Question 1

Roland wants to start a small editing company. He has enough funds to start the business but not enough to run it effectively. What is one thing he can do to provide working capital to his company?

Accepted Answer

Roland can provide working capital by reinvesting profits into the business or simply by not drawing a full salary.

Question 2

Tamika borrows $40,000 from her father for her new business venture. She promises that he will be a partner in the business and be entitled to a significant percent of the business's profits at the end of the year. This is an example of

Accepted Answer

This is an example of equity financing. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.

Question 3

Mark funds small businesses that he believes have the potential to grow large. When these companies are still in their initial stages and need investment, he buys their stocks at a low price and later sells them at higher prices when they are successful. Thus, Mark is a(n)

Accepted Answer

Mark is a venture capitalist. Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful.

Question 4

Fiona's small catering business requires more financing than she can provide from her savings. As a result, she is looking for investors to provide financing in exchange for stock ownership. What is a disadvantage of this arrangement?

Accepted Answer

Although finding investors to finance the business in exchange for stock ownership has helped many small businesses, it requires the small-business owner to share the profits of the business-and sometimes control, as well-with the investors.

Question 5

Which entity is the main supplier of external financing to small businesses?

Accepted Answer

Banks are the main suppliers of external financing to small businesses.

Question 6

If a small business fails to repay a bank loan, what will the lending institution do to recover its loss?

Accepted Answer

The bank will often require the entrepreneur to put up collateral, a financial interest in the property or fixtures of the business, to guarantee payment of the debt. A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.

Question 7

Frank, the owner of a local hardware store, decides to stock extra snow blowers and shovels this year, since his city is predicted to have an unusually snowy winter. Lacking sufficient capital to purchase the extra inventory, he borrows a predetermined sum of money from his bank. Which source of funding does this scenario best illustrate?

Accepted Answer

Frank is using a line of credit to meet his capital requirement. Banks and other financial institutions can grant a small business a line of credit-an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.

Question 8

Juanita wants to run her own bowling alley, but she does not want to start it from scratch. She decides to buy an existing business. What is one advantage of doing this?

Accepted Answer

Buying an existing business has the advantage of providing a built-in network of customers, suppliers, and distributors and reducing some of the guesswork inherent in starting a new business from the ground up.

Question 9

Noel decides to buy an existing home goods store, instead of starting his own from scratch. After he takes over the business, he learns that several customers have complained that one of the company's distributors does not pack items sufficiently for shipping, and their items arrived broken. What is Noel's responsibility in resolving this problem?

Accepted Answer

An entrepreneur, like Noel, who buys an existing business also takes on any problems the business already has. As a result, in this scenario, Noel would be responsible to resolve this problem between his distributor and customers.

Question 10

Since Sanjana decides to use her savings to purchase the rights to own and operate a Subway outlet rather than starting her own restaurant, she is most likely to be a(n)

Accepted Answer

Sanjana is most likely to be a franchisee. A license to sell another's products or to use another's name in business, or both, is a franchise. A franchisee is a purchaser of a franchise.

Question 11

All of the following are advantages of franchising EXCEPT

Accepted Answer

Advantages of franchising include management training and support, brand-name appeal, standardized quality of goods and services, national and local advertising programs, financial assistance, proven products and business formats, centralized buying power, site selection and territorial protection, and greater chance for success.

Question 12

Jill has always dreamed of owning and managing a hotel. Instead of starting her own independent hotel, she decides to buy a franchise from Hilton. What is one thing she should keep in mind about becoming a franchisee?

Accepted Answer

Jill will acquire the rights to the franchiser's name, logo, methods of operation, national advertising, products, and other elements associated with the business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations. As a franchisee, Stephanie will have to buy equipment, pay for training, and obtain a mortgage or lease.

Question 13

Claire opened her own Starbucks franchise in her community. She is pleased with how quickly she was able to open her franchise and that she was able to establish a good customer base from the start because of name recognition. However, since she started this business to be her own boss, Claire is likely to

Accepted Answer

In franchising, strict uniformity is the rule rather than the exception. Since Claire wants to be her own boss, she would likely get frustrated with the restrictions of a franchise.

Question 14

All of the following are programs and resources a small business owner can use to improve his or her ability to compete with other businesses EXCEPT

Accepted Answer

Because of the crucial role that small businesses and entrepreneurs play in the U.S. economy, a number of organizations offer programs to improve the small-business owner's ability to compete. These include entrepreneurial training programs and programs sponsored by the SBA. Additional resources include seminars and college courses, local chambers of commerce, national publications, and weekly business journals.

Question 15

Jessie owns a small data processing company. In setting up her business, she asks a few other small-business owners she knows for advice on dealing with employees and government regulation, improving processes, and solving problems. What does this scenario exemplify?

Accepted Answer

This scenario exemplifies networking, building relationships and sharing information with colleagues. Small-business owners often obtain advice from other small-business owners, suppliers, and even customers. Communicating with other business owners is a great way to find ideas for dealing with employees and government regulation, improving processes, or solving problems.

Question 16

Millennials number around 83 million and represent a huge business opportunity in the United States. What is a defining feature of millennials?

Accepted Answer

Millennials, born between 1981 and 1997, are also known as Generation Y, and represent a large market for small businesses. This cohort is not solely concerned about money. They are also concerned with advancement, recognition, and improved capabilities. Working remotely is more acceptable to this group than previous generations, and virtual communication may become as important as face-to-face meetings.

Question 17

Rosemary was born in 1952. She is a wealthy North Carolina native. As she ages, Rosemary spends more of her money on travel, financial planning, and health care. Rosemary is a(n)

Accepted Answer

Rosemary is a baby boomer. America's baby boom started in 1946 and ended in 1964. This segment of the population is wealthy. As baby boomers age, industries such as travel, financial planning, and health care will continue to grow.

Question 18

Which group represents over 17 percent of those living in the United States and is largely employed in the retail industry?

Accepted Answer

There are a growing number of immigrants living in the United States, who now represent over 17 percent, or 27.6 million, of the total U.S. workforce. The largest employer of legal immigrants is retail, followed by educational services and non-hospital health care services.

Question 19

What is true of home-based businesses?

Accepted Answer

Technology has enabled the substantial growth of entrepreneurs working out of their houses, known as home-based businesses. Many of today's largest businesses started out from their homes. Approximately 52 percent of all small businesses are based out of the home.

Question 20

What affect has the economic turbulence of recent years had on small businesses?

Accepted Answer

In recent years, economic turbulence has provided both opportunities and threats for small businesses. While well-funded dot-coms were failing, many small businesses found new niche markets.

Quiz 5: Small Business, Entrepreneurship, and Franchising