Deck 6: Small Business Entry: Paths to Full-Time Entrepreneurship

Question 1

Given that multiple individuals create conflict,starting the business with one founder is one of the top indicators of start-up success.

Answer 1

False

Question 2

When you are structuring a deal,you should open negotiations with a price substantially higher than your point of indifference.

Answer 2

False

Question 3

Since one firm is so different than another,having experience and managing small firms does not help,but having industry experience and knowledge is a key indicator that brings success to the start-ups.

Answer 3

False

Question 4

In the book,Good to Great,Jim Collins asserts that for a firm to move from merely "good" business to "great" business,they must first get the right product or service.

Question 5

Ninety percent of all start-ups are based on ideas from prior work experience,hobbies,and family businesses.

Question 6

In a takeover,the seller seizes control of the business without the permission of all the buyers.

Question 7

The disadvantages of a buy-in are the same as its advantages.

Question 8

Due diligence is the process of investigating to determine the full and complete implications of buying a business.

Question 9

It is an unfortunate fact that most new products and services fail to gain acceptance.

Question 10

There are only five ways to get into small business management.

Question 11

Buyouts are restricted to businesses that have a formal legal form of organization.

Question 12

Brokers advertise and facilitate the sale of business for a fee,usually a percentage of the ultimate selling price.

Question 13

Due diligence in buying a business involves studying the financial statements of the business including a balance sheet,an income statement,and a statement of cash flow.

Question 14

Often,the founder of a small business finds it very difficult to give up decision-making authority to family members.

Question 15

According to the Small Business Administration,50 percent of new business start-ups survive at least four years.

Question 16

One disadvantage of purchasing an existing business is that it requires more cash outlay than creating a start-up.

Question 17

One way that you can go about obtaining committed customers prior to start-up is to specifically go into competition with your employer.

Question 18

A buyout refers to starting a business from scratch.

Question 19

In the terms of small business,professional management is totally an issue of education,titles,and credentials.

Question 20

There are two basic forms of franchising: product and service franchising.

Question 21

In _____,executive volunteers contribute their time and energy in assisting start-up and struggling small businesses as a public service.

A)mentoring programs
B)trade associations
C)business incubators
D)franchising

Question 22

The specific concept that leads to a start-up business usually comes from the _____ of the person starting the business.

A)credentials
B)interests
C)education
D)experience

Question 23

All of the following are advantages of a start-up EXCEPT

A)the use of the most up-to-date technologies.
B)the access to revolving credit line.
C)it can be kept small deliberately to limit the magnitude of possible losses.
D)it has a clean slate.

Question 24

Doing all of the following things has been shown to be the most effective route to success EXCEPT

A)starting a business in a business incubator.
B)securing outside investment.
C)taking part in a mentoring program.
D)starting with one founder.

Question 25

The _____ phase is usually the most difficult time you will have in business.

A)start-up
B)work
C)growth
D)completion

Question 26

_____ refers to something the business owns that has economic value or is expected to have economic value in the future.

A)Asset
B)Revolving credit
C)Cash flow
D)Synergy

Question 27

Which of the following is NOT a path to full-time business ownership?

A)Franchising
B)Stand retailing
C)Starting a new business
D)Buying an existing business

Question 28

A(n)_____ credit is a credit agreement that allows the borrower to pay all or part of the balance at any time;as the loan balance is paid off,it becomes available to be borrowed again.

A)revolving
B)installment
C)social
D)nonrevolving credit

Question 29

All of the following are disadvantages of a start-up EXCEPT

A)absence of initial name recognition.
B)access to revolving credit line.
C)difficulty in financing.
D)it starts with a clean slate.

Question 30

A legal agreement that allows a business to be operated using the name and business procedures of another firm is referred to as a

A)franchise.
B)license.
C)turnkey.
D)consignment.

Question 31

Which of the following statements about business incubators is false?

A)Incubator participants have individual office services,such as telephone answering,and production and copying of documents.
B)They provide access to angel investors,public grants for seed money,and technology support.
C)They are created to strengthen the local economy by helping create jobs through the establishment of successful small businesses.
D)They aid in the commercialization of new technologies,the revitalization of distressed neighborhoods,and the creation of wealth.

Question 32

A new business that is started from scratch is called a

A)buyout.
B)franchise.
C)start-up.
D)buy-in.

Question 33

A _____ is an organization that provides financial,technical,and managerial help to start-up businesses.

A)business incubator
B)trade association
C)venture capital firm
D)consultancy

Question 34

Purchases of existing businesses may occur through _____ in which the business is bought over a period of time with money earned from the business.

A)turnkey
B)cash purchases
C)earn-outs
D)leveraged buyouts

Question 35

_____ franchise is one in which every part of setting up the business is handled by professionals.

A)Turnkey
B)Product or trade name
C)Single unit
D)Multi unit

Question 36

Often the only competitive advantage for a "me-too" start-up is the

A)finance.
B)location.
C)marketing.
D)subsidy.

Question 37

Which of the following is an advantage of a start-up?

A)It begins with a clean slate
B)It has initial name recognition
C)It is easy to establish and provide positive cash flow
D)It has easy access to revolving credit

Question 38

Which of the following is a disadvantage of a start-up?

A)It begins with a clean slate
B)Absence of "legacy" locations,buildings,and equipment
C)Absence of initial name recognition
D)Providing new products or services

Question 39

When a small business start-up secures outside investment,one thing it accomplishes is that

A)the business is critically examined by outsiders.
B)it brings the synergy from multiple founders.
C)the business produces a product or service for which there is a proven demand.
D)the founders take part in the mentoring program.

Question 40

Research into the indicators of successful start-ups shows that one of the best predictors of success is

A)the level of experience of the founders.
B)suggestions from friends and associates.
C)random events.
D)specific education courses.

Question 41

Financial statements,in performing due diligence,should include all of the following EXCEPT a(n)

A)balance sheet.
B)mission statement analysis.
C)income statement.
D)statement of cash flows.

Question 42

Which of the following is an advantage of buying an existing business?

A)It is easy to find an appropriate existing business for sale given the technology today.
B)Purchasing a business often requires less cash outlay than for creating a start-up.
C)Existing managers and employees embrace change due to continuing operations that provide job security.
D)New technology needs are eliminated.

Question 43

Which of the following steps is NOT a part of due diligence?

A)Leveraging the contributions of the partner to provide faster growth.
B)Studying the financial reports and other records of the business.
C)Developing a detailed business plan for the acquisition.
D)Conducting extensive interviews with the sellers of the business.

Question 44

In which way will working with a partner reduce the risk of a start-up?

A)Banks prefer partnered start-ups.
B)Federal government provides subsidies to partnering situations.
C)Partners may provide capital,equipment,or advice.
D)Partners eliminate the need to hire other employees.

Question 45

Which of the following is a primary goal of due diligence?

A)Finding any wrongdoing
B)Paying the top dollar for the business
C)Fulfilling all requirements for state regulations
D)Establishing yourself as a competitive threat

Question 46

Patents and trade secrets are examples of

A)ESOPs.
B)heuristics.
C)franchising.
D)intangible assets.

Question 47

Which of the following is an excellent way to find businesses for sale?

A)Yellow pages
B)Local community center
C)Networking
D)Universities

Question 48

Identify the statement that is not a part of the steps which make up the process of due diligence.

A)Conducting extensive interviews with the sellers of the business.
B)Making a personal examination of the site (or sites)of the business.
C)Interviewing customers and suppliers of the business.
D)Developing a brief business plan for the acquisition.

Question 49

Having multiple founders at a start-up is a key success indicator for all of the following EXCEPT

A)providing a forum for examining ideas.
B)evaluating information.
C)dividing up the business risks and rewards.
D)making good business decisions.

Question 50

A combination in which the whole is greater than the sum of its component parts refers to

A)revolving credit.
B)synergy.
C)microinventory.
D)spin-off.

Question 51

The single greatest hurdle to a successful start-up is

A)obtaining and maintaining mentoring relationships.
B)obtaining and maintaining sufficient cash.
C)hiring and retaining qualified employees.
D)procuring enough inventory for sale.

Question 52

The process of investigating a business to determine its value is called

A)synergy.
B)spin-off.
C)due diligence.
D)heuristics.

Question 53

This is not a reason for obtaining a set of financial statements when a business is acquired.

A)The seller usually has to gather financial information and incurs added cost and time in providing them.
B)As a business person you are most likely familiar with financial statements and can extract useful information from them.
C)Financial statements are accepted as representative of the business by bankers and investors.
D)Financial statements are considered to be indicators of future business results.

Question 54

Which of the following terms means "let the buyer beware"?

A)Caveat lector
B)Spin-off
C)Caveat emptor
D)Synergy

Question 55

A business that is created by separating parts of an operating business into a separate entity is called a

A)synergy.
B)franchise.
C)spin-off.
D)turnkey.

Question 56

Which of the following statements about home-based businesses is true?

A)Having a business based at home increases the cash flow requirements of a start-up business.
B)From around 1960 to 1980,home-based businesses largely fell out of favor.
C)Because of the proximity of the business to the living area,no time is spent commuting between home and office.
D)The U.S.Small Business Administration estimates that 93 percent of all businesses are home-based,putting the number at around 15 million firms.

Question 57

The amount by which sales prices exceed product costs refers to

A)high margins.
B)synergy.
C)spin-off.
D)asset.

Question 58

You can go about obtaining committed customers prior to start-up via all of the following ways EXCEPT

A)starting a spin-off from your employer's business.
B)competing with your employer.
C)subcontracting services to your employer.
D)getting your employer's business into an incubator.

Question 59

Which of the following is a disadvantage of purchasing an existing business?

A)Established customers leaving due to change.
B)Existing business processes being difficult to change.
C)Purchasing a business being significantly more expensive than a start-up.
D)Existing managers and employees resisting change.

Question 60

All of the following holds true of creating spin-offs in businesses EXCEPT

A)it is a regular business practice that is done by big businesses at the initial stages of business development.
B)they are created to get rid of "noncore" activities.
C)it is a business that is created by separating part of an operating business into a separate entity.
D)some of them are created when the parent lacks either the interest or the resources to pursue the opportunity.

Question 61

_____ is an estimate of what an identical asset would cost to be acquired and readied for service.

A)Earnings multiple
B)Book value
C)Replacement value
D)Net realizable value

Question 62

Which of the following statements determines the value of a franchise?

A)By the rights granted.
B)By the conditions and standards set.
C)By the operating permissions granted.
D)By the value of assets acquired.

Question 63

Identify the statement that is not essential for an agreement to constitute a franchise.

A)The agreement does not require the franchisee to pay a fee for the right to enter into the business.
B)The agreement grants the franchisee use of a brand name,trademark,service mark,logo,or other commercial symbol which designates the franchisee as an affiliate of the franchisor.
C)The agreement provides that the franchisee may engage in business using a marketing plan or system provided by the franchisor or proposed by the franchisee.
D)The agreement provides the franchisee with a legal right to engage in the business of offering,selling,or distributing goods or services.

Question 64

_____ of other firms in the same industry are commonly used to estimate the value of a business.One major problem with this method is that no two firms are exactly alike.

A)Synergies
B)Comparable sales
C)Spin-offs
D)Industry heuristics

Question 65

The ratio of the value of a firm to its annual earnings is called

A)unappropriated profit.
B)accumulated earnings.
C)retained earnings.
D)the earnings multiple.

Question 66

This is an agreement that provides only the rights to use the franchisor's trade name and/or trademarks.

A)Product distribution franchising
B)Trade name franchising
C)Conversion franchising
D)Business format franchising

Question 67

_____ are the cash flows that have been reduced in value because they are to be received in the future.

A)Book value cash flows
B)Replacement value cash flows
C)Free cash flows
D)Discounted cash flows

Question 68

Which of the following statements about asset valuation methods is false?

A)Estimates do not consider the value of an ongoing firm over the value of its identifiable assets.
B)They are based on the assumption that a business is worth the value of its assets minus the value of any liabilities.
C)It is very difficult and time consuming to separately identify and estimate the values of all the assets of a business.
D)The application of asset valuation methods to business valuation is similar to having an annuity.

Question 69

_____ are the only way a sole proprietorship may be purchased.

A)Buy-ins
B)Takeovers
C)Key resource acquisitions
D)Buyouts

Question 70

Seizing of control of a business by purchasing its stock to be able to select the board of directors refers to

A)buy-in.
B)takeover.
C)merger.
D)heuristics.

Question 71

The amount for which an asset would sell,less the costs of selling the asset is called

A)book value.
B)replacement value.
C)net realizable value.
D)earnings multiple.

Question 72

The difference between original acquisition cost and the amount of accumulated depreciation is called the

A)replacement value.
B)book value.
C)earnings multiple.
D)discounted cash flow.

Question 73

The process of determining the net present value of an investment opportunity requires all of the following EXCEPT

A)estimating the cash that must be invested.
B)estimating the cash that will be returned.
C)estimating the periods in the future in which cash inflows will occur.
D)estimating the cost of capital to the seller.

Question 74

All of the following are major problems with using book value EXCEPT

A)the original cost of an asset might bear no relation to its current value.
B)depreciation is an arbitrary,but nonsystematic,method of transferring asset value to expense.
C)internally developed assets,such as patents,trademarks,and trade secrets do not have book value.
D)Depreciation makes no attempt to measure actual loss of value of an asset.

Question 75

The purchase of substantially less than 100 percent of a business is called a

A)takeover.
B)buy-in.
C)spin-off.
D)buyout.

Question 76

_____ are rules of thumb that are commonly used to estimate firm value in relation to some easily observable characteristic of the business.

A)Synergies
B)Spin-offs
C)Book values
D)Heuristics

Question 77

_____ analysis is based on the concept that the longer you have to wait to receive money,the less valuable it is right now.

A)Discounted cash flow
B)Replacement value cash flow
C)Free cash flow
D)Book value cash flow

Question 78

Which of the following observations holds true of product distribution franchising?

A)It provides the franchisee with specific brand named products,which are resold by the franchisee in a specified territory.
B)It provides an organization through which independent businesses may combine resources.
C)It is an agreement that provides only the rights to use the franchisor's trade name and/or trademarks.
D)It is an agreement that provides a complete business format.

Question 79

The primary advantage to a buyout is

A)hands-off approach.
B)significantly less cost.
C)simplicity.
D)ESOP.

Question 80

The price at which a buyer is indifferent about buying or not buying the business is called

A)spin-off.
B)the point of indifference.
C)caveat emptor.
D)ESOP.