Entrepreneur Exam Flashcards
(87 cards)
1
Q
What is a small business?
A
- < 50 employees
- < $2,000,000 Gross sales (before tax)
- < $200,000 - $300, 000 net profits
- Owner participates actively in the operating of business
2
Q
What is the path to entrepreneurship?
A
- Thinking of starting a business - WHY?
- Personal assessment: Do you have the brains, capability, knowledge and money to do this?
- Explore Marketing opportunities: Competitors? Market share?
- Rational and Systematic research and evidence
- Complete a Business Plan
3
Q
What can contribute to success in small business? (6)
A
- Alertness to change
- Hire and hold competent employees
- Stay close to consumers
- Thoroughness with operating details
- Ability to obtain needed capital
- Effective handling of laws, rules and regulations
4
Q
What are some small business failure? (8)
A
- Unrealistic expectations
- Poor financial management
- Lack appropriate marketing and promoting
- Poor leadership
- Obsolete product or service (Trend changes)
- Not able to keep up with technological and economical changes
- Your competitor is better than you
- Bankcrupty
5
Q
4 Stages of Small business cycle
A
- Initial
- Growth & Expansion
- Maturity
- Decline
6
Q
Initial stage of small business cycle:
A
- Perfect concepts of your enterprise
- Establish business in the location and manor intended
- Communicate your intentions to the extent needed to get under way
7
Q
Growth & Expansion of small business cycle
A
- Progress measured in the form of professional achievement and financial assets
- Increase productivity
- Expand customer base (repeat customers)
8
Q
Maturity & Decline of small business cycle
A
- Sales, growth & expansion peaked
- Reinvent business, regain customer base OR sell
- If not –> decline
- Decline stage may happen abruptly or over a long period of time, business can only expect to go down
9
Q
All businesses go through the 4 stages of cycle except
A
Monopoly e.g. Utilities, police
10
Q
3 Types of business ownership
A
- Sole proprietorship: 1 owner
- Partnership: More than 1 owners
- Corporation: Shareholders
11
Q
Pros of Sole Proprietorship (5):
A
- Easy to set up
- Easy decision making
- All profits go to one owner
- Easy to sell or close down
- Low cost of licenses
12
Q
Cons of Sole Proprietorship (3)
A
- Assume all risks
- Limited capital, difficult to get financing
- Limited creativity
13
Q
Pros of Partnerships (3)
A
- Share liability and risks
- Financing becomes easier
- Increased creativity and skills
14
Q
Cons of Partnerships (3)
A
- Conflict among owners
- Sharing of profits
- Difficult to split business in the future
15
Q
Pros of Corporations (4)
A
- Personal assets not at risk
- Easier to attract investors
- Increased creativity and skills
- Easy to transfer ownership through shares
16
Q
Cons of Corporations (4)
A
- Heavily regulated by government
- Difficult to make decisions
- Control and ownership structure may be too broad
- Expensive to set up
17
Q
3 Ways to break into a market
A
- Offer a totally new product
- Offer an existing product to a different market
- Offer a similar product or service to those existing in the same market
18
Q
How to develop a Strategic Competitive Advantage
A
The right industry, the right business, the right aspect of the business
19
Q
What is marketing?
A
The process of planning and executing the conception, pricing, promotion and distribution of goods and services to create exchanges that satisfy organizational and individual goals.
20
Q
What is market segmentation?
A
Dividing the market into smaller more manageable sections
21
Q
What is Market Research?
A
Study of what buyers need and how to best satisfy those needs.
22
Q
What are the 4 components of Market Research?
A
- Primary Research: New research conducted through surveys, focus group, observation and experimentation
- Secondary Research: Information that has already been collected from previous researches e.g. Statistics Canada
- Quantitative Research: Data, sales figures, profits, other statistics; based on numbers, objective
- Qualitative Research: Focus group, brainstorming, personal interviews, other discussions; based on words, subjective
23
Q
Advantages of purchasing an existing business: (5)
A
- Less risk
- Less cost and time to set up
- Capitalization of business strength
- Less competition (buying the competitor out)
- Easy planning
24
Q
Disadvantages of purchasing an existing business (5)
A
- Physical facilities (Repair and renovation?)
- Personnel (Immediately terminate existing staff and rehire; reset probation)
- Inventory
- Financial Condition
- Accounts receivable
25
What is franchising?
A system of distribution that one enterprise grant another to merchant a product or service
- Franchiser brings the proven product or service, accounting or business systems, marketing strategies, location selection
- Franchisee brings the desire, business skills and money; no decision making
26
Advantages of purchasing a franchise: (2)
1. Proven market for the product or service
2. Services offered by Franchiser: Selection of location, purchasing advantages, standardized methods of operations, training
27
Disadvantages of purchasing a franchise (3)
1. Lack of independence
2. Cost of Franchising (Royalty: 2-5% on gross profits every month)
3. Saturation of the market
28
What is a good distribution channel?
Getting the product to customers at the right place at the right time, and in the right amount; cheapest and most direct way from producer to consumer
29
What are the 3 distribution strategies?
1. Manufacturer to consumer
2. Manufacturer to wholesaler to consumer
3. Manufacturer to wholesaler to retailer to consumer
30
What are the 3 definitions of Entrepreneurship?
1. Involved in what is generally described as "business" whether making, selling or trading in things
2. Being the sole proprietor of his or her entreprise or in an entrepreneurial partnerships
3. Established in the sense of satisfying his or her immediate material needs but remain ambitious to grow in influence or wealth
31
What are some of the characteristics of entrepreneurs? (5)
1. Ability to deal with failure
2. Independent and risk taker
3. Strategic planning
4, Continuous goal setting
5. Innovative and adaptable to changes
32
What are the day to day activities of an entrepreneur?
1. Planning: Define goals, establish strategies, develop plan to coordinate activities
2. Leading: Motivate employees, direct activities of others, select best communication channels, resolve conflicts
3. Organizing: Decide what tasks to be done, who to do them, how to do them, who reports to whom, where to do, etc
4. Controlling: Monitor performance, compare it with goals, correct significant deviations; not micromanaging
33
What are the 5 skills of entrepreneur?
1. Human Relations: Interpersonal skills, work in a team, communicating well
2. Technical: Ability to perform tasks in specialized field
3. Conceptual:Visualize relationships between things, jobs, goals, and the big picture
4. Diagnostic: Investigate problem, implement remedy and solve
5. Political: Gain and maintain power to reach objectives
34
What is the decision making process (5) of an entrepreneur?
1. Recognize problems and opportunities
2. Develop alternative course of actions
3. Evaluate alternatives
4. Select the implement the chosen course of actions
5. Follow up and determine the effectiveness of the decision
35
What is motivation?
The process that accounts for an individual's intensity, direction and persistence of efforts toward attaining a goal
36
How to put a market research through a rational and systematic analysis?
1. Gather information
2. Qualitative assessment for a business idea
3. Quantifiable Assessment
4. Create a sales forecast
37
What are the three types of Market Segmentation?
1. Mass marketing: Target the entire market; focus on common needs rather than differences
2. Product marketing: Target several segments of the market and design separate offers for each
3. Target marketing: Target one or few sub-markets
38
What are the 4 factors used to segment a market?
1. Demographics: age, sex, education, income level, etc
2. Psychological basis: values and attitudes
3. Geographical basis: regions, urban centers, rural communities
4. Behavioral basis: usage rate, benefits, loyalty
39
What is qualitative assessment?
Multiple criteria that needs to be created and having the business idea assessed against; can take the form of questions; e.g. surveys, focus groups
40
What are the 3 stages of quantitative assessment?
Stage 1: Market potential and market size
Stage 2: Estimate market share
Stage 3: Calculate annual sales
41
What are the 3 steps of preparing the feasibility analysis?
1. Calculate the market potential
2. Calculate the market share
3. Calculate net income and cash flow
42
How to calculate market potential?
1. Market area and population
2. Revenue, sales statistics pf the product or service in the area
3. Adjust market potential total when necessary
Steps:
1. Total sales of product / population of the region = per capita sales
2. Population of town x per capita sales
43
How to calculate market share?
1. Estimate the total selling space in the market of the merchandise the new business will sell
2. Estimate size of the proposed store
3. Market share % = Proposed selling space / total selling space (including the new store)
4. Adjust figure according to competitor strengths and weakness
5. Total market share = Market potential x market share %
44
What is Accounting?
Provides financial information about a business and its decision-making style
45
Why is financial information required for entrepreneurs, investors, lenders and government?
Entrepreneurs: To plan and control; to motivate employees
Investors: To evaluate performance
Lenders: To evaluate creditworthiness
Government: To verify taxes owed; to approve new stock issues
46
What is a Balance Sheet?
Shows the financial position of a business and is composed of assets, liabilities and owners' equity at a specific date in time which is done for the period of one year
47
What are assets?
Economic resources owned by the business which are expected to benefit the business; can be physical e.g. land or intangible e.g. accounts receivable
48
What are liabilities?
Debts such as accounts payable, notes payable and mortgage
49
What is owners' equity?
Resources put in by owner and earnings from a profitable operation
50
What is an Income Statement?
Measure of economic performance which is done for the period of one year
51
What are Revenue and Expenses?
Revenue: Price of goods and services; Expenses: Cost of goods and services used to obtain revenue
52
Gross Income =
Total revenue - total expenses
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Net income =
Gross income - taxes
54
Cost of goods sold
Beginning inventory + purchase - ending inventory
55
What is a Cash Flow Statement?
Gives a full and complete picture of cash receipts and disbursements for a specific period (done for the period of a year)
56
Net cash flow =
Total cash inflow - total cash outflow
57
Liquidity ration (Current) =
Current assets / current liabilities (usually between 1:1 and 2:1)
58
Acid test / Quick ratio =
Current assets - inventory / Current liabilities (1:1 - healthy)
59
Profitability ratio (ROI) =
Net profits before tax / owners' equity
60
Debt ratio =
Total debts / owners' equity (Should be under 4:1)
61
What are the types of financing?
Equity (ownership) financing and debt financing
62
Where are some sources of equity financing?
Private and corporate investors, government, Business Development Bank of Canada (BDC), Canada Development Corporation (CDC): provincial programs
63
Advantages of equity financing (2)
1. Equity spread risks of failure
| 2. Investor's expertise
64
Disadvantages of equity financing (2)
1. Dilutes ownership and independence
| 2. Disagreements and compromises
65
Sources of debt financing
1. Private lenders: Shareholder loans
2. Corporate lenders: chartered banks, trust companies, credit unions, finance companies
3. Government lenders
66
Advantages of debt financing (2)
1. Easier to get than equity capital
| 2. No loss of ownership control and greater flexibility
67
Disadvantages of debt financing (2)
1. Interest on borrowed money
| 2. Risk on owner
68
What are the Five Cs for obtaining a loan?
1. Character (your personal character; personal credibility and business expertise)
2. Collateral (What assets you own; what are you willing to lose)
3. Cash Flow (Cash flow statement and income statement)
4. Capital (How much do you need; strategic business plan)
5. Competence (how you can repay the loans)
69
Why are loans turned down? (3)
1. Weak business plan
2. Poor personal credit / business history and experience
3. Insufficient collateral
70
What is BDC and what does it do?
Business Development Bank of Canada; provide financial and management assistance to Canadian small business sector
71
What is a business plan?
A plan of action for your business emphasizing your objectives, goals and how you plan to achieve them; what is your competitive advantage?
72
What are the 4 feasibility analysis?
Market: Is it something people will buy?
Technical: Can it be done and should it be done?
Financial: Will it be financially worthwhile?
Human Resource: Is this the right business for you?
73
10 components in a business plan (Just headings)
1. Table of contents
2. Executive summary and Background Statement
3. Management Team
4. Business objective
5. Marketing approach
6. Location and exterior (surrounding area)
7. Physical facilities (inside)
8. Financing
9. Personnel
10. Legal requirements
74
Table of contents
Overview of the plan, quick access to various sections
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Executive summary
History of the project to date, mission statement
76
Management Team
Resume and background of decision makers; background of owners and managers
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Business Objective
First year's 5 objectives (business size, production level, performance level)
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Marketing approach
Target market: Their needs, wants and purchase habits
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Uncontrollable factors that may affect the marketing
Existing or pending legislation, new technology that may affect the business; state of economy; competitors' strategy, cultural norms
80
4 P's
Product, price, place (distribution), promotion
81
Location of Business
Why the trading area; attitude towards new business: competitors, costs; the site (physical features, accessibility to other business); Buy (renovation?) or Lease? (Length and cost of lease)
82
Physical facilities
Insurance (Loss or damage to property, liability, business interpretation, life insurance; what kind and how much to purchase? From who?)
83
Financing
Capital requirements, feasibility analysis, sources of funding, accounting and book keeping systems
84
Personnel
Administrative structure, hiring and training, personnel policies
85
5 legal structures
Sole Pro, partnerships, co-operative, corporations, joint ventures
86
What are the steps of incorporation?
Select business name, decide share structure, describe operation, obtain supplies
87
Licenses and taxes
Federal: Income tax, GST, excise tax
Provincial: Income tax, license, sales tax
Municipal: License, property taxes, business tax
Intellectual Property protection: Patent
