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MCQS of each chapter

Contents
Chapter 1: The Foundations of Entrepreneurship

Self-Study Quiz...........................2

Chapter 2: Inside the Entrepreneurial Mind: From Ideas to Reality

Self-Study Quiz 4

Chapter 3: Designing a Competitive Business Model and Building a Solid Strategic


Plan Self-Study Quiz................................................................................................ 7
Chapter 4: Conducting a Feasibility Analysis and Crafting a Winning Business Plan
Self-Study Quiz........................................................................................................... 9
Chapter 5: Form of ownership..................................................................................12
Chapter 6 : Franchising and entrepreneurship.........................................................15
Chapter 7: Buying an existing business....................................................................18
Chapter 8: Guerilla marketing strategies..................................................................21
Chapter 9: E-Commerce and entrepreneur...............................................................24
Chapter 10: Pricing strategies..................................................................................27
Chapter 11: Creating a successful financial plan.....................................................29
Chapter 12: Managing cash flow.............................................................................. 32
Chapter 13: Source of financing............................................................................... 35
Chapter 14: Choosing the right location...................................................................38
Chapter 15: Global Aspects of entrepreneurship......................................................40
Chapter 16: Building a new venture team and planning for next generation...........43

Each activity contains 10 questions.

Chapter 1: The Foundations of Entrepreneurship


Study Quiz

Self-

Question 1.
Entrepreneurial activity is essential to a strong economy and a recent GEM study
noted that entrepreneurs are most likely to launch their businesses between the
ages of:
2359
1935
3544
3049
2544
Question 2.
Economies that were state controlled and centrally planned are now fertile for
growing small businesses. The countries being part of this group include the
following EXCEPT:
Canada
China
Eastern European countries
Russia
Vietnam
Question 3.
Which of the following is NOT a common profile characteristic of a typical
entrepreneur?
Enjoy managing people
Deep sense of responsibility
High level of optimism and self confidence
Calculated risk taker
More energetic than the average person
Question 4.

The benefits of entrepreneurship include the following EXCEPT:


Opportunity to create your own destiny
Opportunity to take significant risk with other's money
Opportunity to contribute to society
Opportunity to make a difference
Opportunity to reach your full potential
Question 5.
Which of the following is a commonly experienced drawback to being an
entrepreneur?
Lack of creativity and innovation
Lack of vacation
Long hours required
Ability to earn a large income
Lack of contribution to society
Question 6.
What factors and forces are encouraging the current trend in entrepreneurial
activity?
Availability of various franchises
Ability to acquire investors
Low entry investment to start a business
Cooperation of government with tax incentives
Growing number of colleges and students involved with entrepreneurial studies
Question 7.
Home-based businesses are increasing at a significant rate. Which one of the
following is NOT a factor in the home being the first choice location?
Flexible lifestyle
Less inventory of product required
Minimal start-up and operating costs
Technology increases flexibility in type of business
Use of Internet for e-businesses
Question 8.

Small business creates 60 percent to 80 percent of all new jobs in the United States.
The majority of these businesses are involved in what type of industry?
Construction
Manufacturing
Food
Service and Retail Industries
Financial
Question 9.
Ways to avoid becoming a failure statistic includes the following EXCEPT:
Create a competitive edge
Borrow the total investment needed
Have a passion
Have adequate startup capital
Understand the company's financial statements
Question 10.
Setting your business apart from the competition can include ______, _____, _____,
and ______.
customer service; convenience; speed; quality
give away samples; low rent location; high volume traffic; quality
customer service; taking credit cards; low inventory; speed
inventory; increase credit availability; close store early; lack of focus on customer
service
low payroll; convenience; uniforms; appointments

Chapter 2: Inside the Entrepreneurial Mind: From Ideas to


Reality Self-Study Quiz
What is the basic difference between creativity and innovation?
Creativity means coming up with a new product; innovation means coming up with
a new process.
Creativity is a more mentally straining exercise; innovation just comes naturally.

Creativity is having a new idea on how to look at a problem or opportunity, while


innovation is the ability to apply the creative idea.
Creativity is where the real money is made; innovations just usually stay in the lab.
Creativity is the same thing as innovation, except creativity refers to ideas outside
the business realm.
Question 2.
Why are creativity and innovation so critical to an entrepreneurs' survival?
Creativity and innovation allow small companies with limited resources to compete
with larger competitors.
Creativity and innovation keeps entrepreneurs focused on the initial business
development period.
Creativity and innovation help entrepreneurs to replicate current products on the
market.
Creativity and innovation can substitute for a shaky business model.
Creativity and innovation help the entrepreneur to secure financing for start-up
capital.
Question 3.
Entrepreneurs require what side of the brain to help them meet the requirements
for success?
Left side
Right side
Both right and left sides
Neither right or left sides
The brain is not an important ingredient
Question 4.
Potential barriers to creativity are limitless. Which one of those listed below is NOT a
barrier?
Logical thinking
Fearing failure
Ambiguity
Following the rules
Being practical with a solution
Question 5.

Which of the following is a method for enhancing organizational creativity?


Initiate a controlling structure within the organization
Maintain the same location or scenery
Encourage curiosity among your employees
View issues as potential problems
Provide no support for creativity
Question 6.
Enhancing creativity includes the following EXCEPT:
Do something different everyday
Lay off those who aren't creative
Borrow ideas from others not involved with your industry
Develop an understanding of mistakes made
Listen to others outside the organization
Question 7.
What is one of the best ways to generate creative thinking while you are on the job?
Don't gain a formal education
Don't gain a total understanding of the problem
Don't think convergently and divergently
Don't schedule every minute of the day
Don't use simulations
Question 8.
Which of the following shows the proper order of select steps in the creative
process?
Preparation, implementation, verification, illumination
Preparation, verification, implementation, illumination
Verification, preparation, implementation, illumination
Preparation, illumination, verification, implementation
Preparation, implementation, illumination, verification
Question 9.

What is a good recommendation for forming and conducting a brainstorming


session?
Throw logic out the window
Distinguish good ideas from bad ideas during the session
Create an all-day retreat for the session
Restrict the guest list to only top management
Allow employees to prepare for the session ahead of time
Question 10.
Music writers would need to protect their songs by filing for which type of
intellectual property protection?
A patent
A trademark
A copyright
A trade secret
A service mark

Chapter 3: Designing a Competitive Business Model and


Building a Solid Strategic Plan Self-Study Quiz
Question 1.
Which of the following are types of intellectual capital?
Financial capital, land capital, and labor capital
Human capital, creativity capital, and innovation capital
Human resources capital, economic capital, and creativity capital
Intelligence capital, innovation capital, and creativity capital
Human capital, structural capital, and customer capital
Question 2.
Which answer is NOT a competitive advantage?
A set of factors that gives a business a unique, superior position in the marketplace
Maintain a positive net profit margin
Create an image based on the lowest price
Identify unique benefits of your products

Produce reliable products


Question 3.
How can an entrepreneurial venture develop a sustainable competitive advantage?
By consistently offering lower prices on goods than its rivals
By developing core competencies that help it serve its customers better than its
rivals
By offering more product selection than its rivals
By advertising in more media than its rivals
By having later business hours than its rivals
Question 4.
Which of the following is NOT a good recommendation for approaching strategic
management within a small business?
Stick to the established strategic plan, no matter what changes may occur in the
environment.
Use a relatively short planning horizon - two years or less.
Create a process that is informal and not overly structured.
Refrain from creating too many objectives in the beginning.
Make strategic thinking an ongoing process.
Question 5.
Which of the following is the best process for a portion of the strategic management
process?
Analyze competition, scan the environment, establish controls
Develop a clear vision, assess strengths and weaknesses, scan environment for
opportunities
Establish controls, create goals and objectives, identify key factors
Formulate strategic options, analyze the competition, create goals and objectives
Analyze competition, create goals and objectives, establish controls
Question 6.
Which is NOT an important ingredient for a mission statement?
Never change your mission statement
Get a number of people involved

Know what differentiates your organization


Reflect values and beliefs
Link statement with the future
Question 7.
What are the differences between goals and objectives?
Goals are where you want your company to arrive; objectives are how you will get
there.
Goals are for top management to use; objectives are for front-line management to
use.
Goals are more long-range than objectives.
Goals are broad in scope; objectives are specific and measurable.
Goals are not linked to monetary rewards; objectives are reinforced through
monetary rewards.
Question 8.
Which is the best strategy to use in an environment wherein sellers are trying to
differentiate themselves from the competition?
Do not focus on the customer
Increase price without improving the product
Focus on profit margins
Build customer loyalty
Produce products for many categories
Question 9.
When beginning the implementation phase of strategic management, the plan
should be divided into projects. Each project should be defined by ________.
The purpose of the project
The areas of the company to be involved
The project's contribution to the strategic plan
The resources needed to complete the project successfully
All of the above
Question 10.
Which is NOT a perspective to consider in using a balanced scorecard for
performance?

Meeting responsibility to society


Financial standards do not contribute to the overall review of a strategy
Continue to innovate
Goals for productivity and cycle time
Goals for durability, service, and reliability

Chapter 4: Conducting a Feasibility Analysis and Crafting


a Winning Business Plan Self-Study Quiz
The feasibility analysis helps you to discern whether you will be able to gather
enough capital to start the business.
The feasibility analysis will allow you to qualify for governmental loan programs.
The feasibility analysis helps you to determine whether your idea is a viable
foundation for a successful business.
The feasibility analysis allows you to know which firm will be best to use for
manufacturing your prototype.
The feasibility analysis determines whether there are governmental constraints that
will not allow you to start your business.
Question 2.
The five forces model ________.
helps an entrepreneur gauge the overall attractiveness of an industry
was originally designed to meet the needs of horse breeders to determine which of
their horses to keep and which to sell
has been replaced since with the nine forces model
can be used to gauge which competitor has the strongest position in the
marketplace
allows for an understanding of the political-legal, sociocultural, economic,
technological, and global forces surrounding a firm
Question 3.
Which of the following conditions would make an industry more threatening to new
entrants?
Less presence of economies of scale
High capital requirements
Buyers with low brand loyalty
Laissez-faire governmental policies in the market

Few competitors within the industry


Question 4.
Which of the following, primary research or secondary research, is considered to be
more important in a feasibility analysis?
Secondary research
Primary research
Both primary research and secondary research
Neither has a large impact on a feasibility analysis
Feasibility analysis is over rated
Question 5.
A sound financial feasibility analysis includes a thorough investigation of ________.
market demand, product awareness, and monthly budgetary data
start-up capital requirements, estimated earnings, and return on investment
interest rates, angel investor interest, and monthly budgetary data
competitor earnings, interest rate data, and estimated earnings
previous years' earnings, estimated earnings, and monthly budgetary data
Question 6.
Why is it important to develop a business plan?
The business plan will be required by the landlord should you choose to lease office
space.
The presence of a business plan virtually guarantees business success upon startup.
The business plan will allow your employees to know what they are supposed to do
on a daily basis.
The business plan will help you chart out the company's course of action and devise
a strategy for success.
The business plan will guarantee the awarding of a Small Business Administrationbacked loan to your business.
Question 7.
Which of the following is true of the executive summary of a business plan?
Executive summaries should contain brief information about the firm's business
model, its target markets, its founding team, and its financial highlights.

Executive summaries should appear first, but should be written after the rest of the
business plan.
Executive summaries should be at least 5 pages long and provide information about
the strategy of the firm.
Executive summaries should contain information about the pricing and cost
structure of the firm.
A and B are true.
Question 8.
When describing your firm's marketing strategy, which of the following is NOT a
factor in defining your target market?
Describing where potential customers live and work
Estimating the ages, income level, and other pertinent demographics
Estimating the number of goods that each customer would buy
Understanding needs and wants
Determining the basis of differentiation in the minds of the target market
Question 9.
What financial statements are necessary to include in a business plan for either an
existing business or startup?
Monthly sales forecast, income statement, balance sheet
Balance sheet, operating ratio statement, break even statement
Balance sheet, cash flow statement, sales statement
Ratio analysis, balance sheet, income statement
Balance sheet, income statement, cash flow statement
Question 10.
When delivering a business plan presentation to investors and creditors, it is a good
idea to ________.
be as detailed as possible, covering all of the points of the business plan
keep it simple and use visual aids
use technical terminology to emphasize your knowledge of the industry
improvise as you present your speech to emphasize your personality
allow all of the founders of the business an opportunity to present their
contributions to the venture

Chapter 5: Form of ownership


In general, what would cause a business owner to select one form of ownership over
another?
Image within the community
Tax, liability, and how big and profitable
Industry membership
Pressure from the business owner's advisory board
State governmental policy that dictates what forms are legal
Question 2.
What is a major advantage of a sole proprietorship?
A proprietorship can be started, for most entrepreneurs, in a single day.
A proprietorship protects the owner, should a disgruntled customer attempt to sue
for damages.
A proprietorship requires approval from government agencies to cease operations.
A proprietorship is more attractive from potential investors' perspective.
A proprietorship is looked upon more favorably, credit-wise, by lending institutions.
Question 3.
Why do partnership agreements exist?
Partnership agreements detail the income requirements of each partner as an
employee and are negotiated before the business starts.
Partnership agreements exist to establish that both partners have put the same
amount of effort and capital into the new venture.
Partnership agreements show the willingness of each partner to absorb the other
partner's share of liabilities, should the other partner become financially insolvent.
Partnership agreements exist to lay out the structure for a successful organization
and to protect each partner's interest.
Partnership agreements are required by state governments as evidence that each
partner willingly and knowingly entered the partnership.
Question 4.
What is one advantage of a partnership over a proprietorship?
A partnership is easier to establish than a sole proprietorship.
A partnership allows for more control over decision-making than a proprietorship.

A partnership allows for limited liability among its general partners.


A partnership allows for each partner's skills and abilities to complement each
other, whereas a sole proprietor is responsible for all functions.
A partnership is guaranteed more profit than a proprietorship.
Question 5.
The _____ legal structure allows investors to limit their liability to their personal
investment in the business.
Partnership
LLP
Corporation
Proprietorship
Partnership and LLC
Question 6.
What is this meaning of the phrase "piercing the corporate veil"?
Competitors occasionally come into your business and act as customers to elicit
competitive information.
Entrepreneurs occasionally see the benefits of sole proprietorship over corporate
structure.
Courts will sometimes overturn the granting of a corporate legal structure to a new
venture.
Entrepreneurs sometimes gain access to secret documents of their competitors.
Courts sometimes hold entrepreneurs personally liable for claims against the
corporations because they co-mingle personal and corporate assets.
Question 7.
In which of the following legal organization forms is ownership the most easily
transferable?
The corporation
The general partnership
The limited liability partnership (LLP)
The structured partnership (SP)
The proprietorship
Question 8.

What is a major advantage of the S corporation over the corporation or C


corporation?
The S corporation may be publicly traded, and a C corporation may not.
The profits of an S corporation are passed through to the owners' personal income
taxes and are thus taxed only once.
The S corporation offers limited liability of its owners, limited to their personal
investment in the business, whereas a C corporation does not.
The S corporation allows for unlimited numbers of owners; a C corporation only
allows for up to 75 owners.
Ownership in an S corporation may be handed down through inheritance, whereas
ownership in a C corporation may not.
Question 9.
If an S corporation's owners choose to reinvest the company's net income back into
the business, ________.
the owners will not have to pay income taxes on that portion
the S corporation will have to pay income tax on that portion
the owners will have to pay income tax on that portion, regardless of the fact that
they did not receive the income
the S corporation will not have to pay sales tax on that portion
the organization will compensate the owners later in the next year for the money
owed them
Question 10.
Choosing an S corporation as a legal form is generally wise when ________.
the entrepreneur wants to "go public" by offering an IPO in the next five years
the organization wishes to do charity work as a nonprofit
the founding team of entrepreneurs wants to divide the profits variably according to
the amount of effort each has put into the venture
the business expects to see profits shortly after opening
the entrepreneur expects losses that can offset personal income in the first few
years of operation

Chapter 6 : Franchising and entrepreneurship


Which of the following is an accurate description of a franchise system?
A franchise system is one in which a parent company purchases hundreds of smaller
companies, often started by entrepreneurs.

A franchise system is a scheme in which an individual at the top of a hierarchical


structure makes an income from residuals of the commissions of those beneath him.
In a franchise system, a semi-independent owner pays fees and royalties to a parent
company for the right to sell its products and/or services.
A franchise system is one in which the parent company builds many different
locations of an original successful business.
A franchise system is one in which an original company decides to open hundreds of
international locations.
Question 2.
________ is where the franchisee purchases the right to use all of the elements of a
fully integrated business operation.
Pure franchising
Segment franchising
Trademark franchising
Multiple franchising
Product distribution franchising

Question 3.
Why is the purchase of a franchise sometimes considered to be a better option than
starting a business independently, from scratch?
The upfront costs are lower for the rights to a franchise than they are for a new
independent business.
The franchiser will absorb the first few years' losses as a part of the services
provided.
The franchisee receives a business system, training, support, advice, and brand
recognition that an independent entrepreneur would not receive.
The franchisee receives a portion of the profits of the parent company, whereas the
independent entrepreneur would not.
The franchiser will come into the franchisee's company and operate it until it
becomes profitable, which would never be an option for the independent
entrepreneur.
Question 4.
Since franchises are so widespread, often nationally and internationally
interspersed, how is advertising handled between the franchiser and franchisee?

The franchiser does all of the marketing for the franchisee, in return for royalties.
The franchisee pays the franchiser to arrange for all of the advertising that is to be
performed.
The franchiser puts national ads in the papers and on the television, and anything
else is up to the franchisee.
The franchisee pays a marketing fee to support company-wide advertising, and is
also often required to spend a predetermined amount on advertising in the local
market to support her location.
There is no prevalent pattern for how advertising is conducted within a franchise
system. It varies from franchise to franchise.
Question 5.
Which of the following is NOT considered to increase the success rate of franchisees
when included by the franchise, as noted in a recent survey.
Requires prior industry experience
A strong brand name
No absentee ownership
Offers training programs to improve knowledge and skills
Provides financial assistance

Question 6.
Where can an entrepreneur find the most accurate information about the total cost
of opening a certain franchise?
In the local newspaper
Franchise Disclosure Document
On the parent company's web site
From other entrepreneurs that have opened the franchise
From the government offices of the state wherein the parent company has
incorporated
Question 7.
The following are all factors to consider whether you are franchise material.
Patience
General business skills

People skills
Leadership ability
All of the above
Question 8.
Which of the following is a factor that can signal that a franchiser does NOT have
underlying issues?
Reassurance that there is no need to read the contract - his word is as strong as oak
Reassurance that there is no need to go to the expense of hiring an attorney - her
attorney will help you through the confusing parts
Promises that you will earn your required rate of return, without documentation of
this outcome from other locations
A low franchisee turnover rate
Presentation of a one-time only, sign-today discount on franchise fees
Question 9.
Which of the following characteristics would suggest that a franchise might prove to
be a good business opportunity?
The franchise's business concept has already been proven by a number of
established competitors in the marketplace offering the same product.
The franchise offers a hot, trendy product that is unproven in the market.
The franchise is so new that it has not been covered by the media, and thus you will
be one of the first franchisees in the nation.
Favorable information from past franchisees
The franchise turnover rate is around 25%.
Question 10.
What current trends are impacting franchising?
Multiple units
International potential
Master franchising
Smaller non-traditional locations
All of the above

Chapter 7: Buying an existing business


Question 1.

Why might buying an existing business be advantageous to starting a new


business?
Even an existing business with a negative image will have a better chance at
success than a new business with no image.
An existing business will have a better product concept than a new business.
An existing business can more easily adjust to the owner's values than a new
business.
An existing business already has an established base of customers, employees, and
suppliers.
An existing business will have tax exemptions that a startup will not have.
Question 2.
What are some of the hidden dangers inherent in the purchase of an existing
business?
Outdated inventory
A previous owner may have angered suppliers.
There may be a developing problem with the location of the business.
A and B are correct.
All of the above are correct.

Question 3.
To acquire a business, the following steps require consideration.
Consider financing options
Consider skills and interests
Consider potential opportunities
Investigate potential candidates
All of the above
Question 4.
The first step in buying a business is ________.
searching the market for a profitable business for sale
conducting a self-audit to determine the ideal business type for you

narrowing the list of businesses down to those in the best locations


talking to local bankers about businesses that may be for sale
looking on the Web for local businesses for sale
Question 5.
What are some of the easiest ways for easing the transition from the previous
owner to the new owner of an acquired business?
Be honest with employees about the changes to come.
Shake things up by laying-off the lowest-performing ten percent of your employee
pool.
Keep your ideas for change to yourself for the first few months.
Keep to your initial schedule for any changes you were going to make. Employees
will protest, but remember, you are the boss.
Make the changes yourself - involving the previous owner in changes just
complicates things.
Question 6.
What does the term due diligence refer to?
The returns that the owner begins to see that are a part of his hard work after
purchasing an existing business
The hard work that the owner has to devote to turn around a newly purchased,
struggling business
The questioning that a previous owner will impose upon the new owner to ensure
that his values will be carried on through the sale of the business
The process an owner goes through to be qualified for a loan to purchase an
existing business
The investigation process that a new owner goes through to determine the
strengths, weaknesses, opportunities, and threats facing the existing business
Question 7.
Why do most owners want to sell their existing businesses?
They are retiring and moving.
They are failing as business owners.
They want to cash out their personal investment in the business and use it to
diversify into other types of assets.
They are tired of working in their business and want to go back to the corporate life.

They are in legal trouble and are looking to run.


Question 8.
What is the benefit of a bulk transfer?
A bulk transfer helps to lower the price of goods purchased from a supplier.
A bulk transfer protects the assets a buyer purchased with the business against
creditor claims to satisfy previous owner's business debts.
A bulk transfer allows for a one day turnover of the business from the previous
owner to the new owner.
A bulk transfer allows for the relocation of employees from the previous location to
the new location of the business.
A bulk transfer allows the new business owner to go back and sue the previous
owner if any new liability is discovered.
Question 9.
Why is it a good idea to make adjustments to the typical balance sheet technique of
valuing a business, wherein liabilities are subtracted from assets?
The unadjusted method will not prove useful if a business's liabilities outscore its
assets.
Balance sheets are usually only available for the last year, and are therefore
inaccurate representations of what has occurred in the business this year.
Most business owners are not honest on their balance sheets, so their figures are
meaningless.
It is important to consider balance sheet increases or decreases in market value
determined by undervalued real estate or overvalued inventory.
The balance sheet will not include valuable credit that the owner has established
with suppliers.
Question 10.
Why do earnings-based approaches to valuing a business more accurately capture
the value of the business to the purchaser than balance sheet-based approaches?
Balance sheet-based approaches are past-oriented, and earnings-based approaches
look to the future potential of the business.
Balance sheet approaches are too mathematical; earnings-based approaches are
qualitative and descriptive.
Balance sheet approaches allow for too much adjustment on behalf of the
evaluator; earnings-based approaches are more exact.

Balance sheet approaches are not precise, being as figures on the balance sheet are
only estimates. Future earnings are more precise figures.
Earnings-based approaches to calculating the value of an existing business
mathematically incorporate important considerations such as opportunity cost and
future earnings potential.

Chapter 8: Guerilla marketing strategies


Question 1.
What are guerilla marketing strategies?
Guerilla marketing strategies are those pursued by entrepreneurs who dress in
primate costumes and motion customers into their store.
Guerilla marketing strategies are unconventional, low-cost, creative marketing
techniques pursued by entrepreneurs.
Guerilla marketing strategies are techniques that absorb all or most of a company's
marketing budget but that prove to be extremely beneficial.
Guerilla marketing strategies are used by large organizations to outpace the
smaller, new entrant entrepreneur competition.
Guerilla marketing strategies are strategies that may or may not attract the target
market, but are thrown out to the entire population to see who is attracted.
Question 2.
Which of the following is agreed upon by most marketing experts as the biggest
marketing mistake that small businesses make?
Carving out too narrow of a target niche
Spending too much on media advertising
Failing to come up with a memorable jingle for their advertising
Spending too much on marketing during the first year
Failing to clearly define the target market to be served
Question 3.
Why is market research so important for an entrepreneur?
It allows the entrepreneur's family to understand that he or she has put preparation
into the business before starting it.
It tests the entrepreneur's ability to stick to his idea, regardless of information that
tells the entrepreneur not to move forward.
It helps the entrepreneur to determine how to improve the current level of
satisfaction and find ways to attract new customers.

It gives the entrepreneur a head start on developing relationships later in the


business's development.
It gives the entrepreneur information on how much it will cost to start the business.
Question 4.
How can individualized marketing help a small company?
Affordable technology can assist an entrepreneur in gathering individuals'
information to develop a tailored marketing program for them.
The entrepreneur can use an individual's information to court its customers with
appealing special offers and products.
The small company can gather individuals' information and then sell it off to larger
businesses for a second stream of revenue.
Individualized marketing can allow for a variable price structure according to what
each customer is willing to pay.
Individualized marketing can allow for the entrepreneur to act like a different
business for each individual customer that comes along.
Question 5.
Which of the following would be a rigorous method of collecting primary data for
market research?
Looking at census data
Direct mail list purging
Reviewing industry consultant reports
Distributing customer surveys and questionnaires
Reading articles on customers in your industry

Question 6.
What types of marketing tactics work well for smaller businesses?
Competing based upon price
Dressing in crazy outfits and standing in traffic
Spending large amounts on television advertising
Focusing on the individualized needs of their customers
Piggybacking on the ads run by larger, related organizations

Question 7.
What is a unique selling point (USP)?
A short phrase that expresses what the business can do uniquely for its customers
A postal service organization that delivers packages
A public statement that reveals that the company is for sale
A price point that is agreed upon by customers and sellers
A phrase that describes how the business will sell its products
Question 8.
What is one competitive edge that small businesses can excel at, because of their
size?
Lower pricing strategies
Higher advertising spending
Innovation
Supplier relationships
Market research gathering
Question 9.
Time compression management includes the following principles EXCEPT:
Speed in which products are brought to market
Shortening customer response time in manufacturing
Reducing administrative time to fill an order
Shortening customer response time in delivery
Payment flexibility

Question 10.
What is the marketing mix?
The right mix of advertising and pricing to attract your target market
The major elements of a marketing strategy - product, place, price, and promotion
The mixture of advertising and public relations efforts that best suits your target
market
The set of decisions that must be made before deciding upon which target market
to address

The way that your customer sees themselves in the mixture of your entire
marketplace

Chapter 9: E-Commerce and entrepreneur


Business owners need to consider which of the following issues before launching an
e-commerce effort?
Methodology to exploit interconnectivity and the opportunities to transform
relationships with all stakeholders
A plan for integrating the Web into the overall strategy
How to give customers a reason to come back
Create a meaningful presence on the web
All of the above
Question 2.
The ten myths of E-commerce include the following EXCEPT:
Online customers are easy to please
Build the site and customers will come
Privacy is an important issue on the web
Customer service is not as important as in traditional establishments
Too late to get on the web
Question 3.
In E-commerce, what type of market is best to focus on?
Niche market
Mass Market
Delivery method market
A and B
None of the above
Question 4.
Which of the following is a good method to use to attract potential customers to
your web site?
Hijacking customers away from the sites they are really attempting to visit
Sending out mass emails to customers

Giving away something "free," such as information, in addition to the goods that
you sell on your site
Choosing a URL address that is similar to a competitor's address, in hopes that
customers will be confused or mistaken
Advertising through a pop-up window that will not close without deliberate
consumer effort
Question 5.
Small business opportunities to connect with customers online include?
RSS
Widgets
Phone
A and B
All of the above
Question 6.
What are the three types of search engine results?
Natural listings, categorical listings, and industry listings
Industry listings, product listings, and alphabetical listings
Alphabetical listings, geographic listings, and industry listings
Natural listings, alphabetical listings, and paid listings
Natural listings, paid listings, and paid inclusion
Question 7.
What elements should an entrepreneur incorporate into her business's web site?
Lists of product lines that make sense to the entrepreneur
Aesthetics and design that capture the personality of the entrepreneur
Text describing in detail and at length the items the customer is purchasing
An easy-to-remember URL
Elaborate, high-definition graphic displays and frames
Question 8.
What does the term "bounce rate" mean when it refers to e-commerce?
The number of times a customer clicks on an advertisement
The number of stores a customer visits each time she gets onto the Internet

The amount of time that has passed since the customer last purchased an item on
the Internet
The amount of time that has passed since the customer last logged onto the
Internet
The percentage of visitors to a company's web site who view a single page and
leave without viewing other pages
Question 9.
What does conversion rate do for Internet merchants?
It looks at what sites individuals visited most over a day's time across the Internet.
It measures the proportion of visitors who actually make a purchase.
It does a quick credit report on the customer to gauge whether the customer's
transaction may be fraudulent.
It filters the blog for a given time period to determine what topics are most
important to site visitors.
It looks through the visitors' web browser history to determine if the visitor has gone
to a competitor's site.
Question 10.
How can an e-commerce small business protect itself from credit card fraud?
By verifying the purchase by asking for the 3-digit card verification value on the
back of the card
By setting up an inexpensive firewall
By offering high-end goods that no thief would attempt to purchase
By requiring the customer to send in a copy of the card and their driver's license
before being added to a customer list
By asking for the customer's checking account information as well as credit card
information

Chapter 10: Pricing strategies


Question 1.
The correct price of a company's product or service is ________.

a measure of the entrepreneur's costs and sales taxes on a good or service


less important to the customer than reductions in fixed or variable cost levels

a measure of what the customer must give up to obtain a good or service


similar across all target customers
the result of a simple mathematical equation
Question 2.
Why may demand remain low when a product is priced low?
because lower prices often convey to a customer that a product is of lower value
and lower quality
because customers enjoy using more of their disposable income to buy a similar
good
because customers get a tax break from buying the higher priced good
because stores will not carry the lower priced goods
because competitors will use the low price to lure customers away
Question 3.
Which of the following is NOT a point of reference that consumers often use when
evaluating the fairness of a price?
The price they would charge if they were the entrepreneur
The price they have paid in the past for a product or service
The prices competitors charge for the same or similar products or services
The costs a company incurs to provide the product or service
The value they receive from the product
Question 4.
A market penetration pricing strategy is most appropriate to use when ________.
the company can clearly differentiate its products from competitors' offerings
the entrepreneur is trying to convey his product's clear superiority to competitors
it is difficult to differentiate your new product from other similar offerings in the
marketplace
the product is revolutionary and there is little competition
the consumer is willing to pay a premium for extra attention to detail
Question 5.
How can price lining help to generate sales?
Price lining helps to add an extra profit margin cushion from the higher price level.

Price lining complicates making goods available to a wide range of shoppers.


Price lining allows the customer to know what your competitors are charging for a
similar product.
Price lining allows the entrepreneur to capture many target markets with different
needs and income levels.
Price lining appeals to customers because the odd-priced product seems much
cheaper to them than a product priced at the higher even dollar level.
Question 6.
Why is a flexible markup preferred to a standard markup for products and services?
Because flexible markup allows for price increases in times of increased
manufacturing costs
Because the demand for products and services responds differently to price markup,
depending on the product type
Because standard markup can easily be discovered by wary customers
Because flexible markup allows the entrepreneur to negotiate pricing with
customers
Because standard markup does not take into account the overhead that the firm
incurs
Question 7.
What is the difference between absorption costing and variable costing?
Absorption costing does not include fixed costs in the costing of each manufactured
item.
Absorption costing allows the entrepreneur to envision the effects of increases in
supply costs.
Variable costing allows the entrepreneur to determine how costs would increase if
product levels decline.
Absorption costing allows the entrepreneur to determine the direct effects of
increases or decreases in volume on the cost of the product.
In a variable costing structure, the fixed or overhead costs of the period are not
included in the costs of finished items.
Question 8.
What is the firm's contribution margin for a product or service?
The amount remaining after variable costs have been taken from total revenues
that is left to cover profit and fixed costs

The amount that is left after variable and fixed costs have been taken from total
revenues to serve as profit
The amount that is left after variable and fixed costs have been taken from total
revenue to contribute to community causes
The amount that is left after variable costs, taxes, and interest have been taken out
of total revenues
The amount that is left after fixed costs have been taken from total revenue, that
may be allocated among the total number of units sold
Question 9.
Which of the following best represents the pricing equation for a break-even pricing
strategy?
Selling Price = Contribution Margin * Quantity Produced
Selling Price = Customer's Preferred Price - Desired Profit per Item
Selling Price = Variable Cost per Item + Fixed Costs
Selling Price = ((Variable costs Quantity Produced) + Total Fixed Costs))/Quantity
Produced
Selling Price = Variable Costs + Quantity Produced
Question 10.
In the United States, credit card users typically spend ____ % more than if they used
cash.
10
20
12
16
0

Chapter 11: Creating a successful financial plan


Question 1.
What information does a balance sheet provide to an entrepreneur?
It provides owners with an estimate of the company's worth on a given date.
It provides owners with information on how profitable the company is.
It shows owners what the company needs in terms of cash for the remainder of the
period.

It tells owners which products are selling more than others.


It allows owners to understand whether they need to bring in new investors to the
business.
Question 2.
What is the firm's gross profit?
Gross profit is the excess of revenues over total expenses.
Gross profit is the amount left after cost of goods sold have been taken from net
sales revenue.
Gross profit is the amount of income that is taxable at the end of the year.
Gross profit is the amount that can be dispensed to shareholders.
Gross profit is the amount of income remaining after interest, taxes, depreciation,
and amortization have been taken out of sales revenue.
Question 3.
________ is the first step to creating a set of pro-forma financial statements.
Determining how many employees will be required for the business
Estimating the expected volume of sales
Determining a reasonable sales level
Researching competitors' cost levels
Listing the various start-up expenses
Question 4.
What information do liquidity ratios provide for the new venture?
Whether the firm is profitable in the short-term
Whether the firm will be able to sell all of its inventory
Whether a small business will be able to meet short term financial obligations
Whether a small business can meet its short-term obligations as they become due
Whether a business's competitors are outperforming it within the marketplace
Question 5.
What are the two most often used liquidity ratios?
Current ratio and profit margin
Inventory and asset turnover ratios
Gross profit and operating margin

Cash dispensary and current ratios


Current and quick ratio
Question 6.
Leverage ratios show ________.

the ability of a firm to use short-term versus long-term debt


the extent to which the company uses debt capital to finance operating expenses,
capital expenditures, and expansion costs
how efficiently assets are used to generate sales for the firm
how well the firm has been able to leverage its image to generate sales
how well the firm is performing in customer opinion relative to competitors
Question 7.
Why is a low average inventory turnover ratio less than ideal?
Because customers will shy away from patronizing companies with low inventory
turnover rates
Because inventory is valuable and could be converted immediately instead to cash
Because inventory turnover shows that a company's products are not valuable in
their current form
Because inventory cannot be sold without extra taxes
Because inventory is expensive to store and may not necessarily have value in the
market
Question 8.
What is the point of profitability ratios?
The point at which the firm begins to operate profitably and has recovered its
startup costs
The point at which the firm has to go to a bank to secure financing for a second
stage of growth
The success of the firm in using its available resources to generate a profit
The point at which the firm has earned enough to pay off its initial debt incurred
upon startup
The point at which the firm has acquired all of the plant, property, and equipment it
needs to being production
Question 9.

What are a firm's critical numbers?


The sales volume required to stay in business
The identification numbers that are used for tax and industry classification purposes
The measures that are most important on the income statement and balance sheet
Image ratings averaged for the firm across its customer bases
Unique measures of key financial and operating aspects of a company's
performance
Question 10.
What information does the break-even point provide?
The amount of sales volume that must be sold to recoup start-up expenses
The minimum sales volume required to stay in business for the long term
The minimum sales volume that is required to cover payroll for the period
The minimum sales volume that allows the firm to surpass its competitors in
revenue
The minimum sales volume that is required to cover fixed expenses

Chapter 12: Managing cash flow


Question 1.
What is a company's cash flow cycle?
The amount of cash that the company goes through in an average month.
The amount of time between the start of the business and the point at which it can
support its needs through sales generated.
The period between the receipt of cash from a customer and the outflow of that
cash to support the development of another unit.
The time between the payment for merchandise and materials from suppliers and
the receipt of payment from customers.
The period between the receipt of cash and its deposit into the bank.
Question 2.
What is the fallacy made by the entrepreneur who decides to generate more cash
through increasing sales levels?
The entrepreneur fails to consider that it takes cash to generate more sales,
something he does not have.

The entrepreneur fails to understand that more sales will not be profitable.
The entrepreneur fails to take into account the interest rate on the loan she will
have to take out to cover the sales increase.
The entrepreneur fails to take into consideration the backlash from customers upon
realizing that they have to cover his cash deficit.
The entrepreneur fails to take into account the price drop he will have to use to
generate the increase in sales.

Question 3.
Why is a cash budget useful to an entrepreneur?
A cash budget allows the entrepreneur to determine how many items need to be
sold to remain profitable.
A cash budget shows chronologically when inflows and outflows of cash can be
expected.
A cash budget allows the entrepreneur to determine how the company will generate
new sales.
A cash budget does not take into account the employees' salaries, which can be
removed through layoffs.
The cash budget helps entrepreneurs determine when it would be a good idea to
bring on additional product lines.
Question 4.
What is the primary cause of cash flow problems cited by entrepreneurs?
Generating those first sales
Having to pay employee salaries
Collecting accounts receivable promptly
Excruciatingly high utility bills
Suppliers' hesitancy to extend credit to new buyers
Question 5.
The three primary areas of cash flow problems are ________.
employees, new products, and advertising
current assets, sales, and net income
unemployment insurance, workers' compensation, and severance pay
utility bills, sales tax, and income tax withholding

accounts receivable, accounts payable, and inventory


Question 6.
________ is the first line of defense against bad debt losses.
Hiring a collection agency
Screening customers carefully before granting them credit
Advertising your firm's willingness to extend credit
Setting a limit for the amount of credit you will extend to a new customer
Calling a customer's bank
Question 7.
What is the general approach that an entrepreneur should have toward his accounts
payable?
The entrepreneur should try to pay all accounts by the dates indicated on the
invoices.
The entrepreneur should strive to pay accounts payable before even receiving an
invoice.
The entrepreneur should lengthen the time he takes to pay accounts payable as
long as possible without damaging his company's credit rating.
The entrepreneur should try to leave at least two or three creditors unpaid each
month to lengthen the time in accounts payable.
The entrepreneur should pay off remaining balances with creditors, even if those
creditors have issued interest-free credit.
Question 8.
Why is carrying too much inventory a strain on the business?
Because inventory may make the back office area messy
Because inventory ties up cash and generates zero return
Because inventory takes up valuable space
Because inventory is taxed again at the end of the year if not sold
Because excess inventory can cause the business to believe that it is selling goods
that it really is not
Question 9.
Trading goods and services for other goods and services rather than cash is called
_____.
rummaging

pilfering
scraping
masting
bartering
Question 10.
How might leasing improve an entrepreneur's cash position?
The lessor gives the entrepreneur cash back on each payment the entrepreneur
makes on the piece of equipment.
Leasing allows entrepreneurs to gain access to needed equipment without the large
down payments that would normally be required to finance the purchase of the
same equipment.
Leasing allows the entrepreneur to go for several months at a time without making
a payment on the equipment the entrepreneur is using.
Leasing allows entrepreneurs to pay only when they first begin turning a profit.
Leasing allows entrepreneurs a chance to profitably sublease the equipment.

Chapter 13: Source of financing


Question 1.
What does the term "layered financing" mean?
The use of matching sources for funds
The use of financing for various parts of the business
The use of many sources to finance the business
The dependence on debt funding for the first few years of the business
A financing arrangement in which the business must produce at a certain level to
keep the capital raised
Question 2.
_____ is any form of wealth employed to product more wealth.
Debt load
Personal wealth
Plant capacity
Financing

Capital
Question 3.
How much do the majority of entrepreneurs require in startup capital?
$500,000 - $750,000
Less than $100,000
More than $1,000,000
$750,000 - $1,000,000
More than $2,000,000
Question 4.
What is a disadvantage of debt capital when considered with equity capital?
Debt capital requires prearranged repayments of interest and principal.
Raising debt capital forces the entrepreneur to give up control of management and
operations.
Raising debt capital requires the entrepreneur to pay dividends to its creditors.
Using debt capital puts a firm at a disadvantage from a tax standpoint.
Using debt capital lowers a firm's image in the eyes of customers.
Question 5.
What is an angel investor?
An investor that can make an investment within a typical 48-hour turnaround time
A wealthy individual who invests in businesses for an equity stake
A small business that puts its extra income into other small businesses
An investor that puts her money into nonprofit organizations
An investor that leaves a majority interest of his estate to small businesses
Question 6.
Over the course of a year, a typical venture capital firm will fund _____ out of the
roughly 1100 proposals it receives.
1 to 5
10 to 15
15 to 20
100 to 200

200 to 250
Question 7.
Which of the following is NOT an advantage to taking the venture public?
More control over decision making
Ability to raise a great deal of capital
Improved corporate image
Improved access to future financing
Ability to attract and retain employees
Question 8.
What is the most important criterion, from a lender's perspective, of a firm that
applies for a loan?
The management team at the helm of the business
The profitability of the business
The ability of the business to produce cash through its business model
The industry that the business operates within
The market research that the organization has performed
Question 9.
How does the Small Business Administration (SBA) assist entrepreneurs in finding
financing?
The SBA writes business plans for small businesses to carry to creditors that they
would like to approach for a loan.
The SBA helps small businesses clear out their inventory so that they appear more
attractive to potential investors.
The SBA offers a free financial screening for entrepreneurs that are seeking loans.
The SBA loans out money directly to entrepreneurs.
The SBA backs a large percentage of each loan that qualified entrepreneurs receive
from affiliated lenders.
Question 10.
What is the purpose of state-backed capital access programs (CAPs)?
CAPs are programs in which the state lends money directly to the entrepreneur.
CAPs require upfront payments by the entrepreneur, matched by the state, that
become insurance against default on loans given to entrepreneurs.

CAPs are loan education programs that, once completed, qualify the entrepreneur
for special financing.
CAPs are programs that introduce entrepreneurs to the many options that are
available through lenders.
CAPs prequalify entrepreneurs for state-backed loans based on their personal
background.

Chapter 14: Choosing the right location


Question 1.
Which of the following is NOT important when selecting the right region of the
country in which to
Growth rate of the population
Trends pertaining to income levels within the region examined
Whether the product is new to a region
Whether inflation is high or low in an area
Whether other businesses are moving into the regions examined
Question 2.
What data is NOT used in choosing a city to locate?
Population size
Education level
Interest rates
Growth trends
Religion
Question 3.
Why might it be beneficial for an entrepreneur to locate her business near a
competitor?
It would help the entrepreneur learn from the competitor.

It would allow for increased profitability through reduced transportation costs for
distributors.
It would not be beneficial for an entrepreneur to locate her business near a
competitor.
The offerings of both businesses may attract more customers to the vicinity.
It could help the entrepreneur improve her image by being associated with the
competitor.
Question 4.
What is the concept of trade area size?
It is the size of the region from which a firm can reasonably expect to draw
customers.
It is the size of the trading floor of the local area merchant exchange.
It is the distance between your firm and its nearest three competitors.
It is the size of the Metropolitan Statistical Area (MSA) that your firm operates
within.
It is the distance between your firm and the nearest indoor or outdoor mall area.
Question 5.
What is one of the drawbacks to doing business in a central business district?
The foot traffic is not prevalent around the business.
High rental rates for retail space.
The business will have a lower image because of the downtown location.
The city will impose an extra sales tax on the business because of its central
location.
It will be difficult to find employees that want to work at the business.
Question 6.
_____ percent of all small businesses are home-based businesses.
Ten
Twenty-five
Fifty-two
Seventy-one
Ninety
Question 7.

Why are incubators so helpful to small startups?


Incubators provide financing for startup firms that seek their assistance.
Incubators are high-traffic areas and bring a great number of customers to a
startup.
Incubators write business plans for startups that they can present to investors.
Incubators allow for firms to reside at their offices indefinitely, eliminating rent
expenses.
Incubators allow the startup to focus upon product development, manufacturing,
and sales, as opposed to directing resources into building firm operating
infrastructure.
Question 8.
How does the Americans with Disabilities Act affect the design of business
locations?
All businesses with more than 15 employees must make their facilities accessible to
physically-challenged customers and employees.
All businesses, regardless of size, must make their facilities accessible to physicallychallenged customers and employees.
All businesses must attempt to design products and services that can be used by
physically-challenged customers and employees.
Small businesses must create atmospheres that are attractive to physically
challenged customers and employees.
All businesses must pay a small tax on the size of their location to pay for
assistance to physically-challenged customers and employees.
Question 9.
For retailers, merchandise purchased through impulse buying should be located
________.
near the back of the store
in areas that will be frequented by women shoppers
in the front of the store
near items that are not impulsively bought
near the restrooms
Question 10.
What is NOT a factor in a manufacturing layout?
Economic considerations

Cost of moving executives


Type of product
Type of production process
Space availability

Chapter 15: Global Aspects of entrepreneurship


Question 1.
Which of the following is a reason for a small business to go global?
To stop production in the local market
To develop new products for outside markets
To experience tariffs and higher transportation costs
To extend available markets
To be able to sell lower quality products in other markets

Question 2.
What types of services do export management companies offer entrepreneurs?
Management services in foreign markets
Education and training on exporting
Product and service innovation for foreign markets
Provision of a foreign distribution channel through which they may sell goods
Negotiation with foreign governments to allow the firm's products to be sold
Question 3.
What do foreign partners bring to a foreign joint venture?
Relief from domestic tax burdens
Knowledge of the local market targeted for expansion
Product innovation
Relief from competitors in the domestic market
Provision of a better management team for the domestic market
Question 4.

What is the downside to developing a master franchise design for foreign expansion
of your service business?
Because the firm turns over the management of franchises in a country to a master
franchiser, the company has the least control in this arrangement.
Because the contracts that bind international franchises to the parent company
cannot be upheld in an international court, the master franchiser could take the
business model and develop it as his own business.
Many countries do not allow the master franchise design to be used within their
borders, so the design is only applicable to a handful of markets.
Many governments see the high profitability of the master franchise model and
nationalize the business, taking all profits for the local government.
Many customers see the master franchise design as cultural imperialism by U.S.
companies, and therefore boycott the franchise businesses.

Question 5.
Small business in the U.S. represents nearly _____ percent of export sales from the
country.
1
10
20
65
90
Question 6.
What agency can assist entrepreneurs in securing financing to support their export
strategies?
the Securities and Exchange Commission
the Export Banking Association
the U. S. Chamber of Commerce
the Central Intelligence Agency
the Federal Trade Commission
Question 7.

How can outsourcing operational functions to foreign businesses assist


entrepreneurs?
Outsourcing can make governments more favorable to entrepreneurs who desire to
open a foreign office.
Outsourcing can make an entrepreneur's products more visible in a foreign market.
Outsourcing improves the quality of the services provided in the domestic market.
Outsourcing can improve the image of a small firm in the domestic market.
Outsourcing can allow firms to reduce the cost of goods sold.
Question 8.
What domestic barriers exist that hinder entrepreneurs from expanding
internationally?
Domestic customers dislike having to share the attention of the business with
foreign customers.
Tariffs imposed by domestic governments make the price of goods too high.
The domestic government has policies that bar entrepreneurs from exporting.
Entrepreneurs often do not know where to get information about how to start an
export effort.
Domestic transportation systems make it difficult to ship outside of the country.
Question 9.
What are some of the political barriers entrepreneurs encounter when expanding
into foreign markets?
Military action against the United States
Violent acts against their businesses
Customer disdain for international products
Transportation difficulties overseas
Entrepreneurial ignorance of the local market
Question 10.
Why is the World Trade Organization (WTO) so important to international business?
The WTO negotiates and polices trade agreements between its 153 member
countries.
The WTO allows for tariff-free trade between its member countries.
The WTO decides trade policy for its member nations.

The WTO acts as an export management company, assisting entrepreneurs from all
of its member nations.
The WTO monitors human working conditions in businesses around the world.

Chapter 16: Building a new venture team and planning


for next generation
Question 1.
Which of the following is a behavior exhibited by an effective leader?
Empower employees to act in the best interest of the company
Management of small details of others' positions
Insistence that all decisions within the business be made by that leader
Firm adherence to one original plan without amendment
Resistance to altering leadership style simply because employees dislike it
Question 2.
Which of the following characteristics are typical of effective leaders?
Adaptable
Passionate
Willing to take risks
Innovative
All of the above are characteristics of effective leaders.
Question 3.
Why is it difficult for entrepreneurs to find great employees?
Because good employees do not want to work for risky entrepreneurs
Because more women are staying home to take care of their children
Because the available labor pool is shrinking, due to retirement of baby boomers
Because foreign companies are taking away the U.S. labor force
Because more work is being done by computers and machines
Question 4.
What can be equally as important as salary levels to a young worker in today's
workforce?
A matched retirement fund

A flexible work schedule


Three weeks' vacation pay
Stock options
An award program
Question 5.
What are the three phases of an effective interview?
Greeting the candidate, touring the facility, and getting right down to the desired
salary
Reviewing the candidate's resume, asking them about their successes and failures,
and introducing them to employees
Calling the candidate to schedule the interview, interviewing, and calling them to let
them know they earned the position
Interviewing the candidate, taking them to lunch, and touring the facility
Breaking the ice, asking the right questions, and selling the company
Question 6.
What elements do entrepreneurs need to incorporate for job enrichment?
Skill variety
Task significance
Autonomy
Feedback
All of the above
Question 7.
Luckily enough for small businesses, the best long-term motivation for employees is
________.
stock options
recognition, praise, encouragement, feedback, and promotions
continued employment
a raise in salary
a trip to an exotic locale
Question 8.

Which of the following should be included in an effective management succession


plan?
A list of two or three great candidates who could take over in the event that the
founder dies
An air of secrecy about who will take over the business after the leader departs
A turnover plan for employees that need to leave in the event that the leader
departs the business
A survival kit to be left to the successor that contains critical information to keep a
business going
An insurance plan that will immediately pay all creditors their balances owed
Question 9.
Why does an entrepreneur need to consider estate planning with regard to his or
her business?
Because his family might argue over who should receive the benefits of the
business
Because the ownership of the business will otherwise go into probate, and no one
will be able to make decisions until the estate is resolved
Because estate taxes on business assets can be as high as 45%
Because attorneys might wind up receiving most of the assets from extended estate
court battles
Because competitors will otherwise pressure the bank to sell them portions of the
business when an entrepreneur passes away
Question 10.
How do employee stock ownership plans (ESOPs) help entrepreneurs exit from their
businesses?
Employees earn stock options instead of salary, saving the entrepreneur cash in the
short-run, and transferring ownership over to employees from the owner in the longrun.
Employees who work at an organization long enough have the option of choosing
either a retirement plan or up to 5% ownership in the company, which the owner
grants them for their continued loyalty.
Employees buy stock in other companies and use the dividends and gains to
leverage a buyout from the owner.
Employees or managers gradually purchase the owner's share of stock through
salary contributions until they either own the company outright or can leverage a
buyout of the remaining equity.

Employees, upon reaching twenty years' tenure with the company, have the option
of purchasing the company at a value the owner sets.