Chapter 4

Question 1

Small business

Answer 1

owner managed business with fewer than 100 employees

Question 2

New venture

Answer 2

recently formed commercial organization (within 12 months)

Question 3

Entrepreneurship

Answer 3

process of identifying an opportunity and capitalizing on it

Question 4

Intrapreneurs

Answer 4

Entrepreneurs that operate within a firm. They usually do not need to worry about costs or resources, but their creativity/freedom could be hindered.

Question 5

Private sector

Answer 5

part of the economy consisting of companies and organizations that is not owned by the government.

Question 6

Which ideas are “good”?

Answer 6

Idea creates or adds value
Idea provides competitive advantage, and sustains it
Idea is marketable and financially viable
Idea has low exist costs

Question 7

Sale forecast

Answer 7

estimate of how much a product/service will produce in a specific period of time. (usually one year)

Question 8

Three ways to enter a market

Answer 8

Introduce a brand new product
Introduce an existing product with a twist
Buy a franchise

Question 9

Franchise

Answer 9

Arrangement where the franchisee purchases right to sell the product/service of the franchiser

Question 10

Business plan

Answer 10

Document that describe the entrepreneur’s proposed business, its opportunity, marketing plan, operational/financial details, and its managers’ skills and abilities.

Question 11

bootstrapping

Answer 11

“doing more with less” making it work with minimal resources and/or using other people’s stuff whenever possible.

Question 12

crowdfunding

Answer 12

posting your ideas online in hopes to receive funding. Risking to have your ideas plagiarized if it is posted online.

Question 13

collateral

Answer 13

items the borrower uses to secure a loan

Question 14

Equity financing

Answer 14

Personal savings 
Love money (investments from friends, relatives, and business associates)
Private investors (angels; usually successful entrepreneurs) 
Venture capitalists (only interested in a proven product - look to help businesses scale up)

Question 15

Debt financing

Answer 15

Financial institutions (banks; usually personal loans as banks like to avoid loaning to new ventures) 
Suppliers (supply first, bill later=trade credit)

Question 16

Incubators

Answer 16

provides new business with support that vary from consulting services, legal advice, office space, etc.

Question 17

Business development bank of Canada (BDC)

Answer 17

Has a mandate to help develop small/medium-sized companies through financing, venture capital, and consulting strategies.

Question 18

Sole proprietorship (+,-)

Answer 18

Business owned and operated by one person.
+: Freedom, easiest to form, tax benefits
-: Unlimited liability, lack of continuity as the business legally dissolves if the owner dies, hard to receive funding

Question 19

Partnership (+,-)

Answer 19

Two or more individuals combine financial, managerial, and technical abilities to operate a business.
+: Easier to grow by adding talent/money. Easier to receive funding. Easy to organize, with few legal restrictions. Tax benefits.
-: Unlimited liability; one partner messes up the others are responsible, lack of continuity, hard to transfer ownership without the other partner’s consent

Question 20

General partners

Answer 20

directly involved in management, unlimited liability

Question 21

Limited partners

Answer 21

doesn’t participate much, thus only responsible for how much they invest

Question 22

Corporation (+,-)

Answer 22

A separate legal entity, that is liable for its own debts, where the owners’ liability is only to their investment.
+: Limited liability, continuity, easy to be granted loans
-: Expensive to form a corporation, must stricter government regulations, double taxation if shareholders receive dividends, chances shareholders will revolt against the board

Question 23

Voting by proxy

Answer 23

shareholders that can’t attend meetings give their voting rights to a representative

Question 24

Public corporation

Answer 24

Shares of stock are widely held, general public can purchase

Question 25

Private corporation

Answer 25

only held by few people, usually not for sale

Question 26

Initial public offering (IPO)

Answer 26

First time a business opens its share to the public

Question 27

Private equity firms

Answer 27

Purchases publicly traded companies and make them private

Question 28

Cooperatives (+,-)

Answer 28

Organized, owned, and democratically controlled by people who use its products/services. Earnings distributed by how much a person used the cooperative system, rather than on level of investment.
+: limited liability, continuity, control is shared, no double taxation
-: no incentive for members to invest, democratic voting and patronage dividends discourage entrepreneurs