franchise prevents an entrepreneur from making many mistakes and avoids the most inefficient type of learning—trial and error.Answer T By choosing certain forms of ownership, an entrepreneur does not give up some control over the company. Answer F
By definition, a franchise is owned by a semi-independent franchisee who pays a fee to a franchiser in return for the right to sell the franchised goods or services.Answer T By planning cash needs ahead of time, an entrepreneur is able to:Both a and b
By signing the franchise contract, a franchisee typically surrenders some freedom and autonomy in operating his/her business.Answer T Bylaws are the rules and regulations the officers and directors establish for the partnership’s internal management and operation.Answer T Calculating these ratios is not enough to insure proper financial control.Answer T Carlos founded the “Taco Factory” 20 years ago as a family-oriented restaurant business. Over The potential loss of control Carrying too much inventory increases the chances that a business will run out of cash.Answer T Cash budget is the same as “cash map”.Answer T Cash flow cycle refers to the time lag between paying suppliers for merchandise and receiving payment from customers.Answer T Cash flow measures a company’s liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time.Answer T Cash is money that flows through the business and is not tied up in any asset.Answer T Cash management involves:All of the above
Chapter 1 –
Closely held corporations have shares that are controlled by a relatively small number of people, often family members, relatives, or friends. Answer T Common bases for a focus strategy include superior customer service, special product features,Answer F Common ownership interest in a business, sharing profits (or losses) of a business, and the right to participate in managing the operations of the business are characteristics of a/an:partnership.
Companies connect with their customers __________ by supporting causes that are important to Emotionally
Companies do a number of things to focus on their customers, including:fixing customer complaints quickly. Companies started by women differ from companies started by men in that: women’s companies start smaller and more slowly. Companies started by women tend to grow more rapidly than those started by men.Answer T
Companies with strong reputations for quality follow certain guidelines, such as:establishing long-term relationships with suppliers.
Company goals address the question, "Why am I in this business?"Answer T
Competitive advantage is:The aggregation of factors that sets the small business apart from its competitors and gives it a unique position in the market
Competitor’s Analysis should identify:All of the above
Concerning how much cash to have at start-up, a rule of thumb is to have enough to cover operating expenses (less depreciation) for two inventory turnover periods.Answer F Convincing alienated customers to return can be an inexpensive process that doesn’t take long.Answer F
Corey notices a “backlash” against health food among people who eat out. He decides to open a opportunity Corporations can also stimulate managers’ and employees’ incentive on the job by creating an _____ (ESOP):Employee Stock Ownership Plan Corporations that are formed in other countries but do business in the United States are:Alien corporations
Cost leadership has several inherent dangers such as:an overfocus on costs to the elimination of other strategies.
Customer service, convenience, speed and quality are all examples of: Setting your business apart from others
Customer surveys and questionnaires should be:All of the above
Defining the target market is one of the hardest and most important things the entrepreneur can do in the business plan.Answer T
Defining the target market’s potential and describing its characteristics is part of the:marketing strategy portion of the business plan.
Depreciation is:listed as a source of funds because it is a noncash expense, deducted as a cost of doing business.
Despite all the benefits, there are a number of disadvantages to franchises, such as:strict adherence to standardized operations. Despite their magnitude, family businesses face a major threat – a threat from within: management succession.Answer T Despite their popularity, family-owned businesses are actually a small portion of the economy and contribute less than 25% of the GNP to the economy of the United States. Answer F Developing a winning marketing strategy requires a business to master three vital resources:People, information, and technology
Dirk wants to be in control. He’s tired of taking orders from others and wants to feel a sense of accountability for the outcome of his work. Dirk displays the entrepreneurial characteristic of: the desire for immediate feedback.
Discussion of profitability and anticipated profitability of firms in the market segment, along business and industry profile Dividing gross profit by net sales produces:Gross profit margin
Do not heed any information gathered from past franchisees, because they will distort the reasons why they left the franchise.Answer F
Drawbacks of owning a small business include all but: Too many financial statements During the acquisition process, the potential buyer must sign a _____ which is an agreement to keep nondisclosure statement Each partner is an agent for the business and can legally bind other partners to business agreements. Answer T
Early involvement of the total work force in the strategic management process is a luxury that larger businesses cannot achieve.Answer T
Effective one-to-one marketing involves:all of these. Efficient cash managers:set up a payment calendar in order to both pay on time and take advantage of cash discounts for early payment. Entrepreneurial businesses fall victim to this circumstance because they think it only benefits large companies. A lack of strategic planning Entrepreneurial education: All of the above. Entrepreneurs are more wild risk-takers than calculated risk takers.Answer F Entrepreneurs are noted for their ability to bounce back after a business failure.Answer T Entrepreneurs are people who grow existing businesses by careful management of existing resources.Answer F Entrepreneurs can trim costs by:All of the above
Entrepreneurs often underestimate the financial requirements of launching a business or Under-capitalization
Entrepreneurs seem to be characterized by: a high energy level.
Entrepreneurs should artificially inflate the amount of a loan request and expect the loan officer to "talk them down."Answer F
Entrepreneurs start businesses for a number of reasons including: an opportunity to make a difference. Entrepreneurs tend to create thorough, well thought out business plans prior to implementing new businesses.Answer F
Entrepreneurs usually experience greater income stability running their own businesses than they did in their corporate careers.Answer F
Entrepreneurs who apply for loans without having prepared business plans are less likely to get the money they need.Answer T Entrepreneurs who want to pass their businesses on to their children should consider forming _____________.Family Limited Partnership ESOPs: allow owners to transfer all or part of their companies to their employees as gradually or as quickly as they choose.
Essential pieces of information for potential investors and lenders are the assumptions the entrepreneur used to derive forecasts, projections, etc.Answer T
Establishing a Mrs. Fields Cookies franchise inside a Hardees fast-food franchise is an example of ________ franchising.piggyback
Evaluates the firm’s overall performance and show how effectively it is putting its resources to work. This is called:Operating ratios Even though it is an intangible factor, the entrepreneur's "character"—and the quality of the presentation—are important factors in evaluating a loan proposal.Answer T
Every business is characterized by a set of controllable variables called __________ that determines the relative success (or lack of it) of market participants: key success factors Exchanging goods and services for other goods and services, or _______, is an effective way for a small business to conserve cash.bartering
Executive summary is the broadest expression of a company’s purpose and defines the direction in which it will move.Answer F Executives at companies purchased by foreign buyers say that their relationships with their foreign owners improve over time.Answer F Factors an entrepreneur should consider when choosing a form of ownership should include but not be limited to: tax considerations, liability exposure, business goals, managerial ability, etc.Answer T Failing to age accounts receivable could lead a buyer into paying more for a business than it is worth.Answer T
Failing to keep corporate and personal funds separate is most often a problem in closely held corporations Answer T Family businesses face a major threat. Management succession.
Family-owned businesses have a significant advantage over other forms of small business, in that they have a very high survival rate when transitioning between generations of leadership.Answer F
Federal Trade Commission (FTC) enacted the Trade Regulation Rule, requiring all franchisers to disclose detailed information on their operations at the first personal meeting or at least ten daysAnswer T
Financial ratios are a common tool used by over 50% of small business owners in the daily management of their businesses.Answer F
Fixed assets consist of cash and items to be converted into cash within one year or within the normal operating cycle of the company, whichever is longer.Answer F
Focus strategies, unlike Porter’s other generic strategies, are without risk because they tend to combine elements of all three strategies.Answer F For a bulk transfer to be effective, a buyer must keep the list of creditors and list of property for six months.Answer T For a new owner of an existing business, physical facilities and equipment costs are very similar to what would have been spent on a start-up with all new facilities and equipment.Answer F For a small business, cash planning is relatively simple since cash and profits are the same.Answer F For cash planning purposes, it is better to underestimate cash disbursements than to overestimate them.Answer F For entrepreneurs, a business plan is:All the above.
For the results of market research to provide a solution to a small business owner’s problem:the owner must attach meaning to it.
Forces driving the entrepreneurial trend in our economy include which of the following: All of the above
Franchise advertising programs:require franchisees to spend a minimum amount on local advertising.
Franchisees generally sell only those products or services that the franchiser has approved but may sell complimentary products as long as they aren’t a second competing franchise.Answer F
Franchisers are obligated to renew a franchisees' contract unless there has been malfeasance on the part of the franchise.Answer F
Franchisers can require franchisees to purchase materials and supplies only from approved suppliers.Answer T
Franchising benefits the franchiser by providing a quick way to expand the distribution system and a way to grow without the cost and effort to develop managers internally.Answer T
Franchising is currently dominated by:retail outlets.
Franchising, as a method of conducting business, has declined in importance in the past five years in international markets.Answer F Free trial offers, free delivery, lengthy warranties, and money back guarantees are examples of:Non-price competition
General requests for funds e.g., “working capital" are sufficient for most loan offices. Answer F Generally speaking, current employees will prove flexible and able to meet whatever changes the new owner desires to make once the business is acquired.Answer F Generally speaking, most small business owners tend to:underestimate cash disbursements.
Generally speaking, small businesses are more effective at relationship marketing than larger companies.Answer T
Generally, the higher the small firm's average collection period ratio, the lower the chance of bad debt losses.Answer F Generation X, made up of those people born between 1965 and 1980, is the most entrepreneurial generation in history. Answer T
Giving customers a chance to complain about a problem usually is fruitless; once a businessAnswer F
Goals and objectives provide the direction for the small firm and are essential to the strategic planning process.Answer T
Goals indicate how the small firm's resources will be allocated to specific ventures or activities.Answer F Goodwill is a capital asset that the business buyer cannot depreciate or amortize for tax purposes.Answer T Goodwill is the difference between an established successful business, and one that has yet to prove itself.Answer T
Having an attorney review and evaluate a franchise contract really is unnecessary since the FTC requires all franchisers to offer a "standard" franchise contract.Answer F Hendrix Neimann faced several problems with ADS once he bought it but the problem that eventually caused him to close his doors was a weak cash flow.Answer T )
Highly successful entrepreneurs are able to communicate their vision and their enthusiasm about that vision to those around them. Answer T Hiring both part-time and free lancers rather than full-time workers saves on both the cost of salaries and employee benefits.Answer T Hiring the previous owner as a consultant for the first few months can be a valuable investmentAnswer T
How is the strategic planning process for small companies different from that for large companies? The process should be informal and not overly structured—"a shirtsleeve approach."
How the product will be distributed should be explained in the plan of operation.Answer F Idealists make up the largest group amongst different entrepreneurial personalities.Answer F Ideally, a small firm's cash balance should be two times its average weekly sales.Answer F Ideally, the average payable period should match or exceed the time it takes to convert inventory into sales and sales into cash.Answer T If a banker requires the current loan on a business to be paid at the time of the sale to the new owner, the banker will require a due-on-sale clause in the agreement.Answer T
If a franchiser encourages you to sign without reading the agreement, or discourages you from “spending the money on an attorney,” this is a warning sign that the franchiser might be dishonest.Answer T
If a limited partner spent more than 500 hours in the company, he/she will be treated as general partner and will lose their limited liability protection Answer T If a partnership agreement does not exist, the partnership will be governed by the Uniform Partnership Act.Answer T If a partnership is formed without an agreement, the partnership is automatically subject to the:Uniform Partnership Act. If a small business owner receives a “Notice of Filing” from a customer, he should:immediately file a proof-of-claim. If a small firm's profits are climbing, the owner can be sure its cash balance also is risingAnswer F If a sole proprietorship fails, the owner is not liable for its debts since the business is a separate legal entity.Answer F
If employees are committed to quality, management’s commitment becomes unimportant.Answer F
If Mary wants to compare what her small business owes to what it owns in order to assess herdebt-to-net worth If stockholders in a corporation are displeased with the business’s progress, they can sell their shares to someone else. Answer T If the corporation, rather than the business seller, signs a restrictive covenant, the seller may not be bound by its terms.Answer T If the firm owns any trademarks, patents, or copyrights, or has built up a positive reputation with customers and suppliers, the business has what is/are called:intangible assets.
If the partners fail to create an agreement, the UPA says that the partners share equally in the partnership’s profits, even if their original capital contributions are unequal.Answer T
Immigrant entrepreneurs tend to arrive in the United States with less education and experience but more drive and access to capital through their "ethnic" connections.Answer F
In ________ franchising, a franchisee purchases only the right to become identified with the franchiser's trade name.trade name In a business sale, the buyer seeks to:All of the above In a business sale, the seller is looking to:Maximize the cash he/she gets from the sale In a cash budget, credit sales to customers are recorded as soon as the sale is made.Answer F In a closely held corporation, one of the steps that should be taken by to avoid legal difficulties is:Hold annual meetings to elect officers are directors.
In a franchise arrangement, the franchiser controls the distribution methods of the business venture.Answer F In a joint venture, individuals join together in co-ownership for: a given limited purpose. In a limited partnership, the “limited partner” is primarily an investor and can lose only the amount invested in the business.Answer T In a limited partnership, the limited partners are treated like ____ by the law.investors In a partnership, profits (and losses) are shared according to any ratio stated in the articles of partnership.Answer T In a partnership, the general partner(s) share their unlimited liability for the business debts with both silent and dormant partners.Answer F In a sole proprietorship, the owner has limited liability.Answer F
In addition to other fees, franchisees must also pay royalties but only on net profits—no profits, no royalties.Answer F In evaluating an existing business, entrepreneurs should seek to answer several questions, including:what legal aspects should be considered?
In franchising, _________ pay fees and royalties to a ________ in return for the right to sell its Franchisee, franchiser
In franchising, the reputation of the franchiser is dependent on:the quality of the goods and services provided. In general, in negotiations and acquisitions of a business, the buyer seeks to:Both a and b In general, the seller of the business is looking to:Both a and b In her partnership, Ana has unlimited liability for the partnership's debts. She would be the ____ partner.general
In many franchises, strict uniformity is the rule rather than the exception.Answer T In most business sales, the buyer bears the responsibility of determining whether or not the business is a good value.Answer T
In most cases of sole proprietorship, an entrepreneur can complete all of the necessary paperwork in a single day!Answer T
In most cases, a franchisee does not have to get the franchiser's approval to sell the franchise to a third party.Answer F
In most cases, lenders and investors look for key people, promising opportunity, business context and risks and rewards in a business plan Answer T
In most cases, startup costs for franchises often does not include any additional fees.Answer F
In reviewing the company’s balance sheet, Andy noticed that the total asset is stated as $2,250,000 In start-ups, it is often safest to be a "me-too" business, follow the leaders in the market Answer F
In the balance sheet, intangible assets include items such as:Both a and b
In the balance sheet, the current assets consist of:Inventory
In the business strategy of the business plan, the owner needs to explain to investors:how the entrepreneur intends to accomplish the company’s goals and objectives.
In the creation of the balanced scorecard, the entrepreneur needs to:establish goals for each critical factor of company performance. In the excess earnings approach to business valuation, the earnings of comparable companies are needed to set the valuation of the company.Answer F In the market approach, the technique to calculate the value of a company is:P/E
In the marketing strategy portion of the business plan, the entrepreneur should explain the promotional strategy, pricing strategy and distribution strategy.Answer T In today’s financial climate, more banks are becoming the primary and often only source of capital for new ventures.Answer F
In today's economy, entrepreneurs are seen as heroes.Answer T
In view of the cause of most new business failures, probably the most valuable service provided franchisees by the franchiser is:management training and experience. In which statement, the account balances are reversed to zero on a monthly basis?Income Statement
Independent entrepreneurs with a "go-my-own-way" attitude are ideally suited for becoming franchisees.Answer F
Individualized (or one-to-one) marketing, a system of gathering data on individual customers and then developing a marketing plan designed specifically to appeal to their needs, tastes, and preferencesAnswer F Intellectual capital of a company is comprised of which components:Talent and skills of its workforce
Investors look for which of the following when reviewing the experience of the management team of a new venture?Experience, talent, and integrity
Investors mainly want to see that entrepreneurs:Have realistic expectations about income and expenses
Investors read business plans in such detail that the executive summary is nice to have but it is optional.Answer F
Isaac M. Singer invented the franchise system with his Singer Sewing Machines during the time of the Civil War.Answer T
It is common to experience a lower quality of life during a business start-up than after the business is established.Answer T
It is important for potential entrepreneurs to have extensive experience in the business in which they are buying a franchise.Answer F
It is important for the small business owner to remember that the strategic planning process is:an ongoing process that must be repeated. It is important that both the buyer and seller have their objectives thought out, written down, and prioritized when they go into the negotiation.Answer T It is important to develop a list of criteria that a potential business acquisition must meet.Answer T It is important to remember when assessing the financial soundness of a company that:cash flow is the key financial element in determining financial soundness. It is mandatory to sing a non-disclosure document in every acquisition process.Answer F
It is not necessary for the industry analysis to address the profitability of the businesses in the targeted market segment. Answer F It is possible for a business to make a profit and go out of business due to cash flow problems.Answer T
It is possible for a small business owner to gather competitive data inexpensively, even data on other companies’ financial condition.Answer T It is relatively easy and inexpensive to convert existing businesses into LLCs.Answer F It is the position of your authors that companies that do not offer quality customer service will eventually fail, for that reason.Answer T Jane is arguing with Joan about how much cash on hand their small retail outlet needs as theyDetermining an adequate minimum cash balance Jeff is forming a company. If he chooses a/an ______ form of ownership, he can have no more than 75 stockholders and must have only one class of stock.S-corporation
Joan is seeking to answer a series of questions such as: How do competitor's cost structures performing a competitive analysis. Joanne is thinking about running her own business. What risks does she face? The risk of losing her entire invested capital
Joe is examining the percentage of total funds in a business provided by its creditors. He is working with the ______ ratio.debt
John is reviewing the company's costs and expenses against revenue for the last year. John is reviewing the firm's:income statement.
John wants to answer the question, “What drives my customers’ buying behavior?” The best information to address this question comes from:psychographics data. Juan is able to work well in a constantly changing atmosphere and has little concern for A tolerance for ambiguity Juan is starting a software writing company. He is the owner and has only 3 employees. He wants sole proprietorship.
Key success factors are simply relationships between controllable factors and critical elements that permit a firm to compete in its industry.Answer T Kyoto has started an interior decoration business. Everything about the business, from its to reach her full potential
Kyoto is writing a description of her new venture’s product line and how it compares to her competitors’ product lines. She is writing the ____ portion of her business plan.description of her firm’s product
Lack of experience is the number one cause of small business failures.Answer F
Large companies have a natural advantage over small firms when it comes to preparing a strategic plan.Answer F Launching and running a business can be an extremely rewarding experience, but it also can be ________: Stressful. Lease is considered a liability on the balance sheet.Answer F
Lenders and investors look for the experience, qualifications and age of the people who will breathe life into the plan.Answer F
Leverage ratios are a gauge of the depth of a company’s debt.Answer T Like “C” corporations, S-corporations must pay taxes on any assets that have appreciated in value and are sold.Answer F
Like a proprietorship or partnership, in which the death of a founder ends the business, the corporation doesn’t live beyond the lives of those who gave it life. Answer F Like a sole proprietorship, a partnership suffers from the disadvantage of:poor capital accumulation.
Liquidity ratios measure the financing supplied by the firm's owners against that provided by its creditors.Answer F Listening to customers and responding to what you hear from them is a highly effective way to achieve stellar customer service.Answer T
LLP does pay taxes as a corporation and its income is not passed through to the limited partners.Answer F Lockbox refers to customers send payments to a post office box the bank maintains.
Management Incompetence includes all but: Insufficient capital
Many business owners whose companies are losing money mistakenly believe that the problem is inadequate sales volume; therefore, they focus on pumping sales at any cost.Answer T Many entrepreneurs discover they work fewer hours (less than 45 hours a week) as new business owners than they did as middle managers in large corporations.Answer F Many successful, growing, and profitable businesses fail because they:Both a and b
Market research answers what important question for the small business owner?Who are my customers and what are they looking for?
Market research frequently only confirms the intuition of the small business owner.Answer F
Market research:provides the information that is foundational to the marketing plan. Marketing experts recommend introducing a new product only when the existing one is in the maturity stage of the product life cycle.Answer F Marking down inventory items that don’t sell will result in:Keeping the inventory lean Mary and Ted are discussing starting a new business and are asking themselves a series of The risk of losing their entire investment Master limited partnership profits typically must be divided among thousands of partners.Answer T Master Limited Partnerships are relatively new business structures that are just like corporations, including being able to trade their stock on stock exchanges.Answer F
McDonald’s is an example of a _____ franchise.pure
McDonald's relies almost exclusively on the trade name type of franchising.Answer F McDonald's worldwide success as a franchise can be attributed to a few simple strategies, including: ability to obtain prime locations in high-traffic areas. Minorities cite which of the following as the primary barrier to their entrepreneurship? discrimination
Money driven and wild risk takers are both: Common misconceptions of entrepreneurs More businesses are started by individuals between ____ than at any other age.25–34 More businesses fail because of __________ than for any other reason. incompetent management Most business buyers can expect to find detailed, accurate, and audited financial records in the companies they are looking at buying.Answer F
Most dissatisfied customers complain about rude or discourteous service to the owner or manager.Answer F
Most entrepreneurs start their businesses when they are between the ages of 25 and 44.Answer T
Most franchise experts consider the most important factor in the success of a franchise to be:location.
Most franchisers do not offer franchisees territorial protection, denying them the right to exclusive distribution of the brand name in a particular geographic area.Answer F
Most franchisers provide extensive financial help like loans and low-rate financing for their franchises. Answer F
Most gasoline products are sold through the _________ system of franchising.product distribution Most loans banks make to start-up businesses are unsecured by collateral but by the character of the entrepreneur.Answer F
Most marketing experts contend that the greatest marketing mistake small businesses make is:failing to identify the target market.
Most marketing experts contend that the greatest marketing mistake small businesses make is defining their target market too specifically or clearly.Answer F Most of today’s immigrant entrepreneurs come into the U.S. with: few resources but lots of dedication and desire.
Most often, disputes over a franchise contract arise after the agreement is in force.Answer T
Most small business owners believe it is relatively unimportant to monitor their competitors' activities.Answer F Most small businesses conduct a thorough credit investigation before selling to a new customer.Answer F
Most small businesses follow a "shotgun" approach in marketing their new products.Answer T Most small businesses prefer to express their break-even point in dollars rather than units produced or sold, unless they are retailing.Answer F
Most small businesses start out strong financially because of the care generally given in determining the total asset requirements for running the business.Answer F Most states do not require a Certificate of Incorporation or a charter to be filed.Answer F Most successful entrepreneurs accept failure as part of what they do, and they use it to learn for the "next time."Answer T
Multiple Choice
Nancy has owned her own hair salon for ten years. She's recently signed an agreement with Budget Cutters to become one of their outlets. This is an example of conversion franchising.Answer T Nearly 80% of companies in the United States use leases to help cash management.Answer T Neither the balance sheet method nor the adjusted balance sheet method of valuing a business considers the future earning power of the business.Answer T
Net profit on sales ratio = Net sales / Net incomeAnswer F )
New York was the first state to enact the Franchise Investment Law, which has since been adopted by numerous other states.Answer F Normally, when buying a business, the seller:cannot assign his credit arrangements with suppliers to the buyer.
Numerous surveys have concluded that the most important element of service is:the personal touch.
Objectives are long-range, broad statements of what the company plans to accomplish in the distant future.Answer F
Objectives are short-term, specific performance targets that are attainable, measurable, and controllable.Answer T Objectives are the broad, long-range attributes that a business seeks to accomplish.Answer F
Offering lower prices is the best method for a small business to establish its competitive edge.Answer F
Often, the presence or absence of a quality business plan is a determining factor in a lender or investor's decision to put money into a business venture.Answer T On a break-even chart, the break-even point occurs at the intersection of the fixed expense line and the total revenue line.Answer F Once a credit account becomes past due, a small business owner should:contact the customer immediately, ask for full payment, and set a deadline. Once a small business has established a firm written credit policy and communicated it, the next step in building an effective credit policy is to:send invoices promptly. Once an entrepreneur has evaluated him/herself, the next step in the acquisition process would be to:prepare a list of potential candidates and investigate them. Once the owner determines an adequate minimum cash balance, what is the next step in creating a cash budget?Forecasting sales
Once the vision and mission are established, the entrepreneur needs to: define the firm's core competencies.
One “natural” advantage small businesses have over large business, which can be a significant competitive advantage, is:relationship marketing. One advantage of buying an existing business is:equipment is installed and production capacity is known. One advantage of the excess earnings method is that it offers:Estimate of goodwill. One disadvantage of carrying too much inventory is controlling and managing the inventory.Answer T One disadvantage of the proprietorship is:Limited skills and abilities
One effective documentation technique involves __________, in which entrepreneurs test their Business prototyping One effective technique for improving cash management is to establish a firm credit policy in writing and let customers know in advance what it is.Answer T One hallmark of true entrepreneurs is their ability to adapt to the changing demands of their customers and businesses.Answer T One highly effective cash management strategy is to schedule inventory deliveries as early as possible to speed your payment of accounts payable.Answer F One important characteristic of bartering is that:No cash is being exchanged when bartering.
One important characteristic of successful “copreneurs” is their ability to separate their business life from their personal life, so that one doesn’t consume the other.Answer T
One key to building a successful differentiation strategy is to be better than competitors at some characteristic that customers value.Answer T One key to success with a business startup is to begin with enough _________:capital. One major advantage of the _________ is that once the owner has paid all of the company’s expenses, he/she can keep the remaining profits (less taxes, of course)Sole Proprietorship One of the advantages of a partnership over a proprietorship is the increased sources of capital and credit it offers.Answer T One of the advantages of a sole proprietorship is that skills and capabilities are unlimited because you, as sole proprietor, are able to assume all of these responsibilities.Answer F
One of the best ways for an entrepreneur to evaluate a potential franchiser is to interview several franchise owners who have been in business at least one year. Answer T One of the biggest mistakes business buyers can make is entering negotiations with only a vague notion of the strategies they will employ. Answer T One of the biggest pitfalls many entrepreneurs stumble into is failing to differentiate their companies from the crowd of competitorsAnswer T One of the first and most fundamental decisions an entrepreneur faces is choosing a form of ownership.Answer T
One of the first steps in building a marketing plan is identifying a small company’s _______, the group of customers at whom the company aims its products and services.Target market
One of the goals of competitive analysis is to improve a firm’s reaction time to competitor’s actions.Answer T One of the most commonly cited reasons for a new product failing is that it is not adequately differentiated from competitive products.Answer T
One of the most important tasks facing an entrepreneur is:determining the funds needed for a company start-up. One of the most reliable methods of determining an adequate minimum cash balance is using past experience.Answer T
One of the objectives that a guerrilla marketing plan should accomplish is:Both a and b One of the strategic management processes is to develop a clear vision and translate it into a meaningful mission statement.Answer T
One of the strategic management processes is to establish accurate control. Answer T
One of the strategic management processes is to translate strategic plans into unachievable plans.Answer F One reason that why an owner is selling the business is because the business location may have become unsatisfactory.Answer T
One technique involves _________, in which entrepreneurs test their business models on a small scale before committing serious resources to a business that might not work.Business prototyping One way to get a mutually satisfying deal when negotiating is to recognize and try to meet the other party’s need(s).Answer T
One-to-one marketing is a marketing strategy that:gathers data on individual customers and then tailors an appeal to their needs and tastes. Only 60% of a typical business’ inventory turns over quicklyAnswer F
Owners of traditional travel agencies are facing threats from many sides, including the World Wide Web. Answer T Owners who do not want to sell a business outright, but want to either stay around for a while or surrender control gradually can use a restructuring strategy.Answer T Owners/founders can be minority stockholders in a corporation but never lose their final authority or control over business decisions because they are the owners.Answer F Ownership of a corporation can easily be transferred through the sale of stock.Answer T Part of a “self-audit” when buying a business is to ask yourself, “what do I expect to get out of the business” and “how much can I put into the business?”Answer T
Partners can make provisions in the partnership agreement to avoid dissolution due to death only if all parties agree to accept as partners those who inherit the deceased’s interest. Answer T Partnership agreements do not cover how to dissolve a partnership or sell a partnership interestAnswer F Partnerships have a number of advantages over other forms of ownership, such as:a larger pool of capital and little government regulation. Part-time entrepreneurship has an additional advantage over starting up a company full-time in that: it is a much lower risk for the entrepreneur. People who once saw launching a business risky now see it as an ideal way to create their own job security Answer T
Performing financial ratio analyses enables a business owner to identify problems early—before they become crises.Answer T Perhaps the best way to evaluate the reputation of a franchiser is to _________ several franchise owners.a and b Perhaps the ideal source of financing the purchase of an existing business is:the seller. Perhaps the most important feature of a partnership agreement is its ability to resolve potential sources of conflict among partners.Answer T
Perhaps the worst of all marketing catastrophes is to have great advertising and a poor quality product or service.Answer T Potential drawbacks of small business ownership include: a high likelihood of a lower quality of life while starting and establishing the small business.
Potential investors tend to believe that if an entrepreneur can’t develop a good plan:he/she probably lacks the discipline to run a business.
Price is the safest criterion upon which to build a competitive edge.Answer F
Primary cause of business failure is: Incompetent management Probably the most important feature of a partnership agreement is:that it resolves potential sources of conflict. Profit is the difference between a company’s total revenue and its total expenses.Answer T Profits generally are low and marketing cost high in the introductory stage of the product life cycle.Answer T
Projecting financial statements via the budgeting process helps the small business owner to:transform business goals into reality.
Promotion involves both advertising and lengthy warrantiesAnswer F
Proper financial management requires more than gathering financial data and organizing it intoAnswer T Proper management of cash accounts can yield the owner additional leverage, the equivalent to actually keep the capital in the accounts.Answer T
Proving that a profitable market exists involves:Both a and b
Proving that a profitable market exists involves:proving that customers in the marketplace have a need for the good or service and are willing to pay for it.
Purchasing rival companies' products, taking them apart, and analyzing them is: benchmarking.
Pure franchising involves the right to use all the elements of a fully integrated business operation.Answer T
Pure franchising occurs when the franchisee purchases only the right to become identified with the franchiser's trade name.Answer F
Quality is so important in franchising that most franchisers retain the right to terminate the franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.Answer T Ralph buys a software business from Waldo in Columbus, Ohio. As part of the deal, Waldo signs aAnswer F
Rather than attempting to serve the total market, the small firm pursuing a _______ strategy specializes in serving a specific target segment. focus Rather than build the current year's budget on increases from the previous year's budget, zero-based budgeting starts from a budget of zero and evaluates the necessity of every item.Answer T Regardless of how good the plan or its presentation, the entrepreneur should always be prepared for questions when he/she presents the venture.Answer T Relatively few consumer goods use the manufacturer-to-retailer-to-consumer distribution channel.Answer F Research has isolated a set of characteristics that can predict who will succeed as an entrepreneur.Answer F Research shows that for “Copreneurship” to work, responsibilities must be divided by gender.Answer F Researchers who study entrepreneurs have discovered that: entrepreneurs desire responsibility and are willing to take moderate risks. Sales and profits peak in the growth stage of the product life cycle. Answer F
Sales turnover ratio = Credit sales (or net sales)/Accounts receivable.Answer F Satisfied customers exhibit at least one of three characteristics: loyalty, resistance to competition's attempts to lure them away with lower prices, and increased purchases.Answer T S-corporation status usually benefits start-up companies anticipating losses, and highly profitable firms with substantial dividends to pay out to shareholders.Answer T
Scott Adams, creator of the Dilbert cartoon strip runs his entire business from a home office Answer T Service companies tend to use the manufacturer-to-customer distribution channel more than any other.Answer T
Setting seemingly impossibly high objectives, those outside the likely reach of employees, helps managers to create and maintain a high motivation level.Answer F Shares the corporation itself owns are called: Treasury stock Shares the corporation itself owns are called:Treasury stock
Shifting patterns in the age, income, education, race, and other characteristics of the population are the subject of _______ and exert a potent force on a company's marketing plan.demographics Silent partners are active in a business but generally are known to be members of the partnership.Answer F
Since conditions and markets change so rapidly, entrepreneurs developing financial forecasts for start-ups should focus on creating projections for 6 months into the futureAnswer F Since even the best sales forecast can be wrong, the small business owner should prepare three forecasts - optimistic, pessimistic, and most likely.Answer T
Since front-line service workers are not able to predict the causes of customer complaints, managers must be the ones to identify potential customer service problems.Answer F
Small bookstores have a giant killer of a competitive advantage in their:customer service. Small business managers need not be concerned about investing surplus cash since small amounts of cash sitting around for a few days or weeks are not worth investing.Answer F
Small business owners can use market research to uncover potential market opportunities.Answer T Small business owners should not press customers for payment of their past due accounts for fear of losing them as customers altogether.Answer F
Small businesses are able to maintain a leadership role in innovation by:using their size, flexibility, and speed to their advantage.
Small businesses are those that employ:Fewer than 100 employees
Small businesses can compete with larger rivals with bigger budgets by employing unconventional, low-cost creative techniques known as:guerrilla marketing techniques. Small businesses create more jobs than either medium or large businesses.Answer T Small businesses have a natural advantage over large competitors when it comes to developing a strategy for competitive advantage because small businesses have all these except:Fewer product lines
Small businesses have some competitive advantages over larger companies—being able to respond quickly, having greater flexibility, being able to build and defend niches, etc.Answer T Small businesses selling on credit find that:it is expensive and requires a great deal of effort. Small businesses thrive in every industry, but the majority of them are in the: service industries.
Small businesses with high leverage ratios are less vulnerable to economic downturns, but they have a lower potential for large profits.Answer F
Small companies are at a definite disadvantage compared to larger ones when it comes to conducting market research since it is so expensive.Answer F
Small companies with limited financial resources can often use ____ as a way to differentiate themselves from larger competitors.customer service Small companies with net profits of less than $100,000 per year before any compensation to shareholders are ideally suited for S-corporation status.Answer T
Small firms pursuing a cost leadership strategy have an advantage in reaching customers whose price.
Small firms pursuing a cost leadership strategy have an advantage in reaching customers whose primary purchase criterion is high quality.Answer F
Sole proprietorships characteristically are:easy to discontinue. Some businesses use ____________, in which a company bills a portion of its credit customers each day of the month, to smooth out uneven cash receipts.Cycle billing Some companies manage their accounts receivable and cash by using sweep accounts. These areAnswer T Some experts suggest that a small business should maintain a supply of cash on hand equal to one-fourth its current debts.Answer T
Some feel the worst mistake an entrepreneur can make is to fail to define the target market.Answer T Sometimes, business owners sell the majority interest in their companies to investors, competitors,Sale of controlling interest
Sound strategies increase the likelihood that business objectives will be achieved.Answer T
Starting a part-time business is a popular gateway to entrepreneurship.Answer T Stockholders in the corporation have the same kind of liability as do general partners in a partnership.Answer F Strategic management benefits only large companies since other businesses are too small to have a strategic plan.Answer F
Strategic Management procedure for a small business involves planning by linking long-range goals to day-to-day operation onlyAnswer F Studies indicate that the opportunity to make a difference is a significant benefit in the eyes of most entrepreneurs.Answer T
Studies show that customers want ____ from businesses almost more than anything else.convenience Successful copreneurs are marked by which of the following characteristics? mutual respect for each other’s talents
Successful websites are attractive, inviting, easy to navigate, interactive, and offer users something of valueAnswer T Surplus inventory yields about a 3% return rate and tends to be very liquid.Answer F Surveys show that owners of small businesses believe that: they work harder on their own than if they worked for someone else.
Surveys, questionnaires, and focus group as considered to be:Primary Research Sweep account refers to:An account that sweeps zero balance account to an interest bearing account TCM focuses solely on reducing administrative time in product development.Answer F Technology has little impact on the quality of customer service a small company offers.Answer F
Territorial encroachment is becoming a hotly contested issue as franchisers have nearly exhausted prime locations for franchises.Answer T
Territorial protection in franchising:varies according to industry. The "big three" of cash management include:accounts receivable, accounts payable, and inventory.
The "competitor analysis" section of the business plan is optional since few lenders and investors are concerned about a small company's rivals in the marketplace.Answer F
The "two-third rule" means that:Only two-third of entrepreneurs with a viable new venture will find funding.
The ____ is a set of measures unique to the company that gives managers a quick and balanced scorecard
The ____ ratio is a measure of the small company's ability to pay current debts from current assets.current The _____ is the most complex form of ownership and is a separate legal entity in the eyes of the law.corporation
The ______ expresses the entrepreneur's vision for the company and what he/she hopes it will become.mission statement
The ______ ratio is the liquidity ratio most commonly used as a measure of short-term solvency.Working capital ratio
The ______ shows what assets the business owns and what claims creditors and owners have against those assets.balance sheet
The _______ becomes the document that summarizes the analysis that has been done to justify a new business.business plan
The _______ is built on the basic accounting equation: Assets = Liabilities + Owner’s Equity.balance sheet
The _______ ratio is a measure of a company's ability to make the interest payments on its debt.times-interest-earned
The _______ ratio measures the small company's ability to generate sales in relation to its assets. net sales-to-total assets
The ________ ratio is a conservative measure of a firm's liquidity and shows the extent to which a firm's most liquid assets cover its current liabilities. quick
The ________ ratio measures the owner's rate of return on the investment in the business.net profit-to-equity
The ________ shows the change in the firm's working capital since the beginning of the year.statement of cash flows
The _________ acquaints lenders and investors with the nature of the business and the general goals and objectives of the company.business and industry profile The _________ approach to valuing a business uses the price-earnings ratios of similar businesses to establish the value of a company.market
The _________ highlights significant financial and operational events in the company’s life and should concentrate on the company’s accomplishments.company history The __________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.discounted future earnings
The ___________ is a document that states in writing all of the terms of operating theartnership agreement The ____________ is a document that states in writing all of the terms of operating a business among the partners.Partnership Agreement
The _____________ is the first part of the business plan. It summarizes all the relevant points of the deal, but it should be the last part written.executive summary The ______________ is a separate legal entity apart from its owners and may engage in business, make contracts, sue and be sued, and pay taxes.corporation The ________________ codifies the body of law dealing with partnerships in the United States. Uniform Partnership Act (UPA) The “Das Spelunker” corporation, formed in Germany and conducting business in the United States, is considered to be a/an _________ corporation. alien
The ability to innovate is one of the greatest weaknesses of the entrepreneur.Answer F The adjusted balance sheet method of valuing a business changes the book value of net worth to reflect actual market value.Answer T The American Collector’s Association has found that only about ___ of accounts over 90 days delinquent will be paid voluntarily.5%
The average inventory turnover ratio tells the owner how fast merchandise is moving through the business. Answer T The average payable period tells the owner the average number of days it takes to pay its accounts payable.Answer T The balance sheet is usually prepared on the _____ day of the month.Last
The balance sheet provides owners with an estimate of the firm’s worth for a specific moment in time.Answer T
The balance sheet represents: Assets = Liabilities + Depreciation + Equity Answer F
The balance sheet takes a "snapshot" of a business, providing owners with an estimate of the firm's worth on a given date. Answer T The balance sheet technique of determining a business's value uses the company’s net worth or owner’s equity as the firm's value, but it oversimplifies the valuation process.Answer T
The balanced score looks at the small business from the perspectives of the customer, the company itself, innovation, and finances.Answer T The bargaining zone is:the area within bargaining process which an agreement can be reached
The basic and first question an entrepreneur should ask him/herself before jumping into a franchise is, “How much is this going to cost me?”Answer F
The best conversion of strategic plans to operational plans is done by top management without the help of the employees.Answer F The best method for valuing a business is to use established rules of thumb.Answer F
The best way for a small business to ensure quality products is to use quality inspections.Answer F
The best way to build a cost leadership competitive advantage is to focus entirely on manufacturing costs.Answer F
The biggest challenge facing the growth of new franchises is:market saturation. The biggest source for the best companies to buy is:the hidden market. The break-even analysis provides an opportunity for integrated analysis of sales volume, expenses, income, and other relevant factors.Answer T
The break-even point occurs where:total revenue equals total expenses. The budgeting strategy that evaluates the necessity of every item on the budget each year by starting with a zero in each budget category is called:zero-based budgeting. The business acquisition process should begin with creating a list of criteria for selecting the business to buy.Answer F
The business and industry profile section of the business plan includes:the historical evolution of the market, market size, ease of entry, etc.
The business plan has two essential functions; it helps the entrepreneur determine if the Answer F
The business plan needs to address, in the management section, how important officers will be encouraged to remain with the company.Answer F The business plan presentation should be slow, methodical, and detailed to show the depth of understanding and preparation the entrepreneur has gone to.Answer F
The business plan should cover key people, the opportunity, provide a business context, and explain the risks and rewards involved.Answer T
The business plan should use a standard format covering standard material, regardless of the specific business and industry.Answer F
The business strategy section addresses how the firm will meet the key success factors necessary for success.Answer T The buyer of the business wants to minimize the cash up front and avoid enabling the seller to open a competing business.Answer T
The C of the five Cs that is a synonym for "cash flow" is:capacity.
The C of the five Cs that relates to the circumstances relating to the business, such as potential growth in the market, form of ownership, location, etc., is called:conditions. The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:the rate of return reflecting the risk level. The cash budget is based on the _________ method of accounting. cash The cash budget is based on the accrual method of accounting.Answer F The cash flow cycle is the time lag between paying suppliers and receiving payment from customers.Answer T The cash management role of “cash conserver,” controlling the cash needed to pay bills, and prioritizing and timing those payments, is the entrepreneur’s first and foremost responsibility.Answer F The choice of location has two important features: adequate parking and ease of access by customers.Answer F
The Commerce Department reports that the most expensive franchises in terms of total investment are:hotel and motel franchises.
The company history should explain why the company was formed, its past successes, and its image in the marketplace.Answer T
The company’s overall direction and answer to the question, “Why am I in business?” is answered in this section of the business plan.business and industry profile
The company's average collection period ratio indicates the length of time the firm's cash is tied up in credit sales.Answer T
The competitive profile matrix matches the firm's core competencies with those of selected competitors.Answer F The complementary skills refers to: Partner’s skills that complement one another The conditions in the business environment have little influence on lenders' decision to invest in a business start-up.Answer F The corporate form of ownership has a significant advantage in that: it is easy to transfer ownership.
The corporation, like the proprietorship, avoids the “double taxation” disadvantage associated with the partnership form of ownership. Answer F
The cost of goods sold represents the total cost, including distribution, of the goods sold during the year.Answer T
The cost of marketing a product is highest in the:introductory stage.
The current ratio can sometimes be misleading, because it does not show the quality of a company's current assets.Answer T The danger inventory poses to a small business is the amount of cash it ties up.Answer T
The difference between the total sources of funds and the total uses of funds represents the increase or decrease in a firm's working capital.Answer T
The difference between weak customer service and “world-class” customer service is attitude and attention to detail.Answer T The entrepreneur should begin the presentation with an explanation of the opportunity, the benefit to the investors, and what the new venture is.Answer T The entrepreneur who buys an existing business must recognize that accounts receivable rarely are worth their "face value."Answer T
The executive summary is a written version of what is known as “the elevator pitch.”Answer T
The executive summary should be written first and should be a broad general discussion of the business plan.Answer T
The executive summary should contain which of the following information?A brief statement of the financial needs of the business and what the money would be used for
The executive summary should highlight significant financial and operational events.Answer F
The executive summary should summarize all of the relevant points of the proposed venture and should be concise - no more than two pages.Answer T
The failure rate for franchises is well below that for other types of new businesses.Answer T
The failure rate for franchises is:lower than the rate for all new businesses. The Fair Debt Collection Practices Act prohibits business owners from:harassing people who are past due.
The fastest growth rate in franchises is among:innovative, nontraditional franchisers with fresh approaches. The final product of the negotiation process is:The purchase agreement
The final step of the strategic planning process is: establishing accurate controls. The first line of defense against bad debt losses is to have a financial institution extend loans to credit-seeking customers.Answer F The first line of defense against bad debt losses is:creating a thorough credit application.
The first section of a balance sheet lists:current and intangible assets. The first step an entrepreneur should take when acquiring an existing business is to:analyze his/her skills, abilities, and interests in an honest self-audit.
The first step in creating a knowledge management program is to take an inventory of the special knowledge a company possesses that gives it a competitive advantage. Answer T
The first step in creating the pro forma income statement is to:determine a reasonable salary and return on investment in the company. The first step in managing cash more effectively is:understanding the company’s cash flow cycle. The first step in preparing a break-even analysis is to break business expenses down into "fixed" and "variable" categories.Answer T The first step in preparing a cash budget is to forecast cash receipts.Answer F The first step to building a workable credit policy is:screening customers carefully before granting them credit.
The first, and most critical, step in conducting market research is to:define the research problem clearly. The first, second and third growth wave in franchising respectively, are:Fast-food restaurant using the concept of rapid growth; shift to service sector; low-cost franchises that focus on niche markets
The focal point of a firm’s strategy is:the firm's key success factors.
The focal point of the entire strategic plan and the competitive strategy chosen is the customer.Answer T
The focus of the "competitor analysis" section of the business plan should be demonstrating how the company has an advantage over its competitors.Answer T
The focus of the competitor analysis section of the business plan is to:demonstrate your company’s advantage over competitors.
The focus of the small company's marketing plan is:the customer.
The focus strategy depends on creating value for the customer either by being the low costAnswer T
The form of ownership can impact an entrepreneur’s ability to raise start-up capital.Answer T
The form of ownership in your company should be explained in the ____ portion of the business plan.plan of operation The form of ownership with the greatest ability to accumulate capital is the:corporation.
The formula for calculating net profit margin is net profit/net sales (annual).Answer T
The franchise contract defines the rights and the obligations of both parties and sets the guidelines which govern the franchise relationship.Answer T
The franchiser has the right to cancel a contract if a franchisee:All of the above The franchising boom spearheaded by _____ in the late 1950s brought with it many prime investment opportunities.McDonalds
The FTC Trade Regulation Rule applies to all franchisers in all states regardless of state disclosure laws.Answer T
The FTC verifies the accuracy of the franchise disclosure information required by the Trade Regulation Rule.Answer F
The FTC’s philosophy focuses on:providing information to prospective franchisees and helping them make good decisions.
The goals of one-to-one marketing are to attract, retain and increase the purchases by the target customer.Answer T
The gross profit margin is calculated by dividing net income by net sales revenue.Answer F The growth of entrepreneurship is being fed by: technological advancements. The heart of the cash budget is the ________________ forecast.sales
The higher the ____ ratio, the lower the degree of protection afforded creditors and the closer creditors’ interest approaches the owner’s interest.debt-to-net worth
The higher the current ratio, the stronger the small firm's financial position.Answer T
The higher the debt-to-net worth ratio, the lower the degree of protection afforded creditors should the business fail.Answer T The idea behind strategic planning is to give the business owner a way to match his/her company's strengths and weaknesses to the opportunities and threats in the business environment.Answer T
The ideal business plan should be at least 100 pages long and somewhat hard to read in order to demonstrate your thoroughness and to capture the venture capitalist's attention.Answer F The income derived from a joint venture is taxed if it arises from a partnership.Answer T
The increasing diversity of our population is creating a marketing “threat” to small businesses because they can’t profitably serve small niches.Answer F
The industry analysis should cover existing profitability and anticipated profitability of firms in the targeted market segment, and any significant entry or exit of firms.Answer T
The information-gathering process in competitive analysis: can be relatively inexpensive and easy for the small business owner to conduct.
The intangible C that lenders examine in evaluating the business plan is that of:character. The internal competitive test focuses on management's ability to create a company that will gain a competitive edge.Answer T The Internal Revenue Service requires partnerships to designate one person to be responsible for handling the partnership’s tax matters.Answer T The international market: has proven to be a tremendous opportunity for small business. The inventory in an existing business:needs to be checked for age and salability. The key factor in forecasting cash disbursements for a cash budget is to record them in the month when they are incurred, not when they are paid.Answer F The key ingredient-the crucial element-to avoiding the failure of a new business is: the business plan. The key to a successful differentiation strategy is to build it on a distinctive competence – something the small company is uniquely good at doing in comparison to its competitors.Answer T The key to choosing the "right" form of ownership is:understanding how each form affects both business and personal circumstances. The key to effective financial management in a start-up is: have sufficient start-up capital.
The key to marketing success is:understanding customers’ unique needs, wants and preferences. The key to successful innovation is spending “megadollars” on research and development and hiring staff who are very creative.Answer F The key to successful time compression management is speeding up the manufacturing process, since manufacturing consumes 90% of the time it takes to get the order into the customer's hand.Answer F
The key to the balanced scorecard is identifying the key single measure for the specific company being evaluated.Answer F The lack of cash has driven a number of small businesses, even those with solid profits, into bankruptcy.Answer T
The law requires franchisers to register a Uniform Franchise Offering Circular (UFOC) and deliver a copy to prospective franchisees after the sale of a franchise. Answer F The layout and readability of an invoice affects the likelihood of it being paid in a timely manner.Answer T The level of customer service in most small companies is excellent.Answer F The limited liability company is most like a/an:S-corporation.
The loan proposal portion of the business plan should include:a realistic time table for repayment or for investors to exit. The location of the business is especially important for what type of start-up businesses? retail. The longer a company's cash flow cycle, the more likely it is to encounter a cash crisis.Answer T The longer a debt is outstanding, the lower its probability of collection.Answer T
The majority of customers who stop patronizing a particular store do so because:an indifferent employee treated them poorly. The market approach to company valuation evaluates goodwill, risk-of-return, and estimated net earnings.Answer F The market approach to valuing a company relies primarily on the price/earnings ratio of the company in comparison to the average P/E of similar companies.Answer T
The market research process is completed with the analysis of the collected data and its translation into useful information.Answer F
The marketing function cuts across the entire company, affecting every aspect of its operation.Answer T
The marketing mix consist of the “4P’s” : Product, Plot, Place, PromotionAnswer F
The marketing plan builds a strategy for success:from the customer’s point of view.
The marketing plan should include certain key objectives, such as:pinpointing the specific target markets a small business will serve. The mechanics of most small business sales involve: a down payment with a note carried by the seller.
The most common channel of distribution for consumer goods is:manufacturer ----> wholesaler ----> retailer ---> consumer. The most common form of business ownership is the:sole proprietorship. The most common form of ownership in the United States is the partnership.Answer F
The most common method of creating a projected income statement is to develop a sales forecast and then "work down" to the bottom line.Answer F
The most common reason cited by banks for rejecting small business loans is:undercapitalization or too much debt. The most common reasons owners of small- and medium-sized businesses give for selling their businesses are:boredom and burnout. The most critical disadvantage of the sole proprietorship is: unlimited personal liability.
The most effective way to market to the diversity of the American market is to choose a single ethnic segment and market to it as if it were a homogeneous market.Answer F
The most efficient method of franchising, from the franchiser’s point-of-view, which has become popular in the 1990s and permits one franchisee to hold several franchises from the same franchise company, is called: multi-unit franchising.
The most important change due to Expansion occurs in: Managerial expertise The most important item on the balance sheet is:cash.
The most litigated subject of a franchise agreement is the termination of the contract by either party.Answer T
The most litigated subject of the franchisee agreement is:termination of contract.
The most meaningful basis for comparing operating ratios is:Other companies of similar size in the same industry
The most successful strategic plans make the ____ focal.customer The nation is rapidly moving from: Industrial to knowledge-based.
The net profit on sales ratio (also called the profit margin on sales) measures the firm's profit per dollar of sales. Answer T The net profit on sales ratio measures the owners' rate of return on the investment in the business.Answer F
The net profit to equity ratio (or the return on net worth ratio) measures the owners' rate of return on investment.Answer T The nice thing about barter is that there is almost no cost involved in the process.Answer F The objectives of cash management are to adequately meet the cash demands of the business and to avoid retaining unnecessarily large cash balances.Answer T
The only fee that franchisers can collect from franchisees is a one-time franchise fee paid at the outset of the relationship.Answer F The opportunity to reap unlimited profits is the primary motivator for most entrepreneurs.Answer F
The organization chart is described in which section of the business plan?The plan of operation The partnership, like the proprietorship, avoids the disadvantage of double taxation.Answer T
The payment the franchisee makes to the franchiser based on gross sales is:a royalty.
The phrase, “avoid the off-the-shelf, “cookie-cutter” approach that produces look-alike plans” refers to:All of the above
The plan of operation of the company within the business plan should detail:plans for keeping the important officers in place with the company. The price element of the marketing mix affects both sales volume and profits.Answer T
The primary advantage of buying a franchise over starting your own company is:in the purchase of the franchiser's experience, expertise, and products.
The primary general goal of market research is to identify and profile the target market and most profitable customer in it.Answer F
The primary goal of any business, according to Theodore Levitt, is to create and keep a customer.Answer T
The primary goal of marketing research is to:reduce the risks associated with business decisions.
The primary market for U.S. franchisers is Canada, with Japan and Europe next.Answer T
The primary market for US franchisers is Canada
The primary opportunity for time compression management (TCM) lies in its application to:the administrative process.
The primary output of the strategic management process should be: a matching of its strengths and weaknesses to the opportunities and threats in the environment.
The primary purpose of building a business plan is to raise capital.Answer F
The primary purpose of building a business plan is to:provide direction, to create a “target” to shoot for. The primary reason entrepreneurs choose to incorporate is because of:the limited liability of stockholders.
The principle behind a _______ strategy is to select one or more market segments, identify focus
The pro forma shows the company’s current overall financial condition.Answer F The process of gathering information about the company, valuing the company, and performing a detailed review of all records, agreements, and compliance is called:due diligence.
The product life cycle concept means that small businesses must:constantly be involved in product innovation.
The product or service offered is the foundation of any marketing-oriented business.Answer F The profit and loss statement, is also referred as _________:Income Statement The purchases for inventory and production lead sales. This statement means that:Both b and c
The quality of the entrepreneur's business plan has little impact on the first impression potential lenders and investors have of the company.Answer F
The quick ratio is sometimes called the working capital ratio.Answer F
The quick ratio is the most commonly used measure for a small firm's short-term solvency.Answer T The real benefit of barter for the entrepreneur is that:it is “paid” for at the wholesale cost of doing business, yet it is credited at the retail price.
The real value in preparing a business plan is:in the creative process the entrepreneur has to go through. The reality test of a business plan is the explanation of how much of a return is expected, and when investors can expect it.Answer F The recommended steps when buying a business are;All of the above The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.Answer T The right price for a product depends on which factors:All of the above
The rule for the balance sheet is:All of the above
The second essential purpose for creating a business plan is:to attract lenders and investors. The secret to distinguishing between a fad that will soon fizzle and a meaningful trend that offers genuine opportunity is finding products or services that are conistent with fundamental demographic and lifestyle patterns of the population. Answer T
The secret to good control is the identification and tracking of key performance indicators.Answer T The small firm’s net sales to total assets ratio measures how many dollars in sales the business makes for every dollar of working capital.Answer F
The small firm's "master plan" is its:strategy.
The small firm's income statement presents a picture of the firm's profitability at a particular point in time.Answer F The sole proprietorship has the least ability to accumulate capital.Answer T The sole proprietorship is the simplest and least expensive form of ownership to begin.Answer T
The statement of cash flow:shows changes in working capital by listing sources and uses of funds.
The statement of cash flows shows the change in a firm’s working capital.Answer T The statement, “collection of accounts receivable lags behind sales,” means that:The customers who purchased goods on credit may not pay until a month or more later.
The strategic management procedure for a small business should include the following features: All of the above. The strategic management process: helps a small business develop the game plan that guides it in creating its mission, vision, goals, and objectives.
The strategic planning process for small businesses is: market-focused.
The strategic planning process for small companies should begin with setting goals and objectives.Answer F
The success of franchising is largely due to:he mutual benefits it provides to the franchiser and franchisee.
The Supreme Court has defined a partnership as “an artificial being, invisible, intangible, and existing only in contemplation of the law.”Answer F The terms of a partnership agreement are legally binding even if some of the items are illegal.Answer F The three key elements of any partnership are:common ownership in the business, sharing the business' profits or losses, and the right to participate in managing the business.
The time span between stages in the product life cycle:depends entirely on the type of products involved.
The times-interest-earned ratio expresses the relationship between the capital contributions of creditors and those of the owners.Answer F
The Total Quality Management (TQM) concept:strives to achieve quality not just in the product or service itself, but in every aspect of the business and its relationship with the customer.
The trend in corporate downsizing and the resulting trust gap have spawned both the “corporate castoff’ and the “corporate dropout.”Answer T
The two common pitfalls of poor financial control are undercapitalization and lax customer credit policies.Answer T
The type of franchising growing fastest is product distribution franchising.Answer F
The Uniform Franchise Offering Circular:includes 23 major topics in its disclosure statement. The Uniform Partnership Act covers three elements of a partnership; the common ownership interest, sharing profits or losses, and management participation rights.Answer T The Uniform Partnership Act outlines a number of general obligations that partners have such as the obligation to:give other partners complete information about all business affairs. The valuation approach that considers the value of goodwill is the:excess-earnings method. The valuation method that is commonly used, but tends to oversimplify the valuation process, is called:the balance sheet method. The wise small business owner should strive to stretch out his/her payables as long as possible without damaging the company's credit rating.Answer T
The worst catastrophe to befall any business would be to:have great advertising and poor quality products.
Their narrower product lines, smaller customer bases and more limited geographic areas give small companies a natural advantage over large businesses when preparing a strategic plan.Answer T There are four steps to creating a cash budget: Determining an adequate minimum cash balance; Forecasting sales; Forecasting cash receipts; and Estimating the end-of-month cash balance.Answer F
There are no restrictions on how partners distribute the company’s profits as long as they are consistent with the partnership agreement and do not violate the rights of any partner.Answer T There are three components in the rate of return used to value a business. The component(s) are:All of the above
There are two main risks in purchasing a franchise. First, that of the franchiser's experience and business system, and second:the entrepreneur’s managerial skills and motivation. There has been a significant change in the U.S. economic structure, one that favors small business.Answer T
There is a direct 1:1 relationship between a company's expected average inventory turnover ratio and the amount of cash required to launch it.Answer F There is no legal limit to the number of general partners a partnership must have, but it must have one.Answer T
These are products of the interaction of various forces, trends, and events that are outside the control of the small business. opportunities and threats This form of ownership is the same as a corporation in terms of legal characteristics even though S-corporation
Tight cost control; trained, dependable, honest in-store managers can be success factor for a restaurantAnswer T
Time compression management (TCM) involves:speeding new products to market. To avoid a bumpy transition, a business buyer should do the following except:Concentrate on not communicating with employees. To avoid a bumpy transition, a business buyer should do the following:All of the above To avoid a stalled deal, both seller and buyer should go into the negotiation process with:List of objectives ranked in order of priority To avoid becoming liable for corporate actions, officers should ensure that they hold annual meetings, keep minutes of those meetings, make sure the board of directors makes all decisions, etc.Answer T
To avoid business failure, an entrepreneur should: Both a & b To avoid cash crises, many owners add a "cushion" to each cash disbursement account since many expenses run higher than expected.Answer T To be effective, a bulk transfer must meet which of the following criteria:The buyer and seller must prepare a list of the property included in the sale.
To be effective, a mission statement must become a natural part of the organization, embodied in the minds, habits, attitudes, and decisions of everyone in the company every day. Answer T
To be effective, these competencies should be ________ for competitors to duplicate, and they must provide customers with a valuable perceived benefit.difficult To be enforceable, a covenant not to compete must be:reasonable in scope.
To be of any real value to the small business owner, strategic plans must be broken down beyond operational plan level into projects with assigned responsibilities.Answer T
To be successful, a differentiation strategy must create the perception of value in the customer's eyes.Answer T
To build an effective customer service program, it is important to:let managers wait on customers occasionally. To calculate break-even sales, use the equation: break-even sales (in dollars) = total variable costs divided by contribution margin as a percentage of sales revenue.Answer F
To determine sales revenue, the owner records sales revenue for the year and subtracts liabilities.Answer F To estimate a firm’s cash balance for each month, the owner must first wait until the end of the month.Answer F
To get the best results, an entrepreneur should track as many ratios as possibleAnswer F To maintain control over their ownership, many closely held corporations exercise this right, known as:Right of first refusal To many entrepreneurs, the opportunity for future earnings is more important than the immediate earning potential of the business.Answer F
To prepare the statement, the owner must assemble the balance sheets and the income statements summarizing the present year's operations. Answer T
To protect investors from unscrupulous franchisers, the Trade Regulation Rule FTC.
To summarize the presentation to each potential financial institution or investor, the Answer F Tom was a financial consultant who liked to work with his hands, especially in making furniture. his lack of experience.
Too often, business plans describe in great detail what the entrepreneur intends to accomplish but pay too little attention to how he plans to accomplish it.Answer T)
Total profits minus total expenses gives the company’s net incomeAnswer F
Tracking demographic trends is interesting, but it is not essential to building or implementing a successful marketing plan.Answer F
Trade name franchising involves licensing the rights to sell specific products under the manufacturer’s brand name.Answer F Traditional lenders of capital often shy away from deals involving the purchase of an existing business.Answer T
Training programs often involve both classroom and on-site instruction to teach franchisees theAnswer T True or False Questions
True or False Questions
True or False Questions Truly customer-oriented companies seek to go beyond customer satisfaction, striving for customer astonishment.Answer T Twenty percent of the typical company’s customers generate 80 percent of all accounts receivables.Answer T Two characteristics common to entrepreneurs are creativity and an eye for opportunity.Answer T Typically, a small firm should prepare a monthly cash budget for at least one year into the future.Answer T
Typically, because the franchiser’s attorney prepares franchise contracts, the provision favors the franchisee.Answer F Typically, entrepreneurs are very good conceptually but are not able to organize and manage people and jobs.Answer F
Typically, franchise contracts:are not negotiated by established franchisers.
Typically, slow payers represent great risk to many small businesses. Answer T
Typically, the franchiser controls are very tight on what the franchisee:sales in terms of the product or service they offer.
Tyson Foods' practice of adding value to its chicken products by deboning, skinning, bite-sizing, or pre-cooking them is an example of a:differentiation strategy. Under the capitalized earnings approach to business valuation, firms with lower risk factors are more valuable than those with higher risk factors.Answer T
Under what circumstances would a typical franchiser have the right to cancel a franchise contract?The franchisee declares bankruptcy.
Unlike a limited partnership, which prohibits limited partners from participating in day-to-day management of the business, an LLC does not restrict its members’ ability to become involved in managing the company.Answer T US economic structure is moving: Away from an industrial to a knowledge-based one Using the discounted future earnings approach, the buyer estimates:The company’s net income for several years and then discounted back to the present value. Usually, trade credit from vendors is expensive, and small business owners should avoid it.Answer F Ways to cut overhead cost are:Avoid non-essential outlays What are the options for repairing a poor gross profit margin?All of the above What are the steps to creating a cash budget (not necessarily in order)?All of the above
What drives my customers’ buying behavior? Are they receptive to new products or are they among the last to accept them? What values are most important to them? These questions are to identify:Psychographic What franchisee turnover rate is probably sound?Less than 5 percent
What is competitive test?It evaluates the company’s relative position to its key competitors.
What is our competitive advantage? Who are the key stakeholders in our company? These are questions the entrepreneur needs to answer when creating the mission statement.Answer T What is the difference between price per unit and variable cost per unit?Contribution margin
What is the synonym for capacity?Cash flow When a buyer is reviewing a candidate company’s lease arrangements, location and appearance, intangible assets, etc., he is answering what basic acquisition question?What is the physical condition of the business?
When a company is forced into liquidation, owners are most likely to incur a loss when selling:inventory. When a company makes a product available to the customer when he/she wants it, the company is providing place utility to the customer.Answer F When a firm sells goods or services on credit, the owner needs to remember that for cash budgeting purposes:he/she must account for a delay between the sale and collection of proceeds. When a firm's ratios vary from the average ratios of similar firms in the industry, this indicates that the small business is in financial jeopardy.Answer F
When a franchisee buys a franchise, he/she is purchasing the expertise and the business experience of the franchiser.Answer T When an entrepreneur develops a relationship with a manager in a large established “Copreneurship.”Answer F When an entrepreneur purchases an existing business, he or she essentially is purchasing its future profit potential.Answer T
When asked what they want from a business they deal with, most customers say convenience.Answer T When building a home-based business, it is important that the entrepreneur: keep friends and neighbors from disturbing him/her while working at home.
When buying a franchise, the potential franchisee should first:evaluate him/herself as to the fit with the franchise. When buying an existing business, one should remember that:the real reason for selling is seldom stated honestly. When buying an existing business, the potential buyer should remember that:it is a long process and the buyer should be patient. When choosing a form of ownership, the entrepreneur should realize that:he/she will most likely change the form of ownership as the company grows in size and revenues.
When comparing a company’s ratios to industry standards, entrepreneurs should ask questions such as:Are the differences significant? When comparing a company’s ratios to industry standards, entrepreneurs should ask the which of All of the above When conducting a self-evaluation, it is important to consider:what kind of business you want to have and want to avoid.
When creating financial forecasts in a business plan for a proposed venture, an entrepreneur should:be sure that all forecasts are realistic. When creating the cash budget, keep in mind that:the more variable the sales pattern, the shorter the planning horizon should be.
When creating the pro forma income statement, the owner needs to translate the target profitpublished statistics for his/her specific type of business.
When dealing with the risks involved in the business start-up, the business plan should:only mention them in concept and then only in positive terms.
When determining the owner’s target income, you must consider a reasonable salary for the time spent running the business, less the depreciation of assets.Answer F When estimating the firm’s end-of-month cash balance the owner should first:determine the cash balance at the beginning of the month.
When evaluating a franchise, the potential franchisee should:interview both current and former franchisees. When forecasting cash disbursements in the cash budget:they should be recorded in the month they will be paid.
When franchise contracts are renewed:a new contract must be drawn up by the two parties.
When franchisees purchase their franchises and sign the contract, they agree to sell the franchiser's product or service by following its prescribed formula. Answer T
When interpreting the market research data, the small business owner should be careful to follow the standard rules used for interpreting that data.Answer F When investing surplus cash, the small business owner should seek the highest returns possible on the money.Answer F When investing surplus cash, the small business owner’s key objectives should be:liquidity and safety. When it comes to buying an existing business, it is not uncommon to find it:bargain priced. When it comes to debt collection, it is appropriate to seek to motivate the customer to pay and not get into why the bill hasn't been paid during the "discussion stage" of the collection process.Answer T
When it comes to financial assistance for franchisees, the franchiser often:assists in finding financing and occasionally provides direct assistance in a specific area.
When it comes to gathering market research on customers, most small companies tend to be:data rich, lots of facts, but information poor, little in a useful form.
When it comes to innovation, the small business and entrepreneur:tend to lead the way in business. When it comes to purchasing products, equipment, etc., the franchiser:can set prices paid for the products, etc., but cannot set the retail price the franchisee charges.
When it comes to the target market, most successful businesses:have well-defined “portraits” of the customers they want to attract. When it comes to trade credit, the small business owner:should almost always take advantage of it. When it comes to transferring goodwill in a business valuation, goodwill:cannot be used as a deduction by the buyer because it is a capital asset. When managing your accounts payable, as a small business owner you should:stretch out all payables as long as possible. When negotiating the deal, it is important to remember that the seller is looking for the best terms and to maintain some conduct with the company, at least for a while.Answer F When negotiating the deal, the most important thing to remember is:terms are more important than the price paid.
When preparing the business plan, the entrepreneur may assume that the investor understands the business the entrepreneur is starting.Answer F
When presenting the business plan it is important to:do all of these. When running a home-based business: you still need to dress for work and for client meetings. When seeking to evaluate the financial soundness of the company prior to purchase, the buyer needs the current owner's (and relatives’) compensation. When the buyer is examining the income statements, tax returns, and balance sheets of the business, he/she is seeking an answer to the basic question:Is the business financially sound?
When the entrepreneur describes the product in terms of what the customer gains through its purchase and use, he/she is describing it in terms of its features.Answer F
When the franchisee has the right to establish a semi-independent organization in a particular territory to recruit, sell, and support other franchises, it is called a ______ franchise.master When the location of the business is critical to its success, it may be wise to purchase a business in another location. Answer F When the owner of a sole proprietorship dies, the business automatically terminates.Answer T
When the small business owner assesses her company's strengths and weaknesses, she is dealing with the _____ business environment. internal
When translating strategic plans into action plans, the small business owner should:remember that no strategic plan is complete until it’s put into action.
When Wal-Mart began having McDonald's restaurants share their retail space they were exercising master franchising.Answer F
Which financial forecast should be realistic?All of the above. Which form of ownership generally has the least ability to accumulate capital?Sole proprietorship Which form of ownership is the least costly to form?Sole Proprietorship. Which method of business valuation relies on three forecasts of future earnings—optimisticDiscounted future earnings Which of the following are credit reporting services a small business owner could use to check a customer’s credit?All of these
Which of the following best expresses the relationship of a company vision to its mission? The mission statement is the written expression of the company vision. Which of the following corporate trends have contributed to the growth of entrepreneurship? The idea that “small is beautiful” in large companies, resulting in less hierarchy and layers of management
Which of the following expenses would be considered "fixed?”rent
Which of the following expenses would likely be classified "semi-variable"?electric utilities Which of the following generally is not required by a Certificate of Incorporation?A statement of how stock proceeds will be used Which of the following is a criterion for a bulk transfer?The buyer must give notice of the sale to each creditor at least 10 days before he takes possession of the goods or pays them for the goods.
Which of the following is a danger in choosing a differentiation strategy?Charging a price so high that the company prices itself out of the market Which of the following is a disadvantage of the corporation form of ownership?Double taxation on profits and individuals Which of the following is a drawback of the market approach of valuation?It may under represent earnings. Which of the following is a way to smooth the transition of leadership/management from the seller of a business to the buyer?Focus on the employees, listen to them, keep them informed. Which of the following is an effective way to trim overhead?Negotiating fixed loan payments to coincide with company cash flow Which of the following is an exception among important factors that a potential buyer should investigate?HR policy
Which of the following is an indication of a dishonest franchiser?Attempts to discourage you from allowing an attorney to evaluate the franchise contract Which of the following is correct?All of the above
Which of the following is not a common characteristic of entrepreneurs: Business plan expertise Which of the following is true about avoiding business failure? You must do all of these. Which of the following is true about choosing a limited liability company form of ownership?It is ideal for a new company but difficult to convert to with an existing company. Which of the following is true about home-based businesses? The average home-based business earns over $50,000 a year.
Which of the following is true about successful entrepreneurs and their vision? They are able to communicate it and their enthusiasm for it to all those around them. Which of the following is true about the content of a standard partnership agreement?It specifies how the partnership may be dissolved and assets divided. Which of the following items appear on a cash budget?cash receipts and disbursements
Which of the following principles can help business owners create powerful, effective guerrilla marketing strategies?All of the above Which of the following should make a potential franchisee suspicious about a franchiser's honesty?Claims that the franchise contract is a standard one and that there's no need to read it Which of the following statements about valuing a business is true?Business valuation is partly art and partly science. Which of the following statements concerning the financing of a business purchase is true?The buyer should be able to make the payments on the loans out of the company's cash flow.
Which of the following statements is true?Projected financial statements should prove the company's ability to repay the loan. Which of the following trends is feeding the growth of entrepreneurial activity? A favorable attitude toward entrepreneurs in American society Which of the following valuation methods does not consider the future income-earning potential of a business?Balance sheet technique Which of the following would be a potential source of information for a sales forecast?all of these
Which of the following would be a sign that a company is overextended in its debt?A times-interest-earned ratio that is far below the industry average
Which statement is correct?All of the above
Which strategy allows a small company to maximize the advantages of its smallness and to compete effectively even in industries dominated by giants?Niche strategy Which type of ownership is not subject to federal taxation? Partnership While a sole proprietorship gives the owner maximum flexibility in running the business, it also:creates a sense of isolation.
While customer contact is important to a small business, excellent products and low prices can offset any problems a small business may have with customer service.Answer F While every business plan will be unique, there are several areas of information that should be common to all good business plans.Answer T
While market research is a sophisticated and complex process, the small business owner can conduct some of it for him/herself, but will need assistance interpreting it.Answer F While still new to small companies, there are nearly 1.4 million small companies on the World Wide Web with their own home pages.Answer F While the sole proprietorship is the easiest type of business to get into, it is the most heavily regulated.Answer F While there are many forms of ownership, the three major forms are: proprietorship, partnership, and S-corporation.Answer F While there are numerous advantages to buying an existing business, there are also some Answer T With an existing business, the new owner can depend on employees to help him/her make money while he/she is learning the business.Answer T
You should identify your key people, explain their backgrounds and what they bring to the business, in:description of management team
Your cash budget and an explanation of how much money you need to make your company and product a long-term success are the subject matter of the:financial plan.