chapter 5

Question 1

what is a small business?

Answer 1

independently owned, operates for profit, and isn’t dominant in its industry.

Question 2

what industries attract small businesses?

Answer 2

1. distribution: retailing, wholesaling, transportation, communications (movement of goods from producers to consumers).
2. service: non financial (medical, dental care) and financial (accounting, insurance, real estate).
3. production: construction, mining, manufacturing.

Question 3

some info about women as small business owners (US), flip card

Answer 3

• they own 36% of all small businesses
• 66% of home-based businesses
• self employed women are older, better educated, and have more experience compared to other working women
• their businesses are financially sound and credit worthy, their risk of failure is lower than average

Question 3

reasons why people go into business for themselves

Answer 3

• entrepreneurial spirit
• independence
• desire to determine ones own destiny
• willingness to find and accept a challenge
• family background
• age
• motivation

Question 4

some more info on entrepreneurship info (flip)

Answer 4

• high tech teen entrepreneurship is exploding
• entrepreneurship has been growing among immigrants

Question 5

why do some small businesses and entrepreneurs fail?

Answer 5

• lack of capital and cash flow
• lack of management skills
• over-expansion (the act or an instance of expanding too much or too quickly)

Question 6

how are small businesses important in our economy?

Answer 6

• small firms produce 2.5 times more innovations per employee than large firms.
• they employ 43% of all high-tech workers, including scientists, engineers, and computer specialists.
• over half of the 20th century’s major technological advances came from individual inventors and small companies.

ex: Air-conditioning, FM radio, helicopters, instant cameras, and personal computers.

Question 7

small businesses and providing employment

Answer 7

• seven of the ten industries that created the most new jobs were dominated by small businesses.
• small firms tend to hire more young workers, older workers, women, and part-time workers compared to larger firms.

Question 8

small businesses providing competition and filling needs of society and other businesses

Answer 8

• small businesses push larger, established firms to become more efficient and responsive to consumer needs.
• small firms supply a wide range of goods and services to each other and to larger companies.
• ex: General Motors depends on over 32,000 companies for parts and supplies, and on more than 11,000 independent dealers to sell its vehicles.

Question 9

what are some advantages of small businesses

Answer 9

• relationships with customers and employees are usually closer in small businesses.
• as their own boss, a small business owner can adapt to changes without needing anyone’s permission.
• simplified record keeping.
• independence.
• profit retention.
• ease and low cost of going into or out of.
• ability to keep business information private.

Question 10

what are some disadvantages of small businesses

Answer 10

• risk of failure
• limited potential
• limited liability to raise capital

Question 11

what is meant by a business plan?

Answer 11

a carefully constructed guide for the person starting a business

it has 3 basic purposes

1. communication: a business plan is a brief document that potential investors review to decide if they want to invest in or help finance a new venture.
2. management:
   - a business plan helps track, monitor, and assess progress.
   - it sets timelines and milestones, allowing for comparison of projected growth with actual achievements.
3. planning: the business plan guides a businessperson through different stages of their business.

Question 12

what are the 4 components of a business plan?

Answer 12

1. what exactly is the nature and mission of a new venture
2. why is this enterprise a good idea
3. what are the businesspersons goals
4. how much will the new venture cost

Question 13

what is the Small Business Administration (SBA)?

Answer 13

a government agency that assists, counsels, and protects, the interest of small businesses in the US.

(the SBA makes a special effort to assist those in minority groups who want to start a small businesses).

Question 14

SBA Management Assistance (lowkey doesn’t seem important but we move)

Answer 14

offers free individual counseling, courses, conferences, workshops, and various publications.

Management Courses and Workshops

• the SBA provides management courses that cover the roles and responsibilities of managers.
• instructors may include local college teachers and professionals like management consultants, bankers, and lawyers.
• conferences help owner-managers stay updated on new management trends and tax laws.

Question 15

what is The SCORE Association?

Answer 15

• The SCORE Association is a group of businesspeople who volunteer to help small businesses through the SBA.
• It has over 11,000 retired and active business professionals from companies like General Electric, IBM, and Procter & Gamble.
• Experts in accounting, finance, marketing, engineering, and retail provide counseling and mentoring to entrepreneurs.

Question 16

SBA financial assistance (this seems very useless)

Answer 16

Regular Business Loans
- most SBA business loans are provided by private lenders, like banks, with partial repayment guarantees from the SBA.
- this means the SBA may guarantee repayment to the lender of up to 90% of the loan if the borrowing firm is unable to repay it.

Question 17

what is venture capital

Answer 17

money that is invested in small firms that have the potential to become successful (apple was financed by a venture capital)

Question 18

small business investment companies (SBICs)

Answer 18

• privately owned firms that provide venture capital to small businesses meeting their investment criteria.
• ex: Tesla, Costco, Federal Express, and Intel Corporation were all funded through SBICs during their early growth stages

Question 19

what is a franchise

Answer 19

a license to operate a privately owned business as if it were part of a chain of stores.
-ex : McDonald’s, Starbucks.

Question 20

what is franchising, franchisor, and franchisee?

Answer 20

• franchising: the actual granting of a franchise
• franchisor: a person or organization granting a franchise
• franchisee: a person or organization purchasing a franchise

Question 21

what are the three general categories of franchising

Answer 21

1. a manufacturer allows several retail stores to sell a specific brand-name product.
   - commonly used by sellers of passenger cars, trucks, farm equipment, and shoes.
2. a producer licenses distributors to sell a product to retailers.
   - most commonly seen in the soft drink industry.
3. a franchisor provides brand names, techniques, or other services instead of a full product.
   - this is used by travel-related companies (like Avis and Hampton Hotels) and restaurants (like McDonald’s and Subway).

Question 22

are franchises usually successful

Answer 22

the success rate for these business owned and operated by franchises is significantly higher then the success rate of other independently owned small businesses

(too rapid expansion, inadequate capital or management skills can cause failure for both franchisee and franchisor)

Question 23

what are some advantages to franchising for the franchisor and the franchisee

Answer 23

to the franchisor:
- has more capital to expand production and to use for advertising
- franchisors benefit because franchisees are often highly motivated to succeed, leading to increased sales and higher royalties for the franchisor.

to the franchisee:
- has the chance to start a business with limited capital while benefiting from the experience of others.
- receives advice from the franchisor, often at no cost.

Question 24

what are the disadvantages of franchising to the franchisor and the franchisee

Answer 24

to the franchisor: - the franchisee's failure to operate the franchise correctly. - disputes and lawsuits from franchisees regarding the terms of the franchise contract. to the franchisee: - the level of control the franchisor maintains, as their contract can govern all business aspects. -ex : All Burger King fries taste the same because every franchisee must prepare them in the same way. - franchisors may open competing franchises within the franchisee's market.