Chapter 4 Flashcards
Explain the meaning of the terms small business, new venture creation, and entrepreneurship
entrepreneurship drives new venture creation, and entrepreneurs start small businesses. Together, they contribute to the economy by generating jobs and fostering innovation.
Explain the interrelationship of the terms small business, new venture creation, and entrepreneurship:
- small business: an independently owned company that operates on a smaller scale, often measured by the number of employees or annual revenue.
- New venture creation: process of starting a new business from scratch, which often involves innovative ideas, market analysis, and resource gathering.
- Entrepreneurship: act of identifying an opportunity and creating a business to exploit it. It often involves taking risks, innovation, and managing resources.
Describe the role of small and new businesses in the Canadian economy:
- Small and new businesses play a crucial role in the Canadian economy by contributing to job creation, fostering innovation, and supporting local economies
-These businesses make up a large portion of the private sector and are often seen as key drivers of economic growth. - small businesses account for over 90% of all businesses
Describe some key characteristics of entrepreneurial personalities
- Key characteristics of entrepreneurial personalities: creativity, risk-taking, resilience, self-motivation, and strong leadership skills.
- Entrepreneurs often have a vision, are driven by passion, and have the ability to adapt to changing environments.
explain the entrepreneurial process and describe its key elements:
- entrepreneurial process: identifying an opportunity, developing a business plan, acquiring resources, launching the business, and managing it.
- key elements: opportunity recognition, idea development, planning, organizing resources (financing, personnel, etc.), and growth management.
Describe three alternative strategies for becoming a business owner—starting a business, buying an existing business, and buying a franchise
- Starting a business from scratch involves creating a company from the ground up, which allows full control but also comes with higher risks due to market uncertainty.
- Buying an existing business allows the new owner to inherit an established customer base, brand, and operational structure. However, this strategy might involve a significant upfront investment.
- Buying a franchise involves purchasing the rights to operate under an established brand, which provides a proven business model, marketing support, and training, but limits creative control and requires royalty payments.
Identify four key reasons for success in small businesses
- Strong market demand for products/services.
- Effective management and leadership.
- Innovation and adaptability.
- Financial stability and sound budgeting.
Identify four key reasons for failure:
- Lack of capital or poor financial management.
- Inadequate market research or targeting the wrong customer base.
- Poor business planning or failure to adapt.
- Ineffective management or team conflict.
Describe four forms of legal organization for a business
Sole Proprietorship: A business owned and run by a single individual with no distinction between the business and the owner.
Partnership: A business owned by two or more individuals who share profits, liabilities, and decision-making.
Corporation: A legal entity separate from its owners (shareholders), offering limited liability but subject to more regulations and potential double taxation.
cooperative (co-op) is a business organization owned and operated by a group of individuals for their mutual benefit. Members of a cooperative usually share equal ownership and control, and they work together to meet a common economic, social, or cultural need.
advantages of sole proprietorship
- Easy to establish, with minimal legal formalities.
- Complete control is retained by the owner.
- The owner receives all the profits.
- Simple tax reporting, as the business income is treated as personal income.
disadvantages of sole proprietorship
- Unlimited personal liability, meaning the owner’s personal assets can be at risk for business debts.
- Limited capacity to raise capital, as funding options are usually restricted to personal savings or loans.
- The business may cease to exist upon the owner’s death or incapacity.
advantages of partnership
- diShared responsibility, allowing partners to contribute different skills and resources.
- Easier to raise capital than in a sole proprietorship since partners can pool funds.
- Profits are passed directly to the partners, avoiding corporate taxes.
disadvantages of partnership
- Joint liability for business debts, meaning each partner can be held responsible for the actions of others.
- Potential for conflicts or disagreements between partners regarding business decisions.
- The business may face difficulties if a partner withdraws or passes away.
advantages of corporation
- Limited liability, meaning owners (shareholders) are not personally responsible for the company’s debts.
- Easier to raise large amounts of capital through the sale of stock.
- Perpetual existence, meaning the corporation continues even if the ownership changes.
disadvantages of corporation
- More complex and expensive to establish due to legal requirements.
- Higher levels of regulation and compliance.
- Double taxation, where the corporation pays taxes on profits, and shareholders are taxed again on dividends.
advantages of cooperative
- Limited liability and continuity
- Each member has only 1 vote in the affairs of the cooperative regardless of how many shares they own
- Can deduct patronage refunds to members out of before tax income
○ Income can be taxed only at the individual member level rather than at both cooperative and member level
disadvantage of cooperative
- Attracting equity investment
○ Members don’t have an incentive to invest in equity capital of the cooperative - Democratic voting arrangements
- Dividends based purely on patronage
small business
an independently owned and managed business that does not dominate its market
