chapter 5

Question 1

Entrepreneurship:

Answer 1

The process of planning, organizing,
operating, and assuming the risk of a business venture

Question 2

Entrepreneur

Answer 2

Someone who engages in
entrepreneurshi

Question 3

Small business:

Answer 3

A business that is privately owned by
one individual or a small group of individuals and has
sales and assets that are not large enough to
meaningfully influence its environment

Question 4

Start-up or new venture

Answer 4

A relatively new small business

Question 5

Starting The New Business

Answer 5

After choosing a product and making sure that the
choice fits their own skills and interests,
entrepreneurs must decide whether to buy an
existing business or to start from scratch.
− Consultants often recommend the first approach
because the odds are better

Question 6

Buying an Existing Business

Answer 6

Buying an Existing Business
− If successful, an existing business has already proved its
ability to draw customers at a profit
− It has established working relationships with lenders,
suppliers, and the community
− The track record of an existing business gives potential
buyers a much clearer picture of what to expect than any
estimate of a new business’ prospects
− Franchises are often a good way to start a small business
for these reasons

Question 7

Financing: Personal Resources

Answer 7

− Using your own money and money borrowed from friends
and relatives to finance the business

Question 8

Financing: Strategic Alliances

Answer 8

− Partnering with established firms, such as suppliers, in a
mutually beneficial relationship

Question 9

Financing: Lenders

Answer 9

− Obtaining funding from traditional lenders (e.g., banks,
independent investors, and government loans)

Question 10

Financing: Venture capital companies

Answer 10

• Groups of small investors seeking to make profits on
  companies with rapid growth potential
• Most of these firms do not lend money: They invest it,
  supplying capital in return for stock

Question 11

Financing: Crowdfunding

Answer 11

Post ideas online where would-be investors can view and
support

Question 12

Financing: Networking

Answer 12

Women and minorities especially benefit from this

Question 13

Financing: Small-Business Investment Companies (SBICs)

Answer 13

− Investor-owned companies that borrow money from the
Small Business Administration (SBA) which provides loans
to small businesses with potential for rapid growth
− Minority enterprise small-business investment companies
(MESBICs) specialize in financing businesses that owned
and operated by minorities

Question 14

Financing: SBA Financial Programs

Answer 14

− Provide assistance (e.g., SBA-guaranteed loans) for small
businesses unable to get private financing at reasonable
terms

Question 15

Reasons for Failure:

Answer 15

• Managerial incompetence/inexperience of the entrepreneur
• Neglect in not devoting sufficient time and effort to the business
• Weak control systems that do not warn of impending problems
• Insufficient capital to sustain the business until it starts to turn a
  profit

Question 16

Reasons for Success:

Answer 16

• Hard work, drive, and dedication by the entrepreneur
• Careful analysis of market conditions that provides
  insights about business conditions
• Acquisition of managerial competence through training or
  experience or by using the expertise of others