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

Question 1

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

Answer 1

False

Question 2

Legal business organizations are artificial entities that exist separately from the owners.

Answer 2

True

Question 3

A start-up can be kept small deliberately to limit the magnitude of possible losses.

Answer 3

True

Question 4

Key resource acquisitions,also called bulk asset purchases,are the only way a sole proprietorship may be purchased.

Question 5

The absolute lowest price that a buyer would be willing to pay is called the 'point of indifference' in the negotiation process.

Question 6

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

Question 7

Buy-ins can be made in any form of business.

Question 8

Franchising a new business is one of the ways to business ownership.

Question 9

A buyout refers to starting a business from scratch.

Question 10

One way to go about obtaining committed customers prior to start-up is to specifically go into competition with one's employer.

Question 11

Trade name franchising provides an organization through which interdependent businesses may combine resources.

Question 12

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

Question 13

Properly performing due diligence minimizes the risk of failure and maximizes the probability of success by identifying the strengths and weaknesses of the business.

Question 14

A start-up business has no initial name recognition.

Question 15

The UFOC is a standard document franchises use to explain their operations,requirements,and costs to potential franchisees.

Question 16

A start-up always immediately provides positive cash flows.

Question 17

A start-up usually can easily gain revolving credit from suppliers and financial institutions.

Question 18

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

Question 19

A start-up never has existing employee problems,debts,lawsuits,contracts,or other legal commitments that must be satisfied.

Question 20

A purchased business or franchise does not require immediate and constant cash flows to meet ongoing obligations.

Question 21

Which of the following is true for start-ups?

A) It has initial name recognition.
B) A start-up is also known as an earn-out.
C) It involves purchases of existing businesses.
D) It can provide new,unique products or services that are not available.

Question 22

Which of the following is one of the ways to get into small business management?

A) Narrowcasting
B) Franchising
C) Expropriating
D) Onboarding

Question 23

Founders of small businesses often find it very difficult to give up decision-making authority to family members.

Question 24

Which of the following is most likely to be the best indicator of successful start-ups?

A) Level of experience of the founders
B) Social background of the founders
C) Financial background of the founders
D) Specific educational courses taken by the founder

Question 25

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) primary

Question 26

_____ strengthen the local economy by helping create jobs through the establishment of successful small businesses.

A) Joint venture firms
B) Consultancies
C) Business incubators
D) Trade associations

Question 27

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

A) mentoring programs
B) consultancies
C) trade associations
D) franchising outlets

Question 28

Which of the following would be a plus point for starting a new business?

A) Initial name recognition
B) Clean slate to begin
C) "Legacy" locations,buildings,and equipment
D) Accessibility to experienced managers and workers

Question 29

Which of the following terms best represents something a 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 30

Which of the following ensures that a new business will be critically examined by outsiders who have no vested interest in the owners' idea,product,or service?

A) Securing outside investment
B) Starting with more than one founder
C) Having previous experience of managing small firms
D) Having a detailed start-up budget

Question 31

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 32

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

A) green field investments
B) blue ocean strategies
C) earn-outs
D) leveraged buyouts

Question 33

Which of the following is most likely to increase the odds of start-up successes?

A) Starting business in a business incubator
B) Securing investment from family or friends
C) Having experience of managing large firms
D) Starting with one founder

Question 34

A new business that has begun from scratch is called a:

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

Question 35

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

A) It cannot begin with a "clean slate."
B) It cannot easily gain revolving credit.
C) It does not provide the owner with the opportunity to use the most up-to-date technologies.
D) It cannot provide new,unique products or services.

Question 36

For small businesses,professional management is an issue of education,titles,and credentials.

Question 37

A start-up cannot:

A) provide the owner with the opportunity to use the most up-to-date technologies.
B) provide new,unique products or services.
C) begin with a "clean slate."
D) provide positive cash flows immediately.

Question 38

Which of the following is most likely to be 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 it immediately provides positive cash flow.
D) It has easy access to revolving credit.

Question 39

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 40

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) blue ocean strategy.
C) green field investment.
D) cartel.

Question 41

Which of the following is the last step for performing due diligence?

A) Obtain sufficient capital to purchase and operate the business.
B) Conduct extensive interviews with the sellers of the business.
C) Interview customers and suppliers of the business.
D) Study the financial reports and other records of the business.

Question 42

Which of the following is essential to the success of all start-ups when one uses the "lean" entrepreneurial methods?

A) Having experience managing large firms
B) Not encouraging standardizing repetitive characteristics of a business
C) Starting a business with a sole founder
D) Keeping in touch with one's customers

Question 43

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

A) Need for sufficient demand for the products and services to operate profitably.
B) Purchasing a business being significantly more expensive than a start-up.
C) Need to hire many new employees when buying an existing business.
D) Existing managers and employees resisting change.

Question 44

Which of the following is most likely to be achieved as the result of starting a business with established customers?

A) Prices set at the highest level the market will bear
B) Investment in multiple investments of differing risk profiles
C) Access to revolving credit
D) Immediate cash flows

Question 45

Which of the following is most likely to be 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 when buying an existing business.

Question 46

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 47

The single greatest hurdle to a successful start-up is obtaining and maintaining sufficient cash to support both operations and growth.Which of the following is needed by a successful start-up to overcome this hurdle?

A) Reserve price
B) High margins
C) Spin-off
D) Liquidation

Question 48

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 project.

Question 49

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

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

Question 50

Which of the following provides a buffer for the mistakes made by a start-up business?

A) Liquidation
B) High margins
C) Effectuation
D) Mindshare

Question 51

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

A) start-up
B) maturity
C) growth
D) evaluation

Question 52

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

A) Statistical surveys
B) Local community center
C) Networking
D) Universities

Question 53

Which of the following is the first step for performing due diligence?

A) Study the financial reports and other records of the business.
B) Conduct extensive interviews with the sellers of the business.
C) Obtain sufficient capital to purchase and operate the business.
D) Make a personal examination of the site (or sites)of the business.

Question 54

Which of the following is a way to start business with established customers?

A) Synergizing
B) Effectuation
C) Spin-off
D) Earn-out

Question 55

Which of the following is essential to the success of all start-ups?

A) Starting a business with low margins
B) Not going into competition with one's employer
C) Building trust in one's "story"
D) Not starting a business with one's established customers

Question 56

Which of the following is most likely to increase the odds of successes for a start-up?

A) Starting a business with a sole founder
B) Having experience managing large firms
C) Choosing a business that produces high margins
D) Securing investment from family or friends

Question 57

If Sarah were to buy an existing business,which of the following disadvantages would you point out?

A) Difficulty in determining the worth of the business.
B) Possibility of established customers leaving due to change.
C) Need for establish production processes.
D) Buying a business being more expensive than starting one.

Question 58

Sam used his management skills to start a loans advising website.He started seeing clients at his home before it grew into a well-established company in the next ten years.Which of the following entrepreneurial methods did he use in the beginning,to reduce the financial risk of his start-up?

A) Franchise
B) Consignment
C) Lean method
D) Liquidation

Question 59

The amount by which sales prices exceed product costs refers to:

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

Question 60

Which of the following is accomplished by a small business when it secures outside investment?

A) Business can be started by a sole individual.
B) Founders take part in a mentoring program.
C) It indicates a level of belief in the business and the owner.
D) Business can be started by an individual without prior experience.

Question 61

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

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

Question 62

Which of the following is a financial statement that will be checked during due diligence when buying an existing business?

A) White paper
B) Balance sheet
C) Codicil
D) Amicus brief

Question 63

The primary advantage to a buyout is its:

A) hands-off approach.
B) significantly less cost.
C) simplicity.
D) employee stock option plan.

Question 64

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

A) buy-in.
B) takeover.
C) merger.
D) earn-out.

Question 65

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

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

Question 66

Patents and trade secrets are examples of:

A) employee stock option plans.
B) heuristics.
C) franchising.
D) intangibles.

Question 67

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 68

Which of the following is commonly used to estimate the value of a business?

A) Synergy
B) Comparable sales of other firms
C) Spin-offs
D) Industry heuristics

Question 69

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

A) the balance point.
B) the point of indifference.
C) caveat emptor.
D) the reversing point.

Question 70

_____ 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 71

_____ 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) Codicils
D) Heuristics

Question 72

Which of the following is the primary goal for performing due diligence?

A) Finding any inefficiencies,unnoticed opportunities,waste,and mismanagement
B) Conducting extensive interviews with the sellers of the business
C) Identifying the potential competitors of the company
D) Studying the competitive strategies of the company

Question 73

_____ 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 74

The purchase of substantially less than 100 percent of a business is called a(n):

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

Question 75

Which of the following is one important advantage of key resource allocation?

A) It has a financial plan for the future,based on a single level of operations;a quantitative expression of the use of resources necessary to achieve a business's strategic goals.
B) As only assets are acquired,a subsequent business,regardless of its legal form,is not responsible for any of the acts or transactions made prior to purchasing the business.
C) It has an agreement between two or more entities to pool resources in order to complete a project.
D) It specifies the time that is required for a business to acquire resources,convert them into product,sell the product,and receive cash from the sale.

Question 76

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 77

In a _____,the buyer seizes control of the business without the permission of all owners.

A) takeover
B) joint venture
C) spin-off
D) merger

Question 78

Which of the following refers to income capitalization?

A) Regular and systematic reduction in income that transfers asset value to expense over time.
B) Dividing projected net income excluding depreciation,interest,and owner draws,by the best return that you could expect to obtain in other investments.
C) Multiplying your estimate of future earnings by the net income to equity ratio.
D) The amount of profit earned by a business before calculating the amount of income tax owed.

Question 79

_____ 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 80

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

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