Entrepreneurship and

Effective Small Business Management

11/e , Global Edition
by
Scarborough and Cornwall
Ch4
Strategic Management
and the Entrepreneur
A/an ___ operates like a regular partnership except its shares of ownership are traded on stock
exchanges.

A. professional corporation

B. joint venture

C. master limited partnership

D. S-corporation

D. S-corporation

Accounts receivable in an existing business:

A. appreciate over time due to interest and penalties

B. Unlike inventory, are often worth their face value

C. are rarely worth their face value

D. are not a significant consideration when buying an existing business.

C. Rarely worth their face value

The ___ acquaints lenders and investors with the nature of the business and the general goals and
objectives of the company.

A. business and industry profile

B. marketing strategy

C. executive summary

D. company history
A. business and industry profile

All partnerships must have:

A. at least three limited partners

B. no dormant partners

C. at least one silent or money partner

D. at least one general partner

D. at least one general partner

Answering the question "What business am I in?" defines the company's:

A. Mission

B. Goals and objectives

C. External opportunities and threats

D. assessment of its own strengths and weaknesses

A. Mission

________ are negative factors that inhibit the accomplishment of a firm's objectives.

A. Weaknesses

B. Strengths

C. Opportunities

D. Threats

A. Weaknesses

_______ are positive internal factors that contribute towards accomplishing the company's objectives.

A. Opportunities

B. Strengths

C. Weaknesses

D. Threats

B. Strengths
___ are those items of value the business owns: ___ are those things the business owes.

A. equities; liabilities

B. assets; liabilities

C. ratios; equities

D. liabilities; assets

B. assets and liabilities

The ____ becomes the document that summarizes the analysis that has been done to justify a new
business.

A. pro forma

B. financial statement

C. business plan

D. cash budget

C. business plan

The "big three" of cash management include:

A. accounts payable, accounts receivable, and taxes

B. accounts receivable, overhead, and inventory

C. accounts receivable, prices, and expenses

D. accounts receivable, accounts payable, and inventory

D. accounts receivable, accounts payable, and inventory

The break-even point occurs where:

A. the creditors' interest equals the owner's interest in the business

B. the firm's fixed assets expenses equal it's variable expenses

C. assets and liabilities are equal on the balance sheet

D. total revenues equals total expenses

D. total revenues equals total expenses

A business plan for the small business owner:

A. is synonymous with the marketing plan

B. tends to stress how the entrepreneur will operate rather than detailing what he/she wants to
accomplish

C. contains both marketing plan and a financial plan

D. is of relatively little importance due to the dynamic nature of the marketplace

C. contains both marketing plan and financial plan

Business plans need to pass three tests:

A. the appearance test, substance test, and the concept test

B. the financial test, market test, and management test

C. the presentation test, content test, and application test

D. the reality test, competitive test, and the value test

D. the reality test,k competitive test, and the value test

The capitalized earning approach determines the value of a business by capitalizing its expected profits
using:

A. the prime interest rate

B. the rate of return reflecting the risk level

C. the normal rate of return

D. the prevailing rate of inflation

B. the rate of return reflecting the risk level

____ companies are most likely to suffer cash shortages

A. Manufacturing

B. slow-growth

C. service

D. fast-growth
D. fast growth

Companies started off by women differ from companies start off by men in that: A. Men's start-ups tend
to be smaller and less well-financed than women's B. Women's companies start off smaller and more
slowly C. Women's companies tend to be labor-intense businesses and therefore employ more people,
even though they have smaller revenues. D. Men tend to start their businesses with their own capital,
women with others' capital.

B. Women's companies start smaller and more slowly

A company's competitive edge is:

A. dependent on the

B. based on customers' perception of its products and services

C. the superiority of its market research

D. Largely a function of its pricing strategties

B. based on customers' perception of its products and servicesd

"Copreneurs" Are:

A. Entrepreneurial couples who work together as co-owners of their business.

B. Business magazines targeted towards entrepreneurs.

C. Personality traits of entrepreneurs.

D. None of the above.

A. Entrepreneurial couples who work together as co-owners of their business

"Copreneurs" are marked by:

A. a greater success at raising venture capital than sole proprietorship-type businesses.

B. A division of labor by expertise

C. A decline in the number of businesses.

D. Their similarity to the traditional mom and pop operation.

B. A division of labor by expertise.

Corporations can also stimulate manager's and employees' incentive on the job by creating an ___ ESOP:

A. Entrepreneur Shares Ownership Plan

B. Entrepreneur Stock Ownership Plan

C. Employee Shares Ownership Plan

D. Employee Stock Ownership Plan

D. Employee Stock Ownership Plan

Cost leadership has several inherent dangers such as:

A. the identified niche in not large enough to be profitable.

B. an over-focus on the physical characteristics of the product.

C. an over-focus on costs to the elimination of other strategies

D. Choosing to distinguish the product but that does not boost its performance.

C. An over-focus on cost to the elimination of other strategies.

A demographic trend is like a train for the small business owner in that:

A. the small business will be "run over" if it doesn't get out of the way and try to work with the "spin-
offs" from the trend.

B. he/she needs to catch it and ride it to wherever it is going

C. he/she needs to discover where it is going early and decide whether or not to get on board

D. it is a slow process that is easily caught at several points, and the small business owner has lots of
time to consider his/her options

C. he/she needs to discover where it is going early and decide whether or not to get on board

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Depreciation is:

A. creditors' total claim against the firm's assets

B. the owner's total investment at the company's inception plus retained earning
C. the difference between the total sources available to the owner and the total uses of those assets

D. listed as a source of funds because it is a noncash expense, deducted as a cost of doing business

C. the difference between the total sources available to the owner and the total uses of those assets

Despite all the benefits, there are a number of disadvantages to franchises, such as:

A. the cost of national advertising

B. strict adherence to standardized operations

C. the time consumed by management training and support the franchiser provides

D. territory limitations

B. Strict adherence to standardized operations

A differentiation strategy:

A. Must create the perception of value in the customer's eyes through the lowest possible price.

B. Is built on a company's distinctive competence.

C. Seeks to find and defend an identifiable market niche.

D. Focuses solely on making the physical characteristics of the product as unique as possible.

D. Focuses on solely making the physical characteristics of the product as unique as possible.

A distinct disadvantage of the corporate form of ownership is:

A. double taxation

B. stockholder's liability

C. treasury stock

D. All of the above

A. Double taxation

Efficient cash managers:

A. disregard trade discounts because of their hidden expenses

B. set up a payment calendar in order to both pay on time and take advantage of cash discounts

C. avoid the use of credit cards to stretch their firms's cash balance
D. use expressions like "the check's in the mail" to mollify creditors when short on cash

B. Set up a payment calendar in order to both pay on time and take advantage of cash discounts

Entrepreneurial businesses fall victim to this circumstance because they think it only benefits large
companies. Without it, a firm has no sustainable basis for survival.

A. Lack of inventory

B. A lack of strategic planning

C. Uncontrolled growth

D. Poor financial controls

B. A lack of strategic planning

Entrepreneurial education: A. has become extremely popular B. more courses are being offered in
entrepreneurship C. Universities are not able to meet the demand D. All of the above

D. All of the above

Entrepreneurs seem to be characterized by:

A. a desire to work alone because of weak management skills and a need for control

B. A high energy level

C. An inability to organize but strong conceptual skills

D. A desire for money

B. high energy level

ESOPs:

A. are beneficial for companies with fewer than 15 to 20 employees

B. are one way to sell to an international buyer

C. work best in companies where pre-tax profits exceed $50,000

D. allow owners to transfer all or part of their companies to their employees as gradually or as quickly as
possible

D. all owners to transfer all or part of their companies to their employees as gradually or as quickly as
they choose
Establishing a Mrs. Fields Cookies franchise inside of a Hardees fast-food franchise is an example of __
Franchising.

A. multi-unit

B. Conversion

C. Piggyback

D. master

C. Piggyback

The failure rate for franchises is:

A. indeterminable because of the Right to Privacy Act.

B. Lower than the rate for new businesses

C. No different from the rate for all new businesses

D. Higher than the rate for all new businesses

B. Lower than the rate for all new businesses

The first step in managing cash more effectively is:

A. understanding the company's cash flow cycle

B. Rapid payment of accounts payable

C. speeding up payment of accounts receivable

D. having an adequate cash reserve for emergency expenditures

A. understanding the company's cash flow cycle

____ franchising exists when a franchisee is licensed to sell specific products under the franchiser's
brand name through a selective distribution system.

A. Product distribution

B. Conversion

C. Pure

D. Trade name
A. Product distrbution

____ franchising involves the owner of an existing business becoming a franchisee to gain the advantage
of name recognition.

A. Conversion

B. Product distribution

C. Pure

D. A royalty

A. Conversion

Franchising is currently dominated by:

A. auto dealers

B. fast food restaurants

C. Retail outlets

D. service-oriented franchises

C. retail outlets

___ have shares that are controlled by a relatively small number of people, often family members,
relatives, or friends.

A. International partnership

B. Publicly traded corporations

C. Privately held corporations

D. Closely held corporations

D. Closely held corporations

The heart of the cash budget is the___ forecast.

A. sales

B. cash disbursements

C. receivables
D. cash receipts

A. Sales

The ___ highlights significant and operational events in the company's life and should concentrate on
the company's accomplishments.

A. executive summary

B. marketing strategy

C. company history

D. business and industry profile

C. Company History

In ___ franchising, a franchisee purchases only the right to become identified with the franchiser's trade
name:

A. Product distribution

B. Trade Name

C. Conversion

D. Pure

B. Trade Name

In franchising, ____ pay fees and royalties to a ____ in return for the rights to sell its products or services
under the franchiser's trade name and often to use its business format and system.

A. Business owner, parent company

B. Franchisee, franchiser

C. Franchise, business owner

D. Franchiser, franchisee

B. Franchisee, franchiser

In the business strategy of the business of business plan, the owner needs to explain to investors:

A. how the entrepreneur intends to accomplish the company's goals and objectives

B. significant financial and operational events in the life of the company

C. the historical evolution of the market, market size, ease of the entry, etc.

D. the nature and characteristics of the target market

A. how the entrepreneur intends to accomplish the company's goals and objectives

The inventory in an existing business:

A. is always current and salable

B. usually appreciate over time, making the business a bargain

C. is usually stated honestly and does not need independent auditing.

D. needs to be checked for age and salability

D. needs to be checked for age and salability

___ is a process in which computer software that uses statistical analysis, database technology, and
artificial intelligence finds hidden patterns, trends and connections in data so that business owners can
make better marketing decisions and predictions about customer's behavior.

A. customer relationship management

B. data discover

C. simulation

D. data mining

D. data mining

The ____ is a set of measures unique to the company that gives managers a quick and comprehensive
view of how the business is doing and includes both financial and operational factors.

A. Balanced scorecard

B. Core competencies

C. Key success factors

D. Action plan

A. Balanced Scorecard

____ is simply a "cash plan" which shows the amount and the timing of cash receipts and cash
disbursements overtime:
A. balance sheet

B. cash budget

C. income statement

D. the pro forma

B. cash budget

___ is simply the money owed by the firm by customers because they've purchased goods or services on
credit:

A. barter

B. cash management

C. accounts receivable

D. accounts payable

C. accounts receivable

The ____ is the first part of the business plan. It summarizes all the relevant points of the deal, but it
should be the last part written.

A. Marketing strategy

B. Mission Statement

C. Industry analysis

D. Executive Summary

D. Executive Summary

The ___ is the most complex form of ownership and is a separate legal entity in the eyes of the law.

A. sole proprietorship

B. corporation

C. partnership

D. joint venture

B. corporation
____ is the process of creating and delivering desired goods and services to customers, and involves all
of the activities associated with winning and retaining loyal customers.

A. marketing

B. advertising and public relations

C. promotion

D. personal selling

A. marketing

A key characteristic of a successful entrepreneur is:

A. Learning to fail intelligently.

B. Never hang failed.

C. Earning at least 25% return for investors.

D. Expert technical knowledge of the product.

A. Learning to fail intelligently

The key to choosing the "right" form of ownership is:

A. the fact you cannot change the form of ownership once your company is established

B. understanding how each form affects both business and personal circumstances

C. knowing the cost factor in time and money

D. having an experienced attorney and accountant to advise you in the choice.

B. understanding how each form affects both business and personal circumstances

A limited liability company is formed under:

A. the revised uniform partnership act

B. a partnership agreement

C. articles of organization

D. a certificate of incorporation

C. Articles of Organization
Market research:

A. provides the information that is foundational to the marketing plan.

B. is prohibitively expensive for the small business owner

C. is the process used to set the goals and objectives of the marketing plan

D. is relatively unimportant to the small business owner if the owner is close to his/her customers

A. provides the information that is foundational to the marketing plan

McDonald's worldwide success as a franchise can be attributed to a few simple strategies, including:

A. Using U.S. managers and employees whenever possible

B. Complete a customization of the menu to fit local taste

C. Ability to obtain prime locations in high-traffic area

D. Standardizing processes and closely managing workers

C. Ability to obtain prime locations in high traffic areas

The most common form of business ownership is the:

A. corporation

B. partnership

C. S-corporation

D. Sole Proprietorship

D. Sole proprietorship

The most common reasons owners of small and medium sized businesses give for selling their
businesses are:

A. Need for money and low return on investment

B. poor location and low return on investment

C. low return on investment and burnout

D. boredom and burnout

D. Boredom and burnt out

Most marketing experts contend that the greatest marketing mistake small businesses make is:

A. spending too little on advertising

B. failing to identify the target market

C. spending too little on quality improvement

D. under pricing their products and services

B. failing to identify the target market

The nation is rapidly moving from: A. Capitalism to industrial B. Industrial to knowledge-based C.

Industrial to capitalism D. None of the above

B. Industrial to knowledge-based

Numerous surveys have concluded that the most important element of service is:

A. innovative product design

B. convenient business hours

C. speedy transactions

D. the personal touch

D. the personal touch

Once the owner determines an adequate minimum cash balance, what is the next step in creating a cash
budget?

A. Forecasting profits

B. forecasting cash disbursements

C. forecasting cash receipts

D. forecasting sales

D. forecasting sales

Once the vision and mission are established, the entrepreneur needs to:

A. Select the target market

B. Define the firms core competencies

C. Choose a competitive strategy

D. Conduct market research

B. Define the firms core competencies

One "natural" advantage small business have over large business, which can be a significant competitive
advantage, is:

A. their ability to serve many highly diverse target markets

B. their ability to conduct market research

C. their lower cost

D. relationship marketing

D. relationship marketing

The payment the franchisee makes to the franchiser based on gross sales is:

A. the start-up fee

B. a national advertising fee

C. a technical assistance fee

D. Royalty

D. Royalty

Perhaps the ideal source of financing the purchase of an existing business is:

A. a venture banker

B. your local bank

C. the Small Business Administration

D. the seller

C. The seller

Potential drawback of small business ownership include:

A. relatively limited potential for further personal development.

B. a high likelihood of a lower quality of life while starting and establishing the small business
C. a relatively low guaranteed income

D. a significantly freer personal schedule but less personal income and assets with which to enjoy the
more relaxed schedule

B. a high likelihood of a lower quality of life while starting and establishing the small business

The primary advantage of buying a franchise over starting your company is:

A. in the purchase of the franchiser's experience, expertise, and products

B. the extensive assistance offered in finding start-up capital

C. The absolute territory protection offered by all franchisers

D. The fact it is much less expensive than doing your own business start-up

A. In the purchase of the franchiser's experience, expertise, and products

The primary reason entrepreneurs choose to incorporate is because of:

A. the limited liability of stockholders

B. the lower tax rates inherent in the corporate form of ownership

C. the corporation's ability to attract capital

D. the need to attract top quality management talent to grow the business.

A. the limited liability to stockholders

Probably the most important feature of a partnership agreement is:

A. that is resolves potential sources of conflict

B. that it identifies the name of the partnership

C. that determines how the partnership will pay taxes and fees

D. that it states the purpose and location of the business

A. it resolves potential sources of conflict

The process of gathering information about the company, valuing the company, and performing a
detailed review of all records, agreements, and compliance is called:

A. due diligence
B. valuation

C. a letter of intent

D. Nondisclosure

A. due diligence

The profit and loss statement, is also referred as ___:

A. balance sheet

B. revenue statement

C. income statement

D. Statement of Cash flows

C. income statement

A pro forma financial statement means:

A. preparing projected financial statements

B. preparing current financial statements

C. looking at the current financial statements

D. looking at the past financial statements

A. preparing projected financial statements

The real value in preparing a business plan is:

A. in identifying viable funding sources while "fleshing out" the business concept

B. in the creative process the entrepreneur has to go through

C. in attracting experienced management talent to help grow the business

D. none of these

B. the creative process the entrepreneur has to go through

The rule for the balance sheet is:

A. liabilities= assets - owner's equity

B. assets - liabilities = owner's equity

C. assets = liabilities + owner's equity

D. all of the above

C. assets = liabilities + owner's equity

An S-corporation form of ownership overcomes which disadvantage of the regular or "C" corporation
form of ownership?

A. the expense and difficulty of formation

B. the potential loss of control by the founder

C. the amount of regulation and red tape involved in its operation

D. the double taxation issue

D. the double taxation issue

The ___ shows what assets the business owns and what claims creditors and owners have against those
assets

A. income statement

B. balance sheet

C. pro forma

D. sources and uses of funds statement

B. Balance sheet

A significant advantage of a franchisee has over the independent small business owner is participation in
the franchiser's____.

A. Profits

B. Policies

C. Centralized and large volume buying power

D. Social gatherings

C. Centralized and large volume buying power

A significant benefit of starting your own company is:

A. to be able to choose who you work with or don't work with

B. More job security than working for a large corporation

C. More leisure time because there is less of a need to punch a time clock.

D. contributing to society and being recognized for your efforts.

D. contributing to society and being recognized for your efforts

Small businesses thrive in ever industry, but the majority of them are in the:

A. Retail Business

B. General construction industry

C. Service industry

D. Mining and manufacturing

C. Service industries

A small business's "aggregation of factors that sets it apart from its competitors" is its:

A. Competitive advantage

B. Competitive Strategy

C. Strategic Plan

D. Vision

A. Competitivvantage

Small companies with limited financial resources can often use____ as a way to differentiate themselves
from larger competitors.

A. customer service

B. innovation

C. high price and high quality

D. lower prices with higher quality

A. customer service

A small firm's ability to identify and manipulate the ___ in it's business determines its ability to compete
effectively.
A. Opportunities and threats

B. Corporate vision and mission

C. Market environment

D. Key success factors

D. Key success factors

Some businesses use___, in which a company bills a portion of its credit customers each day of the
month, to smooth out uneven cash receipts.

A. cycle billing

B. Alternate billing

C. Zero balance account

A. cycle billing

Sometimes, business owners sell the majority interest in their companies to investors, competitors,
suppliers, or large companies with an agreement that they will stay on after the sale. This is called:

A. restructure the company

B. sale of controlling interest

C. use a two-step scale

D. none of the above

B. sale of controlling interest

The statement of cash flow:

A. compares cost and expenses against a firm's sales

B. is built on the basic accounting equation: assets=liabilities + capital

C. shows changes in working capital by listing sources and uses of funds

D. shows what assets the business owns and what claims creditors and owners have against those assets

D. shows what assets the business owns and what claims creditors and owners have against those assets

The strategic management process:

A. Is especially difficult for the small business because of its limited resources

B. divides mass markets into smaller, less homogeneous units.

C. Helps a small business develop the game plan that guides it in creating its mission, vision, goals, and
objectives.

D. Provides the small business owner with the tools for managing the uncontrollable elements in the
external business environment.

C. Helps small business develop the game plan that guides it in creating its mission, vision, goals, and
objectives

A technique that allows the small business owner to perform financial analysis by understanding the
relationship between two accounting elements is called:

A. budgeting

B. creating pro forma

C. break-even analysis

D. ratio analysis

A. budgeting

___ typically lead(s) sales; ___ typically lag(s) sales.

A. production; receivable

B. purchases; collections

C. collections; purchases

D. receipts; production

B. purchases; collections

When buying an existing business, one should remember that:

A. it is easy t make change in an existing business as it is in a start-up

B. you are always buying goodwill with the tangible assets of the business

C. it is a long generally not important to independently evaluate the inventory

D. the real reason for selling is seldom stated honestly.

D. the real reason for selling is seldom stated honestly

When buying an existing business, the potential buyer should remember that:

A. he/she will likely have to make significant changes to the work force

B. existing businesses often don't continue to be successful after a change in ownership

C. it is a long process and the buyer should be patient.

D. it is often more difficult to find capital for an existing business than it is for a start-up

C. it is a long process and the buyer should be patient

When investing surplus cash, the small business owner's key objectives should be:

A. high yields

B. long-term yields

C. current income

D. liquidity and safety

D. liquidity and safety

When managing your accounts payable, as a small business owner you should:

A. pay payables as early as possible

B. stretch out all payables as long as possible

C. take advantage of any float you have before your check is cashed

D. send second notices when payables are only 15 days past due

B. stretch out all payables as long as possible

When running a home-based business:

A. you generally don't need a separate business line, especially during the day.

B. Zoning laws do not apply.

C. You still need to dress for work and for client meetings.

D. You can have up to six employees in your home without informing the local zoning commission.

C. Still dress for work and for client meetings

When the franchisee has the right to establish a semi-independent organization in a particular territory
to recruit, sell and support other franchises, it is called a ___ franchise.

A. Conversion

B. Piggyback

C. Master

D. Multi-unit

C. Master

Which form of ownership generally has the least ability to accumulate capital?

A. Partnership

B. S-corporation

C. corporation

D. sole proprietorship

D. sole proprietorship

Which of the following expenses would be considered "fixed?"

A. raw materials

B. wages

C. utilities

D. rent

D. rent

Which of the following expenses would likely be classified "semi-variable"?

A. raw materials

B. wages

C. electric utilities

D. rent

C. electric utilities
While sole proprietorship gives the owner maximum flexibility in running the business, it also:

A. makes the company a prime target for an acquisition or merger

B. create a sense of isolation

C. makes it difficult to sell

D. makes it difficult to hire management talent to help grow the business

B. creates a sense of isolation

Your cash budget and an explanation of how much money you need to make your company and product
a long-term success are the subject matter of the:

A. strategic action plan

B. financial plan

C. business strategic plan

D. strategic plan

B. Financial plan