Chapter 3 Entrepreneurship, New Ventures, and Business Ownership
1) Which entity is defined as independent and has little influence on its market?
A) Corporation
B) Joint venture
C) Small business
D) Partnership
E) Government agency
Answer: C
Explanation: C) A small business is defined as independent with marginal influence in its market.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
2) The U.S. Department of Commerce considers a business "small" if it has fewer than how many employees?
A) 10
B) 50
C) 100
D) 500
E) 1,500
Answer: D
Explanation: D) The U.S. Department of Commerce considers a business "small" if it has fewer than 500 employees.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
3) Which of the following industry groups is the fastest growing segment of small business enterprise?
A) Manufacturing
B) Wholesaling
C) Retailing
D) Transportation
E) Services
Answer: E
Explanation: E) Services is the fastest growing segment, probably because services require few resources.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
4) Which of the following types of venue is favored by small-business retailers?
A) Superstore
B) Catalog showroom
C) Specialty shop
D) Department store
E) Studio workroom
Answer: C
Explanation: C) Usually, people who start small retail businesses favor specialty shops that let them focus limited resources on narrow market segments.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
5) Why is it difficult to compare relative job growth for different-sized businesses?
A) Sourcing up-to-date employment figures is difficult.
B) Many small businesses experience rapid unreported growth.
C) Spheres of influence overlap between the small and big business sectors.
D) Staff size of small businesses tends to change faster than staff size of big businesses.
E) It is hard to determine the cutoff point at which a small business becomes a large business.
Answer: E
Explanation: E) Relative job growth among businesses of different sizes is not easy to determine. There are different parameters governing the size of a small versus a big business and, additionally, there is no precise point where such a differentiation can be clearly identified.
Difficulty: Difficult
AACSB: Analytical thinking
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
6) Why do attitudes about entrepreneurship vary internationally?
A) Decision making in big business can overlook local customs.
B) Attitudes towards risk-taking in business are culturally determined.
C) Consumer attitudes are influenced by economic cycles.
D) Foreign-owned companies can be unresponsive to local markets.
E) International business is creating a global village.
Answer: B
Explanation: B) In many cultures, such as the United States, the entrepreneurial spirit is highly valued. However, in some Asian countries, the entrepreneurial spirit is often tempered by the need for consensus.
Difficulty: Difficult
AACSB: Diverse and multicultural work environments
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
7) When an investor is not interested in owning their own business, why do they need to understand entrepreneurship?
A) To understand why someone would want to work so hard for a small return
B) To determine the key characteristics of success
C) To understand how to convert a great idea to a profitable idea
D) To assess the market potential for up-and-coming businesses
E) To learn how to set up a business plan
Answer: D
Explanation: D) The study of small businesses can provide insight to several areas of leadership. However, as an investor, one should be better prepared to assess market potential for new or upcoming business ideas.
Difficulty: Difficult
AACSB: Analytical thinking
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
8) In a small business, who determines prices for wholesalers and customers?
A) Customers
B) Franchise owners
C) Market forces
D) Small business administration
E) Small business owner
Answer: C
Explanation: C) Even independent and small businesses have relatively little influence in their markets, and prices are determined by the market forces that are often out of the hands of the small business owner.
Difficulty: Difficult
AACSB: Reflective thinking
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
9) Small businesses impact key aspects of the U.S. economy including
A) bank loans, and contributions to big business.
B) international trade and the service industry.
C) bank loans and innovation.
D) the service industry and job creation.
E) job creation and innovation.
Answer: E
Explanation: E) The contributions small businesses make on key aspects of the U.S. economy can be measured in terms of the impact on job creation, innovation of products and ideas, and how the small businesses support and contribute to big businesses.
Difficulty: Difficult
AACSB: Analytical thinking
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
10) The Small Business Administration is the government agency charged with owning small businesses.
Answer: FALSE
Explanation: The Small Business Administration is a government agency that assists small businesses.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
11) Small businesses produce more patents per employee than large patenting firms.
Answer: TRUE
Explanation: Small businesses are an important source of innovation as evidenced by the production of patents.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
12) Most businesses in the United States are large businesses with more than 500 employees.
Answer: FALSE
Explanation: More than 89 percent of all U.S. businesses have no more than 20 employees.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
13) Major innovations are most likely to come from large corporations.
Answer: FALSE
Explanation: Most major innovations come from small businesses.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
14) The Small Business Administration (SBA) may consider a business with many employees to be small as long as it has low annual revenues.
Answer: TRUE
Explanation: A government agency that assists small businesses, the SBA regards some companies with as many as 1,500 employees as small, but only if the business has relatively low annual revenues.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
15) How is the U.S. economy affected by small businesses?
Answer: Small businesses affect the U.S. economy through job creation and innovation and by making products for and selling products made by big businesses. Small businesses are an important source of new jobs in the United States. Innovations are as likely to come from small businesses as big businesses. Finally, most of the products made by big businesses are sold to consumers by small businesses. Big businesses often depend on small businesses as suppliers as well. By creating jobs, fostering innovation, and providing goods and services, small businesses have a positive effect on the U.S. economy.
Difficulty: Difficult
AACSB: Analytical thinking
Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.
16) Which of the follow BEST defines those who assume the risk of business ownership?
A) Entrepreneurs
B) Customers
C) Corporate partners
D) The Small Business Administration
E) Banks
Answer: A
Explanation: A) People pursue entrepreneurship for a variety of reasons, and those who assume the risk of business ownership are called entrepreneurs.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
17) What is the process of seeking business opportunities under conditions of risk?
A) Investment
B) Entrepreneurship
C) Leadership
D) Diversification
E) Growth
Answer: B
Explanation: B) Entrepreneurship is the process of seeking opportunities in business ventures and ideas under conditions of variable risk.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
18) What term is most closely associated with the pursuit of entrepreneurship with the goal of independence from working for someone else with a reasonable degree of financial security?
A) Vision
B) New ventures
C) Small business
D) Start-ups
E) Dominance
Answer: C
Explanation: C) When an entrepreneur has the goal of earning enough money to lead a comfortable life until retirement, and have independence from others, the term small business is closely associated with this venture.
Difficulty: Difficult
AACSB: Application of knowledge
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
19) When an entrepreneur has the goals of growth and expansion, with the vision of turning the business into a large business, what term is used when referring to the business?
A) Visionary
B) Small Business
C) Diversification
D) Start-up
E) Expansionist
Answer: D
Explanation: D) When a new venture is launched with the goal of growth and expansion to a large business, the terms start-up and new venture are often used.
Difficulty: Difficult
AACSB: Application of knowledge
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
20) People who assume the risk of business ownership with a primary goal of growth and expansion are called entrepreneurs.
Answer: TRUE
Explanation: Entrepreneurs are people who assume the risk of business ownership.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
21) Most successful entrepreneurs have a strong desire to be their own bosses.
Answer: TRUE
Explanation: Many entrepreneurs are attracted to small business because of opportunities for independence.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
22) Why might an entrepreneur wish to purchase an existing business rather than start one from scratch?
Answer: An entrepreneur may wish to purchase an existing business because of an increased chance for success. An existing business will have established working relationships with lenders, suppliers, and the community. The track record of an existing business gives potential buyers a much clearer picture of what to expect than any estimate of new business prospects. The advantage of buying an existing business is better chances of success, as business relationships have already been established and past records give an indication of future business possibilities.
Difficulty: Moderate
AACSB: Reflective thinking
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
23) What are the advantages and disadvantages for a franchisee?
Answer: The advantages of franchising include access to managerial and financial help, the benefits of the selling corporation's expertise and experience, and reduced chances of failure. The disadvantages of franchising include significant start-up costs and continued obligations to contribute a percentage of sales to parent corporations. Advantages include access to managerial and financial help and the benefits of the selling corporation's expertise and experience, which can support increased chances of success. The disadvantages include significant start-up costs and ongoing commitments to contribute a percentage of sales to parent corporations.
Difficulty: Moderate
AACSB: Reflective thinking
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
24) Explain entrepreneurship and describe key entrepreneurial characteristics.
Answer: Entrepreneurs are people who assume the risk of business ownership. Entrepreneurship is the process of seeking business opportunities under conditions of risk. Some entrepreneurs have a goal of independence and financial security, whereas others want to launch a new venture that can be grown into a large business. Most successful entrepreneurs are resourceful and concerned for customer relations. They have a strong desire to be their own bosses and can handle ambiguity and surprises. Today's entrepreneur is often an open-minded leader who relies on networks, business plans, and consensus and is just as likely to be female as male. Finally, although successful entrepreneurs understand the role of risk, they do not necessarily regard what they do as being risky.
Difficulty: Easy
AACSB: Reflective thinking
Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.
25) What does an entrepreneur use to summarize his or her business strategy for a proposed new venture?
A) Success chart
B) Director's guideline
C) Financial blueprint
D) Business plan
E) Balance sheet
Answer: D
Explanation: D) A business plan is a summary of the business strategy for the proposed new venture and how that strategy will be implemented.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
26) What is considered to be a significant disadvantage of owning a franchise?
A) Start-up costs
B) Operational guidelines
C) Difficulty obtaining loans
D) Double taxation
E) Competition
Answer: A
Explanation: A) Start-up costs are considered one of the most significant disadvantages of owning a franchise. Franchise prices vary widely and often require a fee to purchase the use of the name, building the facility and other outlay.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
27) What is the MOST important source of money for new business start-ups?
A) Banks
B) The SBA
C) Personal resources
D) Government grants
E) Venture capital
Answer: C
Explanation: C) Most individuals starting a new business have to rely on personal finances to do so.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
28) Who constitutes the membership of SCORE?
A) Retired executives
B) Venture capitalists
C) Company officers
D) Commercial lenders
E) Successful entrepreneurs
Answer: A
Explanation: A) The Service Corps of Retired Executives is made up of retired executives who volunteer to help entrepreneurs start new businesses.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
29) What does a start-up company need in order to estimate the required size of a plant, store, or office, inventory levels, and size of staff?
A) Sales forecast
B) Tax estimate
C) Business objective
D) Stock options
E) Funding source
Answer: A
Explanation: A) In addition, a sales forecast helps the entrepreneur demonstrate an understanding of the current market, the strengths and weaknesses of existing firms, and the means by which the new venture will compete.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
30) What is the major drawback of accepting venture capital?
A) Sharing company control
B) Having to pay high interest rates
C) Limiting expansion
D) Facing a short repayment period
E) Having to write proposals
Answer: A
Explanation: A) Venture capitalists focus on turning a profit on their investments. In order to better ensure that they do, they typically invest in a business on the condition that they be given some control over the company.
Difficulty: Moderate
AACSB: Reflective thinking
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
31) Which of the following are groups of small investors seeking to make profits on companies with rapid growth potential?
A) Community banks
B) Venture capital companies
C) Equity managers
D) Government securities dealers
E) Stock brokers
Answer: B
Explanation: B) Most venture capital companies do not lend money, instead, they supply capital in return for partial ownership or representation on boards of directors.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
32) Which of the following is federally licensed to borrow money from the Small Business Administration to invest in or lend to small businesses?
A) SCORE
B) SBICs
C) SBDC
D) FDIC
E) SEC
Answer: B
Explanation: B) In addition, small-business investment companies are themselves investments for their shareholders.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
33) What is the MOST effective way for an entrepreneur to become a competent manager?
A) Working alone
B) Relying on luck
C) Getting a college degree
D) Being open to opportunities
E) Working for a successful company first
Answer: E
Explanation: E) Few successful business owners succeed alone or straight out of college. Most spend time in successful companies or partner with others to bring expertise to a new business.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
34) Which of the following helps entrepreneurs gain skills that are essential for running a business?
A) ESOP
B) SBICs
C) SEC
D) LLC
E) SBA
Answer: E
Explanation: E) The Small Business Administration helps entrepreneurs improve their management skills.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
35) Which distinctive competency must an entrepreneur identify when attempting to enter an established market?
A) The ability to identify new markets
B) The ability to identify niche markets
C) The ability to differentiate themselves from others in the market
D) The ability to gauge prices to get the highest return without driving away customers
E) The ability to move quickly to take advantage of new opportunities
Answer: B
Explanation: B) An established market is one in which many firms compete according to relatively well-defined criteria. Entrepreneurs must identify an area of specialty, or niche, to break into and succeed in an established market.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
36) What is first mover advantage?
A) The concept that the first in the market will make the most money
B) The concept that a firm who exploits an opportunity before others has an advantage
C) The concept that there is an advantage in leaving a market when it becomes flooded
D) The concept that large organizations cannot take advantage of an opportunity as quickly as an entrepreneur
E) The concept that there is more risk being first, but also more reward, if successful
Answer: B
Explanation: B) A first-mover advantage is any advantage that comes from exploiting an opportunity before other firms do so.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
37) What is the first step in becoming an entrepreneur?
A) Deciding to proceed
B) Formulating a business plan
C) Identifying distinctive competencies
D) Searching for capital to invest
E) Implementing plans and opening
Answer: B
Explanation: B) After the would-be entrepreneur has defined a potential distinctive competence and made the decision to proceed, the next step is formulating a business plan in which the entrepreneur describes his or her business strategy for the new venture and demonstrates how it will be implemented.
Difficulty: Moderate
AACSB: Reflective thinking
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
38) Which key element of a business plan will determine inventory, size of space required, and number of employees needed?
A) Financial planning
B) Comparing existing businesses
C) Sales forecasting
D) Setting goals and objectives
E) Identifying strategies and how to implement them
Answer: C
Explanation: C) Although a key element of any business plan is sales forecasts, plans must carefully build an argument for likely business success based on sound logic and research. Entrepreneurs, for example, can't forecast sales revenues without first researching markets.
Difficulty: Moderate
AACSB: Reflective thinking
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
39) What is the advantage to starting a business from scratch instead of buying an existing business?
A) There is a proven ability to attract customers.
B) Profit is generated sooner.
C) There is a stronger relationship with lenders and other stakeholders.
D) There are no ill-effects from the previous owner.
E) There is a clearer picture of what to expect in terms of start-up.
Answer: D
Explanation: D) A new business doesn't suffer the ill effects of a prior owner's errors, and the start-up owner is free to choose lenders, equipment, inventories, locations, suppliers, and workers.
Difficulty: Moderate
AACSB: Analytical thinking
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
40) Where can a new business owner go to seek help and learn from other institutions and disciplines?
A) The Service Corps of Retired Executives (SCORE)
B) The Small Business Development Center (SBDC)
C) Small business investment companies (SBICs)
D) Venture capitalist
E) Minority Enterprise Small Business Investment Companies (MESBICs)
Answer: B
Explanation: B) The Small Business Development Center (SBDC) program consolidates information from various disciplines and institutions for use by new and existing small businesses.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
41) A business plan demonstrates how an entrepreneur's business strategy will be implemented.
Answer: TRUE
Explanation: A business plan documents business strategy and implementation procedures.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
42) Franchisees may be obligated to contribute a percentage of sales to parent corporations.
Answer: TRUE
Explanation: The obligation to contribute a percentage of sales is a disadvantage from the franchisee's perspective.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
43) Loans are the most important sources of money for new businesses.
Answer: FALSE
Explanation: According to the National Federation of Independent Business, personal resources are the most important sources of money for new businesses.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
44) Lending institutions are more likely to help finance the purchase of an existing business rather than the start-up of a business from scratch.
Answer: TRUE
Explanation: This is the case because the risks are typically better understood for an existing business.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
45) A group of small investors who invest money in companies in return for partial ownership is known as a small-business development company.
Answer: FALSE
Explanation: A group of small investors who invest money in companies in return for partial ownership is called a venture capital company.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
46) Small-business investment companies (SBICs) may be sponsored by the federal government.
Answer: TRUE
Explanation: SBICs are federally licensed to borrow money from the SBA and to invest it in or lend it to small businesses, and they are themselves investments for their shareholders.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
47) The number of minority-owned businesses has decreased in recent years.
Answer: FALSE
Explanation: African American-owned businesses have grown at a rate of about 60 percent during the most recent five-year period for which data were available, and Hispanic-owned businesses have grown at 44 percent.
Difficulty: Easy
AACSB: Diverse and multicultural work environments
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
48) The Small Business Development Center provides micro loan programs for members.
Answer: FALSE
Explanation: The Small Business Association's special purpose loans target businesses with specific needs, such as meeting international demands or implementing pollution-control measures. For loans under $50,000, the SBA offers the micro loan program. The Small Business Development Center (SBDC) program consolidates information from various disciplines and institutions for use by new and existing small businesses.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
49) Discuss four sources of financing for starting up a small business.
Answer: Financing for starting up a new business may come from personal resources, bank loans, venture capital firms, or small-business investment companies (SBICs). The most important source of financing for a small business is the owner's personal resources. Bank loans are a second source of financing. Venture capital firms invest money in a business in return for stock. These firms are groups of small investors seeking to make profits on companies with rapid growth potential. SBICs take a more balanced approach in their choices than do venture capital firms. SBICs are federally licensed to borrow money from the SBA to invest in or lend to small businesses. Financing for starting up a new business may come from personal resources, bank loans, venture capital firms, or SBICs.
Difficulty: Difficult
AACSB: Application of knowledge
Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.
50) Which of the following represents the fastest-growing segment of minority business ownership?
A) African Americans
B) Asians
C) Hispanics
D) Pacific Islanders
E) Europeans
Answer: A
Explanation: A) The number of businesses owned by African Americans increased by 60 percent during the most recent five-year period for which data is available.
Difficulty: Easy
AACSB: Diverse and multicultural work environments
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
51) Which of the following is the MOST significant recent trend in small-business start-ups?
A) Entrepreneurs who cross over from big business
B) Increased opportunities for minorities
C) Increased opportunities for women
D) Emergence of e-commerce
E) Global economic downturn
Answer: D
Explanation: D) Because the Internet provides fundamentally new ways of doing business, entrepreneurs have created and expanded new businesses faster than ever before.
Difficulty: Moderate
AACSB: Diverse and multicultural work environments
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
52) What is the main reason why women start new businesses?
A) Need to earn more money
B) Preference for working alone
C) Opportunities for family members
D) Control in organizing their time
E) Desire to employ other women
Answer: D
Explanation: D) Some 46 percent of woman cite being able to gain control over their schedule as the reason why they are attracted to starting their own businesses.
Difficulty: Difficult
AACSB: Diverse and multicultural work environments
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
53) Which of the following factors MOST contributes to small business failure?
A) Managerial incompetence or inexperience
B) Bad product design
C) Legal problems
D) Time spent raising capital
E) Personnel issues
Answer: A
Explanation: A) The four main reasons for small business failure are managerial incompetence, neglect, weak control systems, and insufficient capital.
Difficulty: Moderate
AACSB: Diverse and multicultural work environments
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
54) A new business should have enough capital to operate at least how many months without earning a profit?
A) 1
B) 2
C) 4
D) 6
E) 9
Answer: D
Explanation: D) In addition, some experts recommend having enough capital to last one year.
Difficulty: Moderate
AACSB: Diverse and multicultural work environments
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
55) Many new businesses are started by people who have left big corporations.
Answer: TRUE
Explanation: More and more businesses are being started by people who have left big corporations and who want to put their experience to work.
Difficulty: Easy
AACSB: Application of knowledge
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
56) The failure rate among small businesses has been increasing in recent years.
Answer: FALSE
Explanation: The failure rate for small businesses has been decreasing in recent years.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
57) Neglect is a major factor that contributes to small business failure.
Answer: TRUE
Explanation: Other factors include managerial incompetence, inexperience, weak control systems, and insufficient capital.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
58) Which of the following types of businesses is MOST common in the United States?
A) Sole proprietorships
B) General partnerships
C) Cooperatives
D) Corporations
E) Limited partnerships
Answer: A
Explanation: A) About 74 percent of all U.S. businesses are sole proprietorships.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.
59) In which business sector are cooperatives still important?
A) Manufacturing
B) Automotive
C) Public utilities
D) Agriculture
E) Health care
Answer: D
Explanation: D) Although cooperatives make up only a minor segment of the U.S. economy, the role of cooperatives is important in agriculture.
Difficulty: Moderate
AACSB: Application of knowledge
Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.
60) Which of the following legal forms of business is owned and usually operated by a person who is responsible for its debts?
A) Cartel
B) Corporation
C) General partnership
D) Sole proprietorship
E) Limited partnership
Answer: D
Explanation: D) The sole proprietorship is owned and usually operated by one person. About 72 percent of all businesses are sole proprietorships; however, they account for only about 5 percent of total business revenues.
Difficulty: Easy