Business Chapter 5

Front 1

Distinguish between small and large businesses and identify the industries in which most small firms are established.

Back 1

Small businesses can adopt many profiles, from parttime, home-based businesses to rirms with seveeral hundered employees. A small business is a firm that is independently owned and operated, is not dominant in its field, and meets industry-specific size standards for income or number of employees. Small businesses operate in every industry, but retailing, services, and construction feature the highest proportions of small enterprises.

Front 2

What characteristics does the SBA use to determine whether a business is a small business?

Back 2

The SBA looks at the number of employees, annual sales, and whether a firm is independently owned and not dominant in its field.

Front 3

Identify three industries in which small businesses are common.

Back 3

Construction, wholesale, retail, and service industries are common for small businesses.

Front 4

Discuss the economic and social contributions of small business.

Back 4

Small businesses create 75 percent of the new jobs in the US economy and employ half of US workers. The provide valuable outlest for entrepreneurial activity and often contribute to the creation of new industries or development of new business processes. Women, minorities, and immigrants find small-business ownership to be an attractive alternative to working in large firms and are starting new companies at a much faster rate than the overall growth in US businesses. Small firms may also offer enhanced lifestyle flexibility and opportunities to gain personal satisfaction.

Front 5

To what extent do small businesses help create new jobs?

Back 5

On average, three of every four jobs are created by small businesses.

Front 6

In what ways do small businesses contribute to the economy?

Back 6

Small businesses create new jobs, new industries, and better products and services through innovation.

Front 7

Describe the reasons that small businesses fail.

Back 7

Because of management shortcomings, inadequate financing, and difficulty dealing with government regulations, small businesses are much more likely to fail than large businesses, especially during economic downturns.

Front 8

What percentage of small businesses will still be in business two, four, six, and ten years after starting?

Back 8

One third, 50%, 62% and 82% of small businesses will have failed within 2, 4, 6, and 10 years after starting.

Front 9

How do management shortcomings, inadequate financing, and government regulation make small businesses more likely to fail?

Back 9

Founders of new businesses often lack the business expertise and experience needed to grow a small business. Inadequate financing pregents small businesses from handling the inevitable cash shortfalls they face and from attracting and keeping talented people. Government regulation burdens small businesses that have limited staff and budgets with expensive, time consuming red tape and paperwork.

Front 10

Describe how the Small Business Administration assists small Business owners.

Back 10

The US SBA helps small business owners obtain financing through programs that guarantee repayment of their bank loans or match small-business owners with potential investors. The SBA also helps women and minority business owners obtain government purchasing contracts. It offers training and information resources, so business owners, can improve their odds of success. Finally, the SBA advocates small-business interests within the federal government.

Front 11

What components should be part of a good business plan?

Back 11

A good business plan contains an executive summary, an introduction, separate finanical and marketing sections, and the resumes of the prinicpals.

Front 12

What are the various ways and methods by which the SAB helps small businesses with financing and getting government contracts?

Back 12

The SBA guarantees business loans, helps small businesses compete for government set-aside programs, and provides business information, advice, and training.

Front 13

Explain how franchising can provide opportunities for both franchisors and franchisees.

Back 13

A franchisor is a company that sells the rights to use its brand name, operating procedures, and other intellectual property to franchisees. Franchising helps business owners expand their companies' operations with limited financial investments. Franchisees, the individuals who buy the right to operate a business using the franchisor's intellectual property, gain a proven business system, brand recognition, and training and other support from the franchisor.

Front 14

Distinguish between a franchisor and a franchisee.

Back 14

Franchisors permit franchisees to use their business name and to sell their business's goods and services. Franchisors also provide franchisees a variety of marketing, management, and other services in return for various fees and a percentage of the franchisee's sales.

Front 15

Name some of the largest franchises.

Back 15

McDonald's Burger King, KFC, Pizza Hut, Taco Bell, Subway, Curves, Quizno's, Jackson Hewitt Tax Services, UPS, Sonic, Jani-king, ReMAX

Front 16

What are the benefits and problems with franchising?

Back 16

Advantages include a prior performance record, a recognizable company name, a business model, that has proven successful in other locations, a tested management program, and business training for the franchisee. On the negative side, franchisee fee payments can be very expensive, the franchisee is linked to the reputation and management of the franchise, and new franchise outlets may compete directly with established franchises.

Front 17

Summarize the 3 basic forms of business ownership and the advantages and disadvantages of each form.

Back 17

A sole proprietorhip is owned and operated by one person. While sole proprietorships are easy to set up and offer great operating flexibility, the owner remains personally liable for all of the firm's debts and legal settlements. IN a partnership, two or more individuals share responsibility for owning and running the business. Partnerships are relatively easy to set up, but they do not offer protection from liability. Also, partnerships may experience problems by the death of a partner or when partners fail to communicate or establish effective working relationships. When a business is set up as a corporation, it becomes a separate legal entity. Investors receive shares of stock in the firm. Owners have no legal and financial liability beyond their individual investments.

Front 18

What are the key differences between sole proprietors, partnerships, and corporations?

Back 18

Sole prorietorships expose their owners to unlimited financial liability from their businesses. Corporations shield businesses from financial liability by separating an organization's assets and liabilities from its business owners' assets and liabilities.

Front 19

Identify the levels of corporate management.

Back 19

Stockholders, or shareholders, own a corporation. IN return for their financial investments, they receive shares of stock in the company. The number of stockholders in a firm can vary widely, depending on whether the firm is privately owned or makes its stock agailable to the public. Shareholders elect the firm's board of directors, the individuals responsible for overall corporate management. The board has legal authority to change or create the firm's policies. A company's officers are the top managers who oversee its operating decisions.

Front 20

What is the role of stockholders, the board of directors, and corporate officers and management?

Back 20

Stockholders acquire shares of stock and become corporate owners. At the annual stockholders' meeting, managers report oin corporate activities and stock holders vote on any decisions that require their approval, including elections of officers. The boardof directors sets overall policy, authorizes major transactions involving the corporation, and hires the chief executive officer (CEO). The CEO and other members of top management make most major corporate decisions and are accountable to the board and shareholders.

Front 21

Identify all the levels of corporate management.

Back 21

The levels of corporate management include top management, middle management, and supervisory management.

Front 22

Describe recent trends in mergers and acquisitions.

Back 22

Typically, 7,000-9,000 corporate mergers and acquisitions occur each year. US corporations are spending record amounts on mergers and acquisitions. These business combinations occur worldwide, and companies often merge with or acquire other companies to aid their operations across national boundaries. Vertical mergers help a firm insure access to adequate raw materials and supplies for production or improve its distributon outlets. Horizontal mergers occur when firms in the same industry join to diversify or offer expanded product lines. Conglomerate mergers cobine unrelated firms, often to help spend cash surpluses that might otherwise make a firm a takeover target.

Front 23

Distinguish between a merger and an acquisition.

Back 23

IN a merger, 2 or more firms combine to form one company. IN an acquisition, one firm purchases the property and assumes the obligations of another. Acquisitions also occur when one firm buys a division or subsidiary from another firm.

Front 24

What are the different kinds of mergers?

Back 24

Mergers can be classified as vertical, horizontal, or conglomerate.

Front 25

What is a joint venture?

Back 25

A joint venture is a partnership between companies formed for a specific undertaking.

Front 26

Differentiate among private ownership, public ownership, and collective ownership (cooperatives).

Back 26

Managers or a group of major stockholders sometimes buy all of a firm's stock The firm then becomes a privately owned company, and its stock is no longer publically trade. Some firms allow workers to buy large blocks of stock, so the employees gain ownership stakes. Municipal, state, and national governments also own and operate some businesses. This public business ownership has declined, however, through a recent trend toward privatization of publicly run organizations. IN a cooperative, individuals or companies band together to collectively operate all or part of an industry's functions. The cooperative's owners control its activities by electing a board of directors from its members. Cooperatives are usually set up to provide for collective ownership of a production, storage, transportation, or marketing organization that is important to an industry.

Front 27

What is private ownership? What is public ownership? What is collective ownership?

Back 27

Most business organizations are owned privately by individuals or groups of people. Public ownership occurs when a government unit or agency owns and operates an organization. In a cooperative, individuals or companies band together to collectively operate all or part of an industry's functions. The cooperative's owners control its activities by electing a board of directors from their members.

Front 28

Where are cooperatives typically found and what benefits do they provide small businesses?

Back 28

Cooperatives are usually set up to provide for collective ownership of a production, storage, transportation, or marketing organization that is important to an industry.

Front 29

Small business

Back 29

firm that is independently owned and iperated, is not dominant in its field, and meets industry specific standards for income or number of employees

Front 30

Business plan

Back 30

written document that provides an orderly statement of a company's goals, the methods of which it intends to achieve those goals, and the standards by which it will measure achievements.

Front 31

Small business administration (SBA)

Back 31

federal agency that aids small businesses by providing management training and consulting, financial assistance, and support in securing government contracts.

Front 32

Business incubator

Back 32

organization that provides temporary low cost, shared facilities to small start-up ventures

Front 33

Franchising

Back 33

contractual agreement that specifies the methods by which a dealer can produce and market a supplier's good or service.

Front 34

sole proprietorship

Back 34

form of business ownership in which the company is owned and operated by one person

Front 35

partnership

Back 35

form of business ownership in which the company is operated by 2 or more people who are co-owners by voluntary legal agreement.

Front 36

corporation

Back 36

business that stands as a legal entity with assets and liabilities separate from those of its owner(s).

Front 37

stockholder

Back 37

person or organization who owns shares of stock in a corporation

Front 38

board of directors

Back 38

elected governing body of a corporation

Front 39

merger

Back 39

combination of 2 or more firms to form one company

Front 40

acquisition

Back 40

procedure in which one firm purchases the property and assumes the obligations of another.

Front 41

Home-based business

Back 41

firms operated from the residence of the business owner

Front 42

microloans

Back 42

given by the SBA up to 35,000 startup for small businesses. Microloans may be used to buy equipment or operate a business but not to byt real estate or pay off other loans.

Front 43

Small Business Investment Companies SBICs

Back 43

Small-business loans are also available through SBA-lisenced organizations called SBICs which are run by experienced venture capitalists

Front 44

set-aside programs

Back 44

up to 23 percent of certain gov contracts are designated for small businesses.

Front 45

franchisee

Back 45

the individual or business firm purchasing the franchise is called the franchisee

Front 46

franchisor

Back 46

the small business owner who contracts to sell the good or service or the supplier is called the franchisor.

Front 47

S corporations

Back 47

Businesses that meet certain size requirements, including ownership by no more than 75 shareholders, may organize as S corporations, also called subchapter S corporations. These firms can elect to pay federal income taxes as partnerships while retaining the liability limitations of typical corporations and thus are only taxed once.

Front 48

limited liability companies (LLCs)

Back 48

secure the corporate advantage of limited liability while avoiding the double taxation characteristic of corporations.

Front 49

Domestic corporation

Back 49

A firm in the state whre it is incorporated

Front 50

Foreign corporation

Back 50

company that does business in states other than the one where it has filled incorporation papers

Front 51

Alien corporation

Back 51

A firm incorporated in one nation that operates in another

Front 52

corporate charter

Back 52

a legal document that formally establishes a corporation.

Front 53

preferred stock

Back 53

owners of this stock have limited voting rights, but are entitled to receie dividends before common-stock holders. If the corp is dissolved they have first claims on assets once debtors are repaid.

Front 54

Common stock

Back 54

Voting rights however they have only residual claims on the firms assets which means they are the last to receive any income distributions.

Front 55

Employee ownership

Back 55

Workers buy shares of stock in the company that employs them.

Front 56

not-for-profit corporations

Back 56

firms pursuing objectives other than returning profits to owners

Front 57

vertical merger

Back 57

combines firms operating at different levels in the production and marketing. Pursues one of 2 goals. 1) ensure adequate flows of raw materials and supplies needed for a firm's products, or 2) to increase distribution

Front 58

Horizontal merger

Back 58

joins firms in the same industry that wish to diversify, increase their customer bases, cut costs, or offer expanded product lines.

Front 59

Conglomerate merger

Back 59

combines unrelated firms. THe most common reasons for a conglomerate merger are to diversity, spur sales growth, or spend a chas surplus that might otherwise make the firm a tempting target for a takeover effort.`

Front 60

A joint venture

Back 60

is a partnership between companies formed for a specific undertaking.

Front 61

public ownership

Back 61

a unit of agency of gov owns and operates an organization

Front 62

cooperative

Back 62

owners join forces to collectively operate all or part of the cunctions in their industry