chapter 3

Question 1

What does “business formation” involve?

Answer 1

Business formation involves the formalization and actual implementation of business ideas into practice.

Question 2

What are the two approaches to defining small businesses?

Answer 2

the size criteria and
the economic or control criteria.

Question 3

The size criteria refer to ________ and ________.

Answer 3

number of employees, startup capital

Question 4

What does the Small Business Administration (SBA) say about defining a small business?

Answer 4

The SBA defines a small business as one that is independently owned and operated, not dominant in its field, and meets specific size standards in terms of employees or annual receipts.

Question 5

________ are characteristics of economic control criteria.

Answer 5

Market share, independence, personalized management, and geographical area of operation

Question 6

Define “market share” in the context of small businesses.

Answer 6

Market share refers to the proportion of total sales in a market captured by a business.

Question 7

________ is the characteristic of a small firm’s share of the market

Answer 7

Market share

Question 8

what are the characteristics must be satisfied for a business to rank as a small firm.

Answer 8

market share,
independence,
personalized management, and
geographical area of operation

Question 9

Independence means the business is …

Answer 9

not controlled by any larger entity or corporation.

Question 10

This autonomy is a key characteristic distinguishing small businesses from subsidiaries of larger companies

Answer 10

t

Question 11

Personalized management involves ________ of the owner in day-to-day operations.

Answer 11

• direct involvement

Question 12

Geographical area of operation refers to the business operating within a ________ area.

Answer 12

• limited

Question 13

What role do micro and small enterprises play in developing countries?

Answer 13

play a significant role in :
- economic growth,
- job creation, and innovation,
- and they often require less capital to start, making them suitable for developing countries with limited financial resources.

Question 14

List the three legal forms of forming businesses.

Answer 14

Proprietorship, Partnership, Corporation

Question 15

________ explains two or more individuals having unlimited liability who have pooled resources to own a business.

Answer 15

Partnership

Question 16

________ explains one individual owning the entire business and having unlimited liability.

Answer 16

Proprietorship

Question 17

________ is a legal entity that is separate from its owners, with limited liability for its shareholders.

Answer 17

Corporation

Question 18

How are micro enterprises defined in the industry sector?

Answer 18

Micro enterprises in the industry sector are defined by having 5 employees and total assets of less than Birr 100,000.

Question 19

How are micro enterprises defined in the service sector?

Answer 19

are defined by having 5 employees and total assets of less than Birr 50,000.

Question 20

How are small businesses defined in the service sector?

Answer 20

Small businesses in the service sector are defined by having 6-30 employees and total assets less or equal to Birr 500,000

Question 21

How are small businesses defined in the industry sector?

Answer 21

are defined by having 6-30 employees and total assets less or equal to Birr 1.5,000,000

Question 22

When ambiguity is encountered between manpower and total assets in defining small businesses, ________ is chosen.

Answer 22

assets

Question 23

What are the priority sectors and sub-sectors for small businesses?

Answer 23

Manufacturing sector,
Construction sector,
Trade sector,
Service sector,
Agriculture sector

Question 24

The manufacturing sector includes businesses involved in the ________

Answer 24

• production of goods.

Question 25

The construction sector includes businesses involved in building ________,

Answer 25

buildings, infrastructure, and other physical structures.

Question 26

_______ sector involves businesses that engage in the exchange of goods and services.

Answer 26

The trade

Question 27

The agriculture sector involves businesses engaged in ________

Answer 27

in farming, livestock, and crop production.

Question 28

The entrepreneurial process of launching a new venture can be divided into ________ stages and ________ sub-stages.

Answer 28

three, seven

Question 29

What are the three key stages of the entrepreneurial process?

Answer 29

Discovery, Evaluation, Implementation

Question 30

What steps are involved in the discovery stage of the entrepreneurial process?

Answer 30

The discovery stage involves generating ideas, recognizing opportunities, and initial assessment of the potential for the business idea.

Question 31

What steps are involved in the evaluation stage of the entrepreneurial process?

Answer 31

The evaluation stage involves analyzing the feasibility of the business idea, conducting market research, and assessing financial requirements and potential.

Question 32

What steps are involved in the implementation or exploitation stage of the entrepreneurial process?

Answer 32

The implementation stage involves launching the business, operational planning, securing resources, and starting operations.

Question 33

Entrepreneurship exists in a vacuum. (True/False)

Answer 33

False

Question 34

What is environmental analysis in the context of entrepreneurship?

Answer 34

Environmental analysis involves examining external factors such as economic, social, political, and technological influences that can impact the business.

Question 35

What is macro environment?

Answer 35

The macro environment refers to the broader external factors that affect an entire industry or economy, such as economic trends, demographics, and technological advancements.

Question 36

What is sector analysis?

Answer 36

Sector analysis involves examining specific industries or market segments to identify opportunities and threats within that sector.

Question 37

Sometimes there might be ________ arrangements between countries regarding sub-sectors.

Answer 37

bilateral

Question 38

What is SWOT analysis?

Answer 38

SWOT analysis is a strategic planning tool used to identify the Strengths, Weaknesses, Opportunities, and Threats related to a business or project.

Question 39

What is the hierarchical approach to the development of a business idea?
Macro environment, Sector analysis, SWOT analysis, Product or service (in descending order)

Answer 39

Macro environment, Sector analysis, SWOT analysis, Product or service (in descending order)

Question 40

What’s the main reason small businesses fail?

Answer 40

inadequate management, inadequate financing

Question 41

________ is a common cause of business failure when managers lack the necessary skills and experience to run the business effectively.

Answer 41

• Inadequate management

Question 42

A business with insufficient funds to maintain operations and invest in growth opportunities is experiencing ________.

Answer 42

• inadequate financing

Question 43

What does neglect mean in the context of small business failure?

Answer 43

• Neglect refers to the failure of business owners to adequately oversee and manage business operations, leading to operational inefficiencies, missed opportunities, and declining performance.

Question 44

Deceptive practices that cause financial losses and damage a business’s reputation are known as ________.

Answer 44

• fraud

Question 45

Unforeseen events such as natural calamities that disrupt business operations and cause significant financial losses are categorized as ________.

Answer 45

• disasters