Deck 5: Small Business,entrepreneurship,and Franchising

Question 1

A drawback of franchising is the need for franchisees to strictly adhere to standardized operations.

Answer 1

True

Question 2

Which of the following traits will help entrepreneurs succeed?

A)Risk aversion
B)Intolerance
C)Frugality
D)Impulsive
E)Neuroticism

Answer 2

C

Question 3

A _____ is best described as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people.

A)publicly owned business
B)limited liability company
C)small business
D)publicly traded company
E)conglomerate

Answer 3

C

Question 4

Which of the following businesses has created a majority of net new jobs annually?

A)Multinational corporations
B)Publicly traded companies
C)Small businesses
D)Conglomerates
E)Public sector holdings

Question 5

_____ is the process of creating and managing a business to achieve desired objectives.

A)Entrepreneurship
B)Bootstrapping
C)Bootlegging
D)Innovation
E)Brainstorming

Question 6

One of the most significant drawbacks of small businesses is their inability to innovate and to bring significant benefits to customers.

Question 7

Which of the following reasons makes retailing an attractive industry for small businesses?

A)Retailing eliminates the need for any entrepreneurial skills.
B)Retailing offers high barriers to entry.
C)Retailing eliminates the need to engage in active interactions with the final customers.
D)Retailing requires low initial financing.
E)Retailing limits a firm's need to focus on specific groups of consumers.

Question 8

Which of the following is an advantage for small businesses that choose to enter the retailing industry?

A)Retailing is a relatively difficult field to gain entry.
B)Retailing requires a large capital investment in the initial stages.
C)Retailing allows small business to focus on specific groups of consumers.
D)Retailing requires sophisticated machinery and technical expertise.
E)Retailing suffers from heavy competition and losses only in the initial stages.

Question 9

Salma owns a Lebanese restaurant that employs around 25 people.She is solely responsible for the management of the restaurant.Her business has to compete with a larger chain of restaurants that offer the same cuisine.Salma's restaurant can be classified as a:

A)multinational corporation.
B)conglomerate.
C)franchise.
D)public sector holding.
E)small business.

Question 10

A small business is any independently owned business that employs not more than _____ people.

A)100
B)500
C)300
D)200
E)20

Question 11

In the manufacturing sector,small businesses sometimes have an advantage over large firms because small businesses:

A)are exempted from paying taxes in most countries.
B)can customize products to meet specific customer needs and wants.
C)have a better access to highly skilled workers.
D)can mass produce and supply goods in bulk.
E)have better access to funds and can invest on sophisticated equipment.

Question 12

Industries such as wholesaling,services,and manufacturing are unattractive to entrepreneurs because these fields tend to be relatively difficult to enter and require high initial financing.

Question 13

The Small Business Administration is a(n):

A)body established by the U.S.Chamber of Commerce to encourage the intrapreneurial spirit in small businesses.
B)independent agency of the federal government that offers managerial and financial assistance to small businesses.
C)independent agency created under the General Agreement on Tariffs and Trade to protect small businesses against competition from larger companies.
D)division of the federal government that is responsible for ensuring that newly formed businesses adhere to the law.
E)U.S.Congressional agency that regulates the issue of stocks by small businesses.

Question 14

Megha is a taekwondo expert who starts her own martial arts training academy.She conducts taekwondo classes for women and teaches them the art of self-defense.Megha can be regarded as a(n):

A)shareholder.
B)entrepreneur.
C)investor.
D)intrapreneur.
E)inventor.

Question 15

Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy.

Question 16

Entrepreneurship is the process of creating and managing a business to achieve desired objectives.

Question 17

Which of the following is true about the role of small businesses in the American economy?

A)They employ about 20 percent of private workers.
B)They represent only 20 percent of U.S.exporters.
C)They provide opportunities for women to succeed in business.
D)They are always operated as subsidies of large companies.
E)There has been a decline in the number of small businesses owned by minorities.

Question 18

Which of the following best illustrates a small business operating in a retail industry as opposed to wholesaling its products?

A)Janet bakes cakes and sells them to other restaurants and cafes in malls.
B)BC Inc.manufactures stationery and sells it in bulk to book shops and supermarkets.
C)Pink Cult,an apparel company,sells its merchandise through True deals.com.
D)Neon Love Inc.imports candles and directly sells them to customers through kiosks.
E)Auto Line Inc.manufactures component parts of cars and sells them to automobile companies.

Question 19

Many service providers are considered retailers because they:

A)require a high initial start-up cost.
B)provide their services directly to ultimate consumers.
C)sell their services from a single store location.
D)focus on large market segments and institutional buyers.
E)employ only a small number of people.

Question 20

Vernon runs Buzz,his own event management company,which frequently organizes large corporate events.He has built a good reputation for organizing corporate events with a fair degree of professionalism at reasonable costs.He works out of his old house with a staff of about 55 employees.Vernon's company can be categorized as a:

A)multinational corporation.
B)limited liability company.
C)franchise.
D)public sector holding.
E)small business.

Question 21

Small businesses usually have only one layer of management.Which of the following is an implication of this fact?

A)Small businesses face a low risk of failure.
B)Small businesses have great flexibility to adapt to changing market conditions.
C)The decision-making process is lengthy in small businesses.
D)Small businesses have better access to managerial experience and skills than larger firms.
E)Small business owners have a limited amount of direct authority.

Question 22

Gerald started a business using the savings from his previous job.He planned to run his business on the revenue generated from sales.However,a few months later,he found it difficult to pay his staff,rent,and other expenses.Seasonal sales and inability to secure sufficient credit from local banks made it difficult for Gerald to operate the business normally.Which of the following causes of small-business failure does this scenario best illustrate?

A)Undercapitalization
B)Trade credit
C)Economies of scale
D)Debt financing
E)Debt factoring

Question 23

Which of the following is considered as one of the major causes of small-business failure?

A)Inability to take quick decisions
B)Lack of flexibility to adapt to changing market demands
C)High initial financing involved
D)Lack of funds to operate the business
E)Inability to focus on narrow niches

Question 24

Which of the following is a reason behind the failure of small businesses?

A)Overcapitalization
B)Reputation
C)Managerial experience
D)Poor business concept
E)High costs of start-up

Question 25

Which of the following would most likely be the principal immediate threat to a recently started small firm that contract manufactures for leading fashion brands in the United States?

A)Rapidly advancing technology
B)Rising entrepreneurial spirit
C)Reducing imports
D)Rising inflation
E)Increasing exports

Question 26

Penelope is a very talented software engineer who starts her own small software development firm.She finances the firm from her savings.Initially,she is able to get many projects from customers and completes them successfully.However,as her business grows,she fails to make good decisions in hiring new employees,billing the clients,and negotiating prices.She eventually ends up liquidating the business.Which of the following causes of small-business failure does this scenario best illustrate?

A)Undercapitalization
B)Managerial inexperience
C)Economies of scale
D)Debt financing
E)Debt factoring

Question 27

Which of the following is the shortest path to failure in business?

A)Inflexibility
B)Undercapitalization
C)Rent increases
D)Competition
E)Changing market demand

Question 28

Red Carpet Inc.is a small apparel store started by an aspiring designer.The store needs to compete against larger,well-established multinational brands.Which of the following strategies will most help Red Carpet Inc.avoid competition from larger firms?

A)Red Carpet Inc.should have multiple levels of management like the larger firms.
B)Red Carpet Inc.should target large market segments that the competitors serve.
C)Red Carpet Inc.should expand the scale of production to enjoy greater economies of scale.
D)Red Carpet Inc.should start to work with customers only when the products are ready for sale.
E)Red Carpet Inc.should focus on and target small market niches or product needs.

Question 29

One of the major reasons people want to own and operate their own business is to:

A)avoid the risk of competition.
B)be their own boss.
C)avoid multitasking.
D)reduce stress levels.
E)avoid direct responsibility of the operations.

Question 30

Which of the following is a disadvantage of small businesses?

A)They lack the capacity to focus on narrow niches.
B)They require a lot of money to start and maintain than do large ones.
C)They have a high rate of failure.
D)They lack the ability to adapt to changing market demands.
E)They cannot operate in high technology industries.

Question 31

Carol has decided to open a Vietnamese restaurant in her neighborhood.She will be solely responsible for the management of the restaurant.Which of the following problems is she likely to face while running the business?

A)She will find it difficult to make quick decisions.
B)Her business will not be able to quickly adapt to changing market demands.
C)Her restaurant may not be able to focus on specific group of customers.
D)She will not have the flexibility to take critical decisions independently.
E)She may find it difficult to deal with the stress of rent increase.

Question 32

Many small rural operations cannot obtain financing within their own communities because:

A)small rural banks believe that small businesses lack the flexibility to adapt to changing market demands.
B)small businesses require a huge sum of money as they often compete in the mass market.
C)government regulations do not permit financing small rural businesses.
D)small rural banks lack the necessary financial expertise to counter the risks involved with small-business loans.
E)rural communities have various business guidelines that prohibit rural banks from financing small businesses.

Question 33

Which of the following is one of the difficulties faced by small business owners?

A)High cost of formation
B)Bureaucratic decision-making process
C)Inability to focus on specific groups of customers
D)Worries about employee problems or competition
E)Limited scope for innovation

Question 34

Which of the following statements is true of small businesses?

A)They usually employ more than 500 people.
B)They require less money to start and maintain than do large ones.
C)They lack the flexibility to adapt to changing market demands.
D)They offer a stress-free environment to their owners.
E)They have a very low rate of failure.

Question 35

Which of the following is an advantage of small businesses over larger firms?

A)Unlike larger firms,small businesses can quickly make and execute business decisions.
B)Unlike larger firms,small businesses have access to a diverse and large workforce.
C)Unlike larger firms,small businesses are not required to pay any taxes.
D)Small businesses are better equipped than larger businesses to cope with growth.
E)Small businesses have better access to highly trained and competent staff than larger firms.

Question 36

Catalina opens a fashion boutique with the money she inherited from her parents.She is successful in creating a strong brand image and a loyal customer base.In order to meet the increasing demands of her business,she hires a store manager.However,she finds it hard to let the manager take important decisions about the store.She often finds herself disagreeing with the manager's decisions and in the process loses a lot of existing customers.Which of the following causes of small-business failure does this scenario best illustrate?

A)Undercapitalization
B)Inability to cope with growth
C)Diseconomies of scale
D)Debt financing
E)Debt factoring

Question 37

_____ is best described as the lack of funds to operate a business normally.

A)Debt financing
B)Trade credit
C)Franchising
D)Trade deficit
E)Undercapitalization

Question 38

Which of the following is an advantage of a small business?

A)Greater adaptability to changing market demands
B)Highly trained and competent staff
C)Low levels of stress in managing the business
D)Diverse and large workforce
E)High success rates

Question 39

If a small business has to cope with growth,it requires the owner to:

A)give up a certain amount of direct authority.
B)decrease the levels of management.
C)disregard narrow niches.
D)reduce the workforce.
E)delay decision making.

Question 40

The principal immediate threats to small and mid-sized businesses include:

A)rapidly advancing technology.
B)rising entrepreneurial spirit.
C)reducing imports.
D)escalating costs.
E)increasing exports.

Question 41

Which of the following is a drawback of obtaining money from venture capitalists to start a small business?

A)They are not interested in managing or controlling the business.
B)They require the small-business owner to share the profits of the business with them.
C)They require that the small business owner mortgage his or her personal property to obtain funds.
D)They prefer to sell the stock at a low price after the business has grown successful.
E)They are not interested in claiming ownership of the business.

Question 42

Walter sold a piece of land he inherited from his grandparents and started a business with the proceeds.Which of the following sources has Walter used to raise funds for his business?

A)Equity financing
B)Debt financing
C)Venture capital
D)Initial public offering
E)Angel investment

Question 43

A good business plan should:

A)limit a business's flexibility.
B)act as a guide or a reference document.
C)never be revised.
D)avoid including estimates of income and expenses.
E)limit a firm's decision making ability.

Question 44

Derek borrowed $50,000 from his mother for his new business venture.He promised that she would be a partner in the business and would be entitled to a significant percent of profits from the business at the end of the year.This is an example of _____.

A)franchising.
B)bartering.
C)equity financing.
D)initial public offering.
E)bootlegging.

Question 45

Which of the following is a source of equity financing?

A)Securing government loans
B)Selling personal assets to raise funds
C)Borrowing money from friends
D)Securing short-term loans from a family member
E)Receiving trade credit from suppliers

Question 46

The most important source of funds for any new business is:

A)the owner.
B)the government.
C)a financial institution.
D)the Small Business Administration.
E)a venture capitalist.

Question 47

A precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals is known as a(n)_____.

A)promissory note
B)article of incorporation
C)business plan
D)business agreement
E)article of partnership

Question 48

Janice works in a factory that manufactures decorative accessories for office spaces,hotels,and designer homes.She wants to start her own business because she believes that the market for decorative products has a great growth potential.However,she does not want to depend on anyone else for procuring the initial capital and would like to raise the amount herself.In this scenario,which of the following methods could Janice adopt to raise funds through equity financing?

A)Janice could secure a mortgage from a family member or friend.
B)Janice could secure a loan from the Small Business Administration.
C)Janice could ask for a line of credit from her bank.
D)Janice could invest her savings in the new business.
E)Janice could ask suppliers for a longer trade credit.

Question 49

Securing a mortgage from a bank for a new business venture is an example of:

A)equity financing.
B)venture capitalism.
C)debt financing.
D)trade credits.
E)collaterals.

Question 50

To make profits from a small business,the owner must first provide or obtain _____ to start the business and keep it running smoothly.

A)products
B)employees
C)profits
D)supplies
E)capital

Question 51

Obtaining money from venture capitalists to start a new business venture is an example of _____.

A)debt financing
B)bootstrapping
C)equity financing
D)mortgaging
E)factoring

Question 52

Arnold approached a bank to get a loan for a business he planned to launch later that year.He explained his business idea and its capital requirements to the bank manager.The manager asked Arnold to provide a formal document that included a rationale for the business,an explanation of how it will achieve its goals,an analysis of the competition,and estimates of income and expenses,among other information.Which of the following documents does the bank expect from Arnold in this scenario?

A)A business plan
B)A cash flow statement
C)A promissory note
D)A balance sheet
E)A marketing plan

Question 53

_____ are persons or organizations that 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.

A)Intrapreneurs
B)Category captains
C)Venture capitalists
D)Trade debtors
E)Franchisers

Question 54

When an entrepreneur takes out a loan from a bank,the bank will require him or her to put up _____,a financial interest in the property or fixtures of the business,to guarantee payment of the loan.

A)collateral
B)venture capital
C)trade credit
D)business plan
E)cash flow statement

Question 55

Jacob and Harry are business partners,and their company manufactures portable solar panels.They initially started the business with their savings.However,now the company plans to expand its operations and the required amount of capital cannot be raised through savings or by reinvesting profits.Thus,the partners have decided to sell stock in their business to family members,friends,and employees.Which of the following sources of capital have Jacob and Harry planned to use for the expansion of their business?

A)Debt financing
B)Bootstrapping
C)Equity financing
D)Mortgaging
E)Factoring

Question 56

Ramon 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,Ramon is a(n)_____.

A)intrapreneur
B)trade creditor
C)franchisee
D)venture capitalist
E)franchiser

Question 57

The act of financing one's business by using real personal assets is known as:

A)debt financing.
B)factoring.
C)franchising.
D)equity financing.
E)bootlegging.

Question 58

Persons or organizations that agree to provide some funds for a new business in exchange for ownership interest or stock are called _____.

A)intrapreneurs
B)category captains
C)venture capitalists
D)trade debtors
E)franchisers

Question 59

In the process of starting a business,the step that immediately succeeds the development of a business plan involves:

A)organizing resources like labor and supplies.
B)developing some general business ideas.
C)deciding an appropriate legal form of business ownership.
D)promoting the business to the customers.
E)filing for tax returns for the business with the Internal Revenue Service.

Question 60

Which of the following statements is true of a business plan?

A)Small businesses do not need a business plan.
B)It does not have to be revised periodically.
C)Every business needs to mandatorily maintain a business plan as per government regulations.
D)It should establish a strategy for acquiring sufficient funds to keep a business going.
E)It is created to limit a business's flexibility and decision-making ability.

Question 61

A loan is taken by a small business is referred to as a mortgage:

A)when the small-business owner has to share profits and ownership with the investors.
B)when the small business fails to repay the loan.
C)when the small business has to sell its stock to outsiders.
D)when the small-business owner has to provide personal property as collateral.
E)when the small business borrows interest-free capital.

Question 62

Which of the following statements best describes bartering?

A)It is the practice of small businesses trading their own products for the goods and services offered by other businesses.
B)It is an agreement by which a financial institution promises to lend a business a predetermined sum on demand.
C)It is the process in which suppliers allow a business to acquire needed goods and pay for them at a later date.
D)It is the process in which a small-business owner provides personal property as collateral for a loan.
E)It is a process by which an individual acquires the license to sell another's products or to use another's name in business.

Question 63

Which of the following statements is true of franchisees?

A)They do not face any restrictions on purchasing.
B)They receive a monthly or annual fee from the franchisers.
C)They have unrestricted freedom in business decision.
D)They have to establish their own brand-name appeal from scratch.
E)They have access to standardized quality of goods and services.

Question 64

Which of the following is one of the commonly reported disadvantages of franchising?

A)Lack of management training and assistance
B)Decentralized buying power
C)Low rate of success
D)Restrictions on purchasing
E)Lack of financial assistance

Question 65

Paul has recently quit his job as an investment banker.He plans to open a restaurant.He has two options: he can either start his own new restaurant from scratch or purchase a franchise from an already established restaurant or fast food chain.His wife Lisa supports the former plan.Which of the following statements strengthens the argument in favor of Lisa's choice of opening a restaurant independently?

A)It is easier and faster to build a business from scratch.
B)It is easier to reach the break-even point through an independent business.
C)It is more difficult to attract customers in a franchise business as the entrepreneur has to personally build the brand appeal.
D)It is easier and more flexible to make and execute decisions in an independent business.
E)It is easier to succeed in a business built from scratch as the products and the business format are already proven.

Question 66

Andrew,a pharmacist,realized that he should stock extra supplies of a particular medicine to respond to an outbreak of a particular infection in the city.Lacking sufficient capital to purchase the extra inventory,he borrowed a predetermined sum of money from his bank.Which of the following sources of funding does this scenario best illustrate?

A)Trade credit
B)Initial public offering
C)Venture capital
D)Equity financing
E)Line of credit

Question 67

Nathan started the first outlet of Dynamix Gym in New York City in 1995.The business expanded over time,and he became the owner of a chain of gyms in New York State.Though the business had potential to expand outside New York,Nathan did not want to take the risk or responsibility.Hence,he decided to sell the license to own and operate gyms under the brand name Dynamix Gym to independent owners.In return,he charged them an initial fee and a small share in the monthly profits.In this scenario,Nathan is a(n)_____.

A)trade creditor
B)intrapreneur
C)angel investor
D)franchiser
E)venture capitalist

Question 68

Small businesses may obtain funding from their suppliers in the form of a _____,which means that suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.

A)trust fund
B)trade credit
C)stock dividend
D)non-recourse loan
E)mutual fund

Question 69

A license to sell another's products or to use another's name in business,or both,is called a _____.

A)franchise
B)cartel
C)collateral
D)mortgage
E)collusion

Question 70

Neehara recently opened a premium bakery.She did not have enough savings and hence she applied for a loan to obtain the additional funds required to start the bakery.She had to provide her house as collateral to obtain the loan.The type of financing obtained by Neehara can be regarded as a _____.

A)mortgage
B)trade credit
C)mutual fund
D)non-recourse loan
E)dividend

Question 71

Which of the following statements is true of franchising?

A)An individual only acquires the rights to a name and not the rights to methods of operation.
B)An individual experiences most freedom in this form of business ownership.
C)A franchisee receives cash payments from the franchiser on a monthly basis.
D)A franchisee does not receive accounting support from the franchiser.
E)A franchisee often receives building specifications and designs from the franchiser.

Question 72

Banks and other financial institutions can grant a small business a _____,which is an agreement by which a financial institution promises to lend a business a predetermined sum on demand.

A)line of credit
B)trade credit
C)mutual fund
D)non-recourse loan
E)trust fund

Question 73

Lara,a single mother,borrowed some capital for her business from Women Progress Council at an extremely low rate of interest.Which of the following forms of funding a new small business does this scenario best illustrate?

A)Trade credit
B)Equity financing
C)Venture capital
D)Debt financing
E)Crowd sourcing

Question 74

Which of the following is an advantage that purchasers of a popular franchise experience?

A)They get access to the already established brand name or brand equity.
B)They have great flexibility to make decisions for their individual franchise outlets.
C)They can enjoy their total profits without having to share anything with the franchisers.
D)They can easily add or delete a good or service from the existing product line.
E)They are free to vary their operational processes based on their needs and constraints.

Question 75

One of the main drawbacks of franchising is that it requires a franchisee to:

A)invest a lot of time and effort in setting up the business.
B)take sole responsibility for all decisions in the business.
C)share the profits of the business with the franchiser.
D)build the brand appeal for the franchise outlet on his or her own.
E)invest considerable capital in national and local advertising programs.

Question 76

Since Eva has decided to use her savings to purchase the rights to own and operate a McDonald's outlet rather than starting her own restaurant,she is most likely to be a(n)_____.

A)trade creditor
B)franchisee
C)category captain
D)intrapreneur
E)venture capitalist

Question 77

Which of the following statements accurately brings out the difference between franchising and building an independent business from scratch?

A)The time required to set up an independent business is much lower than obtaining a franchise.
B)A franchise outlet often reaches the break-even point faster than an independent business would.
C)A franchisee would experience more flexibility in decision making than the owner of an independent business.
D)The quality of goods and services needs to be more standardized and uniform in an independent business than in franchises.
E)Access to managerial and financial assistance is more limited in franchises than in independent businesses.

Question 78

Which of the following is one of the commonly reported advantages of franchising?

A)Flexibility in decision making
B)No restrictions on purchasing
C)Management training and support
D)No standardized procedures of operations
E)Decentralized buying power

Question 79

Chang is an interior designer who starts his own consulting firm.His friend Rachel is the owner of a coffee shop.Chang decorates Rachel's new coffee shop in exchange for a supply of coffee whenever his clients visit his office.Which of the following sources of funding does this scenario best illustrate?

A)Mortgaging
B)Bartering
C)Trade credit
D)Line of credit
E)Equity financing

Question 80

Anisha,an entrepreneur,starts a real estate firm with very limited funds.In order to conduct business,she purchases a few laptops,LED screens,and other office equipment from a local electronics wholesaler.The wholesaler understands her financial situation and allows her to pay for the goods in installments.In this scenario,the type of funding obtained by Anisha can be regarded as a _____.

A)line of credit
B)trade credit
C)business subsidy
D)non-recourse loan
E)working capital loan