Chapter 05
Small Business, Entrepreneurship, and Franchising
True / False Questions
1. | Entrepreneurship is the process of creating and managing a business to achieve desired objectives.
True False |
2. | One of the most significant drawbacks of small businesses is their inability to innovate and to bring significant benefits to customers.
True False |
3. | Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy.
True False |
4. | Industries such as wholesaling, services, and manufacturing are unattractive to entrepreneurs because these fields tend to be relatively difficult to enter and require high initial financing.
True False |
5. | A drawback of franchising is the need for franchisees to strictly adhere to standardized operations.
True False |
Multiple Choice Questions
6. | All of the following are ways innovative entrepreneurs can use emerging trends to provide products that serve customer needs EXCEPT
A. | inventing a major new technology. |
B. | taking advantage of technology to create new markets. |
C. | improving a familiar product. |
D. | delivering features that consumers in a particular market segment could not find anywhere else. |
E. | placing a familiar product in a unique retail environment. |
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7. | Megha 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. Megha can be regarded as a(n)
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8. | Carol and Evan recently had their first child. As two working parents, they struggled to find good, economical child care. As a result, they developed their own software to link parents with licensed, fairly priced child care providers. This is an example of the
B. | market segment economy. |
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9. | Growing up, Cameron 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, Cameron has been able to extend free tutoring and college scholarships to five impoverished students per year. Cameron is a
A. | nonprofit entrepreneur. |
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10. | 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.
A. | publicly owned business |
B. | limited liability company |
D. | publicly traded company |
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11. | Michael 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 Michael?
C. | a sharing entrepreneur |
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12. | Vernon runs Buzz, 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. Vernon's company can be categorized as a
A. | multinational corporation. |
B. | limited liability company. |
D. | public sector holding. |
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13. | The Small Business Administration is a(n)
A. | body established by the U.S. Chamber of Commerce to encourage the intrapreneurial spirit in small businesses. |
B. | independent agency of the federal government that offers managerial and financial assistance to small businesses. |
C. | independent agency created under the General Agreement on Tariffs and Trade to protect small businesses against competition from larger companies. |
D. | division of the federal government that is responsible for ensuring that newly formed businesses adhere to the law. |
E. | U.S. congressional agency that regulates the issue of stocks by small businesses. |
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14. | Salma owns a Lebanese restaurant that employs around 25 people. She is solely responsible for the management of the restaurant. Her business has to compete with a larger chain of restaurants that offer the same cuisine. Salma's restaurant can be classified as a
A. | multinational corporation. |
D. | public sector holding. |
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15. | Which of the following is true about the role of small businesses in the American economy?
A. | They employ about 20 percent of private workers. |
B. | They represent only 20 percent of U.S. exporters. |
C. | They provide opportunities for women to succeed in business. |
D. | They are always operated as subsidies of large companies. |
E. | There has been a decline in the number of small businesses owned by minorities. |
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16. | When Miguel 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. Miguel's business is a
A. | minority-owned conglomerate. |
B. | minority-owned small business. |
C. | small exporting business. |
D. | small importing business. |
E. | minority entrepreneurship. |
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17. | Which of the following businesses has created a majority of net new jobs annually?
A. | multinational corporations |
B. | publicly traded companies |
E. | public sector holdings |
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18. | Strings and Keys, an independent music store, acquires instruments and other music equipment from producers and wholesalers and sells them to consumers. Strings and Keys is a
E. | direct marketing company. |
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19. | Megan and Chris are entrepreneurs who want to start their own business. Which of the following would attract them to retailing?
A. | Gaining experience in retail is a challenge, so they would have less competition. |
B. | There are no costs associated with opening a retail business. |
C. | Retailing doesn't require interacting directly with consumers. |
D. | Retailing requires low initial financing. |
E. | Retailing limits a firm's need to focus on specific groups of consumers. |
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20. | Many opportunities exist for _____, which involves selling products outside of a retail facility.
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21. | Carolyn 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
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22. | Clothes Horse, 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?
A. | It can send catalogs to its customers. |
B. | It can send sales associates door-to-door to sell its clothing. |
C. | It can open additional store locations. |
D. | It can create call centers to contact customers at home. |
E. | It can customize its clothing to meet specific customer needs. |
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23. | While Tyler 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
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24. | All of the following are true of direct selling EXCEPT
A. | the cost of getting involved is low. |
B. | it can be done part-time. |
C. | it requires buying a lot of inventory. |
D. | those who do it can receive commissions on their sales. |
E. | those who do it have the opportunity to recruit other distributors. |
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25. | Which of the following best illustrates a small business operating in a retail industry as opposed to wholesaling its products?
A. | Janet bakes cakes and sells them to other restaurants and cafes in malls. |
B. | BC Inc. manufactures stationery and sells it in bulk to book shops and supermarkets. |
C. | Pink Cult, an apparel company, sells its merchandise through True deals.com. |
D. | Neon Love Inc. imports candles and directly sells them to customers through kiosks. |
E. | Auto Line Inc. manufactures component parts of cars and sells them to automobile companies. |
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26. | Which of the following is true of wholesalers?
A. | Wholesalers cannot be eliminated because their functions are too important. |
B. | Wholesalers receive their products from retailers. |
C. | Wholesalers do not provide management or merchandising assistance to clients. |
D. | Wholesalers do not perform marketing activities. |
E. | Wholesalers are extremely important because of the marketing activities they perform. |
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27. | Many service providers are considered retailers because they
A. | require a high initial start-up cost. |
B. | provide their services directly to ultimate consumers. |
C. | sell their services from a single store location. |
D. | focus on large market segments and institutional buyers. |
E. | employ only a small number of people. |
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28. | Jack owns a barbershop that specializes in men's haircuts and shaving. This is an example of a
A. | manufacturing business. |
E. | direct selling business. |
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29. | In the manufacturing sector, small businesses sometimes have an advantage over large firms because small businesses
A. | are exempted from paying taxes in most countries. |
B. | can customize products to meet specific customer needs and wants. |
C. | have a better access to highly skilled workers. |
D. | can mass produce and supply goods in bulk. |
E. | have better access to funds and can invest on sophisticated equipment. |
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30. | Which of the following is a difference between high technology businesses and other small businesses?
A. | High technology businesses never start in garages, basements, kitchens, or dorm rooms, while some other types of small businesses can start in these places. |
B. | High technology businesses require greater capital and have higher initial startup costs than other small businesses. |
C. | High technology businesses are less innovative than other small businesses. |
D. | High technology businesses are the only type of small business that uses technology. |
E. | High technology businesses have lower initial startup costs than other small businesses. |
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31. | Ben and Molly live and work in Texas, but they love vacationing in Hawaii, and 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
C. | social entrepreneurship. |
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32. | Which of the following is a challenge associated with the sharing economy?
A. | pressure over whether workers are independent contractors or employees |
B. | the higher cost of services through this model |
C. | competition from established firms |
D. | inability to set rates |
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33. | Which of the following traits will help entrepreneurs succeed?
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34. | One of the major reasons people want to own and operate their own business is to
A. | avoid the risk of competition. |
E. | avoid direct responsibility of the operations. |
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35. | Which of the following is an advantage of a small business?
A. | greater adaptability to changing market demands |
B. | the support that an office provides |
C. | more money available for wages and salaries, rent, utilities, and other expenses |
D. | the opportunity to compete in the mass market or for large market segments |
E. | multiple layers of management to help make difficult decisions |
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36. | Simon 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?
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37. | All of the following are ways small businesses can maintain low costs EXCEPT
A. | hiring and maintaining a large finance department. |
B. | hiring separate firms to supply services as needed. |
C. | relying on friends and family to help with difficult projects. |
D. | maintaining a smaller staff to save money on wages and salaries. |
E. | maintaining a smaller factory to save money on rent and utilities. |
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38. | Red 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 Red Carpet Inc. avoid competition from larger firms?
A. | Red Carpet Inc. should have multiple levels of management like the larger firms. |
B. | Red Carpet Inc. should target large market segments that the competitors serve. |
C. | Red Carpet Inc. should expand the scale of production to enjoy greater economies of scale. |
D. | Red Carpet Inc. should start to work with customers only when the products are ready for sale. |
E. | Red Carpet Inc. should focus on and target small market niches or product needs. |
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39. | Kristen 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?
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40. | Which of the following is true regarding the reputation of small businesses?
A. | Small businesses are less well known than large businesses, so they need to prove themselves more to get a good reputation. |
B. | Because of their capacity to focus on narrow niches, small businesses can develop enviable reputations for quality and service. |
C. | Since small business employees are often stretched thin by the amount of work they have, their reputations are not as good as larger businesses with more employees. |
D. | Small businesses often have to cut corners in creating their products, so they have a poor reputation for quality. |
E. | Small businesses tend to focus more on service than quality, so their reputation is inconsistent. |
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41. | Which of the following is one of the difficulties faced by small business owners?
A. | high cost of formation |
B. | bureaucratic decision-making process |
C. | inability to focus on specific groups of customers |
D. | worries about employee problems or competition |
E. | limited scope for innovation |
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42. | Matt owns his own small bakery. In addition to being the owner, he also serves as the manager, sales force, head baker, shipping and receiving clerk, bookkeeper, and custodian. Matt 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 Matt faces?
D. | underestimating the time commitment for success |
E. | having poor business concepts |
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43. | If a small business has to cope with growth, it requires the owner to
A. | give up a certain amount of direct authority. |
B. | decrease the levels of management. |
C. | disregard narrow niches. |
E. | delay decision making. |
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44. | Which of the following is a reason behind the failure of small businesses?
E. | high costs of start-up |
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45. | Colin is an avid scrapbooker. He wants to start a scrapbooking store and workshop, where people can buy their supplies and scrapbook together as a community. What must he do to make sure this business will succeed?
A. | He must find suppliers who are willing to take a chance on his scrapbooking business. |
B. | He must identify whether a genuine market niche exists for scrapbooking. |
C. | He must convince the community that scrapbooking is a worthwhile hobby. |
D. | He must convince the community to donate funds to help him start his scrapbooking business. |
E. | He must find partners to help him fund his scrapbooking business. |
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46. | Carol 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?
A. | She will find it difficult to make quick decisions. |
B. | Her business will not be able to quickly adapt to changing market demands. |
C. | Her restaurant may not be able to focus on specific group of customers. |
D. | She will not have the flexibility to take critical decisions independently. |
E. | She may find it difficult to deal with the stress of rent increase. |
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47. | _____ is best described as the lack of funds to operate a business normally.
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48. | Mark and Stephanie 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
A. | the small rural bank believed that their business lacked the flexibility to adapt to changing market demands. |
B. | they required a huge sum of money to compete in the mass market. |
C. | government regulations do not permit financing small rural businesses. |
D. | the small rural bank lacked the necessary financial expertise to counter the risks involved with small-business loans. |
E. | rural communities have various business guidelines that prohibit rural banks from financing small businesses. |
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49. | Jason 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 Jason. What is one area where he may struggle in managing his new business?
A. | He may get stuck in a market niche. |
B. | He may lack the flexibility to adapt to changing market demands. |
C. | He may have trouble managing all the money he will make from the start. |
D. | He may lack the skills and experience to make good management decisions. |
E. | He may focus too much on management and not enough on his great product ideas. |
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50. | Gerald 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 Gerald to operate the business normally. Which of the following causes of small-business failure does this scenario best illustrate?
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51. | Which of the following is the shortest path to failure in business?
E. | changing market demand |
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52. | Penelope is a very talented software engineer 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?
B. | managerial inexperience |
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53. | Catalina 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?
B. | inability to cope with growth |
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54. | The principal immediate threats to small and mid-sized businesses include
A. | rapidly advancing technology. |
B. | rising entrepreneurial spirit. |
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55. | Tiffany recently started a small firm that contract manufactures for leading fashion brands in the United States. Which of the following would likely be a principal immediate threat to this firm?
A. | rapidly advancing technology |
B. | rising entrepreneurial spirit |
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56. | It has often been said that the greatest impediment to the success of a small business is the
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57. | Candace started a small house cleaning company, Neat and Tidy, and hired a few of her friends to help her. When the business started, most of its clients were having their houses cleaned to prepare them to sell. However, as more people hired Neat and Tidy and saw what a good job they did, the company started to see more repeat clients who wanted their houses cleaned on a weekly or biweekly basis. As this company grows, all of the following are changes that might occur EXCEPT
A. | specialized management skills may be needed in areas such as credit analysis and promotion. |
B. | Candace may need to give up some control of the company. |
C. | if the cleaning staff doesn't arrive on time, this could quickly reverse the company's success. |
D. | the company's reputation will suffer, no matter how well the growth is managed. |
E. | Candace may need to hire more experience managers to help this company through growing pains. |
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58. | Meredith wants to start her own small business. All of the following are things she needs to do to start a business EXCEPT
A. | hire employees to work for the business. |
B. | have a general idea for the business. |
C. | devise a strategy to guide planning and development in the business. |
D. | make decisions about form of ownership. |
E. | make decisions about financial resources needed. |
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59. | 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 a(n)
B. | article of incorporation. |
E. | article of partnership. |
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60. | Which of the following statements is true of a business plan?
A. | Small businesses do not need a business plan. |
B. | It does not have to be revised periodically. |
C. | Every business needs to mandatorily maintain a business plan as per government regulations. |
D. | It should establish a strategy for acquiring sufficient funds to keep a business going. |
E. | It is created to limit a business's flexibility and decision-making ability. |
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61. | Sarah is starting her own small 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?
A. | limiting the business's flexibility |
B. | estimating the business's income and expenses |
C. | permanently setting the business's goals and strategies |
D. | establishing rules and regulations for how the business will be run |
E. | eliminating any future weaknesses of the business |
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62. | 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?
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63. | In the process of starting a business, the step that immediately follows the development of a business plan involves
A. | organizing resources like labor and supplies. |
B. | developing some general business ideas. |
C. | deciding an appropriate legal form of business ownership. |
D. | promoting the business to the customers. |
E. | filing for tax returns for the business with the Internal Revenue Service. |
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64. | To make profits from a small business, the owner must first provide or obtain _____ to start the business and keep it running smoothly.
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65. | Megan 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
A. | pay off any debts so they don't affect her business. |
C. | purchase or lease equipment and furnishings. |
D. | buy the initial inventory. |
E. | provide working capital. |
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66. | Stanley has started a new zip line business in Jamaica. What is the most important source of funds for this new business?
C. | a financial institution |
D. | the Small Business Administration |
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67. | The act of financing one's business by using real personal assets is known as
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68. | Which of the following is a source of equity financing?
A. | securing government loans |
B. | selling personal assets to raise funds |
C. | borrowing money from friends |
D. | securing short-term loans from a family member |
E. | receiving trade credit from suppliers |
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69. | 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?
D. | initial public offering |
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70. | Matt 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?
A. | He can use his profits to pay his salary. |
B. | He can borrow funds from outside sources. |
C. | He can refrain from drawing a full salary. |
D. | He can invest his profits into other businesses. |
E. | He can work to find venture capitalists to support his business. |
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71. | 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
D. | initial public offering. |
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72. | Janice 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 Janice adopt to raise funds through equity financing?
A. | Janice could secure a mortgage from a family member or friend. |
B. | Janice could secure a loan from the Small Business Administration. |
C. | Janice could ask for a line of credit from her bank. |
D. | Janice could invest her savings in the new business. |
E. | Janice could ask suppliers for a longer trade credit. |
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73. | Jacob and Harry 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 Jacob and Harry planned to use for the expansion of their business?
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74. | Persons or organizations that agree to provide some funds for a new business in exchange for ownership interest or stock are called
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75. | 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)
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76. | Shawna's small flooring business 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?
A. | Shawna may lose her business to venture capitalists. |
B. | Shawna will have to give complete control of her business to the investors until she can pay them back. |
C. | Shawna will have to share the profits of her business. |
D. | Shawna may not be able to find venture capitalists who will pay the high prices she is asking for her stock. |
E. | Shawna could lose her personal assets if the company isn't profitable. |
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77. | Obtaining money from venture capitalists to start a new business venture is an example of
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78. | What is the main supplier of external financing to small businesses?
E. | the Small Business Administration |
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79. | Securing a mortgage from a bank for a new business venture is an example of
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80. | Jordan has requested financing from the bank for his small automobile parts 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?
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81. | If a small business fails to repay a bank loan, what will the lending institution do to recover its loss?
A. | take over the business and run it for profits |
B. | claim and rent out the business |
C. | sell stock in the business |
D. | claim and sell the collateral or mortgage |
E. | claim and sell all the owner's personal property |
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82. | 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.
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83. | 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.
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84. | 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
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85. | Neehara recently opened a premium bakery. She did not have enough savings and hence 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
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86. | Which of the following statements best describes bartering?
A. | It is the practice of small businesses trading their own products for the goods and services offered by other businesses. |
B. | It is an agreement by which a financial institution promises to lend a business a predetermined sum on demand. |
C. | It is the process in which suppliers allow a business to acquire needed goods and pay for them at a later date. |
D. | It is the process in which a small-business owner provides personal property as collateral for a loan. |
E. | It is a process by which an individual acquires the license to sell another's products or to use another's name in business. |
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87. | 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?
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88. | 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?
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89. | 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?
B. | initial public offering |
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90. | Heather 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?
A. | It allows her to know the problems the business already has. |
B. | It gives her the freedom to develop exactly the business she wants. |
C. | It eliminates all the costs Heather would normally have in starting a business. |
D. | It provides a built-in network of customers, suppliers, and distributors. |
E. | It eliminates all the guesswork inherent in starting a new business. |
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91. | 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?
A. | Gary is responsible for taking on and resolving any problems the business already has. |
B. | Gary is not responsible for problems that existed before he bought the company. |
C. | Gary can require the previous owner to resolve this problem. |
D. | Gary can expect the customers and distributor to resolve the problem themselves. |
E. | Neither Gary nor the previous owner is responsible for resolving this problem. |
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92. | A license to sell another's products or to use another's name in business, or both, is called a
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93. | 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 a(n)
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94. | Nathan 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, Nathan 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, Nathan is a(n)
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95. | Which of the following statements is true of franchising?
A. | An individual only acquires the rights to a name and not the rights to methods of operation. |
B. | An individual experiences the most freedom in this form of business ownership. |
C. | A franchisee receives cash payments from the franchiser on a monthly basis. |
D. | A franchisee does not receive accounting support from the franchiser. |
E. | A franchisee often receives building specifications and designs from the franchiser. |
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96. | Which of the following statements describes an advantage of franchising instead of building an independent business from scratch?
A. | The time required to set up an independent business is much lower than obtaining a franchise. |
B. | A franchise outlet often reaches the break-even point faster than an independent business would. |
C. | A franchisee would experience more flexibility in decision making than the owner of an independent business. |
D. | The quality of goods and services needs to be more standardized and uniform in an independent business than in franchises. |
E. | Access to managerial and financial assistance is more limited in franchises than in independent businesses. |
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97. | All of the following are advantages of franchising EXCEPT
A. | more freedom in purchasing goods. |
C. | national and local advertising programs. |
D. | proven products and business formats. |
E. | centralized buying power. |
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98. | 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?
A. | It will take a long time to set up her franchise. |
B. | It will take longer for her franchise to reach its break-even point than it would take for an independent business. |
C. | She will need to buy equipment, pay for training, and obtain a mortgage or lease. |
D. | She will have to develop her own processes for operations. |
E. | She will have the freedom to make all the necessary business decisions, which may be overwhelming. |
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99. | Which of the following is one of the commonly reported disadvantages of franchising?
A. | lack of management training and assistance |
B. | decentralized buying power |
D. | restrictions on purchasing |
E. | lack of financial assistance |
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100. | Steven opened his own Subway 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
A. | resent the management training and support the franchiser provides. |
B. | take sole responsibility for all decisions in the business. |
C. | get frustrated with the restrictions of the franchise. |
D. | embrace the franchiser's restrictions because they lead to a greater chance for success. |
E. | invest his own capital in national and local advertising programs. |
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101. | Paul has recently quit his job as an investment banker. 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?
A. | It is easier and faster to build a business from scratch. |
B. | It is easier to reach the break-even point through an independent business. |
C. | It is more difficult to attract customers in a franchise business as the entrepreneur has to personally build the brand appeal. |
D. | It is easier and more flexible to make and execute decisions in an independent business. |
E. | It is easier to succeed in a business built from scratch as the products and the business format are already proven. |
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102. | _____ are often the Small Business Administration's principal means of providing direct management assistance to small businesses and entrepreneurs.
A. | Local Chambers of Commerce |
B. | Small Business Development Centers |
C. | Service Corps of Retired Executives |
D. | Small Business Institutes |
E. | Active Corps of Executives |
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103. | _____ is a volunteer agency funded by the Small Business Administration to provide advice for owners of small firms.
A. | Local Chambers of Commerce |
B. | Small Business Development Centers |
C. | Service Corps of Retired Executives |
D. | Small Business Institutes |
E. | Business Executive Council |
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104. | Chris has started his own small photography business. All of the following are programs and resources he can use to improve his ability to compete with other businesses EXCEPT
A. | classified files from his competitors. |
B. | entrepreneurial training programs. |
C. | seminars and college courses. |
D. | local chambers of commerce. |
E. | national publications and weekly business journals. |
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105. | 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?
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106. | Which of the following statements is true of baby boomers?
A. | They represent people born between 1930 and 1945. |
B. | They are economically backward compared to other Americans. |
C. | They are not actively pursued by small businesses. |
D. | They consist of 50 million Americans. |
E. | They are an unprofitable market segment. |
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107. | Millennials number around 83 million and represent a huge business opportunity in the United States. Which of the following is a defining feature of the millennials?
A. | This cohort is solely concerned about money. |
B. | This cohort is opposed to working remotely. |
C. | This cohort prefers face-to-face meetings over virtual communication. |
D. | This cohort consists of people born between 1946 and 1964. |
E. | This cohort is concerned with advancement, recognition, and improved capabilities. |
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108. | Margaret was born in 1952. She is a wealthy Florida native. As she ages, Margaret spends more of her money on travel, financial planning, and health care. Margaret is a(n)
E. | member of Generation Y. |
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109. | Sally 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 Sally implement in order to best serve the needs of the employees?
A. | Sally should solely use financial rewards to motivate the employees to improve their productivity. |
B. | Sally should keep the training sessions highly formal with no scope for entertainment. |
C. | Sally should restrict the employees from using work from home or telecommuting options. |
D. | Sally should avoid giving regular, direct feedback to the employees. |
E. | Sally should use recognition and advancement as the driving forces to motivate employees. |
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110. | Which of the following demographic segments should both small retailers and small-service providers specializing in ethnic products target?
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111. | Marco is a Latino who lives in Boston, Massachusetts. Over the years, he has noticed that more stores in his community specialize in ethnic products. This has made Boston feel more like home to him. What trend might explain this recent influx in stores that cater to the Latino population?
A. | In the United States, all the minority groups combined are expected to grow by 86 percent between 2015 and 2050. |
B. | In the United States, the Latino population is expected to grow by 86 percent between 2015 and 2050. |
C. | Since there aren't many Latino immigrants in the United States, more of an effort is being made to attract this minority population. |
D. | Research has shown that most immigrants in the United States enjoy Latino products. |
E. | In the United States, Latino immigrants represent 50 percent of the population. |
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112. | Which of the following demographic trends has made health care and financial planning industries attractive for small businesses in the United States?
A. | decreasing population of millennials |
B. | increasing income among Generation X |
C. | increasing aged baby boomers who are wealthy |
D. | reducing entrepreneurial spirit among young generations |
E. | increasing imports into the economy |
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113. | Which of the following is an implication of technological advances to small businesses?
A. | It fails to make any significant changes as small businesses cannot afford to use sophisticated technology in their operations. |
B. | It reduces a small business's ability to adapt to changing trends and market demands. |
C. | It increases the ratio of baby boomers as employees in small businesses. |
D. | It provides new opportunities for small businesses to expand their operations abroad. |
E. | It reduces a small company's ability to customize its services and products. |
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114. | Which of the following is true of home-based businesses?
A. | Most of today's largest businesses started in offices and eventually moved into their owners' homes. |
B. | Approximately 75 percent of all small businesses are based out of the home. |
C. | Approximately 52 percent of all small businesses are based out of the home. |
D. | Technology has not had a substantial impact on home-based businesses. |
E. | Approximately 25 percent of all small businesses are based out of the home. |
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115. | Kevin makes rustic wood furniture and home accessories. During a recent time of economic turbulence, when well-funded dot-coms were failing, Kevin learned how to
A. | recover from an oversupply of Internet infrastructure products. |
B. | build other types of furniture so he could work for a larger furniture company. |
C. | recover from an economic slowdown. |
D. | use the Internet to promote himself and sell his products online. |
E. | hold steady in the face of change. |
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116. | All of the following have provided new opportunities for small businesses EXCEPT
A. | deregulation of the energy market and interest in alternative fuels. |
B. | technological advances and an increase in service exports. |
C. | free trade agreements and trade alliances. |
E. | the success of large information technology companies. |
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117. | Norton is a human resource manager at a large multinational company. After a drastic drop in revenue, his company thinks of ways 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 Norton's company planning to use?
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118. | Downsizing is an effective way to
A. | gain the advantages of small businesses. |
B. | increase organizational tasks. |
C. | reduce entrepreneurial spirit among employees. |
D. | increase the management layers. |
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119. | 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?
A. | The company can increase its management layers. |
B. | The company can increase its work tasks. |
C. | The company can make its operating units function more like independent small businesses. |
D. | The company can increase its corporate staff. |
E. | The company can split each operating unit into a separate business. |
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120. | Which of the following statements accurately describes intrapreneurs?
A. | Employees who become a part of a company's board of directors through internal promotions are referred to as intrapreneurs. |
B. | Entrepreneurs who sell the rights to use their products to independent owners are intrapreneurs. |
C. | Entrepreneurs who are involved in international business are referred to as intrapreneurs. |
D. | Independent investors who help a company raise capital through internal financing are intrapreneurs. |
E. | Individuals in large firms who take responsibility for the development of innovations within the organizations are intrapreneurs. |
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121. | Jason works for a large sporting goods corporation. He champions a new hockey helmet with advanced concussion protection. Jason is a(n)
E. | independent contractor. |
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122. | George 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, George best illustrates a(n)
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Essay Questions
123. | How do small businesses contribute to the American economy?
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124. | What is undercapitalization? How does it contribute to the failure of a business?
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125. | What is a business plan and why is it important?
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