Entrepreneurship Exam 3

Equity financing requires collateral.

false

The type of funds most frequently used by businesses is externally generated funds.

false

Extending payment terms from suppliers is an example of generating funds internally.

true

The five Cs of credit are character, capacity, collateral, capital, and competence.

false

All owners, regardless of percentage of ownership, are required to personally guarantee SBA loans.

false

Bootstrap financing decreases the company's flexibility and drive for sales.

false

Bootstrap financing involves using any possible method, such as discounts for volume purchasing, to conserve cash.

true

Typically, debt financing requires:

reduction of working capital.

a degree of ownership in the firm.

 

an asset as collateral.

 

reduction of short-term assets.

an asset as collateral

Early-stage financing is usually the least costly type of financing to obtain.

false

Angel investors, family, and friends are often the source of funds in development financing.

false

Crowdfunding brings together various individuals who commit money to projects and companies they want to support.

true

Financial ratios are control mechanisms to test the financial strengths of a new venture.

true

The inventory turnover ratio measures the efficiency of the venture in managing its inventory.

true

The debt ratio is calculated by dividing total liabilities by total inventory.

false

Which factor in valuing your company is the most important?

Future earnings capacity

Market price of similar companies' stocks

 

Outlook of the economy

 

Book value

future earnings capacity

Using a penetration strategy, the entrepreneur attempts to encourage existing customers to buy more of the firm's current products.

true

When a retail tire store buys a tire wholesaler this is an example of horizontal integration.

false

As a firm grows, higher volume increases production efficiency and increases its bargaining power with suppliers.

true

Many entrepreneurs find that as they grow they need to change their management style.

true

If employees are involved in the decision-making process, they are more motivated to implement the decided course of action.

true

Entrepreneurs who possess both the necessary abilities to make the transition to a more professional management approach and the aspiration to grow their businesses are the most likely to achieve firm growth.

true

Which of the following is not one of the growth strategies outlined in the text?

Market development strategy

Diversification strategy

 

Customer development strategy

 

Product development strategy

customer development strategy

The strategy for growth in which the entrepreneur encourages existing customers to buy more of the firm's current product is a:

diversification strategy.

market development strategy.

 

product development strategy.

 

penetration strategy.

penetration strategy

The ________ strategy focuses on selling the firm's existing products to new groups of customers.

penetration

product development

 

market development

 

diversification

market development

________ strategies involve developing and selling new products to people who are already purchasing the firm's existing products.

Diversification

Product development

 

Market development

 

Penetration

product development

A joint venture is the purchase of an entire company, or part of a company.

false

Cultural differences between international joint venture partners can create management difficulties.

true

What is the restaurant franchise brand discussed and visually displayed to close the Chapter 14 lecture?

Subway

Chick-fil-A

 

McDonald's

 

Domino's

chick-fil-a

An acquisition is the purchase of a company, or part of a company, in which the acquired company ceases to exist independently.

true

Popular reasons to merge include protection, diversification, and survival.

true

Joint ventures are also called:

strategic alliances.

strategic affiliations.

 

strategic assignments.

 

strategic alignments.

strategic alliances

Which of the following are not factors in the success of joint ventures according to the text?

Timing and chemistry

Finance and education

 

Symmetry and reasonable expectations

 

Chemistry and symmetry

finance and education

In order for a joint venture to be successful:

the timing must be right.

there should be symmetry between the partners.

 

the expectations of the results must be reasonable.

 

All of the answers are correct.

all answers are correct

A ________ occurs when an entrepreneur or an employee group uses borrowed funds to purchase an existing venture for cash.

franchise agreement

leveraged buyout

 

integrated task

 

merger

leveraged buyout

A ________ is an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.

leveraged buyout

joint venture

 

franchise

 

merger

franchise

An exit strategy has its advantages but no disadvantages.

false

The entrepreneur should think about an exit strategy:

when starting a venture

What is the name of the book written by John Maxwell that was mentioned in the chapter 15 recording?

failing forward

Sometimes a succession plan may include transfer of the business to family members. However, this process can create internal problems and it is advised that the entrepreneur stay and act as an advisor for a designated period of time.

true

Finding someone with the same manner and expertise of the entrepreneur is easy.

false

One of several ESOP advantages is that it offers a unique incentive to employees and can enhance motivation.

true

A big advantage of ESOPs is that they are easy to establish.

false

A direct sale to key employees is simpler than an ESOP.

true

Bankruptcy is always the end of a business.

false

One should not file Chapter 11 bankruptcy unless there is a realistic chance of recovery.

true

History shows that entrepreneurs may fail many times before succeeding.

true

Business failure guarantees a stigma when seeking venture capital.

false

The business may face adversity due to self-inflicted poor management or by external factors.

true

Many entrepreneurs turn failure into success. Some factors to consider include all of the following except:

Hang onto the venture as long as possible, even if it drains resources, and the end is inevitable.

Bootstrap Financing

Outside capital has many costs.

Bootstrap financing involves using any possible method for obtaining and conserving cash. It takes time when a company can least afford it.

• It decreases the drive for profit and increases impulse to spend.

• It can decrease the company's flexibility and hamper creativity

• Emphasis on short-term can be at the expense of long-term success.

• Can involve: delayed supplier payments; volume, promotional, or customer discounts; "obsolescence money," and bulk packaging

• The only possible limitation of bootstrap financing is the imagination of the entrepreneur.

Four pressures associated with growth

Pressures on human resources.

• There may be morale issues, employee burn out, and increased turnover which can negatively impact the corporate culture.

Pressures on the management of employees.

• Entrepreneurs may need to change their management style - if they will not delegate, the venture cannot grow.

Pressures on the entrepreneur's time.

• Time is a limited resource that must be diverted from other activities to focus on growth.

Pressures on existing financial resources

• Financial resources become thin and resource slack is required to insure against environmental shocks and to foster innovation.

Four different growth strategies

penetration

- A penetration strategy focuses on the firm's existing product in its existing market. This strategy relies on taking market share from competitors and/or expanding the existing market.

market development

- Market development strategies involve selling a firm's existing products to new groups of customers.

-Marketing can be effective in encouraging more frequent repeat purchases.

product development

- Product development strategies involve developing and selling new products to current customers.

Experience with a particular customer group is an important resource for a new product.

Advantages include capitalizing on existing distribution systems and corporate reputation.

diversification strategies

-sell a new product to a new market.

• Backward integration is when a firm becomes its own supplier.

• Forward integration is when a firm becomes its own buyer.

• Horizontal integration diversifies into related products.

• Complementary products have some competences and may increase sales in an existing product.

6 basic principles of time management

• The principle of desire requires recognition of wasted time.

—→ example: Student scrolling on social media for 2 hours decides to limit usage to 30 minutes to free up time to study for an exam.

• The principle of effectiveness requires focus under pressure.

—> example: athlete balances training and academics by using a strict study schedule and noise canceling headphones to stay focused in high stress environments

• The principle of analysis shows how time is currently allocated.

—> example: A project manager tracks daily activities for a week and discovers 40% of time is spent on emails

• The principle of teamwork acknowledges importance of delegation.

—> example: student leader organizing a campus wellness event assigns marketing to one teammate and vendor coordination to another, freeing themselves to focus on logistics/budgeting

• The principle of prioritized planning allocates time by category.

—> example: A nutrition entrepreneur blocks out mornings for product development, afternoons for customer engagement, and evenings for administrative tasks, ensuring balanced progress across goals.

• The principle of reanalysis requires review of time management.

—> After a month of using a planner, a student notices they’re consistently missing evening workouts. They revise their schedule to include workouts right after class when energy is higher.

Investing in a franchise

Franchising involves many potential risks, assess these factors before making a final decision.

• Is the franchise proven or unproven?

• What is the financial stability of the franchise?

• What is the potential market for the new franchise?

• What is the profit potential for the new franchise?

Compare front-end procedure fees, royalty payments, and expenses.

The contract or franchise agreement is the final step - use a lawyer with experience in franchising.

three principles that can help during the process of turnaround

• Recognize the warning signs of bankruptcy and consult experts.

• Aggressive hands-on management is key.

• Management must have a plan based on three key questions:

• Where are we now? - situation analysis.

• Where are we going? - develop goals to turn the firm around.

• How do we get there? - the turnaround process in action