small business management quiz

quiz is 11/07, study hard and the world is yours.

what is manufacturing?

business or company that makes or manufactures a product

what is service?

business that provides a particular service to it's customers

what is service-merchandising?

provides products and services

what is a small business?

business that is independently owned and operated and is not dominant in it’s field operation 

what are some quantitative features of a small business?

number of employees (25 -300), average annual revenue of less than 6 million

what are some qualitative features of a small business?

actively managed by owners, highly personal, largely local, dependent on internal sources of capital, business not a major force in industry 

what are some economic contributions of a small business?

• interdependence of business (marketing, HR, operations, finance)

• stimulate economic competition

• innovation

• invention

what is an entrepreneur?

one who organizes, manages, and assumes the risk of a business firm or venture (seeking wealth)

what is sole proprietorship?

individual conducting a business as an individual and sole owner, owner held personally responsible for all acts and those of the employees

what are some advantages of a sole proprietorship?

• ease of starting

• low cost

• freedom of management

• profit incentive 

what are some disadvantages of a sole proprietorship?

• unlimited risk

• limited size

• limited life

• limited management ability

what is a general partnership?

association of two or more persons who conduct business as co-owners, personally liable for obligations of business

what is a limited partnership?

general partners and partners with a limited interest, put up capital, have a limited interest in the profits and their liability is limited to the amount of their capital

what are some advantages of a partnership?

• combined management

• ease of formation

• efficiency of labor

what are some disadvantages of a partnership?

• lack of continuity 

• decisions binding on both parties

• unlimited liability

• frozen assets 

what is a c-corporation?

legal entities established under law

what are some advantages of a c-corporation?

• continuity of existence

• ease of ownership

• limited liability

• large finances

what are some disadvantages of a c-corporation?

• legal restriction on activities

• separation of ownership from control

• lack of personal interest

• double taxation on earnings 

what is an s-corporation?

special type of corporation that has the protection of limited liability and elects to have a pass through of income and losses like the treatment of a partnership

what are some advantages of an s-corporation?

• independent legal entity

• only shareholder taxed

what are some disadvantages of an s-corporation?

• if not properly structured can be taxed as a c-corp

• limited shareholders (under 100)

• must have limited life, typically under 30 years

what is an LLC?

taxed like a partnership but shields liability like a corporation

what are some advantages of a LLC?

• limited personal liability

• flexibility of partnership

• no significant requirements

• members report taxes

what are some disadvantages of a LLC?

• if not properly structured can be taxed as a c-corporation

• must have limited life (under 30 years)

what do you need before starting a business?

• sales tax ID number

• state required permits and license

• local licenses and permits

• federal employer ID number

• team of advisors (CPA, lawyer, insurance agent)

• business checking account

• business phone line

what is circulating capital?

money for day to day operations

what is working capital?

difference between current assets (less than one year) and current liabilities

what is fixed capital?

long term capital invested in the business 

what are some sources of funds for a business?

• personal and equity capital

• debt equity

• trade credit

• venture capitalist

what is debt equity?

money borrowed from creditors

what is trade credit?

extended by one business to another

what is a venture capitalist?

private individual loaning money 

what is a valuation?

estimate of worth or price of a company

what are some factors to consider between building vs. buying a funeral home?

• why are they selling?

• profit potential

• assets (tangible and intangible)

• competition

• demographics

what is book value?

cost of a fixed asset less accumulated depreciation

what is liquidation value?

anticipated value of an asset that would be realized in case of liquidation of business

what is replacement value?

insurance concept in which fair market price to purchase similar products in similar condition is used to settle claims

what is market value?

approach used in business valuation which determines value based upon previous sale of similar business

what are copyrights?

registered right of a creator to reproduce, publish and sell the work which is the product of intelligence and skill of that person (slogan, brochure, pictures)

what is a patent?

registered right of an inventor to make, use and sell an invention

what are trademarks?

distinct name, sign or symbol that the federal government grants exclusive rights to use for a specific time

what is owner finance?

usually 10% down, then payments go to former owner rather than financial institution

what is the advantage of owner finance?

interest is saved, tax savings for former owner, usually get business back if default on loan, new owner can purchase on good faith rather than large asset accumulation

what is third party financing?

bank, financial institution of private party finance the operation

what are some reasons small businesses fail?

• no need for product

• ran out of money

• not right team

• outcompeted

• pricing issues

what are some considerations when applying for a loan?

• cash flow

• management

• equity 

what is the general rule for equity?

applicants must have one dollar cash or business asset for two dollars of a loan

what are some types of debt equity?

• personal loans

• commercial loans

• mortgages

what are angel investors?

private investors who are willing to supply financing for new or risky small venture start ups 

what is some information needed by banks before giving out loans to businesses?

• current balance sheet

• earnings statements from previous years

• current financial statement of each key owner

• experience and management capability

• type of business

• collateral

what is cost control?

method of reducing business expenses by managing and analyzing financial data

what does 1/10, n/30 mean?

2% discount within 10 days, otherwise full price due within 30 days

what is risk management?

all efforts to preserve assets and earning power associated with a business (can eliminate, minimize, shift or absorb risk)