Small Business Management
Chapter One
Starting Your Small Business
Page 27 Questions 4, 9, 10
4. What comes to your mind when you think of a small business? How does your concept differ from the definition given in this chapter?
When I think of a small business, I think of smaller stores like on the main street in old Ellicott City. Small stores in shopping centers where there is only one like it. Also, businesses people run from their house like small home improvement company’s or hair salons. The definition from the text book states that a small business is one that is independently owned and operated and is not dominant in its field of operation, and does not engage in new or innovative practices. My ideal of what a small business is pretty much goes along with the definition in the book, although I didn’t know that they didn’t engage in new or innovative practices.
9. Discuss the four personal objectives that people seek when starting a new business.
The four primary personal objectives of small business owners, according to the text, are to achieve independence, obtain additional income, help their families, and provide products not available anywhere else. Achieving Independence is the main objective in starting a new business because people start businesses to be there own boss, to have creative freedom and be able to express their ideas how they want to. People also start businesses to obtain additional income. Some people what extra money on top of the money they already make, and some people are looking for a whole new job life where they can make more money then they were making at their old job. Another personal objective when staring a new business is to help their families. Many people start businesses to have more money to help support their families or they may take over a family owned business to take some of the stress off their family. The last personal objective is to provide products that aren’t available elsewhere. People may be looking for something, and see that it is hard to find but there is a demand for it so they start a business to help make it available to everyone.
10. Explain the interrelationship between the service and profit objectives.
The service objectives must be achieved to attain the profit objective. The objective of a business is to serve customers by producing and selling goods or services at a cost that will ensure a fair price to the consumer and adequate profits for the owners. Profit is the revenue received by a business in excess of the expenses paid. Profits are the reward for accepting business risks and performing an economic service.
Chapter 2
Family-Owned Businesses
Page 48 Questions 2, 3, 5
2. Why is it often difficult to make reasonable decisions in a family business? What problems are caused by a family organization structure?
It is difficult to make reasonable decisions in a family business because people in the family don’t want to hurt other family members feelings and don’t want to make then feel like they are unimportant or any different from everyone else in the family.
3. What problems face a company when a key officer leaves suddenly?
If a key officer suddenly leaves and didn’t leave any instructions as to how things should continue with the company, people will most likely have conflicting ideas on what they think should be done. The company may end up falling apart.
5. Suppose you have a successful business now but decide you want to leave it. What might be some reasons for leaving it? What alternatives do you have for the business?
Some reasons someone might leave a successful business are to pursue another career, start a family, death, and continue education, etcetera. Some alternatives for the business are let someone in the family take over the business, have one or more members work part-time, get education, and rotate jobs.
Chapter Three
Forms of Ownership of Small Business
Page 68 Questions 2, 3, 4, 5
2. Define proprietorship, partnership, corporation, limited-liability company, cooperative, and joint venture.
According to the text book, a proprietorship is a business that is owned by one person. A partnership is a business owned by two or more persons who have unlimited liability for its debts and obligations. A corporation is a regular corporation that provides the protection of limited liability for shareholders, but its earnings are taxed at both the corporate and shareholder levels. A limited-liability company combines the advantages of a corporation, such as liability protection, with the benefits of a partnership, such as tax advantages. A cooperative is a business owned by and operated for the benefit of patrons using its services. And a joint venture is a form of temporary partnership whereby two or more firms join in a single endeavor to make a profit.
3. What are some advantages and disadvantages of a proprietorship?
Some advantages and disadvantages of a proprietorship are secrecy, unique tax advantages, difficulty in obtaining credit, owners don’t have to share profits, limited capital, relative freedom of action and control, easiest and simplest form to organize, operate, and dissolve, inadequate management and employees skills, unlimited liability for the firms debts, and limited life because business and owner are legally the same.
4. What are some advantages and disadvantages of a partnership?
Some advantages and disadvantages of a partnership are its easy to form, life, unlimited liability for debts of the firm, division of labor and management responsibility, can use ideas and plans of more than one person, an impasse may develop if the partners become incompatible, specialized skills available from individual partners, can raise more capital since good credit may be available, obtains financial resources from more than one person, limited each partner is responsible for the acts of every other partner, death of any one of the partners terminates the partnership, and a partner cannot obtain bonding protection against the acts of the other partners.
5. What are some advantages and disadvantages of a corporation?
Some advantages and disadvantages of a corporation are it can have representative management, impersonal, ease of raising large amounts of capital, owners have limited interest in firms activities- except profits, legal entity separate and distinct from its owners as individuals, high incorporation fees and high taxes especially double income taxation, relatively permanent since life of firm not affected by loss of any shareholder, owners liability for the firms debt limited to their investment in it, burdensome procedures, reports, and statements required by governments, and powers limited to those stated in charter- may be difficult to do business in another state.
Chapter Four
Becoming the Owner of a Small Business
Page 99 Questions 1, 5, 6
1. What are some important factors to consider in choosing the type of business to enter?
Some important factors to consider in choosing the type of business to enter are what kinds of products are needed but unavailable, the money required to start the business, how much risk is involved, amount of time and effort involved, what type of business (sole proprietorship or partnership), and the potential of the business.
5. a) What are some reasons for and against starting a new business?
Some reasons for starting a new business are that that owner has freedom to define the nature of the business, create preferred type of physical facilities, obtain fresh inventory, have a free hand in selecting and developing personnel, take advantage of the latest technology, equipment, materials, and tools to cover a void in acceptable products available, and select a competitive environment. Some reasons against starting a new business are that there may be problems in finding the right business, problems associated with assembling the resources including the location, building, equipment, materials and workforce, lack of established product line, market, and channels of distribution, the risk of failure.
b) What are some reasons for and against buying an existing business?
Some reasons for buying an existing business are personnel are already working, the facilities are already available, a product is already being produced for an existing market, revenues and profits are already being generates and goodwill already exists. Some reasons against buying and already existing business are that the physical facilities may be old or obsolete, the employees may have a poor production record or attitude, location may be bad, the inventory may be obsolete or of poor quality.
c) What are some reasons for and against buying a franchise?
Some reason for buying a franchise are that franchise agreements usually spell out what the franchisor and franchisee are responsible for, the have rules setup already that you must abide by so there isn’t as much planning involved, there are experienced business people you can acquire information from. Some reasons against buying a franchise are that it may cost a lot of money to run a franchise, there is no guarantee for success, the cost outweigh the benefits from its purchase.
6. What distinguishes a franchise from an independent small business?
Franchises are already set up with specific rules and guidelines to follow. Most of them already have a reputation and therefore already have a market. Independent small businesses are basically starting from scratch.
Chapter Five
Planning, Organizing and Managing a Small Business
Page 127 Questions 2, 4, 6, 8
2. Explain the two overall categories of planning. What are the essential differences between the two?
The two overall categories of planning are operational and strategic planning. Strategic planning provides long-term directions to meet the businesses mission. Operational planning sets plans to meet the businesses objectives.
4. In planning to operate the business, what are the factors that must be planned for? Explain each.
According to the textbook, there are many factors that must be planned for in planning to operate a business. One of the main factors is choosing a location. It depends on what type of business you are starting, where it should be located. If you have a restaurant in the middle of nowhere, chances are your business will fail. Another factor is planning operations and physical facilities. A firm’s ability to sell a product is based on its ability to produce a good or service as well as on its market potential. Developing sources of supply for goods and materials is also a factor in planning to operate a business. The main expense in a business is the cost of producing and selling products. Planning your human resource requirements, Setting up the legal and organizational structure, Determining your approach to the market, Establishing an efficient records system, and Setting up a time schedule are also factors.
6. What is the purpose of a business plan? Explain.
The purpose of a business plan is the help keep you thinking on target, keep you creatively on track and concentrating on reaching your goal. It is also useful in trying to raise money or receive loans to help start your business. It provides a basic blueprint of your business.
8. What should the business plan include?
The business plan should include the proposed product, the expected market for it, the strengths and weaknesses of the industry, planned market policies, such as price, promotion and distribution, operations or production methods and facilities, and financial aspects including expected income, expenses, profits (or losses), investment needed, and expected cash flow.
Chapter Six
How to Obtain the Right Financing of Your Business
Page 168 Questions 1, 3, 5, 6
1. Discuss the basic rules to follow in financing a business venture.
When financing a business venture, you should pay careful attention to capital requirements. The firms fixed assets should be financed with equity funds or with debt funds having a maturity approximately equal to the productive life of the asset. No business should be entirely financed with debt financing.
3. What are some reasons small business entrepreneurs use equity financing? Debt financing?
Equity financing serves as a buffer that protects creditors from loss in case of financial difficulty. Debt financing is used for a specific time frame. It comes from lenders who will be repaid at a specified interest rate.
5. List and discuss the primary sources of equity financing.
Common stock and preferred stock are primary sources of equity financing. Common stock, representing the owners’ interest, usually consists of many identical shares, each of which gives the holder one vote in all corporate decisions. Preferred stock has a fixed par value and a fixed dividend payout, expressed as a percentage of par value.
6. List and discuss the primary sources of debt financing.
Financial leverage or leases are both primary sources of debt financing. Financial leverage is using fixed-charge financing, usually debt, to fund a business’s operations. A lease is a contract that permits use of someone else’s property for a specified time period.
Chapter Seven
Developing Marketing Strategies
Page 199 Questions 1, 3, 4, 5, 6
1. What is the marketing concept, and why is it so important to small firms?
According to the textbook, the marketing concept involves giving special consideration to the needs, desires, and wishes of present and prospective customers. It is so important to small firms because the customers are the most important part of the business.
3. Why is marketing research so important to a small business—especially a new one?
Marketing research is so important because by studying the customers’ actions and reactions and drawing conclusions from them, you can use marketing research to improve your marketing activities. Marketing research helps identify customers for the firms products, determining their needs, evaluating sales potential for both the firm and the industry, selecting the most appropriate channel of distribution, and evaluating advertising and promotional effectiveness.
4. What is market segmentation, and how can it be made more effective?
Market segmentation is identifying and evaluating various layers of a market. It can be made more effective by identifying the characteristics of two or more segments of the total market, determining whether any of those market segments is large enough and has sufficient buying power to generate profit for your business, and by aligning your marketing effort to reach the selected segment of market profitably.
5. Discuss some characteristics that should be considered in selecting a target market.
Shifting target markets and population and age shifts are some characteristics that should be considered in selecting a target market. People have been moving and a lot has changed recently to completely shift the target market in opposite directions so small business owners should study external factors to see what causes the change and keep up with it.
6. What controllable variables are combined into a marketing mix to satisfy the target market?
The controllable variables that are combined into a marketing mix to satisfy the target market are the four “P’s”: product, place, promotion and price.
Chapter Eight
Promoting and Distributing
Page 229 Questions 1, 4, 5, 7
1. What basic decisions should be made about an advertising program?
Five basic decisions that should be made about an advertising program are how much to budget and spend for advertising, what media to use, what to say and how to say it, what advertising agency to use, and what results are expected.
4. What are some reasons for importing? What are some problems?
According to the textbook, some reasons for importing are they may be the product the company sells to customers or the raw material for the goods it produces, companies from other countries are just as interested in selling to U.S. markets as our producers are in selling to international market, and small business owners capitalize on the fact that some Americans have a preference for foreign goods or services. Some problems with importing are some of our producers are suffering from lack of customers or even going out of business, and finding out what is “made in the U.S.” and what is not.
5. List the opportunities available in exporting.
- lower labor costs in most countries
- more effective use of labor force and facilities
- tax advantages
- strong demand for U.S. goods in many countries
7. Explain the five levels of involvement in exporting.
Level one is doing some exporting on a casual or accidental basis, usually through an intermediary. Level two is becoming actively involved by making a continuing effort to export. Level three is foreign licensing, involving a formal agreement with a foreign country to produce and/or distribute a product or service. Level four is beginning to actually market your product overseas by maintaining an office or subsidiary in a foreign country. And level five is producing, as well as marketing your product overseas.
Chapter Nine
How to Obtain & Manage Human Resources & Diversity in Small Companies
Page 263 Questions 1, 2, 4, 6
1. Which external sources are usually used by small businesses for finding new employees?
According to the textbook, some external sources used by small businesses for finding new employees are applications received in person or by mail, migrants and immigrants, retirees and older workers, part-time and temporary workers, competing firms, former employees, workers with disabilities, schools and colleges, friends and relatives of present employees, and labor, social, and professional organizations.
2. What are some advantages and disadvantages of filling job openings from within the company?
According to the book, filling job openings with present employees rather than going outside the business makes good sense because it raises morale and improves employees’ motivation, since they know they can move up in your firm. It also saves time, effort, and money since outside recruiting is time-consuming and costly.
4. What does the personnel selection procedure involve?
The personnel selection procedure involves gathering information about the applicant, making a job offer, and orienting the new employee.
6. What are the primary methods used to train employees? Explain each.
The primary methods used to train employees are on- the-job training, apprenticeship training, internship training, cross-training and e-training. On-the-job training is when you learn the job, while doing it. You work under the supervision of another employee until you learn the job. Apprenticeship training is a combination of on-the-job training and theory in the classroom. For example, a cosmetologist learns all the theory involved in the classroom and then actually works in a salon before they get their license. Internship training is like apprenticeship training, except it involves on-the-job training with school or college. For example, a design student may do an internship at a marketing firm to see what it is like to actually design for a company. Cross-training is when you learn more than one job, so you are more versatile. E-training is electronic training and involves the employee learning everything with software on the computer rather than wasting time coming in and learning the information.
Chapter Ten
How to Maintain Good Relationships with your Employees and their Representation
Page 292 Questions 2, 3, 4, 6
2. How would you define (or explain) good human relations?
According to the textbook, human relations involves the interaction among people in an organization. Good human relations occur when both sides (the employee and the business) form a social contract that outlines the rights and duties of each side.
3. What is leadership? Why is it so important in small business?
Leadership is the ability of one person to influence others to attain objectives. It is especially important in small business because it gets the employees to strive to achieve their goals and the businesses objectives.
4. Why is communication so important in small business? What are some barriers to effective communication? How can these barriers be overcome?
Communication is so important in business because people need and want to know what is going on so they can do their jobs properly. Some barriers of communication are the status of the communicator, the imprecise use of language, inattention, and poor listening. These barriers can be overcome by clarifying your ideas, considering the environment in which the communicating occurs, consider emotional overtones, follow up on communication, and be a good listener.
6. What are some practical ways to improve employee motivation?
According to the textbook, some practical ways to improve employee motivation are quality circles, zero-defects programs, job enrichment, variable work schedules, and job splitting and sharing. Quality circles are small employee groups that meet periodically to improve quality and output. Zero-defects approach uses pride in workmanship to get workers to do their work “right the first time”. Job enrichment is granting workers greater responsibility and authority in their jobs. Variable work schedules permits employees to work at times other than the standard eight hours days. Job splitting and sharing occur when a single job is split into separate jobs and shared with other employees.
Chapter Eleven
Obtaining and Laying out Operating Facilities
Page 315 Questions 2, 3, 4, 5
2. Explain some of the more important general factors affecting location?
Some important general factors affecting location according to the text are access to a capable, well-trained, stable workforce, availability of adequate and affordable supplies and services, availability, type, use, and cost of transportation, taxes and government regulations, and availability and cost of electricity, gas, water, sewerage and other utilities.
3. Explain the two most important factors in choosing a retail location.
The two most important factors in choosing a retail location are the type of store and the type of location. The type of store is important because customers look at products differently so stores can be grouped into certain categories, convenience, shopping and specialty goods. The type of locations could be downtown business districts, freestanding stores, or community shopping centers and/or malls.
4. Explain the two most important factors in locating a manufacturing plant.
The two most important factors in locating a manufacturing plant are the nearness to customers and vendors and the availability and cost of transportation. The nearness to customers and vendors is important because producers take into account the time and coast of transporting finished goods to customers and materials to vendors. Vendors and availability and cost of transportation are important because since taxes are so high, a lot of manufacturing plants are moving off shore where costs are lower.
5. Explain the steps involved in planning facilities.
There are five steps involved in planning facilities. The first is to determine the product to be produced. It is a good idea to make projections for the next five years. Next, identify operations and activities to be performed. This includes purchasing materials and parts for production or goods to sell, performing operations needed to produce the product, and carrying out the support activities. Then, determine space requirements. You have to remember to take into account that space is not only needed for materials, equipment and machines, but it is also needed for carts, trucks, inventory, displays, waiting areas, personal; facilities, maintenance, and cleaning, and other services as well. Then you have to determine the most effective layout of the facilities. This is all about how to make everything fit effectively. And lastly, implement your plans. You should always test your layout plans before to make sure they will work. Get suggestions from employees and coworkers.
Chapter Twelve
Purchasing, Inventory, and Quality Control
Page 336 Questions 1, 2
1. Discuss the advantages and disadvantages of buying locally versus buying from a distant seller.
Some advantages of buying locally verses buying from a distant seller are it is more affordable and efficient. Some disadvantages of buying locally versus buying from a distant seller are that they may not offer the products you need.
2. What are the advantages and disadvantages of shopping at a single store rather than at several?
Some advantages and disadvantages of shopping at a single store rather than at several are at a single store, you know what you are getting, you build a relationship with the people you are buying things from, but if you went to several store, you may find cheaper prices at different places and a wider variety.
Chapter Thirteen
Profit Planning
Page 360 Questions 1, 6
1. Why is planning for profit so important to a small business?
Planning for profit is so important in small business because the goal of the business is to make a profit. If you plan now the business will be more likely to achieve its desired profit goal later.
6. What steps are needed in profit planning?
The steps needed in profit planning are establish a profit goal, determine the volume of sales revenue needed to make that profit, estimate the expenses you will incur in reaching that volume of sales, determine the estimated profit based on plans resulting from steps two and three, compare the estimated profit with the profit goal, list possible alternatives that can be used to improve profits, determine how expenses and profits vary with changes in sales volume, analyze your alternative from a profit standpoint, and select an alternative and implement the plan.
Chapter Fourteen
Budgeting And Controlling Operations and taxes
Page 387 Questions 1, 2
1. What is control? List the steps in an effective control process?
Control is the process of ensuring that organizational goals are achieved. The steps in an effective control process are setting up standards of performance, measuring actual performance, comparing actual performance with planned performance standards, deciding whether any deviations are excessive, and determine the appropriate corrective action needed to bring actual performance into conformity with planned performance.
2. What are performance standards? Why are they used? List some examples.
Performance standards are levels set in advance to which employee achievement should conform. Some examples include units consumed or produced and price paid or charged. They are used to keep employees doing their job and make sure the company stays productive.
Chapter Fifteen
Using Computer Technology in Small Business
Page 411 Questions 1, 2
1. What re some of the management decisions owners of small businesses must make?
Some management decisions owners of small businesses must make are where to buy inventory, deciding the number of items to purchase, the number of salespeople to hire, and also the amount if accounts receivable to expect.
2. What types of information do they need to make those decisions?
Some types of information that they need to make those decisions are records of service provided to customers and records of services performed for the business.
Chapter Sixteen
Risk Management, Insurance and Crime Prevention
Page 435 Questions 1, 2, 3
1. What is meant by risk management?
According to the textbook, risk management is the process of conserving earning power and assets by minimizing the shock from losses. In other words, it helps a business get back on their feet after suffering from losses that were unexpected.
2. Distinguish between pure risk and speculative risk as they apply to small business.
Pure risk is the uncertainty that some unpredictable event will result in a loss. An example of pure risk would be natural disasters. We know their could be a hurricane or earthquake or brush fires, but no one knows how much damage it will cause if/when it happens. Speculative risk is the uncertainty that a voluntary undertaken risk will result in a loss. For example, if you build a salon that doesn’t fit the needs of the people, you will have losses.
3. Discuss four ways small firm can cope with risk.
There are four ways a small firm can cope with risk according to the textbook. One is risk avoidance; this is refusing to undertake an activity when the risk seems too costly. Another is risk prevention or loss control, which is using various methods to reduce the possibility of a loss occurring. A third way to cope with risk is risk transfer. Risk transfer is shifting a risk to someone outside of the company. The last way to cope with risk is risk assumption or self-insurance. This is setting aside funds to meet losses that are uncertain in size and frequency.
Chapter Seventeen
Maintaining Good Government Relations and Business Ethics
Page 455 Questions 2, 4
2. What is a tort?
According to the textbook, a tort is a wrongful act by one party, not covered by criminal law, that results in injury to a second party’s person, property, or reputation, for which the first party is liable. In other words, a tort is something done by one person to another to purposely harm them or their property, tort law was created to protect the injured party.
4. Describe some of the assistance available to small firms from government agencies.
There are many opportunities for small businesses to receive help from government agencies. The biggest agency is the Small Business Administration. Their main focus is to help people start and maintain small businesses. They offer many different direct and guaranteed loans to help get you started. Another agency is the U.S. Department of Commerce. They offer assistance through their International Trade Administration, Foreign Commercial Service Agency, and Minority Business Development Agency.
Chapter One
Starting Your Small Business
Page 27 Questions 4, 9, 10
4. What comes to your mind when you think of a small business? How does your concept differ from the definition given in this chapter?
When I think of a small business, I think of smaller stores like on the main street in old Ellicott City. Small stores in shopping centers where there is only one like it. Also, businesses people run from their house like small home improvement company’s or hair salons. The definition from the text book states that a small business is one that is independently owned and operated and is not dominant in its field of operation, and does not engage in new or innovative practices. My ideal of what a small business is pretty much goes along with the definition in the book, although I didn’t know that they didn’t engage in new or innovative practices.
9. Discuss the four personal objectives that people seek when starting a new business.
The four primary personal objectives of small business owners, according to the text, are to achieve independence, obtain additional income, help their families, and provide products not available anywhere else. Achieving Independence is the main objective in starting a new business because people start businesses to be there own boss, to have creative freedom and be able to express their ideas how they want to. People also start businesses to obtain additional income. Some people what extra money on top of the money they already make, and some people are looking for a whole new job life where they can make more money then they were making at their old job. Another personal objective when staring a new business is to help their families. Many people start businesses to have more money to help support their families or they may take over a family owned business to take some of the stress off their family. The last personal objective is to provide products that aren’t available elsewhere. People may be looking for something, and see that it is hard to find but there is a demand for it so they start a business to help make it available to everyone.
10. Explain the interrelationship between the service and profit objectives.
The service objectives must be achieved to attain the profit objective. The objective of a business is to serve customers by producing and selling goods or services at a cost that will ensure a fair price to the consumer and adequate profits for the owners. Profit is the revenue received by a business in excess of the expenses paid. Profits are the reward for accepting business risks and performing an economic service.
Chapter 2
Family-Owned Businesses
Page 48 Questions 2, 3, 5
2. Why is it often difficult to make reasonable decisions in a family business? What problems are caused by a family organization structure?
It is difficult to make reasonable decisions in a family business because people in the family don’t want to hurt other family members feelings and don’t want to make then feel like they are unimportant or any different from everyone else in the family.
3. What problems face a company when a key officer leaves suddenly?
If a key officer suddenly leaves and didn’t leave any instructions as to how things should continue with the company, people will most likely have conflicting ideas on what they think should be done. The company may end up falling apart.
5. Suppose you have a successful business now but decide you want to leave it. What might be some reasons for leaving it? What alternatives do you have for the business?
Some reasons someone might leave a successful business are to pursue another career, start a family, death, and continue education, etcetera. Some alternatives for the business are let someone in the family take over the business, have one or more members work part-time, get education, and rotate jobs.
Chapter Three
Forms of Ownership of Small Business
Page 68 Questions 2, 3, 4, 5
2. Define proprietorship, partnership, corporation, limited-liability company, cooperative, and joint venture.
According to the text book, a proprietorship is a business that is owned by one person. A partnership is a business owned by two or more persons who have unlimited liability for its debts and obligations. A corporation is a regular corporation that provides the protection of limited liability for shareholders, but its earnings are taxed at both the corporate and shareholder levels. A limited-liability company combines the advantages of a corporation, such as liability protection, with the benefits of a partnership, such as tax advantages. A cooperative is a business owned by and operated for the benefit of patrons using its services. And a joint venture is a form of temporary partnership whereby two or more firms join in a single endeavor to make a profit.
3. What are some advantages and disadvantages of a proprietorship?
Some advantages and disadvantages of a proprietorship are secrecy, unique tax advantages, difficulty in obtaining credit, owners don’t have to share profits, limited capital, relative freedom of action and control, easiest and simplest form to organize, operate, and dissolve, inadequate management and employees skills, unlimited liability for the firms debts, and limited life because business and owner are legally the same.
4. What are some advantages and disadvantages of a partnership?
Some advantages and disadvantages of a partnership are its easy to form, life, unlimited liability for debts of the firm, division of labor and management responsibility, can use ideas and plans of more than one person, an impasse may develop if the partners become incompatible, specialized skills available from individual partners, can raise more capital since good credit may be available, obtains financial resources from more than one person, limited each partner is responsible for the acts of every other partner, death of any one of the partners terminates the partnership, and a partner cannot obtain bonding protection against the acts of the other partners.
5. What are some advantages and disadvantages of a corporation?
Some advantages and disadvantages of a corporation are it can have representative management, impersonal, ease of raising large amounts of capital, owners have limited interest in firms activities- except profits, legal entity separate and distinct from its owners as individuals, high incorporation fees and high taxes especially double income taxation, relatively permanent since life of firm not affected by loss of any shareholder, owners liability for the firms debt limited to their investment in it, burdensome procedures, reports, and statements required by governments, and powers limited to those stated in charter- may be difficult to do business in another state.
Chapter Four
Becoming the Owner of a Small Business
Page 99 Questions 1, 5, 6
1. What are some important factors to consider in choosing the type of business to enter?
Some important factors to consider in choosing the type of business to enter are what kinds of products are needed but unavailable, the money required to start the business, how much risk is involved, amount of time and effort involved, what type of business (sole proprietorship or partnership), and the potential of the business.
5. a) What are some reasons for and against starting a new business?
Some reasons for starting a new business are that that owner has freedom to define the nature of the business, create preferred type of physical facilities, obtain fresh inventory, have a free hand in selecting and developing personnel, take advantage of the latest technology, equipment, materials, and tools to cover a void in acceptable products available, and select a competitive environment. Some reasons against starting a new business are that there may be problems in finding the right business, problems associated with assembling the resources including the location, building, equipment, materials and workforce, lack of established product line, market, and channels of distribution, the risk of failure.
b) What are some reasons for and against buying an existing business?
Some reasons for buying an existing business are personnel are already working, the facilities are already available, a product is already being produced for an existing market, revenues and profits are already being generates and goodwill already exists. Some reasons against buying and already existing business are that the physical facilities may be old or obsolete, the employees may have a poor production record or attitude, location may be bad, the inventory may be obsolete or of poor quality.
c) What are some reasons for and against buying a franchise?
Some reason for buying a franchise are that franchise agreements usually spell out what the franchisor and franchisee are responsible for, the have rules setup already that you must abide by so there isn’t as much planning involved, there are experienced business people you can acquire information from. Some reasons against buying a franchise are that it may cost a lot of money to run a franchise, there is no guarantee for success, the cost outweigh the benefits from its purchase.
6. What distinguishes a franchise from an independent small business?
Franchises are already set up with specific rules and guidelines to follow. Most of them already have a reputation and therefore already have a market. Independent small businesses are basically starting from scratch.
Chapter Five
Planning, Organizing and Managing a Small Business
Page 127 Questions 2, 4, 6, 8
2. Explain the two overall categories of planning. What are the essential differences between the two?
The two overall categories of planning are operational and strategic planning. Strategic planning provides long-term directions to meet the businesses mission. Operational planning sets plans to meet the businesses objectives.
4. In planning to operate the business, what are the factors that must be planned for? Explain each.
According to the textbook, there are many factors that must be planned for in planning to operate a business. One of the main factors is choosing a location. It depends on what type of business you are starting, where it should be located. If you have a restaurant in the middle of nowhere, chances are your business will fail. Another factor is planning operations and physical facilities. A firm’s ability to sell a product is based on its ability to produce a good or service as well as on its market potential. Developing sources of supply for goods and materials is also a factor in planning to operate a business. The main expense in a business is the cost of producing and selling products. Planning your human resource requirements, Setting up the legal and organizational structure, Determining your approach to the market, Establishing an efficient records system, and Setting up a time schedule are also factors.
6. What is the purpose of a business plan? Explain.
The purpose of a business plan is the help keep you thinking on target, keep you creatively on track and concentrating on reaching your goal. It is also useful in trying to raise money or receive loans to help start your business. It provides a basic blueprint of your business.
8. What should the business plan include?
The business plan should include the proposed product, the expected market for it, the strengths and weaknesses of the industry, planned market policies, such as price, promotion and distribution, operations or production methods and facilities, and financial aspects including expected income, expenses, profits (or losses), investment needed, and expected cash flow.
Chapter Six
How to Obtain the Right Financing of Your Business
Page 168 Questions 1, 3, 5, 6
1. Discuss the basic rules to follow in financing a business venture.
When financing a business venture, you should pay careful attention to capital requirements. The firms fixed assets should be financed with equity funds or with debt funds having a maturity approximately equal to the productive life of the asset. No business should be entirely financed with debt financing.
3. What are some reasons small business entrepreneurs use equity financing? Debt financing?
Equity financing serves as a buffer that protects creditors from loss in case of financial difficulty. Debt financing is used for a specific time frame. It comes from lenders who will be repaid at a specified interest rate.
5. List and discuss the primary sources of equity financing.
Common stock and preferred stock are primary sources of equity financing. Common stock, representing the owners’ interest, usually consists of many identical shares, each of which gives the holder one vote in all corporate decisions. Preferred stock has a fixed par value and a fixed dividend payout, expressed as a percentage of par value.
6. List and discuss the primary sources of debt financing.
Financial leverage or leases are both primary sources of debt financing. Financial leverage is using fixed-charge financing, usually debt, to fund a business’s operations. A lease is a contract that permits use of someone else’s property for a specified time period.
Chapter Seven
Developing Marketing Strategies
Page 199 Questions 1, 3, 4, 5, 6
1. What is the marketing concept, and why is it so important to small firms?
According to the textbook, the marketing concept involves giving special consideration to the needs, desires, and wishes of present and prospective customers. It is so important to small firms because the customers are the most important part of the business.
3. Why is marketing research so important to a small business—especially a new one?
Marketing research is so important because by studying the customers’ actions and reactions and drawing conclusions from them, you can use marketing research to improve your marketing activities. Marketing research helps identify customers for the firms products, determining their needs, evaluating sales potential for both the firm and the industry, selecting the most appropriate channel of distribution, and evaluating advertising and promotional effectiveness.
4. What is market segmentation, and how can it be made more effective?
Market segmentation is identifying and evaluating various layers of a market. It can be made more effective by identifying the characteristics of two or more segments of the total market, determining whether any of those market segments is large enough and has sufficient buying power to generate profit for your business, and by aligning your marketing effort to reach the selected segment of market profitably.
5. Discuss some characteristics that should be considered in selecting a target market.
Shifting target markets and population and age shifts are some characteristics that should be considered in selecting a target market. People have been moving and a lot has changed recently to completely shift the target market in opposite directions so small business owners should study external factors to see what causes the change and keep up with it.
6. What controllable variables are combined into a marketing mix to satisfy the target market?
The controllable variables that are combined into a marketing mix to satisfy the target market are the four “P’s”: product, place, promotion and price.
Chapter Eight
Promoting and Distributing
Page 229 Questions 1, 4, 5, 7
1. What basic decisions should be made about an advertising program?
Five basic decisions that should be made about an advertising program are how much to budget and spend for advertising, what media to use, what to say and how to say it, what advertising agency to use, and what results are expected.
4. What are some reasons for importing? What are some problems?
According to the textbook, some reasons for importing are they may be the product the company sells to customers or the raw material for the goods it produces, companies from other countries are just as interested in selling to U.S. markets as our producers are in selling to international market, and small business owners capitalize on the fact that some Americans have a preference for foreign goods or services. Some problems with importing are some of our producers are suffering from lack of customers or even going out of business, and finding out what is “made in the U.S.” and what is not.
5. List the opportunities available in exporting.
- lower labor costs in most countries
- more effective use of labor force and facilities
- tax advantages
- strong demand for U.S. goods in many countries
7. Explain the five levels of involvement in exporting.
Level one is doing some exporting on a casual or accidental basis, usually through an intermediary. Level two is becoming actively involved by making a continuing effort to export. Level three is foreign licensing, involving a formal agreement with a foreign country to produce and/or distribute a product or service. Level four is beginning to actually market your product overseas by maintaining an office or subsidiary in a foreign country. And level five is producing, as well as marketing your product overseas.
Chapter Nine
How to Obtain & Manage Human Resources & Diversity in Small Companies
Page 263 Questions 1, 2, 4, 6
1. Which external sources are usually used by small businesses for finding new employees?
According to the textbook, some external sources used by small businesses for finding new employees are applications received in person or by mail, migrants and immigrants, retirees and older workers, part-time and temporary workers, competing firms, former employees, workers with disabilities, schools and colleges, friends and relatives of present employees, and labor, social, and professional organizations.
2. What are some advantages and disadvantages of filling job openings from within the company?
According to the book, filling job openings with present employees rather than going outside the business makes good sense because it raises morale and improves employees’ motivation, since they know they can move up in your firm. It also saves time, effort, and money since outside recruiting is time-consuming and costly.
4. What does the personnel selection procedure involve?
The personnel selection procedure involves gathering information about the applicant, making a job offer, and orienting the new employee.
6. What are the primary methods used to train employees? Explain each.
The primary methods used to train employees are on- the-job training, apprenticeship training, internship training, cross-training and e-training. On-the-job training is when you learn the job, while doing it. You work under the supervision of another employee until you learn the job. Apprenticeship training is a combination of on-the-job training and theory in the classroom. For example, a cosmetologist learns all the theory involved in the classroom and then actually works in a salon before they get their license. Internship training is like apprenticeship training, except it involves on-the-job training with school or college. For example, a design student may do an internship at a marketing firm to see what it is like to actually design for a company. Cross-training is when you learn more than one job, so you are more versatile. E-training is electronic training and involves the employee learning everything with software on the computer rather than wasting time coming in and learning the information.
Chapter Ten
How to Maintain Good Relationships with your Employees and their Representation
Page 292 Questions 2, 3, 4, 6
2. How would you define (or explain) good human relations?
According to the textbook, human relations involves the interaction among people in an organization. Good human relations occur when both sides (the employee and the business) form a social contract that outlines the rights and duties of each side.
3. What is leadership? Why is it so important in small business?
Leadership is the ability of one person to influence others to attain objectives. It is especially important in small business because it gets the employees to strive to achieve their goals and the businesses objectives.
4. Why is communication so important in small business? What are some barriers to effective communication? How can these barriers be overcome?
Communication is so important in business because people need and want to know what is going on so they can do their jobs properly. Some barriers of communication are the status of the communicator, the imprecise use of language, inattention, and poor listening. These barriers can be overcome by clarifying your ideas, considering the environment in which the communicating occurs, consider emotional overtones, follow up on communication, and be a good listener.
6. What are some practical ways to improve employee motivation?
According to the textbook, some practical ways to improve employee motivation are quality circles, zero-defects programs, job enrichment, variable work schedules, and job splitting and sharing. Quality circles are small employee groups that meet periodically to improve quality and output. Zero-defects approach uses pride in workmanship to get workers to do their work “right the first time”. Job enrichment is granting workers greater responsibility and authority in their jobs. Variable work schedules permits employees to work at times other than the standard eight hours days. Job splitting and sharing occur when a single job is split into separate jobs and shared with other employees.
Chapter Eleven
Obtaining and Laying out Operating Facilities
Page 315 Questions 2, 3, 4, 5
2. Explain some of the more important general factors affecting location?
Some important general factors affecting location according to the text are access to a capable, well-trained, stable workforce, availability of adequate and affordable supplies and services, availability, type, use, and cost of transportation, taxes and government regulations, and availability and cost of electricity, gas, water, sewerage and other utilities.
3. Explain the two most important factors in choosing a retail location.
The two most important factors in choosing a retail location are the type of store and the type of location. The type of store is important because customers look at products differently so stores can be grouped into certain categories, convenience, shopping and specialty goods. The type of locations could be downtown business districts, freestanding stores, or community shopping centers and/or malls.
4. Explain the two most important factors in locating a manufacturing plant.
The two most important factors in locating a manufacturing plant are the nearness to customers and vendors and the availability and cost of transportation. The nearness to customers and vendors is important because producers take into account the time and coast of transporting finished goods to customers and materials to vendors. Vendors and availability and cost of transportation are important because since taxes are so high, a lot of manufacturing plants are moving off shore where costs are lower.
5. Explain the steps involved in planning facilities.
There are five steps involved in planning facilities. The first is to determine the product to be produced. It is a good idea to make projections for the next five years. Next, identify operations and activities to be performed. This includes purchasing materials and parts for production or goods to sell, performing operations needed to produce the product, and carrying out the support activities. Then, determine space requirements. You have to remember to take into account that space is not only needed for materials, equipment and machines, but it is also needed for carts, trucks, inventory, displays, waiting areas, personal; facilities, maintenance, and cleaning, and other services as well. Then you have to determine the most effective layout of the facilities. This is all about how to make everything fit effectively. And lastly, implement your plans. You should always test your layout plans before to make sure they will work. Get suggestions from employees and coworkers.
Chapter Twelve
Purchasing, Inventory, and Quality Control
Page 336 Questions 1, 2
1. Discuss the advantages and disadvantages of buying locally versus buying from a distant seller.
Some advantages of buying locally verses buying from a distant seller are it is more affordable and efficient. Some disadvantages of buying locally versus buying from a distant seller are that they may not offer the products you need.
2. What are the advantages and disadvantages of shopping at a single store rather than at several?
Some advantages and disadvantages of shopping at a single store rather than at several are at a single store, you know what you are getting, you build a relationship with the people you are buying things from, but if you went to several store, you may find cheaper prices at different places and a wider variety.
Chapter Thirteen
Profit Planning
Page 360 Questions 1, 6
1. Why is planning for profit so important to a small business?
Planning for profit is so important in small business because the goal of the business is to make a profit. If you plan now the business will be more likely to achieve its desired profit goal later.
6. What steps are needed in profit planning?
The steps needed in profit planning are establish a profit goal, determine the volume of sales revenue needed to make that profit, estimate the expenses you will incur in reaching that volume of sales, determine the estimated profit based on plans resulting from steps two and three, compare the estimated profit with the profit goal, list possible alternatives that can be used to improve profits, determine how expenses and profits vary with changes in sales volume, analyze your alternative from a profit standpoint, and select an alternative and implement the plan.
Chapter Fourteen
Budgeting And Controlling Operations and taxes
Page 387 Questions 1, 2
1. What is control? List the steps in an effective control process?
Control is the process of ensuring that organizational goals are achieved. The steps in an effective control process are setting up standards of performance, measuring actual performance, comparing actual performance with planned performance standards, deciding whether any deviations are excessive, and determine the appropriate corrective action needed to bring actual performance into conformity with planned performance.
2. What are performance standards? Why are they used? List some examples.
Performance standards are levels set in advance to which employee achievement should conform. Some examples include units consumed or produced and price paid or charged. They are used to keep employees doing their job and make sure the company stays productive.
Chapter Fifteen
Using Computer Technology in Small Business
Page 411 Questions 1, 2
1. What re some of the management decisions owners of small businesses must make?
Some management decisions owners of small businesses must make are where to buy inventory, deciding the number of items to purchase, the number of salespeople to hire, and also the amount if accounts receivable to expect.
2. What types of information do they need to make those decisions?
Some types of information that they need to make those decisions are records of service provided to customers and records of services performed for the business.
Chapter Sixteen
Risk Management, Insurance and Crime Prevention
Page 435 Questions 1, 2, 3
1. What is meant by risk management?
According to the textbook, risk management is the process of conserving earning power and assets by minimizing the shock from losses. In other words, it helps a business get back on their feet after suffering from losses that were unexpected.
2. Distinguish between pure risk and speculative risk as they apply to small business.
Pure risk is the uncertainty that some unpredictable event will result in a loss. An example of pure risk would be natural disasters. We know their could be a hurricane or earthquake or brush fires, but no one knows how much damage it will cause if/when it happens. Speculative risk is the uncertainty that a voluntary undertaken risk will result in a loss. For example, if you build a salon that doesn’t fit the needs of the people, you will have losses.
3. Discuss four ways small firm can cope with risk.
There are four ways a small firm can cope with risk according to the textbook. One is risk avoidance; this is refusing to undertake an activity when the risk seems too costly. Another is risk prevention or loss control, which is using various methods to reduce the possibility of a loss occurring. A third way to cope with risk is risk transfer. Risk transfer is shifting a risk to someone outside of the company. The last way to cope with risk is risk assumption or self-insurance. This is setting aside funds to meet losses that are uncertain in size and frequency.
Chapter Seventeen
Maintaining Good Government Relations and Business Ethics
Page 455 Questions 2, 4
2. What is a tort?
According to the textbook, a tort is a wrongful act by one party, not covered by criminal law, that results in injury to a second party’s person, property, or reputation, for which the first party is liable. In other words, a tort is something done by one person to another to purposely harm them or their property, tort law was created to protect the injured party.
4. Describe some of the assistance available to small firms from government agencies.
There are many opportunities for small businesses to receive help from government agencies. The biggest agency is the Small Business Administration. Their main focus is to help people start and maintain small businesses. They offer many different direct and guaranteed loans to help get you started. Another agency is the U.S. Department of Commerce. They offer assistance through their International Trade Administration, Foreign Commercial Service Agency, and Minority Business Development Agency.
