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Small Business Management (Bus 202) - Units 1-
Detailed Questions And Expert Answers
Entrepreneur - ANS A person who starts, operates, or owns a business and assumes all risks Founders, or "pure entrepreneurs," - ANS Typically the biggest risk-takers, and are usually the most creative Second generation entrepreneur - ANS Normally carrying on the family tradition Franchisees - ANS Restricted in freedom but have invested money and experience Three primary rewards of entrepreneurship - ANS Profit Independence Personal fulfillment Business - ANS An organization that combines inputs of raw materials, capital, labor and management skills to produce useful outputs of goods and services as to earn a profit
Small business - ANS The backbone of the American economy. A business which is independently owned and operated and is not dominant in its field of operation Four characteristics of small businesses - ANS Financing supplied by one or few individuals Other than marketing, operation is local Fewer than 100 employees Small compared to larger competitors Manufacturing business - ANS A business that makes finished goods from raw materials by hand or by machinery Merchandising business - ANS A business that purchase finished goods for resale Service business - ANS A business that provides a service as opposed to a product The five functions of small business management - ANS Planning Organizing
Motivation to start a small business - ANS Make money Be your own boss Enjoy a satisfying life Contribution to the community Competitive advantage of small business - ANS Customer focus Integrity and responsibility Innovation Special niche Ideal time for a person to start and entrepreneurial endeavor - ANS Mid-twenties to mid-thirties Characteristics of a successful entrepreneurs - ANS Passion for business
Self-confidence Willingness to assume a moderate level of risk Precipitating event - ANS A catalyst that hastens the move to entrepreneurship, such as losing one's job The United States Small Business Administration - ANS A governmental agency that provides resources and assistance to small business owners starting, financing, or managing a small business The US Small Business Administration mission statement - ANS Maintain and strengthen the nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses and by helping families and businesses recover from national disasters Integrity - ANS What one believes to be right and proper Ethical - ANS Doing the right thing Entrepreneurial team - ANS a group of experienced people from different areas of business who join together to form a managerial team with the skills needed to develop, make, and market a new product
HR - Human resource management Questions to consider in human resource management - ANS Do we have qualified employees? Do we have enough employees or too many? How do we compensate them? How do we instill loyalty? How do we motivate employees? Tangible assets - ANS Assets that can be appraised by value, seen or touched such as inventory, buildings, cars, and equipment Intangible assets - ANS Assets that can not be touched, such as Goodwill Patent Copyright Trademark Things to consider when buying a business - ANS Why is the business being sold in the first place?
Assuming the business was profitable, what potential profits can be realized after the business is purchased? What assets does the business have? Type A ideas - ANS Provide customers with a product or service that is not their market but already exist somewhere else Type B ideas - ANS Use a technically new process that provides the basis for new product or service ideas Type C ideas - ANS Perform an old function but in a new and improved way Why buy an existing business? - ANS Acquisition A bargain price Quick start Advantages of a family business - ANS Can be used as a promotional tool Family members will stay when things get tough
Operating benefits Limitations of franchising - ANS Franchise costs Restrictions on business operations Loss of independence Four components of a business plan - ANS People Opportunity Content Risk/Reward Reasons to have a business plan - ANS Serves as a selling document (selling your ideas and even yourself to others) Persuades potential investors What a marketing plan should include - ANS Market research
Location Customer group that is to be targeted Competition Positioning in the market Product or service that will be sold Pricing structure Advertising that will be used Promotion will take place Marketing - ANS A way of communicating with the consumer. Defined as the gathering, processing, reporting, and interpreting of marketing information Factors to take into consideration when surveying - ANS Demographics
Sole proprietorship - ANS A business owned by one person who is subject to claims of creditors (taxed once having unlimited liability) Usually most appropriate form of business organization for a new small business - ANS Sole proprietorship Termination of a business entity of a sole proprietorship comes about as a result of
- ANS The death of the sole proprietor Partnership - ANS The voluntary association of two or more people who have combined their resources to carry on as co-owners of a lawful enterprise for their joint profit (taxed once having unlimited liability) This organization form typically shares profits and losses equally - ANS Partnership (partnerships) Where partnerships reports income it earns - ANS Internal Revenue Service Corporation - ANS An artificial being, invisible, intangible and existing only in contemplation of law; an entity that has a distinct existence separate and apart from the existence of its individual members (double taxed and limited liability) S Copration - ANS Corporations to retain the limited -liability feature of regular corporations while being taxed as partnerships
Limited liability company (LLC) - ANS (Not a corporation) combines aspects of partnerships with limited liability of a corporation; owners known as members Advantages of Sole Proprietorship - ANS Ease of starting Low cost of organization Freedom to manage Profit incentive Disadvantages of Sole Proprietorship - ANS Unlimited liability Limited size Limited size Limited management ability Advantages of Partnerships - ANS Combined management Talent and capital
Lack of personal interest Double taxation of earnings Advantages of Limited Liability Companies - ANS Limited liability and asset protection Flexibility of partnerships No significant requirements Shares the same tax status of partnerships Disadvantages of Limited Liability Companies - ANS If they are not properly structured, they can be taxed as a "C" corporation (double taxation, once at the corporate level and then as dividend income at the stockholder level) Must have a limited life (usually 30yrs) Dissolved when a member dies or undergoes bankruptcy No well developed body of case law or IRS rulings
Factors to considered in a location plan - ANS Customer accessibility Business environment conditions Resource availability Personal preference of the entrepreneur Site availability and costs Foremost considerations in selecting locations for retail and services firms - ANS Access to customer Business-to-Business Model (B2B) - ANS Selling to businesses Business-to-Consumer (B2C) - ANS Selling to the general public Americans with Disabilities Act (ADA) - ANS Legislation that guarantees disabled people equal access to employment, as well as access to public places Benefits of E-Commerce startups - ANS Small firms can compete with bigger businesses on a more level playing field
Working capital (circulating capital) - ANS The difference between current assets and current liabilites The two types of capital - ANS Fixed capital Working capital Current liabilities (debt capital) - ANS Short-term debt that is repaid within one year Long-term liabilities (debt) - ANS debt repaid over more than one year Projected financial statements ("pro forma") - ANS Can answer how profitable a firm will be based on projected sales and sales-expense relationships Costs of Goods Sold - ANS Direct expenses incurred in producing a particular good for sale, including the actual cost of materials that comprise the good, and direct labor expense in putting the good in saleable condition Not included in costs of goods sold - ANS indirect expenses (office expenses, accounting, shipping department, advertising, and other expenses that cannot be attributed to a particular item for sale)
Balance Sheet (The Statement of Financial Position) - ANS Shows the accounts receivable and the accounts payable Accounts receiveable - ANS Consists of payments due from a firm's customers Accounts payable - ANS Bills owned by the business to outsiders, suppliers, banks, etc. Liabilities - ANS Either long-term or short-term, the money that owners invest in the business (owners' equity) What cash flow statement shows - ANS Reflects cash flows from operating activities, investment activities, and financing activities (measured on a cash basis) Personal (Equity) Capital - ANS Most common and initial source of funds used in a small business Debt Equity - ANS Any borrowed or loaned capital invested in the business that must be repaid to creditors and is the second source of funds used in small businesses Approximately how much of the financing for startups comes from personal savings? - ANS Three-fourths
