Chapter 5 (Entrepreneurship)

Question 1

Industries that attract small business

Answer 1

1. Attractive small-business industry characteristics
   - Low initial capital investment
   -Some special skill requirements
   -High growth and profit potential
2. Industries that attract small businesses
   -Distribution—retailing, wholesaling, transportation, and communications
   -Service—medical and dental care; watch, shoe, and TV repairs; haircutting and styling; restaurant meals; dry cleaning; financial services small businesses)
   -Production—construction, mining, and manufacturing

Question 2

why small businesses fail

Answer 2

1. Lack of capital and cash-flow problems
2. Lack of management skills
3. Over-expansion

Question 3

Advantages of small business

Answer 3

1. Personal relationships with customers and employees
2. Ability to adapt to change
3. Simplified record-keeping
   Independence
   Advantages of sole proprietorships
   -Keeping all profits
   -Ease and low cost of going into business
   -Keeping business information secret

Question 4

Disadvantages of small business

Answer 4

1. Risk of failure
2. Limited potential
3. Limited ability to raise capital

Question 5

Developing a business plan

Answer 5

Business plan—A carefully constructed guide for the person starting a business
Three basic purposes
-Communication
-Management
-Planning
Banking officials’ and investors’ questions
-What is the nature and mission of the -new venture?
-Why is it a good idea?
-What are the goals?
-How much will it cost?

Question 6

Types of franchises

Answer 6

1. A manufacturer authorizes retailers to sell a certain brand-name item
2. A producer licenses distributors to sell a product to retailers
3. A franchisor supplies brand names, techniques, or services instead of a complete product
   4.