M Business 6th Edition OC Ferrell - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below M: Business, 6e (Ferrell) Chapter 5 Small Business, Entrepreneurship, and Franchising 1) Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Answer: …
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M Business 6th Edition OC Ferrell – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
M: Business, 6e (Ferrell)
Chapter 5 Small Business, Entrepreneurship, and Franchising
1) Entrepreneurship is the process of creating and managing a business to achieve desired objectives.
Answer: TRUE
Explanation: Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Some entrepreneurs who start small businesses have the ability to see emerging trends; in response, they create a company to provide a product that serves customer needs.
Difficulty: 1 Easy
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) One of the most significant drawbacks of small businesses is their inability to innovate and to bring significant benefits to customers.
Answer: FALSE
Explanation: One of the most significant strengths of small businesses is their ability to innovate and to bring significant benefits to customers. Small firms produce more than half of all innovations.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy.
Answer: TRUE
Explanation: Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend the large sums of money for the equipment and distribution systems that a manufacturing business requires.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) A term used to describe businesses that depend heavily on advanced scientific and engineering knowledge is new technology.
Answer: FALSE
Explanation: High technology is a broad term used to describe businesses that depend heavily on advanced scientific and engineering knowledge.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Remember
AACSB: Technology
Accessibility: Keyboard Navigation
5) The sharing economy appeals to those who prefer working full time in the service sector.
Answer: FALSE
Explanation: The sharing economy offers opportunities for those who want to be their own entrepreneurs or want additional income even though they have another job.
Difficulty: 1 Easy
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) One advantage of a small business is that it can introduce a new product in a short period of time.
Answer: TRUE
Explanation: With small size comes the flexibility to adapt to changing market demands. Small businesses usually have only one layer of management—the owners. Decisions, therefore, can be made and executed quickly. In larger firms, decisions about even routine matters can take weeks because they must pass through multiple levels of management before action is authorized.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Fear of failure is the most common concern when starting a business.
Answer: TRUE
Explanation: Managing a small business can be very stressful and demanding. Fear of failure often keeps people from starting their own businesses.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Marta started her auto body shop with money she had saved from a small inheritance. When she began to have costly equipment issues, she quickly ran out of money. This is a case of undercapitalization.
Answer: TRUE
Explanation: The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally. Without sufficient funds, the best small-business idea in the world will fail.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) A benefit of franchising is the ability to operate under standardized operations.
Answer: FALSE
Explanation: In franchising, a shortcoming experienced by franchisees include strict adherence to standardized operations. Entrepreneurs who want to be their own bosses are often frustrated with the restrictions of a franchise.
Difficulty: 1 Easy
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The largest employer of legal immigrants in the United States is in health-care services
Answer: FALSE
Explanation: The largest employer of legal immigrants is retail, followed by educational services and non-hospital health care services.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Mi Sun 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. Mi Sun can be regarded as
Answer: B
Explanation: Mi Sun can be regarded as an entrepreneur. Entrepreneurs are people involved in entrepreneurship, which is the process of creating and managing a business to achieve desired objectives.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) Sheryl and Harry recently had their first child. As two working parents, they struggled to find good, economical child care. As a result, they decided to rent out the basement of their home to a daycare, so they could get reduced-cost child care. This is an example of the
Answer: A
Explanation: This is an example of the sharing economy, an economic model involving the sharing of underutilized resources.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
13) Growing up, Casey noticed that many families in his community struggled to make ends meet and provide for their children’s education. As a result, after he finished school, he started a business to provide low-cost tutoring and scholarship opportunities for low-income families in his community. As his company has grown, Casey has been able to extend free tutoring and college scholarships to five impoverished students per year. Casey is a
Answer: C
Explanation: Casey is a social entrepreneur because he uses entrepreneurship to address a social problem. These entrepreneurs operate nonprofit or for-profit organizations committed to creating social change.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
14) 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.
Answer: C
Explanation: A small business is defined as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people. A local Mexican restaurant may be the most patronized Mexican restaurant in your community, but because it does not dominate the restaurant industry as a whole, the restaurant can be considered a small business.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Michelangelo owns a small catering business that mostly serves his community. He has been hired for company picnics, backyard barbecues, and family celebrations. As word of mouth has spread about his delicious food, good service, and fair prices, he has started getting more business. To handle this, he has hired four employees to help cook and serve food at these events. What kind of entrepreneur is Michelangelo?
Answer: E
Explanation: Michelangelo is a microentrepreneur because he employs five or fewer employees.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
16) Victor runs Bizz, 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 own house with a staff of about 55 employees. Victor’s company can be categorized as a
Answer: E
Explanation: Victor’s company can be categorized as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
17) The Small Business Administration is
Answer: B
Explanation: The Small Business Administration is an independent agency of the federal government that offers managerial and financial assistance to small businesses. On its website, the SBA outlines the first steps in starting a small business and offers a wealth of information to current and potential small-business owners.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) Sareena owns a Lebanese restaurant that employs around 25 people. She is solely responsible for the management of the restaurant. Her business competes with a larger chain of restaurants that offer the same cuisine. Sareena’s restaurant can be classified as a
Answer: E
Explanation: Sareena’s restaurant can be classified as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
19) When Marco first moved from Mexico to the United States, he struggled to find and keep work because he couldn’t speak English fluently. After learning English, he started a new business to help other Mexican Americans learn English and to help place them in jobs. Marco’s business is a
Answer: B
Explanation: Marco’s business is a minority-owned small business. This type of business has been growing faster than other classifiable firms, representing 28.6 percent of all small businesses.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
20) What percentage of all U.S. businesses are classified as small businesses?
Answer: C
Explanation: More than 99 percent of all U.S. firms are classified as small businesses, and they employ about half of private-sector workers.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) Music and Melody, an independent music store, acquires instruments and other music equipment from producers and wholesalers and sells them to consumers. Music and Melody is a
Answer: C
Explanation: Music and Melody is a retailer. Retailers acquire goods from producers or wholesalers and sell them to consumers.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
22) Mercy and Diego are entrepreneurs who want to start their own business. Which of the following would attract them to retailing?
Answer: D
Explanation: Retailing attracts entrepreneurs, like Mercy and Diego, because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend large sums of money for the equipment and distribution systems that a manufacturing business requires. However, it is important for entrepreneurs to anticipate the costs of opening a retail business beforehand.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
23) Many opportunities exist for ________, which involves selling products outside of a retail facility.
Answer: E
Explanation: Many opportunities exist for nonstore retailing, which involves selling products outside of a retail facility. There are two types of nonstore retailing: direct marketing and direct selling.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) Isabella makes unique clothing pieces, jewelry, and hair accessories. To avoid the costs of opening a store, she sells these pieces on Etsy. This is an example of
Answer: E
Explanation: This is an example of direct marketing, which gives consumers the opportunity to place orders by mail, telephone, or the Internet. This is a type of nonstore retailing, which provides a great opportunity for entrepreneurs because of the lower cost of entry. Smaller business can engage in direct marketing by featuring their products on eBay, Amazon, and Etsy.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
25) Clothes By You, a clothing store in the mall, wants to give customers an opportunity to place orders. What is one form of direct marketing the store can use to provide this service?
Answer: A
Explanation: A direct marketing activity Clothes By You can use to encourage customers to order its clothing by mail, telephone, or the Internet is sending catalogs to its customers. Market research findings suggest that catalog users are more inspired to purchase items online.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
26) While Beau attends college, he is working part-time for a life insurance company. He goes door to door and offers consumers face to face presentations in their homes. This is an example of
Answer: A
Explanation: This is an example of direct selling, which involves the marketing of products to ultimate consumers through face to face sales presentations at home, in the workplace, and in party environments. Many people view direct selling as a part-time business opportunity.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
27) All of the following are true of direct selling EXCEPT
Answer: C
Explanation: The cost of getting involved in direct selling is low and often involves buying enough inventory to get started. Many people view direct selling as a part-time business opportunity. Often, those who become involved in direct selling are enthusiastic about the product and have the opportunity to recruit other distributors and receive commissions on their sales.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Which of the following best illustrates a small business operating in a retail industry as opposed to wholesaling its products?
Answer: D
Explanation: Wax Creations Inc. illustrates a small business operating in a retail industry as opposed to wholesaling its products. Retailers acquire goods from producers or wholesalers and sell them to consumers. Wholesalers supply products to industrial, retail, and institutional users for resale or for use in making other products.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
29) Which of the following is true of wholesalers?
Answer: E
Explanation: Wholesalers provide goods and services to producers and retailers. Their activities range from planning and negotiating for supplies, promoting, and distributing to providing management and merchandising assistance to clients. Wholesalers are extremely important for many products because of the marketing activities they perform. Wholesalers can be eliminated, but their functions must be passed on to some other organization or intermediary.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) Many service providers are considered retailers because they
Answer: B
Explanation: The service sector includes businesses that do not actually produce tangible goods. Many of these service providers are retailers who provide their services to ultimate consumers.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) Jason owns a barbershop that specializes in men’s haircuts and shaving. This is an example of a
Answer: D
Explanation: This is a service business because it does not produce tangible goods. Services attract individuals like beauticians whose skills are not usually required by large firms.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
32) In the manufacturing sector, small businesses sometimes have an advantage over large firms because small businesses
Answer: B
Explanation: Small businesses sometimes have an advantage over large firms because they can customize products to meet specific customer needs and wants. Such products include custom artwork, jewelry, clothing, and furniture.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) Which of the following is a difference between high technology businesses and other small businesses?
Answer: B
Explanation: High technology businesses require greater capital and have higher initial startup costs than other small businesses.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Technology
Accessibility: Keyboard Navigation
34) Brad and Sean live and work in Texas, but they love vacationing in Hawaii. They go there as often as time and money will allow. Finally, they take the plunge and buy a vacation home in Hawaii. When they aren’t there, they rent the property to other people for $1000 per week. This is an example of
Answer: D
Explanation: This is an example of the sharing economy, an economic model involving the sharing of underutilized resources. Under this model, entrepreneurs can earn income by renting out an underutilized resource such as lodging or vehicles.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
35) Which of the following is a challenge associated with the sharing economy?
Answer: A
Explanation: In the sharing economy, companies can control variables such as rates, and they hire independent contractors who have the flexibility to take on work when it is convenient for them. Services offered through this model often cost less than more traditional services, and it is even taking market share away from established firms. Despite the opportunities in the sharing economy, firms have been experiencing pressure over whether workers are independent contractors or employees.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) Which of the following traits will help entrepreneurs succeed?
Answer: C
Explanation: Entrepreneurs should be intuitive, persistent, productive, resourceful, charismatic, innovative, friendly, and risk-taking to succeed.
Difficulty: 1 Easy
Topic: Attributes of Successful Entrepreneurs
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) One of the major reasons people want to own and operate their own business is to
Answer: B
Explanation: Independence is probably one of the leading reasons that entrepreneurs choose to go into business for themselves. Being a small-business owner means being one’s own boss.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) Which of the following is an advantage of a small business?
Answer: A
Explanation: With small size comes the flexibility to adapt to changing market demands. Small businesses usually have only one layer of management—the owners. Decisions therefore can be made and executed quickly.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
39) Simitri has worked for a large corporation for years, and he feels like he just doesn’t fit in the “corporate mold” anymore. He decides to start his own business because he wants the freedom to choose whom he works with and when and where he works. What advantage of small business ownership seems the most prevalent in this example?
Answer: B
Explanation: Independence is the most prevalent advantage of a small business in this example. Often, small business owners want the freedom to choose whom they work with, the flexibility to pick where and when to work, and the option of working in a family setting. Many people choose to start their own business because they don’t fit in the “corporate mold.”
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
40) White 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 White Carpet Inc. avoid competition from larger firms?
Answer: E
Explanation: White Carpet Inc. should focus on and target small market niches or product needs to avoid competition from larger firms. By targeting small niches or product needs, small businesses can sometimes avoid competition from larger firms, helping them to grow into stronger companies. Small firms, because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
41) Abigail is an animal lover and vegetarian. Frustrated by trying to find vegetarian substitutes for commonly needed items, she has started her own vegetarian boutique. Her store sells vegetarian food, shoes, toiletries, and many other items. Which advantage of small-business ownership is this scenario most closely related to?
Answer: C
Explanation: This scenario is most closely related to focus. Small firms can focus their efforts on a precisely defined market niche, that is, a specific group of customers. In this scenario, Abigail ‘s business focuses on vegetarians and animal lovers.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
42) Which of the following is one of the difficulties faced by small business owners?
Answer: D
Explanation: Entrepreneurs experience a great deal of independence but also a great deal of stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) Alejandro owns a gluten-free bakery. In addition to being the owner, he also serves as the manager, sales force, head baker, shipping and receiving clerk, bookkeeper, and custodian. Alejandro is the first person to arrive at the bakery every morning and the last to leave every night. Which of the following is the most applicable challenge Alejandro faces?
Answer: C
Explanation: In this scenario, Alejandro has to multitask, which can result in long hours and a high stress level. Many creative persons fail, not because of their business concepts, but rather because of difficulties in managing their business.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
44) When a small business begins to see significant growth, it requires the owner to
Answer: A
Explanation: Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) Which of the following is a reason behind the failure of small businesses?
Answer: D
Explanation: A poor business concept will produce disaster for a small business nearly every time. Other notable causes of small-business failure include the burdens imposed by government regulation, insufficient funds to withstand slow sales, vulnerability to competition from larger companies, undercapitalization, managerial inexperience or incompetence, and inability to cope with growth.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
46) Cravin is an avid genealogy buff. He wants to open a store and workshop where he teaches people how to trace their family history and provides tools for doing so. What must he do first to make sure this business will succeed?
Answer: B
Explanation: Cravin wants to expand his genealogy hobby into a business, which may work if a genuine market niche exists. Before he starts his business, he must identify a real need for the service he will provide.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
47) Mai 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?
Answer: E
Explanation: Mai may find it difficult to deal with the stress of rent increase. Small-business owners tend to be the victims of physical and psychological stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
48) ________ is best described as the lack of funds to operate a business normally.
Answer: E
Explanation: The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) Wilbur and Fred run a small farm stand on their property, selling vegetables, fruits, plants, and eggs to support themselves. During a particularly bad season, they tried to get financing from a small rural bank in their community. However, they were unable to obtain financing because
Answer: D
Explanation: Many small rural operations, like this one, cannot obtain financing within their own communities because small rural banks often lack the necessary financing expertise or assets sizable enough to counter the risks involved with small-business loans.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
50) Raphael is an artist who wants to turn his art into a small business. He had the great idea to go to other hobby-based businesses in his community and give painting lessons to their clients. First, he went to a local stable and taught its boarders how to paint portraits of their horses. Then, he went to a local dance studio and taught its patrons how to paint their dream dance costumes. Based on the buzz created by his new business, several other local businesses want to hire Raphael. What is one area where he may struggle in managing his new business?
Answer: D
Explanation: Although Raphael has a brilliant vision for his small business, that does not mean he has the knowledge or experience to manage his growing business effectively. Often, a person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
51) Gerard 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 Gerard to operate the business normally. Which of the following causes of small-business failure does this scenario best illustrate?
Answer: A
Explanation: The scenario best illustrates undercapitalization. The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
52) Which of the following is the shortest path to failure in business?
Answer: B
Explanation: The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally and sustain it through slow initial sales and seasonal variations.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) Phuong is a very talented engineering student 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?
Answer: B
Explanation: The scenario best illustrates Phuong’s managerial inexperience. Poor management is the cause of many business failures. Just because an entrepreneur has a brilliant vision for a small business does not mean he or she has the knowledge or experience to manage a growing business effectively.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
54) Sofia 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 make important decisions about the store. She often finds herself disagreeing with the manager’s decisions, and in the process, she loses a lot of existing customers. Which of the following causes of small-business failure does this scenario best illustrate?
Answer: B
Explanation: The scenario best illustrates Sofia’s inability to cope with growth. Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
55) Tiffany recently started a small firm that manufactures for leading fashion brands in the United States. Which of the following would likely be an immediate threat to this firm?
Answer: D
Explanation: The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
56) It has often been said that the greatest impediment to the success of a small business is the
Answer: A
Explanation: It has often been said that the greatest impediment to the success of a small business is the entrepreneur.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
57) Meredith wants to start her own small business. All of the following are things she needs to do before she starts her business EXCEPT
Answer: A
Explanation: To start any business, large or small, Melanie must have some kind of general idea. Next, she needs to devise a strategy to guide planning and development in the business. Finally, she must make decisions about the form of ownership; the financial resources needed; and whether to acquire an existing business, start a new one, or buy a franchise.
Difficulty: 3 Hard
Topic: The Business Plan
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
58) 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
Answer: C
Explanation: A key element of business success is a business plan—a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals.
Difficulty: 1 Easy
Topic: The Business Plan
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) Which of the following statements is true of a business plan?
Answer: D
Explanation: A business plan should act as a guide and reference document, not a shackle to limit the business’s flexibility and decision-making ability. It should also establish a strategy for acquiring sufficient funds to keep the business going.
Difficulty: 1 Easy
Topic: The Business Plan
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
60) Sarah is starting her own house painting company, Pickett Fence Painting. She is working on developing the company’s business plan. Which of the following is something the business plan should accomplish?
Answer: B
Explanation: A business plan should act as a guide and reference document, not a shackle to limit the business’s flexibility and decision-making ability. The business plan should include an explanation of the business, an analysis of the competition, estimates of income and expenses, and other information. The business plan must be revised periodically to ensure that the firm’s goals and strategies adapt to changes in the environment.
Difficulty: 3 Hard
Topic: The Business Plan
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
61) 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?
Answer: A
Explanation: The bank expects Arnold to present a business plan. A key element of business success is a business plan—a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Many financial institutions decide whether to loan a small business money based on its business plan.
Difficulty: 3 Hard
Topic: The Business Plan
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
62) In the process of starting a business, the step that immediately follows the development of a business plan involves
Answer: C
Explanation: After developing a business plan, the entrepreneur next must decide on an appropriate legal form of business ownership—whether it is best to operate as a sole proprietorship, partnership, or corporation—and to examine the many factors that affect that decision.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
63) To make profits from a small business, the owner must first provide or obtain ________ to start the business and keep it running smoothly.
Answer: E
Explanation: To make money from a small business, the owner must first provide or obtain money (capital) to get started and to keep it running smoothly. Often, the small-business owner has to put up a significant percentage of the necessary capital. Few new business owners have a large amount of their own capital and must look to other sources for additional financing.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
64) Marcia is opening her own small retail store that sells women’s purses and accessories. To start her business, she needs at least $50,000 in initial financing to do all of the following EXCEPT
Answer: A
Explanation: To make money from a small business, the owner must first provide or obtain money to get started and keep it running smoothly. Even a small retail store, like Marcia’s, will probably need at least $50,000 in initial financing to rent space, purchase or lease necessary equipment and furnishings, buy the initial inventory, and provide working capital.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
65) Samar has started a new zip-line business in Jamaica. What is the most important source of funds for this new business?
Answer: A
Explanation: The most important source of funds for any new business is the owner. Many owners include among their personal resources ownership of a home, the accumulated value in a life insurance policy, or a savings account. A new business owner may sell or borrow against the value of such assets to obtain funds to operate a business.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
66) The act of financing one’s business by using real personal assets is known as
Answer: D
Explanation: A new business owner may sell or borrow against the value of his or her assets to obtain funds to operate a business. Additionally, the owner may bring useful personal assets—such as a computer, desks and other furniture, a car or truck—as part of his or her ownership interest in the firm. Such financing is referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
67) Which of the following is a source of equity financing?
Answer: B
Explanation: A loan—from a family member or a financial institution—is a form of debt financing. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) 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?
Answer: A
Explanation: Walter has used equity financing to raise funds for his business. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
69) Nadim wants to start a small moving company. He has enough funds to start the business, but not enough to run it effectively. What is one thing he can do to provide working capital to his company?
Answer: C
Explanation: Nadim can provide working capital by reinvesting profits into the business or simply by not drawing a full salary.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
70) 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
Answer: C
Explanation: This is an example of equity financing. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
71) Alanis 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 Alanis adopt to raise funds through equity financing?
Answer: D
Explanation: Alanis could invest her savings in the new business to raise funds through equity financing. Many owners include among their personal resources ownership of a home, the accumulated value in a life-insurance policy, or a savings account.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
72) Sue and Christy 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 Sue and Christy planned to use for the expansion of their business?
Answer: C
Explanation: Sue and Christy have planned to use equity financing for their business’s expansion. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
73) Persons or organizations that agree to provide some funds for a new business in exchange for ownership interest or stock are called
Answer: C
Explanation: Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists 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.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
74) 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)
Answer: D
Explanation: Ramon is a venture capitalist. Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists 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.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
75) Allison’s flooring store requires more financing than she can provide from her savings. As a result, she is looking for investors to provide financing in exchange for stock ownership. What is a disadvantage of this arrangement?
Answer: C
Explanation: Although finding investors to finance the business in exchange for stock ownership has helped many small businesses, it requires the small-business owner to share the profits of the business—and sometimes control, as well—with the investors.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
76) Obtaining money from venture capitalists to start a new business venture is an example of
Answer: C
Explanation: Venture capitalists 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. This form of equity financing requires that a small-business owner share the profits of the business—and sometimes control, as well—with the investors.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
77) What is the main supplier of external financing to small businesses?
Answer: B
Explanation: New businesses sometimes borrow more than half of their financial resources. Banks are the main suppliers of external financing to small businesses.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
78) Securing a mortgage from a bank for a new business venture is an example of
Answer: C
Explanation: Banks are the main suppliers of external financing or debt financing to small businesses. A small-business owner may have to provide personal property as collateral when borrowing money from a bank, in which case the loan is called a mortgage.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
79) Jordan has requested financing from the bank for his medical marijuana store. The bank requires Jordan to put up a financial interest in the property or fixtures of the business to guarantee payment of the debt. What is this financial interest called?
Answer: A
Explanation: A lending bank will often require the entrepreneur to put up collateral, a financial interest in the property or fixtures of the business, to guarantee payment of the debt.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
80) If a small business fails to repay a bank loan, what will the lending institution do to recover its loss?
Answer: D
Explanation: A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
81) 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.
Answer: A
Explanation: Banks and other financial institutions can grant a small business a line of credit—an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
82) 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.
Answer: B
Explanation: Small businesses may obtain funding from their suppliers in the form of a trade credit—that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
83) 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
Answer: B
Explanation: In this scenario, the type of funding obtained by Anisha is referred to as a trade credit. Small businesses may obtain funding from their suppliers in the form of a trade credit—that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
84) Neehara recently opened a premium bakery. She did not have enough savings, so 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
Answer: A
Explanation: The type of financing obtained by Neehara can be regarded as a mortgage. A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
85) Which of the following statements best describes bartering?
Answer: A
Explanation: Occasionally, small businesses engage in bartering—trading their own products for the goods and services offered by other businesses. For example, an accountant may offer accounting services to an office supply firm in exchange for office supplies and equipment.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
86) 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?
Answer: B
Explanation: The scenario best illustrates bartering. Occasionally, small businesses engage in bartering—trading their own products for the goods and services offered by other businesses. For example, an accountant may offer accounting services to an office supply firm in exchange for office supplies and equipment.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
87) 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?
Answer: D
Explanation: The scenario best illustrates debt financing. In debt financing, some community groups sponsor loan funds to encourage the development of particular types of businesses. State and local agencies may guarantee loans, especially to minority business people or for development in certain areas.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
88) 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?
Answer: E
Explanation: Andrew is using a line of credit to meet his capital requirement. Banks and other financial institutions can grant a small business a line of credit—an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
89) Hester wants to run her own picture framing business, but she doesn’t want to start it from scratch. She decides to buy an existing business. What is one advantage of doing this?
Answer: D
Explanation: Buying an existing business has the advantage of providing a built-in network of customers, suppliers, and distributors and reducing some of the guesswork inherent in starting a new business from the ground up.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
90) Gary decides to buy an existing home goods store, instead of starting his own from scratch. Once he takes over the business, he learns that several customers have complained that one of the company’s distributors doesn’t pack items sufficiently for shipping, and their items arrived broken. What is Gary’s responsibility in resolving this problem?
Answer: A
Explanation: An entrepreneur, like Gary, who buys an existing business also takes on any problems the business already has. As a result, in this scenario, Gary would be responsible to resolve this problem between his distributor and customers.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
91) A license to sell another’s products or to use another’s name in business, or both, is called a
Answer: A
Explanation: A license to sell another’s products or to use another’s name in business, or both, is a franchise. The company that sells a franchise is the franchiser. The purchaser of a franchise is called a franchisee.
Difficulty: 1 Easy
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
92) 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
Answer: B
Explanation: Eva is most likely to be a franchisee. A license to sell another’s products or to use another’s name in business, or both, is a franchise. A franchisee is a purchaser of a franchise.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
93) Nate 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, Nate 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, Nate is a(n)
Answer: D
Explanation: In this scenario, Nate is a franchiser. A license to sell another’s products or to use another’s name in business, or both, is a franchise. The company that sells a franchise is the franchiser.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
94) Which of the following statements is true of franchising?
Answer: E
Explanation: In franchising, the franchisee pays the franchiser a monthly or annual fee based on a percentage of sales or profits. In return, the franchisee often receives building specifications and designs, site recommendations, management and accounting support, and perhaps most importantly, immediate name recognition.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
95) Which of the following statements describes an advantage of franchising instead of building an independent business from scratch?
Answer: B
Explanation: Franchising allows a franchisee the opportunity to set up a small business relatively quickly, and because of its association with an established brand, a franchise outlet often reaches the break-even point faster than an independent business would.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
96) All of the following are advantages of franchising EXCEPT
Answer: A
Explanation: Advantages of franchising include management training and support, brand-name appeal, standardized quality of goods and services, national and local advertising programs, financial assistance, proven products and business formats, centralized buying power, site selection and territorial protection, and greater chance for success.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
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97) Stephanie has always dreamed of owning and managing a hotel. Instead of starting her own independent hotel, she decides to buy a franchise from the Marriott. What is one thing she should keep in mind about becoming a franchisee?
Answer: C
Explanation: Stephanie will acquire the rights to the franchiser’s name, logo, methods of operation, national advertising, products, and other elements associated with the business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser’s standard of operations. As a franchisee, Stephanie will have to buy equipment, pay for training, and obtain a mortgage or lease.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
98) Which of the following is one of the commonly reported disadvantages of franchising?
Answer: D
Explanation: Some of the disadvantages of franchises include franchise fees and profit sharing with the franchiser, strict adherence to standardized operations, restrictions on purchasing, limited product line, possible market saturation, and less freedom in business decisions.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
99) Steven opened his own Quiznos franchise in his community. He is pleased with how quickly he was able to open his franchise and that he was able to establish a good customer base from the start because of name recognition. However, since he started this business to be his own boss, he is likely to
Answer: C
Explanation: In franchising, strict uniformity is the rule rather than the exception. Since Steven wants to be his own boss, he would likely get frustrated with the restrictions of a franchise.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
100) Axel has recently quit his job as an investment banker because 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?
Answer: D
Explanation: It is easier and more flexible to make and execute decisions in an independent business. In franchising, the franchisee must sacrifice some freedom to the franchiser. Franchisees experience less freedom in business decisions.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
101) ________ are often the Small Business Administration’s principal means of providing direct management assistance to small businesses and entrepreneurs.
Answer: B
Explanation: The Small Business Administration (SBA) funds Small Business Development Centers (SBDCs). These are business clinics, usually located on college campuses, that provide counseling at no charge and training at only a nominal charge. SBDCs are often the SBA’s principal means of providing direct management assistance.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
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102) ________ is (are) a volunteer agency funded by the Small Business Administration to provide advice for owners of small firms.
Answer: C
Explanation: The Service Corps of Retired Executives and the Active Corps of Executives are volunteer agencies funded by the Small Business Administration to provide advice for owners of small firms.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
103) Samantha owns a small office supply company. In setting up her business, she asks a few other small-business owners she knows for advice on dealing with employees and government regulation, improving processes, and solving problems. What does this scenario exemplify?
Answer: E
Explanation: This scenario exemplifies networking, building relationships and sharing information with colleagues. Small-business owners often obtain advice from other small-business owners, suppliers, and even customers. Communicating with other business owners is a great way to find ideas for dealing with employees and government regulation, improving processes, or solving problems.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Apply
AACSB: Reflective Thinking
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104) Which of the following statements is true of baby boomers?
Answer: C
Explanation: America’s baby boom started in 1946 and ended in 1964. The baby boomer generation consists of 75 million Americans. This segment of the population is wealthy, but many small businesses do not actively pursue it.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
105) Millennials number around 83 million and represent a huge business opportunity in the United States. Which of the following is a defining feature of millennials?
Answer: E
Explanation: Millennials, born between the early 1980s and the early 2000s, are also known as echo boomers or Generation Y, and represent a large market for small businesses. This cohort is not solely concerned about money. They are also concerned with advancement, recognition, and improved capabilities. Working remotely is more acceptable to this group than previous generations, and virtual communication may become as important as face-to-face meetings.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
106) Margaret was born in 1952. She is a wealthy Florida native. As she ages, Margaret spends much of her money on travel, financial planning, and health care. Margaret is
Answer: C
Explanation: Margaret is a baby boomer. America’s baby boom started in 1946 and ended in 1964. This segment of the population is wealthy. As baby boomers age, industries such as travel, financial planning, and health care will continue to grow.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
107) Sasha is a human resource (HR) manager at a company. A survey of the company’s employees reveals that more than 80 percent of the employees belong to the demographic segment Generation Y. In this scenario, which of the following HR strategies should Sasha implement in order to best serve the needs of the employees?
Answer: E
Explanation: Generation Y, those born between the early 1980s and the early 2000s, is not solely concerned about money. Those that fall into this group are also concerned with advancement, recognition, and improved capabilities. They need direct, timely feedback and frequent encouragement and recognition.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
108) Which of the following demographic segments should both small retailers and small-service providers specializing in ethnic products target?
Answer: A
Explanation: Immigrants, who now represent about 14 percent of the U.S. population, represent an underserved market for small businesses. This vast group provides a greatly untapped market for small businesses. Retailers who specialize in ethnic products, and service providers who offer bi- or multilingual employees, will find a large amount of business in this market.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
109) Which of the following demographic trends has made health care and financial planning industries attractive for small businesses in the United States?
Answer: C
Explanation: Many boomers are over 50, and in the next few years, millions more will pass that mark. Industries such as travel, financial planning, and health care will continue to grow as boomers age.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
110) Which of the following is an implication of technological advances to small businesses?
Answer: D
Explanation: Technological advances and an increase in service exports have created new opportunities for small companies to expand their operations abroad. Changes in communications and technology can allow small companies to customize their services quickly for international customers.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Technology
Accessibility: Keyboard Navigation
111) Kevin makes rustic wood furniture and home accessories. During a recent time of economic turbulence, when well-funded dot-coms were failing, Kevin continued to succeed, likely because he learned how to
Answer: D
Explanation: In recent years, economic turbulence has provided both opportunities and threats for small businesses. While well-funded dot-coms were failing, many small businesses were learning how to use the Internet to promote themselves and sell products online. For example, makers of specialty products, like Kevin, could sell their wares on existing websites, such as eBay.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Apply
AACSB: Technology
Accessibility: Keyboard Navigation
112) All of the following have provided new opportunities for small businesses EXCEPT
Answer: E
Explanation: Technological advances and an increase in service exports have created new opportunities for small companies to expand their operations abroad. Also, free trade agreements and trade alliances are helping to create an environment in which small businesses have fewer regulatory and legal barriers. In recent years, economic turbulence has provided both opportunities and threats for small businesses. Further, deregulation of the energy market and interest in alternative fuels and in fuel conservation have spawned many small businesses.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
113) Bart is a human resource manager at a large multinational company. After a drastic drop in revenue, his company needed to correct the situation. At a meeting with the top management, the CEO suggested that the company should reduce its workforce by 20 percent. This move would help the company cut costs and continue functioning on the current projects. In this scenario, which of the following strategies is Bart’s company planning to use?
Answer: E
Explanation: Bart’s company is planning to use downsizing. Downsizing is an effective way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Knowledge Application
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114) Downsizing is an effective way to
Answer: A
Explanation: Downsizing is an effective way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
115) Paula works for a large company that is trying to function like a smaller company. Which of the following is something the company can do to achieve this goal?
Answer: C
Explanation: More and more firms are emulating small businesses in an effort to improve their own bottom line. To do so, a company can downsize, reducing management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative. Other firms have sought to make their businesses smaller by making their operating units function more like independent small businesses, each responsible for its profits, losses, and resources.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
116) Which of the following statements accurately describes intrapreneurs?
Answer: E
Explanation: In major corporations, intrapreneurs take responsibility for, or “champion,” the development of innovations of any kind within the larger organization.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
117) Jason works for a large sporting goods corporation. He champions a new hockey helmet with advanced concussion protection. Jason is a(n)
Answer: B
Explanation: Jason is an intrapreneur, an individual who takes responsibility for, or “champions,” the development of innovations of any kind within the larger organization.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
118) Jorge is an employee at a company that provides information technology solutions to other firms. Recognizing his potential to innovate, the top management of the company has given him the complete liberty to develop a new smart-phone application using the resources of the company. In this scenario, Jorge best illustrates
Answer: C
Explanation: In this scenario, Jorge best illustrates an intrapreneur. In major corporations, intrapreneurs, like entrepreneurs, take responsibility for, or “champion,” the development of innovations of any kind within the larger organization. Often, they use company resources and time to develop a new product for the company.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
119) Name three ways in which small businesses contribute to the American economy.
Answer: Small businesses are vital to the American economy. A huge percentage of all U.S. firms are classified as small businesses, and they employ 50 percent of private workers. Small firms are also important as exporters. In addition, small businesses are largely responsible for fueling job creation and innovation. Small businesses also provide opportunities for minorities and women to succeed in business.
The energy, creativity, and innovative abilities of small-business owners have resulted in jobs for many people. Many small businesses today are being started because of encouragement from larger ones. Many new jobs are also created by big-company/small-company alliances. Whether through formal joint ventures, supplier relationships, or product or marketing cooperative projects, the rewards of collaborative relationships are creating many jobs for small-business owners and their employees.
Perhaps one of the most significant strengths of small businesses is their ability to innovate and to bring significant benefits to customers. Small firms produce more than half of all innovations.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
120) What is undercapitalization? How does it contribute to the failure of a business?
Answer: The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally. Too many entrepreneurs think that all they need is enough money to get started, that the business can survive on cash generated from sales soon thereafter. But most businesses do not start making a profit right away, and many have seasonal variations in sales, which make cash tight. Without sufficient funds, the best small-business idea in the world will fail.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail.
Bloom’s: Understand
AACSB: Analytical Thinking
121) What is a business plan and why is it important?
Answer: A key element of any business success is a business plan. A business plan is a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals. The business plan should include an explanation of the business, an analysis of the competition, estimates of income and expenses, and other information.
The business plan may be used by a financial institution to determine whether to loan money to the small business. It acts as a guide and reference document and helps companies assess market potential, determine price and manufacturing requirements, identify optimal distribution channels, and refine product selection.
Difficulty: 2 Medium
Topic: The Business Plan
Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
